Solicitor Practice Exam A - Questions and Answers
Business Law
1. Celeste is assisting a client in incorporating a professional corporation for a group of dentists under the OBCA. She is aware that incorporation of professional corporations is subject to additional rules beyond the OBCA. Before proceeding, Celeste contacts the relevant regulatory body to ensure the proposed structure will meet licensing requirements. She learns that approval is required before filing the articles of incorporation. The client is eager to file immediately but Celeste cautions against doing so.
What step must Celeste take before filing the articles of incorporation for the dentists’ professional corporation?
A) She must secure approval from the regulatory body before submitting the incorporation documents.
B) She may file the articles first and obtain regulatory approval afterward.
C) She can proceed without approval if the corporation will not operate immediately.
D) She should prioritize ordering the NUANS report before contacting the regulator.
Correct Answer: A
Explanation: Certain types of corporations, including professional corporations for regulated professions, require prior approval from the relevant governing body before articles of incorporation can be filed. This ensures that licensing and practice requirements are satisfied and helps avoid delays or rejections post-filing. Filing without approval may render the application invalid.
2. Michael, a corporate lawyer, was retained by a client to advise on complex international tax structuring for a business expansion. Michael had no prior experience with international taxation but attempted to handle the matter without consulting a specialist. Several months later, the client faced significant penalties due to errors in the tax plan.
What is the issue with Michael’s handling of the client’s international tax matter?
A) He breached his duty by giving equal advice to both shareholders and directors without consent.
B) He failed to exercise diligence by delaying his replies to the client.
C) He acted outside his competence by proceeding without consulting an expert or declining the file.
D) He was required to follow the client’s instructions even without relevant experience.
Correct Answer: C
Explanation: Under Rule 3.1-1, a lawyer must not undertake work they are not competent to perform without undue delay, risk, or expense to the client. Michael should have declined or consulted a lawyer with international tax expertise.
3. Leo is a shareholder of a closely held corporation and recently separated from his spouse. His spouse files a claim under the Family Law Act (FLA) seeking a transfer of shares to satisfy equalization obligations. The shareholder agreement includes a clause requiring shareholders to sell their shares if they are involved in any FLA proceeding that may affect share ownership. Leo wants to retain his shares but has not disclosed the FLA claim to the other shareholders.
What consequence may arise from Leo’s failure to disclose the FLA claim under the terms of the shareholder agreement?
A) The clause is invalid because it penalizes Leo for circumstances arising from his personal relationship.
B) The other shareholders may enforce the clause and require Leo to sell his shares.
C) The Family Law Act takes precedence over private agreements regarding corporate share ownership.
D) Shareholder agreements have no effect on claims brought under equalization rules in family law.
Correct Answer: B
Explanation: Shareholder agreements often include clauses that require a shareholder involved in an FLA proceeding to sell their shares to prevent outside interference in the corporation. These clauses are enforceable, provided they are clearly drafted and applied in a non-arbitrary manner. Failure to disclose an FLA proceeding may trigger the forced sale provisions.
4. Adriana transfers machinery with a fair market value (FMV) of $100,000 and an adjusted cost base (ACB) of $70,000 to her new CCPC in exchange for common shares. She and the corporation jointly elect under s. 85 of the ITA to set the elected amount at $70,000. No boot or other consideration is received. Two years later, she sells the shares for $150,000. Adriana now wonders when the deferred gain from the machinery will be realized.
When will Adriana’s deferred gain from the machinery transfer become taxable under the s. 85 rollover?
A) It is included in income immediately upon the machinery’s contribution to the corporation.
B) It becomes taxable only upon disposition of the shares received in the rollover.
C) It is never taxed because s. 85 exempts capital gains on eligible property.
D) It is deferred indefinitely unless the machinery is sold by the corporation.
Correct Answer: B
Explanation: A valid s. 85 rollover allows a taxpayer to defer recognition of gain by electing an amount equal to or above the ACB and below FMV. The deferred gain is not eliminated but carried over into the cost of the shares received. When Adriana sells her shares, the deferred gain is crystallized and becomes taxable at that time.
5. Mei, a financial advisor, receives a request from CRA under s. 231.2 of the ITA for client information related to certain offshore transactions. The request does not identify any specific clients but asks for general data on those with foreign investment accounts. Mei believes the request is improper, as it targets unnamed persons. CRA insists the request is valid under its audit authority.
How should CRA proceed when requesting information that relates to unnamed persons under s. 231.2 of the ITA?
A) CRA has the authority to demand such information without court oversight.
B) CRA must obtain the individual consent of all taxpayers affected.
C) CRA is required to seek judicial authorization before making the request.
D) CRA may request this information only as part of a criminal prosecution.
Correct Answer: C
Explanation: Section 231.2(2) of the ITA requires CRA to obtain prior judicial authorization before issuing a demand for information relating to unnamed persons. This protects privacy and ensures oversight in broad-based information requests. Without court approval, such a demand is invalid.
6. Jason is updating a shareholder agreement and stores the working version on a USB drive he carries between home and office. He does not use encryption or password protection. One day, the USB is lost during his commute. The agreement contains sensitive business data and personal identifiers.
What duty of technological competence did Jason breach, if any?
A) He breached his duty by failing to encrypt or password-protect the stored information.
B) He acted properly because the agreement had not yet been finalized.
C) He satisfied his obligations by physically keeping the USB in his possession until it was lost.
D) He complied with the Rules so long as the client had consented to using portable storage.
Correct Answer: A
Explanation: Lawyers using portable digital storage must implement basic security protocols such as encryption or password protection. Failure to secure client files risks not only confidentiality breaches but regulatory consequences under PIPEDA and professional conduct rules.
7. Paul, a business lawyer, was representing a corporate client in a complicated commercial acquisition. During negotiations, opposing counsel made an error in the draft agreement that materially benefited Paul’s client. Paul was aware of the mistake but decided not to correct it, believing it was not his role to assist the other side. After closing, the mistake was discovered, leading to a dispute.
What professionalism principle did Paul most likely violate?
A) Paul was entitled to exploit the mistake because his duty of loyalty to his client outweighed any other concern.
B) Paul acted properly because he was not responsible for the other lawyer's error.
C) Paul breached his duty to act in good faith and with integrity when dealing with other lawyers.
D) Paul had no obligation because there was no fiduciary duty to opposing counsel.
Correct Answer: C
Explanation: Under Rules 5.1-5 and 7.2-1, lawyers must act in good faith and with integrity, even towards opposing parties. Knowingly exploiting an error undermines professionalism and public confidence in the legal system.
8. Harold and Linda form a limited partnership in Ontario to invest in an urban condominium development. Linda is listed as the general partner and manages the business, while Harold is named as a limited partner and contributes $250,000 in capital. When the partnership defaults on payments to a contractor, the contractor sues both Harold and Linda for the full amount. Harold argues he should not be personally liable because he did not participate in management and only provided funding. The contractor claims that all partners in a business are equally liable unless incorporated. Linda acknowledges Harold’s limited role but refuses to indemnify him. Harold seeks legal advice on his exposure.
Which of the following best describes Harold’s liability?
A) Harold is fully liable as a partner regardless of his role.
B) Harold is a limited partner and liable only up to his at-risk contribution.
C) Harold is a passive investor and not liable for any business debts.
D) Harold is protected from liability unless the partnership agreement states otherwise.
Correct Answer: B
Explanation: In a limited partnership, limited partners are generally not personally liable for partnership debts beyond the capital they have contributed, provided they do not take part in management. Harold’s role was limited to funding, and he did not contravene the management restrictions under the Limited Partnerships Act. His liability is therefore capped at his “at-risk amount” under s. 96(2.2) of the ITA.
9. Nate owns 6% of the voting shares of a CBCA corporation and wishes to submit a shareholder proposal for inclusion in the corporation’s next annual meeting. The proposal relates to a proposed amendment to the articles. Nate submits the proposal 45 days before the anniversary of the previous annual meeting. The board refuses to include the proposal, claiming it is too late and not sufficiently detailed.
What deadline must Nate meet for his shareholder proposal to be valid under the CBCA?
A) He must submit the proposal at least 60 days before the anniversary of the last annual meeting.
B) He may submit the proposal as long as it has the support of at least 10% of shareholders.
C) He can file the proposal up to 30 days before the meeting date.
D) He may require the corporation to implement the proposal if it passes by majority vote.
Correct Answer: A
Explanation: Under s. 137 of the CBCA and s. 99 of the OBCA, a shareholder entitled to vote may submit a proposal for consideration at an annual meeting, but it must be submitted at least 60 days before the anniversary date of the previous year’s meeting. If this deadline is missed, the corporation is entitled to reject the proposal.
10. Samantha, a corporate lawyer, was approached at a networking event by a small business owner seeking quick advice about restructuring her company. Samantha provided detailed guidance, suggesting specific steps the owner should take. No formal retainer was discussed, and no engagement letter was sent. Months later, the business owner sued Samantha, alleging negligent advice.
What professional responsibility issue did Samantha most likely trigger?
A) No lawyer-client relationship formed because it was a casual conversation.
B) A lawyer-client relationship likely formed because legal advice was given, triggering duties of competence and care.
C) Samantha had no obligations because she did not sign a retainer agreement.
D) No profession duties arose as the business owner is barred from claiming reliance without a written contract.
Correct Answer: B
Explanation: A lawyer-client relationship can arise informally if legal advice is provided, even without a formal retainer. Samantha owed duties of competence and care once she gave advice based on her legal expertise.
11. Rina, a junior member of a consulting partnership, receives a guaranteed salary and a small share of firm profits. She has no voting rights and is excluded from strategic decisions. For tax purposes, the firm classifies her as a partner. Rina is audited and disputes this classification, claiming she is effectively an employee. The CRA reviews the firm’s structure and compensation policies.
Which of the following factors is most relevant in determining Rina’s status?
A) Whether she shares in profits and bears risk of loss.
B) Whether she has access to the firm’s financial records.
C) Whether she refers to herself as a “partner” on her business cards.
D) Whether she was introduced by a vote of the senior partners.
Correct Answer: A
Explanation: For tax purposes, the key factor in distinguishing a partner from an employee is whether the individual shares in profits and losses. Receiving a flat salary alone is more indicative of employment. However, even a small share of profits and an absence of risk of loss may support a partnership classification if the legal structure reflects that intention.
12. Margot is the director of a corporation preparing to issue shares in exchange for services rendered. The services were performed months ago and are valued at $25,000. Margot wonders whether the shares can be issued immediately or whether further valuation is required. She also wants to know how the consideration will be recorded in the stated capital account.
What must the corporation do before issuing shares to compensate for the past services Margot described?
A) A formal court valuation is required to establish the dollar value of the services provided.
B) The board must confirm that the services are worth at least what would be received in cash.
C) The recipient of the shares must provide a sworn affidavit attesting to the fair market value.
D) The services must first be documented as a debt obligation and settled through promissory notes.
Correct Answer: B
Explanation: Under s. 23(4) of the OBCA, directors must determine that the fair value of non-monetary consideration for shares, such as past services, is not less than the amount the corporation would have received in cash. This determination must be documented, and the equivalent value is recorded in the stated capital account.
13. An OBCA corporation controlled by Ethan is facing financial distress and plans to sell all of its property to a related corporation. Rather than going through a formal asset sale, Ethan’s lawyer suggests using an arrangement under s. 182. This would streamline the process but requires court involvement. Ethan is unsure whether shareholders and the court must approve the arrangement.
What approval is required for Ethan’s proposed asset transfer using an arrangement under s. 182 of the OBCA?
A) The court may approve the arrangement without requiring a shareholder vote.
B) The arrangement process is not permitted for transactions involving the sale of all assets.
C) The court and shareholders must both approve the arrangement by special resolution.
D) The arrangement procedure applies only when a corporation is undergoing insolvency under the BIA.
Correct Answer: C
Explanation: OBCA s. 182 requires both shareholder approval by special resolution and court approval for an arrangement. This includes transactions such as transferring all of a corporation's assets, reorganizations, and other significant changes not otherwise addressed through ordinary corporate procedures.
14. Daniel, a business lawyer, drafted a shareholder agreement for a startup company without properly explaining the risks and benefits of different classes of shares to his client. The client later discovered the agreement disadvantaged him financially when raising new capital. Daniel argued that the client never asked specific questions.
What professional obligation did Daniel breach in advising the startup client?
A) He breached confidentiality by failing to safeguard private corporate discussions.
B) He failed to give sufficient advice for the client to make an informed choice.
C) He allowed his personal views to influence the legal advice he provided.
D) He relied on instructions conveyed informally instead of through the corporate secretary.
Correct Answer: B
Explanation: Competent representation includes ensuring that clients receive advice sufficient to allow them to make fully informed decisions. Failing to explain critical financial risks constitutes a breach of the duty of competence and quality of service.
15. Emma, a business lawyer, was assisting a corporate client in a share sale transaction. During a lunch meeting with friends, Emma casually mentioned that her client’s company was in negotiations with a major international buyer. Although she did not name her client directly, someone at the lunch later deduced the company’s identity.
What professional duty did Emma violate by disclosing deal details during lunch?
A) She had a duty to notify the Law Society of major transactional events.
B) She breached her obligation to keep client matters confidential, even in informal settings.
C) She was required to warn the client about possible insider trading risks.
D) She failed to ensure that the company’s records were updated with the securities regulator.
Correct Answer: B
Explanation: Under Rule 3.3-1, the duty of confidentiality extends to all client information, whether or not it seems identifiable, and even casual conversations among friends can breach this duty if confidential matters are disclosed.
16. Omar’s public company is preparing a short form prospectus to raise additional capital. His legal team advises that the company qualifies due to its current reporting status and TSX listing. Omar asks whether the short form prospectus must include all of the same disclosure as the IPO prospectus. The team responds that certain efficiencies are available.
How does the short form prospectus regime benefit Omar’s company during the capital raise?
A) It shortens the document by incorporating prior disclosure filings by reference.
B) It applies only to issuers making an initial public offering for the first time.
C) It removes the issuer’s liability for any misstatements made in prior documents.
D) It requires the company to prepare new audited financials before each filing.
Correct Answer: A
Explanation: Under NI 44-101, eligible reporting issuers may use a short form prospectus that incorporates by reference previously filed continuous disclosure documents. This shortens the document significantly and allows for quicker completion of capital raises, while still subjecting the issuer to full statutory liability for misrepresentation.
17. Naomi is a shareholder in a private OBCA corporation and is asked to subordinate her shareholder loan to a third-party secured lender. The lender wants to ensure that Naomi does not receive any payments on her loan until the secured debt is repaid in full. Naomi agrees but requests that she still be permitted to receive payments if the borrower is not in default. The parties enter into an intercreditor agreement to reflect these terms.
What is the legal effect of the subordination agreement Naomi signed with the third-party lender?
A) It is limited to large issuers and applies only to regulated bondholder arrangements.
B) It extinguishes the junior creditor’s rights to repayment under the original loan terms.
C) It transforms Naomi’s debt into equity and removes her status as a creditor.
D) It governs creditor priority and may restrict junior payments even without a default.
Correct Answer: D
Explanation: A subordination agreement sets out the relative rights of creditors, including timing and conditions of payment. It may permit payments to junior creditors while the borrower is performing but restrict or prohibit payments in the event of default. Such agreements are enforceable between parties and recognized in insolvency proceedings.
18. Nathan, a business lawyer, was asked to incorporate a company for two entrepreneurs who had verbally agreed to split ownership equally. During the process, one entrepreneur disclosed to Nathan confidential concerns about future disputes but asked him to proceed quickly without informing the other party. Nathan continued acting for both clients without addressing the issue or recommending independent legal advice.
What conflict rule did Nathan most likely breach by proceeding with incorporation for both clients?
A) He failed to withdraw when loyalty was impaired by conflicting interests between joint clients.
B) He was required to advocate more strongly for the client with greater experience and involvement.
C) He should have prioritized the first client’s concerns and followed their instructions exclusively.
D) He had to remain completely passive and avoid giving direction to either party in the file.
Correct Answer: A
Explanation: Under Rule 3.4-5, if a conflict develops between joint clients that cannot be resolved, the lawyer must cease acting. Continuing without proper disclosure and without recommending independent legal advice breaches the lawyer’s duty of loyalty.
19. Justin is conducting a bankruptcy search against a vendor to ensure the assets being purchased are not subject to insolvency proceedings. He runs both FRANK and Sustain searches through the Ontario Superior Court of Justice and finds no filings. However, his supervising partner insists on conducting a Superintendent of Bankruptcy search as well. Justin believes this is redundant and unnecessary duplication.
Which of the following best explains the need for both searches?
A) The FRANK and Sustain systems disclose all insolvency proceedings nationally.
B) The Superintendent of Bankruptcy search reveals filings that may not appear in court databases.
C) The Superintendent search is only necessary for bankruptcies filed before 2000.
D) Court receiverships are only disclosed through the Superintendent’s database.
Correct Answer: B
Explanation: While FRANK and Sustain searches reveal formal insolvency proceedings filed with the Ontario courts, certain filings such as proposals, private receiverships, and administrative actions may only appear in the Superintendent of Bankruptcy’s database. Conducting both searches provides more comprehensive coverage and minimizes risk.
20. Rachel is a trustee-in-bankruptcy managing an estate that includes environmentally contaminated property. She receives a remediation order from the province under environmental legislation. Rachel considers abandoning the property but wants to avoid personal liability. She asks whether the BIA provides her with protection and what steps she must take to benefit from that protection.
