Question 1

A written stop-payment order is valid for six months, and the customer can extend it for an additional six months by giving the bank instructions in writing to continue the order.

Accepted Answer

A written stop-payment order is valid for six months, and it can be extended for another six months if the customer gives written instructions to the bank to continue the order.

Question 2

Which of the following is an actual damage that a bank would be liable for when a bank wrongfully dishonors a check?

Accepted Answer

When a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is under a duty to pay it. If the person has sufficient funds in the account and the bank refuses to pay, or dishonors, the check, the bank is liable for the actual damages proximately caused by its wrongful dishonor as well as consequential damages. Actual damages may include charges imposed by retailers for returned checks, as well as damages for arrest or prosecution to the customer.

Question 3

Even when a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is not under a legal duty to pay it.

Accepted Answer

A bank is under a legal duty to honor a properly drawn check on a person's account if there are sufficient funds in the account to cover the check, unless there is a valid reason not to do so (e.g., suspicion of fraud, legal orders preventing payment).

Question 4

A check on which a bank is both the drawer and the drawee is known as a certified check.

Accepted Answer

A check on which a bank is both the drawer and the drawee is known as a cashier's check, not a certified check. A certified check is a personal check guaranteed by the bank.

Question 5

When a bank receives a properly drawn and payable check and there are sufficient funds to cover the check, if the bank wrongfully dishonors the check, the bank _____.

Accepted Answer

When a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is under a duty to pay it. If the person has sufficient funds in the account and the bank refuses to pay, or dishonors, the check, the bank is liable for the actual damages proximately caused by its wrongful dishonor as well as consequential damages.

Question 6

Which of the following sources governs the relationship between the depositor and the drawee bank?

Accepted Answer

There are two sources that govern the relationship between the depositor and the drawee bank: the deposit agreement and Articles 3 and 4 of the Uniform Commercial Code (UCC).

Question 7

Which of the following best describes a stale check?

Accepted Answer

A bank does not owe a duty to its customer to pay any checks out of an account that are more than six months old. Such checks are called stale checks. However, the bank acting in good faith may pay a check that is more than six months old and charge it to the drawer-depositor's account.

Question 8

Under the Electronic Fund Transfer Act (EFTA), the operators of electronic fund transfer (EFT) systems are given a maximum of thirty (30) calendar days to investigate errors or provisionally recredit the customer's account.

Accepted Answer

Under the Electronic Fund Transfer Act (EFTA), financial institutions generally have up to 10 business days to investigate errors reported by consumers on EFTs and must provisionally recredit the consumer's account (if not resolved) within that time for the amount in question, except that this period may extend to 45 days for new accounts, foreign transactions, or point of sale transactions.

Question 9

When the depositor deposits a check to a checking account, the bank becomes his agent for collection of the check.

Accepted Answer

When a depositor deposits a check into their checking account, the bank becomes their agent for collecting the funds from the check. This means that the bank will process the check and credit the depositor's account for the amount of the check, less any applicable fees or holds. The depositor retains ownership of the check, but the bank acts as their representative to collect funds from the check issuer's bank.

Question 10

Normally, a drawee bank is not obligated to certify a check.

Accepted Answer

Certification of a check is at the discretion of the drawee bank and they are not obligated to do so.

Question 11

If an account is overdrawn, the customer owes the bank the amount of the overdraft, and the bank may take that amount out of the next deposit that the customer makes or from another account that the depositor maintains with the bank.

Accepted Answer

This is a standard practice for banks when an account is overdrawn. The customer is responsible for paying back the amount of the overdraft, and the bank may use the next deposit or another account to cover the balance.

Question 12

Revised Article 3 of the Uniform Commercial Code recognizes the modern bank practice of retaining checks, and permits the bank to supply only a statement showing the item number, amount, and date of payment.

Accepted Answer

Revised Article 3 of the Uniform Commercial Code does indeed recognize the modern bank practice of retaining checks and permits the bank to supply only a statement showing the item number, amount, and date of payment.

Question 13

Article 2 of the Uniform Commercial Code (UCC) governs bank deposits and collections.

Accepted Answer

Article 2 of the Uniform Commercial Code (UCC) governs the sale of goods, not bank deposits and collections. Bank deposits and collections are covered under Article 4 of the UCC.

Question 14

Any person authorized to draw a check may stop payment of it.

Accepted Answer

Any person authorized to draw a check may instruct the bank to stop payment on a check that has not yet been processed. However, once the check has been processed and cleared, it cannot be stopped.

Question 15

On August 1, 1990, Lisa wrote a check for $100 payable to the order of Marcia, her sister. Marcia misplaced the check and found it in May 1991, and attempted to cash it. Under these circumstances, the _____.

Accepted Answer

A bank does not owe a duty to its customer to pay any checks out of the account that are more than six months old. Such checks are called stale checks. However, the bank acting in good faith may pay a check that is more than six months old and charge it to the drawer-depositor's account. In this scenario, the bank may, in good faith, pay the check and charge it to Lisa's account.

Question 16

The customer may give an oral stop-payment order to the bank, but it is valid for only fourteen (14) days unless the customer confirms it in writing during that time.

Accepted Answer

The statement is true. An oral stop-payment order is valid for only fourteen days unless the customer confirms it in writing during that time.

Question 17

The bank's signature is not required to create a certified check.

Accepted Answer

A certified check is a type of check for which the issuing bank guarantees the availability of funds by verifying the account balance, then marking the check as certified, which includes adding the bank's signature or stamp.

Question 18

Check 21 is a federal law that is designed to enable banks to collect more checks electronically.

Accepted Answer

Check 21, also known as the Check Clearing for the 21st Century Act, is a federal law passed in 2003 to enable banks to process more checks electronically, which can reduce processing time and costs.

Question 19

A check that bears a forged signature of the drawer or payee is nevertheless properly payable from the customer's account.

Accepted Answer

A check with a forged signature is not properly payable because the bank is required to only pay checks that are authorized by the customer, and a forged signature does not constitute authorization.

Question 20

If a bank pays a check after it has received a stop-payment order and has to reimburse its customer for the improperly paid check, it acquires all the rights of its customer against the person to whom it originally made payment, except for rights arising from the transaction on which the check was based.

Accepted Answer

When a bank reimburses a customer for an improperly paid check, it generally acquires all the rights of its customer against the person to whom it originally made payment, including rights arising from the transaction on which the check was based.

Quiz 41: Checks and Electronic Fund Transfers