Deck 14: Special Contracts: Negotiable Instruments

Question 1

Jacob bought a widget from Erin for $15 000. In payment, he gave her a cheque that was payable to her. The cheque was drawn on his account at the Bank of Kitchener. Erin signed her name on the back of the cheque and delivered it to Arthur in order to discharge a debt that she owed to him. Arthur presented the instrument to the Bank of Kitchener for payment, but was refused payment because the balance for Jacob's account was only $8000. Which of the following statements is TRUE?

A) Arthur has a right to collect $8000 from the bank.
B) Arthur should provide notice of dishonour to the bank's manager as soon as possible.
C) Notice of dishonour will be effective only if it is made in writing.
D) If the widget that Jacob bought from Erin is defective, Arthur cannot acquire any rights against the drawer of the cheque.
E) Arthur may be able to sue Jacob, but not Erin.

Answer 1

E

Question 2

Tara created a cheque for $5000 that was payable to bearer. She delivered it to Simon. Simon negotiated it to Melanie, who then negotiated it to Oscar, who then negotiated it to Mike. While Melanie had possession of the cheque, she altered it so that it now appears to be a cheque for $25

A) Mike is entitled to receive $50 000 from Tara as long as Melanie acted in good faith.
B) If the alteration is apparent to the naked eye, the drawee bank would be entitled to debit $25 000 from Tara if she carelessly facilitated the alteration when she drafted the cheque.
C) If the alteration is not apparent to the naked eye, Mike is entitled to receive $5000 from Tara if she did not carelessly facilitate the alteration when she drafted the cheque.
D) If the alteration is apparent to the naked eye, Mike is entitled to receive any payment from Tara.
E) If the alteration is not apparent to the naked eye, Mike is entitled to receive $50 000 from Oscar.

Answer 2

C

Question 3

Which of the following statements is TRUE with respect to certification of cheques?

A) The process of certification is expressly based on a detailed set of provisions in the Bills of Exchange Act.
B) The decision to countermand a cheque must be made by the payee or the drawee, but not by the drawer.
C) A certified cheque is usually certified at the request of either the payee or the drawee.
D) Certification allows the payee to receive payment even if the relevant account is overdrawn.
E) After certifying a cheque, a bank normally transfers funds into a countermand account and then uses those funds to honour the cheque when it is presented for payment.

Answer 3

D

Question 4

Stephania drafted a cheque that named Wilbur as the payee and the Bank of Alberta as the drawee. The cheque was certified. That must mean that

A) certification was provided in response to Stephania's request.
B) the drawee believes that the drawer's account contains sufficient funds.
C) certification was provided in response to Wilbur's request.
D) the cheque has already been dishonoured.
E) the cheque has been endorsed by at least one person.

Question 5

Raj owed $5000 to Monica. In payment of that debt, he gave her a cheque for that amount that was drawn on his account at the Bank of Regina. In fact, his account only held $3000 worth of credits. Which of the following statements is TRUE?

A) Raj will be entitled to sue the Bank of Regina if it pays any money to Monica.
B) The Bank of Regina will probably pay $3000 to Monica.
C) Although it is required to pay $5000 to Monica, the Bank of Regina can sue Raj for breach of contract.
D) Raj's cheque is countermanded.
E) Raj has effectively asked the Bank for a loan.

Question 6

Which of the following defences may be either defect in title defences or real defences, depending upon the circumstances?

A) minority
B) absence of delivery
C) material alteration
D) personal defences
E) contributory negligence

Question 7

On February 1, Patricia bought a guitar from Metheny's Music Shop. The price was $2500. She gave the store a cheque for that amount that was dated June 1. Which of the following statements is TRUE?

A) If the store presents the cheque for payment on October 1, the drawee will probably refuse to honour the instrument on the ground that it is staledated.
B) Metheny's Music Shop must present the cheque to the drawee for payment on or before June 1.
C) Patricia has created a postdated cheque that cannot be honoured before June 1.
D) Because the cheque is dated five months after it was created, it is considered overdrawn.
E) The cheque is invalid because it is postdated.

Question 8

On June 1, Rituparna bought a widget from Joel. The price was $75 000. On that same day, she gave him a bill of exchange for that amount that was drawn on the Bank of Brandon. Which of the following statements is TRUE?

A) June 1 is not necessarily the due date.
B) Unlike a cheque, a bill of exchange is automatically considered to be certified unless the relevant account is overdrawn.
C) Rituparna is the drawee, Joel is the payee, and the Bank of Brandon is the acceptor.
D) A bill of exchange must be payable on demand.
E) The Bank of Brandon owes Rituparna a legal duty to accept the bill if Joel's account balance is at least $75 000.

