Question 1

A document may be a negotiable instrument even if it does not satisfy the requirements of the Bills of Exchange Act.

Accepted Answer

The common law recognizes certain types of documents as negotiable instruments even if they do not satisfy all the requirements of the Bills of Exchange Act. Examples include bank drafts and certain types of promissory notes.

Question 2

Alexandra bought a snow blower from Rajeev. The price was $5000. As payment, she gave him a document entitled "Promissory Note" that contained her unconditional promise to pay $5000 to him "when the snow next falls." Even though that document does not satisfy the requirements of the Bills of Exchange Act, Rajeev is still entitled to receive $5000 from Alexandra.

Accepted Answer

The promissory note represents Alexandra's commitment to pay Rajeev $5000, and despite not meeting the formal requirements of the Bills of Exchange Act, it still constitutes a valid agreement between the parties.

Question 3

Identify and briefly explain three major differences between a negotiable instrument and a regular contract.

Accepted Answer

The answer of Identify and briefly explain three major differences...

Question 4

Grant wanted to sue a car dealership for breach of contract. Carolyn agreed to work as his lawyer. To ensure that he eventually paid his bill, Carolyn required grant to sign a document in which he promised to pay her "$10 000 on December 31 if the court holds the car dealership liable for damages." That document is a promissory note that is governed by the Bills of Exchange Act.

Accepted Answer

A promissory note is a negotiable instrument under the Bills of Exchange Act, but the scenario described does not meet the definition of a promissory note. It lacks the unconditional promise to pay a certain amount of money, as the payment is contingent upon the court finding the car dealership liable for damages. Additionally, the document does not meet the requirements for negotiability, as it cannot be transferred to a third party. Therefore, it is not governed by the Bills of Exchange Act.

Question 5

Stefan gave a cheque for $500 to his daughter, Monique, as a birthday present. Because Monique did not give any consideration in exchange for her birthday present, Stefan's bank will not honour the cheque.

Accepted Answer

A cheque is a legal instrument that requires consideration and is a promise to pay a certain sum of money. However, in this case, the cheque was given as a gift, which is a valid consideration, and therefore the bank should honour the cheque.

Question 6

Beryl opened a chequing account at the Bank of Banff. As part of that transaction, she deposited ten
$100 bills into her new chequing account. Technically speaking, she continues to own those bills until she writes a cheque on her account.

Accepted Answer

Once Beryl deposited the ten $100 bills into her chequing account, she transferred ownership of those bills to the bank. The bank now has the legal right to use, invest or lend out those funds, while Beryl has a claim on the balance of her account. Therefore, Beryl does not technically continue to own those bills, and she cannot obtain them back unless she withdraws cash from her account.

Question 7

Milosz is the holder in due course of a cheque that has been negotiated several times. Identify a situation in which he may be subject to the equities if he seeks to enforce the instrument against the drawer.

Accepted Answer

The answer of Milosz is the holder in due course...

Question 8

A sight draft allows the payee of a bill of exchange to receive payment immediately, whereas a demand draft only allows the payee to require the drawee to make payment within three days of presentation.

Accepted Answer

A sight draft requires immediate payment upon presentation, while a demand draft allows the payee to demand payment within a certain amount of time (usually three days).

Question 9

Bronwyn Hogg received a cheque. She endorsed in blank. At the same time, her sister, Gwyneth, wrote her own signature and the following words on the back of the cheque: "Guarantor for B Hogg." The cheque now contains both a general endorsement and an accommodation endorsement.

Accepted Answer

Bronwyn's blank endorsement is a general endorsement, and Gwyneth's signature and words make an accommodation endorsement, as she is guaranteeing payment. Therefore, the cheque now contains both types of endorsement.

Question 10

Miguel opened a chequing account at the Bank of Guelph. As part of that transaction, Miguel authorized the bank to credit his account every time that he wrote a cheque on it.

