Q&A Hero

Q: If a bank pays a check that bears a forged signature of the drawer, the transaction will be treated as one in which: A. the bank paid out of the depositor's funds under Article 3 of the Uniform Commercial Code. B. the bank paid out of its own funds under Article 3 of the Uniform Commercial Code. C. the bank paid out of its own funds under Article 4 of the Uniform Commercial Code. D. the bank paid out of the depositor's funds under Article 4 of the Uniform Commercial Code.

Q: Bob makes a check for $100 in a way that makes it possible for someone to easily alter it to read $1,100, and it is so altered. Under these circumstances: A. If the drawee bank pays the check to a holder in good faith, it can charge the $1,100 to Bob's account if Bob's negligence contributed to the alteration. B. A drawee bank can charge the $100 to Bob's account and will be liable for the rest of the altered amount. C. The drawee bank is completely liable to Bob for accepting the altered check even if Bob's negligence contributed to the alteration. D. The person who altered the check is liable to the drawee bank and the bank cannot charge the $1,100 to Bob's account.

Q: Under Revised Article 3, when multiple forgeries are made by the same wrongdoer, the customer generally cannot hold the bank responsible for paying, in good faith, any such checks after an alteration was available to the customer for a reasonable period, not exceeding: A. 10 working days. B. 30 calendar days. C. 60 calendar days. D. 14 working days.

Q: (p. 858, 859) Which of the following is true of the Check 21 Act? A. It is a time-consuming and costly process. B. It is designed to enable banks to handle more checks electronically. C. It completely discourages check truncation. D. It requires banks to retain a legible copy of checks for fifteen years.

Q: Check 21 contains a special refund procedure, called "expedited recredit", for a customer who suffers a loss because of: A. the original check. B. a fraudulent check. C. a substitute check. D. a cashier's check.

Q: Callie drew a check payable to the order of Janice on American Bank. Janice indorsed the check and sold it to Ned, who took the check to American Bank and requested that the bank certify the check. The bank did so. Later, Ned presented the check for payment, but American Bank refused to pay. Which other parties may Ned sue? A. American Bank B. Callie C. Janice D. Callie and Janice

Q: Walt draws a check for $1,500 on Town Bank. The check is made payable to the order of Stephanie. Stephanie endorses and sells the check to Nita. At Nita's request, Town Bank certifies the check. Which of the following is a true statement? A. Stephanie is secondarily liable. B. Walt is secondarily liable. C. Town Bank is primarily liable. D. Walt is primarily liable.

Q: If a drawee bank certifies a check, which of the following is/are discharged of their liability on the check? A. The drawer only. B. Only persons who previously indorsed the check. C. The liability remains as before. D. Both the drawer and the persons who previously indorsed the check.

Q: A check on which a bank is both the drawer and the drawee is a: A. cashier's check. B. stale check. C. certified check. D. personal check.

Q: A check drawn by a credit union on its account at a bank is a: A. personal check. B. teller's check. C. certified check. D. stale check.

Q: A bank that knows of a customer's death: A. cannot pay checks written by the customer. B. can pay checks written by the customer for a period of 10 days. C. can pay checks written by the customer for a period of 14 days. D. cannot pay checks written by the customer till authorized by the heirs.

Q: The time requirements for notice of postdated checks are similar to those required for: A. automatic transfers. B. stop-payment orders. C. drawer-depositor accounts. D. stale checks.

Q: A written stop-payment order: A. is valid for only 14 days and cannot be extended further even if written instructions are given to the bank by the customer. B. is valid for only six months unless confirmed in writing. C. is invalid. D. is valid for six months, and can be extended for another six months if written instructions are given by the customer.

Q: Bob purchased a new washing machine from a local department store. He paid for the washing machine by check. Two days later, Bob discovered that the washing machine did not work. Bob telephoned the bank and issued an oral stop-payment order on the check. Which of the following will be true for an oral stop-payment order? A. An oral stop-payment is not valid for more than 24 hours. B. An oral stop-payment is valid for only 14 days unless Bob confirms it in writing during that time. C. An oral stop-payment is not valid for more than 48 hours. D. An oral stop-payment order is valid for 6 months and can be extended for another 6 months by giving the bank instructions to continue.

Q: A person may stop payment on a check: A. as long as he/she is authorized to draw a check from the account in question. B. as long as he/she is authorized to draw a check from the account in question and he/she is the party who signed the check in question. C. as long as he/she has sufficient funds to cover any liability an erroneous stop-payment order would incur. D. after a month of the deposit of the check.

Q: Bill purchased a new car from Friendly Fred's Autos. Fred indorsed the check to Shirley for value. Shirley presented the check to the bank, and the bank cashed the check. Later, Bill attempted to place a stop-payment order on the check because the car he purchased from Fred was defective. Under these circumstances: A. the bank is liable to Bill for paying the amount of the check to Shirley. B. Bill has no remedy against Shirley or the bank. C. Shirley must return the funds to the bank. D. Bill can prove that he has sustained a loss.

