Checks, the Banking System, and E-Money
Questions and Problems for Discussion
1. a. It is important to know that postdating a check does not destroy negotiability. While not
properly payable before the due date, if a bank pays it earlier it may do so without liability
unless the drawer notifies the bank to not pay until the date of the check.
2. No, a check does not become void and the bank may pay it if it wishes.
3. c. A point-of-sale (POS) transaction allows a customer to use a debit card. Using a debit
card means that the merchant is paid immediately out of one of the customers accounts
(checking, savings etc.) This way the merchant faces less risk of nonpayment. The other
methods listed in this problem (credit cards, and checks) involve more risk.
4. Yes, Perkins had a maximum of one year to report the forgeries to the bank. Although he
reconciled four bank statements together he was well within a year. Therefore, the bank
must re-credit Perkins account for $1600.
5. Yes, the bank is liable to a depositor if it pays a forged check. The amount of the forged
check must be restored to the depositor’s account if the forgery is reported within one
year after the depositor receives the canceled check. Since Bowie notified the bank of a
forgery within one year, the $50 must be restored to her account.
6. No, if a check is not certified, the holder or payee has no claim against the bank for
dishonor of the check. The bank’s contractual obligation is with the depositor and does not
extend to the payee or holder. In this case, Lotus must proceed against the drawer and any
secondary parties in order to enforce payment.
7. No, once a check is certified by the bank, the bank undertakes an absolute promise to pay
it. The check becomes the bank’s obligation. The drawer has no right to place a stop-
payment order on it.
8. No, an oral stop-payment order is valid for only fourteen days. A written stop-payment
order is valid for six months. In this case, Tanaka’s oral stop-payment order, which was
given on August 15, was valid through August 29. Since Tanaka did not file a written stop-
payment order until September 1 and the bank paid the check on August 31, the bank is
not liable for payment on the check.
9. Yes, the bank is liable for the payment of an altered check because it alone has the
opportunity to inspect the check at the time of payment. In the absence of negligence on
the part of the drawer, the bank will be responsible for the amount of the alteration. Here,
the amount was altered from $100 to $1,100. Since Martin was not negligent and
promptly notified the bank after receiving the canceled check, the bank must return the
$1,000 (the amount of the alteration) to her account.
10. b. Under the UCC a bank is not obligated to pay a stale check (more than six months old
figured from the date of the check), other than a certified check. Randolph, however, is not
excused from paying because the check is more than six months old; the bank may pay it if
there are sufficient funds in Randolph’s account and/or the bank itself is not insolvent and
unable to pay.