Question

If a bank uses a substitute check, it makes which of the following warranties?

a. It is not a legal equivalent of the original check.
b. It contains an accurate image of the front and back of the original check.
c. The drawer, indorser, or the depositary bank will be asked to pay a check that has already been paid.
d. Original checks have to be presented to the drawee bank for payment.

Answer 1

A bank warrants that a substitute check contains an accurate image of the original check's front and back, which legally represents the original check, facilitating the banking process.

Step-by-step explanation:

When a bank uses a substitute check, it provides certain warranties to the parties involved. One of these warranties is that the substitute check is a legal representation of the original check. The accurate option here would be that the bank warrants the substitute check contains an accurate image of the front and back of the original check. This means the substitute check serves as a legal equivalent of the original, making processing more efficient since the original does not need to be presented to the drawee bank for payment.

In the context given, a demand deposit is a checkable deposit in banks that is available for making a cash withdrawal or writing a check. Banks, as depository institutions, accept these deposits and use them to make loans. To manage the involved risks, banks often diversify their loan portfolios by making loans or investments in a variety of firms, which decreases the chance of adverse effects due to problems in any one firm or a few firms.