Exam 30: Checks and Funds Transfers

When a drawee bank pays on a check that lacks an essential endorsement:

A check is a particular kind of draft.

A debit transaction occurs when a person making a payment requests such payment be made to the beneficiary's bank.

Most states provide that if a dishonored check is not made good within a stated period of time, it will be presumed that the check was originally issued with the intent to defraud.

The standard form of a check is automatically payable on demand.

The "preclusion rule" prevents or precludes the customer from forging a signature and then making a claim against the bank.

A notice of dishonor may be oral, written or electronic.

A tender occurs when the holder of a check or other consumer transaction authorization demands payment.

The Railway Express Agency delivered a shipment of goods to Lorraine. Payment for the goods was made with a certified check, payable to the order of the Railway Express Agency. The check was drawn by Lorraine on the First National Bank of Detroit. Later, the bank refused to pay the check when it was presented by Railway Express, the holder, because the bank had become insolvent and stopped doing business. The Railway Express Agency sued Lorraine. Lorraine claimed that she was not liable on the check because it was certified. Is she correct?

A thief stole Art's checkbook and forged Art's name as drawer of a check. The drawee paid the check in good faith and sent it to Art with the monthly statement on January 3, 2013. The thief forged other checks during February and March of 2013, which the drawee in good faith paid. All paid checks were sent to Art with monthly statements. On May 25, 2014, Art discovered all of the forgeries and notified the drawee. For which check(s) is Art entitled to be reimbursed?

A bank will not be liable for payment of a check on which the drawer's signature has been forged if:

A consumer who notifies the issuer of an EFT card within two (2) days after learning of a loss or theft of the card can be held to a maximum liability of $500 for unauthorized use of the card; failure to notify within this time will increase the consumer's liability for losses to a maximum of $5,000.

Ordinarily, the drawee bank is liable to the drawer when it pays a check on which the drawer's signature has been forged.