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212 terms

Business Law Test 3

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The Uniform Commercial Code
A uniform / model law that governs commercial transactions, including contracts for the sale of goods, leases and secured transactions.
UCC Article 2
Applies to contracts for the sale of goods
Sale
the passing of title from seller to buyer for a price
Goods
tangible things that can be moved
Mixed goods and services contracts
contracts that include both goods and service. UCC Article 2 applies to contract if good are "predominant part" of transaction.
Merchants
buyers or sellers who: deal in goods of the kind involved in the contract, by occupation or employ a merchant
UCC Article 2(A)
Applies to contracts for the lease of goods
Lease
transfer of right to possession and use of goods for a term, in return for consideration
Lessor
person who transfers right to possession and use of goods under lease
lessee
person who acquires right to possession and use of goods under lease
Formation of contracts
more lenient than common law regarding contract formations; courts evaluate intent of parties to sales or lease contract
Price
"Reasonable Price" at time of delivery
Payment
When buyer receives good
delivery
seller's place of business
time for performance
"reasonable time"
duration of contract
"reasonable" period of time, with termination allowed in good faith and upon notice
quantity
contract fails for lack of definiteness
UCC Statute of Frauds
Contracts for sale of goods must be in writing if goods valued at 500 or more; lease contracts that require payments of 1,000 or more must also be in writing.
unconscionability
in context of UCC contract for sale of goods or lease, an agreement that is so unfair or "one-sided" that court refuses to enforce it
Contracts for the International Sale of Goods
treaty governing international "business-to-business" sale contracts
Advantage of CISG
provides clarity, predictability, and uniformity for global businesses
Good title
Acquired from someone who already owns the goods "free and clear"
Void Title
not true title
Voidable title
occurs in certain situations in which contract between original parties would be void, but goods have already been sold to a third party
Acquiring good title
if "third party purchaser" makes "good-faith" purchase for value, he/ she gets good title
Ownership
transfer of title
encumbrance
goods used as collateral for debt
loss
refers to which party has "risk of loss" when goods damaged/ destroyed
insurable interest
right to insure goods against any risk exposure
simple delivery
buyer and seller contract, buyer leaves with goods
common carrier delivery
buyer and seller contract, seller then places goods with common carrier
shipment contract
title transfers to buyer at time and place of shipment; buyer bears risk of loss while goods in transit
destination contract
seller bears risk of loss until seller delivers good to stipulated destination
FOB (Free on Board)
selling price includes transportation costs and seller has risk of loss to either place or shipment or place of destination
FAS (Free Alongside)
Seller, at seller's expense, delivers goods alongside ship before risk transferred to buyer
CIF ( Cost, Insurance and Freight)
Seller places goods in possession of carrier before risk passes to buyer
Deliver "Ex Ship"
risk of loss passes to buyer when goods leave ship
goods-in-bailment
identifies goods in storage
Sale on approval
title and risk of loss with seller until buyer notifies seller of approval
Sale or return
buyer has insurable interest once goods identified in contract; title and risk of loss transfer depend on whether goods in bailment, delivered by common carrier, or delivered by seller.
Seller in breach
buyer may accept goods as is or rejects, risk of loss will remain with seller until buyer accepts goods
buyer in breach
risk of loss depends of type of contract between buyer and
seller
UCC Performance Obligation
-Sellers and lessors are obligated to transfer and deliver conforming goods.
-Buyers and lessees are obligated to accept and pay for conforming goods in accordance with terms of contract.
- "good fait" required in performance and enforcement of every contract
Good faith
honesty in fact
Perfect Tender rule
States that if goods or tender of delivery fail in any respect to conform to contract, buyer/lessee has right to: 1) accept the goods 2) reject entire shipment 3) accept part and reject part
Exceptions to perfect tender rule
industry standards, prior dealings between parties, exceptions outlined in parties' agreement, seller/lessor's right to cure, destroyed goods, substantial impairment, commercial impracticability
Commercial Impracticability Doctrine
Delay in delivery or non-delivery may not, in court's discretion, constitute breach if performance made impracticable because contingency has occurred that was not contemplated when parties reached agreement
Warranty
seller's promise regarding certain characteristics of goods sold
express warranty
explicitly stated contract
implied warranty
automatically (by operation of law) applied to contract
Warranties of Title
- passage of good title
- implied promise of no liens/ judgments against title
- implied promise that title not subject to claims of intellectual property infringement
Express Warranties
-Description of good's physical nature or its use.
-May be found in advertisements or brochures
-May be material term of contract
-Salesperson's oral promise concerning good can give rise to express warranty
-Buyer's reliance on seller's representations generally means those representations become express warranties, and party of contract.
