Chp. 27 Checks & Electronic Transfers

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. First National Bank agrees to accept a check by setting aside sufficient funds to cover the amount of the check. This check is considered
a. certified.
b. deposited.
c. provisionally credited to the depositor's account.
d. reissued.

____ 2. National Wholesalers, Inc., asks Midwest Regional Distributors Company to pay for goods with a certified check. This is probably because a certified check
a. cannot be forged.
b. clears faster than a normal check.
c. is guaranteed by a bank.
d. is payable on demand and a regular check is not.

____ 3. Don receives his paycheck from Temporary Personnel, Inc. (TPI). He takes the check to First State Bank, TPI's bank, which refuses to cash it. He attempts to deposit the check in Community Bank, his bank, which also refuses to accept it. Don can recover from
a. Community Bank only.
b. First State Bank only.
c. Community Bank or First State Bank.
d. none of the above.

____ 4. Steve, the manager of Cineplex, deposits the box office receipts in the theater's account at First State Bank. Regarding these receipts, the relationship between Cineplex and the bank is
a. creditor and debtor.
b. guardian and ward.
c. trustee and beneficiary.
d. none of the above.

____ 5. Ken writes a check for $500 drawn on City Bank and presents it to Lynn. When Lynn presents the check for payment, the bank dishonors it. Lynn may sue
a. City Bank for dishonoring the check.
b. Ken on the underlying obligation.
c. both City Bank and Ken.
d. none of the above.

____ 6. Marie writes a check for $100 drawn on Town Bank and presents it to Quick Check Cashing Service, Inc. If the check is not backed by sufficient funds, Marie may be prosecuted for
a. forgery.
b. fraud.
c. negligence.
d. none of the above.

____ 7. Beverly writes a check to Quint on her account at State Bank. The bank refuses to honor the check even though Beverly has adequate funds in her account. Quint's suit against the bank would likely
a. succeed, because the bank had sufficient funds in the account.
b. succeed, because the bank breached its implied promise to the holder that it would honor any check presented in an appropriate manner.
c. fail, because a bank is not liable to a holder who presents a check for payment, even though there are sufficient funds in the account.
d. none of the above.

____ 8. Art agrees with First National Bank that it will honor Art's checks even when his account has insufficient funds. Art begins to issue many checks. The bank may
a. dishonor any additional checks.
b. dishonor any additional checks only if it requests adequate assurances that Art will honor the checks and Art fails to give such assurances.
c. not dishonor Art's checks without incurring liability for any loss caused by its wrongful dishonor.
d. none of the above.

____ 9. Beta Communications Company writes a check to Commercial Credit Corporation on July 1 that is drawn on Beta's account at First State Bank. Commercial Credit presents the check on July 15. If Beta has sufficient funds in its account but the bank does not honor the check, the bank is
a. liable to Beta but not Commercial Credit.
b. liable to Commercial Credit but not Beta.
c. liable to Beta and Commercial Credit.
d. not liable.

____ 10. Bo's bank refuses to honor a check that would create an overdraft in his account. Bo
a. can sue his bank because it has a duty to pay all overdrafts.
b. can sue his bank only if the bank agreed to honor his overdrafts.
c. cannot sue his bank if the check was more than six months old.
d. cannot sue the bank because Bo and his bank are not in privity of contract.

____ 11. After Ada's death, her heirs Ben and Carol ask her secretary Sara to notify her bank, First Federal. On being notified, First Federal can pay or certify checks drawn by Ada, on or before the date of her death, for
a. an indefinite period unless Ben or Carol asks to stop all payments.
b. no time.
c. one month after the date of death.
d. ten days after the date of death unless Ben or Carol orders the bank to stop all payments.

____ 12. On May 1, Ace Personnel, Inc., issues a payroll check to Barb drawn on its account at City Bank. On June 1, Ace receives its bank statement. On June 20, Barb indorses the check and cashes it at Downtown Finance Corporation. On July 1, Downtown transfers the check to EZ Collection Agency. On December 1, EZ presents the check to First National for payment. A stale check is one that is presented for payment
a. six months after issue.
b. six months after the first indorsement.
c. six weeks after issue.
d. six weeks after the last statement.

