Q&A Hero

Q: 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.

Q: 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.

Q: 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.

Q: A stop-payment order is authorized by the: A. bearer. B. creditor. C. drawer. D. drawee.

Q: 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.

Q: Checks that are more than six months old are called: A. postdated checks. B. altered checks. C. stale checks. D. antedated checks.

Q: 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.

Q: 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.

Q: _____ 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

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: "Check 21" is the popular name for a federal law that enables banks to process checks electronically.

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

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

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

Q: 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.

Q: 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.

Q: When both the bank and the customer failed to use ordinary care to prevent alteration or forgery of checks then a comparative negligence is used to determine liability for damages.

Q: 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.

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

Q: 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.

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

Q: 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.

Q: Lakeland Bank certifies a check that subsequently is cashed by Pine Federal Credit Union. Pine Federal Credit Union is not liable for any damages associated with the check.

Q: A stop order must be made so a bank is given a reasonable opportunity to act on the order.

Q: 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.

Q: Boston Bank receives one of their payable checks made to the order of the Same Sex Alliance organization of Massachusetts for $1000. The check comes from a valid account and there are funds in that account to cover the check. The CEO of Boston Bank does not agree with the mission of the Same Sex Alliance so Boston Bank refuses to honor the check. Boston Bank is within its power as a bank to do this.

Q: 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.

Q: A bank will be liable if it charges a customer for a check that is postdated and the bank was given prior notice of the postdate.

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

Q: 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.

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

Q: The relationship between a depositor and a bank are governed by a deposit agreement and Articles 3 & 4 of the UCC.

Q: 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.

Q: 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?

Q: 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?

Q: 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?

Q: 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?

Q: 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.

Q: Under the Electronic Funds Transfer Act how many days do operators of EFT systems have to investigate errors or provisionally recredit a consumer's account? A. 10 working days B. 60 days C. 14 working days D. 90 days

Q: Banks can retain the legible copy of check for a period of: A. seven months. B. thirty days. C. seven years. D. thirty weeks.

Q: 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.

Q: _____ 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

Q: A transfers a negotiable note to B, who in turn transfers it to C. Under what conditions has A made a transfer warranty to C?

Q: Penny draws a check for $25.00 on her Big Bank checking account payable to the order of Carol. Carol puts a "5" in front of the 2, raising the check to $525.00, and indorses it. She then negotiates the check to Mel. Mel then presents the check for payment to Big Bank, which pays her $525 and charges Penny's account that amount. Penny asks Big Bank to recredit her account for $500.00, and Big Bank does so. What recourse does the Bank have and against whom?

Q: Jones, a purchasing manager at the XYZ Corporation, has authority to make and sign checks drawn on the corporation's account. Jones completes a fake check to the Smith Supply Company for $100,000, signs it for XYZ, indorses it in Smith's name, and sells it to Hirsch, who takes it in good faith. Has the check been negotiated to Hirsch? Assume that the check is a negotiable instrument.

Q: 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

Q: 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.

Q: Brian signs a promissory note for $500 payable to Harwich. Harwich indorses the note "Pay to order of Stephen, Harwich" and negotiates it to Stephen. Stephen fraudulently changes the $500 to $5,000. Under these circumstances, Brian is discharged from his liability as maker of note because: A. Brian has not forged the signature. B. the instrument is not negotiable. C. the amount for which he was liable was altered. D. Stephen is insolvent.

Q: Joan carefully completes and signs a $1,000 note payable to Pete. Pete skillfully changes the amount of the note to $10,000, and negotiates it to Hilda for that amount. Hilda qualifies as a holder in due course. When Hilda presents the altered note to Joan for payment, Joan refuses to pay a penny more than $1,000. Which of the following is true? A. Joan is not liable to Hilda. B. Joan is liable to Hilda for $1,000. C. Joan is liable to Hilda for $10,000. D. Joan's liability to Hilda will be determined by the relative negligence of Joan and Hilda.

Q: What section of the UCC addresses enforcement of a negotiable interest that has been altered? A. 1-201 B. 3-407 C. 3-670 D. 6-224

Q: How can an indorser avoid secondary liability on the instrument? Can an indorser disclaim transfer warranty liability?