Implied Warranty of Merchantability
warranty based on reasonable expectation of product performance
implied warranty of fitness for particular purpose
warranty that arises when seller knows purpose for which buyer purchasing goods, and buyer relies on seller's judgment to recommend/ select certain product. Seller does NOT have to be a merchant.
implied warranty of trade usage
warranty that arises as result of generally accepted trade practices
Seller's warranties may extend to:
-Buyer's household members and guests.
- An "reasonable and foreseeable" user
-Anyone injured by good
Methods of Disclaiming/Waiving Warranties
-Seller does not make express warranties
-Seller disclaims implied warranties in clear, unambiguous, conspicuous language
- Buyer fails/ refuses to examine goods
-Buyer fails to file suit within applicable statute of limitations period
Liquidated Damages
damages identified before contract breach occurs
Liquidated Damages general rule
-Parties are free to negotiate a liquidated damages contract clause.
- Courts will enforce liquidated damages provisions, so long as they are non-punitive.
Modifications to Remedies otherwise provided by the UCC
parties to sales and lease contracts are allowed to modify results
negotiable instrument
substitute for cash; written document, containing signature of creator, that makes unconditional promise or order to pay sum certain in money, either on demand or at a definite time.
Note
promise by maker to pay a payee ex. certificate of deposit
Draft
order by drawer to drawee to pay a payee ex. check
Demand instrument
payee can demand actual payment at any time
Time instrument
payment made only at specific designated time in future
Cashier's check
draft with respect to which drawer and drawee are same bank
Traveler's check
-payable on demand
- drawn on or payable through a bank
- requires as condition of payment, countersignature by person whose signature appears on instrument
certified check
check accepted by bank on which it is drawn
Requirement for Negotiability
- in writing
- signed by creator
- unconditional promise
- certain sum in money
- payable on demand or time
-payable to order
order paper
specific payee named on instrument ex. pay to the order of john smith
bearer paper
instrument payable to possessor, treated like cash
negotiation
transfer of possession to third party, who becomes holder of negotiable instrument
holder
party who possesses negotiable instrument payable to the party, or to bearer
Negotiation Requirements- bearer paper
requires payee's delivery of instrument to holder
Negotiation Requirements- order paper
requires endorsement and delivery
blank endorsement
payee's signature
special endorsement
endorser's signature plus named endorsee
qualified endorsement
endorser's signature plus use of language "without recourse"
restrictive endorsement
endorser's signature plus restrictions on future negotiation of instrument
misspelled name
holder may endorse document with misspelled name, holder's actual name or both
Alternative payees
"Pay to the order of John Smith or Jane Smith" endorsement by any one of listed payees sufficient
Joint payees
"Pay to order of John Smith and Jane Smith" endorsement by all listed payees required
drawer
party who gives order to pay draft
drawee
party that must obey drawer's order to pay draft
payee
party who receives benefit of drawer's order; party who receives money from draft
check
special draft that orders drawee to pay a fixed amount of money on demand
Money Order
instrument stating that certain amount of money is to be paid to a particular person
depository bank
first bank that receives check for payment
payor bank
bank on which check drawn; bank ultimately responsible from granting funds for check
intermediary bank
any bank to which check transferred
electronic check presentment
check transmitted electronically from bank to bank; check processed on day on which deposited
21st century act
allows banks to forgo sending original checks as part of collection or return process, and send a truncated version instead
Truth-in-Savings Act
-minimum balance required to open account and be paid interest
-manner in which balance of account will be calculated
- annual percentage yield of interest
-manner in which interest will be calculated
- notification of fees
-notification of any limitations on withdrawals/ deposits
Properly Payable RUle
bank may pay instrument only when authorized by drawer, and payment does not violate agreement between bank and customer
Wrongful Dishonor
bank refuses to pay properly payable check, bank incurs liability upon wrongful dishonor
Stop-Payment order
drawer orders bank to not pay check drawn on customer's account
Post-dated check
customer can post-date check, but must give bank notice of post-date
Stale check
check not presented to bank within 6 mos
Check bearing forged signature
generally drawer not liable for forged check, unless drawer substantially contributed to forgery
check bearing forged endorsement
neither drawer no drawer's bank liable for forged endorsement
altered check
if unauthorized change modifies obligation of party to instrument, drawer generally not liable for altered amount, unless he/she negligently contributed to alteration
If customer's ATM is lost customer must notify bank within 2 day...
-If notification met, customer only liable for first $50 stolen.
-If notification not me, customer liable for up to $500 stolen.
