Deck 24: Liability for Negotiable Instruments: Banks and Their Customers

Question 1

If a judge or jury concludes that both the bank and the customer were negligent in discovering forgeries or alterations,the comparative negligence standard is used.The bank's liability is reduced by the amount of the customer's negligence.

Answer 1

True

Question 2

On Thursday,Great State Bank received five checks for payment from Steve's account.The total amount of the checks exceed Steve's balance.Great State Bank must pay the checks in the order that creates the fewest overdrafts.

Answer 2

False

Question 3

First National Bank wrongfully dishonored an authorized check written by Horton,Inc.First National Bank:

A)is liable for all actual and consequential damages.
B)is liable for treble damages.
C)is liable for incidental damages.
D)all of the above.

Answer 3

A

Question 4

Carl did not ask First Bank for an ATM card.Nevertheless,First Bank sent Carl an ATM card.The card must be invalid until Carl requests validation.

Question 5

Li deposited her federal tax refund check in an ATM on Monday.Li's bank must allow her to withdraw the funds by check on Wednesday,the second business day after the deposit.

Question 6

Luther writes a check to Grant on his account at Primary Bank on June 1.Three days later,Luther dies from a massive heart attack.Primary Bank is not notified of the death until June 7.On June 8,having heard nothing from Luther's relatives,Primary Bank pays the check when Grant presents the check for payment.Primary Bank is liable for the check and must recredit the account.

Question 7

TriColor instructed Great State Bank to wire $3,578,900 to Betovon,Inc.Great State Bank issued the payment order to Vetobon,Inc.,instead of Betovon.Great State Bank is liable to TriColor for the full amount.

Question 8

Article 4 of the UCC governs bank deposits and collections.

Question 9

Nathan received his February checking account statement and then his March statement,but failed to reconcile these statements with his bank records.The bank statements included a list of check numbers,amounts and dates of payment,but not the canceled checks.Unbeknownst to Nathan,Eddie had been stealing blank checks,forging Nathan's name,and passing the checks as payment for goods and services throughout the months of February and March.The bank was not careless in paying the checks.When Nathan got his April monthly bank statement,he examined the statements for all three months.It was then that he realized that his account balance showed $2000 less than what it should,and he began to investigate.Nathan sued the bank for total reimbursement for the forged checks.Nathan will:

A)lose because Nathan did not report the forgeries within 30 days of receiving his monthly bank statements.
B)win because the bank did not send Nathan the canceled checks.
C)win because the bank paid a check on which Nathan's name was forged.
D)win because this is a breach of contract by the bank.

Question 10

Aaron deposits money in a checking account at Second National Bank.The bank is now a debtor to and an agent for Aaron.

Question 11

Which of the following is true about federal protection of the privacy of information about you held by banks,insurance companies,stock brokers,and credit card companies?

A)The federal government offers no protection of the privacy of your information.
B)The Truth in Savings Act provides protection of your private information held by financial institutions or insurance companies.
C)The Gramm-Leach-Bliley Act requires financial institutions to disclose to consumers any non-public information they wish to reveal to third parties and to allow consumers to deny permission, or opt out.
D)A 1999 statute requires an opt-in standard, which means a financial institution cannot divulge private data unless the consumer affirmatively grants permission.

Question 12

Twenty days after receiving her bank statement,Gwen telephoned Great State Bank to notify it that there was an error.The bank must investigate and report the results of the investigation to Gwen within 10 business days.If the bank cannot complete the investigation within the 10 days,it must provisionally recredit Gwen's account and complete the investigation within 45 calendar days.

Question 13

Which of the following is true of a stop payment order?

A)It is valid for ten days if given by telephone.
B)It is valid for one year if given in writing.
C)A bank that accidentally pays a check in violation of a valid stop payment order inherits the rights of the customer against the payee and of the payee against the customer.
D)A holder or indorser may stop payment on a check.

Question 14

On December 18,Bob wrote his grandson a $25 check as a Christmas present.His grandson,Ernie,put the check in with some other presents and set them aside in his room.Ernie forgot about the check and finds it in July.He took it to the bank.The check is not considered to be "stale," as 12 months have not gone by.

Question 15

The case Broxton-King v.LaSalle Bank,N.A.was about violation of the Electronic Fund Transfer Act.

Question 16

If a bank pays a check despite a valid stop payment order,it inherits the rights of the customer against the payee.

Question 17

Zoe stole Buddy's ATM card.On September 4,Buddy discovered that his ATM card was missing.On September 5,Zoe withdrew $100 from Buddy's account.Buddy notified the bank on September 18 of the lost card.Buddy's loss is limited to $50.

