Deck 34: Checks and Electronic Transfers

Question 1

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.

Answer 1

B

Question 2

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.

Answer 2

A

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

Question 4

The Electronic Funds Transfer Act governs "check conversion" transactions.

Question 5

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

Question 6

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

Question 7

The Federal Reserve operates a domestic wire transfer system known as Fedwire.

Question 8

Checks that are more than six months old are called:

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

Question 9

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

Question 10

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.

Question 11

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 12

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 the creditor at the time of opening a checking account.
C) The drawer becomes the insured and the drawee bank the insurer at the time of opening a checking account.
D) The drawer becomes the creditor and the drawee bank the debtor at the time of opening an account.

Question 13

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 14

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 at 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 15

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

Question 16

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 17

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

Question 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

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 a 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 26

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 27

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 a 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 28

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 29

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 30

_____ 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 31

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 of this situation?

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 32

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 33

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 34

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 35

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 36

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 37

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 38

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 39

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 40

A stop-payment order is authorized by the:

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

Question 41

Which of the following is most true regarding checks whose amount has been altered?

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

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

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

Question 43

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

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

Question 44

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 45

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 46

Laura gets a statement and a pile of paid checks from her bank on June 1. Within the pile of checks, is one check with a forged drawer's signature. Laura does not notify the bank about the forged check until the next month, July 1. Does this delay remove the bank's obligation to recredit Laura's account?

Question 47

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 48

On June 1, Dave Drawer writes a check to Pete Payee. The check is postdated to July 1. Nonetheless, Pete presents the check for payment at Dave's bank on June 15, and receives payment on that date. After Dave learns of this, he screams bloody murder, arguing that the check was not properly payable and that the bank should recredit his account. Is Dave right? Assume that the check is otherwise properly payable, and that Dave never told the bank about it before Pete presented it.

Question 49

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 50

_____ 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

Question 51

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 which 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 52

Mike buys a new $25,000 turbocharged Dodge Vampire for cash. The dealer requires a certified check for that amount, so Mike gets his bank to certify his check for $25,000. One day later, the bank goes bankrupt. Rather than trying to recover in bankruptcy, the dealer pursues Mike. One of the dealer's theories is that Mike is secondarily liable on the check, and that the bank's default makes Mike liable on the instrument. Is the bank right?

Question 53

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 contributes 50 percent to the loss and the bank's negligence contributes 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 54

Due to Susan Sharp's many fraudulent misstatements, Nelly Nice buys Susan's car. Nelly writes Susan a check for $5,000 in payment. Susan immediately negotiates the check to Patty Proper, who qualifies as a holder in due course. In the meantime, Nelly discovers that the car is junk and makes a timely and proper stop-payment order to her bank. However, when Patty presents the check for payment, the bank pays it anyway. Is the bank required to recredit Nelly's account?

Question 55

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 56

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 57

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 58

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 59

Adams wrote a check to Jimmy for $5,000. After three days, he met with an accident and died. Now Jimmy wants to collect money from the bank and so he deposited the check. However, the bank is refusing to pay. Is he entitled to get his money?

Question 60

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

A) It allows banks to handle 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.