Deck 25: Business and Banking

Question 1

Which of the following is subject to the law of negotiable instruments?

A) credit cards
B) money laundering
C) cheques
D) electronic transfers

Answer 1

C

Question 2

Which statement best describes the nature of the legal relationship between the bank and customer in terms of the customer's deposit with the bank?

A) The relationship is governed entirely by the common law of contract.
B) The bank is a creditor and the customer is the debtor.
C) The bank is always a fiduciary to the customer.
D) The bank is the debtor and the customer is a creditor.

Answer 2

D

Question 3

Which statement is a valid criticism of electronic transactions?

A) Safeguarding transfer authority is a major challenge for e commerce.
B) Authorization codes are necessary in electronic messages.
C) There is a tradeoff between increased efficiency and the absence of rules.
D) Safeguarding transfer authority is a major challenge for customers.

Answer 3

D

Question 4

Under what circumstances might the relationship between the bank and customer impose fiduciary duties on the bank?

A) where the bank undertakes to provide financial advice
B) when the customer makes a deposit
C) when the customer opens an account
D) when the customer deposits a cheque

Question 5

Tess deposited the $75 000 she received from the sale of her business into her daily interest savings account.What is the legal nature of the relationship created between Tess and her banking institution?

A) Tess is the debtor,and the bank is the creditor.
B) The bank must report the transaction to FINTRAC.
C) The bank must verify the viable commercial source of the funds.
D) Tess is the creditor,and the bank is the debtor.

Question 6

What is the main source of law regulating the rights and obligations of the parties in the bank and client relationship?

A) regulatory law
B) contract law
C) federal statutes
D) provincial statutes

Question 7

How has the internationalization of financial services impacted Canadian legislation?

A) Banks are now permitted to sell insurance in their branches.
B) The strict separation between banks,trust companies,stock brokerages and insurance companies was relaxed.
C) Greater restrictions were placed on the ownership rules for banks.
D) Institutions in each of the four sectors became separately regulated.

Question 8

What is a distinguishing feature of banking account agreement?

A) It is designed primarily to establish the bank's rights in the event of an overdraft.
B) It is designed primarily to protect the interests of the bank.
C) It is intended primarily to protect the interests of the customer.
D) It is intended to balance the interests of the bank and the customer.

Question 9

Which term refers to a document that contains a written promise to pay another person a specific amount on demand or at a specified date?

A) promissory note
B) cheque
C) debit card
D) credit card

Question 10

Why are banks placing daily and weekly monetary limits on transactions?

A) to shift risk allocation for the finalization of payments
B) to shift risk allocation for authentication
C) to combat the uncertainty surrounding electronic banking
D) to control losses in the event of fraud

Question 11

What is the name given to a document that consists of a written order by one person to a third person to pay money to another person?

A) promissory note
B) direction to pay
C) bill of exchange
D) promissory order

Question 12

To which of the following is the bank's duty to maintain the secrecy of customer information subject?

A) fraud and forgery legislation
B) money laundering legislation
C) federal privacy legislation
D) provincial privacy legislation

Question 13

What is the name given to the person in possession of a negotiable instrument?

A) a payee
B) a holder
C) a drawer
D) a third party

Question 14

Which of the following is most likely to influence the arrangements concerning the issue of cheques and instructions for payment by the customer?

A) banking practice
B) a bank-customer agreement
C) a banking agreement
D) an operation of account agreement

Question 15

What is a distinguishing feature of a negotiable instrument?

A) The holder's right to collect is subject to the debtor's obligation to pay.
B) It contains an instruction to a bank to pay a particular sum of money.
C) It is always drawn on a bank.
D) It can be transferred many times from holder to holder.

Question 16

Which of the following international rules deals with,among other things,the obligations of the parties,consequences for technical problems,and damages?

A) Electronic Funds Transfer and Electronic Banking Code
B) FINTRAC Financial Transactions and Reports Analysis Code
C) UNCITRAL Model Law on International Credit Transfers
D) ITRMC Identity Theft and Related Misconduct Code

Question 17

Why should a commercial customer be cautious with regard to its bank-customer agreement?

A) Banks create agreements to limit their duties and liabilities.
B) Banks can transfer funds to cover negative balances.
C) Bargaining for greater flexibility can create an advantage.
D) Bargaining can limit a bank's ability to apply service charges.

Question 18

Which of the following would strongly suggest to a court that a bank has entered into a fiduciary relationship with its customer?

A) the non traditional provision of financial advice to its customer
B) FCAC regulations' onerous fiduciary duties on banks
C) CFSON regulations' onerous fiduciary duties on banks
D) an implied common law expectation of competent financial advice

Question 19

How would a written contract containing an unconditional order to pay a specific sum on demand to a specific bearer most likely be classified?