What must Rachel do to avoid personal liability under the BIA after receiving the remediation order?
A) She becomes personally liable for cleanup costs once the order is issued by the province.
B) She must comply with or abandon the property within 10 days to avoid liability.
C) All environmental liabilities must be shared proportionally with the estate’s creditors.
D) She may disregard the order entirely if the property has no
realizable value to the estate.
Correct Answer: B
Explanation: Under section 14.06(4) of the BIA, a trustee who receives an environmental remediation order must either comply with the order or abandon the property within 10 days of receiving the order (or from the date of appointment if the order already existed). If the trustee acts within the timeline, they are protected from personal liability for remediation costs.
21. Liam, a corporate lawyer, was advising a small business client on potential strategies for defending a commercial claim. Although Liam privately believed that the client’s case was weak and likely to fail, he reassured the client that victory was likely in order to retain the client’s business. He provided no written qualifications to his optimistic advice.
What professionalism rule did Liam violate by overstating the client’s chances of success?
A) He was required to maintain aggressive advocacy regardless of the case’s weakness.
B) He failed to give candid and realistic legal advice based on a proper assessment.
C) He breached privilege by discussing client matters with third parties.
D) He was obligated to resolve all outstanding fees before continuing the file.
Correct Answer: B
Explanation: Under Rule 3.2-2, a lawyer must be honest and candid with a client, informing the client of any material risks and probabilities. Providing overconfident or misleading assurances to retain a client breaches the fiduciary duty of candour.
22. A firm offers a package for small business incorporation and refers clients to a tax lawyer outside the firm for post-incorporation planning. The firm accepts a $300 referral fee per client but does not tell clients about the payment. One client later complains after realizing the tax lawyer’s quote was above market.
What is the firm’s ethical breach?
A) Charging a standard flat fee for incorporation services offered as a package.
B) Referring a client to another lawyer without confirming their professional qualifications.
C) Accepting a referral fee without disclosing and documenting it in writing.
D) Including the referral fee in the final invoice without breaking it out.
Correct Answer: C
Explanation: Lawyers may accept referral fees only if the fee is disclosed in writing, the client consents, and the arrangement does not increase the cost to the client. Hidden referral fees violate both fiduciary duties and transparency obligations under Rule 3.6-6.1.
23. Derek is a creditor who perfects a security interest in a debtor’s vehicle by possession. Another lender registers a financing statement covering all equipment, including vehicles, after Derek takes possession. Upon default, both parties attempt to enforce their rights. Derek claims priority based on possession.
What determines the priority between Derek and the other secured party under the PPSA?
A) A registered interest always overrides any interest perfected by possession.
B) Derek’s claim is invalid unless he registers it under the PPSA system.
C) Possession perfects a security interest, and priority depends on who perfected first.
D) A lien on a vehicle must be registered with the MTO to be enforceable.
Correct Answer: C
Explanation: Under the PPSA, security interests may be perfected either by registration or possession. Where one interest is perfected by registration and another by possession, priority is determined by the earlier perfection date, not the method. Derek’s possession, if earlier, grants priority.
24. Chen was placed on unpaid administrative suspension pending an internal investigation into alleged harassment. He was given no timeline for resolution and received no update for six weeks. During this period, he received no pay or benefits. Chen claims he was constructively dismissed by being suspended without justification.
What is the legal consequence of Chen’s unpaid suspension with no set timeline or communication?
A) Employers can place employees on unpaid leave at any time without notice or justification.
B) Unpaid suspension without contractual authority or valid reason may be constructive dismissal.
C) All suspensions must continue wages and benefits for the full duration of leave.
D) Constructive dismissal arises only if the unpaid suspension exceeds three consecutive months.
Correct Answer: B
Explanation: At common law, an unpaid suspension is not permitted unless expressly authorized by the employment contract or justified by legitimate business reasons. Without cause or due process, the suspension may amount to constructive dismissal.
25. Angela sells commercial refrigerators to retailers and secures payment by retaining title until paid in full. She includes the title retention clause in the back of the invoice, which the buyer never signs. Angela later seeks to enforce her security interest after default but realizes she never registered under the PPSA. The buyer claims Angela has no enforceable security interest.
What is the legal effect of Angela’s failure to register her title retention clause under the PPSA?
A) A valid PPSA interest requires a signed agreement, and unsigned invoices do not meet that test.
B) Retention of title clauses are enforceable without registration or written documentation under commercial law.
C) Suppliers of goods automatically take priority over other secured creditors in unpaid transactions.
D) The buyer’s obligation to pay creates a lien enforceable without formal documentation or registration.
Correct Answer: A
Explanation: Under the PPSA, a written security agreement signed by the debtor is required to create an enforceable security interest. A clause printed on an invoice is insufficient, especially if unsigned. Without registration or a proper agreement, Angela’s interest is unperfected and unenforceable against third parties.
26. Emily is approached by a prospective client seeking urgent advice about transferring assets before a possible bankruptcy. Emily determines that she will not take the matter due to ethical concerns. She never opens a file or sends a non-engagement letter. Months later, the same client claims Emily gave informal advice and created confusion.
What should Emily have done?
A) Returned the client’s phone call within 24 hours.
B) Sent a non-engagement letter confirming no retainer was accepted.
C) Registered a caution under the Bankruptcy and Insolvency Act.
D) Provided the client with a copy of the Rules of Professional Conduct.
Correct Answer: B
Explanation: If a lawyer declines to act after an initial consultation, a non-engagement letter should be sent to confirm no lawyer-client relationship has been formed. This protects against future misunderstandings and ensures the client has clarity to seek alternate representation.
27. A journalist investigates a political fundraising organization and files a complaint alleging misuse of donor information. The organization claims it is not subject to PIPEDA because it collects information for journalistic purposes. The Commissioner evaluates whether the activity qualifies as exempt under s. 4(2) of the Act. The journalist maintains that political activity is inherently public and subject to oversight.
How does PIPEDA apply to the organization’s collection of personal information in this investigation?
A) PIPEDA does not apply if the information is collected solely for journalistic purposes.
B) Political fundraising is always treated as commercial activity under federal privacy law.
C) An organization must be registered as a media entity to rely on any journalistic exemption.
D) The exemption only applies if the organization holds a recognized publishing or broadcast licence.
Correct Answer: A
Explanation: Section 4(2)(c) of PIPEDA exempts organizations that collect, use, or disclose personal information solely for journalistic, artistic, or literary purposes. This exemption is designed to protect freedom of expression and investigative journalism. It is interpreted narrowly and only applies when the activity is the organization’s sole purpose.
28. Leo, a business lawyer, was retained to assist a small company with its commercial lease negotiations. After repeated requests for payment, the client failed to pay outstanding invoices. Leo wanted to withdraw from representing the client but was concerned about timing because the landlord had already served a notice to terminate the lease.
What must Leo take into account before withdrawing due to the client’s failure to pay fees?
A) He may withdraw immediately and without notice if any portion of the account remains unpaid.
B) He must give notice and ensure the client won’t suffer serious legal harm from the withdrawal.
C) He can stop acting only if the court issues an order allowing him to withdraw from the matter.
D) He must remain counsel indefinitely unless the client agrees to termination in writing.
Correct Answer: B
Explanation: Under Rule 3.7-1 and 3.7-3, a lawyer may withdraw for non-payment of fees only after giving reasonable notice and only if withdrawal will not cause serious prejudice to the client’s legal position.
29. Leo is a sole proprietor operating a plumbing business from his home on a reserve. To reduce his tax liability, he ensures that all administrative and operational functions of his business are conducted on-reserve. He delivers services both on and off-reserve and keeps all records, inventory, and equipment on-reserve. CRA audits him and challenges the tax exemption on the basis that some customers are located off-reserve.
How should Leo’s claim for tax exemption on business income be assessed under s. 87 of the Indian Act?
A) The exemption applies only if every client and contract is located on-reserve without exception.
B) A business must be registered with the local band office to qualify for the tax exemption.
C) Income may be exempt if there are enough connecting factors linking the business to the reserve.
D) Service-based businesses are excluded entirely from claiming tax exemptions under s. 87.
Correct Answer: C
Explanation: Sole proprietorship income may be exempt under s. 87 if connecting factors, such as the business location, record keeping, contracts, and customer base, sufficiently link the income to a reserve. The off-reserve location of some customers does not by itself eliminate the exemption.
30. Elias is counsel to a debtor company whose BIA proposal has been approved by creditors but is facing resistance at the court approval stage. One dissenting creditor argues that the proposal unfairly discriminates by providing larger recoveries to insider creditors, including a related company. The debtor argues that the insider creditors agreed to subordinate their recovery, and the rest of the creditors voted overwhelmingly in favour. The trustee is satisfied with the fairness of the proposal and recommends approval.
What standard will the court apply in deciding whether to approve the debtor’s proposal under the BIA?
A) The court must find the proposal fair and reasonable, without undue harm to dissenting creditors.
B) The proposal is valid only if it provides exactly equal treatment to all unsecured creditors.
C) Court approval is automatic once a majority of creditors vote in favour of the plan.
D) Insider creditors must opt out of voting entirely to ensure procedural fairness is upheld.
Correct Answer: A
Explanation: Under s. 59(2) of the BIA, the court must assess whether the proposal is fair and reasonable. This includes examining whether there is unjust discrimination, especially favouring insiders. A majority vote is necessary but not sufficient if the plan is otherwise unfair.
31. Sylvia, a business lawyer, learned that a junior lawyer at her firm had been quietly misusing funds from a client’s trust account to cover personal expenses. Although Sylvia was not involved, she worried about the impact on the firm's reputation. After internal discussions, Sylvia considered whether she had an obligation to report the junior lawyer’s conduct to the Law Society.
What is Sylvia’s professional obligation after learning about the junior lawyer’s misuse of trust funds?
A) She must report the conduct if the client specifically asks her to take action.
B) She must report the misconduct to the Law Society, unless prevented by privilege.
C) She should delay reporting until the police complete their investigation into the matter.
D) She has no obligation to report since she was not directly involved in the misconduct.
Correct Answer: B
Explanation: Under Rule 7.1-3, lawyers must report serious misconduct of other licensees, including misuse of trust funds, unless prohibited by solicitor-client privilege. Failure to report is itself a breach of professional obligations.
32. Daniel, a business lawyer, submitted an affidavit in support of a client’s application for a business license revocation review. The affidavit contained statements Daniel knew were only partially accurate but that helped his client's case. Daniel believed exaggerating the facts was justified to balance the unfairness he perceived in the system.
What professional error did Daniel commit?
A) Duty to exaggerate client claims if it serves the client's interest.
B) Duty not to submit or rely on misleading or false evidence.
C) Duty to prioritize regulatory law over ethics.
D) Duty to advise clients that tribunal proceedings are informal.
Correct Answer: B
Explanation: Lawyers must not knowingly present false or misleading evidence to any tribunal, as per Rule 5.1-2. Honesty in evidence and submissions is critical to the integrity of the judicial process.
33. Victor advertised his firm’s services using a flashy slogan that implied he was the "Top Business Lawyer in Toronto" based on an online poll run by a small website with no vetting process. A client complained that Victor's marketing was misleading.
What professional responsibility rule did Victor breach by using the unverified marketing slogan?
A) Lawyers may advertise aggressively to remain visible in a competitive legal market.
B) Lawyers must ensure all marketing is accurate, verifiable, and not misleading to the public.
C) Lawyers may advertise only through platforms approved by the Law Society or a governing agency.
D) Lawyers must submit all advertising content to the Law Society before publishing it publicly.
Correct Answer: B
Explanation: Under Rule 4.2-1, marketing must be demonstrably true, accurate, verifiable, and not misleading. Unverifiable claims of superiority based on questionable rankings breach this obligation.
34. Nikhil’s client is acquiring a private IT consulting business via share purchase. The vendor insists on including an earn-out provision that increases the price if EBITDA exceeds targets over the next two years. Nikhil is concerned about the tax implications to the vendor, especially if CRA treats the future payments as income rather than capital. The vendor wishes to claim capital treatment, if possible.
What strategy would best reduce the risk of CRA treating the earn-out as income under s. 12(1)(g) of the ITA?
A) Use a promissory note structure with a fixed maturity date tied to future EBITDA.
B) Allocate the contingent consideration to the goodwill portion of the business assets.
C) Ensure the earn-out meets IT426R criteria, including arm’s length terms and valuation uncertainty.
D) Recharacterize the earn-out as a consulting fee paid to the vendor over time.
Correct Answer: C
Explanation: CRA Interpretation Bulletin IT426R provides conditions under which an earn-out may be reported using the cost recovery method and treated as capital gain, rather than income. The key is arm’s length dealing, valuation uncertainty related to goodwill, and a reasonable time limit (5 years).
35. Ben, a business lawyer, regularly accepted retainers from clients and deposited them directly into his firm's general account rather than into a trust account. He reasoned that the funds would eventually become firm property once services were rendered.
What accounting obligation did Ben violate by depositing unbilled retainers into the general account?
A) He was required to place the funds into the firm’s payroll account for tracking purposes.
B) He failed to deposit client funds for unbilled work into a separate trust account.
C) He should have held the client money in a personal account until an invoice was prepared.
D) He was not permitted to accept payment from any client before billing for legal services.
Correct Answer: B
Explanation: Under By-Law 9, client funds for services not yet billed must be deposited into a trust account. Depositing such funds directly into the general account without first rendering a bill constitutes a serious breach of trust accounting obligations.
36. Diane plans to start a charitable organization focused on promoting clean water initiatives in Ontario. After speaking with legal counsel, she decides to incorporate under Ontario’s Not-for-Profit Corporations Act (ONCA). Diane learns that incorporation alone does not grant tax-exempt status unless she also registers as a charity with the Canada Revenue Agency (CRA). She plans to solicit donations and apply for grants, and wants to ensure her organization can issue tax receipts. However, she’s told that a registered charity must meet additional federal requirements not applicable to non-profits. Diane is confused about the difference between being a non-profit corporation and a registered charity. She wants to ensure she meets all compliance requirements before proceeding.
What is the main distinction between a non-profit organization and a registered charity?
A) Only registered charities must file public financial disclosures annually.
B) Non-profits are exempt from all tax filings under the Income Tax Act.
C) Registered charities must have exclusively charitable purposes and register under the ITA.
D) There is no legal distinction; both are treated identically under ONCA and the ITA.
Correct Answer: C
Explanation: A registered charity must meet the definition under s. 248(1) of the Income Tax Act, including having exclusively charitable purposes and registering with the CRA. In contrast, a non-profit organization may operate for social or recreational purposes and is not automatically entitled to issue charitable receipts. The two structures have different reporting obligations and tax treatments.
37. Oliver, a business lawyer, was invited to give a presentation at a community entrepreneurship forum. During his speech, he offered informal legal opinions to participants without confirming retainer terms or conflict checks. Months later, a dispute arose where multiple attendees claimed reliance on his advice.
What professionalism risk did Oliver create by offering informal legal opinions during the public event?
A) No professional risk exists when a lawyer speaks at a public educational forum.
B) His conduct was protected as part of voluntary pro bono community outreach.
C) He may have unintentionally created solicitor-client relationships and associated legal duties.
D) He had no responsibilities because the event was not billed or associated with his firm.
Correct Answer: C
Explanation: Under the Rules, even informal legal opinions may inadvertently create solicitor-client relationships. Lawyers must exercise caution when giving advice in public forums to avoid creating unintended duties and risks.
38. Vincent, a limited partner in a real estate limited partnership, sells his partnership interest to a third party. The new party does not file to be recorded as a substituted limited partner. Months later, the partnership is dissolved, and creditors seek information about the new partner. The general partners assert that the new party is merely an assignee and not a full partner.
What is the legal effect of failing to record the assignee as a substituted limited partner?
A) The assignee cannot access partnership records or receive confidential information.
B) The assignee is deemed a limited partner automatically after a 30-day grace period.
C) The assignee becomes liable for partnership debts despite not being listed as a partner.
D) The failure to update records triggers automatic dissolution of the partnership by statute.
Correct Answer: A
Explanation: Under s. 18(3) of the Limited Partnerships Act, an assignee who is not recorded as a substituted limited partner has no rights other than receiving distributions. Without the necessary filing and consent, the assignee cannot access records or participate in decision-making. This safeguards partnership privacy and limits unintended obligations.
39. Eric’s CCPC earned $120,000 in passive investment income in 2023. Although his active business income was below the $500,000 SBD threshold, he was informed that his SBD was significantly reduced. He is surprised, as he thought the SBD was based solely on active business earnings. His accountant explains that investment income triggers a reduction in the SBD, even when ABI remains low. Eric wants to understand the rule that caused this clawback.
How does Eric’s passive investment income affect his corporation’s small business deduction (SBD)?
A) The SBD is reduced by $5 for every $1 of investment income above $50,000.
B) The SBD is eliminated entirely if the corporation earns any investment income.
C) The SBD clawback applies only when active business income exceeds $500,000.
D) Investment income is not relevant in calculating or reducing the SBD.
Correct Answer: A
Explanation: Under s. 125(5.1)(b) of the ITA, a CCPC’s SBD is reduced by $5 for every $1 of adjusted aggregate investment income above $50,000. Once investment income reaches $150,000, the SBD is eliminated. This rule curtails the use of CCPCs as tax shelters for investment income while still accessing the small business tax rate.
