Business Law For Accountants: Agency
Usage of Trade
Any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question
HDC Status Requirements
For Value In Good Faith Without Notice that it is Defective
Fungible Goods
Goods that are alike by physical nature, by agreement, or by trade usage Examples of fungible goods are wheat, oil, and wine that are identical in type and quality.
Conforming Goods
Goods that conform to contract specifications
UCC 2-401
Nearly all subsections of UCC 2-401, the words "unless otherwise explicitly agreed" appear, meaning that any explicit understanding between the buyer and the seller determines when title passes Without an explicit agreement to the contrary, title passes to the buyer at the time and the place the seller performs by delivering the goods
Void Title
No title can be transferred
Point-of-Sale Systems
Online terminals allow consumers to transfer funds to merchants to pay for purchases using a debit card
E-Money
Prepaid funds recorded on a computer or a card (such as a smart card)
Smart Cards
Prepaid funds recorded on a microprocessor chip embedded on a card One type of e-money
Agency By Estoppel
Principal causes a third person to believe that another person is the Principal's Agent, and the third person acts to her detriment in reasonable reliance on that belief
Course of Dealing
Prior conduct between parties to a contract that establishes a common basis for their understanding
Expedited Funds Availability Act
Purpose of standardizing hold periods on deposits made to commercial banks and to regulate institutions' use of deposit holds
Incidental Damages
Expenses that are caused directly by a breach of contract, such as those incurred to obtain performance from another source
Payor Bank
The bank on which a check is drawn (the drawee bank)
Course of Performance
The conduct that occurs under the terms of a particular agreement; such conduct indicates what the parties to an agreement intended it to mean
Acceptance
The drawee's written promise to pay the draft when it comes due
Depository Bank
The first bank to receive a check for payment
Shelter Principle
The principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC
Trade Acceptance
The seller of the goods is both the drawer and the payee
Entrustment Rule
The transfer of goods to a merchant who deals in goods of that kind and who may transfer those goods and all rights to them to a buyer in the ordinary course of business
Implied Warranty of Fitness for a Particular Purpose
The warranty arises when any seller or lessor knows the particular purpose for which a buyer or lessee will use the goods and knows that the buyer or lessee is relying on the skill and judgment of the seller or lessor to select suitable goods
Installment Contract
Under the Uniform Commercial Code, a contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately
Tender of Delivery
Under the Uniform Commercial Code, a seller's or lessor's act of placing conforming goods at the disposal of the buyer or lessee and giving the buyer or lessee whatever notification is reasonably necessary to enable the buyer or lessee to take delivery
Implied from Prior Dealings or Trade Custom
Without evidence to the contrary, when both parties to a sales or lease contract have knowledge of a well-recognized trade custom, the courts will infer that both parties intended for that custom to apply to their contract
Restrictive Indorsement
Any indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved A restrictive indorsement does not prohibit the further negotiation of the instrument
Bearer Instrument
Any instrument that is not payable to a specific person, including instruments payable to the bearer or to cash
Destination Contract
A contract in which the seller is required to ship the goods by carrier and deliver them at a particular destination The seller assumes liability for any losses or damage to the goods until they are tendered at the destination specified in the contract
Intermediary Bank
Any bank to which an item is transferred in the course of collection, except the depositary or payor bank
Buyer in Ordinary Course
A buyer who, in good faith and without knowledge that the sale violates the ownership rights or security interest of a third party in the goods, purchases goods in the ordinary course of business from a person in the business of selling goods of that kind
Cashier's Check
A check drawn by a bank on itself
Certified Check
A check that has been accepted by the bank on which it is drawn Essentially, the bank, by certifying (accepting) the check, promises to pay the check at the time the check is presented
Traveler's Check
A check that is payable on demand, drawn on or payable through a bank, and designated as a traveler's check
Overdrafts
A check written on a checking account in which there are insufficient funds to cover the amount of the check
Stale Checks
A check, other than a certified check, that is presented for payment more than six months after its date
Perfect Tender Rule
A common law rule under which a seller was required to deliver to the buyer goods that conformed perfectly to the requirements stipulated in the sales contract A tender of nonconforming goods would automatically constitute a breach of contract
Sales Contracts
A contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price
Shipment Contract
A contract in which the seller is required to ship the goods by carrier The buyer assumes liability for any losses or damage to the goods after they are delivered to the carrier Generally, all contracts are assumed to be shipment contracts if nothing to the contrary is stated in the contract.
