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Q:
The absolute time limit for notifying a bank of a forged or altered check is _____ from the time the depositor receives the bank statement.
A. fourteen days
B. thirty days
C. one year
D. three years
Q:
Winston was going to be out of town on September 1, when his rent would be due. On August 20 he gave his landlord Becky a check dated September 1, with instructions not to deposit or cash the check until September 1. As the instructions to Becky were clear he did not notify the bank of the postdated check. On August 21 Becky deposited the check in her account at her bank and the check was dishonored on August 23. Which of the following is true of this scenario?
A. Winston has recourse against Becky as she did not follow his instructions.
B. Winston has recourse against Becky and the bank since it failed to refuse the item when deposited.
C. Winston has recourse against the bank as it failed to notify Winston of the check acceptance and failed to refuse the item when deposited.
D. Winston did not notify the bank not to pay it before the date on the check, hence has no recourse.
Q:
A stop payment ordered by a drawer is valid:
A. for 30 calendar days only, if the order was made orally.
B. if it is received in time and in such a manner as to afford the bank a reasonable opportunity to act on it.
C. for only one year, unless renewed in writing.
D. only on limited items payable on his/her account, and cannot be used for checks with a value of $500 and above.
Q:
The first bank to which an item is transferred for collection is called a(n) _____ bank.
A. local
B. remitting
C. depositary
D. intermediary
Q:
If a bank pays a check in cash to the payee, and the check is returned to the drawer with the next bank statement, the bank's settlement is said to be:
A. provisional.
B. final.
C. in due course.
D. honored.
Q:
Which of the following is true of a bad-check statute?
A. The payee does not have the obligation of informing the drawer of the nonpayment of the check.
B. Bad-check statutes are effectively used as a means of collection.
C. The payee can prosecute the drawer immediately after being notified of a bad check by the drawee bank.
D. The drawee bank can prosecute the payee in case of dishonor of a check.
Q:
Omar receives a check from Trudy drawn on Shelfari Bank. Shelfari Bank improperly dishonors the check when Omar attempts to cash it. Which of the following is true of this case?
A. Omar is the holder or the check, and hence has recourse against Trudy, the drawer.
B. Shelfari Bank, the drawee bank, is liable to Omar, the holder, for improperly dishonoring the check.
C. Omar has recourse against both the parties - the drawer, Trudy, and the drawee bank, Shelfari Bank.
D. Omar has recourse against Shelfari Bank, in case Trudy does not reimburse Omar.
Q:
Kelley offers Hamilton a $20,000 check which she knows has been forged. Her offer is best known as:
A. chiseling.
B. uttering.
C. altering.
D. remitting.
Q:
How does a bank verify the signature of its customers?
A. By the substitute check held by the bank for reference purposes.
B. By the signature card filled in by the customer when the account is opened.
C. By the signature provided in documents such as passports, ID cards, etc.
D. By the pin number provided by the bank with the ATM card.
Q:
Jodie deposits in her checking account a $527 check made payable to her from the Internal Revenue Service. When will the $527 be made available to her?
A. Within seven business days of the date of her deposit.
B. Within three business days of the date of her deposit.
C. Within ten business days of the date of her deposit.
D. The next business day following the date of her deposit.
Q:
Cindy's liability for the unauthorized use of her ATM card is limited to $500 if she notifies the bank after 2 business days but within one week after the loss of the card.
Q:
A business receiving money by electronic transfer is known as the beneficiary.
Q:
The Electronic Fund Transfer Act applies to transactions between banks and businesses.
Q:
Which of the following is true of the relationship between the drawee bank and its customer?
A. The drawee bank becomes a creditor and the customer becomes a debtor at the time of opening a checking account.
B. The drawee bank becomes an insurer and the customer the insured at the time of opening a checking account.
C. The drawee bank becomes the customer's debtor at the time of opening a checking account and agent while collecting checks.
D. The drawee bank becomes a debtor to the customer when the bank pays more than the customer has on deposit.
Q:
Chuck deposits his paycheck drawn on Big Bank at Small Bank and his account is credited with this deposit. Three days later Chuck is notified by Small Bank that his paycheck has been dishonored by Big Bank due to insufficient funds and the amount of the check has been deducted from Chuck's Small Bank account. Which of the following is true of this situation?
