Deck 32: Negotiable instruments

Question 1

Which of the following is NOT an advantage of a bill of exchange?

A) In the event of a dishonour, the holder has rights against the prior parties to the bill.
B) A single bill can be used to settle two or more debts.
C) The holder of the bill can only demand payment if they are named on the bill.
D) The creditor can sue on the bill itself without referring back to the original contract which created the debt.

Answer 1

C

Question 2

The Nemo dat quod non habet rule means that no-one can give a better title than they themselves have.

Answer 2

True

Question 3

In what way is a 'negotiable' instrument an exception to the nemo dat quod non habet rule?

A) It is able to be transferred from one person to another.
B) It can be passed from one person to another on terms to be decided by those parties.
C) The right to the instrument is transferred with physical possession.
D) It is of an amount yet to be determined.

Answer 3

C

Question 4

A bill of exchange or cheque payable to bearer is negotiated by which of the following methods?

A) Indorsement or delivery.
B) Indorsement and delivery.
C) Indorsement.
D) Delivery.

Question 5

What is the relationship between cheques and bills of exchange?

A) Cheques and bills of exchange are both types of payment order.
B) A cheque and a bill of exchange are the same thing.
C) A bill of exchange is a type of cheque.
D) A cheque is a type of bill of exchange.

Question 6

Negotiability means that a person who takes an instrument in good faith will acquire all the rights to it in spite of any defect in title.

Question 7

Both a cheque and a bill of exchange must be drawn on a bank account.

Question 8

A bill of exchange is signed by Adam, addressed to Peter and made payable to Paul, who indorses and delivers it to David. In this situation David is referred to as:

A) The drawer and the indorsee.
B) The payee, the indorsee and the holder.
C) The acceptor and the holder.
D) The drawee and the payee.

Question 9

Which of the following is NOT a difference between a bill of exchange and a cheque?

A) A cheque may be payable at a determinable future time.
B) A cheque must be drawn on a financial institution.
C) A cheque can be crossed 'not negotiable.'
D) A cheque must be payable on demand.

Question 10

A bill of exchange is signed by Adam, addressed to Peter and made payable to Paul, who indorses and delivers it to David. In this situation Adam is referred to as:

A) The payee.
B) The drawer.
C) The drawee.
D) The acceptor.

Question 11

Which of the following statements is NOT correct?

A) A negotiable instrument is a document that represents an amount of money.
B) Negotiable instruments are a secure means of paying debts without the need for cash.
C) A negotiable instrument must be exchanged for cash or something of value.
D) 'Negotiability' means the instrument is freely transferrable to subsequent parties.

Question 12

A bill of exchange is signed by Adam, addressed to Peter and made payable to Paul, who indorses and delivers it to David. In this situation Paul is referred to as:

A) The drawee and the acceptor.
B) The acceptor and the indorsee.
C) The payee and the indorser.
D) The drawer and the payee.

Question 13

A bill of exchange is signed by Adam, addressed to Peter and made payable to Paul, who indorses and delivers it to David. In this situation Peter is referred to as:

A) The drawee and the acceptor.
B) The drawer and the payee.
C) The acceptor and the holder.
D) The payee and the indorsee.

Question 14

All negotiable instruments are transferable by negotiation.

Question 15

Explain the difference between the nemo dat rule and negotiability as an exception to this rule.

Question 16

There must be two parties involved in every cheque.

Question 17

An instrument that does not comply with the statutory requirements for a bill of exchange may still be enforceable as a contract.

Question 18

A bill or cheque payable to order is negotiated by which of the following methods?

A) Delivery.
B) Indorsement.
C) Indorsement or delivery.
D) Indorsement and delivery.

Question 19

Which of the following is NOT one of the essential elements of a bill of exchange?

A) It must require an act to be done in addition to the payment of money.
B) It must be payable to a specified person or bearer.
C) It must be payable on demand or at a fixed or determinable time.
D) It must be addressed by one person to another.

Question 20

A person taking a negotiable instrument does so at their own risk.

Question 21

The use of cheques has dropped from 49.6% of all payments in 1994 to well below 9.8% of all payments in 2007. Why do you think this is so?

Question 22

A bank's failure to pay a cheque without good reason would render the bank liable to:

A) The customer and drawer.
B) The Australian Securities and Investments Commission.
C) The presenter of the cheque.
D) All of the above.

