BAR REVIEWER IN MERCANTILE LAW

By: Jacinto D. Jimenez

LETTERS OF CREDIT

I. Concept

1. One of these statements is not correct:

a. A letter of credit is an engagement by a bank made at the

request of a customer that it will honor drafts upon
compliance with the conditions specified in the letter of
credit.
b. The function of a letter of credit is to assure the beneficiary
certainty of payment by substituting the promise of the
bank to pay for the promise of its customer under a
contract.
c. Letters of credit are governed by the Uniform Customs and
Practice for Documentary Credits issued by the
International Chamber of Commerce. The latest version is
the 2007 Revision (UCP 600)
d. A letter of credit is an accessory obligation to secure
payment of a contractual obligation.

2. One of these statements is not correct:

a. A commercial letter of credit involves payment of money

under a contract of sale. A standby letter of credit is
payable upon certification of the non-performance of a
party to an agreement.
b. A commercial letter of credit becomes payable upon
presentation by the beneficiary of documents that show
that he complied with the contract of sale. A standby
letter of credit documents show that the customer has
not performed.
c. The beneficiary of a commercial letter of credit must
show by documents that he has performed his contract.
The beneficiary of a standby letter of credit must certify
that the customer has not performed the contract.
d. Standby letters of credit are used exclusively to provide
payment in lieu of performance of non-monetary
obligations.

3. This is not one of the contracts involved in a letter of credit

transaction:

a. The contract of sale between the seller and the buyer.

b. The contract between the buyer and the issuing bank
whereby it substitutes its promise to pay for that of its
customer, who promises to pay the bank the amount
mentioned in the letter of credit plus bank charges.
c. The letter of credit, in which the bank promises to pay the
seller pursuant to the terms and conditions stated in it.
d. The contract of carriage between the seller and the
customer for the delivery of the goods to the buyer.
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4. One of these statements in not correct:

a. A notifying bank, the correspondent of the issuing bank,

assumes no liability except to transmit the letter of credit
to the beneficiary.
b. A confirming bank, the correspondent of the issuing bank,
assumes a direct obligation to pay the seller as if it had
itself issued the letter of credit.
c. A negotiating bank, the correspondent of the issuing
bank, buys or discounts the draft issued pursuant to the
letter of credit.
d. A letter of credit is an accessory obligation.

5. One of these statements is not correct:

a. A letter of credit is a primary and absolute obligation.

b. Under the independence principle, a letter of credit is
separate and distinct from the underlying contract which
gave rise to its issuance. The issuing bank determines
compliance with the letter of credit only by examining the
documents presented without determining whether the
beneficiary actually complied with the underlying
contract.
c. An issuing bank must pay the entire proceeds of a
standby letter of credit upon submission of the required
certification by the beneficiary who granted a loan to a
borrower despite the claim of the borrower that he made
partial payments.
d. The issuing bank assumes responsibility for the
genuineness of the documents presented by the
beneficiary of a letter of credit.

6. One of these statements is not correct:

a. Where the beneficiary of a letter of credit who sold

bristles to the buyer actually shipped rubbish, the issuing
bank may be enjoined from paying the beneficiary, who
issued the required invoice for bristles, and committed
intentional fraud.
b. The submission of a false certificate by the beneficiary of
a standby letter of credit may qualify as fraud sufficient
to enjoin payment.
c. Letters of credit are to be strictly complied with and the
documents required must be submitted as stated in the
letter of credit.
d. The seller of logs can collect payment from a letter of
credit issued to pay for the logs even if it failed to submit
the required certification from the buyer that the logs
were in good condition if it submitted a certification from
the Bureau of Forestry that the logs were in good
condition.

WAREHOUSE RECEIPT LAW

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I. Nature and Function

1. One of these statements is not correct:

a. A warehouse receipt serves as proof of possession of the

warehouseman of the goods described in it and as
authorization for the possessor of the warehouse receipt
to transfer or receive the goods described in it.
b. A non-negotiable receipt is one in which it is stated that
the goods received will be delivered to the depositor or to
any other specified person.
c. A negotiable receipt is a receipt in which it is stated that
the goods received will be delivered to the bearer or to
the order of any person named in the receipt.
d. A warehouse receipt is not a document of title.

2. One of these statements is not correct:

a. When a negotiable instrument is altered, it becomes null

and void. When a negotiable warehouse receipt is
altered, it is still valid but may be enforced only in
accordance with its original tenor.
b. A negotiable instrument which is originally payable to
bearer remains so payable even if it is indorsed specially.
A negotiable receipt deliverable to bearer if indorsed
specially becomes deliverable to order.
c. The holder in due course of a negotiable instrument may
be able to obtain a title better than that of the indorser.
An indorsee of a negotiable receipt acquires only such
title as the person who negotiated had over the goods
even if he is a holder in due course.
d. Both in a negotiable instrument and in a negotiable
receipt the indorser warrants that all prior parties had
capacity to contract.

I. Duties of Warehouseman

A. Delivery of Goods

1. One of these is not required to bind the warehouseman to

deliver the goods:

a. An offer to satisfy his lien.

b. An offer to surrender the receipt, if it is negotiable, with
indorsements necessary for its negotiation.
c. A readiness and willingness to sign upon delivery of the
goods, an acknowledgment that they have been
received, if the warehouseman requests it.
d. An undertaking to hold the warehouseman harmless from
claims of third parties.

2. A warehouseman is not justified in delivering the goods to one

of the following:

a. The person lawfully entitled to the possession of the

goods or his agent.
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b. A person entitled to the delivery by the terms of the non-

negotiable receipt for goods or has written authority from
such person.
c. A person in possession of a negotiable receipt for goods
deliverable to him or his order or to bearer, which has
been indorsed to him or in blank by the person to whom
delivery was promised or by his indorsee.
d. The pledgee of the goods covered by the receipt.

3. One of these statements is not correct:

a. The general rule is that a warehouseman cannot invoke

the right or title of a third person as an excuse for not
delivering the goods covered by a receipt.
b. By way of exception, the warehouseman may withhold
delivery until he has had reasonable opportunity to
ascertain the validity of the claim of the third party or to
file an action for interpleader.
c. If the goods were lawfully sold to satisfy the lien of the
warehouseman or were lawfully sold or disposed of
because of their perishable or hazardous nature, the
warehouseman is not liable for not delivering them.
d. If the warehouse receipt was fraudulently altered, the
warehouseman will be discharged from liability to deliver
the goods.

4. One of these statements is not correct:

a. A warehouseman cannot set up title in himself as an

excuse for refusing to deliver the goods unless the title is
directly or indirectly from a transfer by the depositor or
from enforcement of his lien.
b. If a warehouseman delivers goods covered by a
warehouse receipt and does not take up and cancel it, he
will be liable to anyone who purchases the warehouse
receipt in good faith and for value.
c. If a warehouseman delivers a part of the goods for which
he issued a negotiable receipt and did not take up and
cancel the receipt or state plainly upon it what goods
were delivered, he will be liable to anyone who purchased
the receipt in good faith and for value.
d. A warehouseman is not liable to the holder of a receipt if
the goods do not correspond with the description in it.

