Legal Duties& resp., Agency, Contract

Question 1

Five Elements of “Actual Fraud” (mnemonic)

● A - Actual and justifiable reliance
by plaintiff

● S - Scienter (intent to deceive)

Answer 1

MAIDS
- Misrepresentation - This means that a false statement or a misleading omission
was made. knowingly or recklessly
- Actual and justifiable Reliance by Plaintiff - The reliance on the misrepresentation must be justifiable. This means that the deceived party had a reasonable basis for believing the misrepresentation.
- Intent to Induce plaintiffs
reliance - The deceived party must have relied on the false statement or misleading omission when making a decision.

• Damages - The deceived party must have suffered some harm or loss as a result of their reliance on the misrepresentation.
• Scienter (Intent to Deceive) -
  The party making the misrepresentation must have an
  intention to deceive the other party

Question 2

Minority Rule : Some jurisdictions have expanded the scope of liability. Under the minority rule, a tax return preparer may
be liable to third parties who the preparer could foresee
would rely on the information. This means even if there’s no
direct contractual relationship, if the preparer should have
reasonably foreseen that a third party would rely on their
work and suffer harm due to negligence, the preparer could
be held liable.

Question 3

Constructive Fraud:

Answer 3

Intent: Constructive fraud does not require an intent to
deceive. It typically arises from a breach of a legal or
equitable duty, which, irrespective of the breaching party’s
intent, the law expressly declares to be fraudulent because
of its tendency to deceive others, to violate public or private
confidence, or to injure public interests.

Answer 4

Example of Constructive Fraud: An agent responsible for
purchasing property for a client fails to disclose that they
also have a personal financial interest in the sale of that
property. Even if the agent believed the purchase was in the
client’s best interest and had no intent to deceive, the failure
to disclose the personal interest can constitute constructive
fraud because of the breach of duty.

Question 5

What is an agent

Answer 5

A person given authority by the principal to act on their behalf to a 3rd party

Question 6

name the types of agency relationships and their subs

Answer 6

A. Actual Authority - given d directly or implied by principal
1. Express Authority - principal tells agent explicitly
2. Implied Authority - good example is principal gives agent authority to sell a house, so the agent has implied authority to hire an appraisal
B. Apparent Authority - principal creates the appearance to 3rd party of agent having authority

Question 7

Apparent Authority - This can happen even if the agent doesn’t have actual authority.
It’s based on the third party’s reasonable belief stemming from the principal’s representations (which can be by actions, words, or
through the customary roles of the agent in the industry).

Answer 7

the power an agent appears to have based on the principal’s actions, allowing a third party to reasonably believe the agent has authority to act on their behalf,

Question 8

Agency By Estoppel

Answer 8

“agency by estoppel” is the legal concept where a principal is prevented from denying an agent’s authority due to their conduct that created the impression of agency in a third party’s mind,which is sometimes grouped under apparent authority or
treated similarly, is a legal doctrine that may come into play when an agent lacks actual authority. It occurs when the principal’s actions lead a third party to believe that the agent has the authority to act, even if the agent does not have such authority

Question 9

Agency By Estoppel

Answer 9

In such cases, the principal is “estopped” (prevented) from
denying the agent’s authority if a third party has changed
their position based on a reasonable belief that the agent
was authorized.

Question 10

How does Agency by estoppel work

Answer 10

Here’s how agency by estoppel works:
● Representation by the Principal: The principal must
have represented, through actions or neglect, that the
agent has the authority to act on their behalf.
● Third-Party Reliance: The third party must have relied on the principal’s representation, and that reliance must have been reasonable under the circumstances.
● Change of Position: The third party must have been induced to change their position as a result of the agent’s purported authority – for example, by entering into a contract or transaction.
● Detriment: The third party usually needs to demonstrate
that they would suffer a loss or detriment if the agent’s
acts are not binding upon the principal.