Q: Which of the following statements holds true for conversion? A. Conversion occurs if an instrument has the indorsement necessary for negotiation. B. Conversion occurs if an instrument is purchased or paid by a drawee to a person entitled to payment. C. An action for conversion may not be brought by the maker, drawer, or acceptor of the instrument. D. An action for conversion may not be brought by a payee or an indorsee who received delivery of the instrument.

Q: According to Revised Article 3 if a bank pays a check that contains a forged indorsement: A. the bank has converted the check by wrongfully paying it. B. the person whose indorsement was forged has converted the check. C. the person whose indorsement was forged is liable to the bank. D. the forger is liable to the person whose indorsement was forged.

Q: In which of the following situations is the obligor not likely to be fully discharged from his or her liability on a negotiable instrument? A. Jerry wrote a check to Elaine. Elaine cashes the check later. B. Edward lends Monica $1,000 toward her college expenses. She gives Edward a promissory note for $1,000, which Edward accidentally tears up. C. On June 1, 2002, Kim receives a draft from Kurt payable on July 1, 2002. Kurt then pays her in cash and cancels the draft. D. John fraudulently increases the amount due on the check from Bruce.

Q: XYZ Bank pays a check that contains a restrictive indorsement "for collection." This indicates that: A. the bank has paid the check illegally. B. the bank has not acted in good faith. C. the bank was negligent with the payment of the check. D. the bank has converted the check.

Q: The rationale for the fictitious payee rule is that: A. the bank should bear the immediate loss of the forged instruments. B. the holder in due course should bear the immediate loss of the forged instruments. C. the employer of the wrongdoer should bear the immediate loss of forged instruments. D. the wrongdoer should bear the immediate loss of the forged instruments.

Q: According to Revised Article 3 of the UCC, the risk of loss from fraudulent indorsements by employees: A. should fall on the holder in due course. B. should fall on the employer. C. should fall on the bank. D. should fall on the employee.

Q: "Responsibility" with respect to instruments includes: A. those who have access to instruments that are in incoming or outgoing mail. B. those who process instruments received by the employer. C. those who have access to instruments as they are transported. D. those who have access to instruments as they are stored.

Q: Where the impostor has impersonated a person authorized to act for a payee: A. the responsibility for determining the true identity of the payee is on the bank. B. the impostor has the power to negotiate a check drawn payable to the payee. C. the later holder does not have good title to the check as the payee's signature is not valid. D. the loss is shared by the maker and the bank that negotiated the forged instrument.

Q: Mila owes Brad (whom she has not met) $4,000. James claiming to be Brad gets Mila to issue him a check of $4,000. James forges Brad's indorsement and transfers the check to Hall. Which of the following statements holds true for this situation? A. The responsibility for determining the true identity of the payee is on Hall. B. James has the power to negotiate a check drawn payable to Brad. C. Hall does not have good title to the check as Brad's signature is not valid. D. The loss is shared by Mila and Hall, who is the holder of the forged instrument.

Q: The rationale for the impostor rule is that the responsibility for determining the true identity of the payee: A. is shared by the bank and the maker of the negotiable instrument. B. is on the drawer or maker of the negotiable instrument. C. is on the bank that negotiates the instrument. D. is on the payee whose name is mentioned in the negotiable instrument.

Q: Bill submits a time card for a non-existent employee. The employer issues the payroll check. Bill forges the indorsement and negotiates the check to Ted. Which of the following statements holds true for this situation? A. The loss from the forged check is borne by the holder in due course. B. The check cannot be negotiated as it carries the signature of a non-existent person. C. The employer has the right to refuse payment to Ted. D. Ted submits the check to the employer and gets the mentioned amount.

Q: In the event of a breach of a presentment warranty: A. the drawee is entitled to compensation for expenses and loss of interest resulting from the breach to compensate for the amount paid by the drawee. B. the drawee's right to recover damages for breach of warranty is annulled by any failure on the part of the drawee to exercise ordinary care in making payment. C. the warrantor may defend by showing that the indorsement is effective under the impostor or fictitious payee rules. D. the drawee can withdraw an amount equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer.

Q: If the drawee bank mistakenly paid a check with a forged or unauthorized drawer's signature on it: A. the bank can recover the amount from the person whose name had been mentioned in the check albeit without authorization. B. the bank can recover if it paid the check to a presenter who had taken the instrument in good faith and for value. C. the bank cannot recover if it paid the check to a forger or unauthorized signer. D. the bank cannot recover it if the presenter had taken the instrument in good faith and for value.

