L5M3 Practice Exam Questions with Answers Managing Contractual Risk Certification

Explanation

This is Adjudication. The other answers are incorrect- litigation involves the court. Conciliation and mediation do not provide binding decisions. P. 143

Explanation

Yes- this is known as a limitation of liability clause. See p. 112 for more details

Explanation

1 is the correct answer. This is a direct quote from p. 104 of the study guide.

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The correct answers are as follows:

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This is payment terms. The scenario mentions processing invoices, which is to do with paying the supplier

Explanation

The Battle of The forms is won by the party who sends the last form. This is referred to in the study guide as 'the last shot wins'

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The true statement is 'the mediator has no decision making power but a conciliator can provide recommendations'. The other statements are false; both processes are voluntary, cheap and non-binding.

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The correct answers are as follows:

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This is a condition as it is fundamental to the contract.

Explanation

3 is the correct answer. Damages cannot be claimed is there has not been any loss. This is stated on p. 122

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

"A Guarantee is a secondary obligation of a contract' and 'A guarantor's responsibility cannot be higher than the Principle' are the correct answers. Guarantees are explained on p.28. Be careful not to confuse this with Warranty. A promise to repair or replace an item within a defined period of time is the definition of a warranty. That was put in there to trick you. Sorry. Remember a Guaran-tee is to do something when the Principle of the contract fails to do it. It's most common in leasing agreements- if you're a young person, you'll often need a responsible adult / parent to sign the lease as your Guarantor. As a Guarantor, they promise to pay the rent if you're unable to. Legally they can't be asked to do any more than you are assigned to do in the contract. So if your rent is £500 a month, that's all they can be asked to pay if you don't pay it. The primary obligation is between you and the landlord. The secondary obligation is between the guarantor and you.

Explanation

The correct answers are as follows:

This is a contract variation as they are changing the number of staff and their hours

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 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).

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

The correct answers are 1, 4 and 5. Negotiation does NOT involve a third party and the outcome is private / confidential. See p.63 for more information on negotiation

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.

Explanation

A limitation of liability caps a company's exposure to risk. In SOME cases this may mean that the responsibility passes to the other party- but not always. For this reason option 2 is correct and 4 isn't. Option 1 is the definition of liquidated damages and 3 is just a made-up answer. See p.20 for more information on Liability

Explanation

This is affirmation of the contract. When a breach occurs the injured party has two options; termi-nate the contract or affirm the contract. In this example they have affirmed the contract- they have chosen to continue working with the offending party. See p.60.

Explanation

Adjourning is not a stage. The 6 stages of negotiation are; preparation, opening, discussion, pro-posal, bargaining and agreement. P.64

Explanation

Mediation is consensual- consensual is when a third party is introduced to help reach an agreement. This is in contrast to adjudicative dispute resolution in which the third party acts as a judge and decision maker. Negotiation doesn't involve a third party so is neither. See p. 137.

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

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The correct answers are as follows:

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This is the specification as it talks about types of fabric.

Explanation

Mark needs professional indemnity insurance. Types of insurance is a known exam topic and the study guide does not cover this particularly well. Types of insurance is mentioned on p.25 but Pro-fessional Indemnity Insurance isn't really explained and this does come up in the exam. Professional Indemnity Insurance is needed when your job is to give advice to people (like as a Consultant). It's used for if the advice you give turns out to be bad. For example, if Mark told the building manager he should get ABC Fire Alarm installed, and actually this Fire Alarm doesn't meet the necessary Health and Safety standards, he could get sued by the building manager. He could then claim on his Professional Indemnity Insurance.

Explanation

"No- there has been a breach in warranty" is the correct answer. The key to answering this question lies in the fact that the specification in this example is a warranty rather than a condition of the contract. P.45 of the study guide explains that the Sale of Goods Act has implications on whether or not a specification is a condition, warranty or innominate term and it's all about whether the product is in 'good condition' and can be used for its intended purpose. In this example the eggs were used for their intended purpose and were in good condition (or Sarah wouldn't have put them in the cakes). Therefore in this example, the eggs needing to be free-range is a warranty of the contract not a condition. Therefore options A and B are both wrong. Answer C is also wrong because the question mentioned that the specification was included in the contract. If you want to know more about the implication of the Sale of Goods act on specifications see p.45.

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The correct answers are as follows:

The answer is compete because they're not concerned with preserving the relationship

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The correct answers are as follows:

This is arbitration as it involves a panel.

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The correct answers are as follows:

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This is a fundamental breach. The key here is the scenario says 'huge issue'. Out of the four scenarios this one is the most important / serious and therefore will be the fundamental breach.

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The correct answers are as follows:

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This is litigation as it involves a legal team and it's public. Out of the 4 options only litigation is a public dispute resolution.

Explanation

Frustrated is when "a situation has occurred which means that the contract can no longer be per-formed". The situation is one which is outside of the control of either party and its no one's fault that this has happened. A common example of this is when contracts were unable to be performed due to Covid-19 and the national lockdown. The government mandated everyone 'stay at home' and therefore some business contracts were unable to be fulfilled, and were therefore 'frustrated' (for example the delivery of popcorn to cinemas- the cinemas were told by the government to close so the popcorn couldn't be delivered. This wasn't anyone's fault). See p. 47 for more information on Contract Frustration

Explanation

This is a minor breach. This is the definition as given in the study guide on p. 48

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The correct answers are as follows:

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Arbitration - this is a binding resolution made by a third party. This answer could be litigation, but that option has been taken by box 6 and you can only use the answers once. Mediation would not be a binding resolution and negotiation doesn't involve a third party.