Week 10 - Test 2 Flashcards
4 ways people outside the original contract relationship can have rights with respect to the contract
- act as agent for a party
- be a beneficiary
- outside party assigned/delegated rights/obligations
- outside party guarantees performance
2 steps to determining whether the party to the contract is the business or the lliving person who signed the contract
- determine the type of legal entity involved
2. determine which living human beings have authority to make the entity liable on a contract
A sole proprietorship is a (1) business. It is not an (2) because the business and the owner are not legally separate. Employees may have auythority to enter contracts on behalf of the sole proprietor, as (3).
- one-owner
- “entity”
- agents
A partnership is not usually regarded as an (1) with liability and rights apart from its owners; each partner is regarded as an (2) for the (3).
- entity
- agent
- purposes of the partnership business
Limited partnerships consist of limited partners, who are (1) without (2), and (3), with authority to bind the business consistent with the (4). A general partner may be a (5).
- investors
- authority to make decisions or bind the business
- general partners
- terms of the limited partnership agreement
- corporation
A corporation is an (1)–a person separate from the people with whom it has relationships. A corporation has (2) who eelct a (3) that directs the big picture. (4) may be authorized to enter into contracts for the corporation.
- entity
- shareholders
- board of directors
- Corporate officers
3 ways to determine if particular corporate officers may sign an agreement
- obtain a certified copy of the resolution of board of directors, which appoints officers, authorizes agreements, or authorizes officers to sign agreements
- check secretary of state website to determine status of the corporation
- understand state law, which sometimes includes presumptions of authority
An LLC may be managed (1) or through a (2). You may have to examine the company’s (3) to determine authority.
- directly
- board of directors
- operating agreement
3 parties involved in an agency
- principal
- agent
- outside party
acts on behalf of another party
agent
party for whom an agent acts
principal
Agency agreements must be written in situations where the (1) would apply.
statute of frauds (e.g., more than one year, real estate agent)
requirement that agency contract be written, if contract to be established by agent must be written
equal dignity rule
5 ways a principal may give an agent authority to act
- express authority
- implied authority
- operation of law
- ratification
- apparent authority
authoruty given by words or conduct
express authority
authority not expressed in writing or spoken words; arises from circumstances
implied authority
rights and obligations are implied by law, for example, in emergency situations
operation of law
acceptance of acts by agent after they occur
ratification
principal’s dealings with third parties have given them reason to believe that an agent has authority
apparent authority
In cases of showing apparent authority, an attempt to suddenly deny that agency relationship may be overruled by (1)
- estoppel
existence of agency relationship not known to third party
undisclosed principal
existence of agency is known, identity of principal is not known
partially disclosed principal
In an undisclosed/partially disclosed agency, the outside party may sue the (1) for breach, but the principal may owe a (2) the agent.
- agent (since identity of principal unknown)
2. duty to indemnify (reimburse for costs incurred in agency)
relationship in which one person is under a duty to act for the beneit of the other on matters within the scope of the relationship
fiduciary relationship
4 fiduciary duties owen by principal to agent
- cooperate in performacne of agreed duties
- indemnify (reimburse) the agent for expenses reasonably incurred in carrying out the agency
- communicate relevant information
- comply with any contract with the agent
compensation or reimbursement for a loss
indemnification
5 fiduciary duties owed by agent to princpal
- obey lawful directions
- be able to account for principal’s money in the agent’s care
- exercise reasonable care
- keep principal fully informed
- loyalty (not disclose confidential info, no become involved in conflicting relationships)
4 examples of conflicting relationships an agent might encounter, and must avoid
- outside profits (bribes to choose a certain company’s service)
- competing with principal (personally buy a property at a great deal when working as agent to buy property)
- working for competing principals (sales rep for two competing stores)
- secret dealing with principal (selling own property and buying as agent of principal)
4 ways an agency would usually end
- agreement of the parties
- passage of an agreed time
- completion of the purpose
- inability of one of the parties to perform
Agent has a financial stake in the transaction–makes cancellation of agency more difficult
agency coupled with an interest (e.g., faulty Internet service authorized as agent to make charges to credit card)
not a party to a contract but benefits from the contract
third-party beneficiary
a third-party beneficiary, not intended to benefit from contract, does not acquire rights under the contract
incidental beneficiary
a third-party beneficiary, intended to benefit from contract performance as a gift
donee beneficiary
a third-party beneficiary to whom a contract party is indebted and who is intended to benefit from the performance of a contract
creditor beneficiary (e.g., a mortgage lender named on homeowner’s insruance) (court assumes intent to benefit creditor because of legal obligation)
being a party to a contract
privity
creates an agency relationship that remains in effect during the grantor’s incompetency
durable power of attorney
comes into effect at a later date
springing power of attorney (e.g., doctor determines incompetence)
a transfer of property or rights
assignment
transfer of obligatiosn
delegation
Courts tend to rule (1) of allowing assignment
in favor
one who transfers rights to another
assignor
one to whom rights are transferred by another
assignee
one who owes an obligation
obligor
done without compensation; a gift
gratuitous
A valid assignment must provide for (1) to the (2). Assignment may be oral unless the (3) applies to the contract.
- notice
- obligor
- statute of frauds
security interest in real estate
mortgage
land and buildings
real property
assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default
collateral
an encumbrance against property, typically to secure payment of a debt
lien
take property to satisfy debt
foreclose
moveable items; also called personal propert
chattel
Delegation of duties does not relieve the (1) of (2). Delegation is prohibited if agaisnt the (3), (4) or if the obligation is (5).
