Michigan Collections Manager License Practice Test

Which clause is not allowed in an installment sales contract?

1. Clauses for increasing payment amounts

2. Power of attorney clauses

3. Clauses detailing seller’s responsibilities

4. Clauses summarizing contract terms

The correct answer is: Power of attorney clauses

In the context of installment sales contracts, a Power of Attorney clause is typically not allowed due to concerns relating to the level of authority and control that it grants one party over another. A Power of Attorney can give an agent the ability to act on behalf of the principal in various matters, including financial decisions involving the sale or management of the property in question. This could lead to potential conflicts of interest, abuse of power, or overreach that is not in the best interest of the buyer or seller. In contrast, clauses that detail increasing payment amounts, outline seller responsibilities, and summarize contract terms serve to clarify the expectations and obligations of both parties in the transaction. They help ensure that all parties have a mutual understanding of their roles and responsibilities, which is essential for the successful execution of the contract. Thus, while these clauses promote transparency and accountability, a Power of Attorney clause can introduce significant risk and is generally discouraged or disallowed in this context.