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Exam 29: Checks and Electronic Fund Transfers

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Question 41

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Set forth the characteristics that a traveler's check must have.

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A traveler's check must:
(1) Be payable ...

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Question 42

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[Diamond Earrings] Lena ordered a pair of diamond earrings from Uptown Jewelry Store. She paid in advance because the sales clerk told her that the store would have to pay the supplier before the earrings could be shipped. Later that day, Lena found out from a friend of hers that Uptown Jewelry Store was in financial trouble. Lena was concerned and immediately called her bank and issued a stop-payment order on the check she wrote to Uptown Jewelry Store. She gave the bank all of the correct information orally needed to stop payment on the check. The bank, however, did not stop payment on the check. The check was paid, Uptown Jewelry Store went bankrupt, and Lena was unable to get either her money or the earrings from Uptown Jewelry Store. Lena asked the bank manager for a refund of the check amount. The bank manager told her that the stop-payment order was not good because it was oral and that in any event, under the UCC, banks are not liable for failing to stop payment on a check. The bank manager further told Lena that the bank was a holder in due course, and that Lena is liable for any damages sustained by Uptown Jewelry Store or the bank based upon her attempt to stop payment on the check. -Which statement is correct regarding the bank manager saying that the bank was a holder in due course, and that stop-payment orders could not affect the right of a holder in due course to collect?

A) The bank manager is wrong.
B) The bank manager is correct only if he can establish that the bank employee who actually paid the check had no knowledge of the stop-payment order.
C) The bank manager is correct unless Lena can affirmatively prove that the bank employee who actually paid the check had knowledge of the stop-payment order.
D) The bank manager is correct unless Lena can prove fraud in the factum on the part of Uptown Jewelry.
E) The bank manager is correct unless Lena can prove fraud in the factum on the part of Uptown Jewelry and that the bank was aware of the fraud.

F) A) and D)
G) A) and C)

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Question 43

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The first ________ of any amount deposited in a bank must be available to the depositor on the business day following the day of deposit.

A (n) ________ is considered an instrument whereby one party orders the second party to pay an amount of money to the party listed on the instrument.

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank. -Which statement is correct regarding whether Tom will have to bear the loss on the later forgeries, other than the first one, by Rose?

A check is referred to as a(n) ________ when the depositary bank is the same bank as the payor bank.

Which part of the UCC governs the transfer of checks between banks?

Which of the following was the result on appeal in Merisier v. Bank of America, the case in the text in which the plaintiff sued challenging the bank's determination that based on her involvement, she was not entitled to funds obtained through alleged fraudulent use of her debit card?

The UCC requires banks to certify a check if a customer has sufficient funds in the account.

Which statement is correct regarding entities considered banks under the UCC?

The UCC states that a customer can postdate a check and that the customer has no obligations to give the bank notice of the postdated check.

Assuming the bank is not negligent, in the case of multiple forgeries by the same wrongdoer, what is the effect of a customer's failure to notify the bank of the first forgery in regard to subsequent forgeries?

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank. -Which statement is correct regarding whether Tom will have to bear the loss on the first forged check by Rose?

Which of the following is true regarding parties who are related to an order?

Did the bank properly dishonor the check to Rhea?

A(n) ________ is defined by the UCC as a change, without consent, that nullifies the obligation of a party to the instrument.

The Federal Reserve has stated that Regulation E applies to e-money transactions.

[Bad Check] Alana, a bank teller, saw that customer Liam did not have sufficient funds in his account to cover a check presented for payment. Alana was new and was confused about what to do with the check. She asked the bank manager, Pedro, about any available options. Pedro told her that the bank was required by law to dishonor the check, the check should be returned to the holder with a notation that it had been dishonored, and that it could not be presented again. Alana asked Pedro if there were any policies the bank could institute to provide customers with overdraft protection, and Pedro answered that those were prohibited by law. -Which statement is true regarding Pedro's statement that once the check had been dishonored, it could not be presented again?

The depositary bank is sometimes the same as the collecting bank.

Under the UCC Article 3, checks are considered negotiable instruments.