Question 11

Ratification
Example with agency relationship:
An employee (agent) at a tech firm, without authority, signs a
contract with a supplier for computer parts. The CEO
(principal) later learns of the contract and decides to honor it.The CEO’s decision to ratify the unauthorized act creates an
agency relationship retroactively.

Answer 11

the person didnt have authority but after the principal finds out, they say its ok, they ratify the act

Question 12

Inherent Authority
Example with agency relationship: A vice president (agent) of operations for a large corporation enters into a contract with a cleaning service for office maintenance, even though the Board of Directors did not grant this specific power. Given the vice president’s position,
it’s reasonable for the cleaning service to assume they have
the authority to make such decisions. This could be viewed
as inherent authority.

Answer 12

as per your position you should have authority naw. its reasonable for the 3rd party to believe u have authority

Question 13

Agency by Estoppel
Example with agency relationship:
A principal who owns a store allows an individual (agent) to
manage all operations, including placing orders for goods,
for several years. One day, the principal secretly revokes the
manager’s authority but does not inform the suppliers. The
suppliers continue to fill orders based on the prior apparent
authority. The principal is estopped from denying the
manager’s authority because the suppliers relied on their
belief that the manager was still authorized, which the
principal had previously cultivated.

Question 14

What are the duties of an agent

Answer 14

• Duty of Loyalty - Agent must act in best interest of principal, cannot compete with principal, cant have dual agency without informing principal
• Duty of Obedience
  -Duty of Care and skill
  -Duty to Inform
• Duty of Accounting
  -Duty of good conduct

Question 15

What are the liabilities of an agent

Answer 15

• Contractual Liability: If an agent enters into a contract on
  behalf of a disclosed principal and within the scope of their
  authority, the principal is liable, not the agent. However, if the principal is partially disclosed or undisclosed, the agent may
  become liable on the contract.
• Tort Liability: Agents are personally liable for their own
  torts, even if the acts were performed on behalf of a
  principal. If the agent’s tortious conduct was directed,
  authorized, or ratified by the principal, then the principal may
  also be liable
  -Liability for Breach of Duty:
  -Liability for Misrepresentation:
• Liability for Negligence: I

Question 16

Duties of Principals

indemnify - to compensate for harm/loss, reimburse for, repay for

Answer 16

Duty to compensate
Duty to reimburse
Duty to Indemnify: The principal must indemnify the agent
against losses incurred while carrying out authorized duties.
This could include legal liabilities or other losses that the
agent suffers as a result of acting on behalf of the principal.
Duty to cooperate
Duty to provide safe working conditions

Question 17

Principal Liabilities

Answer 17

• contractual liability- principals are bound by the contracts their agents get into as long as agent acted within scope of his/her authorit-
  -liability for agents torts
• liability for failure to perform
• Direct liability: principals can beheld liable for negligent/false info if agent does something based on false info given to the agent by the principal
  -liability for agent misrepresentation
  -liability for wrongful termination

Question 18

What has to be included to be a contract

Answer 18

Offer
Acceptance
Consideration
Intention to create legal relations
Note: parties have to be legal. No minors or mentally incapacitated. Also it can’t be for illegal purpose or against public policy

Question 19

State and explain the types of contracts

Answer 19

-Express contract: terms stated clearly in writing or orally, like purchase of a car.
- implied contracts: implied not written or orally stated.
-implied in fact- like if u visit a doctor it’s implied u will pay for the services
-implied in law contracts (quasi contract) : like if u receive goods u didn’t ask for but u used and didn’t return, the law can say u must pay coz contract is implied by keeping the goods
-Bilateral contracts- performance promise to do for performance promise to do. Most businesses and personal contracts.
-unilateral contracts: promise for another party’s performance, like $50 for finding lost dog

Question 20

Diff btw executed and executory contract

Answer 20

Executed- contractual obligations done.
Executory - contractual obligations almost all done. Like signing a lease but haven’t moved in yet

