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LAW 603 MIDTERM 2.docx

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Law and Business
LAW 529

Chapter 14Special Contracts Negotiable InstrumentsWhen you pay for something with a cheque you are dealing with a negotiable instrumentNegotiable Instrumentconsists of a contract that contains an obligation to pay moneyIt is easier to prove existence of a negotiable instrument than existence of a sales contractNemo dat quod non habetno one can give what they do not have deals with cash transactionsLike all contracts a cheque is enforceable only if it is supported by considerationsomething of value must be given in exchange for itConsideration normally cannot consist of a promise to perform an obligation that is already owed to same partyrule does not apply to a chequeNormally a contract can be enforced only by someone with privitynevertheless anyone who holds a cheque can sue on itContractual obligations can beto a stranger a person who receives a contractual right assignedthough an assignment takes it subject to the equitiesassignee cannot be in better position than assignor can use any defence that assignor can useNegotiable instruments cheque bill of exchange and promissory note travel free of the equitiesNegotiable instruments can improve depending on circumstances as it passes from 1 person to nextConsequently it carries major risk that is associated with every contract nonperformanceBills of Exchange Act presumes that consideration was given by every person whose signature appears on a negotiable instrumentA cheque may be valuable even if person who wrote it is penniless it may be possible to collect money from anyone who endorsed cheque5 requirements must always be met before Bills of Exchange Act can apply on pg 324Signedwritten parties identified certain sum of money time of paymentunconditional obligationA document that does not meet these requirements may still be a valid contract but it does not fall under Bills of Exchange ActChequecreated when a person orders a bank to pay a specific amount of money to someoneDrawerperson who drawscreates cheque draweebank that is ordered to pay moneyPayeeperson who is entitled to receive money from bankAlthough a bank may not honour a cheque that is presented more than 6 months after its date payee usually has 26 years to sue drawer as statutes of limitation say that contracts including cheques become unenforceable only after that time5 possible complications of cheques1 Postdated cheques dated in futurecauses problems if payee seeks payment too soon2 Staledated cheques payee does not seek payment within a reasonable timebanks normally do not honour cheques that are presented more than 6 months after date appeared on it payee would then have to sue drawer for money on either cheque or sales contract3 Overdrawn chequeswhen drawers account does not hold enough money to satisfy it completelybank would almost certainly refuse to honour chequethen payee would sue drawee for nonpayment or bank could treat drawers overdrawn cheque as his request for a loanthen seek repayment from drawer this is under the chequing agreement bw bank and drawer4 CountermandStop Payment Orderoccurs when a customer orders a bank to refuse payment on a chequeability to countermand is limited by 2 factors 1 a bank will not normally accept a countermand unless drawer gives order in personunless cheque in question is fully described 2 many bank contracts include a term that allow banks to debit a customers account if a countermanded cheque is honoured by mistake otherwise bank may have to sue payee if it wants to recover a payment that it made by mistake bank would sue for restitution under action in unjust enrichmentbank could not sue in contract bc there is no contract with payeebank5 Certification fee chargedtreated as something equivalent to paymentoccurs when a drawee bank promises to honour a cheque normally does so by stamping word certifieddate on front of chequecan be certified by payee or holder once bank certifies drawers cheque it also owes an obligation to payeeby certifying cheque bank assured payee that it would not later dishonour that instrument on ground that drawers account was overdrawn certification also ensures that drawers cheque cannot be countermandedbank has to pay payee even if drawer objects after certificationBank can deal with a customers money only if it has that persons authorizationA cheque is automatically countermanded if bank is notified that drawer has died before payee receives paymentIf drawer knew when cheque was written that hisher account did not contain sufficient funds heshe could be charged with crime of false pretencesMaubach v Bank of Nova Scotia 1987exceptionally a bank may allow a certified cheque to be countermanded if drawer is willing to provide indemnification by promising to provide compensation to bank if it is sued by payeeBill of Exchangecreated when 1 person orders another person to pay a specific amount of money to rda 3 person acceptanceoccurs when drawee example bank promises to pay a bill
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