Question 1

Who is a drawee?

Accepted Answer

A drawee is the part

Question 2

The Bills of Exchange Act governs which of the following kinds of instruments?

Accepted Answer

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

Question 3

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 had placed on it and returned the cheque to Big Bank.Which of the following statements is true?

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

Explain the consequences when a document is not negotiable by reason of a condition.

Accepted Answer

Although a document may not amount to a

Question 8

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

Accepted Answer

Holder in due course is the expression t

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Given that the majority of negotiable instruments are now being replaced by electronic transactions and,further,that there is a movement toward digital currency and transactions,will the old method of doing business using bills of exchange and negotiable instruments one day find itself outdated and will such legislation become obsolete?

Accepted Answer

The development of bills of exchange and

Question 11

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

Accepted Answer

The drawer of a draft undertakes that wh

Question 12

A remote party who fails to meet the standards of a holder in due course is subject to real defences only.

Accepted Answer

A) True 
 B)False

Question 13

Use the fact situation in Q5 to answer the related question that follows. When Albert advised the bank that the cheque was lost and put the stop payment on it,he then asked the bank to replace it with another certified cheque.The bank responded by telling Albert that it would only replace the cheque if Albert entered into an indemnity agreement with the bank indemnifying the bank in the event the cheque was found and presented for payment.In this case,

Accepted Answer

A) the bank can refuse to replace the lost certified cheque because it always has the right to refuse to honour any negotiable instrument. 
B) the bank can refuse to replace the lost certified cheque unless Albert agrees to give it the indemnity agreement. 
C) the bank cannot refuse to replace the lost certified cheque with another one because Albert is the original drawer. 
D) the bank cannot refuse to replace the lost certified cheque because the stop payment is effective to protect the bank if the original certified cheque is presented for payment. 
E) none of the above 
A) the bank can refuse to replace the lost certified cheque because it always has the right to refuse to honour any negotiable instrument. 
B) the bank can refuse to replace the lost certified cheque unless Albert agrees to give it the indemnity agreement. 
C) the bank cannot refuse to replace the lost certified cheque with another one because Albert is the original drawer. 
D) the bank cannot refuse to replace the lost certified cheque because the stop payment is effective to protect the bank if the original certified cheque is presented for payment. 
E) none of the above

Question 14

Sight drafts can be used as

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

Delivery of a bill may be actual or

Accepted Answer

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

Question 17

Albert,a supplier of goods,owes George $2000.00.Albert gives George a note for $2000.00 payable in 60 days.A couple of weeks later,George buys $800.00 worth of goods from Albert.If George has not paid Albert the $800.00 by the time the 60 days has expired and Albert claims payment of the $2000.00 note,

Accepted Answer

A) Albert need not honour the note until George has paid him the $800.00. 
B) Albert must honour the note and pay the $2000.00. 
C) Albert can deduct,or set-off,the $800.00 owed by George against the $2000.00 that he owes and pay George $1200.00. 
D) Albert need not honour the $2000.00 note until a reasonable time after the 60 days expires. 
E) none of the above 
A) Albert need not honour the note until George has paid him the $800.00. 
B) Albert must honour the note and pay the $2000.00. 
C) Albert can deduct,or set-off,the $800.00 owed by George against the $2000.00 that he owes and pay George $1200.00. 
D) Albert need not honour the $2000.00 note until a reasonable time after the 60 days expires. 
E) none of the above

Question 18

S,the accountant for a railway company,forged the signature of the company's signing officer on a company cheque.The cheque was payable on the company's account and made out to another company controlled by S.The agreement between the company and its bank had no provision requiring the company to verify the monthly statements sent it by the bank for any discrepancies.Eventually,the company discovered the forgery and demanded that the bank return the money to its account,but the bank refused.In a lawsuit by the company against the bank for recovery of its money,

Accepted Answer

A) the bank will succeed because it simply honoured the cheques,which were negotiable instruments. 
B) the bank will successfully defend the lawsuit because the cheques were forged by the company's accountant. 
C) the company will succeed because there was no agreement between the bank and the company requiring the company to verify its statements. 
D) the company will succeed but on a quantum meruit basis only. 
E) the bank will succeed because the company owed the bank a duty to maintain internal audit controls,which would have found the problem. 
A) the bank will succeed because it simply honoured the cheques,which were negotiable instruments. 
B) the bank will successfully defend the lawsuit because the cheques were forged by the company's accountant. 
C) the company will succeed because there was no agreement between the bank and the company requiring the company to verify its statements. 
D) the company will succeed but on a quantum meruit basis only. 
E) the bank will succeed because the company owed the bank a duty to maintain internal audit controls,which would have found the problem.

Question 19

Use the fact situation in Q2 to answer the related question that follows. If instead of Edward signing the back of the cheque in his name,before Edward gives the cheque to Albert,Edward signs the cheque over to Albert and then gives it to him,then Albert becomes

Accepted Answer

A) the endorsee and holder of the cheque. 
B) the assignor and endorsee of the cheque. 
C) the promissor and holder of the cheque. 
D) the payor and bearer of the cheque. 
E) all of the above 
A) the endorsee and holder of the cheque. 
B) the assignor and endorsee of the cheque. 
C) the promissor and holder of the cheque. 
D) the payor and bearer of the cheque. 
E) all of the above

Question 20

The bank on which a cheque is drawn is called

Accepted Answer

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

Exam 19: Negotiable Instruments

Who is a drawee?

The Bills of Exchange Act governs which of the following kinds of instruments?

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

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

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

Explain the consequences when a document is not negotiable by reason of a condition.

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

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

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

A remote party who fails to meet the standards of a holder in due course is subject to real defences only.

Sight drafts can be used as

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

Delivery of a bill may be actual or

Use the fact situation in Q2 to answer the related question that follows. If instead of Edward signing the back of the cheque in his name,before Edward gives the cheque to Albert,Edward signs the cheque over to Albert and then gives it to him,then Albert becomes

The bank on which a cheque is drawn is called

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Formation of a Contract: Offer and Acceptance

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