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.pdf17. The functions of negotiable instruments.
Negotiable instruments are documents which represent an intangible right of payment. Examples include promissory notes, certificates of deposit and cheques. When drafted using the correct and very particular language prescribed by common law or statute, a document becomes negotiable, which means that it can be freely transferred by endorsement (usually by signature) or delivery, One of the most important features of negotiable instruments is that they are generally not subject to the nemo dat rule. This general principle of law states that 'he who hath not cannot give', Le. a transferor who does not hold title cannot transfer title to a transferee. In the realm of negotiable instruments, that rule is sacrificed in order to facilitate the free alienability of negotiable instruments, which aids commerce in general.
Negotiable instruments serve two different functions in commercial transactions: a credit function and a payment function. The credit function allows negotiable instruments to be used to obtain credit now, to be repaid out of future income. Common examples include promissory notes, certificates of deposit and debentures.
A certificate of deposit is a bank's written acknowledgment of a deposit and a promise to pay the depositor to his order, or to some other person or that person's order. A debenture is the most common form of long-term loan used by companies in the UK. It is usually repayable at a determined date in the future and secured by the assets of the company, although sometimes it is unsecured and referred to as a naked debenture.
The payment function allows negotiable instruments to be used in lieu of cash payments which may be inconvenient (or risky) to transfer directly, Common examples are cheques and bills of exchange. A bill of exchange is a three-party instrument written and signed by the first party (the drawer), ordering the second party (the drawee) to pay a third party (the payee) a sum of money on demand or at a fixed or determinable future time. A cheque is a more specific term for a bill of exchange, usually on a printed form. drawn on a bank and payable on demand.
Another example of a negotiable instrument which should be mentioned here is the letter of credit, A letter of credit is a document issued by a bank (the issuer) to a third party (the beneficiary) at the request of an applicant, instructing the bank to pay a certain specified amount of money to the beneficiary once certain conditions that are stated on the document are met. Letters of credit are often used in the international import and export business, as they provide good documentary evidence of financing for the transaction,
18. The two types of security interests.
Security (in the context of the law of secured transactions) differs from other arrangements securing payment or performance because it gives the lender a right in rem which binds third parties, so that anyone interested in buying the security from the borrower cannot freely do so. These other types of arrangements are sometimes referred to as quasi-security. (It should be noted that mortgages are a form of security in land and are usually addressed within the scope of real-property law.)
There are two types of security interests, possessory and non-possessory. With a possessory interest, the creditor takes possession of the property which is the security interest (the pledge). The debtor (pledgor) transfers personal property to the creditor (pledgee} in order to secure payment or performance of the underlying obligation. An example of this would be pawning personal property to raise money. The most commonly encountered non-possessory security interests are the fixed charge and the floating charge. A fixed charge creates a security interest in specific property and affords the creditor control over its alienation. This means that the debtor cannot deal in the property without first satisfying the indebtedness secured by the property or receiving the creditor's consent. A floating charge creates a security interest in the assets of the debtor at any given time, which means that the debtor may freely deal with them in the ordinary course of business. It is only when there is a default or a similar event that the charge 'crystallizes' and becomes fixed.
All the security interests mentioned above are consensual, since they are created through a security agreement whereby the debtor grants to the creditor an interest in debtor property (collateral) in order to enforce the performance of the debtor's obligations to the creditor. There also exist non-consensual security interests, such as those created by operation of law, e.g. unpaid sellers' liens. where a seller has a lien over goods in his possession for which he has not received payment. In order to invoke consensual security interests against third parties, perfection of the security interest must take place. Perfection is the action which gives the creditor priority over certain other creditors in the enforcement of the security interest. Perfection can take place in three ways: by registration of the security agreement, by possession of the collateral, and by attachment of the security interest. The underlying purpose of perfection is to put third-party creditors on notice of the security interest and so avoid any hidden interests in property. Attachment refers to the time at which the creditor's interest fastens to the property offered as security, giving the creditor a vested interest. In certain cases, attachment also constitutes perfection. Perfection upon attachment is sanctioned by statute, generally for purposes of commercial convenience and availability of other methods of protecting creditors.
19. The concept of creditors’ favoured status.
Debtor-creditor is the area of the law which relates to the rights and obligations of debtors and creditors. The law outlines what happens when the debtor is unable or unwilling to make payments and what remedies are available to the creditor in this situation. It does not focus on the creation of the debtor-creditor relationship but, rather, on the collapse of the debtor-creditor relationship.
