Deck 34: Checks and Electronic Transfers

Question 1

A deceased person's heirs have no power to order a bank to stop payment on checks written by the deceased prior to his death.

Answer 1

False
Explanation: The deceased person's heirs or other persons claiming an interest in the account can order the bank to stop payment.

Question 2

A stop-payment order must be made so a bank is given a reasonable opportunity to act on the order.

Answer 2

True
Explanation: To be effective,a payor bank must receive the stop-payment order in time to give the bank a reasonable opportunity to act on the order.

Question 3

A drawer can claim alteration as a reason for not charging a particular check to his account,even if the drawer has contributed to the alteration in some way.

Answer 3

False
Explanation: If the drawer is negligent and contributes to the forgery or alteration,he may be barred from claiming it as the reason that a particular check should not be charged to his account.

Question 4

Lakeland Bank certifies a check that subsequently is cashed by Pine Federal Credit Union.Pine Federal Credit Union is not liable for any damages associated with the check.

Question 5

If a customer does not discover a forged check and report it to the bank within one year from the time of the statement containing the check,the bank is not obligated to recredit his account for the amount of the forged check.

Question 6

A drawer whose bank paid checks over a stop-payment order may not be entitled to have his account recredited if he is unable to show he suffered any loss.

Question 7

A bank will be liable if it charges a customer for a check that is postdated and the bank was given prior notice of the postdate.

Question 8

The main difference between a certified check and a cashier's check is that the bank is primarily liable on a certified check,but only secondarily liable on a cashier's check.

Question 9

An oral stop-payment order normally is good for 14 days.

Question 10

The relationship between a depositor and a bank is governed by the deposit agreement and Articles 3 and 4 of the UCC.

Question 11

A teller's check is a check on which a bank is both the drawer and the drawee.

Question 12

Ben,a Big Bank checking account customer,wrote a check for $1,000 to Mia.At the time that Mia presents the check for payment to Big Bank,Ben has $1,500 in his account.However,the clerk mistakenly refuses to pay the check and stamps it NSF.Mia then goes to the local prosecutor,and Ben is later arrested for writing a bad check.Ben could recover from Big Bank the damages involved in his arrest,such as attorney's fees.

Question 13

When both the bank and the customer failed to use ordinary care to prevent alteration or forgery of checks then a comparative negligence is used to determine liability for damages.

Question 14

Boston Bank receives one of their payable checks made to the order of the Same Sex Alliance organization of Massachusetts for $1,000.The check comes from a valid account and there are funds in that account to cover the check.The CEO of Boston Bank does not agree with the mission of the Same Sex Alliance and refuses to honor the check.Boston Bank is within its power as a bank to do this.

Question 15

A bank is not authorized to pay a postdated check before the date on the check and charge the amount to the customer's account,unless the customer has given notice to the bank.

Question 16

Wire transfer is used for transfer of funds across the country or around the world.This service is generally used by large business and financial institutions.

Question 17

"Check 21" is the popular name for a federal law that enables banks to process checks electronically.

Question 18

Banks are not required to disclose their funds availability policy to all of their customers.

Question 19

A bank may,but need not,pay any checks that are more than six months old.

Question 20

Unlike many other federal consumer protection measures,the Electronic Fund Transfer Act does not require disclosure of important terms to the consumer.

Question 21

A drawer's written stop-payment order is valid for:

A)six months,unless the drawer extends it in writing.
B)only 14 days,and can be extended if the drawer sends a written order.
C)one year,unless it is renewed in writing.
D)a check of $500 and above.

Question 22

Which of the following is most true about stop-payment orders?

A)Their validity is only for 14 days.
B)Their validity is only for six months.
C)They must give the bank 14 days to act on the order.
D)They can be oral or written.

Question 23

A stop-payment order is authorized by the:

A)bearer.
B)creditor.
C)drawer.
D)drawee.

