Chapter 25

Question 1

When a customer deposits cash into a bank, a ____ _____ relationship is formed.
Customer is the ______
Bank is the _____

Answer 1

creditor-debtor
creditor
debtor

Question 2

If a customer deposits a check that the bank must collect for them or the customer writes a check against their account a ______ ______ relationship is created.
Customer is the ________
Bank is the ______

Answer 2

principal-agent

Question 3

UCC rules on checks and banking

Answer 3

• Article 3: commercial paper
• Article 4: Bank deposits and collections
• Article 4A: Fund transfers

Question 4

Parties to a check

Answer 4

1. Drawer: customer who writes the check
2. Drawee: the bank of the customer writing the check
3. Payee: To whom the check is written

Question 5

Parties to a cashiers check

Answer 5

1) Drawer and drawee: bank

2) Payee:holder

Question 6

Certified check

Cashiers check

Answer 6

Bank stamps an ordinary check to guarantee to accept and pay the check with funds set aside.
Person pays the bank and a fee for the bank to write a check out to the payee.

Question 7

Stale check

Answer 7

outstanding for more than 6 months

Question 8

Checks that omit certain information: _________ checks.
Any holder can complete the check and a bank can charge the customer’s account.
UCC places risk of loss on ____

Answer 8

incomplete

the drawer

Question 9

The UCC allows for a drawer of a check to postdate it if they do not want it to be cashed until the future. For liability to be placed on the bank, the drawer must:
1.
2.

Answer 9

1. postdate the check

2. notify the bank of the check

Question 10

____ _____ _____: an order by a drawer of a check to the payer bank not to pay or certify a check.
Oral order binding for ___
Written order is binding for ____

Answer 10

Stop-payment order
14 days
6 months

Question 11

What the bank can do when a customer doesn’t have enough in their account for a check they wrote
1.
2.

Answer 11

1. dishonor the check

2. honor the check and create overdraft

Question 12

If a bank does not honor a check when there are sufficient funds in the drawer’s account: ___ ________
Recourse?

Answer 12

wrongful dishonor

Drawer can recover damages, consequential damages

Question 13

Recourse when the bank cashes a check with a forged signature (a forged instrument)?

Answer 13

Bank must recredit the amount into the customer’s account. Bank can recover from party who presented only if they knew it was forged.
Bank can sue forger.

Question 14

If a bank pays an altered check it can..

Answer 14

Recover the difference between the altered amount and original tenor

• from the forger or
• with “breach of presentment warranty” to the first party who accepted the check because they were in the best position to identify the alternation