CIPS L5M3 - Managing Contractual Risk

Explanation

Service Credits are a form of Liquidated Damages - it's a financial remedy, common in the IT in-dustry, which is available to a buyer when the service level falls below an expected level. See p. 31 for more details.

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

The correct answers are as follows:

Table Description automatically generated

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

Explanation

1+3 are correct. Specific Performance tend to go through the courts so this is a lengthy and costly process. Because it's mandated by the courts it means that if the offending party doesn't comply, this is a criminal offence and they can be arrested. Option 2 is incorrect as it is the opposite of option 1. Option 4 is incorrect because there is no need for the innocent party to mitigate any losses. See p. 132 for more information on Specific Performance

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

Intention, Consideration and Capacity are the correct answers. A contract must contain 5 elements to be legally binding. As well as these three, the other two factors are offer and acceptance. P.2 of the study guide.

Explanation

The correct answer is "only future obligations of the parties are excused and discharged" - all cur-rent and past obligations need to be fulfilled, or remedied (e.g. through liquidated damages). When an innocent party terminates a contract, they are still obliged to fulfil their own obligations. P.47

Explanation

The purpose of liability clauses is "to limit commercial and financial exposure"- this is a direct quote from p.2. Liability is the amount that a company owes to another party- this is why contracts will focus on limiting their liability as much as possible.

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