Business Law Exam 3 Flashcards
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
Classifications
- Promises to pay
* Orders to pay
Promises to Pay
Promissory Note
Certificate of Deposit
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
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
Maker
o Person who executes a promissory note
Payee
o Party to whom any negotiable instrument is made payable
Orders to Pay
Draft
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
Types of Orders to Pay
• Check o Certified check o Cashier’s check o Bank draft o Voucher check o Traveler’s check
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
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
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
Voucher Check
- Check with voucher attached
* Voucher lists items of an invoice being paid by the check
Traveler’s Check
- Similar to cashier’s check
* Requires signature and countersignature by purchaser
Drawer
o Person who executes/writes any draft or check
Drawee
o Person, company, or financial institution ordered to pay a draft or check
Payee
o Party to whom any negotiable instrument is made payable
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
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
Bearer Paper
• A commercial paper made payable to any person in possession of it
Transfer of Negotiable Instruments
Negotiation
Holder
Endorsement/Indorsement
Negotiation
• A commercial paper made payable to any person in possession of it
Holder
o Person who has possession of a delivered negotiable instrument
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
Endorser/ Indorser
o The payee of a note or draft transferring the instrument to another party
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
Types of Endorsement
- Blank
- Special
- Restrictive
- Qualified
Blank Endorsement
- Having no words other than signature of endorser
* “Mary A. Johnson”
Special Endorsement
- An endorsement which designates the particular person to whom payment is to be made
- “Pay to the order of John Q. Jones”
Restrictive Endorsement
- An endorsement which prevents the use of the instrument for anything except stated use
- “For deposit only”
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
Holder in Due Course
- Person in possession of a negotiable instrument who accepts the negotiable instrument in good faith and for value
- INNOCENT PURCHASER
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
Rights of a Holder in Due Course
- Right to collect amount due
* Right to be free from defense of no consideration
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
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
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
Bailor
• Party who gives up possession, but not title of property
Bailee
• Party who acquires possession, but not title of personal property
Classification of Bailments
Ordinary
Extraordinary
Ordinary Bailment
o Those held to “normal” standard of care for bailed property
Extraordinary Bailment
o Those held to higher than normal standard of care for bailed property
• Common carriers
• Hotelkeepers
• Funeral directors
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
Types of Bailment
o Sole benefit of bailor
o Sole benefit of bailee
o Mutual benefit
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
Sole Benefit of Bailee
o Occurs when borrowing someone’s property
o Bailee must exercise “great care”
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
What are the two types of Carriers?
Private
Public
Private Carrier
o Transports under special arrangements for a fee
• Moving vans
• Delivery services
• Funeral Home A transports a body for Funeral Home B
Public Carrier
o Common Carrier
• One that undertakes to transport without discrimination for all who apply for service
• Airlines, trains, buses, ect.
Consignor
• One who ships goods by a common carrier
Consignee
• One to whom goods are shipped to by a common carrier
Bill of Lading
- Is the receipt and contract existing between CONSIGNOR (SHIPPER) AND CARRIER
- Is documentary evidence of title of goods
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
