Deck 28: Law of Negotiable Instruments

Question 1

A consumer note arises when

A)any consumer purchase is made on the basis of a promissory note.
B)the lender of funds to the consumer is not at arm's length with the seller.
C)the purchaser acts as an end-user and not as a purchaser for resale,and the goods are obtained by credit.
D)a debt under a negotiable instrument representing a consumer purchase is assigned to a finance company.
E)None of the responses are correct.

Answer 1

B

Question 2

Does a bill of exchange have to be written?

A)No,in accordance with the Statute of Frauds.
B)No,in accordance with the Common Law.
C)No,in accordance with the Personal Property Security Act.
D)No,in accordance with the Bills of Exchange Act.
E)Yes,in accordance with the Bills of Exchange Act.

Answer 2

E

Question 3

Where a bill of exchange is used in a purchase and sale transaction for goods sold on credit terms,the bill is "accepted" by the

A)seller.
B)buyer.
C)seller's bank.
D)buyer's bank.
E)None of these are the acceptor.

Answer 3

B

Question 4

Which is a true statement?

A)Real defences are effective against holders,holders in due course,and endorsers.
B)Defect of title defences are effective against holders and endorsers.
C)Personal defences are effective against holders,and against endorsers if they are an immediate party.
D)All of the responses are true.
E)None of the responses are true.

Question 5

Once a bill is drawn it is sent to the ___________ for ___________.Before the date for payment it may be negotiated to others,called _______________ by way of ___________.

A)maker; endorsement; holders; exchange
B)drawee; endorsement; endorsers; acceptance
C)drawee; payment; endorsers; endorsement
D)drawee; acceptance; holders; endorsement
E)maker; acceptance; endorsers; endorsement

Question 6

Magda 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 Magda's cheque to the bank,and had it certified,Magda's debt to the seller would be extinguished.

Question 7

Law relating to certified cheques in Canada are found in

A)the Bank Act.
B)the Bills of Exchange Act.
C)provincial statutes.
D)Common Law.
E)None of the responses are correct.

Question 8

Which of the following are not negotiable instruments?

A)Cheques.
B)Certified cheques.
C)A cheque made payable to "Mickey Mouse."
D)A promissory note.
E)A bill of sale.

Question 9

Brendan prepared a cheque payable to Joey,and placed it in the pocket of his coat.Later in the day,while shopping,his coat was stolen.Brendan 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.

Question 10

A certified cheque is

A)a promissory note.
B)legal tender.
C)a liability of the bank and not the drawer.
D)provided for under the Bills of Exchange Act.
E)All of these elements.

Question 11

Bill writes Nick a cheque for $500 on his account at the Friendly Bank.Bill is the _______ and Nick is the __________ and the Friendly Bank is the ______________.

A)Drawer; Payee; Drawee
B)Drawer; Drawee; Payee
C)Drawee; Drawer; Payee
D)Drawee; Payee; Drawer
E)Payee; Drawer; Drawee

Question 12

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

Question 13

Magda 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 Magda's bank.

Question 14

The most superior position in which parties to a negotiable instrument can find themselves is a(n)

A)endorser.
B)holder.
C)holder for value.
D)holder in due course.
E)holder in any event.

Question 15

The legislation creating promissory notes is found in which statute?

A)Promissory Notes Act
B)Bills of Exchange Act
C)Securities Act
D)Financial Instruments Act
E)Personal Property Security Act

Question 16

Erin writes Lorie a promissory note for $500.Erin is the _________ and Lorie is the ________.

A)Promisor; Promisee
B)Promisee; Promisor
C)Maker; Bearer
D)Bearer; Maker
E)Bearer; Drawee

Question 17

Magda 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.

Question 18

Where a cheque is made payable to Lucien Colbert,and on its reverse are written the words "For deposit only to the credit of L.Colbert,"

A)the endorsement is a restrictive endorsement.
B)the endorsement is a special endorsement.
C)the endorsement is a failure.
D)the bill can only be cashed.
E)None of the responses are correct.

