Q&A Hero

Q: City Bank mistakenly transfers $1,000 from the account of Donna, its customer, to the account of Earl in First Federal Bank. The transfer is done electronically. When City Bank learns of the mistake, it credits Donna's account and asks First Federal to "return" $1,000. First Federal refuses. City Bank files a suit against First Federal, claiming that it is violation of the Electronic Fund Transfer Act. How might the court rule?

Q: Fred steals two checks from Eagle Retail Stores, Inc.: a blank check and a check payable to the order of General Supplies Company (GSC), drawn on Eagle's account with First National Bank. Fred forges Eagle's signature on the blank check and makes it payable to himself. Fred forges GSC's indorsement on the back of the check payable to GSC, and adds "Pay to the order of Fred." At Ace Credit, Inc., Fred indorses the back of both checks with his own name and gives them to Ace for cash. Ace does not know about the theft or the forged signatures and presents the checks to First National, which pays them. Eagle, which was not negligent, discovers the forgeries and asks First National to recredit its account. Who suffers the loss on each check?

Q: 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.

Q: 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.

Q: Fact Pattern 27-3 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.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.

Q: Fact Pattern 27-3 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.Refer to Fact Pattern 27-3. Mike is responsible for a. $0. b. $50. c. $500. d. $3,000.

Q: 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.

Q: Fact Pattern 27-2 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. 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.

Q: Fact Pattern 27-2 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. 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: Fact Pattern 27-1 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.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.

Q: Fact Pattern 27-1 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.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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: Federal laws that prohibit unauthorized access to electronic communications may apply to e-money transactions.

Q: Digital cash consists of funds stored on microchips and other computer devices.

Q: A customer has sixty days from the date of receipt of a statement of an electronic transfer to notify the financial institution of any errors.

Q: Most checks are processed manually.

Q: A payor bank is also a collecting bank.

Q: Generally, the funds represented by a deposited local check must be available for withdrawal within one business day.

Q: A bank that pays a customer's check with a forged indorsement must recredit the customer's account.

Q: A customer who fails to examine a bank statement and report a forged signature may be liable for later forgeries by the same wrongdoer.

Q: A bank can recover from a holder who cashes a check bearing a forged drawer's signature if the holder knew of the forgery.

Q: A bank is never liable for failing to honor a customer's stop-payment order.

Q: An oral stop payment order is valid for fourteen days.

Q: A stale check is one that has been outstanding for longer than one month.

Q: A bank is not obligated to pay an uncertified check presented more than six months from its date.

Q: Once a check "bounces," a holder cannot resubmit it for payment.

Q: A drawer is liable to the holder of a check if the check is not honored.

Q: A drawee bank may be liable to its drawer customer if the bank refuses to honor the drawer's check when there are sufficient funds in the account.

Q: A person who writes a bad check is subject to a civil suit only.

Q: To transfer checkbook dollars among different banks, each bank acts as an agent of collection for its customer.

Q: A bank that has certified a check is under no obligation to accept it.

Q: A cashier's check is an instrument in which a bank draws a check on itself.

Q: Alan transfers a note, for consideration, to Brenda by blank indorsement and delivery. Brenda transfers the note to Carl, who takes it in good faith. What does Alan warrant to Carl?

Q: Dale issues a check for $4,000, dated June 1, to Ellen. The check is drawn on First Federal Bank. Ellen indorses the check and transfers it to Gene. What will trigger the liability of Dale and Ellen on the check?

Q: Perfect Products sells shoddy goods to consumers for promissory notes, and sells the notes to Quik Finance Company. Perfect Products goes out of business. The consumers may be able to avoid payment on the notes under a. Article V of the U.S. Constitution. b. FTC Rule 433. c. the shelter principle. d. UCC Article 3.

Q: Alpha Company gives a $3,000 promissory note to Best Delivery Service to deliver a load of computer chips to Alpha's plant. The chips are contaminated during transit, and are useless to Alpha on delivery. Alpha's best defense to payment on the note is a. breach of warranty. b. failure of consideration. c. illegality. d. nondelivery of an instrument.

Q: Dandy Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount. Easy changes the amount of the note to $120,000 and increases the rate to 8 percent. Easy materially altered the note when it changed a. neither the amount nor the interest rate b. the amount and the interest rate. c. the amount only. d. the interest rate only.

Q: Chris convinces Dion, who does not understand English, to sign a $1,000 note that Dion believes is an application for a credit card. Chris negotiates the note to EZ Finance Company. Dion a. can avoid payment on the note even if EZ is an HDC. b. can avoid payment on the note only if EZ is a holder. c. must pay EZ the amount that it paid for the note. d. must pay the note in full.

Q: Opal asks Paolo, who does not understand English, to sign what Opal says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC, Paolo's best defense would be a. extreme duress. b. fraud in the execution. c. fraud in the inducement. d. mistake.

Q: Quincy signs a check payable to Regal Investors, Inc., and gives it to Regal, leaving the amount blank but authorizing Regal to fill in the check for $1,000. Regal fills in $1,500 and negotiates the check to State Bank, to whom Regal owes $1,500. State Bank, an HDC, can enforce the check for a. $0. b. $500. c. $1,000. d. $1,500.

Q: City Bank issues to Dave a cashier's check. Evan steals the check, forges Dave's signature, adds his own signature, and cashes it at First County Bank, which obtains payment from City. Dave discovers the theft and obtains a replacement check from City, which sues First. The court will likely rule in favor of a. City, because First breached the presentment warranty that there are no unauthorized indorsements on the check. b. City, because First can recover the money from Evan. c. First, because City breached the presentment warranty that there are no unauthorized indorsements on the check. d. First, because City can recover the money from Dave.