Digital Cash
money stored electronically
Stored-Value Cards
plastic cards with magnetic strips containing data regarding card value
Holder in due course doctrine
provides incentive for financial intermediaries to engage in transactions, because they receive greater legal protection by virtue of holder in due course status
Requirement for HIDC
-be holder of complete and authentic negotiable instrument
-take instrument for value
- take instrument in good faith
- take instrument without notice that it is overdue or dishonored
HIDC is free from the following personal defenses
-lack of consideration
-breach of contract
-fraud in the inducement
-incapacity
-illegality
-duress
- unauthorized completion
-unauthorized acquisition of instrument
HIDC is subject to the following real defenses
-fraud in essence
-discharge of the party liable through bankruptcy
-forgery
-material alteration of completed instrument
-infancy
Shelter principle
if holder cannot attain holder in due course status, holder can acquire rights and privileges of holder in due corse, if item transferred from a holder in due course.
Federal trade commission rule
negotiation of consumer notes may not be subject to holder in due course status, if consumer credit contract or purchase money loan contains the following : Any holder...
maker
person promising to pay set sum to holder of promissory note/ CD, promises to pay money
acceptor
person who accepts and signs draft to agree to pay draft when it is presented. pays money when it is requested
drawer
person ordering drawee to pay
endorser
person who signs instrument to restrict payment of it, negotiate it or incur liability
Primary liability of makers and acceptors
must pay stated amount on instrument when it is presented for payment
secondary liability of drawers and endorsers
must pay amount on instrument if following conditions met: presentment, dishonor, notice of dishonor
proper presentment of negotiable instrument
presented proper party, presented in proper way, presented in timely manner
accommodation party
party who signs instrument to provide credit for another party who has also signed instrument
unauthorized signature
if signature to negotiable instrument unauthorized, signature will not impose liability on named party
transfer warranty
when party transfers instrument to another party for consideration, party makes certain guarantees regarding instrument and transfer
presentment warranty
when party properly presents instrument for acceptance, party makes certain guarantees regarding instrument and transfer itself
real defenses
infancy, duress, lack of legal capacity, illegality of transaction, fraud in factum, discharge through isolvency proceedings, forgery, material alteration
personal defenses
breach of contract, lack of consideration, fraud in inducement, illegality, mental incapacity
discharge of liability
payment/ tender of payment, cancellation, reaquisition, impairment of recourse, impairment of collateral
secured interest
interest in personal property which secures payment of obligation
secured party
person that holds interest in secured property
debtor
person that has obligation to secured party
security agreement
agreement in which debtor gives secured interest to secured party
collateral
property that is subject to security interest
collateral under UCC
goods, indispensable paper, intangibles, proceeds
creation of security interest requires
written agreement, value and debtor rights in collateral
purchase money security interest
interest formed when debtor uses borrowed money from secured party to buy collateral
perfected security interest
security interest in which creditor has legally protected his claim to collateral
perfection by filling
perfection of interest by filing financing statement with state agency
place and duration of filing
generally, financial statement for consumer goods must be filed with county clerk; statement valid for 5 years
perfection by possession
perfection of interest by holding collateral of debtor until loan is paid in full
automatic perfection
perfection that automatically occurs when retailer sells a consumer good
perfection of movable collateral
collateral that moves to another state must be "re-perfected" after four months
perfection of security interests in automobiles and boats
note interest on certificate of title
after-acquired property
creditor has security interest in property acquired by debtor after security agreement made, if clause to this effect included in agreement
proceeds
creditor automatically has rights to proceeds from sale of collateral for 10 days
termination statement
an amendment to a financing statement stating debtor has no further obligation to secured party
secured vs. unsecured
secured interest prevails
secured vs. secured
individual who perfected his/ her interest first prevails
purchase money security interest
if party with perfected purchase money security interest disputes another party, pmsi party will almost always have right to collateral, regardless of when agreement perfected
secured party vs. buyer
if debtor sells his collateral, creditor may dispute with buyer over collateral
buyer in "ordinary course of business"
if person buys collateral in ordinary course of business without realizing that it is collateral he has right to good
buyers of consumer goods
if consumer does not know product secured, buyer's new product is free from security interest
buyers in chattel paper and instruments
if buyer purchases chattel paper and instruments, he/she is free from security interest
default
occurs when debtor fails to fulfill his loan
taking possession of collateral
if debtor default on loan, secured party can take possession of collateral
disposition of collateral
creditor may sell, lease or transfer collateral
retention of collateral
creditor may choose to keep collateral as payment of debt
proceeding to judgment
secured party may sue debtor for entire amount of debt, instead of dealing with collateral
purpose of the bankruptcy act
provide protection to creditors, provide opportunities for debtors to gain a fresh start
