LO3

Question 1

What are express terms? 3.1.1

Answer 1

Express terms are those that are explicitly communicated either verbally or in writing. It is preferable to have all express terms in one place to ensure clarity.

Question 2

What are implied terms? 3.1.1

Answer 2

Implied terms are invisibly included in the contract by default, commonly coming from statutory legislation. E.g. Sales of Goods Act 1979.

Question 3

Why is it important to establish a precedence of importance among contractual documents?

Answer 3

As some statutory legislation an be overruled by express terms (e.g. payment clauses) whereas others cannot (e.g. corporate manslaughter).

Question 4

Standard terms of business - different motives by both parties… 3.1.2

Answer 4

1. Price - suppliers want high price to make profit, buyer wants lower price to reduce cost.
2. Quality - parties have different objectives for performance levels, warranty periods etc.
3. Risk - parties want risk to be allocated in different ways to protect their organisation.
4. Liability - the parties may wish to be protected from liability through an indemnity.
5. Subcontractors - difference in views about use of subcontractors.

Question 5

Advantages of standard terms in the contract 3.1.2

Answer 5

1. Efficient as can be reused
2. Can be written to protect own business motives.

Question 6

What is another name for standard terms of business? 3.1.2

Answer 6

Boilerplate contracts. E.g. pre-written contracts with gaps to fill in for relevant details.

Question 7

What is a model form contract? 3.1.3

Answer 7

It is a published set of terms and conditions that have been prepared in advance by recognised third parties. They are common in construction and engineering projects.

Question 8

How do model forms differ from standard terms of business? 3.1.3

Answer 8

They differ because they have not been written by either parties to the contract. They have been written by a third party and are considered to be more independent.

Question 9

Advantages of model form contracts… 3.1.3

Answer 9

1. Efficient
2. Drafted by 3rd party legal experts

Question 10

Disadvantages of model form contracts… 3.1.3

Answer 10

1. Can be expeditious due to the risk of cutting corners.

Question 11

What is the difference between direct and indirect losses? 3.2.1

Answer 11

1. Most foreseeable kinds of loss are direct, including financial losses such as loss of profits and loss of business or goodwill.
2. Indirect losses (aka consequential losses) arise from a special circumstance, not in the usual course of things. Consequential losses are exceptional and often not recoverable.

Question 12

Key terms in contracts - liability 3.2.1

Answer 12

Liability is about establishing who is responsible for a loss under the terms of a contract. Often the contract apportions liability to one party. Liability usually covers direct losses but can cover consequential losses depending on what terms have been agreed.

Question 13

What are examples of limitations on liability? 3.2.1

Answer 13

Limitations include:
1. Financial cap (a maximum amount)
2. Excluding certain liabilities so they don’t count. Exclusion clauses should be carefully worded to avoid liability for a loss.

Question 14

What is force majeure? 3.2.1

Answer 14

Force majeure refers to acts of God and other unforeseeable events e.g. wars, strikes, riots etc. The UK is one contract that doesn’t automatically allow force majeure into law so it needs to be tightly defined in express terms.

Question 15

What is an indemnity? 3.2.1

Answer 15

An indemnity is a form of protection from liability, or a promise to keep the other party unharmed and fully compensated in event of a loss.

Question 16

Key terms in contracts - sub-contracting… 3.2.1

Answer 16

this is about controlling risk. Sub-contracting clauses establish whether it’s allowed or not, and if approval must be sought.

Question 17

Key terms in contracts - damages… 3.2.1

Answer 17

When liabilityfor loss is established by a contract, the injured party has the right to compensation from the other. Compensation takes the form of damages. Puts injured party back in position it would have been if the loss had not occurred. Injured party should not profit from compensation.

Question 18

Key terms in contracts… Guarantees 3.2.1

Answer 18

Guarantees are promises from the supplier to fulfil certain conditions.
Warranties are a form of guarantee where the supplier promises to maintain quality standards for a period of time after delivery. Some contracts require smaller subsidiaries to be ‘guaranteed’ by their larger parent companies.

Question 19

Key terms in contracts - Insurances… 3.2.1

Answer 19

An insurance clause in a contract helps the purchaser know that the supplier has adequate financial cover in the event of being liable for specific losses. The type and financial level of cover must also be established.

Question 20

What are examples of insurances that a supplier may need to hold? 3.2.1

Answer 20

1. Product liability insurance
2. General liability insurance
3. Professional indemnity insurance - could cover for negligence, accidents and mistakes
4. • Employer’s liability insurance - often a statutory requirement. Covers the financial losses from claims from organisations employees.

Question 21

What are liquidated damages? 3.2.1

Answer 21

Liquidated means expressed (quantified) in the contract, whereas unliquidated damages refer to losses thatare not quantified and are therefore left to a court to determine.

Question 22

What are genuine liquidated damages? 3.2.1

Answer 22

They are a genuine pre-estimate of loss.

Question 23

What are penalties? 3.2.1

Answer 23

A penalty is a requirement to pay a financial sum ot the injured party. It’s different from liquidated damages as it’s not a genuine pre-estimate of loss. A penalty is usually unenforceable in most legal systems. It’s an attempt to profit from a loss.