Question 24

A bank's right or duty to charge a depositor's account for a check can be terminated when a:

A)stop-payment order from the depositor after the bank has certified a check.
B)depositor files a bankruptcy petition.
C)notice of garnishment of the account by the depositor.
D)creditor of the depositor files a bankruptcy petition after the notified cut-off hour on the banking day after the check is received.

Question 25

Sal brings a stale check to his bank on June 1,2003.The check is dated September 1,2002.The bank:

A)owes a duty to honor the check.
B)must honor the check if it is otherwise properly payable.
C)can honor the check while acting in good faith.
D)cannot honor the check,since it is more than six months old.

Question 26

Which of the following defeats a bank's liability for failing to observe a stop-payment order?

A)That the order was oral rather than written.
B)That the bank was not given 14 days to obey the order.
C)That the bank paid a person against whom the customer did not have a defense.
D)That the bank has the customer sign a disclaimer holding the bank harmless for its failure to exercise ordinary care and good faith regarding its handling of stop-payment orders.

Question 27

Which of the following is true for a stop-payment order to be effective?

A)The order can come up to an hour after the check has been honored.
B)The bank must receive the order in a way that gives the bank a reasonable opportunity to act.
C)The bank can receive the order after it has certified the check.
D)The order must be in a written format for the bank to be able to recognize it as the check corresponding to the stop-payment order.

Question 28

In the case in the text,Forcht Bank v.Gribbins,what did the court hold?

A)Gribbins was careless in having a relationship with Akers and therefore,the court applied a comparative fault analysis.
B)Gribbins did not safeguard her checks and therefore,could not claim forgery.
C)The bank failed its duty to exercise ordinary care because it knew the checks were forged.
D)The bank failed its duty to exercise ordinary care when it honored eight forged checks.

Question 29

Shawn purchases a computer from Adelaide Electronics,and writes them a check of $1,000.However,after Shawn brought the computer home,it abruptly stopped working due to a virus attack.Shawn calls his bank ordering it to stop payment on the check.Adelaide Electronics gave the check to Jack Enterprises,their creditor.Shawn's bank honored the check when Jack presented it.Which of the following is true in this case?

A)The bank is liable to recredit Shawn's account,since the bank did not follow Shawn's instructions.
B)Shawn will be able to show that he sustained losses since the bank honored the check to Jack.
C)The bank is not liable to recredit Shawn's account,since Shawn did not send the stop-payment order well in advance.
D)Shawn cannot have his account recredited because he will not be able to show that he sustained any loss.

Question 30

While receiving a properly drawn and payable check on a person's account,which of the following circumstances make it a necessity for the bank to honor the check?

A)When the check is stale.
B)When there are sufficient funds in the account.
C)When there is a stop payment order.
D)When a postdated check is presented before the date of the check.

Question 31

Jim gave a postdated check dated December 30 to one of his creditors on December 22.However,the check was presented to Jim's bank on December 24,and the bank honored it.As a result,there was not enough money in his account to cover for another check he had written for December 27,and hence,the check bounced.The bank charged Jim a $20 fee for the bounced check.What is the bank's liability regarding this bounced check?

A)The bank has no liability.
B)The bank must compensate Jim for any losses that result from this bounced check.
C)The bank is liable,but only for the $20 bank charge related to the bounced check.
D)The bank is liable,but only for the immediate,direct damages that result from the bounced check.

Question 32

Abyss handed over a $500 check to Howard Brothers for building him a terrace garden.The next day,Abyss notices that one part of the garden has not been finished.He calls his bank to order it to stop payment on the check.When Howard Brothers presents the check next week,the bank honors it.Which of the following is true in this case?

A)Since Abyss did not give the bank enough time to process a stop-payment order,the bank is not liable for this loss.
B)The bank is liable to recredit Abyss's account,since Abyss has suffered a loss by the bank's payment.
C)Abyss will not be able to show that he sustained any losses,hence cannot have his account recredited.
D)The bank is not liable for honoring any checks in good faith that are signed by the drawer-depositor.