Q: If a bank pays a check after it is given a stop-payment order: A. it acquires all the rights of its customer against the person to whom it originally made payment. B. it acquires no rights of the person to whom it made payment. C. it acquires partial rights of its customer against the person to whom it originally made payment. D. the customer to whom payment was made retains all the rights.

Q: In the case of a bank that refuses to pay on a check drawn against an account with sufficient funds, which of the following actual damages would the bank be liable for? A. Charges imposed by retailers for returned checks. B. Damages for mental disturbance. C. Injury to the depositor's credit rating that result from the dishonor. D. Only damages for mental disturbance and injury to honor.

Q: Which of the following best describes a stale check? A. A check that has been written by the drawer for a date in the future which a bank can honor even before the date on the check. B. An incomplete check of the customer that is presented to the drawee bank for payment. C. A check that has been written by the maker dated at some point in the past, which can be paid and charged to the customer's account even at the present date. D. A check that is more than six months old for which a bank does not owe its customer a duty to pay out of the customer's account.

Q: If the drawer is negligent and contributes to the forgery or alteration of a check: A. the bank can charge the drawer for the amount as the drawer's negligence contributed to the forgery. B. the bank is liable to the drawer for the amount. C. the check is not payable from the customer's account because the bank is not following the instructions of the depositor. D. the bank must pay the instrument out of its own funds.

Q: On August 1, 1990, Lisa wrote a check for $100 payable to the order of her sister, Marcia. Marcia misplaced the check and found it in May 1991, when she attempted to cash it. Under these circumstances: A. the bank must honor the check. B. the bank cannot pay the check out of Lisa's account without Lisa's written permission. C. the bank may, in good faith, pay the check and charge it to Lisa's account. D. the check is no longer valid because it is a stale check.

Q: Under the Revised Article 4: A. a postdated check is not properly payable by the drawee bank until the date on the check. B. a postdated check presented for payment before the date on the check may be paid and charged to the customer's account unless he has given notice of it to the bank. C. postdating checks is illegal. D. a postdated check presented for payment before the date on the check will be returned to the customer and fees charged to his account.

Q: The Check Clearing for the 21st Century Act is commonly known as Check 21,and is a federal law that is designed to enable banks to handle more checks manually.

Q: As under the Fair Credit Billing Act, operators under the Electronic Funds Transfer Act are given a maximum of 90 working days to investigate errors or provisionally recredit the customer's account.

Q: Which of the following sources govern(s) the relationship between the depositor and the drawee bank? A. Only the deposit agreement. B. The deposit agreement and Article 6 of the UCC. C. Article 8 of the UCC. D. The deposit agreement and Articles 3 and 4 of the UCC.

Q: If a bank receives a properly drawn and payable check, there are sufficient funds to cover the check, and the bank wrongfully dishonors the check: A. the bank may be liable to the drawer only for the actual damages suffered by the drawer. B. the bank may be liable to the drawer only for the consequential damages suffered by the drawer. C. the bank is not liable for any damages to the drawer unless the bank dishonored the check intentionally, knowing it to be properly drawn and payable. D. the bank may be liable to the drawer for actual and consequential damages suffered by the drawer.

Q: Revised Article 3 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.

Q: If a person stops payment on a check and the bank honors the stop-payment order, the person is not liable to the holder of the check.

Q: The bank is primarily liable on a cashier's check.

Q: A cashier's check is similar to a certified check.

Q: A drawee bank is obligated to certify a check.

Q: Even if the drawer is negligent and contributes to the alteration of a check, he cannot be barred from claiming it as the reason that a particular check should not be charged to his account.

Q: 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.

Q: A bank may pay a postdated check unless it has received notice from the customer not to pay until the instrument's date.

Q: Any person authorized to sign a check may stop payment on it, even if he/she did not sign the check in question.

Q: When issuing a stop-payment order, banks claim that the "reasonable certainty" with which customers must describe the check in question should have the dollar amount exact to the penny because the computers they program require such precision.

Q: If the drawer of a check orders the drawee bank not to pay the check, the drawee bank generally owes the drawer a duty not to certify the check.

Q: Explain the five transferor's warranties.

Q: What are the most common ways that an obligor on a negotiable instrument is discharged from his/her liability?

Q: What are the different electronic funds transfer systems utilized by consumers?

Q: Describe the provisions of the Electronic Funds Transfer Act.

Q: When a person deposits money in an account at the bank, the bank no longer considers that person the owner of the money; instead, he is a creditor of the bank.

Q: The drawee bank does not have the right to charge a payable check to the drawer's account if this will create an overdraft in the account.

