Business Law Final

183 terms by sunyjess 

Create a new folder

Advertisement Upgrade to remove ads

Oral Contracts

-legally enforceable
-no writing is required for a services contract that can be performed within one year after the date of the agreement
-also includes oral extension of a contract

Statute of Frauds

statute that, in order to prevent fraud through the use of perjured testimony, requires that certain kinds of transactions be evidenced in writing in order to be binding or enforceable
-either the contract itself must be in writing and signed by both parties, or there must be a sufficient written memorandum of the oral contract signed by the person being sued for breach of contract

Part Performance Doctrine

exception to the statute of frauds when the plaintiff's part performance is unequivocally referable to the oral agreement

Contracts that Must be in Writing

1) agreement that cannot be performed within one year after the contract is made (part performance exception cannot apply, statute of frauds not applicable when contract may be terminated at will by either party)
2) agreement to sell or a sale of an interest of land (mortgages, selling land or buildings, leases)
3) promise to answer for the debt or default of another (promisors promise is a collateral or secondary promise, exception: when main purpose of promisor's promise to pay debt of another is to benefit the promisor then statute of frauds is not applicable and oral promise to pay the debt is binding)
4) promise by the executor or administrator of a decedent's estate to pay a claim against the estate from personal funds
5) promises made in consideration of marriage (ex: prenup)
6) sale of goods (priced at $500 or more)
7) promisory estoppel

Suretyship

undertaking to pay the debt or be liable for the default of another

Personal Representative

administrator or executor who represents decedents under UPC

Executor/Executrix

person (man, woman) named in a will to administer the estate of the decedent

Administrator/Administratrix

person (man, woman) appointed to wind up and settle the estate of a person who has dies without a will

Decedent

person whose estate is being administered

Note/Memorandum

1) must be signed by the party sought to be bound by the contract
2) must contain all of the essential terms of the contract so the court can determine just what was agreed

Effect of Noncompliance

person who is prevented from enforcing a contract bc of statute of frauds entitled to recover from the other party the value of any services or property furnished or money given under the oral contract
- other party to restore to the plaintiff what was received in order to prevent unjust enrichment at the plaintiff's expense
-only a party to the oral contract may raise a defense that it is not binding bc there is no writing that satisfies the statute of frauds

Parol Evidence Rule

rule that prohibits the introduction into evidence of oral or written statements made prior to or contemporaneously with the execution of a complete written contract, deed, or instrument, in the absence of clear proof of fraud, accident, or mistake causing the omission of the statement in question
-based on the theory that either there never was an oral agreement or if there was the parties abandoned it when they reached the stage in negotiations of executing their written contract
-**rule will not apply when there is 1) ambiguity 2)fraud, duress, or mistake 3)modification of contract

Ambigous

having more than one reasonable interpretation

Intention of the Parties

1) meaning of words(ordinary words are to be interpreted according to their ordinary meaning) 2) incorporation by reference

Incorporation by Reference

contract consisting of both the original or skeleton document and the detailed statement that is incorporated in it

Rules of Construction and Interpretation

in interpreting contracts, courts are aided by certain rules
1) intention of the parties 2) whole contract(provisions of a construct must be construed as a whole) 3) contradictory and ambiguous terms 4) implied terms 5)conduct and custom 6) avoidance of hardship

Contradictory and Ambiguous Terms

1) nature of writing(ex:when conflict btwn printed part and typewritten part typewritten part prevails, when a clause typewritten on a printed form conflicts with what is stated by the print the typewritten clause controls, when conflict btwn amount/quantity expressed both in words and figures like on check amount expressed in words prevails) 2)ambiguity 3)strict construction against drafting party (an ambiguous contract is interpreted strictly against the party who drafted it)

Good Faith

absence of knowledge of any defects or problems (part of implied terms)

Conduct and Custom

1) conduct of the parties(when performance has been repeatedly tendered and accepted without protest, neither party will be permitted to claim that the contract was too indefinite to be binding) 2)custom and usage of trade

