Free NCA Commercial Law Examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the NCA Commercial Law Examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1Under Ontario's Personal Property Security Act, what is the core function of a security interest in personal property?

   1. A.To secure payment or performance of an obligationCorrect answer: A
   2. B.To transfer ownership free of any obligation
   3. C.To record an unsecured promise without property
   4. D.To secure an obligation with an interest in real property

   Explanation: The Act defines a security interest as "an interest in personal property that secures payment or performance of an obligation". It thus links an interest in personal property to an obligation; an outright transfer, an unsecured promise, or an interest in land does not describe that core relationship.

   Reference: Ontario Personal Property Security Act — section 1(1), definition of security interest

2. 2In Clarkson, Miller and Muris's economic analysis, which direct saving in dispute resolution can a stipulated-damages clause provide when actual loss is difficult to establish?

   1. A.Reducing the cost of negotiating the original contract
   2. B.Reducing the cost of establishing or agreeing on actual damagesCorrect answer: B
   3. C.Reducing the cost of financing the original purchase
   4. D.Reducing the cost of obtaining the goods before performance

   Explanation: The authors explain that "parties may stipulate damages to reduce the cost of proving (or agreeing upon the amount of) actual damages in the event of breach". That is a saving in establishing the amount after breach, rather than the cost of the original transaction or financing.

   Reference: Clarkson, Miller and Muris, Liquidated Damages v. Penalties — Section III.A, Benefits and Costs of Stipulated Damage Clauses

3. 3Under Ontario's Sale of Goods Act, when must goods be identified and agreed upon to be specific goods?

   1. A.When the goods are first delivered
   2. B.When the contract of sale is madeCorrect answer: B
   3. C.When the seller first acquires the goods
   4. D.When the purchase price is paid

   Explanation: The Act defines specific goods as "the goods identified and agreed upon at the time the contract of sale is made". Delivery, the seller's acquisition and payment do not replace that timing requirement.

   Reference: Ontario Sale of Goods Act — section 1(1), definition of specific goods

4. 4An invoice obligation is not evidenced by chattel paper or an instrument and is not investment property. Under Ontario's Personal Property Security Act, does it have to be earned by performance to qualify as an account?

   1. A.Yes; it qualifies only after full performance
   2. B.No; it may qualify whether or not it has been earnedCorrect answer: B
   3. C.Yes; it qualifies only after partial performance
   4. D.Yes; it qualifies only if payment is overdue

   Explanation: The Act defines an account as "a monetary obligation not evidenced by chattel paper or an instrument, whether or not it has been earned by performance, but does not include investment property". The given obligation meets the stated exclusions; its status does not depend on performance or an overdue payment.

   Reference: Ontario Personal Property Security Act — section 1(1), definition of account

5. 5In Clarkson, Miller and Muris's example, how might a risk-preferring purchaser trade stipulated damages against the product price?

   1. A.Accept higher damages in exchange for paying a higher price
   2. B.Accept lower damages in exchange for paying a higher price
   3. C.Accept lower damages in exchange for a more favorable priceCorrect answer: C
   4. D.Accept higher damages while retaining the same product price

   Explanation: The authors describe how "a risk taking, or preferring, purchaser may accept a lower amount for damages upon the producer's breach than he would receive under normal contract rules in order to obtain a more favorable price for the product". The trade is made as part of the contract, rather than necessarily fixed after breach.

   Reference: Clarkson, Miller and Muris, Liquidated Damages v. Penalties — Section III.A, Benefits and Costs of Stipulated Damage Clauses

6. 6Before property in unascertained goods can pass to a buyer, what prerequisite does section 17 of Ontario's Sale of Goods Act impose?

   1. A.The goods must be delivered
   2. B.The full price must be paid
   3. C.The goods must be ascertainedCorrect answer: C
   4. D.The seller must give a warranty

   Explanation: Section 17 states that for a contract for unascertained goods, "no property in the goods is transferred to the buyer until the goods are ascertained". The question asks for this statutory prerequisite, not a separate payment, delivery or warranty term.

   Reference: Ontario Sale of Goods Act — section 17

7. 7A commercial lessor regularly leases equipment. The parties agree to an indefinite term, but either may terminate the lease within one year. How is this term treated under the Ontario PPSA definition of a lease for a term of more than one year?

   1. A.It is excluded because a party can terminate within a year
   2. B.It is included only after possession exceeds two years
   3. C.It is included despite the early termination optionCorrect answer: C
   4. D.It is excluded until the lessee renews for a fixed term

   Explanation: The definition includes "a lease for an indefinite term, even if the lease is determinable by one of the parties or by agreement of two or more of the parties within one year from the date of its execution". The possibility of early termination therefore does not prevent inclusion; neither two years' possession nor renewal is required by clause (a).

   Reference: Ontario Personal Property Security Act — section 1(1), definition of lease for a term of more than one year, clause (a)

8. 8According to Clarkson, Miller and Muris, which resource cost can arise specifically from incentives to induce breach of a contract with stipulated damages?

   1. A.Costs of documenting the original contract price
   2. B.Costs of negotiating the original delivery date
   3. C.Costs of estimating the value of performance
   4. D.Costs of inducing breach and preventing inducementCorrect answer: D

   Explanation: The authors identify a cost from "activities that may induce breach and from activities to prevent breach inducement, both of which waste scarce resources". This is an incentive and resource-allocation concern, not a claim that all performance or insurance becomes impossible.

   Reference: Clarkson, Miller and Muris, Liquidated Damages v. Penalties — Section III.A, Benefits and Costs of Stipulated Damage Clauses

9. 9An unconditional Ontario contract sells a specific machine in a deliverable state. No different intention appears; payment and delivery are both postponed. Under section 19 Rule 1, when does property pass?

   1. A.When the buyer approves delivery arrangements
   2. B.When the buyer pays the price
   3. C.When the seller delivers the machine
   4. D.When the contract is madeCorrect answer: D

   Explanation: Rule 1 says "the property in the goods passes to the buyer when the contract is made and it is immaterial whether the time of payment or the time of delivery or both is postponed". Given the stated conditions and no different intention, neither postponed payment nor delivery delays the transfer.

   Reference: Ontario Sale of Goods Act — section 19, Rule 1

10. 10Under Ontario's Personal Property Security Act, must an advance of value secured by a security agreement be made pursuant to a commitment to be a future advance?

    1. A.Yes, and the commitment must be irrevocable
    2. B.Yes, unless the advance is made in money
    3. C.No, but the advance must discharge an earlier debt
    4. D.No, whether there is a commitment is immaterialCorrect answer: D

    Explanation: The Act defines a future advance as "the advance of money, credit or other value secured by a security agreement whether or not such advance is given pursuant to commitment". The definition does not require an irrevocable commitment or an earlier debt.

    Reference: Ontario Personal Property Security Act — section 1(1), definition of future advance