Deck 31: Checks and Funds Transfers

Question 1

If a check has not been certified, a holder has no claim against the bank for the dishonor of a check.

Answer 1

True

Question 2

A bank is required to pay a check presented more than six months after its date.

Answer 2

False

Question 3

To be effective, checks must be executed on forms that are printed expressly for that purpose and issued by a bank or other financial institution.

Answer 3

False

Question 4

The standard form of check does not specify when it is payable, and it is therefore automatically payable on demand.

Question 5

Although a drawer has stopped payment on a check, the drawer still may be held liable on the check unless the drawer has a defense that will defeat the holder in a lawsuit.

Question 6

A written stop payment order is effective for one year.

Question 7

If a bank improperly refuses to make payment of checks for which its customer has sufficient funds on deposit, it is liable to the drawer for damages sustained by the drawer in consequence of such dishonor.

Question 8

A bank's liability to the drawer of a check for wrongfully dishonoring a check is based largely on contract law.

Question 9

In the case of either a check or a draft, the drawer may be held civilly liable if the instrument is dishonored.

Question 10

A check is drawn on the assumption that the bank has sufficient funds in the drawer's account for payment.

Question 11

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

Question 12

A check may be certified by a bank on request of the drawer or the holder.

Question 13

When a bank certifies a check, the amount involved in the certification will be retained in the depositor's account until payment of the certified check.

Question 14

The drawee of a check is always a bank.

Question 15

The act of stopping payment on a check imposes no liability on the depositor.

Question 16

Checks that involve amounts of more than $1,000 generally trigger the bank reporting requirements under the USA Patriot Act.

Question 17

A buyer may stop payment on a certified check issued to a seller if the goods are defective when received.

Question 18

A check is a particular kind of draft.

Question 19

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.

Question 20

The delivery of a check is regarded as an assignment of money on deposit, and the drawee bank is required to pay the holder the amount of the check.

Question 21

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.

Question 22

If oral, a stop payment order is binding on the bank for __________ days unless confirmed in writing within that time.

A) five (5)
B) seven (7)
C) fourteen (14)
D) thirty (30)

Question 23

A bank's customer whose signature has been forged may be barred from holding the bank liable if the customer's negligence substantially contributed to the making of the forgery.

Question 24

The duties of a drawee bank include all of the following except to:

A) maintain security concerning information relating to the depositor-bank relationship.
B) pay on demand all checks to the extent of the bank's assets.
C) exercise reasonable care in the payment of checks.
D) generally refuse to pay any checks after the drawer has died.

Question 25

Payment over a stop payment order gives rise to liability:

A) when the drawee has had written notice of the stop payment within one year.
B) when the drawee has been notified any time before the check is presented for payment.
C) when the drawee has been notified orally within fourteen days and the drawer suffers a loss by payment of the check.
D) when the drawee has been notified in writing within six months, regardless of whether the drawer suffered a loss.

Question 26

A written stop payment order or confirmation is effective for:

A) fourteen (14) days.
B) thirty (30) days.
C) six (6) months.
D) one (1) year.

Question 27

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

Question 28

Which of the following statements is correct concerning a stale check?

A) A check is stale when dated more than six (6) months before presentation to the bank, but the bank may in good faith pay the check.
B) A check is stale when dated more than one (1) year before presentation to the bank.
C) A check is stale when dated more than six (6) months before presentation to the bank, and the bank is legally prohibited from paying the check.
D) Certified checks are stale after three (3) months.

Question 29

Certification of a check at the request of a holder:

A) releases all prior secondary parties.
B) releases the drawer but not prior indorsers.
C) releases prior indorsers, but not the drawer.
D) does not release all prior secondary parties.

Question 30

The Electronic Fund Transfers Act (EFTA) does not cover transactions originated by commercial paper.

Question 31

An "encryption" warranty is a warranty made by any party who encodes electronic information on an instrument.

Question 32

A certified check was presented for payment to the drawee bank, and the drawee bank dishonored the check. Which of the following parties is/are potentially liable to the holder?

A) the drawee only
B) the drawer only
C) the drawer and the drawee
D) the maker

Question 33

Where a depositor receives a bank statement and the checks the bank has paid, the failure to notify the bank within a reasonable time of forgeries of the depositor's signature may preclude recovery for other forged checks thereafter paid by the bank.

Question 34

Morris issued a check to Al in payment of a debt. There were sufficient funds in Morris' account to cover the check when it was presented for payment. However, due to an error, the bank dishonored the check. Which of the following parties is/are potentially liable to the holder?

A) the drawee bank only
B) Morris and the drawee bank
C) Morris only
D) the drawee bank and any collecting bank

Question 35

A forged endorsement must be reported to the bank within one year of the time that the bank statement is received.

