Deck 21: Negotiable Instruments

Question 1

The Bills of Exchange Act governs the following kinds of instruments.

A) bills of exchange; promissory notes and cheques
B) bills of exchange and negotiable instruments
C) bills of exchange; negotiable instruments and cheques
D) drafts only
E) bills of exchange only

Answer 1

A

Question 2

Liability of the drawee on a bill of exchange is dependent on

A) the negotiation of the bill.
B) the signing of the bill.
C) the signing and delivery of the bill.
D) the presentment of the bill.
E) the acceptance and delivery of the bill.

Answer 2

E

Question 3

Sight drafts can be used as

A) collection devices.
B) finance notes.
C) promissory notes.
D) certificates of deposit.
E) share certificates.

Answer 3

A

Question 4

On April 5, Tim gave Winnie a cheque for $3000 drawn on his bank account to pay for a horse. The cheque was postdated to April 15. On April 7, the horse died, and Tim stopped payment on the cheque. On April 12, Winnie took Tim's cheque to Big Bank and endorsed it. Big Bank gave her cash in the face amount of the cheque. When Big Bank sent the cheque for clearing, Tim's bank refused to honour the cheque because of the stop payment Tim placed on it, and returned the cheque to Big Bank. Which of the following statements is true?

A) One cannot stop payment on a cheque.
B) Tim is liable to Big Bank because Big Bank is a holder in due course of a negotiable instrument.
C) Only Winnie is liable to Big Bank.
D) Tim is not liable to Big Bank because he put a stop payment on the cheque before Winnie endorsed it over to Big Bank.
E) A postdated cheque is not a negotiable instrument.

Question 5

A time draft is

A) a bill of exchange that is payable within a stipulated period after the date stated on the instrument or after presentation.
B) a bill of exchange that is payable by 10:00am on the stipulated date.
C) a bill of exchange that is payable immediately it is presented.
D) a bill of exchange that is payable by midnight on the stipulated date.
E) a bill of exchange that is payable "at sight" that is at a particular time.

Question 6

A demand draft is

A) a bill of exchange that is payable within a stipulated period, after presentation.
B) a bill of exchange that is payable within a stipulated period, after the date stated on the instrument.
C) a bill of exchange that is payable at sight.
D) a bill of exchange that is payable immediately upon presentation without any days of grace.
E) a bill of exchange on which the expression demand draft is written.

Question 7

Which of the following is not a characteristic of a bill of exchange?

A) The written order instructs to pay another party.
B) It is a written order by one party.
C) The payment order may require payment to be made to order or to the bearer of the document.
D) The order to pay concerns a specified sum of money.
E) The order to pay specifies that there must be money available before payment.

Question 8

There are three types of bills of exchange, these are

A) sight certificates, demand notes and certificates of deposit.
B) demand drafts, sight drafts and time drafts.
C) certificates, demand drafts, and sight certificates.
D) time notes, certificates of deposit, and certificates.
E) shares, demand notes and time payments.

Question 9

A sight draft is

A) a bill of exchange in which the drawee is ordered to pay "at sight".
B) a bill of exchange in which the drawer is ordered to pay "at sight".
C) a bill of exchange in which the payee is ordered to pay "at sight".
D) a bill of exchange in which the acceptor is ordered to pay "at sight".
E) a bill of exchange in which the acceptor and and drawer are ordered to pay "at sight".

Question 10

The two classes of negotiable instruments are

A) sight drafts and time drafts.
B) promissory notes and cheques.
C) those governed by the Bills of Exchange Act and share certificates.
D) promissory notes and drafts.
E) those governed by the Bills of Exchange Act and those governed by other statutes and other laws.

Question 11

Liability of the drawer, acceptor, or maker on a bill of exchange is dependent on

A) the negotiation of the bill.
B) the delivery of the bill.
C) the signing of the bill.
D) the presentment of the bill.
E) the signing and delivery of the bill.

Question 12

A payee is

A) the party who is named to receive payment on the bill of exchange.
B) the party who signs the document.
C) the party who draws up the bill of exchange.
D) the entity that consents to accept the bill of exchange by indicating accepted on the face of the instrument.
E) the party who is required to make payment on the bill of exchange.

Question 13

The difference between a cheque and draft is that

A) a cheque is a bill of exchange drawn against a bank that is payable on demand, a draft is not payable on demand.
B) the drawee on a cheque is a bank of financial institution, the drawee of a draft may be a financial institution or bank.
C) a cheque is not a negotiable instrument, a draft is a negotiable instrument.
D) a cheque is a bill of exchange drawn against a person that is payable on demand, a draft is drawn against a financial institution.
E) a cheque is a bill of exchange a draft is not a bill of exchange.

Question 14

Which of the following defences is available to the drawer of a cheque who is being sued by a holder in due course of a negotiable instrument?

A) the drawer's signature was a forgery
B) the cheque was obtained through breach of contract
C) the payee was negligent
D) the cheque was obtained through misrepresentation
E) A and B

Question 15

A drawer is

A) the party who is required to make payment.
B) the entity that consents to accept the bill of exchange by indicating accepted on the face of the instrument.
C) the party who signs the document.
D) the party who draws up the bill of exchange.
E) the party who is named to receive payment.

Question 16

Delivery of a negotiable instrument in payment

A) completely discharges the debt.
B) is a guarantee of payment.
C) is an acceptance.
D) indemnifies the payor.
E) is only a conditional discharge.

Question 17

Jack provides James with cheque in payment for the delivery of goods. Later when Jack checks the goods, he realizes that James has delivered the wrong goods. Jack wishes to cancel the cheque. Jack may go to the bank and request a

A) stop payment order.
B) stop payee document.
C) de- certification order
D) cancel document.
E) negotiable instrument.