A) as a promissory note
B) as a cheque
C) as a negotiable instrument
D) as a bill of exchange

Question 20

Which of the following formerly applied to banks,trust companies,stockbrokerages,and insurance companies?

A) participation by banks and trust companies in the insurance sector
B) liberal ownership rules for national banking institutions
C) prohibition from conducting business beyond a sector
D) ability of subsidiary companies to sell insurance on websites

Question 21

Which of the following would most likely strongly support a retailer qualifying for a guarantee of payment on credit card sales?

A) negotiability requirements
B) the irrevocability of the transaction
C) the secure status of the Internet provider
D) the verification of signatures

Question 22

What is the distinction between a "holder" and a "holder in due course"?

A) A holder is usually in a stronger position than a holder in due course.
B) A holder in due course has no notice of defects between the drawer and payee.
C) Unlike a holder in due course,a holder cannot be a payee.
D) A holder has absolute rights to collect as against the drawer.

Question 23

What is required for an instrument to become negotiable?

A) It must be signed by the holder.
B) It must be drawn on a bank.
C) The obligation to pay must be unconditional.
D) It must be made out in blank.

Question 24

Which position offers the most security: being a holder in due course of a cheque or an assignee under an assignment of a debt,and why?

A) the holder in due course because he or she are aware in advance of any issues between the drawer of the cheque and the payee
B) a holder in due course because he or she can enforce the cheque regardless of any issues between the drawer and payee
C) an assignee because the assignee steps into the shoes of the assignor
D) an assignee because the assignee can enforce the assignment regardless of any issues between the assignor and debtor

Question 25

Kellie's date of possession for the home she recently purchased is October 1.Her lawyer instructed her to provide the cash to close by way of a certified cheque in the amount of $35 000,payable to "Sheps & Shaps LLP in trust," by September 29.Why did Kellie's lawyer require the payment of these funds in this manner?

A) It prevents the drawee from requesting a stop payment on the cheque.
B) A cheque is a self contained obligation,independent of any outside circumstances.
C) The major risk involved with cheques relates to the financial health of the drawee.
D) Risk is eliminated,as the payment of funds from bank reserves is guaranteed.

Question 26

Which statement distinguishes the rights of a holder in due course from an assignee?

A) Assignees do not have to give notice to the debtor.
B) An assignee's right to collect is subject to the debtor's obligation to pay.
C) The right of a holder in due course to collect depends on the original contract.
D) Holders in due course may not look to prior endorsers to recover funds.

Question 27

Kellie went to her bank to obtain a certified cheque for $35 000 cash needed to close her house purchase.Kellie endorsed a $20 000 cheque that her mother gave her and requested that the remaining $15 000 be withdrawn from her savings account.Kellie requested that the certified cheque be made payable to "Sheps & Shaps LLP in trust." What types of endorsements were made?

A) restrictive endorsement; certified endorsement
B) endorsement in blank; special endorsement
C) certified endorsement; special endorsement
D) endorsement in blank; restrictive endorsement

Question 28

What form of electronic transaction involves a contract between the issuer and the user and a contract between the issuer and the merchant?

A) PayPal transaction
B) credit card transaction
C) money card transaction
D) smart card transaction

Question 29

ABC Ltd is endorsing its customer's cheque with "for deposit only." Which term refers to this type of endorsement?

A) special endorsement
B) direct endorsement
C) blank endorsement
D) restrictive endorsement

Question 30

Which of the following resulted from the reclassification of non commercial promissory notes,enacted to ensure payment is subject to claims arising from the original contract of sale?

A) bills of exchange
B) holder in due course
C) consumer notes
D) letters of intent

Question 31

Which of the following would strongly support a refusal to honour payment to a holder in due course?

A) performance of contractual obligations
B) substandard goods
C) quantity of purchased goods
D) document alteration

Question 32

Which of the following is synonymous,in legal terms,with the concept that liability for payment of a negotiable instrument is independent of the original debtor-creditor relationship?

A) A negotiable instrument has a life of its own.
B) Each cheque is valuable evidence of contractual obligations.
C) There is always good reason for liability to be borne by the other party.
D) It is convenient and dependable for commerce.

Question 33

Which of the following would be most strongly influenced by an honoured cheque?

A) centralized clearing process
B) inadequate funds in an account
C) evidence of discharge of a debt
D) unambiguous payment instructions

Question 34

Which of the following describes the least restrictive form of endorsement by a holder of a negotiable instrument?

A) without restriction endorsement
B) endorsement in blank
C) special endorsement
D) open endorsement

Question 35

Graham was owed money by Hiram,and in order to repay Graham,Hiram endorsed a cheque that Greta had previously made out to Hiram as payment for some handiwork he provided to her.Graham has no knowledge of the circumstances or the arrangement between Hiram and Greta.What name describes Graham's status in relation to the cheque that is now in his possession?

