Law 3 – Negotiable Instruments

PRELIMS 2009-2010

1.Give the instrument listed herein which is not negotiable as it is beyond the scope of the
Negotiable Instruments Law:

A. Certificate of Deposit
B. Due Bill
C. Post-Office Money Order
D. Trade Acceptance

2.Under the Negotiable Instruments Law, a certificate of stock is not negotiable instrument
because it lacks the requisites of:

A. The instrument must be in writing and signed by the maker or drawer.

B. It must contain an unconditional promise or order to pay a sum certain in money.
C. It must be payable on demand, or at a fixed or determinable future time.
D. It must be payable to order or bearer.

3. This negotiable instrument is always drawn against a bank.

A. Bill of Exchange
B. Check
C. Due Bill
D. Promissory Note

4. Which of the following instruments is not payable to bearer?

A. “Pay to the order of bearer P1,000.00.

To:X Sgd.A”

B. “Pay to the bearer the sum of P1,000.00.

To:X Sgd.”A”

C. “Pay to B or bearer the sum of P1,000.00.

To:X Sgd.”A”

D. “Pay to Cash the sum of P1,000.00.

To:X Sgd.”A”

5. Which of the following instruments is not negotiable for the reason that the instrument is not
payable at a determinable future time.

A .“On the death of X, I promise to pay to the order of B P1,000.00.

Sgd.”A”

B. “On or before October 30, 2009, I promise to pay B or his order P1,000.00.
Sgd.”A”

C. “Sixty days after sight, I promise to pay to the order of B P1,000.00.

Sgd.”A”

D. “Ten days before the death of X, I promise to pay B or his order P1,000.00.
Sgd.”A”
6. An instrument is considered payable on demand:

A. When no time of payment is expressed.

B. When payable to order.
C. When the last endorsement is in blank.
D. When the last endorsement is restricted.

7. This negotiable instrument is always drawn against a bank:

A. Bill of exchange
B. Check
C. Due bill
D. Promissory note

8. This instrument is negotiable:

A. “I promise to pay P20,000.00” (Signed: Jose Santos).

B. “Pay Pedro Torres or order P20,000.00 if he marries Maria Perez”.(Sgd: Santos)
C. “Good to Mario Cruz or order P20,000.00”. (Sgd: Jose Santos).
D. “I promise to pay Oscar Perez or order 20 cavans of IR Rice in January, 2010”
(Sgd:Jose Santos)

9. When there are three (3) parties, the drawer, the payee and the drawee, the instrument is a:

A. Promissory note
B. Certificate of indebtedness
C. Bank Check
D. Bill of exchange

10. A bill of exchange may be treated and considered a promissory note:

A. When the drawer and the drawee are the same person.
B. When the drawee is fictitious.
C. When the instrument is ambiguous.
D. All of the above.

11. Which of the following instruments is not negotiable?

A. “I agree to pay to the order of A, P30,000.00.” (Sgd. X)

B. “Good to A or order, P30,000.00.” (Sgd. X)
C. “I promise to pay A or order P30,000.00 on June 30.” (Sgd.X)
D. “I promise to pay to A or order P5,000.00.” (Sgd.X)

12. The promise or order is conditional, hence non-negotiable.

A. “I promise to pay to B or order P20,000.00.” (Sgd.Y)

B. “Pay to B or order P20,000.00.” (Addressed to Z, signed by Y)
C. “Pay to B or order P20,000.00 and reimburse yourself out of my money in your
possession.” (Addressed to Z signed, by Y)
D. “Pay to B or order P20,000.00 out of my money in your possession .”
(Addressed to Z, signed by Y)

13. An instrument is payable on demand:

A. When payable to order.

B. When the last endorsement is in blank.
C. When no time of payment is expressed.
D. When payable within a period of time.

14. Which of the following is not necessary in order to make an instrument negotiable?

A. It must be in writing and signed by the maker.

B. It must contain an unconditional promise or order to pay a sum certain in money.
C. It must be payable on demand or at a fixed future time.
D. It must be payable only to a specific person.

