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Chapter Nine. Third Parties/Secured Transactions

Chapter Nine. Third Parties/Secured Transactions. After reading this chapter, you will be able to: Analyze whether a contract has been formed Explain factors that affect formation

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Chapter Nine. Third Parties/Secured Transactions

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  1. Chapter Nine.Third Parties/Secured Transactions • After reading this chapter, you will be able to: • Analyze whether a contract has been formed • Explain factors that affect formation • Understand the rights of the parties, including parties who may not have been part of the original agreement or who may have been part of that agreement in a peripheral way

  2. Agency • Agency involves three parties: the principal, the agent, and the outside party. • The agent is the mechanism, but the contract forms between the principal and the outsider.

  3. Authority • The principal gives the agent authority to act in one of several ways: • Express authority: authority given by words or conduct • Implied authority: authority not expressed in writing or spoken words; arises from special circumstances • Operation of Law: rights and obligations are implied by law, for example, and emergency situation • Ratification: acceptance of acts by agent after they occur • Apparent authority: principal’s dealings with third parties have given them reason to believe that an agent has authority

  4. Principal’s Duties to the Agent • To cooperate • To indemnify (reimburse) • To communicate • To comply

  5. Agent’s Duties to the Principal • To obey lawful directions • To be able to account for the principal’s money in the agent’s care • To exercise reasonable care • To keep the principal fully informed • Loyalty

  6. Third-Party Beneficiary • Not a party to a contract, but benefits from contract

  7. Assignment and Delegation • Assignment is a transfer of property or rights • Delegation is assignment of obligations

  8. Novation • Novation is when a new party takes over rights and duties, creating a new contract.

  9. Mortgage, Collateral, and Lien • Mortgage: security interest in real estate • Collateral: assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default • Lien: an encumbrance against property, typically to secure payment of a debt

  10. Joint and Several Liability • Co-obligors can be sued together or any one can be liable for the entire obligation.

  11. Attachment • Attachment is the creation of an enforceable security interest • Attachment occurs when the parties make a security agreement, if: • The lender (the secured party) has given something of value, and • The debtor has some legal rights in the property serving as collateral, and • The debtor authenticates a document describing the collateral or the lender takes possession of the property

  12. Powers of Attorney • Durable: as long as principal is incompetent or unavailable, this lasts • Springing: does not come into effect until a condition is met

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