A) holder
B) drawer
C) holder in due course
D) payee

Question 36

Emily gave Pierre a cheque for $5000 as payment for the car he sold her.Pierre owed Henry $5000,and he provided Emily's cheque to Henry to satisfy the debt.Henry couldn't make it to the bank,so he gave it Nigel to deposit for him.How did Henry's bank respond to Nigel's request to deposit the cheque?

A) The Bills of Exchange Act required the bank to hold the cheque for 10 days.
B) Provided all endorsements were in order,the bank accepted the cheque for deposit.
C) The bank refused the cheque because acceptance effectively extended credit.
D) The bank was required by FINTRAC to verify the validity of the transaction.

Question 37

Why is it risky to endorse a cheque in blank?

A) There may be insufficient funds in the account.
B) It can no longer be transferred.
C) Anyone can cash it.
D) It can no longer be deposited.

Question 38

In circumstances where a bank has been left with liability for a forged cheque,why should every party accepting that cheque have verified the authenticity of the endorsements on it?

A) The bank will deduct the value of the worthless cheque from any endorser's account.
B) A verification agreement will entitle the bank to recover assets of endorsers.
C) Without a special endorsement,collection may be a problem.
D) All prior endorsers risk the bank's recovery efforts.

Question 39

Highland Bakery Inc.has forwarded a cheque to Prairie Flour Mills Ltd.to pay Prairie's invoice for the flour it recently delivered.Prairie will deposit the cheque into its account upon receipt.How will the actual cash payment represented by the cheque be credited to Prairie Flour Mills' account?

A) through the bank's bills of exchange clearance centre
B) through the instantaneous Internet transfer process
C) through the bank's centralized clearing process
D) through the FINTRAC centralized clearing process

Question 40

What concern did the legislation creating consumer notes seek to address?

A) unfair debt collection practices
B) concern over forged notes
C) money laundering
D) to prevent stop payments

Question 41

A negotiable instrument is markedly different from an ordinary assignment of contractual rights,where there can be any number of defences against paying.

Question 42

A written contract that contains an unconditional promise or order to pay a specified sum on demand or on a specific date to a specific individual or bearer is legally known as a bill of exchange.

Question 43

A retailer who has made a substantial sale to an individual who paid cash need not be concerned whether or not the monies it received are the proceeds of a crime.

Question 44

A consumer's obligation to pay a consumer note is subject to remedies the consumer may have against the seller if the goods or services are defective.

Question 45

A promissory note is a written order to a bank to pay money to a specified person.

Question 46

When a commercial retailer accepts a cheque as payment from one of its customers,the retailer becomes the payee and the customer is the drawer.

Question 47

A cheque is the most common example of a negotiable instrument.

Question 48

There are no defences available against a holder in due course.

Question 49

Standard banking documents are designed primarily to protect the bank,not the customer.

Question 50

An endorsed cheque is an example of an assignment.

Question 51

Individuals who conduct contractual business with banks need to appreciate the importance of the contract and become familiar with their basic rights and obligations,and they should understand that not only is the contract written largely to protect the bank but also their bargaining power is very limited.

Question 52

The contract that specifies the rights and obligations of a bank and a customer is known as the operation of account agreement.

Question 53

A bank draft is a form of certified cheque.

Question 54

With respect to the party bearing the risk where payment of goods is made by cheque,the risk is borne largely by the payment system.

Question 55

A cheque endorsed in blank may be cashed by whoever possesses it because,with this type of endorsement,the bank will consider that the signature is complete.

Question 56

Normally,the bank is not obligated to give advice or to look out for the best interest of the customer.

Question 57

In situations where the bank fails to detect forged signatures and the customer does not immediately notice that the forged cheques have been cashed from its account,the courts will look to the bank-customer agreement to determine liability.If there is none,the common law rules apply.

Question 58

Special endorsements stop the circulation of cheques and remove the risk of anyone else acquiring and cashing them.

Question 59

The banks duty to honour cheques and repay deposits is an express obligation imposed by the federal Bank Act.

Question 60

The common law duties of banks include the duty to maintain the secrecy of the client's affairs.

Question 61

Describe the various models for electronic cashless transactions.

Question 62

Explain the distinction between an assignment of contractual rights and a negotiable instrument.

Question 63

What is a consumer note and what are the implications of a negotiable instrument being classified as a consumer note?

Question 64

The acceptance of cheques for payment creates risk for the businesses that accepts them.The use of cheques for payment also creates risks for businesses paying for services or supplies.What are these risks?

Question 65

In the case of SNS Industrial Products Limited v.Bank of Montreal,2010 ONCA 500,the Ontario Court of Appeal the bank failed to detect a forged signature on cheques drawn on a client's account,with the result that $186 488 was fraudulently taken from its customer's account over a three year period.Who was responsible for detecting the forgeries,the customer or the bank,and why?

Question 66

What does it mean to 'endorse' a negotiable instrument and what legal effect does this have?