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NEW QUESTION 41
Terry’s Toys is a Toy Manufacturer who has an agreement to provide Toys to an online re-tailer. The retailer has ordered 500 toys from Terry and Terry has incurred costs of £3000 manufacturing the toys. Halfway through production the retailer calls Terry to cancel the order. Terry reads through the contract and sees a liquidated damages clause of £1000. What should Terry do?

  • A. Terry can sue the retailer for the additional costs incurred above the liquidated damages
  • B. Terry can deliver the toys as agreed as there is a contract in place
  • C. Terry can do nothing and must pay the additional £2000 out of his own pocket
  • D. Terry can apply to the court to increase the liquidated damages to £3000

Answer: C

Explanation:
The correct answer is 4- Terry can do nothing and must pay the additional £2000 out of his own pocket. Liquidated damages are a pre-estimate of loss – they can’t be changed by a court and you can’t demand the buyer pays any higher than this if you actually lose more than is stated. This is one of the major disadvantages of having liquidated damages. Option 3 is a bad idea- the retailer has communicated that they do not want the toys so Terry is likely to only incur additional costs if he continues manufacturing them and delivers them. See p.106. There are lots of questions like this in the exam. Remember to think what the study guide would say- rather than what would happen in real life. Don’t over complicate things.

 

NEW QUESTION 42
Which of the following will you put into box 5?

  • A. litigation
  • B. mediation
  • C. arbitration
  • D. adjudication

Answer: D

Explanation:
The correct answers are as follows:

This is adjudication. Adjudication is the only option which has a specified timeframe.

 

NEW QUESTION 43
When assessing damages caused by a breach, which of the following statements is true?

  • A. damages attempt to position the innocent party in the position that they would have been in had the contract been performed as expected
  • B. damages attempt to compensate the innocent party for errors made by the offending party
  • C. damages can be difficult to assess before a breach has occurred and therefore should be decided through conflict resolution
  • D. damages are limited to what is stated within the contract

Answer: A

Explanation:
The correct answer is: ‘damages attempt to position the innocent party in the position that they would have been had the contract been performed as expected’. This is a quote from p. 121 Option1 is incorrect as unliquidated damages aren’t stated in a contract. Option 2 is incorrect because liquidated damages are an assessment of damages before a breach. Option 4 is incorrect because not all breaches are caused by errors (they can be caused by negligence or the offending party withholding something).

 

NEW QUESTION 44
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