B. Safekeeping of the Goods

1. One of these statements is not correct:

a. A warehouseman is liable for any loss or injury to the

goods caused by his failure to exercise such care as a
reasonably careful owner would exercise.
b. In the absence of a stipulation to the contrary, the
warehouseman is not liable for any loss or injury to the
goods which could not have been avoided by exercise of
such care.
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c. A warehouseman is not liable for loss due to a fortuitous

event.
d. The person claiming the goods has the burden of proving
the loss was due to the fault of the warehouseman.

II. Warehousemans Lien

A. Claims Included and Properties Covered

1. One of these statements is not correct:

a. A warehouseman has a lien on the goods deposited or

their proceeds in his hands for all lawful charges for
storage and preservation of the goods, for all lawful
claims in relation to the goods, for all reasonable charges
and expenses for notice and advertisement for sale, and
for sale of the goods.
b. If the receipt is negotiable, the warehouseman will have
no lien on the goods except charges for storage, unless
the receipt expressly enumerates other charges for which
a lien is claimed.
c. A warehouseman has a lien against all goods belonging
to the person liable for the claims with respect to which a
lien is asserted.
d. A warehouseman cannot have a lien against the goods if
the depositor was merely entrusted with its possession,
even if the warehouseman acted in good faith and for
value.

B. Enforcement of Warehousemans Lien

1. One of these statements is not correct:

a. A warehousemans lien may be satisfied by selling the

goods.
b. The warehouseman must give the person for whose
account he is holding the goods or any other person he
knows to claim an interest in the goods notice to pay
within ten days.
c. If the warehouseman is not paid, an advertisement of the
sale must be published once a week for three
consecutive weeks in a newspaper published in the place
of the sale.
d. The sale cannot be made less than 15 days before the
date of the first publication.

2. One of these statements is not correct:

a. If there is no newspaper published in the place of the

sale, the advertisement must be posted at least 10 days
before the sale in six conspicuous places.
b. A sale held without complying with the publication and
before the prescribed time is void.
c. In case of deficiency in the proceeds of the sale, the
warehouseman cannot sue for the deficiency.
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d. If the proceeds of the sale exceed the amount due the

warehouseman, the excess shall be delivered to the
person entitled to the delivery of the goods.

III. Negotiation and Transfer of Warehouse Receipts

A. Negotiation

1. One of these statements is not correct:

a. A negotiable receipt may be negotiated by delivery if by its

terms the goods are deliverable to the bearer or by its terms
the goods are deliverable to the order of a specified person
and he or a subsequent indorsee indorsed the receipt in
blank or to bearer.
b. If the goods are deliverable to bearer or the negotiable
receipt was indorsed in blank or to bearer, even if the holder
indorsed it to himself or a specified person, the receipt can
be negotiated further by delivery.
c. The warrant of a negotiable receipt by the person to whose
order the goods are deliverable may be in blank, to bearer,
or to a specified person.
d. Subsequent negotiations may be made in the same manner.

2. One of these statements is not correct:

a. A negotiable receipt may be negotiated by the owner.

b. If by the terms of a negotiable receipt, the goods are
deliverable to the order of the person to whose possession
the owner of the receipt entrusted it, such person cannot
negotiate the receipt.
c. A person to whom a negotiable receipt was negotiated
acquires such title to the goods as the person negotiating
had ability to convey to a buyer in good faith and for value.
d. A person to whom a negotiable receipt was negotiated
acquires the direct obligation of the warehouseman to hold
the goods for him.

3. One of these statements is not correct:

a. The negotiation of a negotiable receipt is not impaired by

the fact that it was a breach of duty of the person
negotiating it or that the owner of the receipt was induced
by fraud, mistake or duress to entrust the receipt to such
person if the person to whom it was negotiated took it in
good faith and for value.
b. If a person who sold goods covered by a negotiable receipt
remained in possession of it, the negotiation of the receipt to
a person who took it in good faith and for value has the
same effect as if the first buyer had authorized the
negotiation.
c. A sellers lien or right of stoppage in transitu will defeat the
rights of a buyer in good faith and for value to whom the
receipt was negotiated.
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d. If a warehouseman who sold sugar covered by a negotiable

receipt was not paid by the buyer, the negotiation of the
receipt by the buyer is valid.

B. Transfer of Rights

1. One of these statements is not correct:

a. A non-negotiable receipt may not be transferred by delivery.

b. The negotiation of a non-negotiable receipt does not give
the transferee any additional right.
c. A person to whom a non-negotiable receipt was transferred
acquires as against the transferor title to the goods subject
to their agreement.
d. A person to whom a non-negotiable receipt was transferred
acquires the right to notify the warehouseman of the
transfer to him and to acquire the direct obligation of the
warehouseman to hold the goods for him.

2. One of these statements is not correct:

a. Before the notification to the warehouseman, the title of

the transferee to the goods maybe defeated by a levy
upon them by a creditor of the goods.
b. Before the notification to the warehouseman, the title of
the transferee to the goods may be defeated by a
notification to the warehouseman of a subsequent sale of
the goods.
c. If a negotiable receipt is transferred for value by delivery
and indorsement is necessary for its negotiation, the
transferee can compel the transferor to indorse it.
d. The effect of the negotiation will retroact to the date of
the transfer of the receipt.

TRUST RECEIPTS LAW

I. Concept

1. One of these statements is not correct:

a. A trust receipt is a security arrangement to finance the

purchase of merchandise through the use as collateral of the
merchandise purchased.
b. The entrustee is the real owner of the goods covered by a
trust receipt, and the entruster merely holds a security
interest in the goods.
c. Where a party obtained a loan to purchase bunker fuel oil
and signed a trust receipt for the bunker fuel oil after the
previous delivery of the bunker fuel oil directly to the buyer,
the contract is a loan and not a trust receipt transaction.
d. The purchase on credit of materials to be used to fabricate
communications towers ordered by a customer is a trust
receipt transaction if the buyer signed a trust receipt.

II. Rights of Entruster

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1. One of these statements is not correct:

a. Creditors of an entrustee cannot levy upon the goods

covered by a trust receipt.
b. An entruster is not liable to the buyer as seller of the goods
covered by a trust receipt.
c. A buyer in good faith and for value takes the goods covered
by a trust receipt free from the security interest of the
entruster.
d. The entrustee can compel the entruster to accept the goods
covered by a receipt as payment for his loan.

III. Obligations of Entrustee

1. One of these statements is not correct:

a. The entrustee is obliged to turn over to the entruster the

proceeds from the sale of the goods to the extent of the
amount owing to the entruster or to deliver the goods to the
entruster in case they were not sold.
b. The entrustee must insure the goods covered by a trust
receipt.
c. The entrustee bears the risk of loss due to a fortuitous event
of the goods covered by a trust receipt.
d. The entrustee can mortgage the goods covered by a trust
receipt.