Accepted Answer

When Miguel writes a cheque, it means he is instructing his bank (the Bank of Guelph) to pay a specific amount of money from his account to another party. The bank does not credit his account when he writes a cheque; instead, the bank debits (or decreases) his account balance by the amount of the cheque.

Question 11

Karinda sold a widget to Konrad. He paid the $150 000 purchase price by giving her a bill of exchange drawn on the Klondike Trust Co. Karinda is entitled to sue the drawee if the bill is not accepted.

Accepted Answer

The answer of Karinda sold a widget to Konrad. He...

Question 12

A person can be considered to be a holder in due course even though he or she did not give consideration for the instrument.

Accepted Answer

A holder in due course is a person who takes an instrument for value, in good faith, and without notice of any defenses or claims against it. Consideration is not required for a person to be a holder in due course.

Question 13

Kelly drew a cheque for $10 000 on her account at the Bank of Sudbury. She used that cheque to buy a widget from Joe. Joe presented the cheque to the Bank of Sudbury and received $10 000 in cash. The Bank now realizes that it made a mistake because the balance in Kelly's account was never more than $2000. The Bank therefore is entitled to recover from Joe the money that it paid to him by mistake.

Accepted Answer

The bank cannot recover the money from Joe because he is a holder in due course, meaning he accepted the cheque in good faith and without knowledge of the insufficient funds. The bank's mistake does not affect Joe's right to the funds.

Question 14

Shauna drew a cheque on her account at the Bank of Whitehorse. That cheque passed through several people before Kyle acquired possession of it. Because Shauna's account was overdrawn, the Bank of Whitehorse dishonoured the cheque when Kyle presented it for payment. Kyle realizes that there is no point in suing Shauna because she simply does not have any money. Is there anyone else to whom Kyle can look for payment? Do you require any additional information in order to fully answer that question?

Accepted Answer

The answer of Shauna drew a cheque on her account...

Question 15

A share certificate may be a type of negotiable instrument.

Accepted Answer

A share certificate represents ownership of shares in a company and can be bought, sold, or transferred, making it a negotiable instrument.

Question 16

Elliot bought a widget from Margaret. He paid the purchase price of $5000 by giving her a cheque that he had drawn on his account at the Bank of Yorkton. Before Margaret had an opportunity to present the cheque for payment, Elliot died. The cheque therefore is automatically considered to be certified.

Accepted Answer

A cheque is not automatically certified upon the death of the drawer. The executor or administrator of Elliot's estate would need to agree to certify the cheque before it can be considered certified.

Question 17

Briefly compare and contrast a postdated cheque and a staledated cheque. Can a cheque ever become both postdated and staledated?

Accepted Answer

The answer of Briefly compare and contrast a postdated cheque...

Question 18

Krystyne bought a widget from Ryan. As payment, she gave him a cheque for $10 000 that was drawn on her account at the Bank of Windsor. Because she discovered that the widget was defective, Krystyne countermanded her cheque before Ryan presented it for payment. Due to a clerical error, the bank nevertheless honoured the cheque and paid $10 000 to Ryan. Is the bank entitled to debit Krystyne's account? Do you have enough information to answer that question?

Accepted Answer

The answer of Krystyne bought a widget from Ryan. As...

Question 19

Analee bought a widget from Nathan. On March 1, she paid the purchase price by giving him a promissory note for $100 000. The entire payment is due on June 1. The note contains an acceleration clause. Consequently, Nathan has the absolute right to receive payment before June 1 if he wants.

Accepted Answer

The answer of Analee bought a widget from Nathan. On...

Question 20

The provisions in the Bills of Exchange Act dealing with consumer notes and bills can apply to a promissory note or to a bill of exchange, but not to a cheque because a cheque is never used for credit purposes.

Accepted Answer

The statement is false. The provisions in the Bills of Exchange Act dealing with consumer notes and bills can apply to a cheque as well, if the cheque is used for credit purposes.

Quiz 14: Special Contracts: Negotiable Instruments