CIPS L5M3 Exam Practice Test Instant Access

Question 1

ABC has a contract with its supplier DEF who delivers pasta to ABC's manufacturing plant. DEF has committed a breach and conflict resolution has taken place. The Court has awarded ABC 'specific performance' damages. What could this involve?

ADEF must pay money to ABC as stated in the liquidated damages clause

BDEF must pay an amount of money as determined by the courts

CDEF must deliver the pasta required by ABC

DDEF must rescind the contract

Answer : C

DEF must deliver the pasta required by ABC is the correct answer. Specific performance is when the innocent party is rewarded by receiving what was initially negotiated - in this case the delivery of pasta. It's basically a posh way of saying that the court mandates you to do what the contract says. See p. 129 for information on Specific Performance.

Question 2

Tyrone Enterprises has just come out of a meeting with one of its suppliers Bob. The meeting has not gone well and the contract has become frustrated. What does this mean?

ANegotiations between the buyer and supplier have failed and dispute resolution will need to take place

Bthe supplier has committed a major breach and is unable to fulfil the contract

Ca situation has occurred which means that the contract can no longer be performed

DThe buyer no longer requires the supplier but is tied into the contract

Answer : C

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

Question 3

What is a Prime Contract?

AA contract between a buyer and main supplier

BA contract between an end customer and a company which has full responsibility for its performance

CA contract between a supplier and a subcontractor

DA contract between a public sector organisation and the taxpayer

Answer : B

'A contract between an end customer and a company which has full responsibility for its perfor-mance' is the correct answer. This is the definition of Prime Contract given on p. 47

Question 4

When there has been a major breach in a contract, the contract will be terminated. Is this statement true?

Ayes- the contract will be terminated and damages sought

Byes- the contract must be terminated as there is no means by which the contract could continue after a major breach

Cno- the contract can be affirmed by the injured party

Dno- the contract can continue if the offending party proves that further breaches won't occur

Answer : C

'no- the contract can be affirmed by the injured party' is the correct answer. When there is a breach in a condition, one of two things can happen; the contract is terminated, or the contract is affirmed. The injured party has the choice of whether or not they want to continue working with the other party and this is called 'affirmirmation of the contract'. The contract doesn't HAVE to be terminated in the case of a major breach so options 1 and 2 are incorrect. Option 4 is also incorrect- the contract can continue even if the offending party says they'll commit further breaches - it's completely up to the injured party whether they want to continue working with them or not. See p. 46 for further details

Question 5

What is the purpose of a limitation on liability clause?

Ait provides an accurate pre-estimate of potential loss

Bit caps a company's exposure to risk

Cit allows a party to claim on insurance if something goes wrong

Dit passes the responsibility to the other party

Answer : B

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

Question 6

Lollypop Manufacturer has a long standing contract with Retailer

AThey are three years into a five year contract and have been providing lollypops at 10p each since the beginning of the contract. Due to changes in the supply chain Lollypop Manufacturer would like a price increase. Can this be done?

Ano- the contract is ongoing for another 2 years

Bno- this would be unfair on the buyer

Cyes- if there is a variation clause and both parties agree

Dyes- prices always go up in contracts

Answer : C

yes- if there is a variation clause and both parties agree. This would usually be written in as a 'price adjustment clause' but if it's not, then it could be agreed and signed by both parties as a 'contract variation'. See p.16 for more details

Question 7

What is the name given to a term in a contract where one party promises to compensate the other party for a trigger event?

Aliability

Bwarranty

Cdamages

Dindemnity

Answer : D

Indemnity- this is the definition given on p. 20

CIPS L5M3 Managing Contractual Risk Exam Practice Test