Usage of Tradery

language and customs of an industry

Intended Beneficiary

third person of a contract whom the contract is intended to benefit
-not necessary to be identified by name but has to be clear at time of formation of contract that the parties intended to impose a direct obligation with respect to the third person
-if contract contains an express provision allowing a change of a change of beneficiary or cancellation of the contract can do this without the intended third party beneficiary's consent

Third Party Beneficiary

third person whom the parties to a contract intend to benefit by the making of the contract and to confer upon such person the right to sue for breach of contract

Creditor Beneficiary

when the promisee's primary intent is to discharge a duty owed to the third party
-intended beneficiary sometimes classifies as this

Donee Beneficiary

whom the promisee's primary intent in contracting is to give a benefit to
-type of intended beneficiary
-example: life insurance contract, money goes to beneficiary

Incidental Beneficiary

when the benefit was not intended
-whether or not a third party is an intended or incidental beneficiary comes down to determining whether or not a reasonable person would believe that the promisee intended to confer on the beneficiary an enforceable benefit under the contract in question, intent must be clear and definite or expressed in the contract itself

Right

legal capacity to require another person to perform or refrain from an action

Duty

obligation of law imposed on a person to perform or refrain from performing a certain act

Assignment

transfer of a right; generally used in connection with personal property rights, as rights under a contract, commercial paper, an insurance policy, a mortgage, or a lease (parties: assignor, assignee)
-the party owing a duty or deft under the contract is the obligor or debtor, and the party to whom the obligation is owed is the obligee, party making the assignment is the assignor, third party to whom the assignment is made is the assignee
-may be in any form, some statutes require that certain kinds of assignment be in writing or be executed in a particular form, any words (whether written or spoken) that show an intention to transfer or assign will be given the effect of an assignment, takes effect the moment it is made

Obligor

promisor

Debtor

buyer on credit (i.e., a borrower)

Obligee

promisee who can claim the benefit of the obligation

Assignor

party who assigns contract rights to a third party
-the making of an assignment does not relieve the assignor of any obligation of the contract
-when the assignment is made for a consideration the assignor is regarded as providing an implied warranty that the right assigned is valid, the assignor also warrants that the assignor is the owner of the claim or right assigned and that the assignor will not interfere with the assignee's enforcement of the obligation

Assignee

third party to whom contract benefits are transferred
-unless restricted by the terms of the assignment or applicable law, the assignee acquires all rights of the assignor
-the assignee of the right to money may have no direct relationship to the original debtor except with respect to receiving payments, consumer protection laws in most states may subject the assignee to some liability for the assignor's misconduct
-assignee's rights are no greater than those of the assignor
-rights acquired by the assignee remain subject to any limitations imposed by the contract

Assignment

-certain kinds of assignments must be in writing or be executed in a particular form
-any words (spoken or written) that show an intention to transfer or assign will be given the effect of an assignment
-takes effect the moment it is made

Assignment of Right to Money

-assignments generally made to raise money
-future and expected rights to money may be assigned
-the assignment of the right to money may be a complete transfer of the right that gives the assignee the right to collect and keep the money, OR assignment may be held for security which in this case means the assignee may hold the money only as a security for some specified obligation
-express contractual prohibitions on assignments are ineffective against 1) the assignment of rights to payment for goods or services, including accounts receivable 2) the assignment of the rights to damages for breach of sales contract

Claim

right to payment

Cause of Action

right to damages or other judicial relief when a legally protected right of the plaintiff is violated by an unlawful act of the defendant

Nonassignable Rights

if the transfer of a right would materially affect or alter a duty or the rights of the obligor, an assignment is not permitted
1) assignment increasing burden of performance 2) personal services 3) credit transaction (the person to whom credit is extended to cannot assign any rights under the contract to another)

Novation

substitution for an old contract with a new one that either replaces an existing obligation with a new obligation or replaces an original party with a new party