Question 9

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?

A) Roland could pay for the painting by cashing the cheque and delivering the money to Astral Gallery, but he could not simply negotiate to Astral Gallery the cheque that he had received from Martina.
B) Roland is entitled to recover $10 000 from Martina under their sales contract or $10 000 from her on the basis of her cheque, but not both.
C) Roland can pay for the painting by negotiating the cheque to Astral Gallery only if Astral Gallery and Martina have accounts with the same bank.
D) If given a choice, Astral Gallery would probably prefer to receive an assignment of the rights that Roland has against Martina under the earlier sales contract, rather than negotiation of Martina's cheque.
E) Roland could pay for the painting by negotiating the cheque to Astral Gallery, but he could not pay by assigning to Astral Gallery the rights that he has against Martina under the earlier sales contract.

Question 10

Shoshanna drafted a complete cheque and made it payable to bearer. She placed it in her desk drawer. She intended to give it as a prize to whichever student achieved the highest grade in her business law class. The cheque was stolen. After passing through several hands, it came into Ethan's possession. Which of the following statements is TRUE?

A) Ethan can enforce the cheque against Shoshanna because he has possession of the cheque and therefore is considered an immediate party.
B) Ethan can enforce the cheque against Shoshanna if he is a holder in due course.
C) Shoshanna merely has a personal defence as a result of the theft.
D) Shoshanna has a real defence as a result of the theft.
E) Ethan can enforce the cheque against Shoshanna if he is a holder.

Question 11

Wallace bought a widget from Sabrina. The price was $7500. When he collected the widget from her warehouse, he gave her a cheque that was drawn on his account at the Bank of Windsor. When he got the widget home, however, he discovered that it was defective. He therefore went to his bank and placed a stop order payment on the cheque. Which of the following statements is TRUE?

A) When Sabrina presents the cheque for payment, the Bank of Windsor has a complete discretion to choose between honouring it and dishonouring it.
B) Sabrina can sue both Wallace and the Bank of Windsor if the bank refuses to honour the cheque.
C) Although he authorized the Bank of Windsor to debit his account when he wrote the cheque, Wallace's stop payment order revoked that authority.
D) Sabrina is entitled to receive payment on the cheque if a court decides that Wallace was not entitled to discharge the sales contract on the basis that the goods were defective.
E) Wallace's cheque is overdrawn.

Question 12

Which of the following defences may be used against a holder of a bill of exchange?

A) ultra vires
B) set- off
C) failure of consideration
D) contributory negligence
E) duress

Question 13

Alice bought a boat from Brian. The purchase price was $250 000. On February 1, she paid that price by giving him a bill of exchange drawn on her account at the Bank of Kenora. The bill was due on December 31 and it was payable to Brian. On March 1, Brian negotiated the bill to Carla. On April 1, the Bank of Kenora accepted the bill at Carla's request. On May 1, Carla placed a blank endorsement on the bill and negotiated it to Dave. On June 1, Dave negotiated the bill to Edna. Every attempt at negotiation was successful. Which of the following statements is TRUE?

A) Dave must have added an accommodation endorsement.
B) The Bank of Kenora has the secondary liability to pay Edna.
C) A situation may arise in which Carla is entitled to recover $250 000 from Brian.
D) Brian could not have endorsed the bill.
E) Although she is not entitled to receive more than $250 000 in total, Edna has acquired rights against Alice, Brian, and Carla, but not the Bank of Kenora.

Question 14

Which of the following types of endorsements can you place upon a negotiable instrument without creating any risk of liability for yourself?

A) accommodation endorsement and restrictive endorsement
B) identifying endorsement and qualified endorsement
C) identifying endorsement
D) a restrictive endorsement but not a special endorsement
E) accommodation endorsement and identifying endorsement

Question 15

Natalia has a chequing account at the Bank of Victoria. It contains a balance of $3000. Natalia bought a scooter from Edgar for $1000. He wants to have a cheque in bearer form. That desire can be achieved if

A) the cheque contains a special endorsement.
B) Natalia creates a cheque and leaves the amount blank.
C) Edgar persuades a banker to add a qualified endorsement.
D) Natalia makes a cheque payable to Edgar and he then puts a blank endorsement on the back of it.
E) Natalia persuades a friend to add an accommodation endorsement.

