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NEW QUESTION 26
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 apply to the court to increase the liquidated damages to £3000
• C. Terry can deliver the toys as agreed as there is a contract in place
• D. Terry can do nothing and must pay the additional £2000 out of his own pocket

Answer: D

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 27
Which of the following will you put into box 7?

• A. Condition
• B. Warranty
• C. Innominate Term

Answer: A

Explanation:
The correct answers are as follows:

This is a condition. Again the food being organic would be fundamental to the contract as the health of the llamas depend on it.

NEW QUESTION 28
Which of the following are advantages to seeking a solution to conflict via litigation?

• A. The process is quick and cost-effective
• B. The decision can be made by someone who isn't an expert in their field.
• C. There is no confidentiality
• D. the process provides certainty that an outcome will be reached

Answer: D

Explanation:
The correct answer is 1 'the process provides certainty that an outcome will be reached'. Options 2 and 3 are true statements but they are not advantages of litigation, they are disadvantages. Option 4 is false - litigation is a long and costly process. See p. 85 for more information on litigation

NEW QUESTION 29
Verity Fashion is a clothing manufacturer and has an order to create 10,000 pairs of flipflops for a retailer for the summer. The order was placed over the phone in February. The order has been completed and has been boxed up ready for delivery. The retailer calls Verity Fashion in June and says that the order is no longer required. What action can Verity Fashion take?

• A. sue for damages as the flip flops have already been made and this incurred costs
• B. claim on insurance
• C. subcontract the manufacturing of the flipflops to a third party
• D. nothing- there is no written contract in place

Answer: A

Explanation:
Verity can sue for damages. The order was placed over the phone meaning that there was a verbal contract in place. Contracts do not need to be written to be enforceable so option 2 is incorrect. There is no termination clause mentioned in the question so you can assume that there isn't one. This means that the retailer is committing a breach of the verbal contract by cancelling the order. Verity could therefore apply for damages. (Whether or not they'd be awarded is a different matter!). This question tests your understanding of when contracts can be terminated and remedies for breaches. See p. 134.

NEW QUESTION 30
Which of the following would not be considered a contract? Select TWO

• A. a domestic agreement between two parents about who will pick the kids up from school
• B. A written agreement between two robbers to rob a bank which states that the money gained would be split evenly between the two.
• C. a phone call between a supplier and buyer in which the buyer agrees to purchase 100 teddy bears from the supplier for £100.
• D. a written document in which Paul agrees to clean Freda's house for £10
• E. an email chain between a buyer and supplier which includes a PO and Invoice

Answer: A,B

Explanation:
The correct answers are; A written agreement between two robbers to rob a bank which states that the money gained would be split evenly between the two AND a domestic agreement between two parents about who will pick the kids up from school. There are 3 instances when a contract isn't considered a contract and these are; illegal activity (like example A), a social or domestic arrange-ment (like example B) and when something is an 'Invitation to Treat'. See p.2-3 Remember con-tracts don't have to be written - they can be verbal (example C), the exchange doesn't have to be fair (example D) and it can be implied by conduct (example E).

NEW QUESTION 31
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