2. One of these statements is not correct:

a. The entrustee is not liable for estafa if he was not able to sell
the goods covered by the trust receipt and the entruster
refused his offer to deliver the goods to him.
b. If the entrustee sold the goods covered by a trust receipt but
was not able to pay the entruster because the buyer had not
yet paid, he is not liable for estafa.
c. The liability of the entrustee is extinguished by novation if
his loan was restructured.
d. The entrustee is liable for any deficiency if the entruster
foreclosed his lien and the proceeds from the sale were
insufficient.

IV. Remedies of Entruster

1. One of these statements is not correct:

a. Upon failure of the entrustee to comply with his obligations

under the trust receipt, the entruster may take possession of
goods and sell them.
b. Before selling the goods, the entruster must give written
notice to the entruster not less than five days before the date
of the sale.
c. The notice shall be served on the entrustee personally or by
ordinary mail at his last known business address.
d. The goods must be sold at public auction and cannot be sold
at a private sale.
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2. One of these statements is not correct:

a. The entruster is not required to cancel the trust receipt and

take possession of the goods covered by the trust receipt
before he can file a collection case against the entrustee.
b. Repossession of the goods covered by a trust receipt will not
be considered payment of the loan secured by it.
c. The entruster must sell the goods covered by the trust
receipt which were repossessed.
d. If the loan was secured by a trust receipt and a real estate
mortgage, the repossession of the goods covered by the
trust receipt will preclude the entruster from foreclosing the
real estate mortgage.

NEGOTIABLE INSTRUMENTS LAW

I. Requisites of Negotiability

1. One of these is a negotiable promise or order to pay:

a. A treasury warrant
b. A postal money order
c. A certificate of time deposit certifying that the bearer had
deposited a certain amount with the bank and repayable to
the depositor.
d. An authorization to an addressee to pay.

2. One of these can be a negotiable promise or order to pay:

a. A promise to pay a specific person.

b. An acknowledgment of indebtedness.
c. An acknowledgment of indebtedness with a date for
payment.
d. A request to an addressee to pay.

3. The sum payable is not certain in one of these cases:

a. It provides for payment of interest without specifying the

rate.
b. It provides for payment of interest of 24 per cent a year.
c. It provides that the interest of 12 per cent a year will be
raised to 18 per cent in case of default.
d. It provides that the rate of the interest will be determined by
the holder of the instrument.

4. The sum payable is certain if:

a. It is payable in ten installments.

b. It is payable in ten monthly installments.
c. It is payable in ten monthly installments starting November
15, 2011 and every fifteenth day of the month thereafter.
d. It is payable in ten equal monthly installments starting
November 15, 2011 and every fifteenth day of the month
thereafter.
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5. The sum payable is not certain in one of these cases:

a. There is provision if an installment is not paid on time, the

entire balance will become due.
b. The sum payable is the equivalent of $1,000, United States
currency, in Philippine pesos according to the rate of
exchange on the spot market on the date of payment.
c. The sum payable is the equivalent of $1,000, United States
currency, in Philippine pesos according to the rate
determined by the holder on the date of payment.
d. It provides for payment of attorneys fees in case the holder
files a collection case.

6. The obligation to pay is conditional in one of these cases:

a. It indicates the fund out of which reimbursement is to be

made.
b. It indicates the account to be debited for the payment.
c. It mentioned the contract which gave rise to the issuance of
the negotiable instrument.
d. It mentioned the contract which gave rise to the issuance of
the negotiable instrument and made the negotiable
instrument subject to the terms and conditions of the
contract.

7. The obligation to pay is unconditional in one of these cases:

a. It makes the negotiable instrument subject to the terms and

conditions of the underlying contract but actually the terms
and conditions did not make the obligation to pay
conditional.
b. It is payable out of a particular fund.
c. It is payable out of a particular fund but does not limit to
that fund the source of payment.
d. The payment is secured by a chattel mortgage, and it is
provided that the holder will look to the mortgage for
payment.

8. An interest is not payable at a determinable future time in one of

these cases:

a. It is payable on December 15.

b. It is payable 30 days from the date of issuance.
c. It is payable 30 days from the date of presentment for
acceptance.
d. It is payable on or before November 15, 2011.

9. An instrument is payable at a determinable time in one of these

cases:

a. It is payable 30 days before the death of John Smith.

b. It is payable 30 days after the death of John Smith.
c. It is payable upon completion of the construction of Golden
Homes Condominium.
 11

d. It is payable upon passing of Juan Santos in the licensure

examination for medicine and Juan Santos passed on August
11, 2010.

10. A promissory note is not negotiable in one of these cases:

a. It provides that it is secured by a chattel mortgage on the

car of the maker and the maker undertakes to keep his car
in good order and condition.
b. It provides that it is secured by a chattel mortgage and the
holder could foreclose the chattel mortgage in case of
default.
c. It waives the exemption from execution in Section 13, Rule
39 of the Rules of Court.
d. It requires the maker to pay P20,000 or to deliver ten sacks
of rice at the option of the holder.

11. One of these destroys the negotiability of an instrument:

a. It is not dated
b. It does not specify any consideration was given
c. It does not specify where it is payable
d. It is payable in the amount of 1,000 dollars without
specifying the country whose dollars are being referred to.

12. One of these statements is not correct:

a. A promissory note may be payable to the order of John

Smith and Jane Smith.
b. A promissory note may be payable to the order of John
Smith and/or Jane Smith.
c. A promissory note may be payable to the order of the widow
of John Smith
d. A promissory note payable to the order of the City Treasurer
of Manila is not payable to the order of the acting Treasurer
of the City of Manila.

13. An instrument is not payable to bearer if:

a. It is payable to the possessor.

b. It was made by the drawer payable to the order of a
corporation, which actually exists and of which he is an
officer but he did not intend the corporation to get the
proceeds because he would get the proceeds for himself.
c. Checks issued by a financier payable to the order of
members of a savings and loan association deposited
instead by its officers in the account of the savings and loan
association are payable to bearer.
d. It is payable to the order of cash.

II. Rules of Interpretation of Negotiable Instrument

1. One of these statements is not correct:

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a. If the sum payable expressed in words is P200 and the sum

payable expressed in figures is P2,000, the sum payable is
P2,000.
b. If the instrument does not specify the date from which the
stipulated interest will run, it will run from the date of the
instrument.
c. If the instrument does not specify the date from which the
stipulated interest will run and the instrument is undated, it
will run from the date of issuance of the instrument.
d. If the instrument is not dated, it will be dated as of the time
it was issued.

2. One of these statements is not correct:

a. In case of conflict between the written and printed provisions

the written provisions prevail.
b. If there is an ambiguity as to whether the instrument is a bill
or note, the holder may treat it as either.
c. If a signature appears across the face of a promissory note,
he will be deemed an indorser.
d. If two persons signed a promissory note containing the
words I promise to pay, they are jointly liable.