A. Any settlement by Small Bank is provisional and may be rescinded if the paycheck is dishonored.
B. Small Bank acted too slowly and did not comply with the prescribed schedule of Regulation CC.
C. Big Bank is the payor bank and hence, must reimburse Small Bank, the depositor bank.
D. Small Bank cannot credit Chuck's account until it is certain that Big Bank will honor the check.
Q:
Which of the following is true of a bank's duty to honor checks?
A. The drawee bank is not under a duty to honor all checks drawn by its customers in presence of sufficient funds in the customers' accounts.
B. If there are insufficient funds on deposit, the bank may charge the customer's account if it does not create an overdraft.
C. If a bank fails to honor a check because of a mistake on its part, the bank is liable to the customer for damages the customer suffers.
D. The drawee bank has a liability to the holder of the check, whether the check is certified or notified.
Q:
A(n) _____ is a check that is presented for payment more than six months after its date.
A. overdraft
B. postdated check
C. antedated check
D. stale check
Q:
Remitting bank describes any payor or intermediary bank remitting for an item.
Q:
In case a check is deposited in the payee's own account in a depository bank, any settlement given by the depository bank is final.
Q:
Under the Check 21 Act, bank customers have an absolute right to see their original canceled checks.
Q:
Expedited credit can be claimed by consumers who have suffered losses related to substitution checks.
Q:
An e-check is sometimes called an electronic check transfer.
Q:
Regulation CC provides the funds availability schedule.
Q:
Ivan receives his Friendly Bank statement on March 1 and reports his forged checks shown on the statement on April 23. Friendly Bank must credit Ivan's account for the forged checks.
Q:
A written stop payment order is effective for six months.
Q:
Janice and her daughter have a joint checking account. The basic insurance coverage by the FDIC can protect this account only up to $100,000.
Q:
An intermediary bank is the first bank to which an item is transferred in the course of collection.
Q:
If Nina, a payee, deposits a check made payable to herself in her own account in a bank that is not the payor bank, any settlement given by the depositary bank is final.
Q:
A bank becomes a creditor when money is deposited in the bank by a customer.
Q:
Julie has a nine month old certified check drawn on Harold Bank. Harold Bank is obligated to pay the check.
Q:
The day grandpa died, he gave a check to Cable Services to pay his cable T.V. bill. If Grandpa's bank knows of his death, it may not pay this check after his death.
Q:
A stale check is a check that is presented for payment more than three months after its date.
Q:
Offering oral statements about the validity of an instrument is known as uttering.
Q:
A demand negotiable note for $500 issued by Sabin and given to Norm is altered to read $5,000 and subsequently presented for payment by Bridget, a holder in due course. Discuss the case.
Q:
Shane carefully wrote a check for $300 and gave it to Ethos Art Gallery for the purchase of a painting. Ethos raised the check to read $800. Shane's bank honored the altered check. Analyze the course of actions Shane could take.
Q:
Charles writes a check payable to Jane on his account at Friendly Bank. Friendly accepts the check but subsequently determines that there are insufficient funds in Charles' account to pay the check. Explain what liability Charles has.
Q:
Big Bank is unable to provide notice of dishonor for three days because a fiber optic cable was accidentally cut by a construction worker. Will Big Bank be liable for its failure to act in a timely manner?
Q:
When the bank collects or attempts to collect checks made payable to the customer, it acts as the customer's agent.
Q:
Tammy purchases a promissory note that has numbers scratched out and rewritten. What legal problem will Tammy encounter in claiming to be a holder in due course of the note?
Q:
LeVoe wrote a check for $1,200 to the order of Henry Smith and delivered it to Smith in payment for a used car that Smith said had a rebuilt engine. Smith indorsed the check and delivered it to Kraus. LeVoe stopped payment on the check when she discovered that the engine had not been rebuilt. Analyze the case.
Q:
Callaghan bought a bedroom set from a furniture store and signed a consumer credit contract agreeing to pay $150 in 12 monthly installments. The furniture store immediately negotiated the credit contract to a finance company, with which it had an arrangement, and received payment. The furniture turned out to be defective. Discuss if Callaghan can use the defense of defective furniture against the furniture store and the finance company for the money owed.
Q:
Ten year old Felicity fell in love with a golden retriever puppy which she saw in the window of Pet World. She decided to use the money she had saved from her paper route to buy the dog and wrote a $300 check, payable to Pet World. Does Pet World qualify as a holder in due course?
