CIPS Exam L4M3 Topic 3 Question 38 Discussion

Actual exam question for CIPS's L4M3 exam

Question #: 38
Topic #: 3

[All L4M3 Questions]

When should liquidated damages clauses be written into a contract?

AWhen the innocent party wants to punish the breaching party.

BWhen the breaching party wants to exclude all its liabilities

CWhen the court approves the damages amount before the contract is executed.

DWhen the loss to the innocent party will be either too uncertain or too difficult to calculate.

Show Suggested Answer

Suggested Answer: D

When parties do not negotiate face-to-face, a key Question: becomes when

things like acceptances, rejections and revocations take effect. The general rule is that acceptances are effective on dispatch (when they are mailed). Everything else becomes effective when the offeror actually receives them. This idea is codified by the ''mailbox rule'' which states that acceptance is effective on dispatch, even before the offeror has received it. (The one minor exception to this rule involves option contracts for which acceptances are not effective until they are received by the offeror.)

- The Mailbox Rule

- CIPS study guide page 34

by Gilma at Jul 02, 2024, 04:02 PM

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German

22 days ago

But isn't it also important to consider the fairness of the damages amount? It shouldn't be used as a way to punish the breaching party unfairly.

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Viola

23 days ago

I agree with Annice. It provides clarity and certainty on the damages that will be paid in case of breach.

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Annice

26 days ago

Liquidated damages clauses should be written into a contract when the loss to the innocent party will be either too uncertain or too difficult to calculate.

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Veda

26 days ago

Option A? Seriously? Punishing the breaching party? That's just petty. The purpose of liquidated damages is to provide reasonable compensation, not to seek revenge.

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Matilda

9 days ago

A) When the innocent party wants to punish the breaching party.

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