15. An instrument is payable on demand:

A. When no time of payment is fixed.

B. When last endorsement is in blank.
C. When the payee is blank.
D. When payable to order.

16. The following is not negotiable:

A. “Pay to C or order, P20,000.00 with exchange at 2.5%.

To: Z Sgd:”M”

B. “Pay to order of C within 6 months from date, the sum of P20,000.00 with interest at 12%
per annum.
To:Z Sgd:”M”

C. “Pay to C or bearer P20,000.00 6 months after date. If not paid on due date, I agree to pay
collection and Attorney’s fees.
To:Z Sgd:”M”

D. “Pay to C or order P20,000 in installment.

To:Z Sgd:”M”

17. This party is with primary liability:

A. Maker
B. Drawer
C. Indorser
D. None of the three.

18. If an instrument conforms to the following:

1. It must be in writing and signed by the maker or drawer.

2. It must contain an unconditional promise or order to pay a sum certain in money.
3. It must be payable on demand or at a fixed or determinable future time, and
4. It must be payable to order or to bearer, the instrument is a

A. Check
B. Promissory note
C. Bill of exchange
D. Draft

19. Which of the following instruments is negotiable?

A. “Good to Jose Paz or order, P20,000.00.” (Sgd: Pedro Go)

B. “I hereby authorize you to pay Jose Paz or order, P20,000.00 worth in sugar.”
(Sgd: Pedro Go)
C. “I promise to pay Jose Paz or order P20,000 worth in sugar.” (Sgd: Pedro Go)
D. “I promise to pay Jose Paz or order P20,000 on May 25.” (Sgd: Pedro Go)

20. Which of the following is necessary requirement in order to make an instrument negotiable?

A. It must be in writing and signed by the maker.

B. It must be payable on demand or at a fixed future time.
C. It must contain an unconditional promise to pay a sum certain in money.
D. All of the three(3) above.

21. A promissory note as distinguished from a bill of exchange.

A. It contains an unconditional order.

B. The one who issues it is primarily liable.
C. The one who issues it is secondarily liable.
D. There are three (3) parties, the drawer, the payee and the drawee.

22. Which one of the following instruments is negotiable?

A. “I promise to pay C or order P20,000.00 if he will pass the CPA examination in October,
2010.” (Sgd.D)
B. “I promise to pay C or order P20,000.00 in four (4) installment.” (Sgd:D)
C. “I promise to pay C or order P20,000.00 60 days after the death of his father.”
(Sgd.D)
D. “I promise to pay C P20,000.00.” (Sgd:D)

23. Which one of the following instruments is non-negotiable?

A. “Pay to C or order P20,000.00 out of my money in your possession.” (Addressed to

A, signed by D)
B. “Pay to C or order P20,000.00 and reimburse yourself out of my money in your
possession.” (Addressed to A, signed by D)
C. “I promise to pay C or order P20,000.00.”(Sgd.D)
D. “Pay to C or order P20,000.00.” (Addressed to A, signed D)

24. An instrument is rendered non-negotiable if:

A. There is an indication of a particular fund out of which reimbursement is to be made.

B. There is an indication of a particular account to be debited with the amount.
C. The instrument is payable out of a particular fund.
D. Answer not given.

25. This is a promissory note: “We promise to pay Dada, Tina and Kate the sum of
P18,000.00.” (Signed) Jing, Baby and Gail.

A. Gail is obliged to pay Kate P6,000.00.

B. Gail is obliged to pay Kate P2,000.00.
C. Gail is obliged to pay Kate P12,000.00.
D. Gail is obliged to pay Dada, Tina and Kate P18,000.00.

26. “I promise to pay the bearer, Juan dela Cruz the sum of P20,000.00.”(Signed)Joe Perez.
The promissory note is:

A. Negotiable promissory note payable on demand.

B. Negotiable promissory note payable to order.
C. Negotiable promissory note payable to bearer.
D. Non negotiable.
27. Which of the following is non-negotiable?

A. I bind myself to pay B or bearer P10,000. (Sgd.) A.

B. I acknowledged being indebted to B in the amount of P10,000.00. (Sgd.)A.
C. I promise to pay to the order B P10,000. (Sgd)A.
D. I agree to pay to B or order P10,000 on demand. (Sgd)A.

28. Manila
P20,000.00 June 1, 2010

For value received, We promise to pay to the order of Sanrio Lumber Co. at Manila,
P20,000.00.

Sanrio Furniture Mfg. Corp.

