Question 1

The Bills of Exchange Act governs the following kinds of instruments.

Accepted Answer

The Bills of Exchange Act governs bills of exchange, promissory notes, and cheques.

Question 2

Liability of the drawee on a bill of exchange is dependent on

Accepted Answer

The drawee's liability on a bill of exchange arises only after they have accepted the bill and it has been delivered. Acceptance indicates the drawee's agreement to pay the bill when it is due.

Question 3

Sight drafts can be used as

Accepted Answer

Sight drafts are commonly used as collection devices in international trade.

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 placed on it, and returned the cheque to Big Bank. Which of the following statements is true?

Accepted Answer

Big Bank is a holder in due course because it took the cheque in good faith, without notice of any defect, and for value. Therefore, Tim is liable to Big Bank for the face amount of the cheque, despite the stop payment. Option A is false because one can stop payment on a cheque. Option C is false because Winnie is not liable to Big Bank as she did not receive any cash or benefit from the transaction. Option D is false because Tim's stop payment does not affect Big Bank's status as a holder in due course. Option E is false because a postdated cheque is a negotiable instrument.

Question 5

A time draft is

Accepted Answer

A time draft is a type of bill of exchange that contains a stipulated period after the date stated on the instrument or after presentation for the payment to be made. The payment is not immediately due and can be delayed until the specified time period has elapsed. Therefore, option A is the best choice as it describes the nature of a time draft accurately.

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.

Question 7

Which of the following is not a characteristic of a bill of exchange?

Accepted Answer

The order to pay may or may not specify that there must be money available before payment. It is not a necessary characteristic of a bill of exchange.

Question 8

There are three types of bills of exchange, these are

Accepted Answer

The three types of bills of exchange are demand drafts, sight drafts, and time drafts. Option A is partially correct as demand notes are a type of promissory note and not a bill of exchange. Option C and D are incorrect as they do not mention the correct types of bills of exchange. Option E is incorrect as none of the options listed are types of bills of exchange.

Question 9

A sight draft is

Accepted Answer

A sight draft is a bill of exchange in which the drawee (the party being invoiced) is ordered to pay "at sight", which means upon presentation of the draft. Therefore, choice A is the correct answer.

Question 10

The two classes of negotiable instruments are

Accepted Answer

The answer of The two classes of negotiable instruments are
...

Question 11

Liability of the drawer, acceptor, or maker on a bill of exchange is dependent on

Accepted Answer

The answer of Liability of the drawer, acceptor, or maker...

Question 12

A payee is

Accepted Answer

A payee is the party or person named in the bill of exchange, who is entitled to receive payment from the drawer of the bill. They are the recipient or beneficiary of the payment.

Question 13

The difference between a cheque and draft is that

Accepted Answer

The main difference between a cheque and draft is that the drawee on a cheque is always a bank or a financial institution, while the drawee on a draft can be any person or entity, including a bank or financial institution. The other options have incorrect statements about cheques and drafts.

Question 14

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

A forgery of the drawer's signature is a valid defense against a holder in due course, as it means the drawer never authorized the instrument. Other defenses like breach of contract or misrepresentation are personal defenses and not valid against a holder in due course.

Question 15

A drawer is

Accepted Answer

The drawer is the party who creates or draws up the bill of exchange, instructing another party to make payment.

Question 16

Delivery of a negotiable instrument in payment

Accepted Answer

Delivery of a negotiable instrument in payment is only a conditional discharge, meaning that if the instrument is not paid, the debt is still owed.

Question 17

Jack provides James with 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 can request a stop payment order from the bank to cancel the cheque. This is the best option as it will prevent the cheque from being cashed or deposited by James.

Question 18

Jack writes a note for Mary. The note states that '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 written by Jack that promises to pay Mary a specific amount on a specific date or upon demand is a promissory note.

Question 19

A drawee is

Accepted Answer

The drawee is the party who is required to make payment on the bill of exchange.

Question 20

The bank on which a cheque is drawn is called

Accepted Answer

The bank on which a cheque is drawn is called the drawee bank. This is the bank where the account holder has an account and from which they are writing the cheque.

Quiz 21: Negotiable Instruments