With this in mind, debtor-creditor law largely involves how creditors get paid when the debtor does not have the resources to make payment. This question is determined by whether the creditor has some type of 'favoured status'. Broadly speaking, creditors get favoured status by two means, either by lien or by priority.
There are three different types of liens: consensual, judicial and statutory. A consensual lien is one which is created upon agreement between the debtor and creditor. Usually, this type of lien must be perfected through some type of registration process in order to be invoked against third parties (e.g. other creditors seeking payment from the debtor from the same property). Examples of these types of liens would be mortgages and registered security interests. Mortgages are liens created in land, whereas security interests are generally related to other types of property. Judicial liens arise as a result of some sort of judicial proceedings brought by the creditor to secure an interest in the debtor's property. Examples of this type of lien include attachment liens, garnishment, judgment liens and execution liens. These liens generally entail seizure of the debtor's property by a public official (such as a bailiff) to enforce the obligations of the debtor. Statutory liens are liens created by legislation due to the economic relationship between the debtor and creditor. Common examples of this type of lien are tax liens and mechanic's liens. In some cases, perfection of this type of lien is required in order to be valid against third parties.
Priority becomes an issue when the debtor is unable to make payment of his debts when they become due and a group of creditors take action to secure payment of their particular claim. Most commonly, creditors bring some form of action or claim during the course of insolvent liquidation1 proceedings. In such a circumstance, the usual procedure is to gather the debtor's property and to distribute it among the creditors. When there is not enough property to go around, the law has a system of priorities under which certain creditors are paid before others. Most of the rules that apply in this situation are f1rst-ln-tlme rules related to different classes of creditors. Examples of priority creditors would be wage earners, landlords and tax collectors. Other creditors are usually subject to first-in-time rules to determine their priority.
The majority of creditors will not have any favoured status, either by lien or priority. These creditors are often referred to as general creditors. In the context of group actions, these creditors generally end up receiving nothing upon distribution of the debtor's property. In order for these creditors to secure their claims to some degree, they will have to bring an action to attain the status of lien creditor.
20. The area of competition law.
Competition law concerns itself with the regulation of business activities which are anticompetitive. This area of the law is very complex, as it combines economics and law.
The legal English used is also complex and is made even more so by the differences in the language and law employed by the two major actors in competition regulation, the European Union and the United States. EC competition law is rooted in the creation of the single European market and, as such, prohibiting private undertakings3 from partitioning the Community market along national lines is a fundamental goal. The origins of competition law in the United States, on the other hand, can be found in the term ·antitrust·. In the late 19th century, Enormous amounts of wealth were amassed in some important national industries such as railways, steel and coal. The 'barons' who controlled these industries artfully created trusts to shield their fortunes and business empires. Those who fought against these practices came to be called trustbusters. Their efforts culminated in the Sherman Act, which was enacted to put an end to these practices. The overall purposes of competition law are often the subject of debate and differ from jurisdiction to jurisdiction. However, on the whole, it is accepted that competitive markets enhance economic efficiency because they maximise consumer benefit and optimize the allocation of resources, which is good for market economies.
Competition law regulates cartels, monopolies. oligopolies and mergers. A cartel is a type of agreement among undertakings which would normally compete with each other to reduce their output to agreed levels or sell at an agreed price. One of the key ingredients in sustaining a cartel is a defined relevant market with high barriers to entry so that new undertakings cannot penetrate the market. The classic tool used by the cartel to gain monopoly profits is price-fixing. In broad terms, a monopoly is an undertaking or inter-related group of undertakings which either control the supply (and therefore the price) of a product or service or exclude competition for that product or service. An oligopoly is a market with only a small number of market actors, who are able to adopt parallel behaviour in relation to price-setting or output decisions. Common aspects of enactments aimed at preventing anticompetitive activities include restrictions on abuse of a dominant position through such instruments as predatory pricing and tie-in arrangements, among others, The United States even prohibits behaviour which attempts to gain a monopoly position.
Merger regulation is another common aspect of legislation aimed at limiting anticompetitive concentration of market power. In this context, it is also important to discuss the terms horizontal and vertical. 'Horizontal' denotes the joining of undertakings which are at the same level in the economic supply chain; 'vertical' denotes the joining of undertakings at different levels in the economic supply chain.