Ch.28 Law of Negotiable Instruments

Question 1

Negotiable instrument

Answer 1

instrument in writing that, when transferred in good faith and for value without notice of defects, passes a good title to the instrument to the transferee

Play a significant role in commercial transactions

Written promises or order to pay sums of money to the holders of the instruments
- Cheques
- Promissory Notes
- Bills of Exchange

Question 2

The Bills of Exchange Act

Answer 2

Sets out laws relating to bills of exchange, cheques, and promissory notes

It is a federal law

Question 3

The Bills of Exchange Act Advantages over money:

Answer 3

Reduces risk of having to transport money

Can be used to create credit

Negotiability:
- Transferee may have greater rights than transferor
- Legislative change for consumer transactions

Question 4

Bill of exchange is a document in writing

Answer 4

May be partly printed, handwritten, typewritten

Unconditional order:
- “Pay to the order of”
- Addressed by one party to another
- Signed by party giving it and requires party to whom
- it is addressed to pay
- Sum certain
- Fixed or detrimental future time
- Specific party

Question 5

Liability of the Parties to a Bill of Exchange

Answer 5

Acceptance of a bill of exchange by drawee

Means drawee is liable to pay

At time and place fixed for payment

If bill is dishonoured by non-payment, holder can:
- Sue drawer, acceptor, and endorsers
- Must give notice of dishonour
- Time limits after which one is liable once notice is given

Question 6

Cheque is a form of bill of exchange

Answer 6

Payable on demand

Drawee is always a bank

Bank is special type of drawee because not liable to a holder in the same way that an ordinary drawee is

Must honour check when presented in proper form and sufficient funds of the drawer can cover the check

Question 7

Certification

Answer 7

understanding by a bank to pay the amount of a cheque on presentation

Funds have already been withdrawn

Not under Bills of Exchange Act but developed by usage

Question 8

Two forms of certification:

Answer 8

Request of drawer
Request of payee / holder

Question 9

Certification Common Law

Answer 9

certification obliges bank to pay holder of certified cheque

Question 10

Defences to Claims for Payment of Bills of Exchange

Answer 10

General
-Types of defenses vary depending on relationship of the parties
-Effectiveness depends on type of defenses

Question 11

Types of Parties

Answer 11

1. Immediate parties
2. Holder
3. Holder in due course

Question 12

Type of Defenses

Answer 12

1. Real
2. Defect of Title
3. Personal

Question 13

Real Defences

Answer 13

Real defences go to roof of instrument

Most effective

Effective against all holders, including holder in due course

Types of real defences:
- Forgery
- Incapacity of a minor
- Lack of delivery of an incomplete instrument
- Material alteration of the
- Instrument
- Fraud as to the nature of the instrument
- Cancellation of the instrument

Question 14

Defect of Title Defences

Answer 14

Other defences may be good against holder (except holder in due course)
- Related to the title of the person

Question 15

Title may be defective if it is obtained by:

Answer 15

Fraud

Duress

Undue influence

Breach of trust

Illegal

Lack of consideration

Question 16

Personal Defences

Answer 16

Good only against immediate parties not against remote parties

Question 17

Types of personal defence:

Answer 17

Set off - entitles party to raise as a defence indebtedness of party claiming payment

Absence of consideration - drawer raises against party who obtains negotiable instrument

Release or payment before maturity