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?
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.
Sally is shopping and sees an advert in a travel agent's window that says that flights to Malta are 50% off. She enters the shop and begins to speak to a travel agent who informs her that the poster she'd seen is out of date. Is the travel agent obliged to give Sally the discounted flight?
Adverts are invitations to treat - not offers. Therefore the travel agent isn't bound to provide the discounted flight. See p.3 for more information on offers and ITTs
Service Credits are a form of what?
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.
Which of the following will you put into box 7?
The correct answers are as follows:
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.
When a contract becomes 'crystalised' what does this mean?
Crystalised means ' a dispute has occurred which qualifies for resolution by adjudication'. This is a direct quote from p. 144
