Question 1

The Bills of Exchange Act governs which of the following kinds of instruments?

Accepted Answer

The Bills of Exchange Act governs bills of exchange, promissory notes, and cheques, as specified in the answer choice D. The act does not apply to drafts or other negotiable instruments beyond these three types.

Question 2

Which of the following defences is available to the drawer of a cheque who is being sued by a holder in due course of a negotiable instrument?

Accepted Answer

The only defence available to the drawer of a cheque who is being sued by a holder in due course is that the drawer's signature was a forgery. This is because a holder in due course acquires the negotiable instrument free from all defects of title and can enforce it against the drawer. The other defences listed may be available to the drawer in other circumstances, but not against a holder in due course.

Question 3

Use the fact situation above to answer the question. When Edward delivers the cheque to Albert,the cheque becomes

Accepted Answer

When Edward delivers the cheque to Albert without any specific endorsement, it becomes a bearer cheque, meaning it can be cashed or deposited by anyone holding it.

Question 4

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?

Accepted Answer

Big Bank, as a holder in due course, has rights to the funds from the cheque despite the stop payment, because it took the cheque in good faith without knowledge of any defects.

Question 5

A prepares and signs a promissory note,but leaves the amount blank.The note is subsequently stolen by B,who fills in the amount and negotiates it to C.C now looks for payment from A,who refuses.If C sues A

Accepted Answer

A promissory note must be delivered to be considered valid. In this case, the note was not delivered with a completed amount, making it incomplete. Therefore, A can successfully defend the lawsuit on the basis of lack of delivery of an incomplete instrument.

Question 6

A demand draft is

Accepted Answer

A demand draft is a type of bill of exchange that is payable immediately upon presentation without any days of grace. It is a pre-paid instrument, meaning that the funds required to pay the draft have already been collected by the bank. The recipient of the draft can be sure that they will receive the funds without any delay.

Question 7

Use the fact situation above to answer the question. When Albert advised the bank that the cheque was lost and put the stop payment on it,he then asked the bank to replace it with another certified cheque.The bank responded by telling Albert that it would only replace the cheque if Albert entered into an indemnity agreement with the bank indemnifying the bank in the event the cheque was found and presented for payment.In this case

Accepted Answer

The bank is entitled to require an indemnity agreement as a condition for replacement of a lost certified cheque. This is a common practice among banks to protect themselves against potential fraudulent or double payments. Therefore, option B is the correct answer. Option A is incorrect because while the bank does have the right to refuse to honour any negotiable instrument, this is not directly related to the situation at hand. Option C is incorrect because being the original drawer does not automatically entitle Albert to a replacement cheque without providing the required indemnity agreement. Option D is incorrect because the stop payment only ensures that the original cheque will not be honoured if it is presented, but it does not absolve Albert of his responsibility to indemnify the bank in case the original cheque is found and presented for payment.

Question 8

Sight drafts can be used as

Accepted Answer

Sight drafts are primarily used as collection devices, which allow the beneficiary of the draft to receive payment from the bank upon presentation of the draft. They are not certificates of deposit, promissory notes, share certificates, or finance notes.

Question 9

On a piece of paper,A writes a memo that sets out the name of his bank,his bank account number,and a statement indicating that the bank is required to pay to B whatever amount B desires.A then puts his signature at the bottom and gives the memo to B.In this case,the memo is

Accepted Answer

The memo does not meet the formal requirements of a cheque, negotiable instrument, promissory note, or bill of exchange. It lacks essential elements such as an unconditional order to pay a specific amount, a payee, or a drawee bank.

Question 10

The bank on which a cheque is drawn is called

Accepted Answer

The bank on which a cheque is drawn is known as the drawee bank. This is because the bank is the one that is being instructed to pay the amount written on the cheque to the person or entity that is presenting it.