40. Jared, a corporate controller, is preparing a tax return involving a notifiable transaction listed by CRA as subject to mandatory disclosure. He decides not to report it because he believes the transaction is compliant and does not involve tax avoidance. CRA later imposes penalties for non-disclosure, arguing that Jared had an obligation regardless of his personal belief. Jared questions whether disclosure is required even if he thinks the transaction is proper.
What is the disclosure obligation for notifiable transactions under the Income Tax Act?
A) They must be reported even if the taxpayer believes the transaction complies with the law.
B) Disclosure is not required unless the transaction results in measurable tax savings for the taxpayer.
C) Only the advisor has a reporting obligation, unless the taxpayer also promotes or structures the transaction.
D) Penalties are imposed only where CRA can establish an intent to mislead or conceal tax avoidance activity.
Correct Answer: A
Explanation: Under s. 237.4 of the ITA, notifiable transactions must be disclosed to CRA regardless of whether the taxpayer believes the transaction is legally compliant. The disclosure requirement exists to allow CRA to evaluate potential avoidance proactively. Failure to disclose may result in significant penalties even if the transaction is ultimately found to be valid.
41. Daniel was retained by a client to incorporate a holding company and set up a new family trust for tax planning purposes. A family friend who attended the initial meetings assumed Daniel was also providing him with legal advice about his own future business plans. Daniel never clarified the limits of his retainer or sent a non-engagement letter. Later, the friend alleged that Daniel failed to protect his interests.
What could Daniel have done to avoid confusion about whether he was acting for the family friend?
A) Immediately charge the family friend a consultation fee to clarify the professional boundary.
B) Request that the family friend sign a conflict waiver before continuing to participate.
C) Send a non-engagement letter clearly stating he was not providing legal advice to the friend.
D) Allow the family friend to attend all client meetings to ensure transparency and fairness.
Correct Answer: C
Explanation: To avoid inadvertent creation of lawyer-client relationships, especially when third parties are involved, a lawyer should send a non-engagement letter confirming that no legal services are being provided to the third party.
42. Hannah is organizing corporate records for a newly incorporated OBCA company. She knows that the corporation must keep specific documents at its registered office, including the articles and by-laws. She is unsure whether ownership information about real estate must also be maintained. Her colleague refers her to the Forfeited Corporate Property Act and recent amendments to the OBCA. Hannah reviews the legislation to ensure compliance with the new requirements.
Which of the following best reflects the corporation’s obligations?
A) A register of ownership interests in land must be maintained at the registered office.
B) Real estate ownership records may be stored offsite with written permission.
C) A land register is only needed for federally incorporated companies.
D) Only corporations with property exceeding $1 million need to keep a land register.
Correct Answer: A
Explanation: Section 140.1 of the OBCA, introduced via the Forfeited Corporate Property Act, requires corporations to prepare and maintain a register of ownership interests in land in Ontario at their registered office. This includes details such as property descriptions, acquisition dates, and supporting documents like deeds. Non-compliance can result in penalties or regulatory consequences.
43. Lucas, a business lawyer, was approached by a potential new client during a trade show. The prospective client disclosed sensitive financial information during their discussion. Lucas ultimately declined to take on the file, but later represented another party in a dispute involving that individual.
What key professional obligation applies to Lucas regarding the information shared?
A) No obligation arises because no formal retainer was signed.
B) Lucas owes a continuing duty of confidentiality to the prospective client.
C) Lucas may freely disclose the information unless the original client sues him.
D) Lucas must register the interaction with the Law Society before accepting any new files.
Correct Answer: B
Explanation: Under Rule 3.3-1, a lawyer’s duty of confidentiality arises at the moment sensitive information is shared, even if no formal retainer is signed, and continues indefinitely.
44. Leah is a shareholder of an OBCA corporation and believes that the directors are refusing to call a meeting to avoid addressing shareholder concerns about executive pay. Leah owns 5% of the shares entitled to vote and decides to requisition a shareholder meeting. She sends a formal written requisition to the board. After 25 days pass without action, she considers calling the meeting herself.
What is Leah’s legal option if the directors do not respond to her shareholder meeting requisition?
A) She must obtain court approval before proceeding to call the meeting on her own.
B) She may call the meeting herself if the board fails to act within 21 days.
C) Only shareholders owning more than 10% of voting shares may requisition special meetings.
D) She is required to wait until the next annual general meeting is scheduled.
Correct Answer: B
Explanation: Under s. 105 of the OBCA and s. 143 of the CBCA, shareholders holding at least 5% of the voting shares may requisition a meeting. If the directors fail to call the meeting within 21 days, the requisitioning shareholders may call the meeting themselves. This is a key mechanism for minority shareholder protection.
45. Natalie acquires shares in a private OBCA corporation and later discovers the existence of a USA that restricts the board’s powers. She received no copy of the agreement at the time of acquisition and was not informed of its existence. The corporation now insists that she is bound by the USA. Natalie is concerned that she may be held liable for director duties due to provisions in the USA.
What is Natalie’s legal remedy if she was not informed of the USA when she acquired her shares?
A) She has no remedy because all shareholders are automatically bound by a unanimous shareholder agreement.
B) She may seek rescission or other relief if she bought the shares for value without knowing about the USA.
C) She must vote in favour of amendments to the USA if she disagrees with its contents.
D) She can only challenge the USA if the corporation is a publicly listed reporting issuer.
Correct Answer: B
Explanation: Under s. 108(7)–(11) of the OBCA, a shareholder who acquires shares for value and without notice of an existing USA is not automatically bound by it. In such cases, the shareholder may be entitled to rescission or other relief. Corporations must ensure that incoming shareholders are provided with adequate notice of any USA.
46. Hassan and Tina each own 50% of a corporation. Hassan wants to raise capital by issuing more shares but Tina objects, fearing dilution. The articles do not restrict share issuance. Tina’s lawyer advises that Tina’s pre-emptive rights, if any, must be found in a specific source. Tina wants to prevent the issuance unless she can participate proportionally.
Where must Tina’s pre-emptive rights be found to be enforceable under the OBCA?
A) All OBCA corporations must grant shareholders automatic pre-emptive rights unless the articles say otherwise.
B) Shareholder agreements must contain pre-emptive protections to prevent share dilution.
C) Pre-emptive rights must be expressly set out in the corporation’s articles to be enforceable.
D) The board must offer new shares to existing shareholders before issuing them to outsiders.
Correct Answer: C
Explanation: Under s. 26 of the OBCA, shareholders do not have automatic pre-emptive rights. Such rights must be expressly included in the corporation’s articles to be enforceable. Without such a provision, the board may issue shares to any person on such terms as it sees fit, subject to its fiduciary duties.
47. Emma, a lawyer specializing in small business transactions, agreed to act for both a lender and borrower in a secured loan arrangement. Neither party was a financial institution, and the loan amount was $500,000. Emma did not recommend independent legal advice to either party. A conflict later arose over the loan terms.
How should Emma’s conduct be assessed under the conflict rules for acting on both sides of a loan transaction?
A) She was allowed to proceed because the lender was experienced in business lending.
B) She could only act without ILA if the loan amount was under $75,000 and both parties consented.
C) She should have recommended or required independent legal advice due to the loan’s size and non-institutional nature.
D) She must file a dual-retainer disclosure form with the Law Society before accepting both parties.
Correct Answer: C
Explanation: Under Rule 3.4-12, where a lawyer acts for both lender and borrower in non-permitted circumstances (such as non-institutional lending over $75,000), they must recommend or require independent legal advice to both parties.
48. Tanya is a shareholder in a private corporation subject to a going private transaction (GPT) that will result in her interest being eliminated in exchange for cash. She is informed that she cannot block the transaction but may exercise her dissent rights. She also wonders whether any protections exist to ensure the offer is fair to minority shareholders like her.
What protection applies to Tanya as a minority shareholder in a going private transaction?
A) Minority shareholders have no enforceable legal rights in response to a GPT.
B) Shareholders must rely on oppression claims or other post-closing litigation if they object to a GPT’s terms or process.
C) GPTs require an independent valuation and approval by a majority of disinterested shareholders under MI 61-101.
D) Dissent rights are automatically excluded from GPTs by corporate statute.
Correct Answer: C
Explanation: Under Multilateral Instrument 61-101 and OBCA s. 190(7), GPTs require an independent valuation and approval by a majority of disinterested shareholders. These rules protect minority shareholders from being unfairly excluded or underpaid and allow dissent rights in addition to other remedies.
49. Nico is preparing a base shelf prospectus for his company, which plans to raise funds over the next two years. He learns that the base shelf prospectus allows securities to be qualified in advance for later distribution. Nico wants to confirm whether additional filings will be required each time an offering is made.
How does the shelf prospectus model work under Canadian securities law?
A) Each time the issuer wants to raise capital, it must file a full prospectus and seek regulatory approval again.
B) A base shelf prospectus qualifies securities for 25 months, with supplements filed for each distribution.
C) Shelf prospectuses are available only in connection with initial public offerings of equity securities.
D) Shelf prospectuses eliminate the need to disclose key offering terms or file additional documents when securities are sold.
Correct Answer: B
Explanation: Under NI 44-102, a base shelf prospectus may be filed to qualify various securities for distribution over a 25-month period. Each time an offering is made, a prospectus supplement is filed, providing the specific terms of that offering. Supplements are not subject to separate regulatory review.
50. Victor operates a business in Ontario and provides a security interest over certain inventory to a lender. The inventory is shipped to Alberta and sold to customers there. The lender wants to ensure that its security interest is enforceable and properly perfected despite the change in location. Victor’s lawyer explains that jurisdictional rules under the PPSA must be considered.
What should the lender do to maintain perfection of its security interest after the collateral moves to Alberta?
A) Register under the Alberta PPSA once the inventory is relocated to that province.
B) Ontario registration automatically applies throughout Canada regardless of where the goods are moved.
C) PPSA registration is required only in the jurisdiction where the debtor resides at the time of the original agreement.
D) A new security agreement must be drafted and signed in Alberta to preserve enforceability under local law.
Correct Answer: A
Explanation: PPSA rules on location of collateral and debtor residence affect perfection and priority. If goods are moved interprovincially and the transaction is governed by another province’s PPSA, the secured party must register in that province within the time allowed to maintain continuous perfection. Failing to do so risks losing the security interest against third parties.
51. Nina is a trustee who discovers that a bankrupt corporation issued dividends to its shareholders six months before bankruptcy. The company’s financial records show it was insolvent at the time of payment. Nina wants to recover the amount distributed and seeks to hold the directors and shareholders accountable under the BIA.
What is Nina’s best course of action to recover the dividends paid before the bankruptcy?
A) Bring an oppression claim under the OBCA against the directors and corporate officers responsible.
B) Seek judgment under section 101 of the BIA against directors and shareholders for improper dividends.
C) File a fraudulent conveyance claim under the Assignments and Preferences Act to unwind the payments.
D) Challenge the dividend as a transfer at undervalue and bring a related claim under BIA section 96.
Correct Answer: B
Explanation: Section 101 of the BIA allows a trustee to recover amounts paid out as dividends or share redemptions if the corporation was insolvent or rendered insolvent by the transaction. If directors lacked reasonable grounds to believe the company was solvent, they may be liable. Shareholders may also be liable if they were related to the directors and received amounts not repaid.
52. John, a business lawyer, was asked to assist a client with selling shares in a closely held corporation. During due diligence, John realized he had mistakenly overlooked a key shareholder agreement restricting transfers without consent. Recognizing his error, John debated whether to disclose it to the client.
What was John required to do under the Rules after discovering his due diligence error?
A) Take no action, since the oversight was unlikely to impact the share sale closing process.
B) Disclose the error to the client promptly and suggest seeking independent legal advice.
C) Withdraw from representation and avoid discussing the reason with the client.
D) Apply for judicial authorization before disclosing the issue to preserve solicitor-client privilege.
Correct Answer: B
Explanation: Under Rule 7.8, a lawyer who makes an error that is or may be damaging to the client and cannot be readily corrected must promptly disclose the error, recommend independent legal advice, and, if necessary, withdraw.
Case 1
Ventronix Inc., a Canadian-controlled private corporation, is undergoing financial restructuring under the Bankruptcy and Insolvency Act (BIA). The company has outstanding secured debt with a U.S.-based lender and is also behind on payroll and severance payments to several employees who were terminated shortly before the filing. The proposed restructuring plan involves the issuance of common shares to creditors in exchange for debt forgiveness and the declaration of a stock dividend to remaining shareholders. One of the company's largest individual shareholders, who is also a non-resident, raises concerns about potential withholding tax implications. Meanwhile, the terminated employees request that their unpaid entitlements be prioritized in the reorganization, citing wage protections under the BIA. The monitor asks the court to approve the plan and resolve the competing claims before implementation.
Questions 53 to 56 refer to Case 1
53. How will the issuance of common shares to creditors in exchange for debt affect the corporation’s tax position?
A) It will trigger a capital loss deduction equal to the forgiven debt amount.
B) The share issuance will be treated as a dividend and subject to corporate tax.
C) It will generally not give rise to income if done under a court-approved restructuring plan.
D) The debt cancellation must be reported as income unless the shares are preferred.
Correct Answer: C
Explanation: When debt is settled by issuing shares under a court-approved BIA restructuring plan, the corporation is generally not required to recognize income on the debt forgiveness. This treatment supports reorganizations and preserves corporate viability through statutory relief mechanisms.
54. What is the likely Canadian tax treatment of the stock dividend to the non-resident shareholder?
A) The stock dividend is not taxable unless the shares are sold.
B) The dividend is subject to withholding tax based on the fair market value of the shares issued.
C) Stock dividends are not taxed if they result in no change in ownership proportions.
D) The dividend is taxed at the corporate level only and not subject to withholding.
Correct Answer: B
Explanation: A stock dividend issued to a non-resident is subject to Canadian withholding tax, typically calculated on the fair market value of the shares issued. The nature of the dividend does not eliminate the tax obligation where the recipient is non-resident and the amount is deemed income from a Canadian source.
55. What is the status of the employees’ unpaid wages and severance in the restructuring process?
A) These claims are subordinated to all secured creditors and rank as ordinary unsecured debts.
B) They receive super-priority up to prescribed limits over other claims, including some secured creditors.
C) They must be paid only if there are surplus proceeds after the secured creditors are satisfied.
D) These claims are eliminated under the CCAA or BIA once a plan is approved.
Correct Answer: B
Explanation: Under the BIA, certain employee claims such as unpaid wages and vacation pay receive a statutory super-priority charge over the employer’s current assets, ahead of some secured creditors. This prioritization is designed to protect vulnerable workers during insolvency proceedings.
56. What Canadian tax consequence applies to interest paid by Ventronix to the U.S.-based lender?
A) The interest is exempt from tax under the Canada-U.S. tax treaty and requires no action.
B) Withholding tax must be remitted on the gross amount unless an exemption applies.
C) The lender must file a Canadian tax return and pay tax directly.
D) The interest is deemed a capital payment and is taxed only on repatriation.
Correct Answer: B
Explanation: Canada imposes a withholding tax on interest payments made to non-residents, which must be remitted by the payer. While exemptions may exist under tax treaties, compliance requires proper documentation and remittance on the gross amount unless the treaty explicitly reduces or eliminates the rate.
Case 2
Reef Analytics LLP is a fintech partnership formed by four founders to develop algorithmic trading software. After two years of operating losses, they seek capital through a secured convertible debt arrangement with Clearport Lending Inc. The agreement grants Clearport the right to convert the debt into equity and attend partnership meetings in a non-voting capacity. Lucas, one of the founding partners, objects to Clearport’s attendance, citing infringement of partnership independence. Separately, Reef launches an online investor campaign promising “guaranteed returns” without OSC pre-clearance. A securities investigator flags the materials. Meanwhile, Reef defaults, and Clearport moves to enforce its security over Reef’s code. A dispute arises between Clearport and a prior secured creditor, MeadowBank, which holds a general security agreement.
Questions 57 to 60 refer to Case 2
57. How should Clearport’s non-voting right to attend meetings be treated under partnership law?
A) It creates a de facto partnership and exposes Clearport to liability for partnership debts.
B) It is a typical protective provision that does not affect the firm’s legal structure or partner status.
C) It requires that Clearport file an amendment to the limited partnership agreement.
D) It automatically converts Clearport’s loan to an equity interest unless waived in writing.
Correct Answer: B
Explanation: Creditors may negotiate oversight rights, including attending meetings, without becoming partners or acquiring liability. Mere presence or input at meetings does not confer decision-making power or alter legal status under the partnership model.
58. What is the likely regulatory consequence of Reef’s “guaranteed returns” representation?
A) It may constitute misrepresentation under securities law and prompt OSC enforcement.
B) It is lawful if Reef later discloses all material risks in a follow-up communication.
C) It is allowed in Ontario provided no accredited investors participate.
D) It only triggers liability if an investor suffers actual loss as a result.
Correct Answer: A
Explanation: Marketing an offering as “guaranteed” misleads prospective investors and breaches disclosure requirements. The OSC treats such language as a material misrepresentation, even if no loss occurs, and can impose fines or cease-trade orders.
59. How will priority between Clearport and MeadowBank be determined with respect to Reef’s code base?
A) By reference to the size of their respective loans, unless subordinated.