Question 21

Void vs voidable contract

Answer 21

Void contracts are not legal from the beginning, they lack the elements necessary to be a contract or they are illegal. Voidable contracts are valid but can be voided by one of the parties like a contract with a minor

Question 22

In order to reach the stage of an executed contract, the parties involved must fulfill their performance obligations according to certain rules and principles:

Answer 22

1. Performance According to Contract Terms Complete Performance
2. Substantial Performance
   performance.
3. Material Breach
4. Time of Performance
   Time Is of the Essence: If the contract specifies that performance
   by a certain date is critical, then any delay may constitute a
   breach. If time is not of the essence, reasonable delays might be
   acceptable.
5. Excuses for Non-Performance

Question 23

Performance According to Contract Terms Complete Performance

Answer 23

Performance According to Contract Terms Complete Performance: The parties must perform exactly as
specified in the contract.

Question 24

Substantial Performance:

Answer 24

If a party performs most of the contract terms but falls short in some minor way, this may still be considered substantial The other party is still obligated to perform (usually to pay), but may be entitled to
damages for the minor deviation.

Question 25

Material Breach

Answer 25

This occurs when one party fails to perform their contractual duties, and the breach is so significant that it undermines the entire contract. The non-breaching party is then excused from further performance and can sue for damages

Question 26

Time of Performance

Answer 26

Time Is of the Essence: If the contract specifies that performance by a certain date is critical, then any delay may constitute a breach. If time is not of the essence, reasonable delays might be acceptable.

Question 27

5. Excuses for Non-Performance

Answer 27

There are several situations where non-performance is excused: ● Impossibility: Performance is impossible due to factors beyond the parties' control (e.g., natural disaster). ● Impracticability: Performance is unfeasibly difficult or expensive in ways not foreseen by the parties. ● Frustration of Purpose: An unforeseen event undermines the contract's purpose, through no fault of either party. ● Mutual Rescission: Both parties agree not to perform and to cancel the contract. ● Alteration of the Contract: If one party unilaterally changes the terms of the contract without consent, the other party may be excused from performance.

Answer 28

6. Performance by a Third Party Generally, unless the contract specifies that the obligation is personal in nature (due to the particular skills of the obligor), a third party may perform the contractual obligations.

Answer 29

7. Order and Timing of Performance If a contract involves the exchange of performances (like a service for payment), the party that is required to perform first must do so before the other party's performance is due. If the contract doesn't specify, then concurrent performance is often assumed.

Answer 30

8. Satisfaction Clauses In some contracts, performance is contingent upon one party’s satisfaction with the other's performance. This can be subjective (personal satisfaction) or objective (meeting a professional standard).

Answer 31

9. Tender of Performance The offering of performance (tender) is important. If one party makes a proper tender of performance and the other party refuses, the refusing party may be in breach of contract

Question 32

Remedies for Breach If one party fails to perform, the other party generally has the right to seek legal remedies, such as:

Answer 32

● Damages: Compensation for the breach. ● Specific Performance: A court order requiring the breaching party to fulfill their contractual obligations. Rescission: The contract is canceled, and both parties are returned to their pre-contractual positions.

Question 33

A contract can be discharged or terminated in several ways, which releases the parties from their obligations. the primary methods of contract discharge are?

Answer 33

1. Discharge by Performance The most straightforward way, both parties fulfill their obligations as per the terms of theagreement. This is known as complete performance or actual performance. There are two forms: ● Complete Performance: Every aspect of the contract's terms has been met to the satisfaction of all parties involved. ● Substantial Performance: When performance slightly deviates from the contract but still delivers the core benefits, 2. Discharge by Agreement Sometimes, the parties involved may agree to discharge the contract before the full performance is completed. ● Mutual Rescission: The parties mutually agree to cancel the contract. Novation: A new contract is created, possibly including a new party, which replaces and discharges the obligations of the original contract. ● Accord and Satisfaction: The parties agree (accord) to accept a different performance than initially contracted and the new obligation is performed (satisfaction). ● Substitution: A new contract with different terms replaces the old one. 3. Discharge by Operation of Law 4. Discharge by Breach 5. Discharge by Lapse of Time 6. Discharge by Conditional Contract Sometimes a contract is entered into on a conditional basis. If the condition is not met, the contract may be discharged: ● Condition Precedent: The contract stipulates that unless a certain event occurs, the contract does not need to be performed. ● Condition Subsequent: The contract is discharged if a specific event occurs after the contract is executed.

