Deck 18: Checks and Banking in the Digital Age

Question 1

The rights and duties of a bank and its customer are contractual.

Answer 1

True

Question 2

When a customer deposits cash into a checking account,he or she becomes a debtor for the amount deposited.

Answer 2

False

Question 3

A check is not a substitute for cash.

Answer 3

False

Question 4

The Uniform Commercial Code governs checks.

Question 5

A customer has a right to stop payment on a check that has been certified or accepted by a bank.

Question 6

A bank is not obligated to pay an uncertified check presented less than six months from its date.

Question 7

A check is a special type of draft.

Question 8

An oral stop payment order is valid for fourteen days.

Question 9

A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature.

Question 10

A bank that pays a customer's check with a forged drawer's signature can generally pass the loss onto the customer.

Question 11

A bank may contractually shift to the customer the risk of forged checks created by the use of facsimile or other nonmanual signatures.

Question 12

A bank has no right to charge a customer's account for the amount of a stale check.

Question 13

A customer who writes a bad check may be subject to criminal prosecution.

Question 14

A certified check is a check that has been signed by a notary public.

Question 15

The incompetence of a customer revokes a bank's authority to pay an item.

Question 16

A bank is not responsible for determining whether a signature on a customer's check is genuine.

Question 17

A written stop payment order is valid for only thirty days.

Question 18

If a customer does not have sufficient funds to pay a check available in his or her checking account and the bank dishonors the check,the bank is liable to the customer.

Question 19

A bank may not pay any checks on a customer's account after the date of the customer's death.

Question 20

Commercial banking practices consider a check that has been outstanding for three months to be a stale check.

Question 21

A bank that encodes information on an item after its issue warrants to any subsequent bank that the information is correct.

Question 22

Each bank in a collection chain must pass a check on before noon of the day of its receipt.

Question 23

Ian buys a cell phone in Jiffy Mart,using the means that accounts for more retail payments than any other.This means of payment is

A)a commercial check.
B)a debit card.
C)a personal check.
D)a cash.

Question 24

The first bank to receive a check for payment is the depositary bank.

Question 25

Today,most checks are processed manually.

Question 26

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Question 27

Stored-value cards are a form of digital cash.

Question 28

Gaining unauthorized access to an electronic fund transfer system is a felony.

Question 29

A customer has sixty days from the date of receipt of a statement of an electronic transfer to notify the financial institution of any er-rors.

Question 30

A customer must examine a bank statement and report any discovered forged signa-ture to recover from the bank for the forgery.

Question 31

If a customer's debit card is lost or stolen,the customer will not be liable for any unauthorized use of the card.

Question 32

Under the Check Clearing in the 21st Century Act,a bank has to credit a customer's account as soon as the bank receives the funds.

Question 33

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment.This instrument is the most common type of negotiable instrument,which is

A)a commercial wire transfer.
B)a check.
C)a note.
D)a substitute check.

Question 34

A forged indorsement does not transfer title.

Question 35

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in Town Bank to pay her tuition.Rikki is

A)the certifier.
B)the drawee.
C)the drawer.
D)the payee.

Question 36

A bank cannot recover from a party who cashes a check bearing a forged drawer's signature once the bank has accepted and paid the item.

Question 37

A point-of-sale system is a type of electronic fund transfer system.

Question 38

A check can be retained at its place of deposit and only its image can be presented for payment under an electronic presentment agreement.

Question 39

Albert buys a surround sound system from his neighbor George at George's garage sale.Albert writes George a check for $250 for the sound system.George is

A)the certifier.
B)the drawee.
C)the drawer.
D)the payee.

Question 40

Kris presents an instrument that states "pay to the order of Kris" to Metro Bank for payment.This is a special type of draft drawn on a bank,ordering the bank to pay a fixed amount of money on demand.This is

A)a commercial wire transfer.
B)a check.
C)a debit card transaction receipt.
D)a cash transaction

Question 41

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.If there are insufficient funds in Jen's account to cover the amount of the check,but the bank pays it,this creates

A)a cashier's check.
B)an overdraft.
C)a stale check.
D)a stop-payment order.

Question 42

Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller.Later,Shakira discovers a defect in the device and orders Thrifty to stop payment on the check.Shakira does not renew the order,and the bank clears the check eight months later.The bank

A)must recredit Shakira's account.
B)must obtain funds from Ranch & Farm to cover the check.
C)must substitute acceptable goods.
D)need not recredit Shakira's account.

