On April 5,Tim gave Winnie a cheque for $3000 drawn on his bank account to pay for a horse.The cheque was postdated to April 15.On April 7,the horse died,and Tim stopped payment on the cheque.On April 12,Winnie took Tim's cheque to Big Bank and endorsed it.Big Bank gave her cash in the face amount of the cheque.When Big Bank sent the cheque for clearing,Tim's bank refused to honour the cheque because of the stop payment Tim had placed on it and returned the cheque to Big Bank.Which of the following statements is true?
A)A postdated cheque is not a negotiable instrument.
B)One cannot stop payment on a cheque.
C)Tim is not liable to Big Bank because he put a stop payment on the cheque before Winnie endorsed it over to Big Bank.
D)Only Winnie is liable to Big Bank.
E)Tim is liable to Big Bank because Big Bank is a holder in due course of a negotiable instrument.

Question

Quizplus · Accepted Answer

Big Bank is considered a holder in due course because they gave cash for the cheque in good faith and without knowledge of the stop payment. Tim is still liable for the cheque even though he stopped payment on it, as he gave the cheque to Winnie for a specific purpose (to buy a horse) and she had already taken possession of the cheque before he stopped payment. Therefore, Tim is still responsible for the funds and must reimburse Big Bank.

On April 5,Tim Gave Winnie a Cheque for $3000 Drawn