Commercial Practice L4 - INTRO TO COMMERCIAL PRACTICE

Question 1

What type of contract are commercial contracts? (1)

Answer 1

Business to business contracts (B2B contracts).

Question 2

What sections might you expect to find in commercial contracts? (13)

Answer 2

1. Front cover
2. Commencement section
3. Parties
4. Background
5. Operative provisions
6. Definitions
7. Performance obligations
8. Payment obligations
9. Conditions precedent
10. Limitations and exclusions of liability
11. Boilerplate clauses
12. Execution
13. Schedules

Question 3

What can any term in a contract be classified as? (1)

Answer 3

Whether express or implied, every term can be classified as either a condition or a warranty.

Question 4

What is a condition and what happens if it is breached? (2)

Answer 4

A term which is fundamental to the performance of the contract and its breach entitles the innocent party to repudiate the contract and / or sue for damages.

Question 5

What is a warranty and what happens if it is breached? (2)

Answer 5

A warranty is a less important term than a condition and its breach entitles the innocent party to damages only.

Question 6

What is a ‘condition precedent’? (1)

Answer 6

Something that is to happen before the contract will fully come into effect.

Question 7

What is a warranty similar to in a sale of goods contract? (2)

Answer 7

A guarantee by a seller or manufacturer regarding a product. It refers to situations in which the product will be repaired or replaced in the event that it fails to work as intended.

Question 8

What key terms do sale of goods contracts deal with? (5)

Answer 8

1. Price and payment
2. Delivery
3. Title and risk
4. Description of the goods
5. Quality of goods

Question 9

Where do provisions regarding delivery, title and risk, quality of the goods and description of the goods sit? (1)

Answer 9

Performance obligations section.

Question 10

How do we calculate profit a business makes? (2)

Answer 10

Account must be taken of the cost that is attributable to the production by the business of the goods that it sells, including the amount needed to purchase the materials and labour costs.

Question 11

What should a payment specify? (5)

Answer 11

Who pays what, how, where and when.

Question 12

How can payment be due? (4)

Answer 12

By cash on delivery, within a certain number of days after delivery, by advance payment, or under a documentary letter of credit.

Question 13

If the time payment is expressed to be a condition of the contract, what will late payment enable the seller to do? (1)

Answer 13

Terminate the contract as well as sue for any damages.

Question 14

What should a delivery clause specify? (4)

Answer 14

Who delivers what, where and when.

Question 15

What is the legal definition of delivery? (1)

Answer 15

Delivery happens when possession of the goods is transferred (seller to buyer).

Question 16

If no place of delivery is specified where is the default position and under what act? (2)

Answer 16

Seller’s premises under s29(2) SGA 1979.

Question 17

If no time of delivery is specified, what will the time be and under what act? (2)

Answer 17

Time will be reasonable (only when the seller is bound to send the goods to the buyer) under s29 (3) SGA 1979.

Question 18

What will late delivery constitute if delivery is of the essence? (2)

Answer 18

A breach of condition and the buyer will have the option of rejecting the late goods.

Question 19

What will the buyer usually prefer in terms of delivery? (2)

Answer 19

The seller takes on the burden of transporting the goods and for this to be contractually enforceable, the buyer should have this set out specifically in a clause of the contract.

Question 20

What is title? (1)

Answer 20

Legal ownership.

Question 21

What will a seller want in regards to title? (1)

Answer 21

To retain it until payment is received at the earliest.

Question 22

What will a buyer want in regards to title? (1)

Answer 22

To pass title as soon as possible so it can use or sell on those goods.

Question 23

What will a seller want on delivery? (1)

Answer 23

Possession passes to the buyer so the seller will want the contract to provide the risk passes to the buyer on delivery.

Question 24

What happens if the buyer has not yet paid but has taken delivery if that buyer then goes into liquidation? (1)

Answer 24

The seller may not be ale to claim the money back.

Question 25

What happens if the buyer has paid the price and title has passed to the buyer but the buyer has not yet taken delivery and the seller goes into liquidation? (1)

Answer 25

The buyer may be entitled to the goods.

Question 26

What happens if the buyer has paid the price but title has not been passed and the buyer has not yet taken delivery and the seller goes into liquidation? (1)

Answer 26

The buyer will be owed the contract price as a creditor but in reality may well never receive it back.

Question 27

What does risk mean? (1)

Answer 27

Who bears responsibility if the goods are damaged or lost.

Question 28

What is the default position in terms of risk? (1)

Answer 28

Risk passes to the buyer when title passes and not when delivery passes.

Question 29

What may parties do to cover the risk of loss or damage to the goods? (2)

Answer 29

Obtain insurance and therefore the question of when risk should pass often becomes a question of who should bear the cost of the insurance - normally expressly stipulated in contract.