Sgd. Pedro Sanrio
Sgd. Helen Sanrio

Statement 1. Pedro and Helen are not liable personally because they have disclosed their
principal.
Statement 2. Pedro and Helen are not liable personally because by using the word “WE”
on the body of the instrument, they have indicated that they are signing for
and on behalf of Sanrio Mfg. Corp.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

29. A bill of exchange drawn on a bank and payable on demand.

A. Bond C. Check
B. Due bill D. Certificate of deposit

30. Where in a bill the drawer and the drawee are the same person or where the drawee is a
fictitious person, or a person not having capacity to contract, the holder at his option may treat
the instrument as

A. Dishonored
B. Bill of exchange
C. Promissory note
D. Either Bill of exchange or a Promissory note

31. The instrument is payable to order when

A. The name of the payee does not purport to be the name of any person.
B. The only or last indorsement is an indorsement in blank.
C. Drawn payable to the order of a specified person or to him or his order.
D. Payable to the order of fictitious or non-existing person, and such fact was known
to the person making it so payable.

32. An instrument is payable at a determinable future time, which is expressed to be payable,

except

A. At a fixed period after date or sight.

B. On or before a fixed or determinable future time specified therein.
C. On or at a fixed period after the occurrence of a specified event, which is certain
 to happen, though the time of happening be uncertain.
D. Upon a contingency and the contingency actually happens.

33. One is not negotiable.

A. A promise to pay to the order of B P10,000 with 12% interest thereon where the period
from which interest is to be counted is not specified.
B. A promises to pay to the order of B P10,000 in four monthly installments beginning
June 12, 2009 with a provision that if A defaults in the payment of any installment,
the entire balance including the unpaid installment shall become due and
demandable.
C. A promise to pay to the order of B the sum of US$1,000 payable in pesos at the rate of
exchange prevailing on January 1, 2010.
D. A promises to pay to the order of B P10,000 with an agreement to pay attorney’s fees and
costs of collection.

34. The promise is conditional rendering the instrument non-negotiable.

A. An indication of a particular fund out of which reimbursement is to be made.

B. An indication of a particular account to be debited with the amount.
C. A statement of the transaction which gives rise to the instrument.
D. An order or promise to pay out of a particular fund

35. Which is not negotiable?

A. Pay to B or order P10,000 thirty days after sight. Sgd. A to C

B. I promise to pay B or order P10,000 on or before March 1, 2010. Sgd. A
C. I promise topay B or order P10,000 within 20 days after the death of C. Sgd. A
D. Pay to B or order P10,000 within 10 days if he marries D on June 12, 2010. Sgd. A to
C

36. Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty. This requirement is applicable to

A. Promissory notes, if negotiable

B. Promissory notes, if not negotiable
C. Bills of exchange and promissory notes
D. Bills of exchange and but not promissory notes

37. Which of the following is not a feature of a negotiable instrument?

A. As substitute for money.

B. Accumulation of secondary contracts.
C. It increases credit accumulation.
D. Represents title of goods.

(Midterm )
1.An instrument is considered payable on demand:

A. When no time of payment is expressed

B. When payable to order
C. When the last endorsement is in blank
D. When the last endorsement is restricted

2. This negotiable instrument is always drawn against a bank:

A. Bill of exchange
B. Check
C. Due bill
D. Promissory note

3.When there are three (3) parties, the drawer, the payee & the drawee, the instrument is a:

A. Promissory note
B. Certificate of indebtedness
C. Bank check
D, Bill of exchange

4. A bill exchange may be treated and considered a promissory note:

A. When the drawer and the drawee are the same person
B. When the drawee is fictitious
C. When the instrument is ambiguous
D. All of the above

5.An instrument is payable on demand:

A. when payable to order

B. when the last endorsement is in blank
C. when no time of payment is expressed
D. when within a period of time

6.Which of the following is not necessary in order to make an instrument negotiable?

A. It must be writing and signed by the maker

B. It must be contain an unconditional promise or order to pay a sum certain in money
C. It must be payable on demand or at a fixed future time
D. It must be payable only to a specific person

7. This party is with primary liability:

A. Maker
B. Drawer
C. Indorser
D. None of the three

8. An indorser of a note or a bill is

A. Secondary liable
B. Tertiary liable
C. Primary liable
D. Not liable

9. An endorsement where the indorser adds the phrase “without recourse” is called:
A. Blank indorsement
B. Restrictive indorsement
C. Qualified indorsement
D. Conditional indorsement

10. An instrument is rendered non-negotiable if:

A. There is an indication of a particular fund out of which reimbursement is to be made

B. There is an indication of a particular account to be debited with the amount
C. The instrument is payable out of a particular fund
D. Answer not given

11. M makes a promissory note for P2, 000.00 payable to the order of P.P negotiates the note to
A who with the consent of P raises the amount to P20, 000.00 and thereafter indorses it to B. B to
C and C to D who is not a holder in due courses. In this case:

A. B can recover P2, 000.00 as against M.

B. P and A are liable to D for P20, 000.00
C. B and C are not liable to D
D. Answer not given

12. The following are instances when a bank may refuse to pay checks drawn against it, except
one:

A. If there is a “stop payment” issued by the drawer

B. When the bank receives notice of the drawer’s death
C. If the drawer’s deposit is insufficient
D. If the drawer is insolvent

13. The following are functions of a negotiable instrument. Choose the exception.

A. It increase purchasing power in circulation

B. As legal tender
C. As substitute for money
D. It increases credit circulation

14. X obtains the signature of Y for autograph purpose. X write a negotiable promissory note
above Y’s signature. The note was validly negotiated to Z who is a holder in due course. What
kind of defense can Y avail against Z?

A. Personal defense
B. Real defense
C. Equitable defense
D. Qualified defense

15. Which of the following is not a personal defense?

A. Absence of consideration.
B. Forgery of a signature.
C. Nondelivery of a complete instrument.
D. Failure of consideration.

16. A issued a promissory note to the order of B for P10,000.00 payable on September 30, 2010
in payment of a TV set sold by B to him. B failed to deliver the TV set to A and instead
transferred the note to C for value but without endorsement. Which of the effects of the
transactions listed below is valid?

A. C is deemed a holder for value when B transferred the note to him.

B. C becomes a holder in due course when B endorsed the note to C on October 4, 2010.
C. C has no right to compel B to make the proper endorsement to him.
D. C cannot collect from A because of A’s defense of lack of consideration.

17. A issues a bill payable to the order of B. Later B, without indorsing the bill transfers for a
consideration said bill to C. As a result, one of the following is not correct.

A. The bill is merely assigned and not negotiated

B. The transferee acquired such title as the transferor had therein
C. Transferee acquired the right to have the indorsement of the transferor
D. C is an assignee with the rights of a holder in due course.

18. I promise to pay to the order of B, P10,000 from ________ after date. Sgd. X

First statement. The note is negotiable because after date refers to the date of issuance and date
of issuance can be inserted therein by the holder.

Second statement. The note is negotiable because this can be considered payable on demand.

A. First statement is true, second statement is false.

B. First statement is false, second statement is true.
C. Both statements are true.
D. Both statements are false.

19. A separate paper where indorsements may be made

A. Sponge
B. Ilonge
C. Lounge
D. Allonge

20.One who has signed the instrument as maker, drawer, acceptor, or indorser without receiving
value thereof, and for the purpose of lending his name to some person is a (an)

A. Creditor
B. Accommodation party
C. Guarantor
D. Debtor

21.The indorsement “Pay to C” Sgd. B is a

A. Blank indorsement
B. Special indorsement
C. Restrictive indorsement
D. Qualified indorsement

22.An indorsement payable to the order of A is indorsed by A by merely affixing his signature
without specifying the indorsee is a
A. Qualified indorsement
B. Restrictive indorsement
C. Blank indorsement
D. Special indorsement

23. An indorsement “Pay to A only” Sgd. B is a

A. Restrictive indorsement
B. Facultative indorsement
C. Special indorsement
D. Qualified indorsement

24. An indorsement “Pay to A at his own risk”. Sgd. B is a

A. Special indorsement
B. Facultative indorsement
C. Qualified indorsement
D. Restrictive indorsement

25. An indorsement “Pay to A, notice of dishonor waived”. Sgd. B is a

A. Conditional indorsement
B. Restrictive indorsement
C. Qualified indorsement
D. Facultative indorsement

26. A personal defense may be used against

A. Holder in due course

B. Holder for value
C. Both A and B
D. Neither A nor B

27. A real defense may be used against

A. Holder in due course

B. Holder for value
C. Both A and B
D. Neither A nor B

28. Three of the following are warranties of a qualified indorser, which is not?

A. Capacity of prior parties

B. Instrument is valid and subsisting
C. He has good title
D. Instrument is genuine and in all respect that it purports to be

29. An instrument which is originally negotiable ceases to be negotiable when

A. Restrictively indorsed
B. Qualified indorsement
C. The last indorsement is in blank
D. The only indorsement is in blank

30. One is not a condition to be a holder in due course.

A. That it is complete and regular upon its ace.

B. That he became the holder of it before it was overdue and without notice that it had been
previously dishonored if such was the fact.
C. That at the time it was negotiated to him it has no infirmity or defect in the title of the
person
negotiating it.
D. That he took it in good faith and for value.