Question 33

Hailey wrote a check for Marsha,her landlady,on July 7 and dated it for August 1.Hailey notified her bank to not honor the check before August 1.However,the bank honored the check when Marsha presented it on July 29.Due to insufficient funds,the bank turned down the check and charged $50 to Hailey's account.Marsha terminated Hailey's rental contract for writing her a bad check.Which of the following is true?

A)The bank is not liable for any damages to Hailey since it has the right to honor a postdated check if presented earlier.
B)Hailey can file a lawsuit against Marsha for presenting a postdated check earlier than instructed and causing her loss.
C)Hailey is liable to pay damages to Marsha,in addition to the rent,and a $50 fine to the bank for lack of funds.
D)The bank is liable to pay Hailey damages for honoring the check before the date mentioned in the notice.

Question 34

Checks that are more than six months old are called:

A)postdated checks.
B)altered checks.
C)stale checks.
D)antedated checks.

Question 35

When there are insufficient funds in a drawer's account,and a check is presented to be honored,the bank can:

A)honor the check,and charge the customer on the next deposit.
B)return the check,and charge a penalty.
C)hold the check and payment,even if the holder suffers a loss against the drawer.
D)charge a fee to the holder in due course and to the drawer.

Question 36

________ is a financial management tool offered by banks and by third-party,Internet-based companies.

A)Account management
B)Check management
C)Account aggregation
D)Check scraping

Question 37

In case of honoring checks,a bank:

A)is liable to the customer for damages the customer suffers,if a bank fails to honor a check because of a mistake on its part.
B)has a liability to the holder of the check,whether the check is certified or notified.
C)is not under a duty to honor all checks drawn by its customers in presence of sufficient funds in the customers' accounts.
D)cannot charge the customer's account if it creates an overdraft.

Question 38

Under the recent amendments to Article 4,postdated checks:

A)are now invalid and create no obligation to pay on the drawee bank's part.
B)are not properly payable by the drawee bank until the date on the check.
C)may be paid by the drawee bank before the date on the check unless the customer has given notice to the contrary.
D)may be paid by the drawee bank unless the customer gives notice of the postdating in a way that at least partially describes the check.

Question 39

Which of the following is true of the drawer-drawee relationship?

A)The drawer becomes the creditor when the drawee bank pays more than the drawer has on deposit.
B)The drawer becomes a debtor and the drawee bank becomes the creditor at the time of opening a checking account.
C)The drawer becomes the insured and the drawee bank becomes the insurer at the time of opening a checking account.
D)The drawer becomes the creditor and the drawee bank becomes the debtor at the time of opening an account.

Question 40

A ________ cannot disclaim the bank's responsibility for its own lack of good faith or failure to exercise ordinary care.

A)statute
B)deposit agreement
C)creditor
D)drawer

Question 41

Which of the following is most true regarding checks with altered amounts?

A)The bank may not pay such checks as altered in all cases.
B)The bank may pay such checks as altered where the alteration is due to the customer's negligence and the alteration is not obvious.
C)The bank must pay such checks as originally drawn.
D)The bank cannot ever pay such checks.

Question 42

Under the Expedited Funds Availability Act,customers can draw upon checks deposited in their checking account within:

A)the second business day following deposit,if the drawee bank is in the same Federal Reserve check-processing region as the depositary bank.
B)one week following deposit,if the drawee bank is in a different Federal Reserve check-processing region than the depositary bank.
C)three days after the deposit,in the case of checks drawn on the U.S.Treasury.
D)five days of deposit in the case of cashier's checks.

Question 43

Which of the following do a certified check and a cashier's check have in common?

A)The bank is primarily liable on each.
B)The bank is secondarily liable on each.
C)Both are drawn by the bank on itself.
D)Technically,the bank is not liable to a holder of either kind of check.