III. Completion and Delivery

1. One of these statements is not correct:

a. If an instrument payable at a fixed period after date is issued

undated, any holder may insert the true date of issue.
b. If the acceptance of an instrument payable at a fixed period
after sight is undated, any holder may insert the true date of
presentation for acceptance.
c. If a holder innocently inserted the wrong date of issuance of
a promissory note, it will be avoided as to him.
d. If the wrong date of issue was inserted in a promissory note,
as to a subsequent holder in due course, the date inserted
will be regarded as the true date.

2. One of these statements is not correct:

a. The holder of a check issued with the name of the payee in

blank, may negotiate it.
b. If a maker signed a promissory note in favor of bank and left
the amount blank, and the bank filled it up and sued him
later for payment, he cannot raise the defense that the
promissory note is not valid.
c. If the drawer of a check authorized the holder to fill it up for
P50,000, and he filled it up for P80,000, and the check was
dishonored, he cannot hold the drawer liable for any
amount.
d. If the holder of a check was authorized by the drawer to fill
up the check for P50,000, he filled it up for P80,000, he
indorsed it to a holder in due course, and it was dishonored,
the indorsee can hold the drawer liable up to P50,000 only.

3. One of these statements is not correct:

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a. A drawer who signed a check but left the name of the payee
and the amount payable blank and entrusted it to his
employee, is not liable to the holder if the check was stolen
and dishonored for lack of funds upon presentment for
payment.
b. Since the officers of a corporation who signed blank checks
to pay for obligations of the corporation that might fall due
during their trip abroad were seriously negligent, if the check
was stolen and encashed, the corporation should bear 40
per cent of the loss.
c. If an incomplete and undelivered check was completed and
negotiated without authority to a holder in due course, and
was dishonored, the holder can hold the drawer liable.
d. In an incomplete and undelivered check was completed and
negotiated without authority to a holder, and was
dishonored, the holder can hold the person who negotiated
the check to him liable.

4. One of these statements is not correct:

a. If a debtor issued a check to pay his creditor but a thief stole

it in the office of the debtor and indorsed it by forging the
signature of the creditor, to a third party who was able to
encash it, the creditor can sue the third party.
b. If the holder of a check payable to bearer delivered it to
another for safekeeping, he can ask for its return at any
time.
c. If the holder of a check payable to bearer delivered it to
somebody in trust for him and the trustee tried to encash it
but the check was dishonored for lack of funds, the trustee
cannot hold the drawer liable to him.

d. If the holder of a check payable to bearer delivered it to

somebody in trust for him and the trustee delivered it to
another, who is a holder in due course, the holder can hold
the drawer liable if the check was dishonored.

IV. Signature

1. One of these is not a requirement for an agent to avoid personal

liability if he signs a negotiable instrument:

a. He must be duly authorized.

b. His authority must appear in a public instrument.
c. He must indicate he is signing as an agent.
d. He must disclose his principal.

2. A person is not liable even if his own signature does not appear in
a negotiable instrument in one of these cases:

a. He signed in a trade or assumed name.

b. A duly authorized agent signed for him.
c. His signature was forged.
d. He negotiated by delivering a negotiable instrument
payable to bearer.
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3. The indorsement of one of these will not pass title to a negotiable

instrument:

a. A minor.
b. A corporation acting ultra vires.
c. An insane person.
d. An enemy alien.

4. In one of these the signature is not forgery:

a. A man with failing eyesight was deceived into signing a

promissory note which was misrepresented to him as a
power of attorney and thus he had no intention to issue a
promissory note.
b. Duress was exerted upon a man in the execution of a
negotiable instrument by grabbing his hand and forcing
him to sign.
c. A drawer issued a check to the person before him whom
he met for the first time and who represented himself as
a member of a charitable organization. The endorsement
of the payee would be a forgery.
d. A drawer issued a check to the person before him who
misrepresented himself as somebody whom the drawer
knew as the head of a charitable organization. The
indorsement by the impostor would be a forgery.

5. One of these statements is not correct:

a. A drawee bank which paid a check in which the signature

of the drawer was a forgery must restore the amount it
paid to the account of the drawer.
b. A drawee bank which paid a friend of the drawer who stole
a check and forged the signature of the drawer must
restore the amount to the account of the drawer. The
drawer was not negligent.
c. A drawee bank must restore to the account of the drawer
the amounts of the checks it paid in which the external
auditor of the drawer was able to forge the signature of the
drawer because he was asked to take charge of reconciling
the bank statements with the records of the drawer, since
the auditor was not an employee but an independent
contractor.
d. A drawee bank must restore to the account of the drawer
the amounts of the checks it paid in which the signature of
the drawer was forged, even if the drawer did not examine
the bank statements and did not discover the forgeries
promptly.

6. One of these statements is not correct:

a. The drawee bank must restore to the account of the

drawer the amount of the check payable to order which it
paid although the indorsement was forged.
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b. A collecting bank must refund to the drawee bank the

amount it paid for a check presented by the collecting
bank in which the indorsement of the payee was forged.
c. The drawer is not entitled to the restoration to his account
of the amount the drawee bank paid to the holder of a
check which is payable to bearer and which has a forged
indorsement.
d. The drawee bank must restore to the account of the
drawer the amount of the checks it paid with forged
indorsements even if the drawer did not inform it of the
forgeries, because the drawer did not examine the bank
statements and the cancelled checks.

7. One of these statements is not correct:

a. A drawer who allowed its retired cashier to continue

picking up checks it was issuing who then forged the
indorsements of the payee, must divide the loss with the
drawee bank because of its negligence.
b. An acceptor who paid a bill of exchange with a forged
signature of the drawer cannot recover the payment from a
holder in due course.
c. A drawee bank who paid a check with a forged signature of
the drawer cannot recover the payment from the collecting
bank.
d. An acceptor who paid a bill of exchange payable to order
with a forged indorsement cannot recover the payment
from the holder.

V. Consideration

1. One of these statements is not correct:

a. A drawer of a check which was dishonored for lack of funds

can be convicted for violation of Batas Pambansa Blg. 22
even if no proof of consideration was presented.
b. A travel agency was issued a check for the purchase of
various plane tickets by a customer which was dishonored
for lack of funds. If it sued on the basis of the amount of
check and not the amount due for the plane tickets, it need
not prove the amount due for the plane tickets.
c. The pre-existing debt of a third person is sufficient
consideration for the issuance of a negotiable instrument
d. An extension of time to pay a debt is not a valid
consideration for the issuance of a negotiable instrument.

VI. Accommodation Parties

1. One of these statements is not correct:

a. For a person to be an accommodation party: (1) he must

sign as maker, drawer, acceptor, or indorser; (2) he must
not receive value by virtue of the instrument; and (3) he
signed for the purpose of lending his name.
b. If a person was paid a fee for lending his name, he is not an
accommodation party.
 16

c. To be able to hold an accommodation party liable, a holder

must satisfy the requirements to be a holder in due course,
except for the fact that he knew that the accommodation
party did not receive any consideration.
d. If a president of a corporation issued a check as
accommodation drawer in behalf of the corporation to pay
an obligation of his client, if the check was dishonored, the
president is the one who should be held liable. The issuance
of the check was ultra vires.

