LESSON 6.1
GOALS
 List the various types of commercial paper, and describe the use and proper negotiation of each type
 Explain electronic fund transfers (EFTs)
© 2011 South-Western | Cengage Learning

BUSINESS LAW, 2e
Commercial Paper
 Commercial paper is defined as an unconditional written promise or order to pay a sum of money.
 Unconditional , as used to define commercial paper, means that the legal effectiveness of the order or promise does not depend on any other event.
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 2

BUSINESS LAW, 2e
Major Types of
Commercial Paper
 Orders to pay
 Draft
 Check
 Promised to pay
 Promissory note
 Certificate of deposit
© 2011 South-Western | Cengage Learning
LESSON
6.1
SLIDE 3

BUSINESS LAW, 2e
Specialized Types of Commercial
Paper
LESSON
6.1
 Certified check
 Cashier’s check
 Teller’s check
 Money order
 Traveler’s check
 Trade acceptance
© 2011 South-Western | Cengage Learning
SLIDE 4

BUSINESS LAW, 2e LESSON
6.1
Decreasing the Risk of Taking
Commercial Paper
 For people or businesses to accept commercial paper instead of cash, they must be assured that there is a very good chance the instrument will be paid.
 Today, the Uniform Commercial Code
(UCC), a set of state laws that governs business activities, provides that assurance.
© 2011 South-Western | Cengage Learning
SLIDE 5

BUSINESS LAW, 2e
Proper Transfer of
Commercial Paper
 Order paper requires an indorsement.
 Bearer paper may be negotiated by delivery alone.
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 6

BUSINESS LAW, 2e
Types of Indorsement
 Blank indorsement
 Special indorsement
 Qualified indorsement
 Restrictive indorsement
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 7

BUSINESS LAW, 2e
Accommodation Parties
 An accommodation party is a cosigner.
 The maker is still primarily liable.
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 8

BUSINESS LAW, 2e
Collection and Discharge of
Commercial Paper
 Holder of commercial paper
 Holder in due course (HDC)
 Holder through a holder in due course
(HHDC)
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 9

BUSINESS LAW, 2e
Collecting on Commercial Paper
 Limited defenses
 Universal defenses
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 10

BUSINESS LAW, 2e
Discharge of Commercial Paper
 Payment
 Cancellation
 Novation
 Bankruptcy
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 11

BUSINESS LAW, 2e LESSON
6.1
Electronic Fund Transfers
 A transfer of funds that requires a financial institution to debit or credit an account and that is initiated by the use of an electronic terminal, computer, telephone, or magnetic tape is an electronic funds transfer (EFT) .
 EFTs are conducted without paper instruments such as checks or drafts.
© 2011 South-Western | Cengage Learning
SLIDE 12

BUSINESS LAW, 2e
Examples of Devices that
Facilitate EFTs
 ATMs
 Point-of-sale terminals in stores
 Pay-by-phone systems
 Automated clearinghouse networks that credit payroll checks directly to employees’ accounts
LESSON
6.1
© 2011 South-Western | Cengage Learning
SLIDE 13

BUSINESS LAW, 2e LESSON
6.1
Electronic Fund Transfers Act
(EFTA)
 Emphasizes that the use of EFTs is purely voluntary
 Requires consumer to receive a written receipt and statements
 Provides rules for reporting and investigating errors
 Limits liability for unauthorized transfers
© 2011 South-Western | Cengage Learning
SLIDE 14

LESSON 6.2
GOALS
 Explain why secured transactions are necessary
 Describe how a security interest is created and enforced
© 2011 South-Western | Cengage Learning

BUSINESS LAW, 2e LESSON
6.2
Creation of a Security Interest
 There must be an agreement between the debtor and creditor that a creditor will have a security interest.
 Creditor must give value.
 Debtor must retain rights.
© 2011 South-Western | Cengage Learning
SLIDE 16

BUSINESS LAW, 2e LESSON
6.2
Types of Secured Transactions
 Pledge
 In a pledge , the creditor is given possession of the collateral.
 Security agreement
 In a security agreement , the debtor retains possession of the collateral.
© 2011 South-Western | Cengage Learning
SLIDE 17

BUSINESS LAW, 2e LESSON
6.2
Perfection of a Security Interest
 A perfected or fully enforceable security interest results when the creditor gives proper notice of its existence to all other potential creditors.
 A creditor in possession of the collateral, as in a pledge, needs to take no additional steps for protection.
 When the debtor has possession of the goods, it may be necessary for the creditor to file a financing statement at the appropriate governmental office to perfect the creditor’s interest.
© 2011 South-Western | Cengage Learning
SLIDE 18

BUSINESS LAW, 2e
Perfection in Tangible and
Intangible Property
 Tangible Property
 Consumer goods
 Farm products
 Inventory
 Equipment
 Intangible Property
© 2011 South-Western | Cengage Learning
LESSON
6.2
SLIDE 19

BUSINESS LAW, 2e
Termination of a
Secured Transaction
 When the debtor pays the debt in full
 Creditor releases security interest in collateral
 Termination statement
 When the debtor defaults
 Creditor takes or retains possession of collateral
 Creditor responsibilities
 Debtor’s rights
LESSON
6.2
© 2011 South-Western | Cengage Learning
SLIDE 20

LESSON 6.3
GOALS
 Discuss the laws protecting creditors and debtors
 List the types of bankruptcy and explain the bankruptcy procedure
© 2011 South-Western | Cengage Learning

BUSINESS LAW, 2e
Laws Protecting Creditors
 Involuntary liens
 Mechanic’s lien
 Artisan’s lien
 Third parties
 Suretyship
 Surety
 Garnishment of wages
© 2011 South-Western | Cengage Learning
LESSON
6.3
SLIDE 22

BUSINESS LAW, 2e LESSON
6.3
Laws Protecting Debtors
 Maximum interest rates
 Clear and complete advance disclosure of loan terms
 Terms of unconscionable contracts
 Specific abuses in the credit system
 Notice of debt payment
 Cancellation of debts
© 2011 South-Western | Cengage Learning
SLIDE 23

BUSINESS LAW, 2e LESSON
6.3
Bankruptcy Law
 The U.S. Congress has exclusive power to establish uniform laws on bankruptcies.
 Bankruptcy law has two purposes.
 It protects debtors by giving them a new economic start free from most creditors’ claims.
 It also protects creditors by setting up a framework to provide for the fair distribution of the debtor’s assets.
© 2011 South-Western | Cengage Learning
SLIDE 24

BUSINESS LAW, 2e LESSON
6.3
Types of Bankruptcy
 Chapter 7 Liquidation
 Chapter 11 Reorganization
 Chapter 13 Extended-Time Payment Plan
 Chapter 12 Plan
© 2011 South-Western | Cengage Learning
SLIDE 25

BUSINESS LAW, 2e
Voluntary or Involuntary
Bankruptcy
 Bankruptcy procedure
 Nondischargeable debts
 Exempt property
 Liquidation and distribution of proceeds
LESSON
6.3
© 2011 South-Western | Cengage Learning
SLIDE 26