Q: Dina, an accountant for Eagle, Inc., issues company checks payable to nonexistent persons drawn on Eagle's account at First State Bank. Dina indorses the checks and deposits them in her account. Eagle discovers the theft and demands that First recredit its account. First's best defense is that a. Dina was not authorized to issue the checks. b. Eagle was in a better position than First to prevent the theft. c. First did not know that the checks were not to be paid. d. the checks were the property of Eagle, not First.

Q: Aron, an employee of Beta Company, forges the signature of Chloe, Beta's president, on a Beta check and cashes it at Delta Bank. Chloe would ratify Aron's actions by a. asking the bank to prosecute Aron for forgery. b. discharging Aron from Beta"˜s employment. c. entering into a repayment agreement with Aron. d. filing criminal charges against Aron herself.

Q: Fact Pattern 26-2 Ilsa, an agent for Joe, enters into a deal with Kappa Holdings, Inc., to buy a café. Refer to Fact Pattern 26-2. If Ilsa signs her name followed by the word "agent" on the check without identifying Joe, then she is most likely personally liable on the check a. only if Ilsa would have bought the café herself. b. under any circumstances. c. unless Ilsa reasonably believes that she is acting as Joe's agent. d. unless Joe knows that Ilsa is acting as his agent.

Q: Fact Pattern 26-2 Ilsa, an agent for Joe, enters into a deal with Kappa Holdings, Inc., to buy a café. Refer to Fact Pattern 26-2. If Ilsa signs only her name on the check without noting that she is Joe's agent, then she is most likely personally liable on the check a. only if Ilsa would have bought the café herself. b. under any circumstances. c. unless Ilsa reasonably believes that she is acting as Joe's agent. d. unless Joe knows that Ilsa is acting as his agent.

Q: Fact Pattern 26-2 Ilsa, an agent for Joe, enters into a deal with Kappa Holdings, Inc., to buy a café. Refer to Fact Pattern 26-2. If Ilsa signs both her name and Joe's name on a check to buy the café without noting on the instrument that she is Joe's authorized agent, then she is most likely personally liable on the check a. only if Ilsa would have bought the café herself. b. under any circumstances. c. unless Ilsa reasonably believes that she is acting as Joe's agent. d. unless Joe knows that Ilsa is acting as his agent.

Q: Fact Pattern 26-1 Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank.Refer to Fact Pattern 26-1. If Investment Bank dishonors the check, Lisa can obtain payment from Kelly a. if Lisa timely notifies Kelly. b. only if Holly refuses to pay the check. c. only if Holly and Jerry refuse to pay the check. d. under no circumstances.

Q: Fact Pattern 26-1 Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank.Refer to Fact Pattern 26-1. If Investment Bank dishonors the check, Lisa can obtain payment from Jerry a. if Lisa timely notifies Jerry. b. only if Holly refuses to pay the check. c. only if Holly and Kelly refuse to pay the check. d. under no circumstances.

Q: Ed acquires a check drawn on First National Bank. To present the check for payment, he may use any commercially reasonable a. electronic or written means of communication only. b. oral or written means of communication only. c. electronic, oral, or written means of communication. d. written means of communication only.

Q: Fact Pattern 26-1 Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank.Refer to Fact Pattern 26-1. Kelly is a. not liable for payment under any circumstances. b. primarily liable. c. secondarily liable. d. simultaneously liable.

Q: Fact Pattern 26-1 Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank.Refer to Fact Pattern 26-1. Holly is a. not liable for payment under any circumstances. b. primarily liable. c. secondarily liable. d. simultaneously liable.

Q: Ann is the maker of a $1,000 promissory note in favor of Bob. Bob indorses the note to Cody who, in turn, indorses it to Dru, the present holder. The party entitled to recover payment from Cody is a. Ann. b. Bob. c. Dru. d. no one.

Q: Tina indorses a check. Tina is potentially liable for a. any amount paid on the check after Tina indorsed it. b. any amount paid on the check at any time. c. any amount paid on the check before Tina indorsed it. d. the amount paid to Tina when she indorsed the check.

Q: Ada is the maker of a note, on which Bart is secondarily liable. Cash & Credit Company (C&C) is the current holder of the note. Bart will be obligated to pay the note if a. Ada defaults on the note. b. C&C breaches a transfer warranty. c. C&C negotiates the note to Delta Collection Agency, a third party. d. C&C presents the note for payment.

Q: Accidental destruction of a negotiable instrument cancels it.

Q: When the drawee of an unaccepted draft or check pays to a holder the amount due in full, all parties to the instrument are discharged.

Q: The defense of minority is always a universal defense.

Q: The defense of illegality is always a personal defense.

Q: When a person signs a negotiable instrument under extreme duress, the instrument is enforceable only by an HDC.

Q: Personal defenses defeat the claims of HDCs.

Q: A drawer's discharge in bankruptcy will defeat the claim of an HDC for payment on a check issued by the drawer.

Q: Fraud in the execution occurs whenever someone signs an instrument before all essential terms have been completed.

Q: A person who transfers an instrument warrants to any other person who in good faith accepts it (with exceptions) that it has not been altered.

Q: A drawer who is induced by an imposter to issue a check in the name of an impersonated payee can avoid payment on the check to an innocent holder.

Q: An unauthorized signature binds the person whose name is forged.

Q: An authorized agent may be personally liable on an instrument if the agent signs the agent's name but not the principal's name.

Q: In general, an agent must clearly indicate that he or she is signing on behalf of a clearly named principal to bind the principal.

Q: An accommodation maker is secondarily liable on an instrument.

Q: To properly present a draft for payment, the holder must present it to the drawer.

Q: A drawer's liability does not arise until presentment and notice of dishonor.