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
most comprehensive change to bankruptcy law in over 25 years, made it more difficult for individual debtor to qualify for Chapter 7 (Liquidation) bankruptcy
Chapter 7
sale of debtor's non-exempt assets by trustee, and distribution of money to creditors
chapter 9
adjustment of municipalities' debts
chapter 11
reorganization of debtor's financial affairs under supervision of bankruptcy court
chapter 12
reorganization of family farmers' debts
chapter 13
reorganization of individual's debts
chapter 15
recognition of insolvency proceedings pending in foreign country, and relief of foreign debtors
Bankruptcy Proceedings
each bankruptcy case begins with filing a bankruptcy petition, once petition is filed, bankruptcy court grants automatic stay "freezing" creditor actions against debtor's estate
Chapter 7: Voluntary Petition
debtor files
Chapter 7: Involuntary Petition
creditor files, forcing debtor into bankruptcy
Federal Bankruptcy Exemptions: for residence
up to 15,000
federal bankruptcy exemptions: interest in motor vehicle
up to 2,400
federal bankruptcy exemptions: interest for particular item in person goods
up to 400
federal bankruptcy exemptions: interest in jewelry
1,000
federal bankruptcy exemptions: any property
up to 800
federal bankruptcy exemptions: tools of trade
up to 1,500
federal bankruptcy exemptions: additional
any unmatured life insurance contract owned by debtor, professionally prescribed health aids, retirement funds
federal bankruptcy exemptions: personal injury award
up to 15,000
preferential payments
trustee can recover transfers made with intent to defraud creditors, if debtor made such transfers within one year of bankruptcy filing
fraudulent transfers
trustee can recover transfers made with intent to defraud creditors, if debtor made such transfers within one year of bankruptcy filing
Priority claims among unsecured creditors
arranged by classes, first comes alimony/ child support then court fees
agency
relationship between principal and agent
agent
one authorized to act for/ on behalf of principal
principal
one who hires agent to represent him
fiduciary
one with duty to act primarily for another person's benefit
expressed agency
agency formed by making written/ oral agreement
power of attorney
document giving agent authority to sign legal documents on behalf of principal
durable power of attorney
power of attorney intended to continue to be effective/ take effect after principal incapacitated
agency by implied authority
Agency formed by implication, through conduct of parties
agency by estoppel
Agency formed when principal leads third party to believe that another individual serves as his/her agent
agency by ratification
Agency that exists when individual misrepresents himself/herself as agent for another party, and principal accepts/ratifies unauthorized act
requirements for agency by ratification
-Individual must misrepresent himself/herself as agent for another party
-Principal accepts/ratifies unauthorized act
-Principal has complete knowledge of all material facts regarding contract
-Principal must ratify entirety of agent's act
agency relationship
Fiduciary relationship (relationship of trust) in which agent acts on behalf of principal
principal-agent relationship
Employer hires employee to enter into contracts on behalf of employer; parties have agreed that agent will have power to bind principal in contract
Employer-Employee Relationship
Employer hires employee to perform certain tasks; employer has right to control conduct of employees
Employer-Independent Contractor Relationship
Employer hires persons (other than employee) to conduct some sort of task; employer has no control over details of conduct of independent contractor
principal duties to agent
compensation, reimbursement and indemnification, cooperation, safe working conditions
agent's duties to principal
loyalty, notification, performance, obedience, accounting
principal's rights and remedies against agent
constructive trust, avoidance, indemnification
agent's rights and remedies against principal
tort and contract remedies, demand for an accounting, specific performance
express authority
principal explicitly instructed agent to perform act
implied authority
relationship inferred from actions/ conduct of parties; authority inferred from nature of relationship
apparent authority and estoppel
Third party reasonably believes (based on actions of principal) that agency relationship exists between principal and another individual
authorized acts
agent acts within scope of agent's authority
classification of principal
must be classified as either disclosed, partially disclosed or undisclosed
disclosed principal
agent not liable, principal liable
partially disclosed principal
agent possibly liable, principal liable
undisclosed principal
agent liable, principal liable
unauthorized acts
acts that go beyond scope of agent's authority
third party believes agent has authority:
agent liable, principal not liable
third party believes agent mistaken about his authority
agent not liable, principal not liable
Agent's Tortious Conduct: Principal directly responsible if:
principal directs agent to commit tortious act or principal fails to provide proper instruments, tools or adequate instructions
Agent misrepresentation
If agent misrepresents himself/herself to third party, principal may be tortiously liable for agent's misrepresentation
respondent superior
Principal/employer liable if employee wrongfully injures third party
Principal's liability and the independent contractor
Individual who hires independent contractor not liable for independent contractor's tortious actions under doctrine of "respondeat superior", unless contractor engages in hazardous activities
termination by acts of parties
lapse of time, fulfillment of purpose, occurrence of specific even, mutual agreement, revocation of authority, renunciation by agent
termination by operation of law
death, insanity, bankruptcy, change in circumstances, change in law, impossibility of performance, disloyalty of agent