Question 1

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.

Accepted Answer

This check is a special type of draft because it orders Delta Bank (the drawer's bank) to pay a specific amount of money to City College Bookstore (the payee), and it can be deposited into the payee's account in Eagle Bank. It is not a one-party instrument because it involves two parties (the drawer and the payee), it is not nonnegotiable because it can be endorsed and transferred to another party, and it is a substitute for cash because it represents a specific amount of funds in the drawer's account.

Question 2

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.

Accepted Answer

The bank has the right to charge Jacob's account for $500 because they paid the check in good faith and without consulting Jacob. As the check was not certified, Jacob had the right to stop payment on it before it was presented for payment. However, since he did not do so, the bank is not liable and can charge Jacob's account for the full amount of the check.

Question 3

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.

Accepted Answer

Daria may be prosecuted for fraud if the check is not backed by sufficient funds, as it would be considered intentionally deceiving Fast Cash, Inc.

Question 4

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

Accepted Answer

State Bank is responsible for paying the check since Ellen paid them to draw the check on themselves. Ellen has already paid State Bank for this service and is not responsible for paying the check again.

Question 5

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.

Accepted Answer

The usual banking practice for a check presented more than six months after its date is to consult the customer (the drawer) before cashing it, as it is considered a "stale" check.

Question 6

Fact Pattern 19-1 
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 19-1. 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.

Accepted Answer

Capital Bank must stop payment if Echo issues a stop-payment order and the bank has a reasonable time to act on it.

Question 7

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 dishonors 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.

Accepted Answer

Luc is the one who wrote the check with insufficient funds, hence he is the one liable for payment in a civil suit. Ridgetop Bank may face administrative penalties, but they are not liable to Bianca in this situation as they simply dishonored the check.

Question 8

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.

Accepted Answer

When there are insufficient funds in the account to cover the amount of the check, but the bank still pays it, this creates an overdraft. The bank covers the amount of the check and charges the account holder a fee for the overdraft. A cashier's check is a check that is guaranteed by the bank because the funds are already taken from the account when the check is issued. A stale check is a check that is no longer valid because it is too old. A stop-payment order is when the account holder requests the bank to not honor a certain check.

Question 9

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.

Accepted Answer

The answer of Mary writes a check drawn on County...

Question 10

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.

Accepted Answer

This transaction is a cashier's check, which is a check guaranteed by the issuing bank and paid out of its own funds. Elmo paid a service fee to obtain this type of check, which is commonly used when a payee wants assurance that the funds are available and the check will not bounce.

Question 11

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.

Accepted Answer

The answer of Simon signs a check "pay to the...

Question 12

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.

Accepted Answer

Little Local Bank is liable to Andrea for damages resulting from its refusal to pay the check. As a bank, they have a legal obligation to honor the checks of their customers, and failing to do so can result in liability for damages. There is no requirement for Andrea to take action against the bank within one business day or for the damages to be split in half.

Question 13

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.

Accepted Answer

Forgery is illegal and not valid. Therefore, Brandy's forged signature on the check is not effective.

Question 14

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.

Accepted Answer

The answer of Julia opens a checking account with Washington...

Question 15

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.

Accepted Answer

Verity Bank will have to recredit Uma's account because the bank is responsible for verifying the authenticity of signatures on checks it processes. If a signature is forged, the bank is liable for the loss.

Question 16

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.

Accepted Answer

The answer of Martha has a checking account with Homeplace...

Question 17

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.

Accepted Answer

Once a check has been cleared, the bank is no longer responsible for stopping payment or recrediting the account. Shakira's failure to renew the stop payment order is also her responsibility, and the bank is not obligated to take any further action. Therefore, the bank does not need to recredit Shakira's account.

Question 18

Fact Pattern 19-1 
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 19-1. 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.

Accepted Answer

Capital Bank is liable for Echo's loss because it paid the check despite the stop-payment order, which means the check was not properly payable.

Question 19

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.

Accepted Answer

A check becomes stale after six months from the date it was written. In this scenario, the check was dated on May 1 and was presented for payment on December 15, which is more than six months later, making it a stale check.

Question 20

Jon writes a check to LocoMotion, Inc., as payment for a golf cart but soon discovers the cart is broken. He goes to Fairway Bank, the drawee, and orally authorizes 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.

Accepted Answer

According to the Uniform Commercial Code, the valid duration for a stop payment order is usually six months, but in this case, since the order was given orally, the bank may only honor the order for 14 days. After that, Jon would need to provide a written stop payment order if he still wishes to stop payment on the check.

Quiz 19: Checks and Banking in the Digital Age

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

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

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

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?

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

Fact Pattern 19-1 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 19-1. Capital Bank

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 dishonors it for insufficient funds. The party most likely liable to Bianca is

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

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

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

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

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

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

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

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

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

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

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

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