Agency

A1. Actual implied authority is the authority that the agent believes she has based on the representations of the principal. If there is a dispute between the agent and the principal in this regard, the court will decide what was reasonable under the circumstances of a particular agency. The agent’s belief will be deemed to be “reasonable” if it is:

(a) based on custom;
(b) if the acts are purely ministerial in nature, e.g., validate parking;
(c) if the principal has not objected to similar actions by the agent in the past; or
(d) if there is an emergency.

If it is found that there was no actual implied authority, then the third party’s only recourse is against the “agent.”

A2. The principal must know all the material facts relating to the transaction in order to ratify the unauthorized acts of an agent. Once the principal ratifies the transaction, she becomes directly liable for it. Thus, before a principal is held liable, they are entitled to know all of the facts of the transaction.

Partnership

A1. If the partnership finds that one of the partners has obtained benefits in violation of their fiduciary duties, they can seek to have such benefits placed in a constructive trust.
A2. The limited partner is entitled to see the limited partnership agreement and documents relating to the financial condition of the business. He does not need the permission of the general partners to see these documents.

Corporations

A1. An ultra vires act is one of two things. First, it can be an act taken by the corporation that goes beyond that which is allowed under the statement of corporate purpose in the corporate charter. Second, it can be an act taken by the board of directors or a corporate officer without the necessary authority.

Example: a corporation was formed for the purpose of “selling or lending” all kinds of equipment used by railroads. The corporation then contracted to build a railroad. This was held to be ultra vires insofar as it was beyond the stated purpose of the corporation.

Example: the board of directors approve a contract to sell the corporation’s only asset without first obtaining the approval of the shareholders, as required by the charter. Since the directors acted without shareholder approval, they exceeded their powers and the sale was an ultra vires act. Thus, the shareholders could seek an injunction in a derivative suit. The shareholders could also vote to ratify the transaction.

A2. Rule 10b-5 prohibits ANY PERSON from using a means or instrumentality of interstate commerce (such as the mail or the telephone) to defraud, or make or omit a material fact, to make a misleading fact, “in connection with the purchase OR sale of any security.” This includes insider trading. The punishment for a violation of 10b-5 can be criminal, civil, or both. Suits based on Rule 10b-5 MUST be brought in Federal court. Keep in mind that anyone convicted of violating this section is probably liable for a violation of the duty of loyalty.

Family Law

A1. A valid common law marriages requires (1) consent between the parties, (2) cohabitation, and (3) a public ‘holding out” as husband and wife. If a common law marriage is valid in the jurisdiction where it was formed, it is entitled to full faith and credit in all other states.

A short-hand way to remember these elements is “co-co-ho.”

A2. The essential difference between a divorce and an annulment is that a divorce represents the termination of a legal relationship, i.e., marriage.

An annulment, however, is a decree that states that the parties never were married, i.e., that no matrimonial relationship between the parties ever existed.

Conflicts of Law

A2. Under the First Restatement “vested rights” approach, the law of the situs (i.e., geographical place) of the tort invariably decides what relief is available to the plaintiff. The situs is where the plaintiff sustained her injury. So, a product may have been negligently manufactured in State A. But, if plaintiff is injured by the product in State B, then State B is the situs and State B law will control.

Secured Transactions

A1. It is necessary to classify collateral because its classification determines how to perfect a security interest in that type of collateral as well as where to file the security agreement.
A2. Inventory can be several things.

First, inventory can be goods, other than farm products, that are held by a merchant for sale (e.g., cookies at a bakery) or lease (e.g., sailboats).

Second, inventory can also mean goods that are furnished pursuant to a service contract (e.g., wax at a car wash).

Third, and lastly, inventory can also be raw materials, (e.g., lumber at a lumber yard), a work in progress, (e.g., a rock band’s recordings before they have been mixed), or materials that are used or consumed in a business, (e.g., office paper or ink cartridges).

Trusts

A1. The following people have standing to enforce the terms of a charitable trust: the settlor, someone who qualifies as a beneficiary, and the attorney general of the jurisdiction where the trust is located.
A2. With a semi-secret trust, the testator’s will provides a gift to be made in trust, but the identity of the beneficiary is kept secret. We know that there is a trust, we just don’t know who the testator intended to benefit. Perhaps the testator communicated this to someone. In the end, it just doesn’t matter. Semi-secret trusts are invalid. Under the Statute of Wills, parol evidence is not admissible to establish the identity of the beneficiary. Without a beneficiary, the trust is invalid. In this situation, the property in the trust would be held in trust for the heirs of the testator.

Wills

A.1. Under the UPC, a lifetime gift will be in satisfaction of a bequest ONLY IF:

(1) the decedent’s Will expressly states that lifetime gifts will reduce any bequest in the Will. OR
(2) there is a contemporaneous writing from the testator that states that the gift is meant to satisfy the recipient’s bequest under the Will. OR
(3) there is a writing from the beneficiary that acknowledges that the gift is in satisfaction of his or her bequest (this does NOT have to be created contemporaneously with the gift!)

Note how in (1), (2), and (3) a writing is required. Oral statements declaring a gift to be in satisfaction of a legacy are of no significance whatsoever.

A2. False. A Will can simply revoke an earlier Will because the Testator wants to have her property distributed by the laws of intestacy. Or, the Will can do no more than give a power of appointment. See Questions & Answers 160 – 167 for more on powers of appointment.