31. A promissory note is indorsed to C who has knowledge of the illegal consideration
between A, maker and B, payee. Later C negotiates the note to D under circumstances
which would make D a holder in due course. D in turn indorses it to E and E back to C.
Which is correct?

A. C can be considered a holder in due course because he derived his title from E.
B. C cannot be considered a holder in due course.
C. D, E and C are holders in due course.
D. C can collect either from A or B but not from D and E.

32. One of the following indorsements is a valid negotiation

A. Pay to A P6,000 (amount of the instrument is P10,000)

B. Pay to A P7,000 and to B, the balance (amount of the note is P10,000)
C. Pay to A P8,000 out of the amount of P10,000 of this note.
D. Pay to A and B P10,000.

33. The following rules of construction apply where the language of the instrument is
ambiguous or there are omissions therein, except:

A. Where the instrument is not dated, it will be considered to be dated as of the time it
was issued.
B. Where there is a conflict between the written and printed provisions of the instrument, the
written provisions prevail.
C. Where the instrument provides for the payment of interest without specifying the date from
which interest is to run, the interest runs from the date of the instrument, and if the
instrument is undated, from the issue thereof.
D. Where the sum payable is expressed in words and also in figures and there is
discrepancy
between the two, the sum denoted by the figures is the sum payable; but if the figures
are
ambiguous or uncertain, reference may be had to the words to fix the amount.

34. The following instruments were presented to you for evaluation:

I. “Pay to the order of A, P20,000”.

II. “Pay to the order of A, P20,000 or deliver to him a piano of the same value, at his option.”
III. “Pay to the order of A, P20,000 or deliver to him a TV of the same value”.
IV. “Pay to the order of A a piano worth P20,000”.

Assuming all the other requisites of negotiability are present, which of the foregoing instruments
are not negotiable?

A. Instruments I and II C. Instruments II and III

B. Instruments I and III D. Instruments III and IV

35. Consider these two statements:

I. An instrument originally payable to order maybe converted into a bearer instrument.

 II. An instrument originally payable to bearer maybe converted into an order instrument.

A. Both statements are true C. Only statement I is true

B. Both statements are false D. Only statement II is true

36. Which of the following does not apply to a non-negotiable instrument?

A. The instrument can be assigned

B. The transfer of the instrument does not give the transferee the right to collect.
C. The transferee becomes a holder.
D. The transferee becomes an assignee.

37. The following are negotiable instruments, except

A. Pay to the order of A P10,000 on or before June 2, 2010 and reimburse yourself out of my
deposit with you. To B Sgd. C
B. Pay to the order of A P10,000 on or before June 12, 2010 and charge the same to my
account. To B Sgd. C
C. Pay to the order of A P10,000 on or before June 12, 2010 in payment of the purchase price
of one cavan of rice I bought from him. To B Sgd. C
D. Pay to the order of A P10,000 subject to the terms and conditions of the sales contract
between him and the undersigned. To B Sgd. C

38. The negotiable character of an instrument otherwise negotiable is affected by this provision
which

A. Authorizes the sale of collateral securities in case the instrument be not paid at maturity.
B. Authorizes a confession of judgment if the instrument be not paid at maturity.
C. Gives the maker an election to require something to be done in lieu of payment of
money.
D. Waives the benefit of any intended for the advantage or protection of the obligor.

39. The following instruments are negotiable, except

A. Pay to A or order P10,000 on or before Christmas. To B Sgd. C

B. Pay to A or order P10,000 or deliver a cow at the option of the holder. To B Sgd. C
C. Pay to A or order P10,000 on or before June 12, 2010. To B Sgd. C
D. Pay to A or order P10,000, 30 days after death of E. To B Sgd. C

40. A forged signature may transfer title if

A. Procured by force or duress

B. A mere simulation or counterfeit
C. Unnecessary to one’s title as when a bearer instrument contains a forged indorsement
D. Obtained by fraudulent use of carbon paper, or was given for other purpose but was used in
converting the paper into a negotiable instrument.

41. An indorsement “Pay to A for collection only”. Sgd. B is a

A. Qualified indorsement C. Special indorsement

B. Restricitve indorsement D. Facultative indorsement

42. An indorsement “Pat to A in trust for B”.

Sgd. B is a

A. Conditional indorsement C. Qualified indorsement

B. Restrictive indorsement D. Facultative indorsement

43. An indorsement “Pay to A if he tops the CPA board exams. Sgd. B is a

A. Conditional indorsement C. Qualified indorsement

B. Restrictive indorsement D. Facultative indorsement

44. – If an authorized agent signs for and on behalf of his principal, the latter will be liable, as a
rule.