Question 43

Jon writes a check to LocoMotion,Inc.,as payment for a golf cart but soon discov-ers the cart is broken.He goes to Fairway Bank,the drawee,and orally author-izes Lolly,a bank officer,to stop payment on the check.This order is valid for

A)fourteen days.
B)fourteen months.
C)fourteen attempts to cash it.
D)fourteen subsequent "on-us" items.

Question 44

Fact Pattern 18-1 (Questions 54 and 55 apply)
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
Refer to Fact Pattern 18-1.Capital Bank

A)is liable to Fix-It for the amount of the check.
B)must stop payment if Capital has a reasonable time to act.
C)need not stop payment unless Echo had a valid reason to act.
D)need not follow Echo's order unless the check was certified.

Question 45

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing.Which of the following parties is responsible for paying the check?

A)Only Ellen
B)Both Ellen and State Bank
C)Only State Bank
D)None of the parties

Question 46

Julia opens a checking account with Washington Bank and deposits funds into the account.Julia and Washington Bank

A)do not have a contractual relationship.
B)have a creditor-debtor relationship in which Julia is the creditor and Washington Bank is the debtor.
C)have a creditor-debtor relationship in which Washington Bank is the creditor and Julia bank is the debtor.
D)do not have a creditor-debtor relationship.

Question 47

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1.Mary dies on May 3.Bill presents the check to County Bank on May 5.County Bank

A)may not pay the check.
B)may pay the check.
C)must consult with Mary's heirs before paying the check.
D)must read Mary's will before paying the check.

Question 48

Luc writes a check for $1,000 drawn on Ridgetop Bank and presents it to Bianca.Bianca presents the check for payment to Ridgetop Bank,which dis-hon-ors it for insufficient funds.The party most likely liable to Bianca is

A)Luc in a civil suit.
B)Luc in a criminal prosecution.
C)Ridgetop Bank in an administrative proceeding.
D)neither Luc nor Ridgetop Bank.

Question 49

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks.The bookstore deposits the check in its account in Eagle Bank.Like most checks,this check is

A)a one-party instrument.
B)a nonnegotiable instrument.
C)a special type of draft.
D)not a substitute for cash.

Question 50

Fact Pattern 18-1 (Questions 54 and 55 apply)
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
Refer to Fact Pattern 18-1.Capital Bank pays the check.Capital

A)can sue Echo for a wrongful stop-payment order.
B)can sue Echo for a wrongful stop-payment order.
C)can sue no one because it paid a check that was not properly payable.
D)is liable for Echo's loss due to the wrongful payment.

Question 51

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on

A)Simon.
B)Trudy.
C)United Bank.
D)First Federal Bank.

Question 52

Little Local Bank wrongfully fails to honor a check signed by its customer Andrea.Little Local Bank is

A)not liable to Andrea for damages resulting from its refusal to pay.
B)only liable to Andrea for damages resulting from its refusal to pay if Andrea takes action against the bank within one business day of the failure to honor the check.
C)only liable to Andrea for one half of the damages resulting from its refusal to pay.
D)liable to Andrea for damages resulting from its refusal to pay.

Question 53

Daria writes a check for $100 drawn on Village Bank and presents it to Fast Cash,Inc.,for payment.If the check is not backed by sufficient funds,Daria may be prosecuted for

A)forgery.
B)fraud.
C)negligence.
D)nothing.

Question 54

Jacob writes Phillip an uncertified check for $500 on January 1.Seven months later,Phillip presents the check at the bank.The bank pays the check in good faith without consulting Jacob.The bank

A)does not have the right to charge Jacob's account for $500.
B)only has the right to charge Jacob's account for $250.
C)has the right to charge Jacob's account for $500.
D)can be held liable for breach of contract.

Question 55

Martha has a checking account with Homeplace Bank.Martha signs a check "payable to Phillipa" drawn on Martha's account.Homeplace Bank is

A)the payer.
B)the drawee.
C)the drawer.
D)the payee.

Question 56

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is

A)a cashier's check.
B)an overdraft.
C)a stale check.
D)a stop-payment order.

Question 57

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is

A)effective if an innocent third party accepts the check.
B)effective to the degree that it matches Caleb's genuine signature.
C)effective to the extent that Downtown Bank debits Caleb's account.
D)not effective.

Question 58

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check

A)the Federal Reserve will reimburse all parties for their costs.
B)he loss will be apportioned among all of Verity's customers.
C)Uma will be liable for the amount.
D)Verity will have to recredit Uma's account.

