Q#1:

A draws a bill payable to B or order with X, as the drawee. The bill was successively endorsed to C, D, E
and F, holder. X does not pay and F has duly protested non-payment. Y pays for the honor of C.

Which of the following statement is wrong?

a. D is discharged.

b. E is discharged.

c. C is discharged.

d. Y can ask reimbursement from A.

Answer: C

All parties subsequent to the party whose honor it is paid are discharged but the payor for honor is
subrogated for, and succeeds to both the rights and duties of the holder as regards for the party whose
honor he pays and all the parties liable to the latter.

Q#2:

When an endorser waives presentment and notice of dishonor, he increases his liability. His
endorsement is:

a. Facultative endorsement

b. Qualified endorsement

c. Alternative endorsement

d. Restrictive endorsement

Answer: A

A facultative endorsement is one where the indorser enlarges his liability by waiving the usual demand
and notice of dishonor.
Q#3:

Ariel issued a note to Brando. There was a total failure of consideration. Brando issued the note for
consideration to Cecil who is a holder in due course. Cecil indorsed the note to David who knew of the
failure of consideration. Can David successfully collect from Ariel?

a. No, because David knew the failure of consideration.

b. No, although David acquired the rights of Cecil, a holder in due course and he was not a party to any
illegality.

c. Yes, because David acquired the note for consideration.

d. No, becuase David is not a holder in due course.

Answer: C

Sec. 58 of Negotiable Instrument Law provides that in the hands of any holder other than the holder in
due course, the negotiable instrument is subject to any defenses as if it were non-negotiable. But a
holder who derives through a holder in due course and who is not a party to any fraud or illegality
affecting the instrument, has all the rights of such former holder in respect of all parties prior to the
latter.

David, a holder in due course, may go against Ariel beacuse of Sec. 58. David acquired all the rights of
Cecil, a holder in due course. It is worth nothing the David acquired the rights of Cecil because he was
not a party to fraud; otherwise, he would be disqualified.