____ 13. Maxine is the holder of a check from Ted dated March 30. Ted is adjudicated by a court as incompetent on April 1. The bank having the account on which the check is drawn learns of the action by the court on April 5. Maxine presents the check for payment on April 8. Maxine may
a. collect payment on the check.
b. collect payment on the check only if she has sufficient funds in her own account to cover the amount.
c. not collect payment on the check if Ted's heirs do not consent.
d. not collect payment on the check until Ted has been adjudicated competent.

Fact Pattern 27-1
Bill takes his car to Martin's Mechanic Shop. Martin repairs the car and presents Bill with a bill for $4,000. Bill writes out a check, but later issues a stop-payment order.

____ 14. Refer to Fact Pattern 27-1. Bill's bank
a. must follow his order and accept any liability to the payee.
b. must follow his order if it has a reasonable time to act before the check is presented for payment.
c. need not follow the order because Bill should not have stopped payment.
d. need not follow the order unless Bill's check was certified.

____ 15. Refer to Fact Pattern 27-1. If Bill's bank mistakenly pays the check, the bank
a. is liable for Bill's actual loss suffered because of the wrongful payment.
b. can sue Bill for wrongfully instituting a stop-payment order.
c. can sue Martin for breach of contract.
d. cannot sue anyone because it paid a check that was not properly payable.

____ 16. Sam, an accountant for Alpha Software, Inc., obtains a cashier's check to pay City Moving Company for City's move of Alpha's offices to a new building. Sam obtains certification of an Alpha check to pay Beta Computer Supplies Company, an Alpha supplier. Sam buys traveler's checks for a business trip to Europe. Sam, on Alpha's behalf, has no right to stop payment on
a. the cashier's check.
b. the certified check.
c. the traveler's checks.
d. none of the above.

____ 17. Gail issues a check drawn on First National Bank to Housewares Depot as payment for several kitchen appliances. Later, Gail discovers defects in the goods and orders First National to stop payment on the check. Gail does not renew the order, and the bank clears the check eight months later. The bank must
a. recredit Gail's account only.
b. replace the defective goods only.
c. recredit the account and replace the defective goods.
d. none of the above.

____ 18. Over the phone, Alex orders his bank, First Federal, to stop payment on a check that he issued to Cheap Computer Store. Assuming Alex's state allows oral stop-payment orders, this order is valid for
a. fourteen days.
b. fourteen months.
c. six days.
d. six months.

____ 19. Jean writes a check to Henry as payment for a barrel of gunpowder but Jean soon discovers that the gunpowder is useless. She calls the drawee bank and orders it to stop payment on the check. The stop-payment order will be effective for only
a. seven days.
b. fourteen days.
c. thirty days.
d. sixty days.

____ 20. Jan orders 100 rulers from Depot Office Supplies for which she pays the sales price of $100 in advance. Jan accepts a shipment of ten rulers, then decides that she does not want more. She issues a stop-payment order, but the bank permits Depot Office Supplies to cash her check. Jan is entitled to recover from the bank
a. $100.
b. $90.
c. $10.
d. none of the above.

____ 21. First National Bank mistakenly pays one of Rita's checks with a forged indorsement. Rita can recover her loss from the bank if, after receipt of the bank statement, she notifies the bank within
a. five years.
b. three years.
c. one year.
d. two weeks.

____ 22. First State Bank pays a check on which has been forged the signature of the drawer, Greg, who is a First State customer. First State must recredit Greg's account for the entire amount of the check if
a. the amount of the check was less than $1,000.
b. the amount of the check was more than $2,500.
c. the bank's negligence substantially contributed to the forgery.
d. Greg's negligence substantially contributed to the forgery.

Fact Pattern 27-2
Guy issues a check drawn on his account at First State Bank for $100 "to the order of Suzanne Rice," but the check is stolen by Harvey before Guy gives it to Suzanne. Harvey forges Suzanne's indorsement and cashes the check at Community Bank. Community presents the check to First State, which cashes it, debits Guy's account, and returns the check to Guy with his monthly statement.

