LAW Exam 3 Chapter 28

Fact Pattern 27-2A (Questions A14 and A15 apply) 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 unau¬thorized alteration. A15. Refer to Fact Pattern 27-2A. Tom deposits an altered check in Ruth's ac¬count. When Unity Bank, the check's drawee bank, re¬turns 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.

State Bank is entitled to recover under its account agreement.

Steve steals one of Tricia's checks and forges her signature. Tricia's bank, Unity Bank, pays the check. Tricia can recover from a. Steve, but not Unity Bank. b. Unity Bank, which cannot recover from Steve. c. Unity Bank, which can recover from Steve. d. no one.

Unity Bank, which can recover from Steve.

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 dis¬hon¬ors 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.

a. Kip in a civil suit.

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 a. a cashier's check. b. a certified check. c. a trade acceptance. d. a traveler's check.

a. a cashier's check

Fact Pattern 27-1B (Questions B15-B17 apply) Tom draws a check, on his account in State Bank in New York, payable to Digital Computers, Inc., in San Francisco. Digital deposits the check in its ac¬count at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve bank sends the check to State Bank. B17. Refer to Fact Pattern 27-1B. When Digital's bank received the check, it was required to pass it on a. before midnight of the next banking day. b. before midnight of the next day, whether or not it was a "banking" day. c. before noon of the next banking day. d. within five business days.

a. before midnight of the next banking day.

John writes a check to Kay as payment for a DVD player but soon discov¬ers the player is broken. He goes to the drawee bank and orally author¬izes 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.

a. fourteen days.

Dan writes a check to Emma on his account at First State Bank. The bank dishonors the check even though Dan has sufficient funds in his ac¬count. The bank is a. liable to Dan only. b. liable to Dan and Emma. c. liable to Emma only. d. not liable to Dan or Emma.

a. liable to Dan only.

. 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.

a. the Community Reinvestment Act.

Pete knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank. The payments were in trans¬mission to City Bank when Pete, without the consent of Randy or City Bank, discovered and revealed them. This may be a violation of a. the Electronic Communications Privacy Act. b. the Federal Reserve Board's Regulation E. c. the Right to Financial Privacy Act. d. the Uniform Electronic Transactions Act.

a. the Electronic Communications Privacy Act.

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car. Jen asks Little Bank to indicate on the face of the check that it will accept it when Key presents it for payment. If the bank agrees, this will be a. a cashier's check. b. a certified check. c. a trade acceptance. d. a traveler's check.

b. a certified check.

Kris presents an instrument that states "pay to the order of Liv" to Metro Bank for payment. This is a special type of draft drawn on a bank, ordering the bank to pay a fixed amount of money on demand. This is a. a certificate of deposit. b. a check. c. a debit card transaction receipt. d. a trade acceptance.

b. a check.

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment. This instrument is the most common type of negotiable instrument, which is a. a certificate of deposit. b. a check. c. a note. d. a trade acceptance.

b. a check.

Ian buys a cell phone in Jiffy Mart, using the means that accounts for more retail payments than any other. This means of payment is a. a commercial check. b. a debit card. c. a personal check. d. a trade acceptance.

b. a debit card.

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank. Thelma has $400 in her account but the amount of the check is $500, which the bank pays. This is a. a dishonored check. b. an overdraft. c. a postdated check. d. a stale check.

b. an overdraft.

First Community Bank agrees to accept a check by setting aside suffi¬cient funds to cover the amount. This check is considered a. cashed. b. certified. c. deposited. d. provisionally credited.

b. certified.

Pat, the manager of Quik Mart, deposits the store's receipts in its account at Regional Bank. As to the receipts, the relation¬ship between Quik Mart and the bank is a. attorney and client. b. creditor and debtor. c. guardian and ward. d. trustee and beneficiary.

b. creditor and debtor.

Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash, Inc., for payment. If the check is not backed by sufficient funds, Dora may be prosecuted for a. forgery. b. fraud. c. negligence. d. robbery.

b. fraud.

Fact Pattern 27-2A (Questions A14 and A15 apply) 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 unau¬thorized alteration. A14. Refer to Fact Pattern 27-2A. 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.

b. is in accord with the UCC.

Fact Pattern 27-3A (Questions A17 and A18 apply) 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. A18. Refer to Fact Pattern 27-3A. When Mike receives his National statement, he demands that the bank investigate the matter and recredit his ac¬count. 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.

b. must investigate and, if the dispute is not resolved within ten days, recredit Mike's account (at least until the dispute is resolved).

On Monday, Eve deposits in her account at First State Bank a local check for $500. After 5:00 P.M. on Friday, from these funds, Eve can withdraw no more than a. $100. b. $400. c. $500. d. $600.

c. $500

Dina's debit card, issued by Eagle Bank, is stolen and used without Dina's permission. Dina tells Eagle Bank within thirty days. Dina may be re¬quired to pay no more than a. $5. b. $50. c. $500. d. $5,000.

c. $500.