Question 34

3. Discharge by Operation of Law

Answer 34

In some cases, a contract is discharged due to certain legal principles or events without the parties' direct intention: ● Impossibility of Performance: An unforeseen event not caused by either party makes performance impossible ● Frustration of Purpose: Occurs when an unforeseen event undermines the fundamental reason for entering into the contract. ● Illegality: If the contract becomes illegal due to new laws or regulations, it is discharged. ● Insolvency: If a party becomes insolvent, this may discharge the contract as they are legally incapable of fulfilling the payment obligations. ● Bankruptcy: When a party is declared bankrupt,

Question 35

. Discharge by Breach

Answer 35

A breach of contract occurs when one party fails to fulfill their part of the contract. This can result in discharge in two main ways: ● Material Breach: A serious breach that goes to the essence of the contract can discharge the non-breaching party from their obligations and possibly entitle them to damages. ● Anticipatory Breach: Occurs when one party indicates in advance that they will not be performing their contractual obligations, allowing the other party to be discharged.

Question 36

5. Discharge by Lapse of Time

Answer 36

Contracts can include a term that specifies that the obligations must be performed within a certain period. If the obligations are not performed within this time, the contract is typically discharged by lapse of time. Additionally, statutory limitations may apply, after which legal action cannot be initiated.

Question 37

Discharge by Conditional Contract

Answer 37

Sometimes a contract is entered into on a conditional basis. If the condition is not met, the contract may be discharged: ● Condition Precedent: The contract stipulates that unless a certain event occurs, the contract does not need to be performed. ● Condition Subsequent: The contract is discharged if a specific event occurs after the contract is executed.

Question 38

Anticipatory Repudiation

Answer 38

Situation: Two months before a custom furniture delivery is due, the buyer informs the maker that they will not pay for the items as they’re moving abroad. Analysis: The buyer's statement is an anticipatory repudiation of the contract, relieving the maker of the obligation to finish the furniture and allowing them to seek damages or sell the items to another buyer

Question 39

When a party breaches a contract, the non-breaching party has several remedies available. The selection of an appropriate remedy often depends on the nature of the breach and the damages caused.

Question 40

Here are the primary remedies for breach of contract:

Answer 40

1. Damages - Compensatory damages - consequential damages - Punitive damages - Nominal Damages: - Liquidated Damages: 2. Specific Performance 3. Rescission 4. Reformation 5. Injuction 6. Reliance Damages 7. Restitution

Question 41

Compensatory Damages:

Answer 41

These are intended to compensate the non-breaching party for the loss directly resulting from the breach, aiming to put the party in the position they would have been in if the breach had not occurred. This is the most common form of damages.

Question 42

Consequential Damages

Answer 42

: Also known as special damages, these compensate for additional losses that are a foreseeable result of the breach beyond the immediate contractual harm. They must be proven with reasonable certainty and be a foreseeable result of the breach when the contract was made.

Question 43

● Punitive Damages:

Answer 43

Rare in contract law, punitive damages are intended to punish the breaching party for particularly egregious behavior and deter similar conduct in the future. They are not usually awarded for simple breaches of contract but may be considered in cases involving tort actions in addition to the breach.

Question 44

● Nominal Damages:

Answer 44

When a breach has occurred, but the non-breaching party has not suffered any actual loss, nominal damages may be awarded. This is a small, often symbolic, amount of money.