Implied Warranty

warranty that was not made but is implied by law

Delegation of Duties

transfer of duties by a contracting party to another person who is to perform them
-if the performance of a party to a contract involves personal skills, talents, judgement or trust the delegation of duties is barred unless consented to by the person entitled to the performance (example: physicians, dentists, lawyers, celebrities, artists, etc.)
-a contract may prohibit a party owing a duty of performance under a contract from delegating that duty to another
-an assignment of rights does not in itself delegate the performance of duties to the assignee, can be viewed to see if it was intended
-with contracts for the sale of goods an assignment of the contract or of all the rights under the contract is an assignment of rights and it is a delegation of performance of the duties of the assignor and in acceptance by the assignee constitutes a promise to perform those duties

Delegation

transfer to another of the right and power to do an act

Condition

stipulation or prerequisite in a contract, will, or other instrument
-the occurrence or nonoccurrence of an event as expressed in a contract that affects the duty of a party to the contract to perform=the event is called a condition
-conditions are classifies as conditions precedent, conditions subsequent, and concurrent conditions(the parties mutual duties of performance under the contract are to take place simultaneously)

Condition Precedent

event that if unsatisfied would mean that no rights would arise under a contract

Condition Subsequent

event whose occurrence or lack there of terminates a contract

Tender

goods have arrived, are available for pickup, and buyer is notified
-an offer to perform
-if performance of the contract required the doing of an act, the refusal of a tender discharges the party offering to perform and is a basis for that party to bring a lawsuit

Substantial Performance

equitable rule that if a good faith attempt to perform does not precisely meet the terms of the agreement, the agreement will still be considered complete if the essential purpose of the contract is accomplished

Rescission

action of one party to a contract to set the contract aside when the other party is guilty of a breach of the contract

Substitution

substitution of a new contract between the same parties

Accord and Satisfaction

agreement to substitute for an existing debt some alternative form of discharging that debt, coupled with the actual discharge of the debt by the substituted performance

Waiver

release or relinquishment of a known right or objection

Operation of Law

attaching of certain consequences to certain facts because of legal principles that operate automatically as contrasted with consequences that arise because of the voluntary action of a party designed to create those consequences

Bankruptcy

procedure by which one unable to pay debts may surrender all assets in excess of any exemption claim to the court for administration and distribution to creditors, and the debtor is given a discharge that releases him from the unpaid balance due on most debts

Statute of Limitations

statute that restricts the period of time within which an action may be brought

Breach

failure to act or perform in the manner called for in a contract

Anticipatory Breach

promisor's repudiation of the contract prior to the time that performance is required when such repudiation is accepted by the promisee as a breach of the contract

Anticipatory Repudiation

repudiation made in advance of the time for performance of the contract obligations

Waiver

release or relinquishment of a known right or objection

Reservation of Rights

assertion by a party to a contract that even though a tendered performance (e.g., a defective product) is accepted, the right to damages for nonconformity to the contract is reversed

Remedy

action or procedure that is followed in order to enforce a right or to obtain damages for injury to a right

Specific Performance

action brought to compel the adverse party to perform a contract on the theory that merely suing for damages for its breach will not be an adequate remedy
-part of remedies for breach of contract
-ordinarily granted only if the subject matter of the contract is "unique"(for special performance of a contract to see personal property can be obtained only if the article is of unusual age, beauty, unique history, or other distinction)
-when the damages sustained by the plaintiff can be measured in monetary terms, specific performance will be refused

Compensatory Damages

sum of money that will compensate an injured plaintiff for actual loss
-have 2 branches: direct damages and consequential (or special) damaged

Nominal Damages

nominal sum awarded the plaintiff in order to establish that legal rights have been violated although the plaintiff in fact has not sustained any actual loss or damages

Punitive/Exemplary Damages

damages, in excess of those required to compensate the plaintiff for the wrong done, that are imposed in order to punish the defendant because of the particularly wanton or willful character of wrongdoing

Direct/General Damages

losses that are caused by breach of a contract
-includes incidental damages: extra expenditures made by the injured party to rectify the breach or mitigate damages

Consequential/Special Damages

damages the buyer experiences as a result of the seller's breach with respect to a third party
-may be recovered only if it was reasonably foreseeable to the defendant that the kind of loss in question could be sustained by the nonbreaching party if the contract were broken
***see example on page 441**