Question 59

Elton presents an uncertified check for payment more than six months after its date.The check was drawn by Dakota on her account in First Community Bank.The usual banking practice in such a case is to

A)cash the check.
B)cash the check.
C)refuse to cash the check.
D)ask the payee what he or she would prefer.

Question 60

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is

A)a cashier's check.
B)an overdraft.
C)a certified check.
D)a stale check.

Question 61

When processing a check,Superior Bank encodes information,such as the amount of the check,on the item.Superior thereby warrants to any subsequent bank or payor

A)the item has been returned to the drawer.
B)nothing.
C)the check has been processed manually.
D)the encoded information is correct.

Question 62

Jackie inserts a debit card issued by her bank into a machine and keys in her personal identification number.She is then able to withdraw $500 in cash.Jackie is using

A)an automated teller machine.
B)a point-of-sale system.
C)a direct deposit system.
D)an Internet payment system.

Question 63

Fact Pattern 18-2 (Questions 65-66 apply)
Tom draws a check,on his account in State Bank in New York,payable to Digital Media,Inc.,in San Francisco.Digital deposits the check in its ac-count at First National Bank.
Refer to Fact Pattern 18-2. Digital's bank is

A)the cashing bank.
B)the depositary bank.
C)the intermediary bank.
D)the payor bank.

Question 64

Roald writes a check for $700 to Savannah.Savannah indorses the check in blank and transfers it to Twitchell,who alters the check to read $7,000 and presents it to Union Bank,the drawee,for payment.The bank cashes it.Roald discovers the alter-ation and files a suit against the bank.Roald can recover

A)$7,000.
B)$6,300.
C)$700.
D)0.

Question 65

Joy steals a check from Kyle,forges his signature,and transfers the check to Loco Loans,Inc.,for value.Unaware that the signature is not Kyle's,Loco Loans presents the check to Metro Bank,the drawee,which cashes the check.Kyle discovers the forgery and insists that Metro recredit his account.Can Metro refuse? If not,from whom can the bank recover?

Question 66

Valley Bank retains the cancelled checks of its customers.Valley must be able to provide customers with legible copies of checks paid for

A)one year.
B)five years.
C)seven years.
D)nine years.

Question 67

On Monday,Michelle deposits in her account at Fiscal Bank a local check for $500.After 5:00 p.m.on Friday,from these funds,Michelle can withdraw no more than

A)$100.
B)$400.
C)$500.
D)$600.

Question 68

Hoppy steals two checks from Eagle Retail Stores,Inc.-a blank check and a check payable to the order of General Supplies Company (GSC),drawn on Eagle's account with First National Bank.Hoppy forges Eagle's signa-ture on the blank check and makes it payable to himself.Hoppy forges GSC's indorsement on the back of the check payable to GSC,and adds "Pay to the order of Hoppy." At Friendly Credit,Inc.,Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash.Friendly does not know about the theft or the forged signatures and presents the checks to First National,which pays them.Eagle,which was not negli-gent,discovers the forgeries and asks First National to recredit its ac-count.Who suffers the loss on each check?

Question 69

Finance Bank receives a check drawn on the account of Get-Rich Industries,Inc.,one of the bank's customers,at 3 p.m.Friday.Hildy,the pre-senter of the check,is not one of the bank's customers.The bank uses de-ferred posting with a 2 p.m.cutoff hour.If it decides to dis-honor the check,it must do so by midnight

A)Saturday.
B)Sunday.
C)Monday.
D)Tuesday.

Question 70

Fact Pattern 18-2 (Questions 65-66 apply)
Tom draws a check,on his account in State Bank in New York,payable to Digital Media,Inc.,in San Francisco.Digital deposits the check in its ac-count at First National Bank.
Refer to Fact Pattern 18-2.Tom's bank is

A)the cashing bank.
B)the depositary bank.
C)the intermediary bank.
D)the payor bank.

Question 71

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in Bayside Bank.Greta forges Eppie's indorsement.Bayside pays the check.Most likely

A)Dru will be liable for the amount.
B)Eppie will have to pay Dru for the amount.
C)Bayside will have to recredit Dru's account.
D)the Federal Reserve will reimburse all parties for their costs.

Question 72

Clyde issues a check payable to Discount Mart.Elle,Discount's cashier,forges the store's indorsement and deposits the check in her bank ac-count.Clyde's bank,Main Street Bank,pays the check.Clyde can recover from

A)Elle,but not Main Street Bank.
B)Main Street Bank,which cannot recover from Elle.
C)Main Street Bank,which can recover from Elle.
D)no one.