VII. Negotiation

1. One of these statements is not correct:

a. An assignee is merely placed in the position of the assignor

and takes the instrument subject to all defenses available to
the maker or drawer of the instrument. In negotiation the
holder takes the instrument free from personal defenses
available to prior parties.
b. If an instrument is payable to bearer, it may be negotiated
by delivery. If it is payable to order, it may be negotiated by
indorsement of the holder completed with delivery.
c. An indorsement must be an indorsement of the entire
instrument, except if it is payable in installments and had
been paid in part.
d. A partial indorsement operates as a negotiation to the
extent of the part indorsed and as an assignment to the
extent of the part which was not indorsed.

2. One of these statements is not correct:

a. A special indorsement specifies the person to whom or to

whose order the instrument is payable, and his indorsement
is necessary for further negotiation.
b. A blank indorsement specifies no indorsee and makes the
instrument payable to bearer.
c. The holder cannot convert a blank indorsement to a special
indorsement.
d. A restrictive indorsement prohibits further negotiation,
constitutes the indorsee as agent of the indorser, or vests
title in the indorsee as trustee.

3. One of these statements is not correct:

a. All the forms of restrictive indorsements prohibit further

negotiation.
b. All subsequent indorsees acquire only the title of the
restrictive indorser.
c. A qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument.
d. Qualified indorsement does not impair the negotiability of
the instrument

4. One of these statements is not correct:

 17

a. If the indorsement is conditional, the maker or acceptor may

disregard the condition and pay or wait until the condition
has been fulfilled.
b. A person to whom a conditional indorsement was made, will
hold the instrument and its proceeds subject to the rights of
the indorser.
c. If there are two or more of parties and they are not partners,
all must indorse to negotiate the instrument.
d. If there are two or more payees or indorsees who are not
partners and only one of them indorsed the instrument, the
indorsement will be valid up to the extent of his share.

5. One of these statements is not correct:

a. Irregular indorsement exists when a person, not otherwise a

party to an instrument, signs it in blank before delivery.
b. If the instrument is payable to a third person, the irregular
indorser is liable to the payee and all subsequent parties.
c. If the instrument is payable to the order of the maker or
drawer, or to bearer, the irregular indorser is liable to all
parties subsequent to the maker or drawer.
d. If the irregular indorser signs for the accommodation of the
payee, he is liable to the payee and all subsequent parties.

VIII. Rights of Holders

A. Holders

1. One of these is not a requirement to be a holder in due course:

a. It is regular upon its face and contains a blank.

b. 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. He took it in good faith and for value.
d. At the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of the
person negotiating it.

2. One of these statements is not correct:

a. The title of a person negotiating an instrument is defective

when he obtained the instrument or any signature to it by
fraud, duress, or force and fear, or other unlawful means,
or for an illegal consideration, or when he negotiates it in
breach of faith, or under such circumstances as amount to
fraud.
b. The person to whom the instrument is negotiated has
notice of an infirmity in the instrument or defect in the title
of the person negotiating it, if he had actual knowledge of
the infirmity or defect, or knowledge of such facts that his
action in taking the instrument amounted to bad faith.
c. For the holder to be in bad faith, the holder must know
what is wrong with the instrument or that something is
wrong with it but he does not know what is exactly wrong.
 18

d. A holder who has basis for suspicion but did not make a
reasonable investigation is not in bad faith.

3. One these statements is not correct:

a. A payee cannot be a holder in due course.

b. A collecting bank who complied with the request of the
payee who deposited a check with it not to present the
check for payment although it is already due, is not a
holder in due course.
c. A holder is not a holder in due course if the check
indorsed to it bore a notice that it had been previously
dishonored for lack of funds.
d. Gross negligence in taking a negotiable instrument does
not constitute the holder someone who is not a holder in
due course.

3. One of these statements is not correct:

a. A holder in due course holds the instrument free from any

defect of title of prior parties and free from defenses
available to prior parties among themselves.
b. A holder who is not a holder in due course holds a
negotiable instrument subject to the same defenses as if
it were not negotiable.
c. A holder who is not a holder in due course but derived his
title from a holder in due course and is not a party to any
fraud or illegality affecting the instrument, enjoys the
same exemption from defenses as a holder in due course.
d. A holder who is not a holder in due course need not prove
that the previous holder who indorsed the instrument to
him is a holder in due course, because this is presumed.

4. One of these statements is not correct:

a. The defenses from which a holder in due course is

exempt are personal defenses.
b. A holder in due course takes the negotiable instrument
subject to real defenses.
c. Personal defenses can be invoked only against the proper
parties.
d. Real defenses are available against all parties.

5. One of these is not a personal defense:

a. Absence or failure of consideration.

b. Want of delivery of an incomplete instrument.
c. Insertion of wrong date.
d. Filling up of a blank contrary to authority given or not
within a reasonable time.

6. One of these is not a personal defense:

a. Fraud in the inducement.

b. Acquisition by force, duress, or fear.
c. Acquisition by unlawful means.
 19

d. Material alteration.

7. One of these is not a personal defense:

a. Acquisition for an illegal consideration.

b. Negotiation under circumstances that amount to fraud.
c. Negotiation in breach of faith.
d. Forgery

8. One of these statements is not correct:

a. Forgery committed before an indorser negotiated the

instrument to the holder is not available as a defense to
the indorser.
b. Want of consideration between the drawer and the
acceptor of a bill of exchange is available as a defense
against the holder.
c. A discrepancy between the engine number and the
chassis number in the sales invoice of a car bought from
a dealer and the actual engine number and chassis
number is not available as a defense against the
financing company to whom the promissory note the
owner signed was indorsed, if it is a holder in due course.
d. A maker of a negotiable promissory note issued in favor
of a car dealer and indorsed to a financing company who
granted a loan to the maker is liable to pay the financing
company even if the car was not delivered, since it is a
holder in due course.

IX. Liabilities of Parties

1. One of these statements is not correct:

a. The maker of a negotiable promissory note warrants the

existence of the payee and his capacity to indorse.
b. The maker of a negotiable instrument undertakes to pay
it according to its tenor.
c. The maker who promised to pay unconditionally the
amount payable in the promissory note can raise the
defense that the proceeds of the loan were used to pay
medical expenses of his daughter which should have
been paid by the creditor, who was trustee of certain
properties in favor of the daughter.
d. A buyer of a car from a dealer who executed a negotiable
promissory note which the dealer negotiated to a
financing company must pay the financing company if
the dealer did not deliver the car, because the financing
company is a holder in due course.

2. One of these statements is not correct:

a. A drawer admits the existence of the payee and his

capacity to indorse.
b. The drawer engages that on due presentment the bill of
exchange will be accepted and paid and that if it is
dishonored and the necessary proceedings on dishonor
 20

are taken, he will pay the holder or any subsequent

indorsee who may be compelled to pay it.
c. The drawer may negative his liability by stipulating that
there is no recourse to him.
d. If a drawee bank debited the account of the drawer of
check but withheld the delivery of the money to the
holder because of an investigation, the holder cannot
hold the drawer liable.

