Question 1

A person can be considered to be a holder in due course even though they did not give consideration for the instrument.

Accepted Answer

According to the Uniform Commercial Code (UCC) Section 3-302, a person can be a holder in due course even if they did not provide consideration for the instrument, as long as they meet certain requirements such as acquiring the instrument in good faith, without notice of certain defects or defenses.

Question 2

Elliot bought a widget from Margaret.He paid the purchase price of $5000 by giving her a cheque that he had drawn on his account at the Bank of Yorkton.Before Margaret had an opportunity to present the cheque for payment, Elliot died.The cheque therefore is automatically considered to be certified.

Accepted Answer

The statement is false. A cheque is only considered certified if the drawer (Elliot in this case) has made a request to the bank to set aside funds to cover the amount of the cheque. Since Elliot died before the cheque was presented for payment, it cannot be considered certified.

Question 3

A negotiable instrument is a special type of contract.It differs from a regular contract because a negotiable instrument is enforceable

Accepted Answer

A negotiable instrument can be enforced even if the only consideration that supports it is a promise to perform a pre-existing obligation to the same party. This is because a negotiable instrument is a type of contract that has been assigned a special status under the law.

Question 4

Bronwyn Hogg received a cheque.She endorsed in blank.At the same time, her sister, Gwyneth, wrote her own signature and the following words on the back of the cheque: "Guarantor for B Hogg." The cheque now contains both a general endorsement and an accommodation endorsement.

Accepted Answer

The statement is true. Bronwyn Hogg endorsed the cheque in blank, which is a general endorsement. Gwyneth then added an accommodation endorsement by writing her signature and the words "Guarantor for B Hogg" on the back of the cheque. Therefore, the cheque now contains both a general endorsement and an accommodation endorsement.

Question 5

Beryl opened a chequing account at the Bank of Banff.As part of that transaction, she deposited ten $100 bills into her new chequing account.Technically speaking, she continues to own those bills until she writes a cheque on her account.

Accepted Answer

Once Beryl deposited the ten $100 bills into her chequing account, she transferred ownership of those bills to the bank. The bank now has the legal right to use, invest or lend out those funds, while Beryl has a claim on the balance of her account. Therefore, Beryl does not technically continue to own those bills, and she cannot obtain them back unless she withdraws cash from her account.

Question 6

A sight draft allows the payee of a bill of exchange to receive payment immediately, whereas a demand draft only allows the payee to require the drawee to make payment within three days of presentation.

Accepted Answer

A sight draft allows the payee to receive immediate payment upon presentation, but a demand draft requires payment within a specified time period (usually three days) after presentation.

Question 7

Which of the following statements is TRUE with respect to negotiable instruments?

Accepted Answer

Negotiable instruments must be in writing and signed by the maker or drawer to be effective. This requirement distinguishes them from other types of contracts, which can be oral or implied by conduct.

Question 8

Ferdinand bought a boat from Isabelle.The price was $100 000.She required payment to be made by way of a cheque.Which of the following statements is TRUE?

Accepted Answer

A cheque is an order to a bank (the drawee) to pay the specified amount to the person named in the cheque or to the bearer. When Ferdinand creates a valid cheque, he is instructing his bank to pay the specified amount to Isabelle. The bank, in accepting Ferdinand as a customer and providing him with a chequebook, implicitly agrees to honor such instructions, provided Ferdinand has sufficient funds in his account. Therefore, the bank owes Ferdinand an obligation to honor the cheque as a negotiable instrument, assuming all conditions for its validity and payment are met.

Question 9

You and I have entered into a contract for the sale of a boat.We have agreed that I will deliver possession of the vessel to you at the same time that you pay the purchase price of $10 000.You have the option of paying with either cash or a certified cheque.Which of the following statements is TRUE?

Accepted Answer

The answer of You and I have entered into a...

Question 10

Martina bought a necklace from Roland.The price of the necklace was $10 000.Martina promised Roland that she would pay that amount to him.As part of the same transaction, she also gave him a cheque for that amount.Roland later bought a painting from Astral Gallery Inc.The price of the painting was $10 000.Which of the following statements is TRUE?

Accepted Answer

The answer of Martina bought a necklace from Roland.The price...

Question 11

Karinda sold a widget to Konrad.He paid the $150 000 purchase price by giving her a bill of exchange drawn on the Klondike Trust Co.Karinda is entitled to sue the drawee if the bill is not accepted.