Question 44

In case a check is altered so skillfully that a bank is unable to detect the alteration,which of the following stands true?

A)The bank should honor only those checks for which it receives a notice from the drawer.
B)The bank is allowed to charge to the account the amount for which the check originally was written.
C)The bank will be liable to recredit the drawer's account for negligence.
D)The bank will hold the drawer responsible for contributing to the alteration of the check.

Question 45

A check on which one bank is both the drawer and the drawee is called a:

A)certified check.
B)cashier's check.
C)teller's check.
D)uncertified check.

Question 46

Jane wrote a check for $10.She wrote this check in a careless and negligent manner,making alteration easy.Ben altered this check to read $1,000.His alteration was crude and obvious to anyone paying attention.Ben cashed the check at Jane's bank.The bank was negligent in accepting this check,but it deducted $1,000 from Jane's account.Jane sued the bank,and the jury determined that Jane's negligence contributed to 50 percent of the loss and the bank's negligence contributed 50 percent.How much is Jane entitled to recover from her bank?

A)Nothing,because she was negligent.
B)Half the loss.
C)The entire loss.
D)The entire loss plus her court costs.

Question 47

Which of the following is an EXCEPTION to the mandatory availability schedules of the Expedited Funds Availability Act?

A)Cashier's checks
B)Teller's checks
C)Electronic payments
D)New accounts

Question 48

What section of the UCC mandates that a bank's signature must appear on a certified check?

A)1-103
B)3-409
C)3-223
D)6-105

Question 49

Certified checks must be made available by:

A)the next day after the day of deposit.
B)within four days.
C)on the same day.
D)any business day.

Question 50

Which of the following statements is true concerning multiple forgeries and alterations?

A)A customer cannot hold the bank responsible for paying,in good faith,any altered checks after he/she receives the statement of account.
B)A bank will be held liable for honoring altered checks that were presented to the bank multiple times.
C)A customer bears the responsibility for any forgeries and subsequent forgeries that take place,even if he/she has notified the bank.
D)A bank will be held liable even if it proves that it suffered a loss due to the customer's failure to examine his/her statement and notify the bank.

Question 51

Which of the following is true of check collection?

A)Checks and other drafts collected through the banking system usually have two parties-the drawer and the drawee bank.
B)If the payee deposits the check at a bank other than the drawee bank,the latter will take a series of steps necessary to reflect the deposit as a credit to the payee's account.
C)If the payee deposits the check at the same bank as the drawee bank,the depositary bank will make the ledger entry showing the deposit as a credit to the payee's account.
D)If the drawee and depositary banks are in the same town or county,the depositary bank will indorse the check and deliver it to the drawee bank for payment.

Question 52

Mendel had his car repaired by Harry's Garage (HG).He paid by check drawn on ABZ Bank when he collected his car.On the drive home,Mendel realized that the repair had not been made.He immediately called ABZ on his cell phone and told the bank to stop payment on the check.Three days later,HG negotiated the check to Amy,a holder in due course.When Amy went to cash the check,ABZ Bank refused to honor it.What is Mendel's liability on this check?

A)Mendel is not liable to anyone because he stopped the check in time.
B)Mendel is liable to Amy because the stop payment order was made through a phone call.
C)Mendel is not liable to Amy because she took the check from HG.
D)Mendel is liable to Amy because he is the drawer of the check.

Question 53

Prof.Bob DeSlob writes a check on his Big Bank checking account for $1 payable to "Department of Business Law Coffee Club" to pay for his weekly membership and gives it to his colleague Carol.Bob does not place a decimal point after the "1" nor does he complete the line ending in "dollars." Carol,knowing that Bob can well afford it,prints in block letters the words "One Hundred" on the line ending in "dollars." Carol then gives the check to Dot,the department secretary,who is in charge of the Coffee Club.Dot presents the check to Big Bank for payment,and Big Bank charges $100 from Bob's account.Which of the following statements is most accurate?