Question 16

Which of the following are most likely to be classified as types of negotiable instrument?

A) cheques and drivers licences
B) promissory notes and airline tickets
C) promissory notes and share certificates
D) cheques and cash
E) bills of exchange and contracts of employment

Question 17

On May 1, Emile bought a widget from Megan. The price was $15 000. On June 1, Emile paid that price by giving Megan a bill of exchange that was drawn on the Bank of Swift Current. The bill was stated to be payable "on demand." Which of the following statements is TRUE?

A) Unlike certification of a cheque, acceptance of a bill would not create rights that Megan could use against the Bank of Swift Current.
B) The bill is invalid because while a promissory note can be payable on sight, a bill cannot.
C) If Megan presents the bill to the Bank of Swift Current on July 1, she is entitled to receive $15 000 immediately.
D) because the bill is payable on sight, Megan cannot present it to the Bank of Swift Current for acceptance
E) The reason that the bill is considered to be payable "on sight" is that it was created some time after Emile and Megan created their sales contract.

Question 18

Which of the following statements is TRUE with respect to bills of exchange?

A) Unlike a promissory note, a bill of exchange cannot be used to create a credit arrangement between the parties.
B) Once a bill of exchange is accepted, the drawer becomes known as the acceptor.
C) A bill of exchange is usually used only for relatively small domestic transactions.
D) Whereas a cheque must be drawn on a bank, a bill of exchange may be drawn on a bank.
E) A bill of exchange must be drawn upon a bank, a trust account, or some other financial institution.

Question 19

Which of the following statements is TRUE with respect to promissory notes?

A) A promissory note usually requires the payment of interest, but it need not do so.
B) The subject matter of a promissory note can be either the payment of money or the performance of services.
C) Unlike a cheque or a bill of exchange, a promissory note is effective even without consideration because it consists of a promise to pay money.
D) A promissory note always involves three different parties, called the maker, the payee, and the payer.
E) A promissory note must be payable in instalments.

Question 20

Claire gave a cheque for $5000 to Antonio. Which of the following statements is TRUE?

A) Antonio is entitled to receive $5000 from Claire even if he did not provide any consideration in exchange for her cheque.
B) Claire has created a special type of bill of exchange that is drawn upon a bank.
C) Antonio has acquired rights that can be enforced directly against the drawee.
D) Claire has created a special type of promissory note that is drawn upon a bank.
E) Antonio will acquire rights against Claire only if her cheque is accepted by the drawee.

Question 21

Melinda is the holder in due course of a cheque drawn on Tyson's bank account. She therefore believes that she is entitled to receive payment from Tyson. Tyson, however, believes that he has a good defence to her claim. That will be TRUE if Tyson can prove the defence of

A) no authority.
B) non- delivery of a completed cheque.
C) drunkenness.
D) failure of consideration.
E) non est factum.

Question 22

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?

A) By writing a cheque, Ferdinand will create an order that requires the drawee to credit his bank account.
B) Isabelle will not be able to cash Ferdinand's cheque unless she has a bank account.
C) If Ferdinand creates a valid cheque, his bank owes him an obligation to honour that negotiable instrument.
D) Ferdinand can create a cheque by ordering his sister, Esmeralda, to pay $100 000 to Isabelle.
E) As soon as Ferdinand creates a valid cheque, Isabelle will acquire rights against the drawee.

Question 23

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?

A) I would prefer to receive cash because a certified cheque would not give me any rights against the drawee bank.
B) I would prefer to receive a cheque because it is more difficult for me to transfer cash to a stranger.
C) You would prefer to pay with cash because cash is less risky than a cheque if a theft occurs.
D) Certification of a cheque would be relevant only if I intended to negotiate the cheque to someone other than a bank.
E) You would prefer to pay with a cheque because $10 000 in cash does not easily fit into your pocket.

Question 24

Patrick bought a widget from Ishani. The purchase price was $25 000. He paid by giving her a cheque for that amount that was drawn on his account at the Bank of Fundy. The cheque was made payable to Ishani. By coincidence, Ishani owes $25 000 to XYZ Inc. Which of the following statements is TRUE?

A) If Ishani negotiated the cheque to XYZ Inc, that company could receive payment from the Bank of Fundy only if it first provided consideration to Patrick.
B) Ishani can discharge her debt to XYZ Inc by simply delivering the cheque to the company.
C) If Ishani negotiated the cheque to XYZ Inc, that company would be entitled to turn the cheque into a bearer instrument.
D) If Ishani wanted to negotiate the cheque to XYZ Inc, she would have to first have the cheque certified by the Bank of Fundy.
E) If Ishani negotiated the cheque to XYZ Inc, that company could not ask the Bank of Fundy to certify the cheque.

