© 2011 South-Western | Cengage Learning GOALS LESSON 6.1 COMMERCIAL PAPER 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, 2eLESSON SLIDE 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.

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

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

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

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Types of Indorsement Blank indorsement Special indorsement Qualified indorsement Restrictive indorsement

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

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

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Collecting on Commercial Paper Limited defenses Universal defenses

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Discharge of Commercial Paper Payment Cancellation Novation Bankruptcy

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 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 BUSINESS LAW, 2eLESSON SLIDE 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

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 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 GOALS LESSON 6.2 SECURED TRANSACTIONS Explain why secured transactions are necessary Describe how a security interest is created and enforced

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

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE 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