Chapter 12 BusiLaw

draft

a legally binding written order to pay a fixed sum of money that involves three parties. created by the drawer, who orders the drawee- usually a bank- to pay a certain sum to the payee.

tangible property

goods that are movable at the time a security interest attaches, or begins

drawer

issues or creates the document that requests payment, probably from a bank, but it could be from another party.

surety

the third party who makes a contract for a suretyship which is a promise to be responsible for the borrower's payment obligations, or performance, to a creditor.

perfection

this of the interest establishes the date priority took effect

collateral

"security"

possessory lien

(artisan's lien) the most common lien on personal property. it provides a security interest for creditors that add value to or care for personal property.

sight draft

a draft that requires immediate payment by the drawee to the payee

mortgage

a lien that gives the lien holder the right to sell the property and repay the debt from sale proceeds in the event the borrower defaults.

open account

for credit under this account, for example, the terms define the credit period available to the customer and any discounts offered for early payment.

attachment

for there to be this of a security interest, the security agreement must be signed by the customer; the seller must have provided value; and the customer must have legal, transferable rights in the collateral.

writ

if the court concurs, it issues this which allows attachment.

credit reports

not always accurate; mistakes are made, so one should make sure credit histories are accurate.

deficiency judgment

obtained in a separate legal action after the foreclosure ; if the proceeds are not sufficient, the mortgagee can seek to recover the remainder from the debtor by obtaining this.

cashier's check

one form of check in which the bank is both the drawer and the drawee.

mortgagor

the debtor is this

confirmation

when a payee is concerned about whether a draft is good, she may submit the draft to the drawee for confirmation that it is legitimate and that the drawee will make payment by the date specified.

maker

who makes the promise or the "note"

Negotiable instrument

A. The Functions of Negotiable Instruments- Are substitutes for cash. They serve as a form of credit to debtors. A promissory note is a promise to repay a debt usually with interest in exchange for a monetary advance. B. The Concept of Negotiability- Arises due to the flexible nature of the instruments. They can be assigned or transferred. C. Requirements for Negotiable Instruments- In order for an instrument to be negotiable it must meet certain requirement under the UCC

exoneration

a court order requiring the principal to pay

attachment lien

a court ordered seizure of goods from the customer to prevent the customer from disposing of it during the lawsuit. under state statute, the requirements imposed on the creditor are specific and limited.

debtor

a creditor lends money to this "other party"

check

a draft drawn on a bank and payable on demand

promissory note

a negotiable instrument signed by those who want to borrow the money from a financial institution

note

a promise (not an order) by one party, called the maker, to pay a certain sum of money to another party, the payee.

defaults

a security interest helps to protect the interests of the seller in the event the customers does this, that is, cannot or will not meet its payment obligations.

garnishment

a statutory procedure under which a creditor gains the right to attach up to 25 percent of a customer's net wages to be applied to an outstanding debt.

drawee

agrees to make the payment, such as the bank making a payment based on a document presented to it. The drawee owes money to the drawer such as the bank owing you the money you deposited in your account, and will follow the wishes of the drawer of pay a third party.

certificate of deposit

another major form of commercial paper; an acknowledgment by a bank that it has received money from a customer with a promise by the bank that it will repay the money received at the date specified or, in some instances, on demand.

perfection of security interest

by meeting the requirements of the UCC, the seller obtains this in the goods sold to the customer as collateral to help secure payment in the event of default.

judgment lien

if the creditor is successful in an action against the debtor, the court awards this.

negotation

if the instrument is transferred this way, the transferee takes the instrument free of any of the transferor's contract obligations.

secured creditor

in contrast to unsecured creditor, a business is this when it has the ability to take some of the nonpaying customers' property to satisfy the debt.

unsecured creditor

in most transactions, the lender is this type of creditor. there is little more than the customer's promise to pay.

holder in due course

in order to be this the transferee must: a. Give value for the negotiable instrument; b. Take the instrument without knowledge that it is overdue or defective; and c. Take the instrument in good faith.

involuntary bankruptcy

in this, creditors file a petition with the court, forcing the declaration of bankruptcy and the beginnings of proceedings.

bearer

is an instrument is made this, the party in possession is required only to deliver the instrument to transfer it.

discharge

means that the nonexempt assets are liquidated and the proceeds distributed among the creditors, who may not ask for more.

voluntary bankruptcy

most chapter 7 bankruptcies are these filed by the debtors. a petition is filed with the bankruptcy court, which may be the federal district court or a federal bankruptcy court.

bill of exchange

most common use of drafts; when a draft guarantees payment for goods in international trade

consumer reports

most creditors use credit reporting agencies that sell these for business purposes about individuals and credit ratings about companies.

bankruptcy

not a new issue, the framers of the constitution thought it such an important issue that they specifically made bankruptcy a matter of federal law. the purpose of bankruptcy law is to provide an orderly resolution where a debtor owes more than can be paid.

secured transaction

occurs when a buyer wants a good and does not pay cash and the seller is leery of an unsecured debt.

creditor

one who lends money to, or allows goods or services to be purchased on credit by another party, the debtor.

guarantor

provides a guarantee of payment to a creditor should the principal debtor fail to pay and therefore can be the same as a surety.

credit ratings

reported by credit reporting agencies and they disclaim information about companies

bearer instruments

risky because mere delivery creates a negotiation or transfer.

suretyship

same thing as guaranty; what the owners of small businesses frequently must provide for major debts to give the lender confidence it will be repaid

guaranty

same thing as suretyship; what the owners of small businesses frequently must provide for major debts to give the lender confidence it will be repaid

lien

security obtained by a creditor through the operation of law is called this.

homestead law

states have this law; it provides an exemption, which allows the debtor to retain the family home up to a specified amount free from creditors' claims.

liquidation

takes place through a sale at a public auction unless otherwise ordered by the court.

mortgagee

the creditor is this.

nonexempt property

the creditor moves against the owner's this. that is, certain real and personal property is exempt from attachment proceedings.

debtor in possession

the debtor acts as trustee of the operation, called this, running the business to attempt to generate income to cover debts owed. this means that the debtor now owes an extra duty of care tot he creditors because the debtors duty is to act in the best interests of the creditors as well as the owners.

mechanic's lien

the most common lien for work performed on real property.

principal

the original loan amount

payee

the party to receive the payment is the payee or beneficiary who will be paid by the drawee.

promissory notes

these instruments involve two parties-the maker and the payee- rather than three parties ( a drawer, a drawee, and a payee) required for a draft or check.

floating lien

to avoid the need to renew the financing contract every time something is sold or used, the UCC allows a perfected security interest in property acquired after the security agreement is formed. this permits THIS.

purchase money security interest

to protect its interests, the lender extending credit to a business obtains a security interest, sometimes called this. the procedure is nearly the same as the procedure followed by the business when it extends credit to customers buying its product.

subrogated

usually occurs when part of the debt was paid by the surety. the surety is also entitled to be this to the rights of the creditor against the debtor.

bearer paper

when the instrument must be payable to bearer

order paper

when the instrument must be payable to order