Question 18

Check #1234 is received for collection by Big Bank at 11:3 a.m.on July 15.Under Article 4 of the UCC,Big Bank generally has until midnight of July 16 to process the check.

Question 19

When Kathy went to pick up her car at Al's Repair Shop,she questioned the mechanic's bill which claimed he did more work on the car than what she had authorized.The mechanic asserted that Kathy had authorized him to do whatever it took to completely fix the problem.Kathy wrote the check to Al's for $538 because she knew the shop would not release the car to her without getting paid for the work.When she left the garage,she drove immediately to her bank and put a stop payment order on the check.By accident,even with the stop payment order in place,the bank paid the check two days later when it was presented for payment.The bank must recredit Kathy's account but can recover from either Kathy or Al's,whichever party was wrong in the contract dispute over the car.

Question 20

Beth holds a check from Bob,whose account is with USA Bank.To receive payment,Beth must personally present the check to USA Bank.

Question 21

Bob stole a check from the back of his girlfriend's checkbook.Bob completed the check for $500 and signed his girlfriend's name.Great State Bank paid the check.Which statement is correct?

A)The bank must recredit the customer's account.
B)The customer bears the loss.
C)The bank and customer equally share the loss.
D)The Federal Reserve Bank bears the loss.

Question 22

Diane arranged for her bank to wire $40 on the first of each month to Brahma's Music Store.The money was to pay for the rental of a violin.Which statement is correct?

A)To stop payment of the transfer, Diane must give the bank one-month advance written notice.
B)To stop payment of the transfer, Diane must give oral or written notice up to three business days before the scheduled date.
C)To stop payment of the transfer, Diane must secure permission from Brahma and give the bank a 21-day written notice.
D)Diane cannot stop payment of the transfer.

Question 23

Under the Check 21 Act,a bank is required to:

A)create substitute checks, which are legally the same as the original checks.
B)accept electronic checks.
C)accept paper substitute checks.
D)all of the above.

Question 24

Issam and James planned to spend spring break in Mexico.James was to make the final plans.To pay for the trip,Issam gave James a signed check that left the name of the payor and amount blank.Using Issam's check,James made the check out to himself for $500.Issam's bank paid the check not knowing that the completion was improper.The bank:

A)is liable because the instrument was forged.
B)is liable because the instrument was unauthorized.
C)is liable for half of the loss.
D)is not liable.

Question 25

Elian wrote a $5000 check payable to his nephew Jose on January 1.Elian gave Jose the check on January 3.Elian died January 6.The drawee bank learned of Elian's death on January 7.There is no stop payment order on the check.Which statement is correct?

A)The bank can pay the check only until January 10.
B)The bank can pay the check only until January 16.
C)The bank can pay the check until January 17.
D)The bank cannot pay the check.The bank must freeze Elian's account.

Question 26

A payor bank is:

A)the same bank as the presenting bank.
B)a collecting bank that acts as an agent for the depositary bank.
C)the bank that will eventually honor or dishonor the check on the drawer's account.
D)interchangeable with the term "depositary bank."

Question 27

If a bank is presented with four different checks on the same day,at the same time,and the total sum of the four checks exceeds the amount of money on deposit,then the bank:

A)must honor all four checks thereby creating an overdraft situation which the bank can collect with the next deposit or by going directly to the customer.
B)must dishonor all four checks because if the bank honors one check, it must honor all four checks.
C)must honor the first check to be presented even if it was only seconds before the next three are presented.
D)has free rein in choosing which checks to pay and which checks to bounce, if the bank chooses not to create an overdraft.

Question 28

A nonconsumer wire transfer is a type of:

A)check.
B)payment order.
C)certified order.
D)All of the above.

Question 29

Shirlene has been declared incompetent by a court.Her bank:

A)may continue to pay her checks until it has received notice that a court has determined her to be incompetent.
B)must itself make a determination of her competence.
C)is not liable if it pays her checks since it has contractual obligations to pay her checks as long as she has an account and there are sufficient funds in the account to cover the checks.
D)is liable only for reasonable check amounts written by Shirlene.

Question 30

Without notifying his bank,Shabah wrote a postdated check to State University for his tuition.Which statement is correct?

A)Shabah's bank will be liable if it cashes the check before its date unless it gets permission from Shabah.
B)Shabah's bank will not be liable if it cashes the check before its date.
C)Shabah's bank cannot cash the check.
D)Shabah's bank can only make provisional credit available until the check's date.

Question 31

Brandon owes Sadie $50.Brandon naively signs a blank check and tells Sadie to fill in the amount of $50.Sadie takes this opportunity to steal money from Brandon and fills the check in for $1000.Sadie then takes the check to the payor bank,cashes it,and is never heard from again.Which of the following is correct?