B) Based on the order in which their security interests were registered and perfected.
C) In favour of Clearport, since it holds specific security over the IP.
D) In favour of MeadowBank, as general creditors are presumptively preferred.
Correct Answer: B
Explanation: The PPSA governs priority disputes between secured creditors. Registration and perfection dates dictate priority. A prior general security agreement, if properly registered, will rank ahead of a subsequent specific security absent an agreement to the contrary.
60. What legal characterization may apply to Clearport’s convertible debt instrument?
A) It may be classified as a security subject to Ontario securities law.
B) It becomes equity only if the borrower defaults or declares bankruptcy.
C) It is automatically subordinated to all equity and common shareholders.
D) It is enforceable only through corporate restructuring proceedings.
Correct Answer: A
Explanation: Convertible debt is often treated as a security due to its potential to become equity. This brings the transaction within the scope of securities regulations, requiring compliance with exemption rules and disclosure obligations under the Act.
Estate Planning
61. Martin is preparing a will for a client who mentions owning a valuable antique collection. Martin describes it broadly in the will as "my antiques," without listing specific items or values. After the client’s death, disputes arise between beneficiaries over which items were intended to be included. The estate trustee struggles to administer the estate because of the ambiguity.
What drafting error contributed most to the dispute over the antique collection?
A) Martin failed to clearly identify the estate trustee and specify their administrative powers in the will.
B) Martin failed to describe specific bequests in clear and unambiguous terms.
C) Martin failed to apply the anti-lapse rule to ensure alternate beneficiaries were named.
D) Martin failed to request a formal appraisal or documented inventory of the antiques during planning.
Correct Answer: B
Explanation: Lawyers must draft wills using sufficiently clear and precise language to minimize the risk of disputes or court applications for advice and direction. When describing specific bequests, vague terms like "my antiques" without proper identification can create uncertainty, delay administration, and expose the estate trustee to litigation.
62. Elaine operates a busy estates practice. She often feels overwhelmed but keeps pushing forward without seeking help or adjusting her workload. Eventually, she begins missing deadlines and making mistakes on files. She does not consider this a mental health issue and assumes it’s just part of the job.
What professional wellness obligation did Elaine overlook as her performance began to decline?
A) She failed to implement a proper succession strategy for long-term practice continuity and client care.
B) She failed to establish a formal referral protocol with a colleague for excess client work.
C) She failed to monitor and address her mental health to avoid impairment of service.
D) She failed to request reduced CPD obligations based on her increasing professional stress.
Correct Answer: C
Explanation: Lawyers must recognize when personal mental health is impairing their ability to serve clients competently. Ignoring burnout or stress-related decline may lead to service failures and professional discipline. Managing wellness is a component of ethical practice.
63. Olivia’s client directs her to name his two children as attorneys under a continuing power of attorney for property. Olivia drafts the document but does not specify whether the attorneys must act jointly or separately. After the client’s incapacity, disputes arise because the children believe they can act independently.
What default rule applies in the absence of express drafting?
A) Either attorney can act alone without consent of the other.
B) The older attorney has decision-making priority.
C) The attorneys must act jointly and unanimously.
D) Majority rule applies if three or more attorneys are named.
Correct Answer: C
Explanation: Under the Substitute Decisions Act, multiple attorneys must act jointly unless the document explicitly states otherwise. Failure to clarify this can lead to conflict and paralysis in decision-making.
64. Joseph, a lawyer specializing in drafting wills, was asked by an elderly client to prepare a will that left most of the estate to Joseph’s adult daughter, who had been providing care to the client. Joseph believed this gift was reasonable given his daughter's services. Without advising the client to seek independent legal advice, Joseph drafted and executed the will. After the client’s death, other relatives challenged the will, alleging undue influence.
What professional obligation did Joseph most likely breach by drafting the will in these circumstances?
A) He breached confidentiality by discussing the client’s affairs in relation to his daughter’s caregiving role.
B) He complied with professional standards by drafting the will according to the client’s expressed intentions.
C) He breached his duty by drafting a will benefiting a family member without advising the client to obtain independent legal advice.
D) He was not required to take further steps because the client demonstrated capacity and signed voluntarily.
Correct Answer: C
Explanation: Under the Rules, a lawyer must not prepare a will where the lawyer, a family member, or associate receives a benefit unless the client has received independent legal advice to protect against potential conflicts and undue influence concerns.
65. Andrew is preparing a guardianship of the person application. His client asks him whether assessments are mandatory in standard procedure cases. Andrew advises that no medical evidence is needed because the affidavit alone will suffice. He proceeds without filing any capacity assessments.
What was Andrew’s error in proceeding without capacity assessments?
A) He failed to file an HCCA compliance certificate verifying statutory compliance with prior consent determinations.
B) He failed to submit a guardianship plan as part of the standard materials required in support of a guardianship of the person application.
C) Although not legally required, courts generally expect medical evidence to support incapacity findings in most guardianship proceedings.
D) He failed to file an affidavit of service confirming notice to specified relatives of the allegedly incapable person.
Correct Answer: C
Explanation: Although the SDA does not strictly require medical affidavits in standard procedure cases, courts typically expect clear medical evidence of incapacity. Relying solely on the applicant’s affidavit risks the application being rejected.
66. A testator’s will contains a clause authorizing the estate trustee to make unlimited distributions from a minor child's trust directly to the child’s parent. The will does not appoint the parent as a special trustee. After the testator’s death, the Office of the Children's Lawyer objects to the trustee's proposed payments.
What issue arises with the estate trustee’s discretion in authorizing payments to the parent of a minor beneficiary?
A) It breaches the rule against perpetuities, as the trust’s duration could unlawfully extend beyond lives in being plus 21 years.
B) It exceeds the statutory maximum payment limit set under provincial legislation for annual disbursements to minor beneficiaries.
C) It improperly delegates fiduciary authority without clear authorization to the parent, who was not appointed as a special trustee under the will.
D) It violates the minor's intestacy rights by distributing property outside the prescribed statutory entitlement.
Correct Answer: C
Explanation: Estate trustees cannot delegate fiduciary duties without express authority. Payments to parents holding funds for a child risk breaching trust obligations unless the parent is appointed a special trustee or the arrangement falls under limited statutory exceptions.
67. Patrick, the executor of his late father’s estate, distributed several valuable assets to the beneficiaries before obtaining a clearance certificate from the CRA. Months later, the CRA reassessed the estate’s terminal return and found significant additional tax owing. The beneficiaries had already sold or spent the assets they received. Patrick now faces difficult questions about who is responsible for paying the outstanding taxes.
What is the most accurate statement regarding Patrick’s liability?
A) Patrick is personally liable for the unpaid taxes to the extent of the property distributed.
B) Only the beneficiaries who received assets are liable for the unpaid taxes.
C) Patrick can retroactively apply for a clearance certificate to absolve himself of liability.
D) The estate’s liability ended once the assets were distributed in good faith.
Correct Answer: A
Explanation: Under s. 159(3) of the ITA, a personal representative who distributes property without first obtaining a clearance certificate becomes personally liable for unpaid taxes, interest, and penalties to the extent of the value of the distributed property.
68. Liam, a solicitor specializing in estate planning, met a client who insisted that Liam execute a will immediately, leaving all assets to a new acquaintance the client had recently met. Liam observed signs of confusion during the meeting but completed the will after the client insisted. After the client's death, the will was challenged.
What duty did Liam most likely breach?
A) Duty to respect the client’s instructions without question.
B) Duty to prioritize administrative convenience.
C) Duty to assess client capacity and act with integrity before taking instructions.
D) Duty to ensure that the will is signed in the presence of two witnesses.
Correct Answer: C
Explanation: Lawyers have a duty to practice law with integrity and competence. Where there are concerns about testamentary capacity, the lawyer must assess capacity appropriately and may need to delay acting, to avoid participating in potential wrongdoing.
69. Noah, aged 68, wanted to avoid probate fees and protect the privacy of his estate after his death. On advice from his lawyer, he transferred his investment portfolio into an alter ego trust. He retained the right to receive all income during his lifetime, and upon his death, the assets would pass to his two children.
What tax event is triggered when Noah dies?
A) The trust will be deemed to dispose of all its assets at fair market value on Noah’s death.
B) The assets will pass to the children without any deemed disposition or taxes payable.
C) The alter ego trust will be dissolved automatically, avoiding all tax consequences.
D) The children will be taxed personally on the capital gains arising at Noah’s death.
Correct Answer: A
Explanation: An alter ego trust avoids probate but not the deemed disposition rules. On Noah’s death, under the ITA, the trust is deemed to dispose of its assets at fair market value, resulting in potential capital gains.
70. Julia and Brian separated five years before Brian's death but never finalized their divorce. Upon Brian’s death, Julia sought advice on whether she could claim an equalization payment. Julia was unsure whether the date of separation or the date of death would be relevant for calculating her entitlement.
What is the correct valuation date for determining Julia’s potential equalization entitlement?
A) The date of separation, since they had no reasonable prospect of resuming cohabitation.
B) The date of death, because they remained legally married and did not obtain a divorce, which may affect property rights.
C) The date of their wedding, as it marks the beginning of their financial partnership under family law.
D) The date Julia applies for equalization, because entitlement must be assessed based on the timing of her legal action.
Correct Answer: A
Explanation: Under s. 4(1) of the FLA, if spouses have separated with no reasonable prospect of reconciliation, the valuation date is the date of separation, not the date of death.
71. Charlotte was appointed estate trustee of her late mother’s estate. She planned the funeral according to her mother’s written wishes in her will, which specified cremation. However, some family members objected and demanded burial instead. Charlotte sought legal advice about her authority.
How should Charlotte’s legal authority as estate trustee be exercised in response to conflicting family wishes about funeral arrangements?
A) Funeral instructions in a will are binding unless a majority of family members object on moral or religious grounds.
B) The estate trustee must apply to court for guidance if family members strongly oppose the testator’s expressed wishes.
C) The estate trustee has the legal authority to determine funeral arrangements, even if the will includes contrary instructions.
D) The estate trustee may act only if all residuary beneficiaries agree to the planned funeral method specified in the will.
Correct Answer: C
Explanation: Although funeral or burial instructions may be expressed in the will, they are not legally binding. The estate trustee retains ultimate authority over funeral arrangements under common law.
72. Steven was appointed as an estate trustee during litigation concerning the validity of a will. During this period, he managed estate property but did not make any distributions. A beneficiary questioned his authority to act during ongoing litigation.
What authority does an estate trustee during litigation possess?
A) He has authority to manage estate assets but cannot act without court supervision or beneficiary consent.
B) He has authority to administer and preserve the estate, but not to distribute the residue.
C) He may distribute assets at his discretion, provided he maintains records and consults with the estate's solicitor.
D) He may act as a trustee in name only, and may not carry out any administrative functions until judgment is rendered.
Correct Answer: B
Explanation: Under s. 28 of the Estates Act, an estate trustee during litigation has authority to administer and preserve the estate but may not distribute the residue until the litigation is resolved.
73. Lucas, an estate planning lawyer, met with an elderly client and her adult son to discuss her will. Throughout the meeting, the son answered most questions and directed the conversation. Lucas accepted the son’s instructions without confirming who was the client or discussing confidentiality. After the client’s death, the validity of the will was challenged.
What professional error did Lucas make?
A) Accepting instructions from the son without clearly identifying the mother as the client and ensuring she provided independent direction.
B) Accepting instructions from the son without clearly confirming the mother as the client.
C) Failing to ask the mother to review the draft will in the presence of a witness or interpreter.
D) Proceeding with the retainer without documenting whether joint representation or separate legal advice had been offered to the son.
Correct Answer: B
Explanation: When third parties are involved, lawyers must clearly identify the client and ensure the client, not the third party, provides instructions. Lucas failed to preserve the mother’s independent role, risking undue influence concerns.
74. Victor, an estate planning lawyer, drafted a complex family trust for a client but failed to investigate or confirm key information about family dynamics and existing property ownership. After the client’s death, it became apparent that several assets purportedly transferred into the trust had not been properly documented.
Which aspect of professional competence did Victor neglect?
A) Conducting thorough investigation and fact gathering before giving advice.
B) Ensuring conflicts checks were performed on all trust beneficiaries.
C) Reporting changes in legislation to the Law Society.
D) Declining the retainer when there were multiple beneficiaries.
Correct Answer: A
Explanation: Proper investigation and confirmation of facts are essential to competent legal service. Under Rule 3.1-1, lawyers must not simply rely on client information where critical facts must be independently verified.
75. Emily lived with her partner, Thomas, for five years before his sudden death. They had a child together but had never married. Thomas left a valid will made prior to their relationship, leaving his estate to his parents. Emily received no provision under the will and wanted to seek support.
How can Emily seek legal recourse to claim financial support from Thomas’s estate?
A) File a claim for equalization under the Family Law Act as if she were a legal spouse with property rights arising from cohabitation and parenthood.
B) Apply for dependant’s support under Part V of the Succession Law Reform Act as a common-law spouse who meets the cohabitation or parental criteria.
C) File a claim for an intestate share under the SLRA on the basis that Thomas’s will failed to reflect his actual intentions toward his new family.
D) Contest the will for lack of testamentary capacity by alleging that Thomas could not have properly appreciated his obligations at the time of execution.
Correct Answer: B
Explanation: Under s. 57 of the SLRA, a common-law spouse who has cohabited continuously for at least three years or who shares a child with the deceased may bring a dependant’s support application, even if omitted from the will.
76. Rebecca, a First Nation member, died intestate, leaving behind her common-law partner, Ethan, and no children. Ethan sought advice regarding his right to inherit Rebecca’s possessory interest in a house located on reserve land. Ethan was not a band member.
What is the correct result regarding Ethan’s ability to inherit the reserve property?
A) Ethan automatically inherits the possessory interest as Rebecca’s surviving partner.
B) Ethan can inherit the possessory interest only with Ministerial approval.
C) Ethan cannot inherit the possessory interest because he is not a band member.
D) Ethan must apply to the provincial court to inherit the property.
Correct Answer: C
Explanation: Under s. 50 of the Indian Act, a possessory interest in reserve land may not pass to non-band members. The property must either be auctioned to eligible members or revert to the band if no eligible buyer exists.
77. Sophie, an estate planning lawyer, was drafting a will for an elderly client. The client’s daughter insisted on attending all meetings and frequently spoke on her mother's behalf. Sophie did not clarify her role or address the presence of a third party during confidential communications. After the mother’s death, a will challenge was filed citing undue influence.
What professional obligation did Sophie most likely fail to uphold in this scenario?
A) The duty to cross-examine the daughter during the will execution process to determine her intentions and ensure she exerted no improper pressure.
B) The duty to document all third-party communications separately from the client file and retain separate records for the daughter’s statements.
C) The duty to warn the testator about the legal consequences of joint ownership of bank accounts and potential claims of resulting trust.
D) The duty to protect solicitor-client confidentiality by ensuring the client was able to communicate instructions in private and free from outside influence.
Correct Answer: D
Explanation: Under confidentiality rules, a lawyer must protect the sanctity of client communications. The presence of a third party can compromise confidentiality and privilege and may suggest undue influence if not properly managed.
78. After Katie's death, her estate trustee discovered that Katie had expressed a wish to donate her organs. However, her children objected to the donation. The estate trustee was unsure whether to proceed.
Under the Trillium Gift of Life Network Act, how should the estate trustee proceed?
A) The estate trustee must obtain written consent from all immediate family members before proceeding.
B) The deceased’s prior consent to organ donation is binding and must be honoured unless it was withdrawn.
C) The estate trustee must obtain a court order to proceed with the donation.
D) Family objections automatically override the deceased’s prior consent.
Correct Answer: B
Explanation: Under s. 4(3) of the Trillium Gift of Life Network Act, a deceased person's prior written consent to organ donation is binding unless there is evidence it was later withdrawn by the deceased before death.
79. Elaine meets with an elderly client to update her will. The client is accompanied by her caregiver, who speaks on her behalf during most of the meeting. Elaine proceeds without insisting on a private discussion with the client. After the client’s death, the caregiver is named as a major beneficiary, and family members allege undue influence.
What preventative step was Elaine required to take to safeguard the will’s validity?
A) Insist on meeting privately with the client to assess whether the instructions reflected independent, voluntary wishes.
B) Ask the caregiver to sign a written declaration affirming that no undue influence occurred in the preparation of the will.
C) Require the client to sign a certificate of independent legal advice confirming her understanding and intentions.
D) Refuse to continue acting unless a second lawyer could attend the meeting to witness the instructions firsthand.
Correct Answer: A
Explanation: Lawyers must be vigilant for signs of undue influence, particularly where a client is elderly or dependent. The lawyer must interview the client alone to verify that the instructions represent the client’s true wishes and to protect the validity of the will from future challenges.
80. Tom, an estate lawyer, prepared mirror wills for a married couple who wanted to leave everything to each other and then to their children. Later, the wife returned alone to ask Tom to change her will, disinheriting one of their children. Tom agreed to accept the new instructions without informing the husband.
What was Tom required to do under the joint retainer conflict rules?
A) Decline to act unless the wife agreed to notify the husband or the joint retainer had ended.
B) Proceed with drafting the new will provided that the wife confirmed her instructions in writing.
C) Treat the wife’s new instructions as a confidential matter and prepare the will without involving the husband.