Injunction

order of a court of equity to refrain from doing (negative injunction) or to do (affirmative or mandatory injunction) a specified act. Statute use in labor disputes has been greatly restricted

Liquidated Damages

provision stipulating the amount of damages to be paid in the event of default or breach of contract
-stipulated in the contract

Valid

legal

Liquidated Damages Clause

specification of exact compensation in case of a breach of contract
-to be valid must show (1)the situation must be one in which it is difficult or impossible to determine the actual damages and (2)the amount specified must not be excessive when compared with the probable damages that would be sustained
-when clause is held valid the injured party cannot collect more than the amount specifies by the clause
-if the liquidated damages clause calls for a payment of a sum that is clearly unreasonably large and unrelated to the possible actual damages that might be sustained the clause will be held to be void as a penalty (see example on page 445)
-when clause is held invalid the effect is to erase the clause from the contract and the injured party may proceed to recover damages for breach of the contract

Exculpatory/Limitation of Liability Clause

provision in a contract stating that one of the parties shall not be liable for damages in case of breach
-limitation of liability: when a monetary limit to damages for breach of contract is set forth in the contract
-if these clauses caused by negligent conduct liability is neither excluded nor limited if the conduct alleged is found to be grossly negligent, willful, or wanton
-release forms signed by participants in athletic and sporting events declaring that the sponsor, proprietor, or operator of the event shall not be liable for injuries sustained by participants because of its negligence are generally binding

Commercial Paper

written, transferable, signed promise or order to pay a specified sum of money; a negotiable instrument

Negotiable Instruments

drafts, promissory notes, checks, and certificates of deposit that, in proper form, give special rights as "negotiable commercial paper"
-an unconditional promise or order to pay a fixed amount of money if it (1)is payable to bearer or order (2)is payable on demand or at a definite time and (3)does not state any other undertaking or instruction to do any act in addition to the payment of money
-a record of a signed promise or order to pay a specified sum of money
-kinds of instruments: promissory notes, certificates of deposit(CD), drafts, checks
-parties to instruments: maker, drawer, drawee, payee, acceptor, accommodation party
-there are primary and secondary parties for every negotiable instrument

Promissory Note

unconditional promise in writing made by one person to another, signed by the maker engaging to pay on demand, or at a definite time, a sum certain in money to order or to bearer
-parties: maker, payee

Certificate of Deposit (CD)

promise to pay instrument issued by a bank

Draft/Bill of Exchange

an unconditional order in writing by one person upon another, signed by the person giving it, and ordering the person to whom it is directed to pay upon demand or at a definite time a sum certain in money to order or to bearer
-party who gives the order is called the drawer, party to whom the order to pay is drawn is the drawee, the party to whom payment is to be made is the payee
-drawer may also be named as the payee

Check

order by a depositor on a bank to pay a sum of money to a payee; a bill of exchange drawn on a bank and payable on demand
-order by a depositor(the drawer) on a bank or credit union(the drawee) to pay a sum of money to the order of another party(the payee)

Cashier's Check

draft drawn by a bank on itself

Teller's Check

draft drawn by a bank on another bank in which it has an account

Traveler's Check

check that is payable on demand provided it is countersigned by the person whose specimen signature appears on the check

Money Order

draft issued by a bank or a nonbank

Party

person involved in a legal transaction; may be a natural person, an artificial person (e.g., a corporation), or an unincorporated enterprise (e.g., a governmental agency)

Maker

party who writes or creates a promissory note, thereby promising to pay the amount specified in the note

Drawer

person who writes out and creates a draft or bill of exchange, including a check

Drawee

person to whom the draft is addressed and who is ordered to pay the amount of money specified in the draft
-on a check the bank is the drawee
-credit union is the drawee on a share draft but has no responsibility under the draft until it has accepted that instrument

Payee

party to whom the payment is to be made
-example: on a check with the words "pay o the order of John Jones", Jones is the payee
-payee has no rights in the instrument until the drawer or the maker has delivered it to the payee, payee not liable on the instrument in any way until the payee transfers the instrument to someone else

Acceptor

drawee who has accepted the liability of paying the amount of money specified in a draft

