Finance - Chapter 18
Which of the following is not a potential online banking service?
Cashing checks.
When the customer's negligence substantially contributed to the forgery, the bank normally will not be obligated to recredit the customer's account for the amount of the check. The customer's liability MAY be reduced, however, by
the amount of loss caused by negligence on the part of the bank paying the instrument or taking it for value if the negligence substantially contributed to the loss.
Eva makes her monthly payment on her student loan by writing a check payable to the U.S. Department of Education (DOE). With respect to Eva's check,
the DOE is the payee, because it is the party being paid.
Consumer fund transfers are governed by
the Electronic Fund Transfer Act (EFTA).
An overdraft is a check
that is written on a checking account in which there are insufficient funds to cover the check and that is paid by the bank.
Reed & Reed, Inc., hired Judy Bode as an executive secretary for one of the owners, Emerson Reed. No background check was made, for if it had been, Reed & Reed would have discovered that Bode had been arrested for passing forged checks. Over the next year, she was gradually given responsibility for all of Reed's checking accounts, including reviewing the bank statements and reconciling the statements with the corresponding checkbooks. Reed had lost his hand in a hunting accident, so he had a rubber signature stamp made. Bode had easy access to the stamp and used it on thirty-five occasions over the course of ten months to forge checks for herself. Reed did not review his own bank statements during those ten months and was unaware of the forgeries at the time. At the end of the ten months, by chance, he discovered the forgeries and filed a lawsuit against the bank to recover the amounts of the checks wrongfully honored by the bank. Will a court most likely allow Reed to recover the funds from the forged checks? Why or why not?
No. The court most likely held that Reed could not recover, because he did not examine his own bank statements in a timely manner.
JEB Corp. had a checking account with Gulfstream First Bank & Trust. To avoid embarrassment for its customers who close their accounts and have their checks bounce due to insufficient funds, Gulfstream routinely honors checks for thirty days after a checking account is closed. Nonetheless, JEB was not made aware of this policy when it closed its checking account. JEB did not have this policy in writing, nor did Gulfstream orally inform anyone at JEB of this policy. Within thirty days after the account was closed, two outstanding checks written by JEB were presented to the bank for payment. The bank paid the checks and requested reimbursement from JEB. When JEB refused to repay the bank, the bank filed a lawsuit against JEB for recovery of the amounts. Would a court allow Gulfstream First Bank & Trust to recover the funds for the two outstanding checks from JEB Corp.? Why or why not?
No. The court most likely held that the bank was not able to recover from JEB, because their agency relationship ended with the account closure so it had no authority to bind JEB to payment on the checks.
Karen loses three checks from her checkbook: #536, #537, and #538. She requests and executes a written stop-payment order with her bank, ordering the bank not to pay these checks. Three months later, her bank pays check #537 in the amount of $1,500, causing Karen's account to be overdrawn.
The bank is liable.
Lawrence Kruser and his wife, Ruth, maintained a joint checking account with Bank of America on which they were issued ATM cards. The Krusers believed that Lawrence's ATM card was destroyed in September, but their December account statement showed a $200 withdrawal from their account by someone using Mr. Kruser's card. Ruth did not examine the December bank statement promptly, because at that same time, she underwent surgery that required months of recuperation. Indeed, she did not discover the unauthorized withdrawal until the following August, although upon finding it, she immediately reported it to the bank. In September, the Krusers received bank statements for July and August, which showed forty-seven unauthorized withdrawals that totaled $9,020 made by someone using Lawrence's ATM card. The Krusers notified the bank within a few days of receiving the statements, but the bank refused to reimburse them for the withdrawals. The Krusers filed a lawsuit in a California state court against the bank. The bank claimed that it was not liable for charges made on a card that it would have canceled had it known of the first unauthorized withdrawal. How would a court most likely rule in this situation?
The court most likely held that the bank was relieved of liability, because the Krusers failed to notify the bank of the original unauthorized withdrawal.
Robert Porter tried to withdraw $100 from his Citibank checking account at an automated teller machine. When no money was dispensed from the machine after Porter had pushed the necessary buttons, he reported the incident to a bank official. A few weeks later, Porter tried to withdraw $200. When no money appeared after two tries, he again reported the problem to a bank official. As a result of these two incidents, Porter's next bank statement showed one withdrawal of $100 and two of $200 each. Porter filed a lawsuit against the bank to recover the $500 debit on his checking account for cash he never received. At the trial, bank employees testified that the cash machines were out of balance once or twice a week on average. In addition, they testified, at times a subsequent machine user received cash that properly belonged to the prior user of a machine. Also, at the trial, Porter was found to be a credible witness. Would a court allow Porter to recover the $500 from Citibank? Why or why not?