Question 36

A bank must be given a reasonable amount of time to put a stop payment order into effect.

Question 37

A bank always is liable to the depositor on a forged check that the bank has paid.

Question 38

A depositor's unauthorized signature must be reported to the bank within three years of the time that the bank statement is received.

Question 39

Which of the following statements describes a check?

A) The drawer is always a bank.
B) The maker is always a bank.
C) A check is generally payable on demand.
D) A check is a particular kind of note.

Question 40

A depositor issued a check and, after mailing the check, suffered a heart attack and died. In the regular course of business, the bank paid the check when presented for payment, despite the fact that the bank had received notice fourteen (14) days earlier of the depositor's death. In terms of the bank's payment of the check

A) the bank is liable if the check was a gift to charity.
B) the bank is potentially liable to the depositor's estate.
C) the bank is not liable unless the depositor's executor posted an indemnity bond.
D) the bank's authority to act for the depositor ended on the depositor's death, regardless of whether the bank had been notified of the depositor's death.

Question 41

A forged indorsement must be reported within:

A) thirty (30) days.
B) six (6) months.
C) one (1) year.
D) three (3) years.

Question 42

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?

Question 43

Miriam issued two checks. The first check was made payable to her neighbor for a used car that the neighbor sold to Miriam. The second check was a rent payment to Miriam's landlord for the current month's rent.
The car was purchased on the basis of the neighbor's written assurance that the car had only 38,000 miles of use. After Miriam took possession of the car, Miriam's mechanic checked the vehicle and substantiated that the odometer had been turned back. The car had actually been used for 79,000 miles. Miriam stopped payment on the check and offered to return the car. Meanwhile, the neighbor had purchased a computer and had negotiated Miriam's check to the vendor in payment. Discouraged by the problems with the car, Miriam decided to take a vacation. She issued a written stop payment to her bank on the rent check because she intended to use this money for the vacation. Although the drawee bank had ample time to act, it made an error and paid the rent check instead of stopping payment. Two lawsuits resulted. In the first, the vendor of the computer sued Miriam on the check. In the second, Miriam sued her bank for paying over her timely stop payment order. Decide both cases.

Question 44

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

A) the bank could not have detected the forgery through a reasonable investigation.
B) there are more than two prior indorsers of the check.
C) the bank gives a cashier's check in payment of the depositor's check.
D) the drawer's negligence contributed substantially to the forging of the signature.

Question 45

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

A) the drawer is liable.
B) the payee is liable.
C) the drawee bank is liable.
D) no one is liable.

Question 46

A consumer who notifies the issuer of an EFT card within two (2) days after learning of a loss or theft of the card is limited to a maximum liability of:

A) $500.
B) $50.
C) There is no liability limitation in this situation.
D) There is no liability in this situation.

Question 47

Funds transfers made by businesses are governed by __________ regulations.

A) UCC
B) Federal Reserve
C) UCC and Federal Reserve
D) neither UCC nor Federal Reserve

Question 48

Sondra realized on Tuesday that she had dropped her bank EFT card after using it at an automatic teller machine. She telephoned the bank on the following Monday to notify it of the loss. By that time, someone had used the card to withdraw $800 from Sondra's account. The bank said it would cover $300 of that amount. Sondra sued for the full amount, claiming that she had exercised reasonable care in reporting the loss, especially because the card was lost on bank premises. Will she be able to recover the full $800?

Question 49

Consumers have the responsibility to examine periodic statements provided by their financial institutions; accordingly, if a loss would not have occurred but for the failure of a consumer to report within __________ of the transmittal of the statement any unauthorized transfer, the loss is borne by the consumer.

A) fourteen (14) days
B) thirty (30) days
C) sixty (60) days
D) six (6) months

Question 50

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, 2008. The thief forged other checks during February and March of 2008, which the drawee in good faith paid. All paid checks were sent to Art with monthly statements. On May 25, 2009, Art discovered all of the forgeries and notified the drawee. For which check(s) is Art entitled to be reimbursed?

A) none of them
B) all of them
C) the first check only
D) the last check only

Question 51

The EFTA is concerned with the:

A) elimination of foreign terrorists
B) eradication of foreign tribunals
C) electronic transfers of funds
D) eleemosynary, or charitable, transfers of funds

Question 52

If a bank pays a check whose face has been altered to increase the amount above that which the drawer intended to pay, the bank:

A) is liable to the drawer for the amount of the increase.
B) has defenses against the drawer's claims.
C) incurs liability only if it failed to examine the check before payment.
D) incurs liability only if the drawer made the alteration.

Question 53

Customers are precluded from asserting unauthorized signatures or alterations if they do not report them within __________ from the time the bank statement is received.

A) fourteen (14) days
B) thirty (30) days
C) six (6) months
D) one (1) year