- delegator
- liability
- law
- public policy
- person (e.g, painting a portrait)
new party takes over rights and duties, creating a new contract
novation (e.g., as opposed to sublease of an apartment, entire transfer and release of liability for original tenant)
co-obligors can be sued together or any one can be liable for the entire obligation
joint and several liability
one to whom money is owed
creditor
more likely to see at least a partial payment in bankruptcy, etc. – has priority. For example, a lender for real estate
secured creditor (real estate is security against loan)
debts paid ahead of other debts, in bankruptcy
priority
security for payment of a loan (e.g., house, car)
collateral
a contract promising to pay a debt; may or may not create a security interest in collateral
note ($1000 borrowed from brother to pay down payment on car = still unsecured)
goods held for sale or lease
inventory
formal written documents (checks, notes, certs of deposit)
instruments
evidence of investment in a common scheme, such as stock in a company
securities
creation of an enforceable security interest
attachment
Attachment occurs if what 3 conditions occur in making a security agreement?
- the lender has given something of value
- the debtor has some legal rights in the property serving as collateral
- the debtor authenticates a document describing the collateral or the lender takes possession of the property
To register or record and instrument so that the public is on notice of its terms; important to do to prevent collateral being signed over to someone else
perfect
If collateral conssits of (1) and the loan was a (2), the security interest is automatically perfected without filing. (3) are not involved in this distinction.
- consumer goods
- purchase money security interest
- Titled vehicles (highway vehicles, ATVs, motorboats)
items used primarily for personal, family or household purposes
consumer goods
lien against property to secure a loan used to acquire that property
purchase money security interest
Perfected security interest (1) collateral even if it is sold or transferred. (2) is an exception to this rule. The opposite of this exception would be a (3), in which property remains collateral.
- follows (e.g., a sold car is still collateral for the original loan if it defaults)
- good-faith buyer in the course of ordinary business (e.g., buying a freezer from app store, unaware of freezers as sec. interest)
- bulk sale (e.g., other app store buys up large quantity of freezers with knowledge store is in trouble)
a buyer who acts honestly, gives value and has no notice of other claims
good-faith buyer in the course of ordinary business
way to protect from property bought being subject to perfected security interest
UCC search through state agency
sale of major part of inventory, not in the ordinary course of business
bulk sale
A contract is (1)–only those parties can (2)
- consensual
2. consent
Third part beneficiaries, as distinguished from those to whom an assignment is made, involves contemplation of a third party (1)
- at the time of making the contract
2 types of third-party beneficiaries
- intended (e.g., donee, creditor)(both parties know about it)(third-party ben. gains rights and may sue)
- incidental (e.g, homeowner near nice yard, Disneyland)(no rights-can’t sue)
Despite what the book says, a mortgage company paid by fire insurance, or a third-party beneficiary collecting on life insurance, is not really a (1).
- gift (mortgage co. has claim, life ins. Beneficiary gets paid out automatically on death, even if unaware of policy)
What was the conclusion of the tree-falling example, in which the landscaper contracted with the land/business owner and a tree fell on a woman unrelated to both?
Lady was incidental beneficiary of contract–the contract was to protect safety of “all” people in company and property, NOT people walking by. No right to sue landscaper.
In a doctor insurance company contract for the doctor to accept “whatever insurance pays”, the patient is the (1)
third-party beneficiary
being a party/intended beneficiary. Being connected to a contract
privity
Assignment and delegation comes up (1) a contract is formed. Right to performance is an (2) and can be assigned. The one assigning rights is the (3); the one to whom they are passed is the (4). You cannot own a (5); these are delegated.
- after
- asset
- assignor
- assignee
- duty
The one obligated to pay is the (1), the one whom he is obligated to pay is the (2).
- obligor
2. obligee
Two things often assigned are (1) and (2)
- annuities
2. money owed to accident victims
The assignee may NOT (1)
- change the terms of the contract–is between parties!
Contracts can always be (1) unless the contract prohibits it, but some contracts may not be (2)!
- assigned
2. delegated (celebrity appearances, etc.)
provides that one cannot sell house and let someone else assume the duty to pay
due on sale clause
substitution of parties to a contract. A new contract but inly as to parties
novation
2 things you need for a sole proprietorship
- EIN
2. certificate for fictitious name (if applicable)
In a partnership you are liable for (1) and (2)
- yourself
2. the partners
In a limited partnership you are only liable for the (1), but one partner must be (2)
- amount invested in the partnership
2. fully liable
C Corporations have (1), of which there are two classes (have say, only get profit), while SubS Corporations are (2)
- stockholders
2. closely held
every relationship in which one person acts for or represents another with that other’s authority
agency
AZ requires real estate contracts to be in writing, but they would have to anyway because of the (1)
- equal dignity rule
if underlying contract has to be in writing, agency agrement does too
equal dignity rule
The principal can always (1) an agency–the problem is if they don’t.
ratify
deduced from the actions of the parties, e.g., a cashier at a store
implied agency
(1) occurs if the courts find the principal is unduly receiving a benefit from the agency
- agency by estoppel
The agent is (1) if the contract does not work out, but a (2), or a strawperson, is.
- not liable
2. an agent for a partially undisclosed principal
e.g., an “owner/agent” on a house sales
agency coupled with an interest
An (1) is not really an agency relationshi, because an (2) stands in place for almost everything, where an agent is limited
- power of attorney
2. attorney-in-fact
A real estate agent is an example of an agent with a (1)
- fiduciary duty
Security interest is in (1), (2) and (3), and it secures (4)
- movable property
- intangible property
- fixtures (things that become part of real property once affixed)
- performance of an obligation
recording of a security interest
perfection
Items bought in (1) cannot be taken by creditors
good faith in ordinary course of business
