Question 1

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.If there are insufficient funds in Jen's account to cover the amount of the check,but the bank pays it,this creates

Accepted Answer

If there are insufficient funds in Jen's account to cover the amount of the check, but the bank pays it, it creates an overdraft, where the bank essentially loans Jen the money to cover the check amount.

Question 2

Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller.Later,Shakira discovers a defect in the device and orders Thrifty to stop payment on the check.Shakira does not renew the order,and the bank clears the check eight months later.The bank

Accepted Answer

Once a check has been cleared, the bank is no longer responsible for the funds. Shakira's order to stop payment was not renewed, so the bank had no reason to hold back the payment. Therefore, the bank is not obligated to recredit Shakira's account.

Question 3

Jon writes a check to LocoMotion,Inc.,as payment for a golf cart but soon discov-ers the cart is broken.He goes to Fairway Bank,the drawee,and orally author-izes Lolly,a bank officer,to stop payment on the check.This order is valid for

Accepted Answer

According to the Uniform Commercial Code (UCC), oral orders to stop payment on a check are valid for fourteen days. After that, written confirmation is required to continue the stop payment order. Therefore, choice A is the best choice.

Question 4

Fact Pattern 18-1
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
-Refer to Fact Pattern 18-1.Capital Bank

Accepted Answer

Capital Bank must stop payment if Echo issues a stop-payment order and the bank has a reasonable time to act on it.

Question 5

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing.Which of the following parties is responsible for paying the check?

Accepted Answer

State Bank is responsible for paying the check because it has drawn the check on itself, making it the drawee and liable for payment to the payee, Paul's Plumbing.

Question 6

Julia opens a checking account with Washington Bank and deposits funds into the account.Julia and Washington Bank

Accepted Answer

When Julia deposits funds into her checking account, she becomes the creditor, and Washington Bank becomes the debtor, as the bank owes her the amount deposited.

Question 7

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1.Mary dies on May 3.Bill presents the check to County Bank on May 5.County Bank

Accepted Answer

County Bank may pay the check because it was issued before Mary's death and presented within a reasonable time. The death of the drawer does not automatically revoke the bank's authority to pay a check unless the bank is aware of the death and has had a reasonable opportunity to act on it.

Question 8

Luc writes a check for $1,000 drawn on Ridgetop Bank and presents it to Bianca.Bianca presents the check for payment to Ridgetop Bank,which dis-hon-ors it for insufficient funds.The party most likely liable to Bianca is

Accepted Answer

Luc is liable for the check he wrote, and Bianca can pursue him in a civil suit for the amount of the check. Ridgetop Bank may also face consequences for their role in the situation, but they are not the party directly liable to Bianca.

Question 9

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks.The bookstore deposits the check in its account in Eagle Bank.Like most checks,this check is

Accepted Answer

The check is a type of draft because it orders Delta Bank to pay City College Bookstore.

Question 10

Fact Pattern 18-1
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
-Refer to Fact Pattern 18-1.Capital Bank pays the check.Capital

Accepted Answer

Capital Bank is liable for Echo's loss due to the wrongful payment as they did not verify if the stop-payment order was valid or not before paying the check. Echo can pursue legal action against Fix-It separately for the alleged improper repair of her car.

Question 11

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on

Accepted Answer

The answer of Simon signs a check "pay to the...

Question 12

Little Local Bank wrongfully fails to honor a check signed by its customer Andrea.Little Local Bank is

Accepted Answer

Little Local Bank is liable to Andrea for damages resulting from its refusal to pay. The bank has a duty to honor valid checks written by its customers. By wrongfully failing to honor Andrea's check, the bank breached that duty, and Andrea suffered damages as a result. Therefore, the bank is liable for those damages.

Question 13

Daria writes a check for $100 drawn on Village Bank and presents it to Fast Cash,Inc.,for payment.If the check is not backed by sufficient funds,Daria may be prosecuted for

Accepted Answer

Daria would be committing fraud by presenting a check without sufficient funds, also known as writing a "bad check". Depending on the circumstances, she could face criminal prosecution for this offense.

Question 14

Jacob writes Phillip an uncertified check for $500 on January 1.Seven months later,Phillip presents the check at the bank.The bank pays the check in good faith without consulting Jacob.The bank

Accepted Answer

The bank has the right to charge Jacob's account for $500 because Phillip presented the check within the time frame allowed by law (typically six months). The fact that the check was uncertified does not absolve Jacob of his obligation to pay it. The bank acted in good faith by paying the check without consulting Jacob, and is not liable to Jacob for any damages resulting from the transaction.

Question 15

Martha has a checking account with Homeplace Bank.Martha signs a check "payable to Phillipa" drawn on Martha's account.Homeplace Bank is

Accepted Answer

The answer of Martha has a checking account with Homeplace...

Question 16

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is

Accepted Answer

This is a cashier's check because Elmo is paying the bank to guarantee the funds and make the check payable to Go Delivery Service.

Question 17

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is

Accepted Answer

Forgery is a crime, and a forged signature on a check is not legally effective. Therefore, Caleb's forged signature is not effective and the check should not be honored by Downtown Bank.

Question 18

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check

Accepted Answer

Verity Bank will have to recredit Uma's account because the bank is responsible for verifying the authenticity of signatures on checks. Since Uma's signature was forged, the bank is liable for the unauthorized payment.

Question 19

Elton presents an uncertified check for payment more than six months after its date.The check was drawn by Dakota on her account in First Community Bank.The usual banking practice in such a case is to

Accepted Answer

The answer of Elton presents an uncertified check for payment...

Question 20

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is

Accepted Answer

A stale check is a check that is presented for payment six or more months after the date on the check. In this case, Etan presented the check for payment seven months after the date it was written, making it a stale check. The bank may refuse to honor the check or may require Dhani to issue a new one.

Quiz 18: Checks and Banking in the Digital Age