Question 25

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

A) without consideration.
B) even though the only consideration that supports it is always a pre- existing public duty.
C) only if it is placed under a seal.
D) even if the only consideration that supports it is love and affection.
E) even if the only consideration that supports it is a promise to perform a pre- existing obligation to the same party.

Question 26

Which of the following statements is TRUE with respect to notice of dishonour?

A) In some circumstances, an endorser may be held liable even if it did not actually receive notice of dishonour following the dishonour of a cheque.
B) To be effective, notice of dishonour normally can be provided any time within six months of dishonour.
C) Once notice of dishonour is given to one endorser, it is automatically effective against all prior endorsers.
D) Notice of dishonour only needs to be provided against a party that did not endorse an instrument.
E) Notice of dishonour is significant mainly because it relieves the drawee of a cheque of liability.

Question 27

Ismail used a cheque to pay for a widget that he bought from Maria. Maria delivered the cheque to Geoff Gagne after writing her signature and the following words on the back of it: "to Geoff Gagne if he builds a gazebo in my backyard." After he acquired the cheque, Geoff wrote his signature and the following words on the back of it: "for deposit only." Which of the following statements is TRUE?

A) Geoff can negotiate the cheque to Fawn by simply delivering it to her.
B) The cheque contains a qualified endorsement and a special endorsement.
C) The cheque contains a qualified endorsement and a restrictive endorsement.
D) The cheque contains a conditional endorsement and a restrictive endorsement.
E) Geoff can require Ismail to add an accommodation endorsement to the cheque.

Question 28

Sylvain attempted to draft a cheque in payment of a stereo that he wanted to purchase. A court subsequently held that the cheque was invalid. That may be TRUE because

A) Sylvain used a pencil rather than a pen.
B) Sylvain wrote the name of a fictional person in the space allocated to the name of the payee.
C) Sylvain did not fill in the name of the payee.
D) the cheque was postdated.
E) the amount was said to be "a reasonable price for the stereo."

Question 29

On January 1, Jasmine bought a speedboat from Malcolm. The purchase price was $100 000. Jasmine gave Malcolm a promissory note for $100 000. The note was payable in five monthly instalments beginning on March 1. Which of the following statements is TRUE?

A) Jasmine's promissory note cannot contain an acceleration clause because it is payable in instalments.
B) A promissory note, like a bill of exchange, must have a drawee.
C) Because a promissory note must be for a "sum certain," the note that Jasmine created could not require her to pay interest on the purchase price of $100 000.
D) If Malcolm is unable to recover any money under the promissory note, he must sue Jasmine on the basis of their sales contract, rather than on the basis of the promissory note itself.
E) After each installment payment, Jasmine should make sure that Malcolm writes a receipt onto the promissory note itself.

Question 30

Bamidele drafted a negotiable instrument and delivered it to Beta Inc in payment of a debt. That instrument contains an acceleration clause. That means that

A) although the person who drafted the instrument intended to make payment in instalments, the payee may be entitled to demand the full amount in one payment.
B) the instrument must be a bill of exchange.
C) the payee must present the instrument to a third party before a certain date.
D) an enforceable obligation was created between the payee and the institution from whom payment is to be made.
E) the instrument will be worth one amount on or before a certain date, and a different amount after that same date.

Question 31

Fenna created a promissory note for $10 000 that was payable to the order of Mark. She delivered that instrument to him. Mark is indebted to Muriel for $10 000. He wants to discharge that debt by allowing Muriel to receive payment under the note that Fenna created. Muriel is unsure whether Fenna or Mark would be capable of actually paying $10 000 if asked to do so. However, Muriel is confident that Mark's brother, Cameron, is capable of paying $10 000. Which of the following statements is TRUE?

A) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an accommodation endorsement by Cameron.
B) Mark is not entitled to negotiate Fenna's note to Muriel if that note is payable on demand.
C) Cameron cannot be held liable unless he becomes the holder of the note at some point.
D) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an identifying endorsement by Cameron.
E) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an accommodation endorsement by Fenna.

Question 32

Wendell bought a widget from Sharon and used a cheque to pay the purchase price of $10 000. Wendell made the cheque payable to Sharon personally. That cheque was drawn on Wendell's account at the Bank of Gander. A thief stole the cheque from Sharon, forged her general endorsement, and sold the cheque to Oren. Oren then endorsed the cheque and negotiated it to Abby. Which of the following statements is TRUE?