A)Bob's account must be recredited $99.
B)Bob's account must be recredited $100.
C)Bob contributed to the alteration and may be barred from claiming forgery.
D)Bob had a duty to place a stop-payment order on the check.

Question 54

Checks and other drafts collected through the banking system usually have all of the following parties EXCEPT:

A)bank.
B)payee.
C)drawer.
D)employee.

Question 55

In which of the following cases will a drawer and any persons who previously indorsed the check be discharged of their liability on the check?

A)By certification of a check.
B)By drawing a cashier's check.
C)By drawing a teller's check.
D)By death or incompetence after signing a check.

Question 56

Edith purchases what is represented to be a new DVD player from Big Al's Electronic Emporium,by giving Al a check for $200 drawn on Big Bank.Edith then discovers that the DVD player is a used model and calls Big Bank to place a stop-payment order on the check.Big Al negotiates the check to John who qualifies as a holder in due course.John presents the check to Big Bank the next day,and Big Bank pays the check.Which of the following statements is most accurate?

A)For recourse,Edith would have to pursue Big Al on her misrepresentation claim.
B)Edith may use her personal defense of misrepresentation to have her account recredited by Big Bank.
C)Edith may pursue both Big Bank and John for the amount taken from her account.
D)If Big Bank had refused to pay the check,John would have had no recourse against Edith.

Question 57

Tom wrote a check to Mary for $10.Tom was careful and not negligent in the way he wrote the check.Nevertheless,Mary cleverly altered the check to read $1,000.Tom's bank cashed this check and deducted that amount from his account.Which of the following is correct?

A)Tom is liable on this check,but only for $10.
B)Tom is liable on this check for $1,000.
C)Tom is liable on this check for nothing.
D)Tom must reimburse the bank for any losses it suffers related to this check.

Question 58

The time period within which a customer must report unauthorized customer signatures to the bank to get his account recredited is:

A)fourteen days.
B)six months.
C)one year.
D)three years.

Question 59

Which of the following is true in case of death or incompetence of a customer?

A)A bank cannot pay checks of a deceased customer until it has notice of the customer's death.
B)If a bank knows of a customer's death,it can pay checks written by the customer prior to his/her death,for a period of 30 days.
C)The deceased person's heirs or other persons claiming an interest in the account can order the bank to stop payment.
D)A bank can declare checks signed by the customer while he/she was alive,as null and void.

Question 60

A check on which one bank is the drawer and another bank is a drawee is a:

A)cashier's check.
B)antedated check.
C)certified check.
D)teller's check.

Question 61

Banks often take the position that a stop-payment order must:

A)be in writing.
B)explain why the check is to be stopped.
C)give notice at least 3 business days before the check is presented.
D)be correct to the penny because they rely on computers.

Question 62

________ is when a bank observes the reasonable commercial standards prevailing among other banks in the area in which it does business.

A)Good faith
B)Ordinary care
C)Reasonable care
D)Due care

Question 63

A bank is within its rights to ask a customer to sign a form to:

A)disclaim its responsibility to act in good faith.
B)limit its liability for a stop-payment order or damages if it fails to obey the order.
C)disclaim its duty to exercise ordinary care in paying a check over a stop-payment order.
D)limit its liability for negligence.

Question 64

Which of the following is true of the Check 21 Act?

A)It allows banks to handle a limited number of checks electronically.
B)It has made it mandatory for banks to return the canceled checks to the customers.
C)It authorizes banks to transform information they receive in electronic form back into a paper copy of the check.
D)It requires that banks keep the customers' original checks for a specified period of time.

Question 65

If a bank pays a check after it received a stop-payment order and had to reimburse its customer for the improperly paid check,what recourse does a bank have?

A)The bank can collect from its insurance company.
B)The bank has no recourse and,as a result,suffers a loss.
C)The bank can force its customer to sue the person to whom it paid.
D)The bank can sue the person to whom it originally made payment.