A)If the bank pays the check, it is liable for $950.This is an altered check, so Brandon is liable for the original tender of $50.
B)If the bank pays the check, it is not liable at all since Brandon bears the risk of loss for giving the signed, incomplete check to Sadie.The bank may be liable if it was on notice that the completion was improper.
C)If the bank pays the check, it is liable for $1000.
D)Brandon and the bank will share the loss; 50/50.

Question 32

In the case Kruser v.Bank of America,the Court held that:

A)the bank was liable under the Electronic Fud Transfer Act.
B)the bank was liable under UCC Section 4-105.
C)the bank was not liable under the Electronic Fud Transfer Act.
D)the bank was liable under the Consumer Protection Act.

Question 33

In the Seigel v.Merrill Lynch,Pierce,Fenner & Smith,Inc.case,the court addressed the issue of:

A)the bank's liability in case of theft of an ATM card.
B)the bank's liability in case of payment of a check despite a valid stop payment order.
C)the customer's liability in case of a returned check of over $500.
D)the bank's liability concerning stale checks.

Question 34

Yvette received her bank statement on Monday.On the following Friday,she noticed an omitted transfer and called the bank informing it of the error.Which statement is correct?

A)If the bank finds the error within ten days, the bank must recredit the account, including interest, within one business day of the discovery.
B)If within 10 business days, the bank finds there was no error, the bank must give the customer a full explanation in writing within three business days of the finding.
C)If the bank cannot complete its investigation within 10 business days, it must provisionally credit the account pending the termination of the investigation, which must be completed in 45 calendar days.
D)All of the above.

Question 35

If a bank does not return canceled checks to its customers,the bank must keep legible copies on hand for:

A)30 days.
B)six months.
C)one year.
D)seven years.

Question 36

Lori writes a check to Arturo on Citizens Second Bank.Arturo deposits the check in his account at Commerce National Bank.In this case:

A)Citizens Second Bank is the depositary bank.
B)Commerce National Bank is the depositary bank.
C)Citizens Second Bank is an intermediary bank because it handles the check before it is paid.
D)Commerce National Bank is the payor bank if Arturo receives any cash back on the check.

Question 37

The Electronic Fund Transfer Act was passed to protect:

A)consumers.
B)financial institutions.
C)businesses.
D)all of the above.

Question 38

Angela deposited a $10,000 nonlocal check from her parents in an ATM machine.Angela needs to pay her tuition.Which statement is correct concerning how long Angela may have to wait to withdraw funds by check from her account?

A)$100 the next business day; $5,000 the fifth business day; the remaining balance the ninth business day.
B)The full amount the second business day.
C)$100 the next business day; $5000 the second business day; the remaining balance the ninth business day.
D)The full amount the next business day.

Question 39

An oral stop payment order is valid:

A)for 7 days.
B)for 14 days.
C)for 30 days.
D)until canceled in writing.

Question 40

A thief stole Gilligan's ATM card,learned his identification number,and withdrew $600 from the bank account without authority.Gilligan notified the bank within two days after the card was stolen.Gilligan's liability is:

A)limited to $50 because he reported the theft within two days of discovering the theft.
B)limited to $500 because he reported the theft within 60 days of the theft.
C)limited to $50 because he reported the theft within 60 days of the theft.
D)unlimited, he suffers the loss of $600.

Question 41

Russell recently moved and is considering opening a checking account at Mountain Ridge Bank.Under the UCC and/or the Truth in Savings Act,the bank is required to:

A)provide Russell with a monthly statement of his checking account transactions.
B)include Russell's canceled checks with his monthly statement.
C)keep legible copies of Russell's canceled checks on hand for ten years and provide copies to him within a reasonable time at his request if the bank does not return his canceled checks to him.
D)disclose, before Russell opens an account, the interest rate on the account, any requirements such as minimum account balance and initial deposit he must meet to earn that interest rate, and any fees or penalties imposed by the bank.

Question 42

On May 10,Klaus received his bank statement.Explain why Klaus should examine the bank statement within 30 days.

Question 43

Discuss a bank's liability for both stale checks and post-dated checks.

Question 44

Discuss the type of negotiable instrument created by the Check 21 Act and the reason for the statute.

Question 45

Krammer contracted to buy 15 boats from Elaine's Enterprises,Inc.To pay for the boats,Krammer issued a check payable to Elaine's Enterprises,Inc.The check was properly negotiated to Midtown Motors.Before the check is cashed,Krammer placed a stop payment order on the check.Krammer issued the order because the boats did not meet the contract specifications.The bank negligently paid the check over the valid stop payment order.Discuss the bank's liability.

Question 46

Discuss warranty liability of a bank that transfers or presents an electronic or substitute check.