Question 11

Jack writes a note for Mary.The note states,"I,Jack,promise to pay you,Mary,$500.00 on January 4,2003,or anytime after that date when a demand is made." Jack has given Mary a

Accepted Answer

The note that Jack has written for Mary is a promissory note, which is a written promise to pay a specific sum of money to a person or entity named in the note.

Question 12

A forges his signature on a cheque made in favour of B,who then endorses it to the order of C.C then endorses the cheque to the order of D,who has no way of knowing that the cheque has been forged.In this case

Accepted Answer

D is considered a holder in due course if he received the cheque in good faith, without knowledge of the forgery, which is implied in the scenario provided.

Question 13

Use the fact situation above to answer the question. In this case,if the certified cheque is negotiated

Accepted Answer

If the certified cheque is negotiated, it means that it has been guaranteed by the bank and cannot be stopped or cancelled by the customer who requested it. Therefore, the bank must honour the cheque if it is presented for payment.

Question 14

Delivery of a negotiable instrument in payment

Accepted Answer

Delivery of a negotiable instrument in payment is only a conditional discharge, meaning that the debt is discharged only if and when the instrument is honored. The creditor still holds the right to repossess the goods or seek further payment if the instrument is dishonored.

Question 15

Use the fact situation above to answer the question. If instead of Edward signing the back of the cheque in his name,before Edward gives the cheque to Albert,Edward signs the cheque over to Albert and then gives it to him,then Albert becomes

Accepted Answer

If Edward signs the cheque over to Albert, he becomes the endorser and Albert becomes the endorsee. Albert would then be considered the holder of the cheque.

Question 16

Jack provides James with a cheque in payment for the delivery of goods.Later,when Jack checks the goods,he realizes that James has delivered the wrong goods.Jack wishes to cancel the cheque.Jack may go to the bank and request a

Accepted Answer

Jack should request a stop payment order from the bank. This will stop the payment of the cheque to James, giving Jack time to sort out the issue with the wrong goods.

Question 17

Albert,a supplier of goods,owes George $2000.00.Albert gives George a note for $2000.00 payable in 60 days.A couple of weeks later,George buys $800.00 worth of goods from Albert.If George has not paid Albert the $800.00 by the time the 60 days has expired and Albert claims payment of the $2000.00 note

Accepted Answer

Albert can deduct, or set-off, the $800.00 owed by George against the $2000.00 that he owes and pay George $1200.00. This is known as the principle of set-off, where if two parties owe each other some money, they are allowed to cancel out their debts to each other so that only the balance is paid. In this case, Albert owes George $2000.00 and George owes Albert $800.00, so Albert can deduct the $800.00 from the $2000.00 and pay George $1200.00.

Question 18

Albert owes George a sum of money and gives George a cheque made out to George for the amount he owes.In this case,George is

Accepted Answer

The answer of Albert owes George a sum of money...

Question 19

S,the accountant for a railway company,forged the signature of the company's signing officer on a company cheque.The cheque was payable on the company's account and made out to another company controlled by S.The agreement between the company and its bank had no provision requiring the company to verify the monthly statements sent it by the bank for any discrepancies.Eventually,the company discovered the forgery and demanded that the bank return the money to its account,but the bank refused.In a lawsuit by the company against the bank for recovery of its money

Accepted Answer

The absence of a provision requiring the company to verify its monthly statements sent by the bank means that the bank cannot shift the burden of responsibility to the company. Therefore, the company can succeed in its lawsuit against the bank for recovery of its money. The fact that the cheques were forged by the company's accountant does not absolve the bank's liability in this case.

Question 20

The formal requirements of negotiable instruments include each of the following EXCEPT

Accepted Answer

The formal requirements of negotiable instruments include being in writing and signed by the creator or drawer, an unconditional obligation to pay a fixed amount of money, indicating a specific time when payment is due, and being a transfer of the whole obligation. However, they do not need to indicate whether the payment is for money or assets.

Quiz 19: Negotiable Instruments