Question 66

A ________ is a request made by a customer of a drawee bank instructing it not to pay or certify a specific check.

A)cut-off request
B)canceled check
C)stop-payment order
D)void check

Question 67

In the case in the text,Anderson v.Branch Banking and Trust Company,why did the court find in favor of the bank?

A)The plaintiffs failed to timely respond to the bank's motion to dismiss.
B)The plaintiffs waived any liability the bank would have had.
C)The plaintiffs failed to comply with the notice requirement under the contract.
D)The plaintiffs could not show that the bank failed to use ordinary care.

Question 68

When a court determines a person is incompetent,the bank has the right to pay the checks of the incompetent person until:

A)it is notified in writing.
B)it is notified of the court's determination.
C)it is notified by the guardian.
D)there are no longer sufficient funds in the account.

Question 69

Under the Electronic Funds Transfer Act how many days do operators of EFT systems have to investigate errors or provisionally recredit a consumer's account?

A)10 working days
B)60 days
C)14 working days
D)90 days

Question 70

In Aliaga Medical Center v.Harris Bank,the case in the text,why was the bank within its rights to pay the check after 90 days,despite the words "void after 90 days" written on the check?

A)The bank did not have a duty to confirm the check with Aliaga.
B)Aliaga failed to stop payment of the check under the terms of the parties' agreement.
C)Aliaga failed to renew his stop-payment order after six months passed.
D)The bank notified Aliaga that it was going to honor the check despite the specific language.

Question 71

________ truncation refers to when the drawee bank keeps the original checks,in contrast to ________ truncation,where the payee keeps the original check.

A)Process;radical
B)Check;process
C)Check;radical
D)Radical;check

Question 72

In the case in the text Cincinnati Insurance Company v.Wachovia Bank National Association,what was the court's holding?

A)The bank was not liable because it limited its liability in the contract.
B)The bank was not liable because it acted in good faith.
C)The bank was liable because it did not provide any precautions to prevent fraud.
D)The bank was liable because it could not waive its liability in the contract.

Question 73

In the ________ Congress set out mandatory schedules limiting check holds and specifying when funds are to be made available to customers by depositary institutions.

A)Expedited Funds Availability Act
B)Electronic Fund Transfer Act
C)Electronic Banking Act
D)Federal Reserve Act

Question 74

A drawer's written stop-payment order is valid for six months and the drawer can extent it for an additional ________ by giving the bank instructions in writing to continue the order.

A)six months
B)30 days
C)90 days
D)month

Question 75

Under Article 4,which of the following refers to the drawee-payor bank's deadline on a check?

A)Midnight deadline
B)Clearing house
C)Banking day
D)Afternoon deadline

Question 76

How often must a bank send a statement listing the transactions in an account?

A)Annually
B)Every 60 days
C)Every four months
D)Quarterly

Question 77

Banks must retain the legible copy of check for a period of:

A)seven months.
B)thirty days.
C)seven years.
D)thirty weeks.

Question 78

Banks typically put a ________ on the depositor's ability to access some or all of the funds represented by the instrument until it ________ through the system.

A)halt;clears
B)hold;passes
C)hold;clears
D)halt;passes

Question 79

In the case in the text,Valley Bank of Ronan v.Hughes,the court held that:

A)the bank was liable because it was negligent.
B)the bank failed to exercise ordinary care when it assured Hughes that the check was as good as cash.
C)failure of any bank to exercise ordinary care affects its charge back rights.
D)the bank's actions with regard to check processing was irrelevant when determining whether it exercised ordinary care when exercising its charge back rights.

Question 80

________ is a process which begins with the buyer giving the seller a check,and the seller using the information on that check to name itself as the payee and forwarding it for collection through an automated clearing house.

A)Source documentation
B)Check conversion
C)Account aggregation
D)Check truncation