D) Inform the husband of the change but continue acting for the wife under a new retainer.
Correct Answer: A
Explanation: Under the Rules regarding joint retainers for estate planning, Tom was obligated to treat the wife’s instructions as a new retainer and should have declined to act unless the joint retainer had ended or both spouses consented.
81. A client asks Liam to prepare a continuing power of attorney for property naming his son, who lives in the United States. Liam drafts the document without warning about potential issues. After the client’s incapacity, the brokerage firm freezes the grantor’s investment accounts due to the son’s non-residency.
What practical risk did Liam fail to anticipate when naming a non-resident attorney?
A) Brokerages may refuse to take trading instructions from attorneys residing outside Canada.
B) The appointment is invalid under Ontario law because attorneys must be Canadian residents for tax compliance purposes.
C) Attorneys living outside Ontario are required to be bonded under the Substitute Decisions Act, and failure to arrange this voids the appointment.
D) The attorney cannot legally administer Ontario real property unless authorized by the Public Guardian and Trustee.
Correct Answer: A
Explanation: Appointing a U.S. resident as attorney may cause significant practical issues, particularly with Canadian financial institutions refusing to accept instructions, potentially forcing liquidation of investments and creating tax consequences.
82. Sarah is asked to review a medical-legal report in an estate matter. The report includes potentially traumatic content relating to the testator’s mental decline. The lawyer receives the report from the physician with a note requesting that it not be shown to the client. Sarah complies and files it without informing the client.
What was Sarah professionally required to do upon receiving the report with nondisclosure conditions?
A) To return the report unless she had advance client consent to receive it under that condition.
B) To keep the report in a confidential litigation brief until the physician confirms disclosure is safe for the client’s mental health.
C) To accept the physician’s limitation and document the rationale for not showing the report to the client in the file.
D) To redact all sensitive health information and disclose only general findings to the client.
Correct Answer: A
Explanation: A lawyer cannot accept a medical-legal report on a condition that prevents disclosure unless the client has consented in advance. Otherwise, the report must be returned. The duty of honesty and client ownership over sensitive information requires full transparency.
83. Greg, an estate planning lawyer, sent his client a final account after drafting a complex trust document. The account lumped together all fees, disbursements, and taxes without providing any itemized breakdown. The client requested clarification but received no response.
What billing obligation did Greg most clearly fail to meet?
A) Duty to negotiate disputed invoices through Law Society fee arbitration before escalating.
B) Duty to deliver a clear and itemized statement of account distinguishing fees, disbursements, HST, and other charges.
C) Duty to issue only a single consolidated flat-fee invoice when dealing with non-contentious matters.
D) Duty to seek approval from a court officer before issuing any account for complex estate planning work.
Correct Answer: B
Explanation: Under Rule 3.6-3, lawyers must provide clients with clear and detailed accounts, separately stating fees, disbursements, HST, and any interest charged. This transparency protects the client’s ability to assess the reasonableness of the bill.
84. Eva is helping a client apply for guardianship of property using the summary disposition procedure. She obtains one statement from an assessor and one statement from a family friend who recently visited the incapable person. Eva files both statements and submits the application.
What condition must be met for the family friend’s statement to be valid under the summary disposition procedure?
A) It must include a sworn affidavit verifying the friend’s longstanding relationship and detailed observations of incapacity.
B) It must confirm that the friend personally saw the allegedly incapable person within 12 months of the application being issued.
C) It must provide documentation of the friend’s authority to act as a substitute decision-maker or personal representative.
D) It must be accompanied by a physician’s note attesting to the friend’s credibility and familiarity with the incapable person’s condition.
Correct Answer: B
Explanation: A non-assessor providing a supporting statement must confirm personal contact with the alleged incapable person within 12 months of the notice of application. This ensures that the evidence is recent and reliable.
85. Paul, an estate planning lawyer, agreed to draft a simple will for a client. Initially, the client asked only for a straightforward division of property among children. As the matter progressed, complex tax issues arose, and Paul realized significant additional work was necessary. However, he did not update the engagement terms or provide a revised estimate.
What professional obligation did Paul fail to fulfill?
A) Duty to adjust the total fee only after seeking court approval for increased legal costs in complex estate matters.
B) Duty to revise the retainer agreement and confirm in writing any material changes to the scope of legal services initially contemplated.
C) Duty to complete the estate planning process in full, even if the matter exceeds the original budget or time estimate provided to the client.
D) Duty to notify the client’s accountant and prepare the tax filings directly once financial complexity becomes apparent.
Correct Answer: B
Explanation: When the scope of a retainer changes significantly, the lawyer must promptly confirm these changes in writing to the client, ensuring full understanding and agreement.
86. Leo’s client asks him whether she automatically controls her child’s property if she dies and the child inherits money from a grandparent’s estate. Leo advises that as the surviving parent, she would inherently manage the child's inheritance.
What incorrect advice did Leo give?
A) That she would automatically become estate trustee of the grandparent's estate.
B) That she would control the child's property without a guardianship order.
C) That she could avoid court oversight by appointing herself trustee in the will.
D) That she could apply to vary the grandparent's will after death.
Correct Answer: B
Explanation: Parents do not automatically have control over a child’s property. Unless a guardianship order is obtained or trust provisions exist, a minor's entitlements are generally paid into court.
87. Olivia, an estate planning lawyer, prepared multiple wills for an elderly client. After repeated instances of the client refusing to follow Olivia’s legal advice on critical matters, including the formal execution of documents, Olivia determined that the relationship had broken down.
What condition must be met for Olivia to properly withdraw from representation?
A) Olivia must continue acting until the client explicitly agrees in writing to terminate the retainer relationship under the Rules.
B) Olivia must bring a formal motion for leave to withdraw before the court prior to ceasing to act on behalf of the client.
C) Olivia may withdraw due to serious loss of confidence, provided she gives reasonable notice.
D) Olivia must complete the estate planning work she started unless the client commits a breach of retainer or becomes uncooperative in writing.
Correct Answer: C
Explanation: A material breakdown in communication or persistent refusal to accept professional advice can amount to a serious loss of confidence, permitting withdrawal under Rule 3.7-2, as long as reasonable notice is given.
88. Grace left her entire estate to her husband through a testamentary spousal trust. The trust provided that Grace’s husband would receive all the income from the trust during his lifetime. However, the trust also included a clause that if the husband remarried, a portion of the trust capital would be distributed to Grace’s adult children. Grace’s executor was unsure whether this structure would qualify for a spousal rollover.
Does the trust structure qualify for rollover treatment?
A) Yes, because the surviving spouse is entitled to receive all trust income for life, which satisfies the rollover condition.
B) No, because the trust permits capital distributions to other beneficiaries upon remarriage, which disqualifies the trust from rollover treatment.
C) Yes, provided the adult children agree to defer their capital interest until the spouse’s death by executing a waiver in writing.
D) Yes, because testamentary trusts created by will are automatically eligible for spousal rollover treatment unless expressly excluded.
Correct Answer: B
Explanation: To qualify for a spousal rollover under s. 70(6)(b) of the ITA, the surviving spouse must be the only person entitled to income and capital during their lifetime. Allowing capital distributions to others upon remarriage taints the trust and disqualifies it from rollover treatment.
89. Greta set up an inter vivos trust for her minor granddaughter to fund her future university education. The trust generated investment income annually, but no distributions were made until the granddaughter turned 18.
What is the correct tax treatment of the investment income earned by the trust during the years before the granddaughter reached majority?
A) The granddaughter must report the income each year, even if she does not receive it.
B) The income remains taxable within the trust until distributed.
C) Greta, the settlor, must report the income annually under the attribution rules.
D) The income is exempt from taxation until the funds are paid out for education.
Correct Answer: C
Explanation: Under s. 74.1 of the ITA, income (but not capital gains) from property transferred to a trust for a minor non-arm’s-length person (such as a granddaughter) is attributed back to the transferor (Greta) until the minor reaches the age of majority.
90. Nick died while owning a life insurance policy that named his wife, Clara, as the sole beneficiary. Clara filed an election to claim an equalization payment under the Family Law Act. The value of the insurance policy proceeds was significant compared to the estate assets.
How are the insurance proceeds treated under the FLA for equalization purposes?
A) The insurance proceeds are entirely excluded from any setoff calculation.
B) The insurance proceeds are added to Clara’s net family property without adjustment.
C) Clara must set off the insurance proceeds against her equalization entitlement.
D) Clara must surrender the insurance proceeds to the estate to satisfy her claim.
Correct Answer: C
Explanation: Under s. 6(6) of the FLA, when electing to claim an equalization payment, a surviving spouse must set off the value of insurance proceeds received as a named beneficiary against the amount of the equalization entitlement.
91. Lucas, an estate planning lawyer, became aware that another lawyer was repeatedly missing important deadlines in probate applications, causing prejudice to estate beneficiaries. Lucas did not know all the details but suspected serious competency issues.
What is Lucas’s obligation regarding potential professional misconduct by another lawyer?
A) Lucas may remain silent unless he has first-hand knowledge of the missed deadlines or is personally affected by the outcome.
B) Lucas should confront the other lawyer privately to give them a chance to correct their conduct before reporting.
C) Lucas must report the issue only if his own client was directly harmed by the other lawyer’s delays.
D) Lucas must report suspected serious incompetence to the Law Society if it appears substantial and reporting does not breach confidentiality.
Correct Answer: D
Explanation: Under Rule 7.1-3, a lawyer who becomes aware of another licensee’s serious misconduct or substantial incompetence must report it to the Law Society unless doing so would breach client confidentiality.
92. Samantha, an estate planning lawyer, became involved in litigation concerning the interpretation of a client’s trust deed. In court, Samantha argued forcefully for her client’s position but failed to disclose a recent Ontario Court of Appeal case that directly contradicted her submissions. She reasoned that since opposing counsel had not raised the case, she had no obligation to do so.
What is Samantha’s professional obligation regarding adverse legal authority?
A) Duty to emphasize only persuasive authorities that favour the client’s position, regardless of contrary case law.
B) Duty to raise all precedent, including irrelevant or non-binding cases, to demonstrate thorough research.
C) Duty to disclose binding legal authorities that are directly on point, even if unfavourable.
D) Duty to apply for judicial clarification when opposing counsel omits relevant authorities.
Correct Answer: C
Explanation: Under Rule 5.1-2, a lawyer must not deliberately avoid citing directly binding legal authorities that are adverse to the client’s position. Full and fair disclosure upholds the integrity of the tribunal process.
93. Farid is retained to prepare a will for a longtime client. After the client dies, Farid receives a letter from the executor requesting the original will. Farid realizes he returned the only signed copy to the client without retaining a duplicate. He had no retention policy and routinely returned originals without keeping scanned versions.
What file retention best practice did Farid fail to follow?
A) He failed to confirm the appointment of the executor in writing.
B) He failed to note the disposition of original documents in the file.
C) He failed to mark the will as “draft” before releasing it.
D) He failed to include a clause appointing a co-executor.
Correct Answer: B
Explanation: Lawyers must document when original client documents are returned and should retain copies in case of later disputes. A well-managed file should include a signed acknowledgment from the client and clear notes on file disposition.
94. David was named as sole estate trustee but learned that his sister Laura, who was a beneficiary, had been living in their deceased father’s house. David wanted to secure the property but Laura refused access.
What is the estate trustee’s duty in relation to protecting estate property before probate is granted?
A) Wait for the certificate of appointment before intervening to avoid interference with beneficiary rights.
B) Immediately take steps to secure all estate assets, including arranging insurance and physical protection if necessary.
C) Allow the beneficiary continued access unless she poses a demonstrable risk to the property’s value.
D) Transfer legal title into his name to expedite insurance and access arrangements through ownership conversion.
Correct Answer: B
Explanation: The estate trustee has a duty to take possession of and secure estate assets promptly, even before probate, especially to preserve value and mitigate risk, including arranging insurance coverage if needed.
95. Melissa contested the validity of her late mother's will, claiming suspicious circumstances due to drastic changes in beneficiaries compared to prior wills. The changes favoured Melissa's stepbrother, who had assisted her mother with banking and daily needs.
What is the legal effect of suspicious circumstances being established in such a contest?
A) Suspicious circumstances automatically invalidate the will.
B) Suspicious circumstances require the propounder of the will to prove testamentary capacity and knowledge and approval.
C) Suspicious circumstances require the challenger to prove undue influence beyond a reasonable doubt.
D) Suspicious circumstances require the challenger to obtain corroborating expert evidence before the matter proceeds to trial.
Correct Answer: B
Explanation: Where suspicious circumstances are established, the propounder of the will bears the legal burden to prove both testamentary capacity and knowledge and approval on a balance of probabilities.
96. Natalie, a common-law spouse, lived with the deceased, Trevor, for eight years. Trevor died intestate, and Natalie sought legal advice about her rights. She learned she could not claim a preferential share but might still assert other remedies.
What legal remedy is most likely available to Natalie to assert a claim over Trevor’s property?
A) Statutory election for equalization under the Family Law Act, treating the relationship as a marriage in equity.
B) An unjust enrichment claim leading to a constructive trust or monetary compensation.
C) Automatic entitlement to the deceased’s registered investments and survivor pension under succession law.
D) An intestate distribution claim granting a share equal to that of a biological or adopted child.
Correct Answer: B
Explanation: Common-law spouses can claim property rights through the equitable doctrine of unjust enrichment, seeking remedies such as constructive trust or quantum meruit compensation, despite lacking statutory inheritance rights.
97. Francesca is retained to draft mirror wills for a married couple. She receives $6,000 and splits it between two client ledgers in the trust account. After delivering bills for $2,000 per client, she transfers $4,000 to her general account without incident. Later, she uses the remaining $2,000 from one ledger to pay courier fees for both clients.
What trust accounting rule did Francesca breach by applying one client's surplus to cover shared disbursements?
A) She failed to apply the appropriate HST allocation method for shared disbursements, resulting in incorrect remittance.
B) She breached the rule requiring that each client be billed separately, even when they share a retainer and services.
C) She breached the prohibition on applying surplus trust funds from one client to settle another client’s account, even where services are jointly rendered.
D) She breached the rule against disbursing more than is held in trust for the individual client.
Correct Answer: D
Explanation: Lawyers must disburse trust funds only for the benefit of the client to whom those funds belong. Using Client A’s remaining trust funds to pay expenses attributable to Client B, even if minor, creates a shortage and violates the segregation principle.
Case 3
Gwen, a retired teacher, made a will in 2015 naming her adult son Daniel as executor and sole beneficiary. In 2020, she began living in a conjugal relationship with her partner, Louise, and they shared a home, finances, and caregiving responsibilities. Gwen never revised her will. In 2023, she was diagnosed with terminal cancer. Her lawyer, Melinda, advised Gwen to consider revising her estate plan or preparing a codicil, but Gwen delayed. Before her death, Gwen transferred their jointly owned house into her sole name to qualify for a government assistance program, promising Louise she would “leave it back to her.” When Gwen died in early 2024, Daniel applied for probate of the 2015 will. Louise objected, claiming entitlement to the house based on a constructive trust and also filed a dependant’s relief claim. Daniel argued Louise had no status as she was never Gwen’s legal spouse. The lawyer Melinda, who had also helped Gwen manage tax filings in her final year, was asked to explain why no planning had occurred to deal with capital gains and probate minimization. The court must now address the competing estate claims and unresolved tax issues.
Questions 98 to 101 refer to Case 3
98. What is Louise’s strongest legal basis for a property interest in the home?
A) As a common-law spouse, she is automatically entitled to the first $350,000 of Gwen’s estate under the SLRA.
B) She may claim a constructive trust based on her contributions and Gwen’s assurances, even though she is not a beneficiary.
C) She may assert a claim for unjust enrichment under the Family Law Act, which treats all cohabiting partners equally.
D) She qualifies as a surviving joint tenant and takes the home outside the estate process.
Correct Answer: B
Explanation: Louise cannot inherit under intestacy or as a spouse under the SLRA because the definition of “spouse” does not include common-law partners for property entitlement. However, she may claim a constructive trust if she can prove that she contributed to the acquisition or preservation of the property, there was enrichment and deprivation, and Gwen led her to reasonably expect a share. This equitable remedy is often used by common-law spouses who are excluded from wills.
99. Which of the following is true about Daniel’s claim that Louise lacks legal standing as a “spouse”?
A) Louise may still qualify as a dependant spouse under the SLRA if she cohabited with Gwen for over three years or had a child with her.
B) Daniel is correct that only married spouses may bring any estate claim in Ontario, including support claims.
C) Common-law spouses cannot apply to be estate trustees, even if they lived in a conjugal relationship with the deceased.
D) Louise’s claim to support is barred if Gwen’s legal spouse also seeks an equalization under the Family Law Act.
Correct Answer: D
Explanation: If there is a surviving married spouse who elects to claim an equalization payment under the Family Law Act, that claim takes priority over any dependant’s relief application by a common-law spouse. While Louise may apply for support under s. 57 of the SLRA as a dependant, her claim is subordinate to any valid election made by a legal spouse, even if they were separated at the time of death.
100. Why might Melinda’s failure to address capital gains on Gwen’s estate raise concerns?
A) Because Gwen was retired, no income tax would apply at death.
B) Capital gains tax is triggered on death for assets not transferred to a spouse, and pre-planning could have reduced the liability.
C) Joint property is never subject to capital gains tax, so no tax planning was required.