A) In the final analysis, the Bank of Gander will necessarily suffer the loss if it honoured the cheque and paid $10 000 to Abby.
B) If the Bank of Gander paid $10 000 to Abby and debited Wendell's account, Wendell can force the bank to repay $10 000 into his account if he acts promptly.
C) Abby is entitled to sue Wendell because the forgery does not affect the fact that he promised to pay $10 000.
D) Wendell no longer owes a debt to Sharon.
E) Because forgery is a real defence, Abby cannot sue anyone except the person who committed the forgery.

Question 33

Scott bought a widget from Gowhara. The price was $10 000. He paid with a cheque that he had drawn on his account at the Bank of Kamloops. Scott had the cheque certified before he gave it to Gowhara. In fact, Scott's account balance was only $8000. When he discovered that fact, he went to the bank and gave instructions to have the cheque countermanded. Which of the following statements is TRUE?

A) The Bank of Kamloops is required to pay Gowhara $8000.
B) The Bank of Kamloops is required to pay Gowhara $10 000.
C) Scott is entitled to countermand the cheque because it had been certified at his request, rather than at Gowhara's request.
D) Because the Bank certified the cheque, it must pay $10 000 to Gowhara even though Scott ultimately will have to provide only $8000 to the Bank.
E) Regardless of certification, it is impossible to countermand a cheque that has been written on an overdrawn account.

Question 34

Ranjit currently has possession of a cheque that was created by Maura. Although Maura created that cheque on January 1, the instrument is dated June 1. The cheque originally was payable to Nora. The cheque now bears endorsements by Nora and Shelley. Maura, Nora, Shelley, and Ranjit are the only parties that have dealt with the cheque. Which of the following statements is TRUE?

A) Ranjit cannot be a holder in due course if he received the cheque when it was in bearer form.
B) Ranjit cannot be a holder in due course unless Shelley was a holder in due course.
C) Ranjit may be a holder in due course even if he did not personally provide consideration to anyone.
D) Maura may be the drawee of the cheque.
E) Ranjit cannot be a holder in due course if today's date is July 1.

Question 35

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

A) The Bills of Exchange Act applies to every type of negotiable instrument.
B) A negotiable instrument is effective only if it contains a conditional obligation to pay money.
C) Technically speaking, there are only three types of negotiable instruments: cheques, bills of exchange, and promissory notes.
D) A negotiable instrument is valid as long as it provides a mechanism that the drawer can use to determine how much the payee is entitled to receive.
E) Unlike most contracts, a negotiable instrument is effective only if it is written and signed.

Question 36

Which of the following represent types of endorsement that may be used in connection with negotiable instruments under the Bills of Exchange Act?

A) identifying and restrictive
B) conditional and wanton
C) general and relative
D) special and confirming
E) qualified and promissory

Question 37

Roxanna bought a stereo from Sound Electronics. She paid the purchase price of $7500 by giving a promissory note to the store. The first time that Roxanna tried to operate the stereo outside of the store, it blew up due to a defect. She therefore refuses to honour the promissory note. Which of the following statements is TRUE?

A) Because the note was given to a company, Roxanna does not have a personal defence that she can use against Sound Electronics if it attempts to sue her on the note.
B) Sound Electronics was required to mark the note as a "consumer note" if Roxanna intended to use the stereo for a business purpose.
C) Even if the promissory note was used for a consumer purchase, it may not be subject to the equities if Sound Electronics negotiated it to a holder in due course.
D) The provisions in the Bills of Exchange Act dealing with consumer bills and notes might apply if Roxanna paid with a cheque that was postdated for 15 days.
E) The provisions in the Bills of Exchange Act dealing with consumer bills and notes would not apply if Roxanna used a cheque to pay for the stereo.

Question 38

Hakim drafted a negotiable instrument and delivered it to Omega Ltd in payment of a debt. Before Omega actually received a monetary benefit, the instrument was formally accepted by another party. The instrument may be

A) a cheque that was drawn on an overdrawn account.
B) a postdated cheque.
C) a cheque for which the drawee bank placed an appropriate amount into a suspense account.
D) a cheque or a promissory note.
E) a bill of exchange that is payable on demand.