3. One of these statements is not correct:

a. An acceptor cannot refuse to pay the holder of a bill of

exchange on the ground that the signature of the drawer
is a forgery.
b. An acceptor cannot refuse to pay the holder of a bill of
exchange on the ground that the drawer has no sufficient
funds with him.
c. If the amount payable in a bill of exchange was altered by
increasing it before the acceptor accepted, he is liable for
the increased amount.
d. If the acceptor paid the holder of a bill of exchange but it
turned out that the indorsement in favor of the holder
was a forgery, the acceptor cannot recover the payment.

4. One of these statement is not correct:

a. Both a qualified indorser and general indorser warrant

that: (1) the instrument is genuine and in all respects
what it purports to be; (2) they have a good title to it; and
(3) all prior parties had capacity to contract.
b. A qualified indorser warrants that he has no knowledge of
any fact that will impair the validity of the instrument,
while a general indorser warrants that the instrument is
at the time of his indorsement valid and subsisting.
c. A general indorser undertakes that on due presentment
the bill of exchange will be accepted and paid and that if
it be dishonored and the necessary proceedings on
dishonor are duly taken, he will be liable to the holder or
any subsequent holder who may be compelled to pay it.
d. If the drawee dishonored a bill of exchange on the ground
that the signature of the drawer is forgery, to be able to
hold a qualified or general indorser liable, the holder
must prove the forgery.

5. One of these statements is not correct:

a. A depositor who maintains a foreign currency deposit

accommodated a friend by allowing him to deposit in his
account a foreign managers check payable to bearer, so
that it could be presented to the bank which issued it.
The bank allowed his friend to withdraw the money
before the check had been cleared and without
presentation of the passbook. When the foreign bank
dishonored the check for being spurious, the collecting
bank cannot hold its customer liable to make good the
loss.
 21

b. A bank in which a foreign check was deposited but added

below the indorsement of the depositor the phrase up to
P17,500 only, which resulted in the dishonor of the
check because of the partial indorsement, canot hold the
depositor liable on the basis of his undertaking as
indorser.
c. The warranties of a person negotiating by delivery
extends to the immediate transferee only.
d. The warranties of a qualified indorser extend to any
person to whom the instrument was negotiated, while the
warranties of a general indorser extends to holders in due
course only.

X. Presentment for Payment

1. One of these statements is not correct:

a. Presentment for payment is not needed to charge the

maker or acceptor.
b. Presentment for payment is needed to charge the maker
or the acceptor if the instrument is payable on demand.
c. If the instrument is payable at a special place, the ability
and willingness of the maker or the acceptor to pay the
instrument there at maturity is equivalent to tender of
payment.
d. Presentment for payment is necessary to charge the
drawer and the indorsers.

2. One of these statements is not correct:

a. Presentment must be made to the maker or the acceptor,

or if he is absent or inaccessible, to any person found at
the place of presentment.
b. If the maker or acceptor is dead and no place of payment
is specified, presentment must be made to his personal
representative.
c. If the makers or the acceptors are partners and no place
of payment is specified, presentment may be made to
anyone of them.
d. If there are several makers or acceptors, they are not
partners, and no place of payment is specified,
presentment may be made to anyone of them.

3. One of these statements is not correct:

a. Presentment is not required to charge a drawer if he

stopped the payment of the bill of exchange.
b. Presentment is not required to charge a drawer if he
has no sufficient funds with the drawee and there is no
arrangement for the drawee to advance the funds.
c. Presentment is not required to charge an indorser if
the instrument was made or accepted for his
accommodation and he has no reason to expect it will
be paid if presented.
d. Presentment for payment is required even if the bill of
exchange was dishonored by non-acceptance.
 22

4. Presentment is not excused in one of these:

a. After the exercise of reasonable diligence,

presentment cannot be made.
b. The drawee is a fictitious person.
c. Presentment was waived expressly or impliedly.
d. Notice of dishonor was waived.

5. An instrument is not dishonored by non-payment in one of

these:

a. It was duly presented for payment and payment was

refused or could not be obtained.
b. The maker issued a check to pay the holder.
c. Presentment is excused and the instrument is overdue
and unpaid.
d. The bank against which the drawer issued a check was
closed.

XI. Notice of Dishonor

A. Parties to Notice

1. One of these statements is not correct:

a. Notice of dishonor must be given to the drawer and

each indorser.
b. If notice is given to an agent of the party to be
notified, he must be authorized to receive it.
c. If the person to be notified is dead, the only way by
which notice may be given is by giving it to his
personal representative.
d. If the parties to be notified are partners, notice may be
given to any of them.

2. One of these statements is not correct:

a. If the parties to be notified are joint persons who are

not partners, notice must be given to each of them
unless one is authorized to receive the notice for the
others.
b. If the party to be notified has been adjudged insolvent,
notice may be given to him or to the assignee
appointed by the insolvency court.
c. Notice of dishonor may be given by or on behalf of the
holder or by or on behalf of any party to the
instrument who may be compelled to pay the holder
and would have a right of reimbursement from the
party notified.
d. If the notice will be given by an agent, he must be
authorized by the principal.

B. Form of Notice

1. One of these statements is not correct:

 23

a. The notice may be in writing or oral.

b. A written notice must be signed.
c. The notice must identify the instrument and indicate
its dishonor by non-acceptance or non-payment
d. A misdescription of the instrument will not vitiate the
notice if the party notified was not misled.

C. Waiver and Excuse

1. One of these statements is not correct:

a. Notice may be waived before the time for giving it or

after the failure to give due notice.
b. Waiver may be expressed or implied
c. If the waiver was embodied in the instrument upon its
issuance, it is binding upon all parties.
d. If the waiver was written after the issuance of the
instrument, and was written above the signature of an
indorser, it will bind him and all subsequent parties.

2. One of these statements is not correct:

a. Waiver of protest includes waiver of notice of dishonor.

b. An indorser who paid the holder partially, waived the
lack of notice of dishonor.
c. A drawer who asked for the renewal of the bill of
exchange waived the lack of notice of dishonor.
d. An indorser who told the holder that he would see
what he could do, waived the lack of notice of
dishonor.

3. The drawer must be given notice of dishonor in one of these:

a. The drawer and drawee are the same person.

b. The drawee is a fictitious person.
c. The drawee had no capacity to contract.
d. The drawee was absent when the instrument was
presented for payment.

4. The drawer need not be given notice of dishonor if:

a. He was the person to whom the instrument was

presented for payment.
b. The drawer of check did not deposit funds to pay for
the check he issued.
c. The drawer stopped the payment of the bill of
exchange.
d. The drawer was abroad.

5. An indorser must be given notice of dishonor if:

a. The drawee is a fictitious person, and the indorser was

aware of it when he indorsed the instrument.
b. The drawee had no capacity to contract, but the
indorser was not aware of it.
 24

c. The indorser was the person to whom the instrument

was presented for payment.
d. The instrument was made or accepted for his
accommodation.