- A person who signs a trade or assumed name will be liable to the same extent as if he had
signed in his own name.

A. True; True C. True; False

B. False; True D. False; False

45. Which one of the following instruments is negotiable?

A. “I promise to pay B or order P20,000 if he will pass the CPA board exam on May 2010.
(Sgd. A)
B. “ I promise to pay B or order P20,000 in four (4) installments”.(Sgd. A)
C. “I promise to pay B or order P20,000, 30 days after death of his father”. (Sgd. A)
D. “I promise to pay B P20,000”. (Sgd. A)

------------------------------------------------------------------------------------------------------------

For Semi- final

By Diaz

1. Pay to the order of B, P25,000, at sight after the arrival and discharge of 10 boxes of sardines
from Vessel X at Pier 8, Manila.

To: PNB Sgd. A

Statement No. 1. The instrument is negotiable because it is payable on demand.

Statement No. 2. The instrument is not negotiable because the order is conditional.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

2. I promise to pay to the order of B, P8,000 one year after date in 5 month’s installments of
P1,600 each, “with the privilege of discharging this note by payment of principal less a discount
of 5% within 30 days from the date thereof.”
Sgd. X

Statement 1. The note is negotiable because although it is not dated, one year from date
will be one year from issuance thereof.
Statement 2. The instrument is not negotiable because the sum is not certain.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

1. I promise to pay to the order of B, U.S.$1,000 in current money at Manila Philippines, on

December 10, 2009.

Statement 1. This note is negotiable because the sum is certain.

Statement 2. This note is not negotiable because it does not state a particular kind of
current money.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

4. I promise to pay to the order of B, P20,000 at such time as the promissor may
choose.
Sgd. X
Statement 1. The instrument is negotiable because it is payable on demand.
Statement 2. The instrument is payable on a determinate future time.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

5. I promise to pay to the order of B, P20,000 on _________.

Sgd. X

Statement 1. The instrument is incomplete, hence not negotiable.

Statement 2. The instrument is complete and considered payable on demand.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

6. Pay to the order of B, P20,000 on December 1, 2009.

Accepted:

Sgd. X Sgd. Y

Statement 1. The bill is negotiable but ambiguous.

Statement 2. The bill is not negotiable and at the same time ambiguous.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

6. I promise to pay to bearer or order P20,000 on demand.

Sgd. A

Statement 1. This is payable to bearer.

Statement 2. This note is negotiable because although it is payable to order, the payee is not
specified with reasonable certainty.
A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

7. A negotiable note is signed in this manner:

Sgd. X, agent of Y

Statement 1. It is X who is liable because there was no disclosure of the principal.

Statement 2. It is Y who is liable because the words “agent of Y” is sufficient disclosure.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

8. I promise to pay Batman P20,000 on demand.

Sgd. A

Statement 1. This is negotiable provided A knows Batman is a non-existing person at the

time he made the note.
Statement 2. This is a negotiable note payable to bearer.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

9. Pay to the order of B, P20,000 on demand.

To: SantaClaus Sgd. A

Statement 1. The bill is not negotiable because the drawee is fictitious.

Statement 2. The bill is still negotiable and can be treated as a promissory note.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

10. I promise to pay to the order of B, P20,000 on December 1, 2009 with costs and attorney’s
fees incurred for the collection of the debt.
Sgd. A

Statement 1. The instrument is negotiable because the sum certain is ascertainable on the face of
the instrument.

Statement 2. The instrument is not negotiable because the sum is not certain.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

11. Due to Maria Santos P5,000 on December 1, 2009.

Sgd. A
Statement 1. This is a negotiable bill of exchange because it does not contain a promise to pay.

Statement 2. This is nevertheless a promissory note but it is not negotiable because it is

payable to order.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

By Diaz

1. Which of the following is not requisite to consider a person an accommodation party?

A. He must not be liable to a holder in due course.

B. He must be a party to the instrument signing as a maker, drawer, acceptor or indorser.
C. He must not receive value therefore.
D. He must sign for the purpose of lending his name or credit.

2.The following exceptions are the rights of a holder in due course. Which is the exception?

A. He may enforce payment of the instrument for the full amount thereof against all parties
liable thereon.
B. He ma receive payment and if payment is in due course, the instrument is discharged.
C. He holds the instrument subject to the same defense as if it were non-negotiable.
D. He may sue on the instrument in his own name.