Q:
In exchange for some illegal drugs, Popka wrote a $500 check to White. Immediately thereafter, Popka stopped payment on the check. Can White recover the $500 from Popka in court? Explain.
Q:
Mark is mentally incompetent and delights in signing documents. Henry persuades Mark to sign numerous promissory notes which he negotiates. Which of the following is true of this situation? Must Mark pay these notes if they have been held by holders in due course?
A. Mark must pay these notes since duress is not involved.
B. Mark does not have to pay these notes since he has a real defense.
C. Mark must pay these notes since there is a fraud in the inducement.
D. Mark must not pay these notes since no one could anticipate this happening.
Q:
Indorsers are obligated to make the payment only when:
A. the instrument has not been properly presented to the drawee or party obliged to pay the instrument.
B. the instrument is not dishonored.
C. the notice of dishonor is not given to the secondary party within the time and manner mentioned.
D. the instrument has been properly presented to the drawee or party obliged to pay the instrument, and payment must be demanded.
Q:
_____ means a demand made by a holder to pay or accept an instrument.
A. Dishonor
B. Presentment
C. Alteration
D. Real defense
Q:
Dishonor means:
A. fraud in the payment method.
B. deception in the amount of payment.
C. refusal to pay a negotiable instrument.
D. an extension of payment.
Q:
Bob purchases a $1,000 negotiable promissory note from a stranger for $100 that appears to be valid. Will Bob qualify as a holder in due course?
Q:
Carl finds a lost dog and returns it to its owner, Betty. Betty gives Carl a check for $50 for his efforts, but later stops payment on the check. Carl cashed the check at Cash-All-Checks, who now seeks to recover from Betty. Will Cash-All-Checks be successful?
A. Betty has a real defense against Carl and Cash-All-Checks.
B. Betty has no defense against Cash-All-Checks, hence the latter will be successful.
C. Betty has a personal defense that allows Cash-All-Checks to be successful.
D. Betty has a defense against Cash-All-Checks since the check is less than $100.
Q:
How is "failure of consideration" and "lack of consideration" related?
A. They are real defenses which can be used against holders in due course.
B. Failure of consideration is a real defense and lack of consideration is a personal defense.
C. Failure of consideration is a personal defense and lack of consideration is a real defense.
D. They are personal defenses which cannot be used against holders in due course.
Q:
Thomas signed a blank promissory note and placed it on his office desk. Kelly, also present there, took the note. The note ended up in the possession of Big Bank. What defense to payment does Thomas have?
A. Contributory negligence
B. Lack of delivery
C. Failure of consideration
D. Lack of possession
Q:
Which of the following states that holders of consumer credit contracts who are holders in due course are subject to all claims and defenses that the buyer could use against the seller, including personal defenses?
A. Shelter provision
B. Holder in due course rule
C. Lack of consideration
D. Universal defenses
Q:
Which of the following is true of real defense?
A. Real defenses can be used against holders, but not holders in due course.
B. Anyone who has a real defense is required to pay an instrument.
C. Real defenses can be used against everyone, including holders in due course.
D. Real defenses include breach of contract, failure or lack of consideration, fraud in the inducement, and payment.
Q:
Tom gave celebrity Lynnetta Landau a blank sheet of paper and asked her to sign her autograph on it. Then, without Lynetta's knowledge, Tom wrote a promissory note made payable to him for $3,000 above her signature. This kind of fraud is known as fraud:
A. as to the essential nature of the transaction, which may not be used as a defense against a holder in due course.
B. as to the essential nature of the transaction, which may be used as a defense against a holder in due course.
C. in the inducement, which may not be used as a defense against a holder in due course.
D. in the inducement, which may be used as a defense against a holder in due course.
Q:
Personal defenses are defenses that can be used against:
A. natural persons but not corporations.
B. a holder in due course of a negotiable instrument but not a holder.
C. a holder but not a holder in due course of a negotiable instrument.
D. any party with whom the holder in due course has dealt with.
Q:
When one of the parties to a contract has failed to do what he or she has previously agreed to do, it is a:
A. fraud in the inducement.
B. failure of consideration.
C. breach of contract.
D. lack of delivery.
Q:
A defense that may not be used against a holder in due course of a negotiable instrument is a:
A. limited defense.
B. personal defense.
C. real defense.
D. secondary defense.
Q:
Which of the following can be used as a personal defense?
