L5M3 Managing Contractual Risk Questions and Answers

Explanation

The correct answers are as follows:

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This is consequential loss. Brian Air is going to lose the profits from the sales of the flights it had sold. Now those flights won't go ahead Brian Air can claim for consequential loss which would help balance the books.

Explanation

Documentary collection is used in international transactions where there is trust. This is explained on p. 35 It's basically when supplier and buyer delegate collection of payments to their respective banks. They need to trust that each other will actually pay - otherwise they wouldn't delegate this. A Letter of Credit is a documentary credit confirmed by a bank, usually for export. A Bill of Ex-change is a promise to pay at a later date, usually supported by a bank. Stage payments are used in big purchases, such as construction projects where payment is given to the contractor when certain milestones are hit.

Explanation

Incoterms assign costs and responsibilities about when products are delivered. See p. 37 for a full list of the different Incoterms. You don't need to know all Incoterms for the exam, but it's a good idea to know what they are and why they'd be put into a contract

Explanation

A breach of representation is a major/ fundamental breach and allows the innocent party to rescind the contract and claim damages. A Breach of Representation is when you provide false information about who you are- this might have been a fundamental reason as to why the contract went ahead. If it turns out not to be true, the other party has the right to cancel the contract and claim damages. See p.126

Explanation

A Clause for Default 'allows the lender to demand full payment of the outstanding balance'. See p.102. And always read the small print before you sign a loan agreement :)

Explanation

Where there's no order of precedence, it is assumed that all documents have equal significance. This is a direct quote from the study guide p.15

Explanation

"the party indicates they no longer intend to fulfil their contractual obligations, usually in response to a breach". This is the definition of 'repudiate' given on p. 128 Before the exam check you understand the difference between repudiate, rescind and revoke. These are all ways contracts can end but are slightly different.

Explanation

Adjudication has strict timescales (this is one of the advantages of using this conflict resolution method). It has roots in the construction industry and has been widely used since the 1990s. See p.76 for more information

Explanation

This is Mediation. The private caucus is when each of the parties meets in private with the media-tor, this is usually after a joint session between the three parties. See p.71 for more information on mediation

Explanation

2 - penalty clauses are not illegal. However they may be judged excessive in a court of law and thrown out. Most contracts will instead opt for liquidated damages rather than a penalty clause. See p.90

Explanation

"No - David's counter offer rescinded Barbera's offer" is the correct answer. Remember: "once a counter offer is made, the original offer is viewed as rejected" - p.6 of the study guide. What this means is when David goes back to Barbera about the £80,000 - he is now the offeror - and Barbera has the option to reject this. David is no longer in a position to accept or reject - Barbera is.

Explanation

The correct answers are as follows:

The answer is compromise as they're seeking a solution that will satisy everyone.

Explanation

Litigation is the most adversarial. It's usually the last resort and shouldn't be used if you want to preserve the working relationship. P. 145

Explanation

The correct answers are as follows:

This is a warranty as it is a minor term. If the invoices aren't processed in 30 days this isn't a major breach- the supplier has said they'd be okay with it.

Explanation

Adjudication is written. The other conflict resolution methods involve talking to the other person, or presenting arguments orally to a judge. See p.77 for more info.