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commercial law Flashcards

1
Q

What is a promissory note?

A

A promise to pay a specific amount. There are two parties involved - maker and a payee. It can reference other transactions without harming the instruments negotiability. Example: Bank Certificate of Deposit (CD)

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2
Q

What is a draft?

A

A commercial paper involving three parties- a drawer; a payee and a drawee

A drawer orders a sum to be paid to a payee by the drawee

May be payable on demand or in the future

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3
Q

What is a check?

A

A check is a type of draft that is payable ON DEMAND; payable to order of drawer or bearer

Drawer - person writing the check

Payee - person being paid

Drawee - the bank

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4
Q

What is the difference between a post-dated check and a negotiable time draft?

A

A check is payable on demand; even if post-dated.

A negotiable time draft is not payable until the date designated for payment.

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5
Q

What is a trade acceptance?

A

Seller extends credit to Buyer

Buyer agrees to pay Seller - Buyer has primary liability

Seller is both Drawer and Payee - Seller has Secondary Liability

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6
Q

What is the purpose of the negotiation of commercial paper?

A

Transfers ownership to another party

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7
Q

What is required to maintain the negotiability of a commercial paper?

A

Must be in writing

Signed by drawer/maker

Be without conditions for payment (other than limitations on payment sources)

Amount of money must be stated

Payable to order or bearer

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8
Q

What characteristics will cancel the negotiability of a commercial paper?

A

An additional promise is stated in addition to the promise to pay (like the option to purchase Real Estate)

The promise to pay occurs after some action by another party or an event; it cancels negotiability

Cannot allow for an alternative such as payment or some other action by the maker

Note: a stated amount of payment plus a stated % of interest is OK

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9
Q

What is required to negotiate Order Paper?

A

Must have delivery and endorsement

If paper is exchanged for value; transferor must give an UNQUALIFIED endorsement

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10
Q

What are the major types of endorsements on commercial paper?

A

Blank - Doesnt name a new payee; transforms into a bearer paper

Special - Names a new payee; transforms into an order paper

Restrictive - Adds restrictions; doesnt stop further negotiation

Qualified - Payment not guaranteed; without recourse added to endorsement

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11
Q

If endorsed; within what amount of time must a check be presented for payment in order to hold the ENDORSER liable?

A

Within 7 days

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12
Q

On a commercial paper; which value will supersede - words or numerical dollar amount?

A

Written amount supersedes the numerical dollar amount.

For example; if the words say One hundred dollars and the numerical amount states $1000.00; the value of the paper will be $100.00.

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13
Q

Define primary liability with respect to a contract.

A

First in line to pay on the note/draft

Maker of a Promissory Note has primary liability and must pay according to terms of the note

With a Check; no party has Primary Liability

Exception: Drawee (your bank) is primarily liable to pay if they certify - i.e. promise to
pay

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14
Q

Define secondary liability with respect to contract liability

A

Drawers are Secondarily Liable if Drawee fails to pay a Draft

Endorsers (the payee) are secondarily liable

Holder in due course can hold Endorser liable

Exception: Endorsed Without Recourse

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15
Q

Define contract liability.

A

Guarantees payment of a liability

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16
Q

When does warranty liability occur?

A

Occurs when you negotiate commercial paper

By signing; you warrant to all future parties

By not signing; you warrant to current party only

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17
Q

What five warranties occur with every commercial paper transfer?

A

Warranty of Title

No defense will stand against it

No material alteration

No knowledge of bankruptcy proceedings

All signatures are legitimate

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18
Q

What are the requirements for a holder to be a holder in due course?

A

Holding a negotiable instrument

Taking instrument in Good Faith - Even if you buy a stolen note and you dont know that its stolen; youre still an HDC

Having no knowledge of defenses again instrument; i.e. problems with the instrument

Giving a present value for the instrument (a future value doesnt count)

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19
Q

What are the personal defenses against a holder in due course (HDC) which will LOSE?

A

An HDC takes an instrument free of Personal Defenses (LOSE vs. HDC)

Lack of consideration/value given
Breach of contract/warranty
Duplicate payments
Fraud (in the inducement only)
Voidable contracts

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20
Q

What are the REAL defenses against a holder in due course (HDC); which will WIN?

A

A holder in due course takes an instrument subject to Real Defenses (WIN vs. HDC)

Material alterations to the instrument
Forgery
Bankruptcy
Maker not competent to Contract
Fraud in the execution

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21
Q

What must a contract contain?

A

Offer, Acceptance, Consideration, Proper form (oral or written), Legal subject matter, 2 Competent parties

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22
Q

What forms may acceptance of a contract take?

A

Can be written or oral

Must be in the form/method required by offeror

Must be mirror image - i.e. no changes in terms

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23
Q

Who can accept an offer?

A

Must be accepted by intended party (offeree)

Acceptance can only be made by a party who knows an offer has been made and has all of the facts - AKA a meeting of the minds

They must intend to accept

24
Q

What happens if an offeree accepts a contract but puts added stipulations?

A

It is not acceptance; but instead becomes a counter-offer and the original offeror is now the offeree

25
Q

What will void an offer?

A

If offeror dies or becomes insane before acceptance; offer is void.

Contract is binding if acceptance occurs before death/insanity.

26
Q

What actions or circumstances will revoke a contract?

