Difficulty: Medium

Average Score: 55%

A buyer is signing a contract as a corporation. The broker should:

Rationale

Obtain a resolution of the board of directors authorizing the signing of the contract.

In corporate transactions, it is essential to have a formal resolution from the board of directors that grants authority to an individual to sign contracts on behalf of the corporation. This resolution ensures that the corporation is legally bound by the contract and protects the interests of both the corporation and the broker.

A (Confirm that the corporation is in existence.) YOUR ANSWER

While confirming the existence of the corporation is important, it does not provide the necessary authority for an individual to sign contracts on behalf of the corporation. Existence alone does not guarantee that the signatory has the power to enter into legal agreements.

B (Get a personal guarantee of performance from the principal.) YOUR ANSWER

Requesting a personal guarantee from the principal is not standard practice for corporate contracts and may not be necessary if the corporation has sufficient resources. This option does not establish the authority needed for the individual signing the contract, which is instead provided by a board resolution.

C (Obtain a power of attorney from the office.) YOUR ANSWER

A power of attorney could allow an individual to act on behalf of the corporation, but it is not the standard method for authorizing contract signings. The more common and accepted approach is for the board of directors to issue a resolution specifically authorizing the transaction.

Conclusion

In corporate settings, a board resolution is crucial for validating that an individual has the authority to sign contracts on behalf of the corporation. This formal approval protects all parties involved and ensures compliance with corporate governance. While confirming existence and obtaining guarantees or powers of attorney may have their roles, they do not replace the necessity of a board resolution for contract authorization.

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