D) Because Louise was not married to Gwen, Melinda was prevented from taking her interests into account.
Correct Answer: B
Explanation: Upon death, a deemed disposition of capital property occurs, meaning Gwen is considered to have sold all her capital assets at fair market value. Since Louise was not a legal spouse, no rollover exemption would apply, and proper planning (such as gifting or selling to a trust) might have reduced or deferred taxes. The absence of planning could result in a higher estate tax burden.
101. What duty does Daniel owe as executor in light of Louise’s objection?
A) He must distribute the estate without delay to fulfill his fiduciary duties.
B) He may distribute Gwen’s personal items while litigation is pending, but not the house.
C) He must treat Louise as a co-beneficiary because she lived with Gwen for over three years.
D) He must preserve the estate and remain neutral until the court rules on entitlement.
Correct Answer: D
Explanation: An estate trustee has a fiduciary obligation to act impartially when there are contested claims. Daniel must not favour his own position as beneficiary and must preserve estate assets, particularly the home, until the court adjudicates the validity of Louise’s constructive trust and support applications. Early distribution would breach this duty.
Case 4
Alicia died intestate, leaving behind her 10-year-old daughter Clara, who has moderate developmental disabilities. Alicia’s mother, Lorraine, had been living with them and helping care for Clara. After the death, Alicia’s estranged husband, George, re-emerged and applied to be Clara’s guardian of property and person, despite having had no contact with Clara in over five years. Lorraine opposed the application, arguing George was unfit due to past substance abuse and his complete absence from Clara’s life. Meanwhile, Alicia had accumulated substantial investment accounts in trust for Clara. These accounts were managed by a trust company and named Alicia as trustee. Disputes arose over control of the trust assets and who should manage them going forward. Finally, a separate will challenge was initiated by George, who alleged that Alicia had attempted to execute a will leaving all her assets to Clara under Lorraine’s guardianship, but the will was improperly witnessed and therefore invalid.
Questions 102 to 105 refer to Case 4
102. What is the most appropriate legal route for resolving the guardianship dispute over Clara’s person and property?
A) The Office of the Children’s Lawyer must appoint Lorraine, as the closest female relative.
B) The court must determine the application under the Children’s Law Reform Act, prioritizing Clara’s best interests.
C) The Children’s Aid Society has exclusive jurisdiction and must initiate a protection proceeding.
D) The trust company can make the decision because it is a fiduciary acting in Clara’s financial interest.
Correct Answer: B
Explanation: Guardianship disputes involving minors are governed by the Children’s Law Reform Act, which requires the court to consider the best interests of the child, including the child’s needs, relationships, and stability. The applicant’s prior relationship with the child and capacity to care for them are critical. Prior neglect or lack of involvement weighs heavily against a claimant like George.
103. What is the legal status of the trust accounts Alicia managed for Clara?
A) The accounts revert to the estate and must be divided equally among surviving next of kin.
B) The trust company retains control, but George has standing to revoke the arrangement.
C) The accounts are valid inter vivos trusts and do not form part of Alicia’s estate.
D) The court must treat the accounts as testamentary because they were not formally assigned.
Correct Answer: C
Explanation: Where funds are held in trust accounts clearly naming a minor as beneficiary and the trust is set up during the settlor’s lifetime, these are considered inter vivos trusts. Upon the settlor’s death, they do not pass through the estate and instead remain under the trust’s terms and existing trusteeship unless changed through proper legal application.
104. How should the court address George’s application for guardianship of property given the trust arrangement?
A) The trust company must consent before guardianship can be granted.
B) The court must determine whether George’s guardianship would interfere with the trustee’s authority.
C) A statutory guardian of property may be unnecessary where a valid trust already governs the assets.
D) The court is required to name the biological parent unless otherwise disqualified.
Correct Answer: C
Explanation: A guardianship of property may not be necessary where funds are held in trust under a valid inter vivos arrangement. Trustees have legal authority to manage trust assets and distribute them according to the trust's terms. The appointment of a guardian of property must not interfere with the trustee’s duties or override the trust’s legal structure.
105. If the court finds the will invalid due to improper witnessing, how does that affect Clara’s rights to the estate?
A) Clara automatically receives all estate assets because she was the intended beneficiary.
B) Lorraine inherits on Clara’s behalf as next of kin.
C) The estate is distributed under intestacy laws, which may exclude Clara as a minor.
D) Clara may still receive support under a dependant’s relief claim if not otherwise provided for.
Correct Answer: D
Explanation: If no valid will exists, distribution occurs under intestacy laws. However, as a minor and dependent child of the deceased, Clara may bring a dependant’s support application under the Succession Law Reform Act. This ensures her needs are met, regardless of the will’s validity, provided she was supported or owed support by the deceased at the time of death.
Real Estate
106. Mark purchases a property subject to a registered right-of-way over the driveway in favour of a neighbouring parcel. The agreement includes the standard title clause permitting “registered encumbrances that do not materially affect use.” After closing, Mark is served with a notice that the right-of-way is to be expanded to allow truck deliveries, including weekends. He contacts his lawyer, stating that the increased traffic will interfere with his quiet enjoyment.
What is the buyer’s best legal argument under the standard title clause?
A) That he assumed all risks once he accepted a property with an existing registered easement on title, regardless of future developments.
B) That the seller is liable for the increased traffic since they failed to anticipate and notify of future use changes.
C) That any easement registered on title must be accepted if it appears in the parcel register, regardless of how it is used.
D) That a registered right-of-way that materially affects use must be disclosed or waived to be accepted under standard terms.
Correct Answer: D
Explanation: Registered easements that materially impair use are not acceptable under the standard title clause unless specifically disclosed or insured against. Significant commercial activity may be materially adverse, triggering the buyer’s remedies.
107. A title insurance company contacts Nora regarding a parcel that shows a transfer registered 15 years ago based on forged documents. The true owner was unaware of the fraudulent transaction until recently. A new, innocent owner now holds registered title, having purchased the property from the fraudster’s transferee. Nora is asked to explain how Ontario’s land titles system addresses this scenario. She reviews s. 78(4.1) of the Land Titles Act and recent jurisprudence, including Lawrence v. Wright. She explains the difference between immediate and deferred indefeasibility.
How does Ontario’s land titles system treat title acquired through fraud when a subsequent purchaser is innocent?
A) The entire chain of title, including the innocent purchaser’s interest, is void and may be deleted upon discovery of the original fraud.
B) Title based on a forged instrument becomes valid after ten years if not challenged in court by the original owner.
C) The original owner can recover the land unless the transferee took reasonable steps to verify the authenticity of title.
D) The original fraudulent transfer is void, but title acquired later by a bona fide purchaser remains effective.
Correct Answer: D
Explanation: Under s. 78(4.1), the fraudulent instrument is void. However, s. 78(4.2) protects subsequent innocent purchasers who acquired title without knowledge of the fraud. The Land Titles Assurance Fund may compensate the original owner.
108. Zoya is retained for a real estate refinancing. She receives a retainer cheque for $3,000 and deposits it in her general account. She pays for courier charges and a title search from that account before delivering any bill or transferring funds to trust. When audited, she cannot reconcile the disbursements to specific client authorizations.
What trust accounting obligation did Zoya most clearly breach?
A) She failed to prepare a contemporaneous billing entry prior to making any disbursement from the general account.
B) She failed to segregate title-related charges from lender-related fees as required by lender protocols.
C) She failed to issue a trust transfer requisition to herself before disbursing funds from the retainer.
D) She failed to handle client money in accordance with trust accounting rules.
Correct Answer: D
Explanation: All client funds received in advance must be deposited into a trust account unless they are for immediate billing or disbursed expenses already authorized. Lawyers may not use general accounts for trust purposes without meeting the necessary conditions under By-Law 9.
109. Maria, a real estate lawyer, represented both the buyer and the seller in a private residential transaction. She believed the deal was simple and did not advise the parties to obtain independent legal advice. No retainer letter explaining the joint representation or risks was prepared. Later, the seller alleged that Maria failed to properly explain the risks associated with certain title defects.
What key professional rule did Maria violate?
A) She violated her duty of competence by missing a registration deadline.
B) She violated her duty to avoid representing opposing parties without informed consent.
C) She violated her duty to disclose settlement offers promptly.
D) She violated her obligation to act as an advocate and protect only the buyer’s interests.
Correct Answer: B
Explanation: Representing opposing parties in a real estate transaction without obtaining full, informed, and preferably written consent breaches the conflict of interest rules under the Rules of Professional Conduct.
110. Joshua’s execution search reveals a writ of seizure and sale against a former owner of the subject property. The writ was registered six months before the current owner acquired title, but no notice of the writ appears on the parcel register. Joshua is unsure whether the writ affects the current owner and whether it should be disclosed to the lender. He reviews the Land Titles Act and determines the writ was never re-registered under the land titles regime.
Does the unregistered writ bind the current owner under Ontario’s land titles system?
A) Yes, because all existing writs must be disclosed to the lender regardless of registration.
B) No, because a writ does not bind a new owner unless registered on title.
C) Yes, because writs are preserved for 20 years and must be searched across all prior owners’ names.
D) No, provided that the lender receives a declaration from the borrower confirming no awareness of the writ.
Correct Answer: B
Explanation: Writs against prior owners do not bind subsequent transferees unless the writ is specifically registered against title. This rule avoids the need to search historic names in land titles, simplifying execution searches and improving certainty.
111. Jessica, a real estate lawyer, was under pressure to close a high-value transaction for a client purchasing multiple investment properties. She sent an angry email to the opposing lawyer after a minor title issue delayed closing, accusing him of incompetence and dishonesty. The opposing lawyer filed a professionalism complaint.
What rule did Jessica breach?
A) She failed to advance her client’s interests vigorously enough.
B) She failed to maintain courtesy, civility, and good faith toward another licensee.
C) She breached confidentiality by disclosing her client’s frustrations.
D) She violated rules about marketing and advertising practices.
Correct Answer: B
Explanation: Lawyers must treat all persons involved in legal proceedings, including other lawyers, with courtesy, civility, and good faith. Jessica’s conduct likely breached Rules 5.1-5 and 7.2-1, undermining the integrity of the legal profession.
112. Sasha is reviewing a letter from the Electrical Safety Authority in response to her enquiry regarding a detached home. The response confirms that a permit was issued two years ago for major electrical work but also lists an outstanding order for code violations that has not yet been cleared. The seller had not disclosed this issue, and the agreement is silent. Sasha contacts the seller’s lawyer and is told the issue is minor and can be ignored.
How should Sasha respond to the ESA’s outstanding order in advising her purchaser client?
A) Advise her client to close the transaction and pursue the seller afterward if needed for non-disclosure.
B) Recommend registering a caution on title to protect the client’s interest in possible post-closing claims.
C) Requisition compliance with the outstanding ESA order or seek an appropriate price abatement.
D) Suggest that the buyer report the issue to the Ministry of Energy for future enforcement purposes.
Correct Answer: C
Explanation: Outstanding ESA work orders are enforceable and may affect safety and value. The buyer may become liable to complete the repairs if closing proceeds. The solicitor must requisition compliance or adjust the price and advise the client accordingly.
113. Sandra’s client owns a lot on an RPS and granted a 25-year lease of the rear yard to a landscaping company. The lease includes an easement for access along the side of the property. Sandra is reviewing the transaction to ensure compliance with the Planning Act. She is uncertain whether a consent was required or if any exception applies.
Which of the following provisions would permit the lease without consent?
A) Section 50(12) – prior consent.
B) Section 50(5)(e) – dealing with land retained after expropriation.
C) Section 50(7) – by-law exemption.
D) Section 50(9) – lease of part of a building or structure with ancillary land rights.
Correct Answer: D
Explanation: Section 50(9) permits leases for more than 21 years where the lease involves part of a building or structure, including ancillary uses of land such as access or outdoor areas. The landscaping lease likely qualifies under this exception.
114. Oliver, a real estate lawyer, was retained by two siblings to purchase a family vacation property together. Oliver did not prepare a joint retainer letter or explain the implications of acting for both parties. A year later, a dispute arose about ownership shares. One sibling accused Oliver of favouring the other.
What did Oliver do that breaches the professional conduct rules?
A) He failed to recommend that each sibling retain separate counsel for the property transaction in accordance with the conflict rules.
B) He failed to draft a written ownership agreement specifying each sibling’s share to prevent future litigation.
C) He failed to warn the clients that a joint real estate transaction can result in fiduciary liability toward both parties.
D) He failed to explain the joint retainer relationship and obtain informed consent from both siblings before acting.
Correct Answer: D
Explanation: Under the Rules, when acting for multiple clients in a matter, a lawyer must advise all clients about the joint retainer rules, explain confidentiality limitations, and obtain their informed, preferably written, consent before proceeding.
115. David receives a new survey for a rural property his client is purchasing. The survey shows that a section of the septic tank extends into a utility easement granted to the local hydro company. David contacts the utility and is told that the encroachment is tolerated but may need to be removed in future development. The seller refuses to offer a price reduction and the client still wants to proceed. David considers how best to protect the client’s interest.
What should David do to ensure the client is properly protected regarding the encroachment?
A) He should register a caution against title to provide notice of the encroachment and preserve the client’s right to compensation.
B) He should advise the client that title insurance will automatically cover the encroachment without further steps.
C) He should treat the issue as resolved given the utility’s current non-objection and proceed without delay.
D) He should seek a formal encroachment agreement or at least obtain written confirmation from the utility consenting to the encroachment.
Correct Answer: D
Explanation: Encroachments on easements pose real legal and practical risks. Even if currently tolerated, they may be removed without compensation in the future. The solicitor should seek written consent or an encroachment agreement to protect the client.
116. A real estate lawyer delegates all undertakings and reporting letters to a clerk without reviewing the documents. Over time, several undertakings are missed and one is discharged late, causing a mortgage delay. The lawyer claims that the clerk was highly experienced and that delegation is standard office practice.
What is the lawyer’s professional obligation in this context?
A) Accept full responsibility for supervising all delegated work.
B) Rely on the clerk’s insurance to cover any claim.
C) Require all undertakings to be confirmed by opposing counsel.
D) Submit a client satisfaction survey to the Law Society.
Correct Answer: A
Explanation: Delegation is permitted but does not relieve the lawyer of responsibility. Competence includes supervising non-lawyer staff and ensuring that core obligations like undertakings and reporting are fulfilled. Passive reliance on experienced staff is not a defence to poor oversight.
117. Josh is the solicitor for a purchaser who terminated an agreement based on unsatisfied conditions. The vendor claims the purchaser failed to make reasonable efforts to satisfy the conditions and now seeks damages and forfeiture of the deposit. The agreement was conditional on obtaining municipal approval for a minor variance. Josh has no records showing any application was made by the purchaser.
What is the legal effect of the purchaser’s failure to apply for the variance?
A) The purchaser may lawfully terminate because the condition was not fulfilled through no fault of the vendor.
B) The deposit is recoverable since the agreement did not expressly require best efforts to satisfy the condition.
C) Failure to make reasonable efforts to satisfy a condition can constitute breach of contract.
D) The mutual nature of the condition prevents the vendor from claiming damages or deposit forfeiture.
Correct Answer: C
Explanation: A party must make reasonable efforts to satisfy any condition under their control. If no such effort is made, the party may not rely on the condition to terminate the agreement. Failure to act can amount to breach, justifying damages and forfeiture.
118. Nathan registered a charge that expressly excluded the implied covenants under s. 7 of the LRRA and incorporated a set of Dye & Durham standard charge terms. Upon default, the chargee attempts to enforce a right to distrain for arrears of principal. Nathan disputes this, claiming no such right exists in a charge.
Is the right to distrain for principal enforceable in this scenario?
A) Only if the LRRA expressly provides for distress in respect of principal and not just interest.
B) No, because the Mortgages Act prohibits all forms of distress for arrears on residential property.
C) Yes, if the right is clearly set out in the registered standard charge terms.
D) No, because the law of distress has been abolished in mortgage enforcement actions.
Correct Answer: C
Explanation: While s. 7 of the LRRA implies the right to distrain for interest, a charge may extend this to arrears of principal if included in its standard charge terms. The Dye & Durham terms include such an expanded right, making it enforceable if properly incorporated.
119. The mortgagee of a vacant industrial lot in Mississauga wishes to sell under power of sale. The mortgage contains a clause allowing for sale of “any part of the mortgaged property.” The land consists of three separately conveyable parcels under the Planning Act. The mortgagee sells the entire property in one transaction without exploring the possibility of selling the parcels individually. The mortgagor alleges that this caused a loss of over $300,000 in unrealized value.
Which of the following best describes the mortgagee’s duty?
A) The mortgagee can sell in any way as long as it recovers the debt.
B) The mortgagee must always subdivide if the value increases.
C) The mortgagee has a duty to consider whether separate sales yield higher value.
D) The mortgagor’s claim fails unless fraud is shown.
Correct Answer: C
Explanation: Mortgagees exercising power of sale must act reasonably and prudently, including exploring whether selling separate parcels yields better value. Under s. 50(18) of the Planning Act, a sale of separate parcels is permitted only if legally conveyable.
120. Greg routinely travels for his real estate practice and stores all client documents on his laptop. During a U.S. border crossing, his laptop is searched by customs officials. He provides access without resistance. Days later, a client calls, worried that sensitive financing information may have been reviewed by a foreign government.
What should Greg have done differently?