A

Offeror revokes and offeree receives revocation

Offeree finds out prior to acceptance that offeror has sold the item

In the case of an Option; offeror cannot revoke until the time of the option has elapsed

Initial rejection by offeree doesn’t void the option.

27
Q

What is an Option?

A

Some amount of consideration (like money) is put forth by offeror to keep the offer open for a
stated period of time

28
Q

What is a Requirements Contract? How are they limited?

A

These are contracts where someone becomes the exclusive provider of something in exchange for
consideration

Companies can’t get locked in to one and then have market conditions force them to sell something at
what has become an unreasonable price

29
Q

What is promissory estoppel?

A

Promises to donate are legally enforceable

Basically; you can’t tell a charity; Hey; if you buy this
$100;000 piece of land; I’ll pay for the building that
will go on it; and then renege on your promise

30
Q

What can make a contract VOID?

A

Fraud in the execution

Formed under extreme duress - extreme

Illegal

31
Q

What can make a contract VOIDABLE?

A

Fraud in the inducement

Party not competent to contract

Formed under SIMPLE duress

Undue influence

32
Q

What is the result of a clerical error in a contract?

A

The contract is unenforceable.

Example: Person signs a contract to pay $500.00 to have
their lawn re-seeded but due to clerical error; it actually reads $5000.00

33
Q

Contracts under the Statute of Frauds must be in what form to be valid?

A

They must be in writing.

34
Q

What makes a contract subject to the Statute of Frauds?

A

o Cannot be completed within one year
o Involves the purchase of real estate
o $500+ Sale of Goods
o Co-signing and guaranteeing the debt of another

35
Q

What is the parol evidence rule?

A

Prevents one party to a written contract from coming in after the fact and claiming that a certain
conversation took place that conflicts with what is agreed upon in the written contract

It also prevents using an oral argument to read into the meaning of what is written on paper

If it’s on paper; it trumps what was agreed-upon orally prior to the written contract

Note: does not negate oral agreements made AFTER the contract or disallow oral words from clarifying ambiguous contract language.

36
Q

What are the requirements for the assignment of a contract?

A

Contracts are assignable to a third party beneficiary; but must be done so in good faith

Obligations may be assignable- Assignor is still liable

Assignor may be released from liability if other party grants a novation

37
Q

When can contracts be discharged by law?

A

Party under contract is bankrupt

Party under contract dies or is incapacitated

Party cannot physically complete the contract (i.e. They are in prison so can’t finish building your house)

38
Q

What does Real Property include?

A

Land, Buildings fixed to the land, and Property under/above the land.

39
Q

What are the characteristics of a deed?

A 
Must be in writing
Signed
Description of Property
Delivered
Recorded
40
Q

What are the characteristics of a Mortgage?

A

Must be in writing
Signed
Description of property
Delivered

41
Q

What are the characteristics of a lease?

A

No writing required if

42
Q

What is personal property?

A

Tangible property; such as cars; equipment; etc.

Intangible property such as patents; trademarks; copyrights; etc.

43
Q

What are the three requirements for a gift?

A

Intent for it to be a gift

Delivery of the gift

Acceptance of the gift

44
Q

What are the rights of found property?

A

Lost property - Finder’s rights to property are less than Owner’s

Abandoned property - Finder’s rights to property are greater than Owner’s

45
Q

What is tenancy in common?

A

Undivided interest in a portion of the property

Upon death; property goes to decedent’s heirs

46
Q

What is joint tenancy?

A

Undivided interest in entire property

Upon death; property goes to other joint tenants

47
Q

What sales are covered under the Uniform Commercial Code (UCC)?

A

Only sales of goods are covered under the UCC.

48
Q

What elements are needed for a sale covered under the Uniform Commercial Code (UCC)?

A

Offer - You offer to sell something at a price

Acceptance - the other party accepts

Consideration - Something of value has been exchanged for the goods

Note: The UCC only covers sales of goods.

49
Q

What are the elements of a Firm Offer?

A

You offer to sell something at a price and keep that offer open for a set period of time

3 months max

Only merchants can make firm offers

Must be in writing and signed

50
Q

Under what situations are sales of goods covered by the Statute of Frauds? What are the exceptions?

A

If value of goods sold is > $500; sales contract must be in writing

Exceptions: Merchants can enter into oral contracts for > $500 items.

Oral contracts are binding for special or uniquely-made items (i.e. custom cabinets or custom furniture that could not be sold if buyer reneged)

51
Q

When does title and risk of loss transfer on a sale of goods?

A

If terms are:

FOB shipping point: Title transfers at point of shipment (i.e. when loaded on truck)

FOB destination: Title and risk transfers once item is delivered

52
Q

What is a Warranty of Title?

A

The seller has the right to sell the good and no one else can stake claim to that good

53
Q

What is Warranty of Merchantability?

A

This good will do its intended purpose

Can be disclaimed

54
Q

What is Warranty of Fitness?

A

This good is the right choice for you based on the seller’s expert opinion

Can be disclaimed

55
Q

What is strict liability with respect to buyer protection?

A

Manufacturers of goods cannot disclaim that their products will be safe

Can be liable if negligent

56
Q

What are non-conforming goods with respect to buyer protection?

A

Buyer can reject some or all of the shipment if the seller didn’t perform as agreed and ship what was expected

Must give notice

Must give seller a chance to remedy the situation

57
Q

What is the statute of limitations with respect to buyer protection?

A

Buyer must sue to recover damages within 4 years.

REG (9 decks)

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