Chapter 27 Checks & the Banking System

 

Law 19 Quizzes 

 

1. First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount. This check is considered

 

a. cashed.

b. certified.

c. deposited.

d. provisionally credited.

 

 

2. Sue receives a check from Temp Persons, Inc. (TPI). She takes the check to United Bank, TPI’s bank, which refuses to cash it. She attempts to deposit the check in Village Bank, her bank, which also refuses to accept it. Sue can recover from

 

a. neither United nor Village.

b. United only.

c. United or Village.

d. Village only.

 

3. Kip writes a check for $1,000 drawn on Local Bank and presents it to Mira. Mira presents the check for payment to Local Bank, which dishonors it. The party most likely liable to Mira is

 

a. Kip in a civil suit.

b. Kip in a criminal prosecution.

c. Local Bank in an administrative proceeding.

d. neither Kip nor Local Bank.

 

 

4. First National Bank agrees to honor Glen’s checks even when his account has insufficient funds. Later, the bank refuses to pay an item payable to Holly that would create an overdraft. The bank is

 

a. liable to Glen only.

b. liable to Glen and Holly.

c. liable to Holly only.

d. not liable to Glen or Holly.

 

 

 

5. City Bank agrees to honor Delta, Inc.’s checks even when its account has insufficient funds. Edie, Delta’s bookkeeper, writes the checks. Later, the bank refuses to pay an item payable to Fine Supply Company that would create an overdraft. This is

 

a. a wrongful dishonor.

b. Delta’s liability.

c. Edie’s responsibility.

d. Fine’s loss.

 

 

6. Quinn writes a check to Ron on May 1 that is drawn on Quinn’s account at State Bank. Ron presents the check on December 15. The bank is

 

a. not obligated to pay the check under any circumstances.

b. not obligated to pay the check unless Ron can show he is an HDC.

c. obligated to pay the check if Quinn has sufficient funds in his account.

d. obligated to pay the check under any circumstances.

 

7. After Ben’s death, his heir Cathy asks his secretary Elin to notify Ben’s bank, First National Bank. On being notified, First National can pay or certify checks drawn by Ben, on or before the date of his death, unless Cathy asks to stop all payments, for

 

a. an indefinite period.

b. sixty days after the date of death.

c. ten days after the date of death.

d. thirty days after the date of death.

 

 

 

Fact Pattern 27-1 (Questions 8 and 9 apply)

Amy takes her car to Better Fix-It, Inc., which repairs the car and bills Amy for $500. Amy writes out a check drawn on Capital Bank, but later, believing that Better did not repair the car properly, issues a stop-payment order.

 

8. Refer to Fact Pattern 27-1. Capital Bank

 

a. is liable to Better for the amount of the check.

b. must stop payment if Capital has a reasonable time to act.

c. need not stop payment unless Amy had a valid reason to act.

d. need not follow Amy’s order unless the check was certified.

 

 

9. Refer to Fact Pattern 27-1. Capital Bank pays the check. Capital

 

a. can sue Amy for a wrongful stop-payment order.

b. can sue Better for breach of contract.

c. can sue no one because it paid a check that was not properly payable.

d. is liable for Amy’s loss due to the wrongful payment.

 

 

 

10. John writes a check to Kay as payment for a DVD player but soon discovers the player is broken. He goes to the drawee bank and orally authorizes Larry, a bank officer, to stop payment on the check. This order is valid for

 

a. fourteen days.

b. fourteen months.

c. six days.

d. six months.

 

 

11. CompNet orders fifty CD-ROM hard drives from DigiCom at $250 each. CompNet pays DigiCom $5,000 with a check, against the total $12,500 cost. DigiCom tells CompNet that it cannot deliver the drives. CompNet calls its bank and stops payment on the check, but the next day the bank honors the check. The bank is liable to CompNet for

 

a. $0.

b. $250.

c. $5,000.

d. $12,500.

 

 

 

12. Ann orders 100 imprinted pens from Best Ad Art for $1 per pen. She draws a check on County Bank for $100. Ann accepts the first shipment of 10 pens, refuses to accept future shipments, and issues a stop-payment order. County Bank pays the check. Ann can recover from the bank

 

a. $0.

b. $10.

c. $90.

d. $100.

 

 

 

13. Ed can write checks on his account at First City Bank. Gina steals the checks, forges Ed’s signature, and cashes the checks at First City. The bank is excused from any liability if, after receipt of the first forged check, Ed fails to report the forgeries within

 

a. five days.

b. fourteen days.

c. one year.

d. three years.

 

Fact Pattern 27-2 (Questions 14 and 15 apply)

Ruth opens an account with State Bank under an agreement in which the bank reserves the right to charge the account for any item returned due to its unauthorized alteration.

 

14. Refer to Fact Pattern 27-2. The agreement between Ruth and State Bank

 

a. cannot change the effect of the UCC.

b. is in accord with the UCC.

c. violates federal banking regulations.

d. violates the UCC.

 

 

15. Refer to Fact Pattern 27-2. Tom deposits an altered check in Ruth’s account. When Unity Bank, the check’s drawee bank, returns the item due to its alteration, State Bank files a suit against Ruth to recover the amount. The court is most likely to rule that

 

a. Ruth does not have to pay, because she did not indorse the check.

b. State Bank is entitled to recover under its account agreement.

c. Tom is the party from whom State Bank should seek recovery.

d. Unity Bank is the party from whom State Bank should seek recovery.

 

 

16. On Monday morning, Bob deposits into his account at County Bank a $500 check from Dina, who also has an account at County Bank. On that same day, this check is considered

 

a. cashiered.

b. certified.

c. paid.

d. provisionally credited.

 

 

Fact Pattern 27-3 (Questions 17 and 18 apply)

Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike’s card to withdraw $3,000 from Mike’s account.

 

17. Refer to Fact Pattern 27-3. Mike is responsible for

 

a. $0.

b. $50.

c. $500.

d. $3,000.

 

 

 

18. Refer to Fact Pattern 27-3. When Mike receives his National statement, he demands that the bank investigate the matter and recredit his account. The bank

 

a. has no duty to investigate.

b. must investigate and, if the dispute is not resolved within ten days, recredit Mike’s account (at least until the dispute is resolved).

c. must investigate and immediately recredit Mike’s account (at least until the dispute is resolved).

d. must investigate but need not recredit Mike’s account.

 

 

19. First State Bank has fourteen branch offices. First State must establish market areas contiguous to these offices under

 

a. the Community Reinvestment Act.

b. the Federal Reserve Board’s Regulation E.

c. the Federal Trade Commission Act.

d. the Home Mortgage Disclosure Act.

 

 

 

20. E-Bank, an online financial institution, gives financial information about Paula and other customers to a federal agency without the customers’ permission. E-Bank may be liable under

 

a. the Federal Trade Commission Act.

b. the Financial Services Modernization Act.

c. the Right to Financial Privacy Act.

d. the Uniform Electronic Transactions Act.