A. Infancy
B. Illegality and duress
C. Bankruptcy
D. Payment
Q:
Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument?
A. It can be used when the instrument is negotiated to a holder in due course.
B. It can be used when no consideration exists in the underlying contract for which the instrument was issued.
C. It can be used when one of the parties breach the contract by not furnishing the agreed consideration.
D. It can be used if a party, induced by a fraudulent statement to enter a contract, is the holder of a negotiable instrument issued as part of the transaction.
Q:
Notice of dishonor of a check may only be given through a Federal Reserve Bank.
Q:
A holder in due course of a negotiable instrument:
A. can receive more rights than the previous holders.
B. cannot transfer greater rights than they have themselves.
C. can take an instrument even when it is not indorsed to him/her.
D. is a person to whom the instrument is transferred as a gift.
Q:
Tom and Cindy received a $2,000 income tax return check from the IRS payable to "Tom and Cindy." Cindy indorsed the check to Friendly Motors as a down payment on a car. Which of the following is true of this situation?
A. Friendly Motors is the holder of the check.
B. Friendly Motors is a holder in due course.
C. Friendly Motors is the holder and the indorser.
D. Friendly Motors is not the holder of the check.
Q:
Green Grocer Wholesale Inc. received an $800 check from Bob for a grocery purchase. The check was from Forest Enterprises to Ana and had been indorsed to Bob who in turn indorsed the check to Green. The clerk at Green failed to carefully examine the check, not noticing that the number 5 had been changed to an 8. Green Grocer has:
A. not taken the instrument in good faith.
B. taken the instrument in good faith.
C. not taken the instrument in good faith to $500.
D. taken the instrument in good faith to $300.
Q:
On August 15, 2011, Jason indorsed a check dated January 15, 2011, and payable by him to ALS Check Cashing Service. ALS is:
A. a holder in due course even though the check is antedated.
B. not a holder in due course as it has notice that the instrument is overdue.
C. not a holder in due course only if ALS contacted the drawer who agreed to honor the check.
D. a holder in due course only if ALS contacted the drawee who agreed to honor the check.
Q:
Ted gave Stanly a $300 negotiable note for repairs to his car. Stanly did not do the repairs but indorsed the note to Nami who did not know of Stanley's lack of work and paid Stanly for its note. Nami gave the note to her daughter, Sopan, for Christmas and Sopan attempted to collect the note. What is Sopan's legal status?
A. Sopan is not a holder in due course but has the rights of a holder in due course.
B. Sopan is not a holder in due course and has no rights of a holder in due course.
C. Sopan is not a holder in due course but does qualify as a holder in gift status.
D. Sopan has no rights since she did not give consideration.
Q:
A check given for an illegal gambling contract does not provide a defense to payment against a holder in due course.
FALSE
An instrument that is associated with duress or an illegal act, such as twisting one's arm or drug trafficking, would be void and uncollectible by anyone, even a holder in due course. This provision is true even if the holder in due course is unaware of the illegal acts or conditions.
Q:
The holder in due course of a note discharged in bankruptcy has no hope of collecting any funds.
Q:
If Zena writes a check in pencil that is subsequently altered by Utley, Zena has recourse against her bank that paid the altered check.
Q:
Only the maker of the note is obligated to pay an instrument without reservations of any kind.
Q:
The drawer of a draft that has not been accepted is obligated to pay the draft to anyone who is entitled to enforce it.
Q:
Fraud in the inducement is a personal defense.
Q:
If a negotiable instrument is negotiated to a holder in due course after it has been paid, it will have to be paid again.
Q:
The Department of Commerce adopted the holder in due course rule.
Q:
No one who has a real defense is required to pay an instrument.
Q:
When Tina was fifteen years of age, she gave a negotiable note payable five years later to Sam. He negotiated it to Neighborhood Bank, a holder in due course. Tina may assert her age as a defense against Neighborhood Bank to disaffirm the payment.
TRUE
Q:
If Spader is found insane by a court, any checks he has written will be considered void.
Q:
A "holder in due course" takes an instrument without notice that anything is wrong with the underlying transaction.
Q:
Juanita received a negotiable instrument as a Christmas present and is therefore a holder in due course.
Q:
If the taker is negligent in not discovering that something was wrong with the instrument, it establishes lack of good faith.
Q:
A check is overdue ninety days after its date.