Question 45

● Liquidated Damages:

Answer 45

These are damages specifically stated in the contract that the parties agree upon in advance as a reasonable estimation of the actual damages that would result from a breach.

Question 46

Specific Performance

Answer 46

Specific performance is an equitable remedy that compels the breaching party to perform the contract according to its terms. It is typically used when monetary damages are inadequate to remedy the harm caused by the breach. This remedy is often sought for contracts involving unique items, such as real estate or rare goods.

Question 47

Rescission

Answer 47

Rescission is the cancellation of the contract and a return to the status quo ante, where both parties give back what they have received. If nothing has been exchanged yet, the contract is simply canceled. Rescission is often used when there has been a material misrepresentation, fraud, undue influence, or mutual mistake.

Question 48

Reformation

Answer 48

Basically redo contract instead of discarding it to make sense Reformation is the process of modifying the contract to reflect the parties' true intentions. This remedy is typically used when there has been a mutual mistake in the terms of the contract, or when the terms are found to be unenforceable as written. Reformation allows for the contract to be corrected without being entirely discarded.

Question 49

Injunction

Answer 49

An injunction is a court order that requires a party to do or refrainfrom doing specific acts. It may be preventive (prohibitory injunction) to stop a party from doing something that would breach the contract, or mandatory, compelling action that fulfills the contractual agreement. Injunctions are often used in situations where a breach would cause irreparable harm that cannot be adequately remedied by damages.

Question 50

Reliance Damages

Answer 50

Basically reimbursement of damages from relying on the contract to the party that didn't breach . Reliance damages reimburse the non-breaching party for expenses or losses incurred in reliance on the contract. These damages aim to put the injured party in the position they would have been in had the contract never been formed.

Question 51

Quantum Meruit

Answer 51

Quantum meruit is not a remedy for breach of contract per se but is a principle used when no formal contract exists or when work has been performed under a contract that has been rescinded. The party who has performed the work can recover the reasonable value of their services in order to prevent unjust enrichment.

Question 52

Restitution

Answer 52

Restitution is a remedy designed to prevent unjust enrichment. It requires the breaching party to return or pay for the benefit they have received. Restitution is commonly used when a contract is voided due to a party's incapacity or illegality.

Answer 53

Rights of Debtors ● Fair Debt Collection: Under the Fair Debt Collection Practices Act (FDCPA), debtors have the right to be treated without harassment, oppression, or abuse by debt collectors.

Answer 54

If a debtor files for bankruptcy, they may be liable for certain actions that took place prior to filing, such as preferential transfers or fraud.

Answer 55

Secured Debts: For secured debts, such as car loans or mortgages, the debtor’s liability may include the surrender of the secured asset if they cannot fulfill their repayment obligations.

Question 56

Rights of Guarantors

Answer 56

- Right to Information: Guarantors have the right to be informed about the financial status of the debtor and any circumstances that might affect the debtor’s ability to repay the debt. - Subrogation - After paying the creditor, the guarantor has the right to take the place of the creditor and obtain the rights the creditor had against the debtor (subrogation), including any collateral or security - Indemnification - : Guarantors have the right to seek reimbursement from the principal debtor for any money they have paid under the guarantee. - Right to Limit Liability: Guarantors can sometimes limit their liability to a certain amount or for a specific period.

Question 57

indemnification

Answer 57

seek reimbursement, ex: An insurance company indemnifies an insured person for losses due to an accident or property damage. ,

Question 58

subrogation

Answer 58

take the place and rights of the creditors

Question 59

Duties of Guarantors:

Answer 59

● Duty to Pay: The guarantor has a duty to pay the debt according to the terms of the guarantee if the debtor defaults. ● Duty to Cooperate: Guarantors must cooperate with the creditor in any proceedings that are necessary once the guarantee is called upon. ● Duty to Disclose Information: Guarantors must disclose any information that materially alters the risk to the guarantor, like changes in the debtor's financial situation.