A) He should have printed all documents to avoid digital searches.
B) He should have objected to the search on the grounds of solicitor-client privilege.
C) He should have encrypted or separated client information prior to travel.
D) He should have registered the laptop with the Law Society before travelling.
Correct Answer: C
Explanation: Lawyers must safeguard confidential client information, including when travelling. When crossing borders, lawyers should take precautions such as encryption, limiting the storage of sensitive data, or using clean devices to minimize the risk of inadvertent disclosure under foreign laws.
121. During a scheduled closing involving a vendor take-back mortgage, Jasmine, acting for the vendor, discovers that the purchaser’s solicitor failed to provide a certificate of insurance showing the vendor as loss payee. The purchaser insists on closing, saying the insurance will be provided the next day. Jasmine has not received written instructions from her client authorizing a closing without insurance confirmation. She is concerned about the vendor’s exposure to risk if the property is damaged immediately after closing.
What should Jasmine do?
A) Close the transaction and record the insurance issue in the reporting letter.
B) Insist on receiving the certificate of insurance before closing.
C) Accept an oral undertaking from the purchaser to deliver the insurance policy later.
D) Register the Transfer and mortgage but delay release of funds until the certificate is received.
Correct Answer: B
Explanation: A vendor holding a take-back mortgage is entitled to proof of insurance naming them as loss payee. The solicitor should not proceed without compliance or written instructions from the client to waive the requirement. Accepting oral assurances is not sufficient protection.
122. Mark leases a mobile home site in a land lease community. After terminating his lease and removing his belongings, he leaves the mobile home behind. The landlord sends a registered letter to his last known address and publishes a notice in the local paper. Sixty days later, the landlord sells the mobile home to a third party. Mark returns three months later demanding the home or sale proceeds.
What is the landlord’s obligation?
A) The landlord may retain the proceeds without liability.
B) The landlord must return the proceeds, less arrears and expenses.
C) The landlord must allow Mark to repossess the mobile home.
D) The landlord acted unlawfully by selling before obtaining court approval.
Correct Answer: B
Explanation: Under s. 162 of the RTA, if a tenant abandons a mobile home and does not respond within six months of notice, the landlord may sell it. However, if the tenant contacts the landlord within that six-month period, the landlord must return the home or the sale proceeds, subject to arrears and reasonable expenses.
123. Sophie, a real estate lawyer, was retained by both a buyer and a seller to complete a private residential property sale. She did not inform them that representing both sides could lead to conflicts if disagreements arose. Shortly before closing, a dispute about responsibility for repairs surfaced. Sophie attempted to negotiate between them but was unable to remain impartial.
What professional obligation did Sophie most clearly breach in this scenario?
A) She failed to prioritize her advocacy duties to the buyer over the seller.
B) She failed to explain the risks of acting for both parties and obtain their informed consent.
C) She failed to prepare two sets of closing documents tailored to the parties' interests.
D) She failed to withdraw as counsel as soon as a repair issue was raised between the parties.
Correct Answer: B
Explanation: Before accepting a joint retainer, a lawyer must advise both clients of potential conflicts, the inability to maintain confidences between them, and obtain informed consent, as required by Rule 3.4-5.
124. Kyra, a real estate lawyer, discovered a critical zoning violation after conducting a title search for her client’s purchase. She believed the violation would cause major problems but feared upsetting her client by revealing the bad news. Kyra decided not to mention the issue before closing the deal. Months later, the client sued.
What specific duty did Kyra most clearly fail to fulfill?
A) Duty to advocate for title insurance coverage after closing.
B) Duty to manage trust accounts carefully.
C) Duty to provide all material information affecting the client's interest candidly.
D) Duty to recommend that the client sue the municipality.
Correct Answer: C
Explanation: The lawyer’s fiduciary duty includes a duty to disclose material information that could affect the client's interests. Concealing known zoning defects violates the lawyer’s duty of honesty and candour.
125. Real estate lawyer Jessica routinely added a 20% markup on courier charges and photocopying fees billed to clients. She believed this practice was fair compensation for administrative effort. A client challenged one such charge after receiving an unusually high invoice.
What professionalism rule governs this situation?
A) Lawyers are permitted to profit on disbursements if disclosed in the retainer.
B) Lawyers may not charge clients more than the actual cost of disbursements.
C) Lawyers may add administrative surcharges on disbursements without consent.
D) Lawyers must submit all disbursement charges for court pre-approval.
Correct Answer: B
Explanation: Under Rule 3.6-1, lawyers cannot make a profit on disbursements. Clients may only be charged the actual cost of a disbursement incurred, and markups are strictly prohibited unless otherwise expressly agreed to.
126. Trevor is a vendor under an agreement of purchase and sale that requires the delivery of vacant possession on closing. A tenant, however, remains in possession and refuses to vacate. Trevor attempts to persuade the purchaser to accept closing with the tenant in place, but the purchaser refuses. Trevor then sues for specific performance, claiming the issue is minor and requesting abatement for the tenant’s continued occupancy.
Is the purchaser obligated to complete the transaction under these circumstances?
A) Yes, because specific performance may be granted if the purchaser receives a reasonable abatement.
B) Yes, because the presence of a tenant is not a material impediment where the price is adjusted accordingly.
C) No, because the vendor is permitted to close with the tenant and seek post-closing indemnity.
D) No, because the failure to provide vacant possession breaches a fundamental term and defeats specific performance.
Correct Answer: D
Explanation: If the agreement requires vacant possession, failure to deliver it is a breach of a fundamental term. Specific performance with abatement is not available where the purchaser bargained for exclusive possession. The purchaser may refuse to close.
127. Sebastian’s client is purchasing a unit in a mixed-use condominium. The status certificate discloses a shared facilities agreement with a neighbouring building. Upon review, the agreement includes an annual contribution toward concierge services for the commercial building. Sebastian’s client does not intend to use those services. The seller never disclosed this cost during negotiations.
What is Sebastian’s obligation?
A) Advise the client that the shared cost is unenforceable against residential units.
B) Recommend that the buyer terminate the agreement for non-disclosure.
C) Explain that shared facilities are binding and reflected in the common expenses.
D) File a complaint with the Condominium Authority Tribunal.
Correct Answer: C
Explanation: Shared facilities agreements disclosed in the status certificate bind all unit owners. The cost allocations set out in these agreements form part of the unit’s common expenses and are enforceable regardless of personal usage.
128. Calvin is acting for the purchaser of a property being sold by an estate trustee. The trustee relied on a statutory power of sale and made the required statements under s. 16 of Electronic Registration. However, Calvin later learns the purpose of the sale was not to pay debts but to distribute proceeds among the beneficiaries. No court order was obtained, and one beneficiary is a minor.
What is the legal effect of the trustee failing to obtain proper consents or court approval?
A) The purchaser receives valid title if the trustee signed under statutory authority and no fraud is proven.
B) The sale is invalid without a court order, and the land cannot be conveyed until one is obtained.
C) The purchaser may acquire title subject to estate debts and claims of beneficiaries.
D) The transaction is enforceable, and the trustee is personally liable for any irregularities in sale purpose.
Correct Answer: C
Explanation: Under s. 17(2) of the EAA, if a sale is for distribution and consents or a court order are not obtained, the purchaser may take title subject to beneficiaries’ rights and possibly to the debts of the deceased. The lawyer must not allow this outcome without protection.
129. Josh, a real estate lawyer, promised his client frequent updates about a commercial property deal. However, once retained, Josh became overwhelmed with other files and failed to communicate for several weeks, causing the client to become anxious and frustrated.
What duty did Josh most clearly fail to uphold during the solicitor-client relationship?
A) The duty to provide multilingual reporting to ensure equitable access for diverse clients.
B) The duty to communicate regularly and manage client expectations in a timely and effective manner.
C) The duty to notify the regional land registrar and real estate board of all transactional activity.
D) The duty to offer a full refund of fees whenever the client expresses dissatisfaction.
Correct Answer: B
Explanation: Lawyers must manage client expectations and maintain regular, timely, and effective communication throughout the retainer. Delayed or insufficient updates breach the duty to provide conscientious and client-responsive service.
130. Renee is representing buyers of a family cottage property left to three adult siblings by their parents. Title is to be registered in all three names as tenants in common. Renee raises the issue of future use, expenses, and succession planning. The siblings have different views about renovations and potential rental income. Renee suggests entering into a formal agreement.
What should Renee recommend to address the siblings’ differing expectations and minimize future conflict?
A) Proceed with registration and resolve any disagreements by applying the common law rule of majority among co-owners.
B) Register the title with joint tenancy and rights of survivorship to simplify future estate administration.
C) Advise the siblings to hold title in trust through the estate trustee until they can agree on use and development terms.
D) Recommend a co-ownership agreement outlining use, financial obligations, improvements, and conflict resolution procedures.
Correct Answer: D
Explanation: A co-ownership agreement is essential where unrelated or independently-minded co-owners will share a property. It should address use, expenses, contributions, improvements, dispute resolution, and exit strategies. This helps avoid future conflicts and preserves family relationships.
131. Carla is purchasing a freehold home under construction and plans to assign her interest in the agreement to a friend. The agreement prohibits any assignment without the vendor’s consent and includes a $12,000 assignment fee. Carla seeks advice on her ability to resell before closing.
What must Carla do to assign her interest under the agreement?
A) Proceed with the assignment and later seek a court order to validate the transfer under equity.
B) Claim statutory entitlement to assign as the agreement concerns a residential dwelling.
C) Notify the vendor and rely on common law rules permitting assignment of contractual rights.
D) Obtain the vendor’s written consent and pay the stipulated assignment fee as required by the agreement.
Correct Answer: D
Explanation: Most new home builder agreements restrict assignment and require the vendor’s prior written consent and payment of a specified fee. The buyer is contractually bound by these terms. Lawyers must carefully review assignment clauses and advise clients of the cost and risks associated with early resale.
132. Niko, a real estate lawyer, was in the middle of a commercial closing when his client directed him to take steps that Niko believed would constitute a violation of the Rules of Professional Conduct. Niko immediately realized he could no longer continue the retainer.
How must Niko respond when client instructions would require him to breach the Rules?
A) Delay withdrawal until after the transaction is completed and then notify the Law Society.
B) Attempt to negotiate alternative instructions with the client before ceasing work.
C) Continue acting unless the client’s instructions would result in criminal liability.
D) Immediately withdraw from the retainer, as continued representation would breach the Rules of Professional Conduct.
Correct Answer: D
Explanation: Under Rule 3.7-7, a lawyer must immediately withdraw if continuing would cause the lawyer to breach the Rules of Professional Conduct or the law. Mandatory withdrawal is required in these circumstances.
133. A client is purchasing a property that appears clean on title, but the lawyer discovers a prescriptive easement benefiting a neighbouring lot that arose prior to the date of conversion to Land Titles. The title insurer is prepared to insure over the defect. The client asks whether it’s better to accept the coverage or demand the easement be released.
What should the lawyer advise?
A) Always accept insurance coverage when offered to avoid delay.
B) Demand a release of the easement because insurance cannot remove it.
C) Accept coverage if the client understands that the legal issue will remain.
D) Proceed without coverage, relying on the limitation period.
Correct Answer: C
Explanation: Title insurance does not remove legal defects, it only compensates for loss if the defect causes damage. The client must understand that insuring over means accepting the defect as unresolved. The lawyer must ensure informed consent to close with the risk in place.
134. A purchaser is acquiring land near a provincial highway. Upon performing due diligence, the purchaser learns that a private entrance was installed years ago without a permit. The Ministry of Transportation advises that the entrance may be ordered closed, but no decision has been made. The buyer wants to close and pursue a future remedy under title insurance. The vendor refuses to delay closing or adjust the price.
What is the best legal strategy?
A) Close with a holdback and file a claim with the title insurer.
B) Demand a vendor warranty regarding the entrance.
C) Register a caution on title and close under protest.
D) Amend the agreement to provide for post-closing readjustment.
Correct Answer: D
Explanation: The best protection is a negotiated amendment providing for a mechanism to adjust the purchase price or seek recourse if the entrance is later ordered closed. Title insurance may or may not cover the issue, and the vendor is unlikely to offer broad warranties retroactively.
135. A lawyer sits on the board of a not-for-profit real estate fund. While acting for a developer negotiating with the fund, the lawyer fails to disclose their board membership. The developer later learns of the connection and alleges conflict of interest and professional misconduct.
How should the lawyer have addressed the potential conflict arising from their board membership?
A) Obtain consent from the board chair and continue acting without disclosure to the developer.
B) Cease acting for the developer only if the fund raises a formal objection.
C) Notify the Law Society of the dual role and await direction before proceeding.
D) Disclose the board position to the client, as it may impair independent professional judgment.
Correct Answer: D
Explanation: Lawyers must disclose outside interests that may create a conflict or impair their independent professional judgment. Board service may constitute such an interest, especially where the client is unaware and the matter involves the organization in question.
136. A buyer is acquiring a multi-unit building and agrees to assume responsibility for collecting tenant arrears. After closing, one tenant pays the full arrears to the vendor, who keeps the money. The buyer claims the funds and alleges unjust enrichment. The agreement is silent on how post-closing arrears collection is to be handled.
How should ownership of the tenant’s post-closing arrears payment be resolved?
A) The buyer is entitled to the payment because legal title transferred before the arrears were paid.
B) The vendor may retain the payment because the arrears accrued prior to closing and were not expressly reassigned.
C) The buyer must initiate arbitration under the Commercial Tenancies Act to resolve entitlement to the funds.
D) The buyer’s only remedy is to bring an action against the tenant for failing to comply with redirection of rent.
Correct Answer: A
Explanation: Unless otherwise agreed, once title passes, the buyer is entitled to collect and retain all income related to the property, including pre-closing arrears collected post-closing. The vendor is unjustly enriched if they retain payments made after title transfers.
137. Darius is representing a developer at a land-use hearing. He has previously co-invested in unrelated property ventures with one of the panel members but believes the relationship is not significant. He does not disclose the prior connection and proceeds with the hearing. The opposing party raises an objection after learning of the relationship.
What is the duty that Darius failed to uphold?
A) He failed to seek permission from the tribunal before submitting opinion evidence through an expert witness.
B) He failed to avoid appearing before a tribunal member where a prior relationship could raise concerns of bias.
C) He failed to provide the tribunal with a written summary of all arguments made during the hearing.
D) He failed to prepare and file complete visual planning materials in accordance with tribunal procedural requirements.
Correct Answer: B
Explanation: Lawyers must not appear before a tribunal where an outside relationship, personal or professional, may give rise to a reasonable perception of influence or bias. The lawyer must disclose such relationships and seek recusal or adjournment where appropriate.
138. A tenant operates a coffee shop in a shopping centre and has an exclusivity clause in its lease prohibiting other tenants from selling coffee. The landlord subsequently leases a nearby unit to a bookstore that sells coffee in its café. The tenant complains and threatens legal action.
What is the tenant’s strongest claim?
A) Quiet enjoyment under the Conveyancing and Law of Property Act.
B) Breach of the exclusivity covenant and right to injunctive relief.
C) Negligent misrepresentation by the landlord.
D) Common law repudiation of lease terms.
Correct Answer: B
Explanation: Breach of an exclusivity clause entitles the tenant to seek injunctive relief and possibly damages. Courts will enforce exclusivity where the clause is clear and the competing use falls within its scope. The covenant must be sufficiently specific and enforceable.
139. Kendra is a lawyer acting for a purchaser acquiring title to a commercial building. During the final title search, she discovers a preserved but not perfected construction lien registered by a subcontractor for unpaid HVAC work. The closing is in 15 days. The vendor refuses to discharge the lien, claiming it’s a frivolous claim. Kendra is concerned about her client taking title with this lien still on record.
What is the most appropriate action?
A) Accept title as is and advise the client to negotiate directly with the lien claimant.
B) Require that the vendor vacate the lien by court order or bond before closing.
C) Ignore the lien because it has not been perfected yet.
D) Hold back funds equal to 50% of the lien amount from the purchase price.
Correct Answer: B
Explanation: A purchaser should not close with an active lien registered on title. The proper remedy is to require the vendor to vacate the lien by posting security and obtaining a court order. This ensures the purchaser takes title free of encumbrances.
140. Emma, a real estate lawyer, agreed to act for a client purchasing residential property. She advertised a flat legal fee but failed to disclose that land transfer taxes, title insurance premiums, and Teranet fees were not included.
What professional duty did Emma breach in her advertising practices?
A) She failed to disclose key disbursements that were excluded from her advertised legal fee.
B) She failed to include an option in her advertising to reduce fees for clients paying by cash or certified cheque.
C) She failed to reimburse the client for disbursements not listed in the initial cost estimate within the required period.
D) She failed to file her advertised fee schedule with the appropriate court or regulatory authority for review.
Correct Answer: A
Explanation: Under Rule 4.2-2.1, lawyers advertising real estate services must clearly disclose that disbursements such as land transfer tax, title insurance, and Teranet fees are excluded from the quoted price, and not hide them in small print.
141. A title insurance company denies a claim by a homeowner who discovers that their off-reserve property is subject to an unresolved Aboriginal land claim. The policy contains a standard exclusion for Indigenous claims. The homeowner was unaware of the exclusion at the time of purchase. Their lawyer failed to highlight this clause in the policy schedule.
What is the lawyer’s potential liability in connection with the undisclosed exclusion?