D. Consequences

1. One of these statements is not correct:

a. Any drawer or indorser who was not given notice of

dishonor will be discharged.
b. The failure to give notice of dishonor will not bind a
holder in due course subsequent to the failure.
c. If the instrument is payable in installments and there
is no acceleration clause, failure to give notice of
dishonor for non-payment of an installment will not
discharge the drawer and the indorsers as to the
subsequent installments.
d. If the instrument is payable in installments and has an
acceleration clause, failure to give notice of dishonor
for non-payment of an installment will discharge the
drawer and the indorser as to the subsequent
installments, even if the acceleration is not automatic.

2. One of these statements is not correct:

a. Notice of dishonor to the drawer and to the indorsers

will make them primarily liable.
b. Notice of dishonor given by the holder benefits all
subsequent holders and all prior parties who have a
right of recourse against the party notified.
c. Notice of dishonor given by a party entitled to give the
notice will benefit all parties subsequent to the party
notified but not the holder.
d. A holder can sue the parties to whom he gave notice
of dishonor without need of proceeding first against
the maker or the acceptor.

XII. Discharge

A. Discharge of Negotiable Instruments

1. One of these is not a means for discharging a negotiable

instrument:

a. Payment in due course by the principal debtor.

b. Payment in due course by the party accommodated if
the instrument was made or accepted for his
accommodation.
c. Payment by a third person.
d. Intentional cancellation by the holder.

2. One of these is a means for discharging a negotiable

instrument:

a. Payment by an accommodation maker.

 25

b. Cancellation without intention, by mistake, or without

authority of the holder.
c. The principal debtor becomes holder of the instrument
at or after maturity in his own right.
d. The principal debtor becomes holder of the instrument
at or after maturity as administrator of an estate.

3. One of these is a means for the discharge of negotiable

instrument:

a. The instrument was negotiated to the holder before

maturity in his own right and he retained possession of
it at maturity.
b. Loss of the thing due.
c. Fulfillment of a resolutory condition.
d. Fortuitous event.

B. Discharge of Persons Secondarily Liable

1. One of these will not discharge a party secondarily liable

a. Any act which will discharge the instrument.

b. Intentional cancellation of his signature by the holder.
c. Discharge of a prior party.
d. Discharge of a prior party due to insolvency.

2. One of these will not discharge a party secondarily liable:

a. Valid tender of payment by a prior party.

b. Release of the principal debtor.
c. Release of the principal debtor with the assent of the
party secondarily liable.
d. Release of the principal debtor with express
reservation of the right of recourse against the party
secondarily liable.

3. One of these statements is not correct:

a. An agreement binding upon the holder to extend the

time of payment will discharge parties secondarily
liable.
b. An agreement binding upon the holder to extend the
time of payment will not discharge parties secondarily
liable if the right of recourse against them was
reserved.
c. An agreement binding upon the holder to extend the
time of payment will not discharge parties secondarily
liable if they assented to it.
d. Payment by a party secondarily liable will discharge
the instrument.

C. Rights of Parties Secondarily Liable

1. One of these statements is not correct:

 26

a. Payment by a party secondarily liable who was a

holder in due course when he took a promissory note
will restore him to that position even if at the time of
payment he was aware that there was failure of
consideration between the maker and the payee.
b. Payment by a party secondarily liable who was not a
holder in due course when he took a promissory note
will restore him to that position even if the party he
paid was a holder in due course.
c. The party secondarily liable who paid the instrument
can strike out his indorsement and all subsequent
indorsements.
d. The party secondarily liable who paid the instrument
can negotiate the instrument again absolutely.

D. Renunciation of Rights of Holder

1. One of these statements is not correct:

a. A holder may renounce all his rights against any party

to the instrument before, at, or after its maturity.
b. An absolute and unconditional renunciation by a
holder of his rights against the principal at or after
maturity discharges the instrument.
c. Renunciation does not affect the rights of a holder in
due course without notice of it.
d. An oral renunciation is always invalid.

XIII. Material Alterations

A. Concept

1. One of these alterations is not material:

a. Changing the effect of the instrument.

b. Changing the date.
c. Changing the sum payable, either for principal or
interest.
d. Writing that the interest will be 12 per cent of a year
where no rate was mentioned in the instrument.

2. One of these alterations is not material:

a. Changing the time or place of payment.

b. Changing the number or relations of the parties.
c. Adding a co-maker to a promissory note.
d. Changing the serial number of a check.

3. One of these alterations is not material:

a. Changing the currency in which payment will be

made.
b. Making the instrument payable to order instead of
bearer.
c. Adding a place for payment where none is specified.
 27

d. Changing the date of indorsement of a promissory

note payable on October 29, 2011 from October 6,
2011 to October 5, 2011.

4. One of these statements is not correct if the amount

payable in a promissory note was changed from P10,000 to
P40,000:

a. If the holder is a holder in due course, he can enforce

payment from the maker and indorsers before the
alteration for P10,000.
b. If a holder is a holder in due course, he can enforce
payment from the party who made the alteration and
subsequent indorsers for P40,000.
c. If the holder is not a holder in due course, he cannot
enforce payment from the maker and subsequent
indorsers before the alteration.
d. If the holder is not a holder in due course, he cannot
enforce payment from the party who made the
alteration and subsequent indorsers.

XIV. Acceptance

A. Definition and Manner

1. One of these statements is not correct:

a. Acceptance of a bill is the signification by the drawee

of his assent to the order of the drawer.
b. The acceptance must be in writing and need not be
signed.
c. The acceptance must not express that the drawee will
perform his promise by any other means than the
payment of money.
d. The acceptance may express that the drawee will
perform his promise by a means other than the
payment of money if the bill of exchange gave the
holder the option to require something other than the
payment of money and he exercised it.

2. One of these statements is not correct:

a. The holder may require that the acceptance be written

on the bill of exchange.
b. If the request is refused, the holder should treat the
bill as dishonored.
c. An acceptance of any bill of exchange on a separate
instrument does not bind the acceptor except in favor
of a person to whom it was shown and who received
the bill for value on the faith of it.
d. An unconditional promise in writing to accept a bill
before it is drawn will not bind the acceptor except in
favor of a person to whom it was shown and who
received the bill for value on the faith of it.
 28

B. Time of Acceptance and Kinds of Acceptance

1. One of these statements is not correct:

a. The drawee is allowed 24 hours to decide whether or

not he will accept the bill.
b. If the drawee does not return the bill accepted or
unaccepted within 24 hours, he will be deemed to
have accepted it.
c. If the drawee requires the return of the bill before the
expiration of 24 hours, he must decide before its
expiration whether or not he will accept the bill.
d. If the drawee destroys the bill, he will be deemed to
have accepted it.