3.An indorser of a note or a bill is:

A. Secondarily liable C. Primarily liable

B. Tertiary liable D. Not liable

4.This is not negotiation of a negotiable instrument:

A. Assignment
B. Delivery of a hearer instrument
C. Endorsement completed by delivery of an instrument payable to order
D. Delivery of an instrument to the payee.

5. A check drawn by the bank upon itself and payable to a third person.

A. Certified check C. Traveler’s check

B. Cashier’s check D. Manager’s check

6. A issues a bill payable to the order of B. Later B without endorsing the bill transfers for a
consideration said bill to C. The following except one, are the valid effects of the transfer:

A. C acquires the right to have the endorsement of B

B. The bill is merely assigned and not negotiated
C. C becomes a holder
D. The transfer vests in C such title as B had thereon.

7. The following are instances when a bank may refuse to pay checks drawn against it, except
one:
A. If there is a “stop payment” issued by the drawer
B. When the bank receive notice of the drawer’s death
C. If the drawer’s deposit is sufficient
D. If the drawer is insolvent

8. A issues a bill payable to the order of B. Later B without endorsing the bill transfers for a
consideration said bill to C. The following except one, are the valid effects of the transfer:

A. C acquires the right to have the endorsement of B.

B. The bill is merely assigned and not negotiated.
C. C becomes the holder
D. The transfer vests in C such title as B had thereon.

9. A issued a promissory note to the order of B for P10,000 payable after 30 days after date. Later
B endorses it to C. Then X stole the note from C, forged the signature of C and negotiated it to
D, and D to E, E to, the holder. On maturity of the note, which of the following statements is not
correct and invalid?

A. F can collect from either D or E, because the signature are genuine and the note is
operative against them.
B. F can collect from A because A cannot put up forgery as his defense.
C. F cannot collect from C it was C’s signature which was forged
D. F cannot collect from B because B is a party prior to the forgery

10. An instrument is indorsed as follows: “Pay to A, for B” (Sgd) C. Then A indorsed the
instrument “Pay to D” (Sgd) A, in payment of A’s personal loan to D, the instrument was
accepted by D as indorsed by A. Is D acting in good faith when he accepted the instrument as
indorsed?

A. Yes, because D is a holder in due course

B. No, because D knew by prior endorsement that A is merely a trustee for B and has
no right to negotiate the instrument
C. Yes, because D acquired the instrument for value
D. No, because D did not get the consent of B

11. Atoy issued a bearer note to Boy. The note is negotiated by delivery by Boy to Cris to Doc,
by Doc to Ely, by Ely to Fe the holder. Fe can hold liable:

A. Cris C. Doc
B. Ely D. Boy

CPAR
12. An indorsement “Pay to A without recourse”. Sgd. B is a

A. Facultative indorsement C. Qualified indorsement

B. Restrictive indorsement D. Special indorsement

13. - If an authorized agent signs for and on behalf of his principal, the latter will be liable, as a
rule.

- A person who signs a trade or assumed name will be liable to the same extent as if he had
signed in his own name.
A. True; True C. True; False
B. False; True D. False; False

14. A issues a bill payable to the order of B. Later B, without indorsing the bill transfers for a
consideration said bill to C. As a result, one of the following is not correct.

A. The bill is merely assigned and not negotiated

B. The transferee acquired such title as the transferor had therein
C. Transferee acquired the right to have the indorsement of the transferor
D. C is an assignee with the rights of a holder in due course

15. A delivers to B a promissory note payable to the order of B without specifying the amount
but A authorized B to place the amount of P500 in the promissory note which was signed by A.
B, in violation of the instruction of A placed P5,000 as the amount payable. Later B indorsed the
note to C, the holder C

A. Can recover from from either A or B

B. Cannot recover from either A or B, if he knows the defect
C. Cannot recover from A but can recover from B if he knows the defect
D. Cannot recover from A but can recover from B if he does not know the defect

By Diaz

16. In a joint obligation, A, B and C are debtors of joint creditors D, E and F in the amount of
P180,000. A’s obligation is:

A. Pay D P60,000
B. Pay D, E anf F, P180,000
C. Pay D P120,000
D. Pay D P20,000

By Diaz

17. A real defense

A. Fraud in inducement
B. Absence or failure of consideration
C. Want of delivery of a complete instrument
D. Minority

18. A personal defense

A. Want of delivery of an incomplete instrument

B. Fraud in factum or fraud in esse contractus
C. Forgery
D. Filling of blanks contrary to authority given or not within a reasonable time

19. One of the following is not a restrictive indorsement

A. Constitutes the indorsee the agent of the indorser

B. Vests the title in the indorsee in trust for or for the use of some other person
C. Prohibits the further negotiation of the instrument
D. Payable to the indorsee where the indorser is not liable
20. A made a promissory note payable to the order of B. A delivered it to B who negotiated it to
C. C indorsed the note to D who is 16 years old. D indorsed it to E who later indorsed it to F, the
holder. F presented the note to A who dishonored the instrument. Which is correct?