Q: A holder in due course may discharge the liability of the parties to the instrument by: A. publishing notice. B. canceling it. C. repudiating it. D. paying for it even if it is a stolen one.

Q: Who is entitled to enforce an instrument?

Q: Ivan is a representative for Mega Industries. Checks are drawn by "Mega Industries, Inc., Payroll Account (signed) D. Ivan" but the checks are not paid. Who is liablethe individual or the corporation?

Q: Define the situations that lead to dishonoring of a note by the maker.

Q: Under the Revised Article 3 rules for beneficiaries, in the event of a breach of transfer warranty: A. the damages recoverable will be less than the amount of the instrument. B. the damages recoverable may not be more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach. C. a beneficiary of the transfer warranties who took the instrument in good faith may not recover form the warrantor an amount equal to the loss suffered as a result of the breach. D. no damages may be recovered.

Q: People who presents drafts for warranties: A. do not make a warranty that they have knowledge of the insolvency proceedings commenced regarding the drawer. B. make a warranty that the instrument has not been materially altered. C. make warranties that are similar to those transferors make. D. make a warranty that they are aware of the unauthorized signature of the maker.

Q: The imposter rule regarding negotiable instruments: A. was devised to put the responsibility for determining the true identity of the payee on the drawee of a check. B. makes the payee's signature valid even though it is a forgery. C. does not force the maker to find the wrongdoer. D. lays the responsibility of determining the identity of payee on latter holders of an instrument.

Q: Conversion of an instrument: A. is an authorized assumption and exercise of ownership over it. B. may occur if a person pays an instrument on a forged indorsement. C. differs from conversion of personal property with respect to the applicable laws. D. occurs only if it lacks indorsement necessary for negotiation.

Q: With respect to instruments, "responsibility" means the authority: A. to access instruments in incoming or outgoing mails. B. to process instruments for issue in the name of fictitious payees. C. to prepare or process instruments for issue in the name of the employer. D. to have access to instruments in storage.

Q: Tim stole from Wes a check payable to the order of Wes. Tim forged Wes's signature and presented the check for payment at American Bank, which honored the check. If Wes sues American Bank for the amount of the check, under what theory, if any, can Wes recover the funds from the Bank? A. Conversion B. Fraud C. Unfair and deceptive practices D. Fictitious payee rule

Q: Larry signed a note to the Bank, and his friend Moe also signed the note as an accommodation maker. If Larry defaults on the note when it is due, what are Moe's rights and obligations? A. Moe has the right to recover his payment from the bank. B. Moe has the same contractual liability as Larry and must pay the bank. C. Moe cannot recover his money from Larry or the bank since he has primary liability. D. Moe has secondary liability.

Q: Mack is Bertha's agent and is authorized to sign checks for her. Mack signs one of Bertha's checks with only his own name. Who is liable on the check? A. Bertha B. Mack C. Both Mack and Bertha D. Neither Mack nor Bertha

Q: Ted stole Ron's checkbook and wrote a check for $100, forging Ron's signature. Under these circumstances: A. Ted but not Ron is liable on the check. B. Ron but not Ted is liable on the check. C. both Ted and Ron are liable on the check. D. the bank will be liable on the check.

Q: Susan borrows $1,000 from Jack and gives him a promissory note for $1,000 at 9 percent annual interest payable in 90 days. Jack indorses the note "Pay to the order of Robin" and negotiates the note to Robin. At the end of 90 days, Robin takes the note to Susan. Under these circumstances: A. if Susan dishonors the note Robin can hold Jack secondarily liable without giving him notice of the dishonor. B. if Susan dishonors the note, Robin cannot sue Susan on the basis of her maker's obligation. C. if Susan dishonors the note, Robin cannot hold Jack secondarily secondarily liable on his indorsement. D. if Susan pays Robin the $1,000 and accrued interest, she can have Robin mark it "paid" and give it back to her.

Q: A person who transfers a negotiable instrument to someone else and for consideration warrants: A. that all signatures on the instrument are authentic. B. that some signatures on the instrument are authorized. C. that the beneficiary cannot recover any amount from the warrantor if the warranty has been breached. D. that the warrantor is aware of insolvency proceedings commenced with respect to the maker.

Q: A non-indorsing transferor: A. makes all five transferor's warranties only to the immediate transferor. B. makes all five transferor's warranties to all subsequent holders. C. makes only four transferor's warranties to the immediate transferor. D. makes all five transferor's warranties, with a change in the fourth warranty, to all subsequent holders.

Q: James draws a check on his account at First National Bank payable to the order of Terry. If First National does not pay the check when Terry presents it for payment, then: A. both James and the bank are liable to Terry. B. James is liable to Terry on the basis of drawer's obligation. C. James transfers his duties as a drawer to the drawee bank and the bank is liable. D. neither James nor the bank is liable to Terry.