Question 18

Jack writes a note for Mary. The note states that 'I Jack promise to pay you Mary $500.00 on January 4, 2003, or anytime after that date when a demand is made." Jack has given Mary a

A) certificate note.
B) maker note.
C) promissory note.
D) certification.
E) promise in a note.

Question 19

A drawee is

A) the party who draws up the bill of exchange.
B) the party who is named to receive payment.
C) the party who is required to make payment on the bill of exchange.
D) the party who signs the document.
E) the entity that consents to accept the bill of exchange by indicating accepted on the face of the instrument.

Question 20

The bank on which a cheque is drawn is called

A) the accepting bank.
B) the certifying bank.
C) the drawee bank.
D) the drawer bank.
E) the promissory note bank.

Question 21

Joseph obtains a draft that states as follows: "pay to the order of Joseph Daniels the sum of $1000." Joseph wants to negotiate this instrument to Jack Spratt to pay a debt owing to Jack. To negotiate this instrument Joseph must

A) hand over the draft to Jack and get a receipt.
B) endorse and present the instrument to Jack's bank.
C) present the instrument to Jack's bank and have it accepted and then transfer it to Jack.
D) indicate accepted on the draft and then deliver it to Jack.
E) endorse and deliver the instrument to Jack.

Question 22

Delivery of a bill may be actual or

A) constructive.
B) pretend.
C) by notification.
D) incomplete.
E) ineffective.

Question 23

Certification is an undertaking by the bank to pay the amount of the cheque to the drawer when it is presented for payment.

Question 24

A drawee is liable in respect of a bill of exchange before accepting and delivering it.

Question 25

Sight drafts can be used as collection devices.

Question 26

Where a bill of exchange is payable at sight, or after sight, then presentment is necessary.

Question 27

Which of the following is true?

A) Where an instrument is payable to bearer.
B) Where an instrument is payable to bearer, it must be negotiated by endorsement and delivery.
C) Where an instrument is payable to bearer, it cannot be negotiated.
D) Where an instrument is payable to bearer, it cannot be endorsed.
E) Where an instrument is payable to bearer, it may be negotiated by endorsement and delivery.

Question 28

A person who negotiates an instrument in bearer form is known as

A) delivering party.
B) transferor.
C) a transferor by delivery.
D) transferee.
E) a transferee by delivery.

Question 29

A promissory note is presented for acceptance.

Question 30

A promissory note is not a bill of exchange.

Question 31

Tina gave Zach a cheque for $1000 to pay for a TV. Zach took the cheque to Cash Mart, endorsed it, and Cash Mart paid him $950. Cash Mart is a holder in due course of a negotiable instrument.

Question 32

Negotiability is the special quality possessed by negotiable instruments.

Question 33

A promissory note is a bill of exchange.

Question 34

Presentment of a bill is necessary where the bill of exchange is payable at sight, or after sight, because there is the need to determine the time at which payment is due.

Question 35

If a consumer bill or note is marked "consumer purchase" as required by the Bills of Exchange Act, the maker may raise a defence against a finance company that takes the bill or note for value and through endorsement based on breach of contract by the payee.

Question 36

A bill of exchange began as a document made by a merchant or banker instructing a government officials or lawyers in another city to make payment to a certain person or the bearer of the document.

Question 37

Negotiable instruments began as a form of bill of exchange.

Question 38

Which of the following is not a defect of title on a bill of exchange?

A) incapacity to contract because of insanity
B) misrepresentation
C) fraud, duress, undue influence, and illegality
D) want of authority in an agent to complete the instrument on behalf of the party primarily liable
E) discharge of the instrument by payment

Question 39

Which of the following is not a real defence to an action on a bill?

A) misrepresentation
B) incapacity fo contract because of infancy
C) alteration of the instrument
D) cancellation of the instrument
E) absence of delivery when the instrument is incomplete when taken

Question 40

Which of the following is not a kind of endorsement?

A) Restrictive endorsement
B) Conditional endorsement
C) Endorsement in blank
D) Accommodation endorsement
E) Special endorsement

Question 41

Who is the drawer of a bill?

Question 42

A court in British Columbia decided that a promissory note payable at a variable interest rate ( e.g. prime + 1% per annum) was not a negotiable instrument. Why might the court make this decision? How might the decision affect the rights of a third party obtaining the promissory note through endorsement?

Question 43

Explain the nature of the liability of a drawer on a draft and cheque.

Question 44

Explain the effect of certification of a cheque.

Question 45

Who is a drawee?

Question 46

Describe the difference between a bearer instrument and an order instrument.

Question 47

Delivery of a bill may be actual or constructive.

Question 48

Explain the difference between negotiable instruments and other contracts.

Question 49

Explain the difference between negotiable instruments and other contracts.

Question 50

Explain the purposes of endorsement.

Question 51

Liability of the drawee on a bill of exchange is dependent on the acceptance and delivery of the bill.

Question 52

Explain the concept of negotiability.

Question 53

Describe the difference between a bearer instrument and an order instrument.

Question 54

What is a bill of exchange?

Question 55

Liability of the drawer, acceptor, or maker on a bill of exchange is dependent on the signing and delivery of the bill.

Question 56

Negotiable instruments are different from other contracts. Explain this difference.

Question 57

What is a sight draft?

Question 58

Who is a holder in due course, and explain the requirements that must be met for a holder to be a holder in due course?

Question 59

Explain the difference between a bearer instrument and an order instrument.

Question 60

What is a time draft?