Question 60

Limitations and Defenses for Guarantors:

Answer 60

● Defenses of the Debtor: Guarantors may use any defense that the debtor could have used against the creditor (e.g., fraud or duress in the making of the contract). ● Statute of Limitations: Guarantors can claim the statute of limitations if the creditor does not make a claim within the prescribed time. ● Release or Discharge: If the creditor releases the debtor or any co-guarantors from liability, this can sometimes release the guarantor. ● Bankruptcy of the Debtor: The bankruptcy of the principal debtor can affect the rights and liabilities of the guarantor, although generally, the guarantee survives the bankruptcy.

Question 61

Guarantor vs Surety

Answer 61

A. Nature of Obligation: Guarantor - Secondary obligation that arises only after the principal defaults and creditor has exhausted primary means of collection. Surety - Primary obligation that exists alongside the principal's obligation. B. When Creditor Can Claim from the Guarantor/Surety Guarantor -Typically, after creditor has made effort to collect from the principal debtor. Surety - Immediately upon principal's default, without needing to exhaust remedies against the debtor. C. Relationship to the Principal's Debt Guarantor - An accessory to the principal obligation. Guarantor's liability comes into play if the principal fails to perform. Surety - Coextensive with the principal obligation; surety's liability is often equal to the debtor's liability. D. Legal Form Guarantor - Informal agreement is often sufficient. Surety - Formal agreement is typically required.Regulated by statutes such as the Uniform Commercial Code. E. Common Usage Guarantor - Personal loans, leases, and informal credit extensions. Surety- Commercial contracts, performance bonds,construction bonds, and other situations where performance is guaranteed. F. Right of Recourse Against the Debtor Guarantor- A guarantor has the right to seek reimbursement from the principal debtor after paying the creditor. Surety - A surety has the right of subrogation to step into the shoes of the creditor and seek reimbursement from the principal debtor

Question 62

Types of Bankruptcy

Answer 62

-Chapter 7 bankruptcy is a liquidation -Chapter 11 for businesses and -Chapter 13 for individuals). Chapter 11 and 13 is reorganization

Question 63

Creditors must file proofs of claim to be eligible to receive distributions. Not all creditors must file a claim (e.g., secured creditors with a lien on property typically do not need to file)

Question 64

Distribution Hierarchy for Chapter 7 Bankruptcy: The Bankruptcy Code establishes a clear hierarchy of claims:

Answer 64

○ Secured Claims: These are paid first from the proceeds of the collateral securing the debt. ○ Priority Unsecured Claims: These include administrative expenses, wages, salaries, and taxes.They are defined by the Bankruptcy Code and are paid in full before other unsecured claims. ○ Nonpriority Unsecured Claims: If there are any funds remaining, these claims are paid on a pro rata basis. Credit card debts, medical bills, and personal loans usually fall into this category

Question 65

Chapter 13 and Chapter 11 Bankruptcy (Reorganization) In a reorganization bankruptcy, the debtor retains their assets and pays creditors over time according to a court-approved repayment plan.

Answer 66

1. Filing of Plan: The debtor proposes a repayment plan to pay back all or a portion of the debts over a three- to five-year period for Chapter 13 or according to the plan timeline in Chapter 11. 2. Plan Confirmation: The bankruptcy court must confirm the plan. The plan must be feasible, proposed in good faith, and in the best interests of creditors, meaning it must pay creditors at least as much as they would have received under a Chapter 7 liquidation. 3. Repayment: The debtor makes payments to a trustee, who then distributes payments to creditors according to the terms of the confirmed plan. ● Secured Creditors: In the reorganization plan, secured creditors can expect to receive at least the value of their collateral. If the debt exceeds the value of the collateral, the remainder may be treated as unsecured. ● Unsecured Creditors: Unsecured creditors may receive less than the full amount of their claims, but the debtor must use all disposable income towards the plan payments for the applicable commitment period. ● Completion and Discharge: Once the debtor completes the repayment plan, most remaining unsecured debts are discharged.