Accepted Answer

Karinda, as the payee, cannot sue the drawee (Klondike Trust Co.) if the bill is not accepted; she can only sue the drawer (Konrad) or any endorsers.

Question 12

The provisions in the Bills of Exchange Act dealing with consumer notes and bills can apply to a promissory note or to a bill of exchange, but not to a cheque because a cheque is never used for credit purposes.

Accepted Answer

The statement is false. Cheques can be used for credit purposes, such as post-dated cheques or cheques issued as a form of payment plan. Therefore, the provisions in the Bills of Exchange Act dealing with consumer notes and bills can apply to cheques as well.

Question 13

Miguel opened a chequing account at the Bank of Guelph.As part of that transaction, Miguel authorized the bank to credit his account every time that he wrote a cheque on it.

Accepted Answer

When Miguel writes a cheque, it means he is instructing his bank (the Bank of Guelph) to pay a specific amount of money from his account to another party. The bank does not credit his account when he writes a cheque; instead, the bank debits (or decreases) his account balance by the amount of the cheque.

Question 14

Kelly drew a cheque for $10 000 on her account at the Bank of Sudbury.She used that cheque to buy a widget from Joe.Joe presented the cheque to the Bank of Sudbury and received $10 000 in cash.The bank now realizes that it made a mistake because the balance in Kelly's account was never more than $2000.The bank therefore is entitled to recover from Joe the money that it paid to him by mistake.

Accepted Answer

The bank cannot recover the money from Joe if he was a bona fide holder for value without notice of Kelly's insufficient funds. The mistake was on the part of the bank for not verifying Kelly's account balance before cashing the cheque.

Question 15

Analee bought a widget from Nathan.On March 1, she paid the purchase price by giving him a promissory note for $100 000.The entire payment is due on June 1, but the note contains an acceleration clause.That means that Nathan has the absolute right to receive payment before June 1 if he wants.

Accepted Answer

An acceleration clause does not grant the holder the absolute right to demand payment before the specified due date without a triggering event, such as a default or breach of the agreement terms by the other party.

Question 16

Grant wanted to sue a car dealership for breach of contract.Carolyn agreed to work as his lawyer.To ensure that he eventually paid his bill, Carolyn required grant to sign a document in which he promised to pay her "$10 000 on December 31 if the court holds the car dealership liable for damages." That document is a promissory note that is governed by the Bills of Exchange Act.

Accepted Answer

A promissory note is a negotiable instrument, but it is not governed by the Bills of Exchange Act. It is a separate legal document that creates a promise to pay and outlines the terms and conditions of the payment.

Question 17

A share certificate may be a type of negotiable instrument.

Accepted Answer

A share certificate is a document that proves ownership of a specific number of shares in a company. It can be transferred from one party to another, making it a type of negotiable instrument.

Question 18

A document may be a negotiable instrument even if it does not satisfy the requirements of the Bills of Exchange Act.

Accepted Answer

While the Bills of Exchange Act sets out the requirements for a document to be considered a negotiable instrument, there may be other laws or circumstances that allow a document to be considered negotiable even if it does not meet these requirements. For example, a promissory note or cheque that does not comply with all the formal requirements of the law may still be considered negotiable if it is intended to be used as such, and if the parties involved treat it as such. Additionally, some jurisdictions may have their own laws or regulations regarding negotiable instruments that deviate from the requirements set out in the Bills of Exchange Act.

Question 19

Alexandra bought a snow blower from Rajeev.The price was $5000.As payment, she gave him a document entitled "Promissory Note" that contained her unconditional promise to pay $5000 to him "when the snow next falls." Even though that document does not satisfy the requirements of the Bills of Exchange Act, Rajeev is still entitled to receive $5000 from Alexandra if the condition is met.

Accepted Answer

Although the Promissory Note document does not satisfy the requirements of the Bills of Exchange Act, it still serves as evidence of Alexandra's promise to pay Rajeev the $5000 when the condition of the snow falling next is met. Therefore, Rajeev is entitled to receive the payment if and when the condition is satisfied.

Question 20

Stefan gave a cheque for $500 to his daughter, Monique, as a birthday present.Because Monique did not give any consideration in exchange for her birthday present, Stefan's bank is not permitted to honour the cheque.

Accepted Answer

This statement is false. A cheque can be honored even if it is a gift and no consideration is given in exchange. However, the cheque may be subject to certain banking regulations and may require the signature of the account holder or verification of funds.

Quiz 27: Online: Special Contracts: Negotiable Instruments