Fact Pattern 27-3A (Questions A17 and A18 apply) 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. A17. Refer to Fact Pattern 27-3A. Mike is responsible for a. $0. b. $50. c. $500. d. $3,000.

c. $500.

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank. Greta forges Eppie's indorsement. First Federal pays the check. Most likely a. Dru will be liable for the amount. b. Eppie will have to pay Dru for the amount. c. First Federal will have to recredit Dru's account. d. the Federal Reserve will reimburse all parties for their costs.

c. First Federal will have to recredit Dru's account.

B13. Clyde issues a check payable to Discount Mart. Elle, Discount's cashier, forges the store's indorsement and deposits the check in her bank ac¬count. Clyde's bank, First State Bank, pays the check. Clyde can recover from a. Elle, but not First State Bank. b. First State Bank, which cannot recover from Elle. c. First State Bank, which can recover from Elle. d. no one.

c. First State Bank, which can recover from Elle.

Liu signs a check "pay to the order of Marv" drawn on Liu's account in National Bank. Liu later orders National not to pay the check, but the bank pays it over Liu's order. Subsequent checks written on Liu's account "bounce." Most likely liable for the costs to Liu is a. any party to whom a subsequent check was written. b. Liu. c. Marv. d. National.

c. Marv.

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 a. Simon. b. Trudy. c. United Bank. d. First Federal Bank.

c. United Bank.

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 a. a one-party instrument. b. a four-party instrument. c. a three-party instrument. d. a two-party instrument.

c. a three-party instrument.

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.

c. one year.

E-Bank, an online financial institution, gives financial information about Paula and other customers to a federal agency without the cus¬tomers' 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.

c. the Right to Financial Privacy Act.

First National Bank receives a check drawn on the account of Get-Rich Industries, Inc., one of the bank's customers, at 3 P.M. Friday. Harry, the pre¬senter of the check, is not one of the bank's customers. The bank uses de¬ferred posting with a 2 P.M. cutoff hour. If it decides to dis¬honor the check, it must do so by midnight a. Saturday. b. Sunday. c. Monday. d. Tuesday.

d. Tuesday.

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Una's account in Verity Bank. Most likely, if the bank pays the check a. the Federal Reserve will reimburse all parties for their costs. b. the loss will be apportioned among all of Verity's customers. c. Uma will be liable for the amount. d. Verity will have to recredit Uma's account.

d. Verity will have to recredit Uma's account.

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 a. a dishonored check. b. an overdraft. c. a postdated check. d. a stale check.

d. a stale check.

Fact Pattern 27-1A (Questions A8 and A9 apply) 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. A8. Refer to Fact Pattern 27-1A. Capital Bank pays the check. Capital a. can sue Echo for a wrongful stop-payment order. b. can sue Fix-It for breach of contract. c. can sue no one because it paid a check that was not properly payable. d. is liable for Echo's loss due to the wrongful payment.

d. is liable for Echo's loss due to the wrongful payment.

Earl issues a check drawn on First National Bank to Good Office Supply to pay for six filing cabinets. Later, Earl discovers defects in the goods and orders First National to stop payment on the check. Earl does not renew the order, and the bank clears the check eight months later. The bank a. must recredit Earl's account and substitute acceptable goods. b. must recredit Earl's account or substitute acceptable goods. c. must substitute acceptable goods but not recredit Earl's account. d. need not recredit Earl's account or substitute acceptable goods.

d. need not recredit Earl's account or substitute acceptable goods.

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 a. effective if an innocent third party accepts the check. b. effective to the degree that it matches Caleb's genuine signature. c. effective to the extent that Downtown Bank debits Caleb's account. d. not effective.

d. not effective.

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.

d. provisionally credited.

Fact Pattern 27-1A (Questions A8 and A9 apply) 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. A9. Refer to Fact Pattern 27-1A. Capital Bank a. is liable to Fix-It for the amount of the check. b. must stop payment if Capital has a reasonable time to act. c. need not stop payment unless Echo had a valid reason to act. d. need not follow Echo's order unless the check was certified.

must stop payment if Capital has a reasonable time to act.

Fact Pattern 27-1B (Questions B15-B17 apply) Tom draws a check, on his account in State Bank in New York, payable to Digital Computers, Inc., in San Francisco. Digital deposits the check in its ac¬count at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve bank sends the check to State Bank. B15. Refer to Fact Pattern 27-1B. Digital's bank is a. the cashing bank. b. the depositary bank. c. the intermediary bank. d. the payor bank.

the depositary bank.

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is a. the certifier. b. the drawee. c. the drawer. d. the payee.

the drawer.

Fact Pattern 27-1B (Questions B15-B17 apply) Tom draws a check, on his account in State Bank in New York, payable to Digital Computers, Inc., in San Francisco. Digital deposits the check in its ac¬count at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve bank sends the check to State Bank. B16. Refer to Fact Pattern 27-1B. Tom's bank is a. the cashing bank. b. the depositary bank. c. the intermediary bank. d. the payor bank.

the payor bank.