Accommodation Party

person who signs an instrument to lend credit to another party to the paper
-a party who is not originally named in an instrument who allows her name to be added to it for the benefit of another party in order to add strength to the collectability of the instrument, assumes a liability role
-revised Article 3 now refers to drawer, indorsers, and accommodation parties as secondary obligors

Negotiability

quality of an instrument that affords special rights and standing
-the characteristic that distinguishes commercial paper and instruments from ordinary contracts or what makes such paper and instruments special paper
-that an instrument is negotiable means that certain rights and protections may be available to the parties of the instrument
-if an instrument is negotiable it may be transferred by negotiation that permits the transferee to acquire rights greater than those afforded assignees of contracts under contract law
**-to be negotiable an instrument (1)must be evidenced by a record(can be partly printed and partly typewritten) and (2)must be signed by the maker or the drawer(signature, symbol, initials, can also be by agent that has to disclose on the instrument the identity of the principal and the fact that the authentication was done in a representative capacity) (3)must contain an unconditional promise or order to pay (4)must pay a sum certain (5)must be payable in money (6)must be payable on demand or at a definite time(instrument is payable on demand when it expressly states that it is or does not state any time of payment, if instrument is not dated it is deemed dated on the day it is issued to the payee) and (7)must be payable to order or bearer
-omitting a date of execution or postdating, and provisions relating to collateral has no effect on an instrument's negotiability
-statute of limitations: 3 years for most actions involving negotiable instruments, 6 years for suits on CDs and accepted drafts

Nonnegotiable Instrument

contract, note, or draft that does not meet negotiability requirements of Article 3

Representative Capacity

action taken by one on behalf of another, as the act of a personal representative on behalf of a decedent's estate, or action taken both on one's behalf and on behalf of others, as a shareholder bringing a representative actions
-if an instrument fails to show the representative capacity of the person who is authenticating or fails to identify the person then the individual who authenticates the instrument is personally liable on the instrument to anyone who acquires superior rights; because the instrument is a final agreement the parol evidence rule applies
-in order to avoid personal liability the party authenticating must indicate on the face of the instrument his or her role in the principal

Sum Certain

amount due under an instrument that can be computed from its face with only reference to interest rates
-an exact amount of money

Definite Time

time of payment computable from the face of the instrument

Payable to Order

term stating that a negotiable instrument is payable to the order of any person described in it or to a person or order

Bearer

person in physical possession of commercial paper payable to bearer, a document of title directing delivery to bearer, or an investment security in bearer form

Order Paper

instrument payable to the order of a party when by its terms it is payable to the order of any person described in it (example:"pay to the order of K.Read)

Bearer Paper

instrument with no payee, payable to cash or payable to bearer
-an instrument is payable to bearer when it is payable (1)to bearer or the order of bearer (2)to a specified person or bearer (3)to cash, the order of cash, or any other designation that does not purport to identify a person or when (4)the last or only indorsement is a blank indorsement

Postdate

to insert or place on an instrument a later date than the actual date on which it was executed

Collateral

property pledged by a borrower as security for a debt

Ambiguous

having more than one reasonable interpretation
-rules: 1)words control figures where conflict exists 2)handwriting supersedes conflicting typewritten and printed terms 3)typewritten terms supersede preprinted terms 4)if there is a failure to provide for the payment of interest or if there is a provision for the payment of interest but no rate is mentioned, the judgment rate at the place of payment applies from the date of the instrument

Holder in Due Course

a holder who has given value, taken in good faith without notice of dishonor, defenses, or that instrument is overdue, and who is afforded special rights or status
-when a negotiable instrument is transferred by negotiation the transferee becomes the holder of the paper, if this holder meets certain additional requirements may also be a holder in due course
-the original payee of a note is not an HDC unless that note is transferred to others and then back to the payee
-one of the key reasons for attaining HDC status is to be able to obtain payment on the negotiable instrument free of any underlying problems between the original parties to the instrument
-not subject to limited defenses but subject to universal defenses
-taker of a negotiable instrument is denied the status and protections of an HDC when there is: participating transferee(when transferee is working with the lender or seller to obtain a negotiable instrument from the buyer/borrower conflicts with the close connection doctrine and prevents a transferee with intimate knowledge of the transferor's business practices from becoming a HDC), Federal Trade Commission Rule(rule protects consumers who purchase goods or services for personal, family, or household use on credit, when a notice preserving consumer defenses is included in a negotiable instrument no subsequent person can be a holder in due course of the instrument)

