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Which of the following prevents a holder from being a holder in due course?


A) Notice that the instrument is overdue.
B) Notice that the instrument has been dishonored.
C) Notice that the instrument was issued as part of a series that is in default.
D) Notice that the instrument is overdue, notice that the instrument has been dishonored, and also notice that the instrument was issued as part of a series that is in default.
E) Notice that the instrument is overdue or notice that the instrument has been dishonored, but not notice that the instrument was issued as part of a series that is in default.

F) B) and E)
G) A) and E)

Correct Answer

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When will a party's negligence not permit the party to escape liability for an unauthorized signature?


A) Any type of negligence will result in a party being unable to escape liability for an unauthorized signature.
B) The issue of negligence is irrelevant as to the issue of whether a party may escape liability for an unauthorized signature because a party is always liable for an unauthorized signature.
C) A party who is negligent may not escape liability for an unauthorized signature if the party whose signature was forged behaved so negligently as to substantially contribute to the making of the forgery.
D) A party's negligence will not permit the party to escape liability for an unauthorized signature only if the negligence amounts to a finding of recklessness.
E) A party's negligence will not permit the party to escape liability for an unauthorized signature only if the negligence involved a certified check.

F) B) and E)
G) A) and D)

Correct Answer

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Under the UCC, how can proper presentment be made?


A) By any commercially reasonable means.
B) Through a clearinghouse procedure.
C) At a place designated in the instrument.
D) By any commercially reasonable means, through a clearinghouse procedure, and also at a place designated in the instrument.
E) Through a clearinghouse procedure or at the place designated in the instrument, but not by any commercially reasonable means.

F) B) and E)
G) A) and C)

Correct Answer

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If an instrument is not an unaccepted draft presented to a drawee, which of the following presentment warranties is applicable?


A) That the warrantor of the instrument is entitled to payment.
B) That the instrument has not been altered.
C) That the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
D) That the warrantor of the instrument is entitled to payment, that the instrument has not been altered, and that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
E) The warrantor of the instrument is entitled to enforce the instrument and that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, but not that the instrument has not been altered.

F) B) and C)
G) B) and E)

Correct Answer

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Which of the following is a person promising to pay a set sum to the holder of a promissory note or certificate of deposit?


A) Maker
B) Acceptor
C) Drawer
D) Endorser
E) Promisor

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

Correct Answer

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Which of the following is true regarding the liability of an accommodation party?


A) As a maker, an accommodation party has primary liability; but, as an endorser, the party has secondary liability.
B) An accommodation party has primary liability both as a maker and as an endorser.
C) An accommodation party has secondary liability both as a maker and as an endorser.
D) An accommodation party has primary liability as either a maker or endorser only if all other parties to the instrument have filed bankruptcy.
E) An accommodation party has primary liability as a maker only if all other parties have filed bankruptcy, and secondary liability in any other case regardless of whether the accommodation party is the maker or endorser.

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

Correct Answer

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Which of the following is the principle that if an item is transferred from one person to another, the transferee acquires all the rights to transfer or have in the item?


A) The shelter principle.
B) The transfer principle.
C) The transferee principle.
D) The transferor principle.
E) The holder principle.

F) B) and E)
G) None of the above

Correct Answer

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If an accommodation party pays a note for an accommodated party, the accommodation party has a right of action against the accommodated party to recover the money paid.

A) True
B) False

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Reference - Hot Dress. Doreen writes a check for a dress to Hot Dresses, Inc., a small specialty shop owned primarily by Betty. Betty was getting ready to go on an extended European vacation and temporarily closed down the shop the day after the dress sale to Doreen. When Betty returned, she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months. Betty was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Betty finally took Doreen's check to the bank, Betty requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Doreen's bank, XYZ Bank, the check was dishonored because of insufficient funds in Doreen's account. Although Betty did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Doreen make the check good. Which of the following is the holder of the check?


A) Doreen.
B) Hot Dresses, Inc.
C) Doreen's bank
D) Betty's bank.
E) There is no holder in this instance.

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

Correct Answer

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Identify and describe the two types of digital signatures.

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The two types of digital signatures are ...

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Which of the following may be considered a commercially reasonable manner by which notice of dishonor can be given to a secondarily liable party?


A) Orally
B) In writing
C) Electronically
D) Orally, in writing, and electronically
E) By certified letter only

F) A) and B)
G) C) and E)

Correct Answer

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If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?


A) Before midnight of the next day.
B) Within 48 hours.
C) Within 7 days.
D) Within 10 days.
E) Within 30 days.

F) All of the above
G) C) and D)

Correct Answer

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Which of the following is a person ordering the drawee to pay?


A) Maker.
B) Acceptor.
C) Drawer.
D) Endorser.
E) Promisor.

F) A) and B)
G) B) and E)

Correct Answer

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When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ___________.


A) Destroyed
B) Dishonored
C) Converted
D) Rejected
E) Refused

F) A) and E)
G) B) and E)

Correct Answer

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Which of the following is a personal identifier that can be broken into electronic code?


A) A screen name.
B) A digital signature.
C) A code signature.
D) An identified signature.
E) A maker signature.

F) B) and E)
G) B) and C)

Correct Answer

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Reference - Banking Problems. Constance and Blair are both loan officers at ABC Bank. Constance, being somewhat dishonest, tells Henry, a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances, that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. In fact, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. Henry proceeds back to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a used car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000. Henry mistakenly, but honestly, believed that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owed $3,500. Henry, on the other hand, simply did not like Martha. He decided that $4,000 was not enough for the car. Accordingly, he changed the note to $4,500. Which of the following is true regarding Taylor's liability to Henry?


A) Because of the alteration, Taylor is not liable to Henry for any amounts under the promissory note.
B) Taylor's obligation will be enforced only in the amount of $3,000.
C) Taylor's obligation will be enforced in the amount of $3,500 unless Taylor has a writing signed by Henry to the effect that the deal was for $3,000. No other evidence would be allowed.
D) Unless Taylor has a written document from Henry to the effect that the agreement was for $3,000 only, Taylor and Henry will be legally required to split the remainder with Taylor being held responsible for $3,250.
E) Unless Taylor either has a written document from Henry showing that the agreement was for $3,000 or unless he can get Henry to admit that the agreement was for $3,000, then Taylor will be required to pay $3,500 because the obligation was upon Taylor to obtain confirmation of the terms of the original agreement.

F) B) and E)
G) C) and D)

Correct Answer

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Which of the following is true in the event an instrument contains more than one endorsement?


A) Each endorser is liable for the full amount to the subsequent endorser or to the holder.
B) Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser.
C) Each endorser is liable for the full amount to the subsequent endorser, but only the last endorser is liable to any holder.
D) The last endorser is liable to the holder, whereas subsequent endorsers are responsible for reimbursing previous endorsers in proportion to the number of endorsers that exist.
E) Each endorser is liable to the holder in proportion to the number of endorsers.

F) A) and E)
G) A) and D)

Correct Answer

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Which of the following is true regarding discharge by impairment of collateral?


A) Discharge cannot occur through impairment of collateral.
B) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.
C) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument regardless of the extent of the damage to the collateral.
D) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $500; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.
E) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $1,000; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.

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

Correct Answer

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Which of the following is a party who is in possession of an instrument that is payable to the party or to the bearer of the instrument?


A) A holder.
B) A bearer.
C) A payee.
D) An issuer.
E) A transferee.

F) A) and B)
G) All of the above

Correct Answer

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The fact that an instrument has been refused by a bank means that it has been dishonored.

A) True
B) False

Correct Answer

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