Question 1

The maker of a bill of exchange may raise a defect of title defence successfully against a holder in due course.

Accepted Answer

A holder in due course takes the bill free from any defects of title of prior parties, and the maker cannot raise a defect of title defense against them.

Question 2

In the above situation,Smith must be a holder in due course.

Accepted Answer

A holder in due course is a specific legal status in negotiable instruments law, requiring certain conditions to be met, such as acquiring the instrument for value, in good faith, and without notice of any defects. The situation described does not provide enough information to determine if Smith meets these criteria.

Question 3

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen.
-If the cheque was not found for over six months,the bank should refuse payment,even if it was presented by the payee,Baker.

Accepted Answer

According to the Uniform Commercial Code (UCC), if a check is not presented for payment within six months of the date it was issued, the bank can refuse payment, even if it is presented by the payee. This is known as the statute of limitations on checks.

Question 4

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen.
-If the cheque had been made payable to "Humpty Dumpty" instead of Baker,any
finder of the cheque would be entitled to demand payment.

Accepted Answer

This statement is false. Even if the cheque is made payable to "Humpty Dumpty", only the person named on the cheque or their authorized representative can demand payment. Any finder of the cheque would not have a legal right to demand payment.

Question 5

A bill payable "3 days after sight," presented on March 20 is payable on March 23.

Accepted Answer

The bill is payable on March 23 plus 3 days of grace, making it payable on March 26.

Question 6

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000.
-If the promissory note is properly drawn and signed by Henry,Fast Motors may negotiate it to Friendly Finance Company.

Accepted Answer

If the promissory note is properly drawn and signed by Henry, it becomes a negotiable instrument that can be transferred to a third party, such as Friendly Finance Company.

Question 7

Where neither Smith nor Jones are mere holders,Smith may successfully raise a defect of title defence,Jones must be an endorser.

Accepted Answer

This statement is true. If neither Smith nor Jones is just a holder of the instrument, and Smith raises a defect of title defense, Jones must be an endorser to be held liable for the payment of the instrument.

Question 8

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment.
-The acceptance of the cheque by the sales clerk constitutes payment of the debt in full.

Accepted Answer

The acceptance of the cheque by the sales clerk does not necessarily constitute payment in full, as the cheque could bounce or be fraudulent. The debt is only considered paid when the cheque clears and the funds are transferred to the merchant's account.

Question 9

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000.
-If the promissory note is negotiated to Friendly Finance Company,the company,as a holder,may enforce payment.

Accepted Answer

As a holder of the promissory note, Friendly Finance Company has the legal right to enforce payment according to the terms of the note.

Question 10

In the absence of defects,once certified,liability for payment of a cheque shifts from the drawer to the financial institution.

Accepted Answer

This is known as the principle of 'payment for honor' in which the financial institution becomes liable for payment of the cheque even if there are insufficient funds in the drawer's account. However, this only applies if the cheque is certified and there are no defects or irregularities with it.

Question 11

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment.
-If Amina had presented a certified cheque as payment,the acceptance of the cheque would extinguish the debt.

Accepted Answer

The answer of Amina purchased some new clothes at a...

Question 12

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen.
-If Baker found Able's cheque by accident,and presented it for payment,Able might resist payment on the basis of lack of delivery.

Accepted Answer

The cheque was not delivered to Baker by Able, and therefore, Able could argue that there was no delivery and refuse to pay.

Question 13

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment.
-The cheque is only conditional payment,and remains so until the cheque is honoured by Amina's bank.

Accepted Answer

A cheque is only a promise of payment and remains conditional until it is cleared by the bank on which it is drawn.

Question 14

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment.
-If the clothing shop owner took Amina's cheque to the bank,and had it certified,Amina's debt to the seller would be extinguished.

Accepted Answer

When a cheque is certified by the bank, it guarantees payment to the seller and the debt is considered settled.

Question 15

Where a financial transaction involves bills of exchange moving between New York,London,and Montreal,it must be very carefully structured to avoid being crippled by differing legislation in each jurisdiction.

Accepted Answer

The answer of Where a financial transaction involves bills of...