A) The lawyer is shielded from liability if the client was given the full policy before closing.
B) The lawyer may be liable for not advising the client of a material exclusion affecting property risk.
C) The title insurer assumes sole liability for any denial based on pre-printed exclusions in its standard policy.
D) The exclusion is irrelevant, as Aboriginal land claims are covered by default under modern residential policies.
Correct Answer: B
Explanation: Lawyers have a duty to explain material exclusions in title insurance policies. Standard exclusions for Indigenous land claims are common and must be clearly communicated. Failing to do so may constitute negligence, particularly where the exclusion directly impacts the client’s risk.
142. Layla is acting for a client who recently purchased a vacant residential lot for cash. Four months later, the same client applies for a $400,000 mortgage from a private lender and provides Layla with a discharge statement for the previous mortgage that had been registered by an institutional lender. The statement arrives by email and appears to be from the bank, but the phone number does not match the bank’s official directory. Layla's assistant is under pressure to close before the weekend and encourages her to rely on the emailed document.
What is Layla’s proper course of action?
A) Proceed with the discharge as the mortgage statement appears legitimate.
B) Accept the document only if the email domain matches the bank.
C) Verify the discharge statement directly with the lender before closing.
D) Request a written indemnity from the client in case of forgery.
Correct Answer: C
Explanation: Lawyers must obtain discharge statements directly from the lender and must not rely on third parties or intermediaries, especially where red flags, like non-matching contact details, exist. Relying on a forged discharge can result in serious liability and invalid title assurances.
143. Klaus sells a property for $1,750,000 with closing set for 90 days later. Two weeks before closing, the buyer delivers a letter stating they will not be completing the purchase. Klaus relists and sells to another buyer for $1,680,000. He retains the $75,000 deposit from the first buyer and now seeks an additional $70,000 in damages. The original buyer argues that the deposit satisfies all damages, and no further amount is payable.
Which of the following is the strongest argument for Klaus?
A) A deposit is not a cap on damages unless expressly agreed.
B) The buyer is liable only for interest and costs.
C) The seller must prove bad faith to claim further damages.
D) Deposits over 5% are always deemed penalties.
Correct Answer: A
Explanation: A deposit is presumed to be earnest money, not a limit on damages. Unless the agreement stipulates that the deposit is the seller’s sole remedy, the seller may recover additional losses from breach, including shortfall on resale.
144. Kara, a real estate lawyer, received a certified cheque from her client for a property closing. Without confirming clearance, she immediately disbursed funds from the trust account to the seller. Days later, the cheque was dishonoured as counterfeit.
What accounting error did Kara commit?
A) Duty to immediately deposit certified cheques into the general account.
B) Duty to wait until funds clear before disbursing from trust.
C) Duty to report counterfeit cheques directly to the police only.
D) Duty to request written confirmation from the seller before disbursing.
Correct Answer: B
Explanation: Under trust accounting rules, lawyers must confirm that funds have fully cleared before making any disbursement from the trust account. Kara's premature disbursement created a trust shortage and exposed her to serious liability.
145. Thomas is preparing a first application for registration under s. 44 of the Land Titles Act. The property is currently under the registry system and is needed for a plan of subdivision. Thomas assembles the required survey and serves notice on all adjoining owners and affected interest holders. One of the neighbours files an objection, claiming a possessory interest over a strip of the property used for decades as a garden. Thomas is asked whether the objection may prevent issuance of Land Titles Absolute.
How should Thomas advise his client regarding the impact of the neighbour’s objection?
A) The objection is invalid because the owner’s intention to subdivide extinguishes any competing claim.
B) The application cannot proceed until the possessory claim is resolved, which may involve a formal hearing.
C) The registry system guarantees the owner’s title, so adverse use claims cannot interfere with registration.
D) The Director of Titles is required to reject any application involving disputed boundaries or garden encroachments.
Correct Answer: B
Explanation: In a first application, possessory claims may be raised by adjoining owners. These objections are resolved through hearings if necessary, and the registrar cannot issue title until the dispute is settled or dismissed.
146. Cam, a real estate lawyer, was asked to handle a transaction involving the lease of reserve lands under the Indian Act. He advised his non-Indigenous client that the transaction would proceed just like any standard lease in Ontario and omitted to explain the federal oversight, Ministerial consent requirements, and applicable Indigenous land management rules.
What key professional duty did Cam fail to fulfill in this context?
A) He failed to proceed with the transaction using best efforts to complete the lease in accordance with provincial timelines.
B) He failed to advise the client of material legal differences that apply specifically to leasing reserve lands.
C) He failed to advocate for Indigenous land protection laws in preference to general property law frameworks.
D) He failed to rely exclusively on provincial real estate rules when advising on property matters involving private land leases
Correct Answer: B
Explanation: Lawyers have a duty to provide full, clear, and competent advice about all legal requirements relevant to a transaction. Failing to explain specific legal frameworks applicable to Indigenous lands can expose clients to significant legal risk.
147. Sofia receives an automated parcel register from POLARIS showing a legal description that differs slightly from the one listed in the agreement of purchase and sale. The discrepancy involves a missing part number and the omission of a referenced plan. The seller’s lawyer claims that it is a harmless clerical error and not a defect in title. Sofia is unsure whether she should submit a requisition or proceed with closing.
How should Sofia determine whether to raise a requisition based on the discrepancy?
A) Discrepancies in legal description must be examined closely, and if material, may justify a requisition or amendment to the agreement.
B) Only discrepancies involving metes and bounds measurements require formal rectification.
C) Errors in parcel identification numbers are presumed immaterial and do not affect marketability.
D) The buyer’s lawyer must close the deal without raising objections to avoid delaying completion.
Correct Answer: A
Explanation: Legal descriptions must be consistent across the agreement, the PIN, and survey documents. If the discrepancy affects the property boundaries or legal identification, it may be material and must be addressed through a requisition or amendment.
148. Samantha, a commercial real estate lawyer, was retained by a developer to close the purchase of several parcels of land. To expedite the transaction, Samantha delegated the preparation of title searches to her articling student without reviewing the final results. An error was made, resulting in a significant title defect being overlooked. The client sued for negligence.
What professional responsibility rule most clearly applies to Samantha’s delegation of work?
A) She is not liable if the articling student was directly supervised throughout the title search process.
B) She is responsible for supervising delegated work and remains accountable for any resulting errors.
C) She may assign legal tasks to students without review if the client consents to the delegation in writing.
D) She is prohibited from assigning title-related tasks to anyone who is not a licensed legal professional.
Correct Answer: B
Explanation: Under the Rules, lawyers are permitted to delegate tasks but must supervise appropriately and are ultimately responsible for ensuring the work meets professional standards, particularly regarding substantive legal tasks.
149. Ahmed is acting for a buyer purchasing a property with a legal non-conforming triplex. The zoning letter received from the municipality confirms that the current use predates the current zoning by-law, but notes that a fourth unit was added in the rear in 2010 without a permit. Ahmed is concerned that the fourth unit may be illegal and subject to enforcement. The seller’s lawyer insists the buyer accept the building “as is.”
What is the appropriate legal response to the discovery of the unpermitted fourth unit?
A) Close the transaction using title insurance to cover any compliance risk related to zoning.
B) Proceed to closing and record the seller’s position in the final reporting letter to the buyer.
C) Submit an application to the municipality requesting a zoning amendment to legalize the use.
D) Advise the client that non-conforming use protections do not extend to the added unit, and raise a requisition or seek a price reduction.
Correct Answer: D
Explanation: Legal non-conforming status protects only those structures existing before the current zoning by-law came into effect. Additions or changes made later must comply. The lawyer should requisition removal, legalization, or price adjustment and fully inform the client of the risk.
150. Alex discovers during a title search that a parcel was conveyed in 1971 without consent, while the seller retained abutting land. He is concerned the transaction may have violated the Planning Act. He checks the parcel register and sees that in 1998, a registered transfer was completed containing all three statements required under ss. 50(22) and (23). Alex asks whether the Planning Act issue has been cured.
How should Alex assess the effect of the 1998 transfer on the earlier contravention?
A) A transfer containing the three Planning Act statements cures any prior non-compliance.
B) The contravention remains unless a court issues a certificate of title under the Certification of Titles Act.
C) The 1971 conveyance remains void despite subsequent transfers unless Planning Act consent is retroactively granted.
D) The validating effect of the 1998 transfer only applies to properties recorded under the registry system.
Correct Answer: A
Explanation: A deed or transfer that includes all three Planning Act statements under ss. 50(22) and (23) is deemed to cure any prior contraventions. This provision provides retrospective protection for title starting from the date of the compliant instrument.
151. Liam runs a busy sole real estate practice and frequently receives inquiries from clients about market trends, property investment, and tax planning. He occasionally answers questions informally based on online research. Recently, a client relied on Liam’s advice about GST on new home purchases and was later assessed with significant penalties due to incorrect eligibility assumptions.
What should Liam have done to avoid a competence-related breach?
A) Invoiced the client at a higher rate to reflect the research effort.
B) Directed the client to CRA publications without offering advice.
C) Declined to provide tax guidance and referred the client to a tax professional.
D) Offered a written disclaimer and confirmation of retainer scope.
Correct Answer: C
Explanation: When legal advice strays into areas beyond the lawyer’s expertise, such as tax matters, the competent lawyer must refer the client to an appropriate professional. Providing advice based on informal research without a solid foundation in the subject creates risk of misguidance and breach of competence.
152. Jordan obtained a building mortgage for a residential development. The loan advanced in stages and included a clause requiring holdbacks in accordance with the Construction Act. His solicitor failed to conduct a subsearch before a second advance, during which a construction lien was registered.
What is the legal effect of the solicitor’s failure to perform a subsearch?
A) The mortgage retains priority over the lien regardless of whether a subsearch was performed.
B) The lien may gain priority over the second advance if the solicitor failed to detect its registration.
C) The lien remains subordinate because the mortgage was registered before any work commenced.
D) The lienholder cannot recover from the lender due to the mortgage’s discretionary advance clause.
Correct Answer: B
Explanation: Under s. 78 of the Construction Act and s. 93(4) of the Land Titles Act, subsequent advances are only protected in priority if the lender did not have actual or constructive notice of intervening liens. Solicitors must conduct subsearches before advancing funds.
Case 5
Isaac is acting for a private lender providing a mortgage on a small industrial property in Ontario. The borrower, Western Components Ltd., is a corporation registered in Ontario, and title is in its name. The lender is concerned about default risk and instructs Isaac to conduct a thorough title search. Isaac hires a conveyancer to perform the search, who returns a summary showing that the property is in the registry system, with an unbroken chain of title for 40 years. However, Isaac notices that the most recent transfer was pursuant to a power of sale, and the underlying mortgage was never properly discharged. In reviewing the chain, Isaac also finds that one prior transfer between related corporations may have violated the Planning Act. He updates the execution search the morning of closing and discovers a writ filed the day before against Western Components Ltd. Isaac advises the lender not to advance funds until all issues are resolved. The borrower threatens to sue, claiming the lender had already committed to close.
Questions 153 to 156 refer to Case 5
153. How should Isaac interpret the impact of the improperly discharged mortgage on Western Components’ title?
A) The title is valid because the transfer under power of sale extinguished all prior interests.
B) The title is defective until the prior mortgage is properly discharged or addressed.
C) The lender must assume the prior mortgage if not discharged by closing.
D) The borrower may waive the issue, allowing the lender to proceed regardless.
Correct Answer: B
Explanation: Even when a transfer occurs under power of sale, a prior mortgage that remains undischarged on title raises a potential cloud and must be resolved before closing. The solicitor must ensure a clean title, either by obtaining a discharge or a proper undertaking. Proceeding without resolving this issue risks future priority and enforcement disputes. A prudent lender would be justified in withholding funds until this encumbrance is cleared or adequately secured against.
154. What is the legal effect if the suspected Planning Act violation is substantiated?
A) The affected transfer is void and breaks the chain of title.
B) The transfer remains valid unless expressly challenged in court.
C) The transfer is valid if registered for more than 20 years.
D) The Planning Act violation only affects municipal tax enforcement.
Correct Answer: A
Explanation: A transfer that violates the Planning Act is void ab initio and creates a fatal defect in the chain of title. Section 50 of the Act prohibits unauthorized severances or conveyances that create or deal with abutting lands in common ownership without proper authority. This type of statutory non-compliance renders the transaction ineffective, not merely voidable, and cannot be cured retroactively without proper consent or validation.
155. What effect does the newly discovered writ of execution have on the lender’s mortgage?
A) The writ takes priority over the mortgage if both are registered on the same day.
B) The mortgage takes priority if registered before the writ appears on title.
C) The mortgage is automatically postponed to the writ regardless of timing.
D) The mortgage has priority only if the borrower provides a statutory declaration.
Correct Answer: B
Explanation: In the registry system, execution binds the debtor’s interest from the time of its registration. If a writ is registered after the mortgage is registered, the mortgage retains priority. Since Isaac conducted a subsearch before closing and discovered the writ filed only the day before, the lender’s mortgage, if registered prior to that writ, would hold priority. Timely registration and subsearches are critical to preserving a lender’s ranking against subsequent claims.
156. Was Isaac entitled to recommend withholding funds on the scheduled closing date?
A) No, because the lender had contractually committed to fund the mortgage.
B) Yes, because unresolved title issues permit postponement of closing.
C) No, because the Planning Act violation is a historical defect beyond remedy.
D) Yes, because a registered writ renders the title unmarketable as a matter of law.
Correct Answer: B
Explanation: A solicitor has a duty to advise the lender client not to close when title remains uncertain or defective, particularly when there are known Planning Act concerns or unremoved encumbrances. Even if a commitment exists, the standard conditions in most loan agreements permit refusal to advance where clear title cannot be confirmed. Isaac acted properly in protecting the lender’s interest by identifying these legal risks and recommending delay.
Case 6
Liwen is representing a first-time homebuyer, Michelle, who is purchasing a freehold property in a rural part of Ontario. The transaction is scheduled to close in three days. The property was originally severed from a larger parcel five years ago, but no consent documentation was included in the parcel register. Michelle has elected to purchase title insurance, and the title insurer has waived the requirement for a municipal compliance letter. On reviewing the survey, Liwen notices a minor structure—a small shed—encroaching on a neighbouring lot, and a previous building permit that appears to have never received a final inspection. When Liwen raises the concern with the seller’s lawyer, she is told that “title insurance will cover any problems.” Meanwhile, Michelle’s lender is pressing for final reporting and requisition of mortgage funds. Michelle is unsure whether to delay closing or proceed as planned.
Questions 157 to 160 refer to Case 6
157. How should Liwen evaluate the absence of Planning Act consent documentation?
A) The absence of consent documents renders the transfer void unless validated.
B) The issue is irrelevant because title insurance covers subdivision violations.
C) A historical severance over five years ago cures the title defect.
D) The defect may be waived by Michelle if she proceeds with closing.
Correct Answer: A
Explanation: If a property is transferred in contravention of the Planning Act, the transfer is void and incapable of conveying title unless consent has been obtained or the defect is validated by subsequent action under the Act. The absence of severance consent in the parcel register is a serious title defect that must be investigated. Title insurance may not automatically cure a Planning Act violation, as the issue may fall under standard exclusions, especially if it relates to known or discoverable issues before closing.
158. What is the most appropriate course of action regarding the unfinished building permit?
A) Delay closing and requisition clearance or final inspection of the permit.
B) Close as planned because the insurer has waived municipal searches.
C) Accept a statutory declaration from the seller and proceed.
D) Insist on a price abatement in lieu of resolving the issue.
Correct Answer: A
Explanation: Even if the title insurer has waived the requirement for a municipal compliance search, the lawyer must consider whether the known risks materially affect the client's interests. An open building permit can lead to post-closing occupancy issues or enforcement actions. The solicitor must protect the buyer from foreseeable disruptions and should requisition resolution before closing. Failing to do so may expose the lawyer to liability, even if the title insurer later compensates the client.
159. If Michelle proceeds to close and the shed is later found to encroach onto the neighbour’s property, what is her likely remedy under the title insurance policy?
A) She will be indemnified for the actual financial loss caused by the encroachment.
B) She may force the insurer to remove the encroaching structure.
C) She can rescind the entire transaction through the insurer.
D) She will not be covered unless the encroachment was shown in public records.
Correct Answer: A
Explanation: Title insurance typically covers losses from encroachments not known to the buyer or lawyer before closing, even if the issue was not visible in public records. The policy will compensate for actual financial loss but will not compel physical remedies like demolition. The amount of indemnity depends on the extent to which the defect affects marketability or use. Title insurance does not guarantee a perfect title, only financial coverage against specified risks.
160. If Michelle were to refuse to close due to these concerns, what risk does she face?
A) The seller may terminate and sue for damages if Michelle’s requisitions are not timely.
B) Michelle is entitled to cancel the agreement without consequences.
C) The lender will automatically fund based on the insurance coverage.
D) The Planning Act defect absolves Michelle from all contractual obligations.
Correct Answer: A
Explanation: Under standard Ontario real estate practice, requisitions must be made within the timeframe set out in the Agreement of Purchase and Sale. If Michelle refuses to close without having properly requisitioned the issues within that period, the seller may be entitled to terminate the deal and pursue damages. The existence of a Planning Act defect or building issue does not automatically give the buyer a right to walk away unless it was properly raised and remains unremedied.