2. One of these statements is not correct:

a. A general acceptance assents without qualification to

the order of the drawer.
b. A qualified acceptance varies expressly the effect of
the bill as drawn.
c. An acceptance to pay at a particular place is qualified.
d. An acceptance which makes payment dependent on
the fulfillment of a condition is qualified.

3. One of these statements is not correct:

a. An acceptance to pay a part only of the amount for

which the bill was drawn is qualified.
b. An acceptance to pay on a date different from the
date of maturity in the bill is qualified.
c. If there are several drawees and not all of them
accepted, the acceptance is qualified.
d. An acceptance which stated that it was being made
pursuant to a deed of sale selling a parcel of land is
qualified.

C. Rules Governing Acceptance

1. One of these statements is not correct:

a. The holder may refuse to take a qualified acceptance.

b. If the holder does not obtain an unqualified
acceptance, he should treat the bill as dishonored by
non-acceptance.
c. Where a qualified acceptance is taken, the drawer and
the indorsers are discharged from liability on the bill.
d. The drawer and the indorsers are not discharged from
liability only if they expressly assented to the qualified
acceptance.

XV. Presentment for Acceptance

A. Requirement

1. Presentment for acceptance is not required in one of these:

 29

a. Where the bill is payable after sight or in any other

case where presentment for acceptance is necessary
to fix the maturity of the instrument.
b. Where the bill expressly stipulated for it.
c. Where the bill is payable elsewhere than at the
residence or place of business of the drawee.
d. Where the bill is payable on demand.

B. Manner

1. One of these statements is not correct:

a. A bill required to be presented for acceptance must be

presented for acceptance or negotiated within a
reasonable time.
b. A bill must be presented for acceptance on a business
day and before it is overdue.
c. If the drawee is dead, presentment for acceptance
cannot be made to the administrator of his estate.
d. If the drawee has been adjudged insolvent,
presentment for acceptance may be made to him or to
the assignee appointed by the insolvency court.

2. One of these statements is not correct:

a. If there are two or more drawees, presentment for

acceptance must be made to all of them.
b. If the drawees are partners, presentment for
acceptance may be made to one of them.
c. If one of the drawers is authorized to accept or refuse
acceptance, presentment for acceptance may be
made to him only.
d. If a partnership is undergoing dissolution, presentment
can be made only to the partner who is in charge of
the dissolution.

3. One of these statements is not correct

a. Presentment for acceptance may be made on any day

on which a negotiable instrument may be presented
for payment.
b. Presentment for acceptance cannot be made on a
Saturday.
c. Delay in presenting for acceptance a bill payable
elsewhere than at the place of business or residence
of the drawee because of insufficiency of time despite
exercise of reasonable diligence is excused.
d. Delay due to a fortuitous event is excusable.

4. Presentment for acceptance is not excused in one of these:

a. The drawee is dead, has absconded, is a fictitious

person, or does not have the capacity to contract.
b. After the exercise of reasonable diligence,
presentment cannot be made.
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c. Although presentment was irregular, acceptance was

refused on some other grounds.
d. The drawee requested the holder to delay the
presentment.

C. Consequences

1. One of these statements is not correct:

a. If a bill required to be presented for acceptance, was

not presented for acceptance or negotiated within a
reasonable time, the drawer and all indorsers are
discharged.
b. A bill is deemed dishonored by non-acceptance when:
(1) it is duly presented and acceptance as prescribed
was refused or cannot be obtained; or (2) presentment
of acceptance is excused, and the bill is not accepted.
c. If a bill is deemed dishonored, the holder must give
the drawer and the indorsers notice of dishonor or he
loses his right of recourse against them.
d. If a bill was dishonored by non-acceptance before its
date of maturity, the holder must wait until such date
before having recourse against the drawer and the
indorsers.

XVI. Checks

A. Concept

1. One of these statements is not correct:

a. A check is a bill of exchange drawn on a bank and

payable on demand.
b. The provisions of the Negotiable Instruments Law
which are applicable to bills of exchange payable on
demand do not apply to checks.
c. Special types of checks include: (1) cashiers checks;
(2) managers checks; (3) memorandum checks; (4)
travelers checks; and (5) crossed checks.
d. Checks need not be presented for acceptance.

2. One of these statements is not correct:

a. A cashiers check and a managers check are checks

drawn by officers of a bank upon the bank of which
they are officers.
b. A cashiers check and a managers check are primary
obligations of the bank which issued them and
constitute a written undertaking to pay them upon
demand.
c. A bank which sold a managers check because of its
mistaken belief that the bank account of the buyer
with it was still open cannot refuse to pay the payee to
whom the check was delivered.
d. A bank which issued a managers check payable to the
order of cash can refuse to pay it because the buyer
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issued an order to stop its payment on the ground that

he delivered it to the wrong party.

3. One of these statements is not correct:

a. A memorandum check is a check given by the drawer

to the payee in the nature of a memorandum of
indebtedness rather than as payment.
b. The drawer of a memorandum check who secretly
took it from the payee is liable for theft.
c. A travelers check is a check with the name of the
payee left blank which is sold by a bank in various
denominations to those who will travel, which must be
signed by the buyer at the time of purchase, and
which must be countersigned when it is delivered to a
person whose name will be indicated as the payee.
The bank will replace a travelers check if it is lost or
stolen.
d. Philippine banks do not certify checks anymore.

4. One of these statements regarding a crossed check is not

correct:

a. It may not be encashed but must be deposited in a

bank.
b. It may be negotiated only once and to someone who
has a bank account.
c. It serves as a warning that it was issued for a definite
purpose and to be a holder in due course the indorsee
must inquire if he is receiving it pursuant to that
purpose.
d. It is not negotiable.

5. One of these statements is not correct:

a. A crossed check is a check with two parallel lines

drawn transversally on the upper left hand side on the
face of the check.
b. If the name of a particular bank is written between the
two parallel lines on the crossed check, it must be
deposited in that bank and not in any other bank
c. If a crossed check was presented for payment and was
dishonored, the holder can hold the drawer liable.
d. The practice of banks is that they will honor a check
only for a period of six months from the date of its
issuance.

6. One of these statements is not correct:

a. If a check was not presented on time after its

issuance, the drawer will be discharged from liability
to the extent of the loss caused by the delay.
b. If a check was not presented on time and became
stale, the drawer will be discharged from his liability
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under the contract which was the basis for the

issuance of the check.
c. If a check was not presented on time and became
stale, the drawer remains liable under the contract
which was the basis for the issuance of the check and
will be discharged to the extent he was prejudiced if
the bank became insolvent.
d. An indorser is discharged if a check was not presented
on time and became stale, because it is conclusively
presumed he was prejudiced by the delay.

7. One of these statements is not correct:

a. A check does not operate as an assignment of funds in

the deposit of the drawer with the bank.
b. The drawer of a check can stop its payment of a check
which has not yet been honored by the drawee bank.
c. The payee of a check can sue the drawee bank if it
erroneously dishonored the check for insufficiency of
funds.
d. If a drawee bank erroneously honored a check despite
the insufficiency of funds in the account of the drawer,
it cannot recover the payment from the payee.