Negotiation

the transfer of commercial paper by indorsement and delivery by the person to whom it is then payable in the case of order paper and by physical transfer in the case of bearer paper
-negotiable instruments are transferred by this process

Holder

someone in possession of an instrument that runs to that person (i.e., is made payable to that person, is indorsed to that person, or is bearer paper)
-a holder who seeks payment of the instrument is required only to produce the instrument and show that the signature of the maker, drawer, or indorser is genuine
-can recover from any of the parties who are liable on the instrument, regardless of the order of the signatures on the instrument

Delivery/Negotiation of Bearer Instruments

-delivery:constructive or actual possession
-if an instrument qualifies for bearer status, then it is negotiated by delivery to another
-even though a bearer instrument may be negotiated by a mere transfer of possession, the one to whom the instrument is delivered may require the bearer to indorse the instrument
-delivery can be accomplished by actual transfer of possession wherein the transferee has possession of the instrument, or constructive transfer, whereby the transferee has exclusive access

Indorsement

signature of the payee on an instrument

Blank Indorsement

an indorsement that does not name the person to whom the paper, document of title, or investment security is negotiated
-when the indorser merely signs a negotiable instrument
-turns an order instrument into a bearer instrument
-person who possesses an instrument on which the last indorsement is blank is the holder

Special Indorsement

consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable

Indorsee

party to whom special indorsement is made

Qualified Indorsement

an indorsement that includes words such as "without recourse" that disclaims certain liability of the indorser to a maker or a drawee

Restrictive Indorsement

an indorsement that restricts further transfer, such as in trust for or to the use of some other person, is conditional, or for collection or deposit

Alternative Payees

those persons to whom a negotiable instrument is made payable, any one of whom may indorse and take delivery of it

Forged/Unauthorized Indorsement

instrument indorsed by an agent for a principal without authorization or authority
-not a valid indorsement
-if payment of an instrument is made to one claiming under or through a forged indorsement the payor ordinarily remains liable to the person who is the rightful owner of the paper

Impostor Rule

an exception to the rules on liability for forgery that covers situations such as the embezzling payroll clerk
-rule applies when: 1) impersonating payee 2) dummy payee(when the preparer of the instrument intends that the named payee will never benefit from the instrument) 3)dummy payee supplied by employee
-if one of the three impostor exceptions applies the instrument is still effectively negotiated
-when the impostor rule is applicable, any person may indorse the name of the payee
-does not apply when there is a valid check to an actual creditor for a correct amount owed by the drawer and someone later forges the payee's name
-for the rule to apply, the holders or the takers of the instrument must show that they took the instrument (1) in good faith and (2) for payment or collection

Problems in Negotiation of Instruments

1) forged and unauthorized indorsements
2) quasi forgeries: the impostor rule
3) effect of incapacity or misconduct on negotiation (negotiation is effective even though 1)it was made by a minor or any other person lacking capacity 2)it was an act beyond the powers of a corporation 3)it was obtained by fraud, duress, or a mistake of any kind 4)the negotiation was part of an illegal transaction or was made in breach of duty)
4) lost instruments (if the lost instrument is order paper the finder does not become the holder because the instrument has not been indorsed and delivered by the person to whom it was then payable, if the lost instrument is in bearer form when it is lost the finder is the holder and is entitled to enforce payment)

Value

consideration or antecedent debt or security given in exchange for the transfer of a negotiable instrument or creation of a security interest
-part of holder in due course
-transferee takes an instrument for value when (1)the holder has promised to do something in exchange (2)the transferee takes the instrument as security for a loan(such as when a debtor transfers a promissory note payable to him to the transferee) or (3)the transferee receives the instrument as payment for a debt already due
-courts do not consider whether the value is enough; they determine only whether some value has been given
-bank does not give value for a deposited check when it credits the depositor's account the amount of the deposit, but rather gives vale to the extent that the depositor is permitted to withdraw funds against that deposit