A. F can hold B and C liable but not D and E

B. F can hold liable D and E but not B and C
C. D’s indorsement passes title to E and F making D liable as indorser
D. F can hold all indorsers liable except D.

21. – A buys a diamond for P50,000 for which A issued a check. The diamond turned out to be
an ordinary glass.

- B obtained the signature of C for autograph purpose. B wrote a promissory note above the
signature, then indorsed the note to E, a holder in due course.

A. Both are real defenses

B. Both are personal defenses
C. Personal defense; Real defense
D. Real defense; Personal defense

22. A issued a negotiable promissory note to B. There was a total failure of consideration. B
indorsed the note to C, a holder in due course. C indorsed the note to D who knew of the failure
of consideration. Which is correct?

A. D may collect from A

B. D may collect only from C
C. D may collect only from B
D. D may collect from either B or C but not from A

23. Which of the following is not correct in so far as the rights of a holder not in due course are
concerned?

A. He may sue on the instrument in his own right

B. He may receive payment and if payment is in due course, the instrument is discharged
C. He can not recover on the instrument
D. He is entitled to the instrument but holds it subject to the defenses as if it were non-
negotiable

24. On January 28, 2010, A issues a bill payable to the order of B. On February 7, 2010, B
without indorsing the bill transfers for a consideration said bill to C. On February 15, 2010,
B indorses the bill to C. C becomes a holder on

A. February 7, 2010 and it is at that time that the law will determine whether or not he is a
holder in due course.
B. February 7, 2010 but the law will determine on February 15, 2010 whether or not he is a
holder in due course.
C. February 15, 2010 but the law will determine on February 7, 2009 whether or not he is a
holder in due course.
D. February 15, 2010 and it is at that time that the law will determine whether or not
he is a holder in due course.

25. A certificate of stock is not a negotiable instrument under the “Negotiable Instruments Law”
because it lacks the requirements of

A. The instrument must be in writing and signed by the maker or drawer

B. It must be payable on demand, or at fixed or determinable future time
C. It must be payable to order or bearer
D. It must contain an unconditional promise or order to pay a sum certain in money

26. – If a bill of exchange is accepted at the instance of the holder, the drawers and indorsers are
discharged.

- If a check is accepted at the instance of the holder, the drawers and indorsers are
discharged.

A. True; True C. True; False

B. False; True D. False; False

27. Not primarily liable on the instrument

A. Maker of a promissory note

B. Acceptor of a bill of exchange
C. Drawer of a bill
D. Certifier of a check

28. Which is not correct? The acceptor by accepting the instrument

A. Admits the existence of the drawer, the genuineness of his signature and his capacity and
authority to draw the instrument
B. Admits the existence of the indorser, the genuineness of his signature and his
capacity
and authority to draw the instrument
C. Admits the existence of the payee and his then capacity to indorse
D. Engages that he will pay it according to the tenor of his acceptance

29. Where the person not otherwise a party to the instrument places thereon his signature in
blank before delivery he is liable as indorser, and if the instrument is payable to the order of a
third person

A. He is liable to the payee and to all subsequent parties

B. He is liable to all parties subsequent to the maker or drawer
C. He is liable to all parties subsequent to the payee
D. He is not liable to any party
30. Where the person not otherwise a party to the instrument places thereon his signature in
blank before delivery he is liable as indorser, and if the instrument is payable to the order of the
maker or drawer, or its payable to bearer

A. He is liable to the payee and to all subsequent parties

B. He is liable to all parties subsequent to the maker or drawer
C. He is liable to all parties subsequent to the payee
D. He is not liable to any party

31. Where the person not otherwise a party to the instrument places thereon his signature in
blank before delivery he is liable as indorser, and if he signs for accommodation of the payee

A. He is liable to the payee and to all subsequent parties

B. He is liable to all parties subsequent to the maker or drawer
C. He is liable to all parties subsequent to the payee
D. He is not liable to any party