Business Law Exam 3 Flashcards Preview

Commonwealth 2nd Quarter > Business Law Exam 3 > Flashcards

Flashcards in Business Law Exam 3 Deck (55):
1

Commercial Paper

o Document drawn in a special form which can be transferred from person to person as a substitute for money or as an instrument of credit
o Negotiable instrument

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Classifications

• Promises to pay
• Orders to pay

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Promises to Pay

Promissory Note
Certificate of Deposit

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Promissory Note

o Unconditional promise in writing made by one party to another, signed by the maker, engaging to pay on demand or at a particular time, a particular sum of money to order or to bearer
• This is one example of commercial paper

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Certificate of Deposit (COD)

o Acknowledgment by a bank of receipt of money with an agreement of repayment
o Example:
• $1,000 Certificate of Deposit
• Maturity Date January, 2005
• Interest 6%
• At maturity date bank will pay principle, plus interest

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Maker

o Person who executes a promissory note

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Payee

o Party to whom any negotiable instrument is made payable

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Orders to Pay

Draft

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Draft

o Written order signed by one person requiring the person to whom addressed to pay a particular sum of money, to order or bearer, on demand at a certain time
• Second example of commercial paper

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Types of Orders to Pay

• Check
o Certified check
o Cashier’s check
o Bank draft
o Voucher check
o Traveler’s check

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Certified Check

• Ordinary Check which an official of a bank has accepted by writing across the face of the check the word “certified” and signed
• This makes the bank liable for the payment
• The drawer is released from the liability

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Cashier's Check

• Check drawn on a bank’s own funds
• Signed by a responsible bank official or a cashier
• Bank may use to pay its own obligations
• May be used by someone in lieu of their own personal check

13

Bank Draft

• Check drawn by one bank on another
• Banks will keep a portion of their funds in other banks
• Bank can draw a check on these funds at will

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Voucher Check

• Check with voucher attached
• Voucher lists items of an invoice being paid by the check

15

Traveler's Check

• Similar to cashier’s check
• Requires signature and countersignature by purchaser

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Drawer

o Person who executes/writes any draft or check

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Drawee

o Person, company, or financial institution ordered to pay a draft or check

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Payee

o Party to whom any negotiable instrument is made payable

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Requirements for Negotiability

• Must be in writing and signed by the maker
• Contain an unconditional order or promise to pay a certain sum in money
• Payable on demand at a definite time
• Payable to “order” or to “bearer”
• Order paper
• Bearer paper

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Order Paper

• A commercial paper made payable “to the order of” some named party
• Word “order” or its equivalent must be used
• Order paper may be paid only to the person to whom it has been properly endorsed

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Bearer Paper

• A commercial paper made payable to any person in possession of it

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Transfer of Negotiable Instruments

Negotiation
Holder
Endorsement/Indorsement

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Negotiation

• A commercial paper made payable to any person in possession of it

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Holder

o Person who has possession of a delivered negotiable instrument

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Endorsement/ Indorsement

o The signature or statement of purpose by the owner on the back of a negotiable instrument, which indicates future control of the instrument

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Endorser/ Indorser

o The payee of a note or draft transferring the instrument to another party

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Endorsee/ Indorsee

o Person who becomes the holder of a negotiable instrument by endorsement which names him/her as the person to whom the instrument is negotiated

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Types of Endorsement

• Blank
• Special
• Restrictive
• Qualified

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Blank Endorsement

• Having no words other than signature of endorser
• “Mary A. Johnson”

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Special Endorsement

• An endorsement which designates the particular person to whom payment is to be made
• “Pay to the order of John Q. Jones”

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Restrictive Endorsement

• An endorsement which prevents the use of the instrument for anything except stated use
• “For deposit only”

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Qualified Endorsement

• Limits liability of endorser
• Endorser signs the bill or promissory note and adds “Without recourse”
• This limits the endorser’s liability
• Endorsee accepts the liability

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Holder in Due Course

• Person in possession of a negotiable instrument who accepts the negotiable instrument in good faith and for value
• INNOCENT PURCHASER

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Requirements for a Holder in Due Course

• The holder
• Must take instrument in good faith and for value
• Must have no notice that instrument is overdue or has been dishonored
• At time of negotiation, no notice of any defense against or adverse claim to the instrument

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Rights of a Holder in Due Course

• Right to collect amount due
• Right to be free from defense of no consideration

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Liability for Payment of Negotiability

• Related to:
o Requirements to qualify as a holder in due course
o Rights of a holder in due course

37

Transferor's Warranties

• Transferor of commercial paper
• Warrants existence of certain facts
• Specified by UCC
• Transferor entitled to enforce the instrument
• All signatures genuine or authorized
• Instrument has not been altered
• Instrument not subject to defense or claim of any party
• Transferor has no knowledge of insolvency proceedings with maker, acceptor, or drawer of unaccepted draft

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Bailment

o Transfer of Possession, but not title of personal property by one party to another, under agreement
• Examples:
• Leaving a car with the garage for repairs
• Storing furniture in a warehouse
• Student borrowing a tuxedo

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Bailor

• Party who gives up possession, but not title of property

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Bailee

• Party who acquires possession, but not title of personal property

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Classification of Bailments

Ordinary
Extraordinary

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Ordinary Bailment

o Those held to “normal” standard of care for bailed property

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Extraordinary Bailment

o Those held to higher than normal standard of care for bailed property
• Common carriers
• Hotelkeepers
• Funeral directors

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Conditions of Bailment

o Bailor delivers property to bailee
o Bailee accepts property from bailor
o Both parties agree that property will be returned to bailor

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Types of Bailment

o Sole benefit of bailor
o Sole benefit of bailee
o Mutual benefit

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Sole Benefit of Bailor

o Bailment benefits only property owner
o Bailee must exercise “slight care”
o Liable only for gross negligence
• Example:
• You own a piano; you plan to move into a new apartment; you ask a friend to store your piano; your friend does not play the piano
• Only you benefit from the friend who stores your piano

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Sole Benefit of Bailee

o Occurs when borrowing someone’s property
o Bailee must exercise “great care”

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Mutual Benefit

o Bailee renders a service
o Charges for the service
o Bailee must exercise “reasonable care under the circumstances”
• Example:
• You own a mink coat; you store your coat at ABC Cleaners for the summer months; your coat is stored; ABC Cleaners is paid for the storage service

49

What are the two types of Carriers?

Private
Public

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Private Carrier

o Transports under special arrangements for a fee
• Moving vans
• Delivery services
• Funeral Home A transports a body for Funeral Home B

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Public Carrier

o Common Carrier
• One that undertakes to transport without discrimination for all who apply for service
• Airlines, trains, buses, ect.

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Consignor

• One who ships goods by a common carrier

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Consignee

• One to whom goods are shipped to by a common carrier

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Bill of Lading

• Is the receipt and contract existing between CONSIGNOR (SHIPPER) AND CARRIER
• Is documentary evidence of title of goods

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Elements of the Bill of Lading

• Instrument in writing
• Signed by the carrier
• Describing the freight for identification
• States the name of the consignor
• The terms of the contract for carriage
• Directing location of delivery