Good Faith

absence of knowledge of any defects in or problems; "pure heart and an empty head"

Close Connection Doctrine

circumstantial evidence, such as an ongoing or a close relationship, that can serve as notice of a problem with an instrument

Holder Through a Holder in Due Course

holder of an instrument who attains holder-in-due-course status because a holder in due course has held it previous to him or her

Fraud in the Inducement

fraud that occurs when a person is persuaded or induced to execute an instrument because of fraudulent statements

Universal Defenses

defenses that are regarded as so basic that the social interest in preserving them outweighs the social interest of giving negotiable instruments the freely transferable qualities of money; accordingly, such defenses are given universal effect and may be raised against all holders
-fraud as to the nature or essential terms of the instrument, forgery or lack of authority, duress depriving control, incapacity. illegality, alteration

Alteration

unauthorized change or completion of a negotiable instrument designed to modify the obligation of a party to the instrument
-part of universal defenses
-if an alteration to the instrument was made fraudulently the person whose obligations under the instrument are affected by that alteration is discharged from liability on the instrument but the instrument can be enforced according to its original terms or its terms as completed

Primary Party

party(maker of a note) to whom the holder or holder in due course must turn first to obtain payment

Maker

party who writes or creates a promissory note
-the primary party on a note or CD

Drawee

person to whom the draft is addressed and who is ordered to pay the amount of money specified in the draft
-primary party on a draft

Secondary Parties

called secondary obligors under revised Article 3; parties to an instrument to whom holders turn when the primary party, for whatever reason, fails to pay the instrument

Indorser

secondary party (or obligor) on a note

Drawer

person who writes out and creates a draft or bill of exchange, including a check

Presentment

formal request for payment by the primary party on an instrument requested by the holder or HDC

Dishonor

status when the primary party refuses to pay the instrument according to its terms

Notice of Dishonor

notice that an instrument been dishonored; such notice can be oral, written, or electronic but is subject to time limitations

Limited Defenses

defenses available to secondary parties if the presenting party is a holder in due course

Bad Check Laws

laws making it a criminal offense to issue a bad check with intent to defraud

Demand Draft

draft that is payable upon presentment

Time Draft

bill of exchange payable at a stated time after sight or at a definite time

Money Order

draft issued by a bank or a nonbank

Substitute Check

electronic image of a paper check that a bank can create and that has the same legal effect as the original instrument

Overdraft

negative balance in a drawer's account

USA Patriot Act

federal law that, among other things, imposes reporting requirements on banks

Stale Check

a check whose date is longer than 6 months ago

Stop Payment Order

order by a depositor to the bank to refuse to make payment of a check when presented for payment

Certified Check

check for which the bank has set aside in a special account sufficient funds to pay it; payment is made when the check is presented regardless of amount in the drawer's account at that time; discharges all parties except certifying bank when holder requests certification

Wrongfully Dishonored

error by a bank in refusing to pay a check

Agent

person or firm who is authorized by the principal or by operation of law to make contracts with third persons on behalf of the principal

Agency

the relationship that exists between a person identified as a principal and another by virtue of which the latter may make contracts with third persons on behalf of the principal (parties: principal, agent, third person)

Encoding Warranty

warranty made by any party who encodes electronic information on an instrument; a warranty of accuracy

Electronic Funds Transfer Act (EFTA)

federal law that provides consumers with rights and protections in electronic funds transfers

Electronic Funds Transfer (EFT)

any transfer of funds (other than a transaction originated by a check, draft, or similar paper instrument) that is initiated through an electronic terminal, telephone, computer, or magnetic tape so as to authorize a financial institution to debit or credit as account

Intermediary Bank

bank between the orginator and the beneficiary bank in the transfer of funds

Credit Transfer

transaction in which a person making payment, such as a buyer, requests payment be made to the beneficiary's bank

See More

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set