Question 23

What is a cheque?

Question 24

Adam writes a cheque in favour of Bruce on a cheque form issued by CitiBank. In this situation who is Citibank?

A) The drawee.
B) The drawer.
C) The payee.
D) None of the above.

Question 25

A person who has taken a cheque after value has been given but who did not themselves give value is a holder for value.

Question 26

Adam writes a cheque in favour of Bruce on a cheque form issued by CitiBank. In this situation who is Adam?

A) The payee.
B) The drawer.
C) The drawee.
D) None of the above.

Question 27

The basic duty of a collecting bank is to credit the drawer's account.

Question 28

In what circumstances is a bank NOT entitled to refuse to pay a cheque?

A) The customer has become insane.
B) The cheque is six months old.
C) The customer has died.
D) The cheque is post-dated and that date has not yet arrived.

Question 29

A bank cheque differs from an ordinary cheque because:

A) A bank cheque is the equivalent of cash.
B) A bank cheque can only be paid to order.
C) A drawer of a bank cheque is a bank.
D) A bank cheque cannot be dishonoured.

Question 30

In what circumstances would you write a cheque which was not crossed and not marked 'not negotiable'? Do you think that the protections afforded by these markings should be automatic?

Question 31

The case of: Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR304 is authority for the principle that:

A) A customer has a duty to exercise care in drawing their cheques to avoid fraud.
B) A financial institution has a duty to pay the amount for which the cheque is drawn.
C) A customer has a duty to tell their bank if they know their cheques have been forged.
D) A financial institution has a duty to pay according to its customers orders.

Question 32

Which of the following statements about a cheque that has been crossed 'not negotiable' is NOT correct?

A) The cheque cannot be cashed over the counter.
B) The cheque cannot be negotiated.
C) The transferee cannot take a better title than the transferor.
D) The cheque cannot be transferred.

Question 33

Crossing a cheque means that the cheque cannot be:

A) Transferred.
B) Negotiated.
C) Cashed over the counter.
D) Paid into an account.

Question 34

If Chris steals an open bearer cheque and uses it to purchase a computer:

A) The holder has a better title to the cheque than the rogue transferor.
B) The seller of the computer is a holder in due course.
C) The seller of the computer is entitled to cash the cheque.
D) All of the above.

Question 35

Which of the following would NOT result from a countermand of payment of an open bearer cheque?

A) The cheque will become stale.
B) The financial institution will be liable to the customer if they pay the cheque.
C) The financial institution on which the cheque is drawn must refuse payment of the cheque.
D) The drawer may still be liable to a holder in due course for the amount of the cheque.

Question 36

If a cheque is paid after being stolen from the payee, the drawer can claim that the debt to the payee has been discharged.

Question 37

A stale cheque is one that has been in circulation for more than six months.

Question 38

The drawee is the person upon whom the cheque is drawn.

Question 39

Adam writes a cheque in favour of Bruce on a cheque form issued by CitiBank. In this situation who is Bruce?

A) The payee.
B) The drawee.
C) The drawer.
D) None of the above.

Question 40

A bearer cheque is negotiated by indorsement and delivery.

Question 41

Under the Financial Transactions Reports Act 1988 (Cth), a transaction may be any business dealing including negotiations, discussions and inquiries.

Question 42

In which of the following disputes will the Banking Industry Ombudsman NOT become involved?

A) A complaint about a specific banking service.
B) Maladministration by the bank.
C) A credit card dispute.
D) The bank's commercial judgment in a lending decision.

Question 43

What is the difference between a cheque crossed as 'Not Negotiable' and a cheque with a general crossing?

Question 44

The object of the Financial Transactions Reports Act 1988 (Cth) is to:

A) To assist the administration and enforcement of the taxation laws of the Commonwealth.
B) To assist the administration of non-taxation laws of the Commonwealth.
C) To make available information available to state authorities that might assist the administration and enforcement of state laws.
D) All of the above.

Question 45

The Electronic Funds Transfer Code of Conduct is a mandatory code enforceable by the Minister for Consumer Affairs.

Question 46

Who are the parties involved in a credit card transaction?

A) The cardholder and the bank.
B) The merchant and the bank.
C) The cardholder, the cardholder's bank, the merchant and the merchant's bank.
D) The cardholder, the merchant and the bank.