Unconsiable Contract
A contract or clause that is void on the basis of public policy because one party, as a result of his or her disproportionate bargaining power, is forced to accept terms that are unfairly burdensome and that unfairly benefit the dominating party
Check
A draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand
Bank's Acceptance
A draft orders the buyer's bank to pay
Holder in Due Course
A holder who acquires a negotiable instrument for value; in good faith; and without notice that the instrument is overdue, that it has been dishonored, that any person has a defense against it or a claim to it, or that the instrument contains unauthorized signatures, alterations, or is so irregular or incomplete as to call into question its authenticity
Substitute Checks
A negotiable instrument that is a paper reproduction of the front and back of an original check and contains all of the same information required on checks for automated processing
Order Instrument
A negotiable instrument that is payable "to the order of an identified person" or "to an identified person or order
Certificate of Deposit
A note of a bank in which a bank acknowledges a receipt of money from a party and promises to repay the money, with interest, to the party on a certain date
Accommodation Party
A person who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument
Disclosed Principle
A principal whose identity is known to a third party at the time the agent makes a contract with the third party
Undisclosed Principle
A principal whose identity is unknown by a third person, and the third person has no knowledge that the agent is acting for a principal at the time the agent and the third person form a contract
Partially Disclosed Principle
A principal whose identity is unknown by a third person, but the third person knows that the agent is or may be acting for a principal at the time the agent and the third person form a contract
Notary Public
A public official authorized to attest to the authenticity of signatures
Good Faith Purchaser For Value
A purchaser who buys without notice of any circumstance that would put a person of ordinary prudence on inquiry as to whether the seller has valid title to the goods being sold
No Liens
A second warranty of title protects buyers and lessees who are unaware of any encumbrances (claims, charges, or liabilities—usually called liens) against goods at the time the contract is made
Voidable Title
A seller has a voidable title to goods obtained by fraud, paid for with a check that was later dishonored, purchased from a minor, or purchased on credit when the seller was insolvent
Express Warranty
A seller's or lessor's oral or written promise, ancillary to an underlying sales or lease agreement, as to the quality, description, or performance of the goods being sold or leased
E-Agent
A semiautonomous computer program that is capable of executing specific tasks
Regulation E
A set of rules issued by the Federal Reserve System's Board of Governors under the authority of the Electronic Fund Transfer Act to protect users of electronic fund transfer systems
Parol Evidence
A term that originally meant "oral evidence," but that has come to refer to any negotiations or agreements made prior to a contract or any contemporaneous oral agreements made by the parties
Pre-Dominate Factor Test
A test courts use to determine whether a contract is primarily for the sale of goods or for the sale of services
No Infringements
A third type of warranty of title arises automatically when the seller or lessor is a merchant A merchant-seller or lessor warrants that the buyer or lessee takes the goods free of infringements from any copyright, trademark, or patent claims of a third person
Eletronic Fund Transfer
A transfer of funds with the use of an electronic terminal, a telephone, a computer, or magnetic tape
Implied Warranty of Merchantability
A warranty that goods being sold or leased are reasonably fit for the ordinary purpose for which they are sold or leased, are properly packaged and labeled, and are of fair quality The warranty automatically arises in every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased
Implied Warranty
A warranty that the law derives by implication or inference from the nature of the transaction or the relative situation or circumstances of the parties
Fully Integrated Contract
A written contract that constitutes the final expression of the parties' agreement If a contract is fully integrated, evidence extraneous to the contract that contradicts or alters the meaning of the contract in any way is inadmissible
Power of Attorney
A written document, which is usually notarized, authorizing another to act as one's agent; can be special (permitting the agent to do specified acts only) or general (permitting the agent to transact all business for the principal)
Promissory Note
A written promise made by one person (the maker) to pay a fixed sum of money to another person (the payee or a subsequent holder) on demand or on a specified date
FTC Rule 433
Abolishes the holder in due course doctrine in consumer credit transactions The rule applies to consumers who purchase goods or services for personal, family, or household use using a consumer credit contract
Primary Liability
Absolute liability to pay a negotiable instrument, subject to certain universal (real) defenses Maker of a promissory note and Drawee are primarily liable
Agency By Operation of Law
Agency based on social duty is formed in certain situations when the agent is unable to contact the principal: Necessaries, Emergencies.