Question 16

Neko in Toronto has received a cheque from Yip in Vancouver,which Neko endorses with his signature and the words "Pay to John Black only," and mails it to John Black in Halifax.Black takes it to his bank to cash.The bank will refuse to do so.

Accepted Answer

The cheque is a restrictive endorsement, meaning it can only be paid to the specified person, John Black. However, if the bank refuses, it may be due to verification issues or bank policy, not the endorsement itself.

Question 17

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000.
-If the automobile is a consumer purchase,the note must be marked "consumer note."

Accepted Answer

A promissory note for a consumer purchase does not necessarily have to be marked "consumer note" unless required by specific state laws or regulations.

Question 18

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen.
-Able may contact the bank upon which the cheque was drawn,and countermand payment of the cheque.The bank must thereafter refuse payment of the cheque if it should be presented for payment.

Accepted Answer

Able can contact the bank and countermand payment of the cheque to prevent any unauthorized person from cashing it. The bank will refuse payment if the cheque is presented for payment after being countermanded.

Question 19

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000.
-If Henry should default on the note,Fast Motors may take legal action against Henry either on the contract of sale or on the promissory note.

Accepted Answer

Yes, if Henry defaults on the promissory note, Fast Motors may take legal action against him based on the terms of the agreement. Additionally, they can also take legal action based on the contract of sale if there were any breaches or disputes related to the sale of the automobile.

Question 20

Situations exist where the holder of a bill may validly negotiate it to another without endorsement or incurring liability under it.

Accepted Answer

A bill may be negotiated by delivery alone in case of bearer bills or by delivery and transfer of possession in case of order bills where the endorsement has been forged or if the endorser intended to transfer only the right to collect the amount of the bill and not to incur liability. In such cases, the holder may transfer ownership of the bill without endorsement or incurring liability under it.

Quiz 10: Law of Banking and Negotiable Instruments

The maker of a bill of exchange may raise a defect of title defence successfully against a holder in due course.

In the above situation,Smith must be a holder in due course.

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen. -If the cheque was not found for over six months,the bank should refuse payment,even if it was presented by the payee,Baker.

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen. -If the cheque had been made payable to "Humpty Dumpty" instead of Baker,any finder of the cheque would be entitled to demand payment.

A bill payable "3 days after sight," presented on March 20 is payable on March 23.

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000. -If the promissory note is properly drawn and signed by Henry,Fast Motors may negotiate it to Friendly Finance Company.

Where neither Smith nor Jones are mere holders,Smith may successfully raise a defect of title defence,Jones must be an endorser.

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment. -The acceptance of the cheque by the sales clerk constitutes payment of the debt in full.

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000. -If the promissory note is negotiated to Friendly Finance Company,the company,as a holder,may enforce payment.

In the absence of defects,once certified,liability for payment of a cheque shifts from the drawer to the financial institution.

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment. -If Amina had presented a certified cheque as payment,the acceptance of the cheque would extinguish the debt.

Able prepared a cheque payable to Baker,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen. -If Baker found Able's cheque by accident,and presented it for payment,Able might resist payment on the basis of lack of delivery.

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment. -The cheque is only conditional payment,and remains so until the cheque is honoured by Amina's bank.

Amina purchased some new clothes at a clothing store,and gave the sales clerk a cheque for the price of the goods as payment. -If the clothing shop owner took Amina's cheque to the bank,and had it certified,Amina's debt to the seller would be extinguished.

Where a financial transaction involves bills of exchange moving between New York,London,and Montreal,it must be very carefully structured to avoid being crippled by differing legislation in each jurisdiction.

Neko in Toronto has received a cheque from Yip in Vancouver,which Neko endorses with his signature and the words "Pay to John Black only," and mails it to John Black in Halifax.Black takes it to his bank to cash.The bank will refuse to do so.

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000. -If the automobile is a consumer purchase,the note must be marked "consumer note."

Henry purchased an automobile from Fast Motors,and as a part of the payment,gave Fast Motors a promissory note in the amount of $4,000. -If Henry should default on the note,Fast Motors may take legal action against Henry either on the contract of sale or on the promissory note.

Situations exist where the holder of a bill may validly negotiate it to another without endorsement or incurring liability under it.