Q: (p. 824; 825) Devon draws a check payable to the order of Jen on his account at Big Bank. Jen properly negotiates the check to Seth, who sells the check to Andy. Seth indorsed without recourse. Andy deposits the check in his bank account at Mega Bank without indorsing the check. Who has liability to Mega Bank? A. Big Bank B. Seth C. Jen D. Jen, Seth and Andy

Q: The indorser's liability is discharged if the check is not presented within: A. 7 days after the date of endorsement. B. 14 days after the date of endorsement. C. 30 days after the date of endorsement. D. 48 hours after the endorsement.

Q: Mila borrows $1,000 from Pedro to pay for school and gives Pedro a note for that amount. Pedro wants Mila's father to sign as an accommodation party. Mila's father signs below Mila's signature on the fall of the note. Who has liability to Pedro? A. Mila has primary liability as a maker. B. Mila's father has primary liability as an accommodation maker. C. Mila and her father have the same contractual liability. D. Mila has primary liability and her father has secondary liability.

Q: Who is primarily liable on a check when it is issued? A. The payee is primarily liable B. The drawer is primarily liable C. The drawee bank is primarily liable D. No party is primarily liable

Q: Who is primarily liable on a certified check? A. The payee B. The drawer C. The certifying drawee bank D. No party is primarily liable

Q: Which of the following is true of the obligations of an acceptor? A. If the certification or acceptance does not state an amount then the acceptor is free of all obligations. B. If the certification of a check or other acceptance of a draft states the amount accepted, the obligation of the acceptor is the amount of the instrument at the time a holder in due course takes it. C. If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount. D. If the certification or acceptance does not state an amount, or if the amount of the instrument is subsequently raised, then the obligation of the acceptor is the raised amount.

Q: (p. 823; 824) Alice drew a check on her account at the Third National Bank payable to the order of Aaron. When Aaron presented the check for payment, Third National refused to honor the check. Under these circumstances: A. the bank may be liable to Alice for wrongfully refusing payment if Alice has sufficient funds in her checking account to cover it. B. the bank may be liable to Aaron for wrongfully refusing payment if Alice has sufficient funds in her checking account to cover it. C. the bank has breached its transferor's warranties. D. the bank will be liable to both Aaron and Alice.

Q: The obligation of the maker is owed: A. to a person entitled to enforce the instrument. B. only to holders of the instrument. C. even to indorsers who have not paid the instrument pursuant to their indorser's liability. D. only to a nonholder in possession of the instrument.

Q: Which of the following is true of the obligations of a maker? A. The maker of a promissory note is secondarily liable for payment of it. B. He makes a conditional promise to pay a fixed amount of money. C. The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it. D. The obligation of the maker is owed to an indorser, who is a person entitled to enforce the instrument.

Q: (p. 822; 823) When an incomplete instrument is completed after it has left the drawer's hands, a holder in due course can: A. enforce it as completed. B. enforce only the intent of the drawer. C. do nothinghe/she loses any rights to the instrument. D. not enforce it as completed.

Q: Peter draws a check on his account in Third National Bank payable to the order of Stella. When Peter draws the check, he gets Third National Bank to certify the check. Stella presents the check to Third National Bank for payment but the bank refuses to honor the check. What is the result? A. Third National Bank becomes primarily or absolutely liable on the check. B. Peter is primarily liable on the check and Third National Bank is secondarily liable on the check. C. Both Peter and Third National Bank are primarily liable on the check. D. Third National Bank has no contractual liability on the check whatsoever.

Q: The acceptor's obligation: A. extends to a person entitled to enforce the draft. B. does not extend to the drawer. C. extends only to an indorser who paid the instrument pursuant to the indorser's liability. D. extends to the drawer, but not the indorser who paid the instrument.

Q: Liability on a negotiable instrument: A. can arise only by transfer of an instrument. B. cannot arise from non-presentment. C. can arise from negligence relating to the issuance. D. cannot arise from improper payment.

Q: The terms of the contract of the parties to a negotiable instrument are set out: A. in the text of the instrument. B. in Article 3 of the UCC. C. in the U.S. Constitution. D. in Article 5 of the UCC.

Q: A person who is secondarily liable is like a(n): A. guarantor on a contract. B. assignor. C. assignee. D. drawer.

Q: A material change in a negotiable instrument does not discharge any party whose contract is changed.

Q: Liability on negotiable instruments flows from: A. proper payment of the instrument. B. signatures on the instruments. C. non-presentment of an instrument. D. writing "without recourse" on the instrument.

Q: A nonindorsing transferor makes all five transfer warranties to his/her immediate transferee.

Q: If a drawee bank mistakenly paid a check over a stop-payment order, the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.

Q: If a person has been negligent in signing a negotiable instrument, he/she can use lack of authorization as a reason for not paying the person who in good faith pays for it.