Question 19

Who can the holder of a bill of exchange sue if it is dishonoured?

A)Drawer
B)Acceptor
C)Endorser
D)Drawer and Acceptor
E)Drawer,Acceptor and Endorser

Question 20

A paper reads: To: Empire Bank.Five days after the next full moon,pay to Nathan Montrose or anyone named by him the sum of $500.Signed: "Monica Traymoor," August 15,2007.Most correctly,this is

A)a bill of exchange.
B)a negotiable instrument.
C)a promissory note.
D)a banker's acceptance.
E)a bill of exchange and a negotiable instrument.

Question 21

An instrument that conforms in all other respects to the Bills of Exchange Act except that it reads "Pay to the bearer on demand $500 in gold bullion based on the London noon gold spot price on date of demand," would still not be either a bill of exchange or promissory note.

Question 22

Brendan prepared a cheque payable to Joey,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 Joey,any finder of the cheque would be entitled to demand payment.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

Kara in Toronto has received a cheque from Pam in Vancouver,which Kara endorses with her 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.

Question 28

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

Question 29

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

Question 30

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

Question 31

Generally speaking,all cheques are bills of exchange,the reverse is untrue,and promissory notes differ in form and use from either one.

Question 32

The law governing negotiable instruments is the Bills of Exchange Act.

Question 33

A bill payable "three days after sight," presented on March 20^th is payable on March 23^rd.

Question 34

Brendan prepared a cheque payable to Joey,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,Joey.

Question 35

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

Question 36

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.

Question 37

Under the Bills of Exchange Act,a negotiable instrument is void ab initio where it attempts to create a debtor-creditor relationship between the parties to it.

Question 38

Henry purchased an automobile from Iso Motors,and as a part of the payment,gave Iso 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.

Question 39

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

Question 40

The Constitution assigns jurisdiction relating to the governance of negotiable instruments to the federal Parliament.

Question 41

Explain the different types of endorsement that may appear on a negotiable instrument,and give examples of their proper use.

Question 42

List and describe the real defences to payment of a negotiable instrument.

Question 43

A holder in due course has much greater certainty of payment under a negotiable instrument than an ordinary holder.

Question 44

Discuss why presentment of a cheque for certification by the payee discharges liability of the drawer,but presentment of a cheque for certification by its drawer may not.

Question 45

A single person cannot simultaneously be an endorsee,holder,and bearer of a negotiable instrument.

Question 46

Discuss the ways in which the principles of consumer protection have been incorporated into the Bills of Exchange Act,and obligations imposed by the Act on consumer transactions.

Question 47

Joan made a promissory note payable in the amount of $1,000 to Thomas.Since Thomas owed approximately $1,000 to an acquaintance,William,Thomas gave the note to William having inscribed on the back of it "I transfer all my rights in this note." William was not aware of the provisions in the Bills of Exchange Act.When William attempted to collect upon the promissory note from Joan,it was dishonoured,and the bank told William it did not know of Joan's whereabouts.William sought recourse against Thomas on the basis of his endorsement.Thomas pleaded he had transferred his rights in the note to William without any warranty or recourse,and the endorsement constituted only an assignment of his interest in the note and not an endorsement under the terms of the Bills of Exchange Act.
Discuss the issues raised in this case and render a decision.

Question 48

David operated a small delivery business.He approached the Empire Bank for money to buy a truck to be used in the business.The bank was willing to loan David the money,and took a chattel mortgage over the truck.As further security in the event that David defaulted on the mortgage,the bank required his wife to sign a promissory note for the full amount of the mortgage.After experiencing some financial difficulty,David defaulted on the mortgage and the Empire Bank took possession of the truck and sold it pursuant to the chattel mortgage.The passage of sale was insufficient to cover the full amount of the loan and the bank sued David's wife for the remainder owing on the basis of the promissory note.Discuss the rights and duties of the bank and David's wife,and render a decision.