Unit 1 Topic 16 - Key legal concepts

Question 1

What is a ‘legal person’?

Answer 1

A ‘legal person’ is a body that has a legal existence and can, therefore, enter into contracts, sue or be sued in a court of law.

Question 2

What is a Limited liability partnership?

Answer 2

The partners have a limited personal liability if the business should collapse: their liability is limited to the amount that they have invested in the partnership, together with any personal guarantees they have given.

Question 3

Explain Offer an acceptance in relation to requirements for a binding contract.

Answer 3

There must be an offer made by one party (the offeror) and there must be an unqualified acceptance by the other. This acceptance must be communicated to the other party.

Question 4

Explain Consideration in relation to requirements for a binding contract.

Answer 4

The subject of the contract (often a promise to do something or supply something) must be matched by a consideration (which is frequently, but not necessarily, the payment of money).

A promise to pay is a valid consideration.

Question 5

Explain Capacity to contract in relation to requirements for a binding contract.

Answer 5

Each of the parties to the contract must have the legal capacity, or power, to enter into the contract, for example, minors and those of unsound mind.

For financial institutions such as insurance companies, capacity to contract depends on being authorised by the FCA/PRA.

Question 6

Explain Contract terms in relation to requirements for a binding contract.

Answer 6

These must be certain, complete and free from doubt. For example, when a customer engages an independent financial adviser (IFA), the IFA’s commitments are detailed in a terms of service agreement.

Question 7

Explain Intention to create a legal relationship in relation to requirements for a binding contract.

Answer 7

As distinct from a merely informal arrangement.

Question 8

Explain Legality of object in relation to requirements for a binding contract.

Answer 8

Contracts cannot be made for illegal or immoral purposes.

Question 9

Explain Misrepresentation, duress or undue influence in relation to requirements for a binding contract.

Answer 9

If any of these factors are involved in leading someone to enter into a contract, the contract is not binding.

Question 10

What is the Consumer Insurance (Disclosure and Representations) Act 2012?

Answer 10

The Act more clearly defines the responsibilities of insurance customers. It abolishes the duty of consumers to volunteer material facts when applying for insurance and instead requires them to take reasonable care to answer the insurer’s questions fully and accurately.

Question 11

What are Damages in relation to Remedies for breach of contract?

Answer 11

The injured party seeks to obtain financial compensation for their loss. The intention is to put them in the position they would have been in had the contract not been breached by the other party, insofar as it is possible to do so with money.

Question 12

What is Order for specific performance in relation to Remedies for breach of contract?

Answer 12

Such an order compels the other party to complete the contract.

Question 13

What is an Injunction in relation to Remedies for breach of contract?

Answer 13

This is a court order preventing someone from doing something.

Question 14

What is the law of agency?

Answer 14

An agent is a person who acts on behalf of another, who is called the principal. The agent can conclude contracts on behalf of the principal.

In law, the acts of the agent are treated as being those of the principal.

Question 15

Define Agent.

Answer 15

Acts on behalf of the principal, within specific boundaries, to conclude contracts.

Question 16

Define Apparent authority.

Answer 16

Something either done or said y the principal that leads to the impression that they have authorised the agent’s actions.

Question 17

Define Principal.

Answer 17

The Party granting permission to the agent to act on their behalf.

Question 18

Define Ratification.

Answer 18

A retrospective agreement by the principal to actions taken by the agent that exceed the latter’s authority.

Question 19

What is Realty?

Answer 19

Property is deemed to be real if a court will restore it to a dispossessed owner and not merely provide compensation for loss.

Real property tends to be distinguished by being immovable, eg land and what is attached to it, also known as real estate.

Question 20

What is Personalty?

Answer 20

All other property (from Realty) is called personalty.

Question 21

What are Joint tenants?

Answer 21

Each joint owner owns 100% of the property - there is no division of the property. On the death of any joint owner, the surviving joint owner(s) will take over legal ownership of the property. The transfer is automatic and cannot be overridden by any provisions made by a joint tenant in a will or through the laws of intestacy.

Question 22

What are Tenants in common?

Answer 22

The joint legal owners are regarded as one single owner but are trustees of the land. However, each legal owner is also the beneficial (or equitable) owner of a defined interest (share) of the equity in the property, as agreed between them. If one owner dies, their share of the property passes to whoever is entitled to inherit it under the terms of their will or the laws of intestacy.

Question 23

What is the power of attorney?

Answer 23

An attorney is a person who is given the legal responsibility to act on behalf of another person.

Question 24

What is an enduring power of attorney?

Answer 24

An enduring power of attorney (EPA) can continue if the donor becomes mentally incapacitated, although it has to be registered with the Office of the Public Guardian if the attorney believes that the donor is losing mental capacity.