Question 67

The Bankruptcy Code specifies the order of priority for paying claims from the bankruptcy estate. If there are not enough funds to pay all claims within a particular class, the funds are distributed pro rata to creditors within that class.

Question 68

list from the highest priority to the lowest:

Answer 68

1. Primary Tier: Estate Costs and Fees ● Administrative expenses of the bankruptcy proceeding itself, including trustee fees, legal fees, and accounting fees. ● Gap creditors' claims for new credit extended to the debtor after a Chapter 7 filing but before the case is converted to another chapter. 2. Domestic Support Obligations alimony and child support 3. Administrative Expenses of a Trustee ● Expenses incurred in the operation of the debtor’s business by the trustee after the commencement of the bankruptcy case 4.Wages, Salaries, and Commissions 5. Contributions to Employee Benefit Plans ● Contributions to employee benefit plans for services rendered within 180 days before the filing of the bankruptcy petition or the cessation of the debtor's business, capped at a certain amount per individual. Grain Farmers and Fishermen Claims 6. Claims of grain farmers and fishermen against storage and processing facilities, up to a certain amount. Consumer Deposits 7. Claims of individuals for deposits made for the purchase, lease, or rental of property or services for personal, family, or household use, up to a certain amount, that were not delivered or provided. 8. Taxes and Certain Other Debts Owed to Governmental Units 9. Commitments to Maintain the Capital of an Insured Depository Institution

Answer 69

10. Fines, Penalties, and Forfeitures ● Certain fines, penalties, and forfeitures payable to governmental units that are not compensation for actual pecuniary loss. 11.Subordinated Claims ● This includes claims that are subordinated by statute, such as penalties or fines, or subordinated by contractual agreement. 12. Interest ● Interest accrued on unsecured claims during the bankruptcy case. Stockholders or Partners 13.Finally, equity security holders (shareholders or partners) receive any remaining assets, if any.

Question 70

Secured Creditors

Answer 70

A secured creditor is an individual or business that holds a claim against the debtor that is secured by a lien on property of the debtor. This lien can be voluntary, such as with a mortgage or a car loan, or it can be involuntary, such as a mechanic's lien or a tax lien.

Question 71

The key characteristics of a secured creditor are:

Answer 71

- Collateral: if the debtor fails to pay the debt, the secured creditor has the right to seize the collateral, sell it, and apply the proceeds to the outstanding debt. - Priority in Bankruptcy - Agreement: The relationship between a secured creditor and the debtor is usually established through a contract -Perfection: For a secured creditor to enforce its security interest against third parties, including other creditors, the interest must usually be "perfected" by registering it with the appropriate state or federal registry, depending on the type of collateral. - Risk and Interest Rates: Because their loans are backed by collateral, secured creditors typically face lower risk and, consequently, may offer lower interest rates compared to unsecured loans.

Question 72

Unsecured Creditors An unsecured creditor does not have a lien on the debtor's property. The credit extended to the debtor is based largely on creditworthiness and the debtor's promise to repay, without specific collateral to secure the obligation.

Question 73

Characteristics of Unsecured Creditors

Answer 73

- No Collateral: - Bankruptcy Position: In bankruptcy, unsecured creditors are typically paid after secured creditors and priority unsecured claims (like certain taxes and child support obligations). . - Claims: Common examples of secured claims include credit card debt, medical bills, utility bills, and unsecured personal loans. - Risk and Interest Rates: Unsecured creditors bear a greater risk since they do not have a claim on any specific asset if Therefore, they generally charge higher interest rates to compensate for the increased risk. - Legal Remedies: If an unsecured creditor is not paid, they must file a lawsuit to obtain a judgment against the debtor. Only after obtaining a judgment can the creditor pursue collection actions such as garnishing wages or levying bank accounts

