Deck 10: Law of Banking and Negotiable Instruments

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

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.

Answer 3

True

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.

Question 5

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

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.

Question 7

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

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.

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.

Question 10

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

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.

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.

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.

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.

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.

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.

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."

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.

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.

Question 20

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

Question 21

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 $500.00.Signed: "Monica Tray moor,. ,August 15,1994.Most correctly,this is

A)a bill of exchange.
B)a negotiable instrument.
C)a promissory note.
D)a bankers acceptance.
E)a and b.

Question 22

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 23

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 be cashed only.
E)None of these.

Question 24

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

Question 25

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

Question 26

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 27

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

Question 28

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)c and d.

Question 29

Which of the following are not negotiable instruments?

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 these.
E)a and b.

Question 35

The most superior position in which a 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 36

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 37

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 these.

Question 38

Law relating to certified cheques in Canada is found in

A)The Bank Act.
B)The Bills of Exchange Act.
C)provincial statutes.
D)the Common Law.
E)None of these.

Question 39

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 40

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.

Question 41

Hector had planned a new business venture,and Thomson was interested in participating in it.Thomson felt that it would take her four weeks to determine whether she could fully devote her time to the business.As the success of the venture depended on an immediate start,Hector was reluctant to include Thomson.To convince Hector of her sincerity,Thomson offered to provide him with a cheque for $5,000 that he could cash if she decided to back out of the project within four weeks.Hector agreed,and Thomson gave him the cheque fully completed and with the current date,marked: "to be cashed only if deal cancelled." As matters turned out,Thomson decided only a day later that she could not devote the time to participate in the venture.She told Hector that she was backing out,and attended at the bank and placed a stop payment on the cheque.The cheque was duly dishonoured when Hector tried to cash it,and he sued Thomson pursuant to the Bills of Exchange Act for the $5,000.His claim was also for a further $1,000 that he was forced to pay as a fee to a broker for finding him another investor on short notice.Discuss.

Question 42

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 43

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.

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.