Q: Susan Smith steals a valuable necklace from Pamela Jones. The necklace bears Jones's full name. Smith takes the necklace to a pawnshop, sells it to the shop, and gets a check for $10,000 in the name of Pamela Jones. Smith then indorses the check in Jones's name and transfers it to Harry Anderson. Which of the following is true about this situation? A. Harry cannot be a holder because the indorsement was forged. B. Harry cannot be a holder because of the "imposter rule." C. The check has been negotiated to Harry. D. Susan Smith can keep the necklace since she is now the owner.

Q: Jerry Hall makes out a note for $100 in such a way that someone could alter it to read $100,000. Someone alters the note and negotiates it to Pete Mason, who can qualify as a holder in due course. Which of the following statements is true for this situation? A. Jerry shall share the loss with the bank where she holds an account. B. Jerry does not have to pay Pete who currently possesses the note. C. Pete can collect $10,000 from the person who "raised" the note. D. Pete can collect $10,000 from Jerry.

Q: The transferor of which of the following instrument cannot disclaim transfer warranties? A. Check B. Promissory note C. Draft D. Invoice

Q: All signatures on a negotiable instrument are guaranteed to be treated as authentic due to what type of warranty? A. Transfer warranty B. International commerce warranty C. Principal agent warranty D. Invoice protection warranty

Q: Which of the following is not one of the presentment warranties that the holder of an unaccepted draft makes to the drawee? A. That the draft has not been altered. B. That the draft is not subject to a defense or a claim in recoupment. C. That the holder has no knowledge that the signature of the drawer is unauthorized. D. That the holder is entitled or authorized to obtain payment.

Q: Able carefully drew a check for $10 on her checking account at ABC bank, payable to the order of Baker. Baker altered the check to read $100, and then negotiated it to Cain. Cain presented the check for payment to ABC bank, which paid Cain $100. The bank then deducted $100 from Able's account. When Able saw her bank statement she demanded that ABC credit her account for the altered check. ABC credited Able's account and then sued Cain. Is Cain liable? A. Yes, because Cain violated a presentment warranty. B. Yes, because Cain was a holder of the check. C. No, Cain is not liable if Cain acted in good faith and was unaware of Baker's alteration. D. No, because Cain is not holder in due course.

Q: Which of the following is both a transfer warranty and a presentment warranty? Assume that the instrument in question is a draft. A. That the draft has not been altered. B. That the draft is negotiable. C. That the draft is not subject to any defense or claim for recoupment. D. That the drawer is not insolvent.

Q: Which of the following is true regarding a transferor's liability on a transfer warranty? A. The warranties apply only when the transfer was accompanied by the transferor's indorsement. B. The transferor is liable only after presentment to the drawee or a primarily liable party, followed by that party's dishonor. C. It applies even when there was no consideration for the transfer. D. If the transfer was by indorsement, the warranty extends to all subsequent transferees, and not just the immediate transferee.

Q: All of the following constitute transfer warranties under Article 3 except: A. that all signatures on the instrument are authentic or authorized. B. that the instrument has not been altered. C. that the instrument is not subject to any defense or claim in recoupment. D. that the instrument is negotiable.

Q: According to UCC section 3-401 which of the following does NOT constitute a valid signature of a negotiable instrument? A. A mark on the document B. A word on the document C. Leaving the document intentionally blank D. Printing the name on the document

Q: Tom steals Dave's checkbook, completes a check for $1,000, forges Dave's signature, and gets payment from Tom's bank. The bank paid in good faith. Who is liable to the bank for the $1,000 in this case? A. Tom B. Dave C. Both Tom and Dave D. Neither Tom nor Dave

Q: Usually, who may have the power to surrender the instrument if full payment is made? A. Indorser B. Accommodation maker C. Party to whom the holder presents the instrument D. Drawer

Q: If Jay signs Mila's name to a negotiable instrument without Mila's authorization or approval: A. the signature is not effective as the signature is of the unauthorized signer. B. the signature cannot be ratified later by the person represented. C. the signature does not bind the person whose name appears. D. Jay is not liable on the check.