Question 74

Perfecting a security interest is an important process in securing a lender's rights against the borrower's assets in the event of default. The steps and requirements can vary depending on the jurisdiction and the type of asset, but generally involve the following key steps:

Answer 74

1. Attachment of the Security Interest: 3 requirements: i. Value: The lender (secured party) must give something of value in exchange for the security interest. ii. Contractual Agreement: There needs to be an agreement, either explicit or implied, that creates the security interest. This is typically done through a security agreement. iii. Rights in the Collateral: The borrower (debtor) must have rights in the collateral or the power to transfer rights in the collateral to the secured party.

Answer 75

2. Perfection of the Security Interest: After attachment, the security interest must be perfected. Filing a Financing Statement: For most types of personal property, a financing statement (often a UCC-1 form in the United States) must be filed with an appropriate government office (usually a Secretary of State or similar agency). ● Possession of the Collateral: In the case of tangible property, taking physical possession of the collateral can perfect the security interest. ● Control: For certain types of collateral, such as deposit accounts or electronic chattel paper, perfection is achieved by the secured party taking control of the collateral. ● Automatic Perfection: For some types of collateral, such as purchase-money security interests in consumer goods, perfection is automatic upon attachment.

Answer 76

3. Continued Compliance and Monitoring: The secured party must ensure continued compliance with the relevant laws and regulations. This includes maintaining the perfection of the security interest, 4. Priority and Enforcement: In case of the debtor's default, the order of priority determines which creditors get paid first. The secured party may enforce the security interest by repossessing and disposing of the collateral according to the law and the terms of the agreement.

Question 77

Implied duties an Agent owes their Principal (mnemonic)

Answer 77

LORA ● L - Duty of Loyalty ● O - Duty of Obedience ● R - Duty of Reasonable Care ● A - Duty to Account

Question 78

Common law pertains to contracts involving (mnemonic)

Answer 78

RISE ● R - Real estate ● I - Insurance ● S - Services ● E - Employment

Question 79

Contracts can be terminated through operation of law (mnemonic)

Answer 79

DIDI ● D - Death (or incapacity) ● I - Incompetency ● D - Destroyed ● I - Illegality

Question 80

Scenarios that make a contract VOID (mnemonic)

Answer 80

(D)A PIE ● (D) - Destruction of subject matter ● A - Adjudicated incompetency ● P - Physical duress ● I - Illegality ● E - Fraud in the Execution

Question 81

Six types of contracts that must be in writing (Statute of Frauds) (mnemonic)

Answer 81

MY LEGS ● M - Marriage ● Y - Cannot be performed within Mone Year ● L - Land ● E - Executors or similar representatives ● G - Goods costing $500 or more ● S - Acting as a Surety

Question 82

COAXL – Summary of Elements of a Contract (mnemonic)

Answer 82

● C - Capacity (competent; adult) ● O - Offer ● A - Acceptance ● X - Exchange consideration ● L - Legal

Question 83

Summary of potential Defenses for Contracts (mnemonic)

Answer 83

DUMIS ● D - Duress ● U - Undue influence ● M - Mutual mistake or misrepresentation ● I - Intoxicated ● S - Statute of frauds or limitations

Question 84

Automatic termination of Actual Authority and Apparent Authority by operation of law (mnemonic)

Answer 84

BID LID - Automatic termination of Actual Authority and Apparent Authority by operation of law: ● B - Bankruptcy of the principal ● I - Incapacity of the principal ● D - Death of either principal or agent ● L - Failure to acquire necessary License ● I - Subsequent Illegality ● D - Destruction of the subject matter

Question 85

Defenses of a Surety

Answer 85

SCRIP - ● S - Surety lacks capacity or is bankrupt. ● C - Creditor acts in bath faith or consideration is not given. ● R - Risk is varied ● I - Illegal debt ● P - Payment already made or tendered to be paid by debtor