Yes. The court most likely held that Porter could recover $500 from Citibank, because he notified the bank of the error immediately so that it had an opportunity to make the correction.
Limetree Beach Associates, Ltd., was a limited partnership formed so that its partners could invest in real estate. In such a firm, the limited partners invested cash, and the general partner, Dan Wey, managed the firm. Frank Quinn, one of the limited partners, wrote a check for $30,000 payable to Limetree and delivered it to Wey, who was an authorized signer on the firm's account at American State Bank. Wey indorsed the check in his own name for deposit to his own personal account, which was also at American State. American State sent the check for collection to the drawee bank, National Bank, which paid the check. Quinn then demanded that National re-credit his account the $30,000. Would a court most likely allow Quinn to recover his $30,000 from National Bank?
Yes. The court probably held that Quinn could recover the funds, because the bank failed to carry out his order to pay Limetree and paid Wey instead.
Transnational Bank draws a check on itself, so that it is both the drawer and the drawee. This is known as
a cashier's check.
When a bank draws a check on itself, the check is called
a cashier's check.
A check that has been accepted in writing by the bank on which it is drawn is called
a certified check.
Clint makes his child support payments on time every month, but half of the time, his checks bounce (that is, are dishonored because of a lack of funds). Thus, it takes his ex-wife, Marissa, several days and a great deal of paperwork to receive the funds. Finally, in order to have immediate access to the funds, his ex-wife obtains a court order that requires Clint to make his support payments with a check that his bank guarantees. This type of check is known as
a certified check.
All of the following are forms of e-money, except for which of the following?
a debit card.
The Federal Reserve System, which clears many checks in the United States, is
a network of twelve district banks located around the United States and headed by the Federal Reserve Board of Governors.
Abigail pays for her groceries using a debit card. The kind of electronic fund transfer that takes place with this transaction is known as
a point-of-sale purchase.
Stefan opens a checking account at his neighborhood bank and writes a check on his account. The legal relationship between Stefan and the bank can be described as
an agency relationship.
Traveler's checks are designed to be a safe substitute for cash when a person is on vacation or traveling. The purchaser is required to sign the check
at the time it is bought AND AGAIN at the time it is used.
Any check received by North Hills State Bank that it intends to pass to another bank must be passed on
before midnight of the next banking day after it is received.
Laura forges a check using Jane's identity, and Laura later cashes the check at the bank. The general rule concerning a forged check that is cashed is that
either Jane, the thief, or the bank may be held liable.
The main focus of Article 4 of the UCC is
establishing a framework for banking relationships.
A bank is NOT obligated to pay an uncertified check presented more than six months from its date. When receiving a stale check for payment, the bank
has the OPTION of paying or not paying the check.
When a bank customer writes a check on his or her account,
it creates an agency relationship.
Demetrius writes a check to Bonnie, his niece, for her twelfth birthday. When Bonnie later presents the check for payment, the bank tells her that it is stale because
it was not presented for payment within six months of its date.
The Electronic Fund Transfer Act (EFTA) governs FINANCIAL INSTITUTIONS that
offer electronic fund transfers involving consumer accounts.
A written or electronic stop-payment order is effective for SIX MONTHS, at which time it must be renewed in writing. Although a stop-payment order can be given orally over the phone, it is binding on the bank for
only FOURTEEN CALENDAR DAYS unless confirmed in writing.
Neither the death nor the incompetence of a customer revokes a bank's authority to pay an item until the bank is informed of the situation and has had a reasonable amount of time to act on the notice. Thus, if a bank is unaware that the customer who wrote a check has been declared incompetent or has died, the bank can
pay the item WITHOUT incurring liability.
The bank on which a check is drawn is known as the
payor bank.
When a bank pays a check on which the drawer's signature is forged, generally
the bank is liable.
A depositary bank is
the first bank to receive a check for payment.
A customer who fails to report a forged signature within one year from the date that the statement was made available for inspection loses
the legal right to have the bank recredit his or her account.
Whenever a bank-customer relationship is established, certain contractual rights and duties arise. The specific rights and duties of the bank and its customer DEPEND on
the nature of the transaction.
Sometimes, the same wrongdoer has forged the customer's signature on a series of checks. To recover for all the forged items, the customer must discover and report the first forged check to the bank within
thirty calendar days of the receipt of the bank statement.
Brenna's debit card is stolen. Under the Electronic Fund Transfer Act, she will be liable for only $50 as long as she reports the theft within
two days of discovering it.