Question 25

Define Donor in relation to power of attorney.

Answer 25

Person who makes a power or attorney.

Question 26

Define Donee in relation to power of attorney.

Answer 26

Person who is given power of attorney. Often, they are simply referred to as the attorney.

Question 27

Explain Health and welfare in relation to lasting power of attorney.

Answer 27

This gives the attorney power to make decisions over issues such as medical care or moving into residential care. It can only be used once the donor can no longer make decisions for themselves.

Question 28

Explain Property and financial affairs in relation to power of attorney.

Answer 28

This gives the attorney power to manage the donor’s bank accounts, collect benefits and sell property. It can be used even if the donor has mental capacity, as long as the donor gives permission.

Question 29

What happens if no power of attorney is in place?

Answer 29

If a person loses mental capacity and does not have a valid LPA or EPA in place, the Court of Protection can appoint a deputy.

Question 30

What is a will?

Answer 30

A will is a written declaration of an individual’s wishes regarding what they want to happen after they have died. Although primarily concerned with how the person wishes to dispose of their assets, a will can also deal with other matters, such as giving instructions about burial.

Question 31

What two formalities must be followed to make a valid will?

Answer 31

• The will must be in writing.

- The will must be properly executed.

Question 32

Define Testator.

Answer 32

Person who makes the will.

Question 33

Define Beneficiary in relation to wills.

Answer 33

A person or organisation that receives benefits under the terms of a will.

Question 34

Define Codicil.

Answer 34

A document that formally amends a will.

Question 35

Define Executor.

Answer 35

Person named by the testator as being responsible for carrying out the wishes expressed in a valid will.

Question 36

Define Grant of probate.

Answer 36

Legal authority for executors to distribute an estate according to the terms of a valid will.

Question 37

Define Deed of variation.

Answer 37

Legal agreement by the beneficiaries to alter the terms of a will, after the death of the testator.

Question 38

Define Money’s worth in relation to distribution of the estate.

Answer 38

Provision of goods/services in lieu of a cash payment.

Question 39

What is Intestacy?

Answer 39

A person who has died without having made a valid will is said to have died intestate.

Question 40

Define Administrator in terms in relation to distribution of the estate.

Answer 40

Person given the role of distributing the estate according to the rules of the intestacy.

Question 41

Define Letters of administration in relation to distribution of the estate.

Answer 41

Legal authority to distribute the estate of a person who has died without leaving a valid will.

Question 42

Define Settlor in relation to distribution of the estate.

Answer 42

The person who creates the trust and originally owned the assets held within it.

Question 43

Define Trust Dee in relation to distribution of the estate.

Answer 43

Document that sets out how the trust is to be managed, by whom and for whose benefit.

Question 44

Define Trustee in relation to distribution of the estate.

Answer 44

Person named in the trust deed as the legal owner of the trust property, with responsibility to look after and distribute the trust property in line with provisions in the trust deed.

Question 45

Under the Trustee Act 2000, what are the requirements of trustees who exercise investment powers?

Answer 45

• Be aware of the need for suitability and diversification of assets.
• Obtain and consider proper advice when making or reviewing investments.
• Keep investments under review.

Question 46

Under what conditions does Insolvency arise?

Answer 46

• A person’s liabilities exceed their assets; or

- A person cannot meet their financial obligations within a reasonable time of them falling due.

Question 47

What is an Individual voluntary arrangement?

Answer 47

An alternative to bankruptcy, under which the debtor arranges with the creditors to reschedule the repayment of the debts over a specified period.

An IVA can only be set up only if creditors who represent at least 75% of the debt agree to the arrangement.

Question 48

Define Insolvency.

Answer 48

A situation in which liabilities exceed assets or an organisation or individual cannot meet their liabilities within a reasonable period of them falling due.

Question 49

Define Bankruptcy.

Answer 49

Legal process triggered by the insolvent individual or by creditors where the individual owes a minimum of £5,000. A bankruptcy order usually lasts 12 months.

Question 50

Define Company voluntary arrangement.

Answer 50

Agreement by creditors who represent at least 75% of the value of the debt as to how to manage company liabilities, with the aim of avoiding the business going into administration.

Question 51

Define Official receiver.

Answer 51

Official appointed by the court to identify and distribute the assets of a bankrupt individual or business and investigate the reasons for the bankruptcy.

Question 52

Define Insolvency practitioner.

Answer 52

Appointed by the court or by the official receiver (in consultation with creditors) to identify and manage the distribution of an individual’s or company’s assets. Insolvency practitioners must be licensed to practise.