Question 39

Alpha Corp appears to be the named payee of a cheque drawn by Ultimate Inc. Ultimate, however, insists that that piece of paper cannot possibly be treated as a valid cheque under the Bills of Exchange Act. That is TRUE if

A) Payment is to be made from an overdrawn account.
B) The instrument had been materially altered after being drafted.
C) The instrument is drawn on Lester, who is the major shareholder of Ultimate.
D) The instrument is postdated.
E) The instrument was certified before being delivered.

Question 40

Which of the following concepts is not expressly addressed by the Bills of Exchange Act?

A) certification
B) drunkenness
C) postdated
D) accommodation
E) countermand

Question 41

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

Question 42

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.

Question 43

Identify and briefly explain three major differences between a negotiable instrument and a regular contract.

Question 44

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.

Question 45

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 will not honour the cheque.

Question 46

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.

Question 47

Milosz is the holder in due course of a cheque that has been negotiated several times. Identify a situation in which he may be subject to the equities if he seeks to enforce the instrument against the drawer.

Question 48

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.

Question 49

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.

Question 50

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.

Question 51

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.

Question 52

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

Question 53

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.

Question 54

Shauna drew a cheque on her account at the Bank of Whitehorse. That cheque passed through several people before Kyle acquired possession of it. Because Shauna's account was overdrawn, the Bank of Whitehorse dishonoured the cheque when Kyle presented it for payment. Kyle realizes that there is no point in suing Shauna because she simply does not have any money. Is there anyone else to whom Kyle can look for payment? Do you require any additional information in order to fully answer that question?

Question 55

A share certificate may be a type of negotiable instrument.

Question 56

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.

Question 57

Briefly compare and contrast a postdated cheque and a staledated cheque. Can a cheque ever become both postdated and staledated?

Question 58

Krystyne bought a widget from Ryan. As payment, she gave him a cheque for $10 000 that was drawn on her account at the Bank of Windsor. Because she discovered that the widget was defective, Krystyne countermanded her cheque before Ryan presented it for payment. Due to a clerical error, the bank nevertheless honoured the cheque and paid $10 000 to Ryan. Is the bank entitled to debit Krystyne's account? Do you have enough information to answer that question?

Question 59

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. The note contains an acceleration clause. Consequently, Nathan has the absolute right to receive payment before June 1 if he wants.

Question 60

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.

Question 61

Jordan bought a widget from Sara. He paid the purchase price of $25 000 by giving her a cheque drawn upon his account at the Bank of Saskatoon. The facts involve three contracts. Identify those contracts and briefly explain the rights that each involves.

Question 62

You are the manager of the York Trust Company. Nadia, one of the company's customers, has drawn a bill of exchange upon her account with the company. That bill is for $50 000 and it names Seth as the payee. The bill is due on August 31. On June 1, Seth appears at your office seeking acceptance of the bill. Describe the process and effect of acceptance. As a matter of risk management, what special precaution should you exercise if you decide to accept the bill on behalf of the trust company?

Question 63

The Bills of Exchange Act and the Sale of Goods Act both arose as codifications of judge- made rules. Furthermore, the original legislation in each case was intended to increase certainty and efficiency in the commercial world. There is, however, a major difference between the two statutes. One generally provides default rules that the parties are free to accept or reject. The other does not allow the parties to freely opt in and out of its sections. Which of the two statutes is less flexible and why?

Question 64

What is the difference between a demand draft, a sight draft, and a time draft?

Question 65

What is an "acceleration clause"? When and why is such a clause inserted into a negotiable instrument?

Question 66

Identify two types of endorsements that may be used by a person who is not the holder of a negotiable instrument. Provide an example of each.

Question 67

Chris fraudulently induced Lucianna into drawing a cheque for $10 000. Chris then negotiated the cheque to Kenneth, who is a holder in due course. Is Kenneth entitled to receive payment on the cheque? Do you need any more information before answering that question? Explain your answer.

Question 68

Dina drew a cheque on her account at the Bank of Brockville and named Gary as the payee. What process could be used to make the cheque into "something equivalent to money"? Explain the nature and effect of that process.

Question 69

Francine bought a widget from Simon. In payment of the purchase price, she gave him a cheque for $10 000 drawn on her account at the Bank of Waterloo. Because Francine's account was overdrawn, the bank dishonoured the cheque when Simon presented it for payment. Identify two grounds upon which Simon can sue Francine. Briefly explain which option is easier.

Question 70

Although you agreed to sell a widget to me, you are concerned about actually receiving payment. Discuss the main advantages and disadvantages of receiving payment from me in the form of cash or a simple cheque.