Liquidated Damages Clause
An amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will occur in the event of a breach
Anticipatory Repudiation
An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time
Trust Indorsements
An indorsement for the benefit of the indorser or a third person; also known as an agency indorsement The indorsement results in legal title vesting in the original indorsee
Qualified Indorsement
An indorsement on a negotiable instrument in which the indorser disclaims any contract liability on the instrument; the notation "without recourse" is commonly used to create a qualified indorsement
Special Indorsement
An indorsement on an instrument that indicates the specific person to whom the indorser intends to make the instrument payable; that is, it names the indorsee
Blank Indorsement
An indorsement that specifies no particular indorsee and can consist of a mere signature. An order instrument that is indorsed in blank becomes a bearer instrument
Insurable Interest
An interest either in a person's life or well-being or in property that is sufficiently substantial that insuring against injury to (or the death of) the person or against damage to the property does not amount to a mere wagering (betting) contract
Stop-Payment Order
An order by a bank customer to his or her bank not to pay or certify a certain check
Draft
An unconditional written order that involves three parties The party creating the draft (the drawer) orders another party (the drawee) to pay money, usually to a third party (the payee)
Collecting Bank
Any bank handling an item for collection, except the payor bank
Express Authority
Authority expressly given by one party to another. In agency law, an agent has express authority to act for a principal if both parties agree, orally or in writing, that an agency relationship exists in which the agent had the power (authority) to act in the place of, and on behalf of, the principal
Implied Authority
Authority that is created not by an explicit oral or written agreement but by implication In agency law, implied authority (of the agent) can be conferred by custom, inferred from the position the agent occupies, or implied by virtue of being reasonably necessary to carry out express authority
Apparent Authority
Authority that is only apparent, not real In agency law, a person may be deemed to have had the power to act as an agent for another party if the other party's manifestations to a third party led the third party to believe that an agency existed when, in fact, it did not
Requirements for Negotiability
Be in writing Be signed by the maker or the drawer Be an unconditional promise or order to pay State a fixed amount of money Be payable on demand or at a definite time Be payable to order or to bearer
Universal Defenses
Defenses that are valid against all holders of a negotiable instrument, including holders in due course (HDCs) and holders with the rights of HDC Forgery of a signature on the instrument Fraud in the execution Material alteration Discharge in bankruptcy Minority Illegality, mental incapacity, and extreme duress
Personal Defenses
Defenses valid against holders of negotiable notes but not against holders in due course Breach of contract or breach of warranty Lack or failure of consideration Fraud in the inducement (ordinary fraud) Illegality Mental incompetence Ordinary duress or undue influence rendering the contract voidable Discharge by previous payment or cancellation Unauthorized completion of an incomplete instrument Nondelivery of the instrument
Magnuson-Moss Warranty Act
Designed to prevent deception in warranties by making them easier to understand
Respondeat Superior
In Latin, "Let the master respond A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment
Equal Dignity Rule
In most states, a rule stating that express authority given to an agent must be in writing if the contract to be made on behalf of the principal is required to be in writing
Lease Agreement
In regard to the lease of goods, an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments
Lemon Laws
Laws that protect consumers from the consequences of buying a defective car
Vicarious Liability
Legal responsibility placed on one person for the acts of another
Secondary Liability
Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due Drawers and Indorsers are secondarily liable
Risk of Loss
Like risk of loss, the risk of liability that arises from the goods does not necessarily require the passage of title And like risk of loss, when this risk passes from a seller to a buyer is generally determined by the contract between the parties
Uniform Commercial Code
Recognized as the most important statute in business law, it includes provisions which regulate certain sales of goods and negotiable instruments
Locations to Unspecified Delivery Destinations
Seller's Business Seller's Residence Goods' Location
Good Title
Sellers warrant that they have good and valid title to the goods sold and that the transfer of the title is rightful
Automated Teller Machine
Technology that allows a bank customer to make deposits and withdrawals electronically 24 hours a day from his or her bank account
Ratification
The act of accepting and giving legal force to an obligation that previously was not enforceable