____ 23. Refer to Fact Pattern 27-2. First State is excused from any liability if, after Guy receives the bank statement and canceled checks, he fails to report the forged indorsement within
a. six months.
b. one year.
c. eighteen months.
d. three years.

____ 24. Refer to Fact Pattern 27-2. When Guy spots the forged indorsement, he asks First State to recredit his account. First State
a. may rightfully refuse only if the forgery truly matched Suzanne's signature.
b. may rightfully refuse only if the forgery did not resemble Suzanne's signature.
c. must recredit Guy's account.
d. none of the above.

____ 25. Refer to Fact Pattern 27-2. First State Bank will have the best chance of recovering the amount paid on the check from
a. Guy.
b. Suzanne.
c. Harvey.
d. Community Bank.

Fact Pattern 27-3
Lindy issues a check payable to Sam's Grocery. Sam's cashier forges Sam's indorsement and deposits the check in her bank account. Lindy's bank pays the check.

____ 26. Refer to Fact Pattern 27-3. Lindy can recover from
a. her bank, which can recover from the cashier.
b. her bank, which cannot recover from the cashier.
c. the cashier, but not her bank.
d. no one.

____ 27. Refer to Fact Pattern 27-3. If the cashier steals one of Sam's checks and forges Sam's signature, Sam can recover from
a. her bank, which can recover from the cashier.
b. her bank, which cannot recover from the cashier.
c. the cashier, but not her bank.
d. no one.

____ 28. Lyle receives a check drawn on Mary's account at First State Bank. The check has a forged drawer's signature. Lyle indorses the check to A+ Auto Dealers, which takes it in good faith and for value, and presents it for payment to City Bank, which cashes the check. First State can recover the funds from A+
a. because it is not a holder in due course.
b. only if it has an account at First State.
c. under any circumstances.
d. none of the above.

____ 29. First Federal Bank in New York has checks drawn on financial institutions in California and other states. These institutions also have checks drawn on banks located in different states. These checks are exchanged through
a. the California Commercial Electronic Payments System.
b. the Federal Reserve System.
c. the New York Clearing House Interbank Payments System.
d. the State Interchange Posting System.

____ 30. First National Bank receives a check drawn on the account of Rich Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Sherry, the presenter of the check, is not one of the bank's customers. The bank uses deferred posting. If it decides to dishonor the check, it must do so by midnight
a. Saturday.
b. Sunday.
c. Monday.
d. Tuesday.

____ 31. First Financial Bank uses deferred posting. This is a
a. duty to defer charges made on an automatic teller machine.
b. duty to defer payment of a check if a stop-payment order has been issued.
c. right to delay receipt of checks received after 2 p.m. until the next banking day.
d. right to pay a customer's overdrafts and to pay them at a deferred time.

____ 32. Will pays for his purchase at Valu-Rite Grocery Store by using an online terminal located at the checkout counter. This system is
a. a point-of-sale system.
b. an automated teller machine.
c. a pay-by-telephone system.
d. none of the above.

Fact Pattern 27-4
Mark loses his bank access card. He realizes his loss the next day but waits a week to call the bank. Meanwhile, Ed finds and uses Mark's card to withdraw $3,000 from Mark's account.

____ 33. Refer to Fact Pattern 27-4. Mark is responsible for
a. $0.
b. $50.
c. $500.
d. $3,000.

____ 34. Refer to Fact Pattern 27-4. When Mark receives his bank statement, he demands that the bank investigate the matter and recredit his account. The bank
a. has no duty to investigate.
b. must investigate but need not recredit Mark's account.
c. must investigate and, if the dispute is not resolved within ten days, recredit Mark's account (at least until the dispute is resolved).
d. must investigate and immediately recredit Mark's account (at least until the dispute is resolved).

____ 35. Frances uses her access card to withdraw funds from her account once each month in January, March, and July. Under the Electronic Fund Transfer Act, Frances must be provided with a statement of her transactions monthly
a. whether or not a transaction occurred.
b. only when a transaction occurred.
c. when a transaction occurred and quarterly regardless of use.
d. none of the above.