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?
A) One cannot stop payment on a cheque.
B) Tim is liable to Big Bank because Big Bank is a holder in due course of a negotiable instrument.
C) Only Winnie is liable to Big Bank.
D) Tim is not liable to Big Bank because he put a stop payment on the cheque before Winnie endorsed it over to Big Bank.
E) A postdated cheque is not a negotiable instrument.

Question

Quizplus · 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.

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