Deck 22: Checks and Banking in the Digital Age

Question 1

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

Answer 1

True

Question 2

A check is a special type of draft.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

A check is not a substitute for cash.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

The Uniform Commercial Code governs checks.

Question 11

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 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

An oral stop payment order is valid for fourteen days.

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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 26

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

Question 27

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 28

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 29

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 30

Stored-value cards are a form of digital cash.

Question 31

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 32

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 33

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 34

Banks can replace original with substitute checks.

Question 35

A forged indorsement does not transfer title.

Question 36

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

Question 37

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

Question 38

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

Question 39

Today, most checks are processed manually.

Question 40

A substitute check is a paper reproduction of the front and back of an original check.

Question 41

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 42

Fact Pattern 22-1
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 22-1. 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 43

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 44

Fact Pattern 22-1
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 22-1. Capital Bank pays the check. Capital

A) can sue Echo for a wrongful stop-payment order.
B) can sue Fix-It for breach of contract.
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 45

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

Question 46

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 47

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 48

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) the 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 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

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 51

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 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

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 54

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 55

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 56

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 57

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 58

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 59

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 60

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 61

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 62

Fact Pattern 22-2
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 22-2. Digital's bank is

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

Question 63

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 64

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 65

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.

Question 66

Fact Pattern 22-2
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 22-2. Tom's bank is

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

Question 67

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 68

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 69

Horace can write checks on his account at InterCity Bank. Jemma steals the checks, forges Horace's signature, and cashes the checks at InterCity. The bank is excused from any liability if, after receipt of the first forged check, Horace fails to report the forgeries within

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

Question 70

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 71

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 72

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.