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 deman
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 noting the David acquired the rights of Cecil because he was
not a party to fraud; otherwise, he would be disqualified.
1. "PAY TO MARIA IN TRUST FOR JESUS" (Sgd.) Jose,
is an example of:

a. Conditional endorsement
b. Qualified endorsement
c. Facultative endorsement
d. Restricted endorsement

ANSWER: D

2. The following, except one, are the requisites for

honor on a bill:

a. The bill must be previously protested for dishonor by non-

acceptance or protested for better security.
b. The bill is overdue.
c. The holder must give his consent.
d. The acceptor for honor must be a stranger to the bill.

ANSWER: B

3. Which of the following is not a secondary party?

a. Acceptance for honor

b. Drawer
c. Payor for honor
d. Endorser

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

a. Alternative endorsement
b. Qualified endorsement
c. Facultative endorsement
d. Restrictive endorsement

ANSWER: C

5. A holder not in due course has the following rights,

except:

a. He may receive payment and if the payment is in due

course, the instrument is discharged.
b. He may sue on the instrument in his own name.
c. He cannot recover on the instrument.
d. He is entitled to the instrument but holds it subject to the
same defense as if it were non-negotiable.

ANSWER: C

6. Which of the following is a negotiable bill of

exchange?

a. Pay to the order of Y the sum of P30,000. (Sgd. X) To A

or in his absence, to B.
b. Pay to the order of X the sum of P20,000. (Sgd. X) To A
or B.
c. Pay to the order of X or Y the sum of P40,000. (Sgd. C)
To A or B.
d. Pay to the order of Y the sum of P50,000. (Sgd. X) To A
and B.

ANSWER: D

7. A feature or characteristic of a bill of exchange not

found in a promissory note:

a. Promise to pay
b. Order to pay
c. Promise in writing to pay
d. Unconditional promise in writing

ANSWER: B

8. A bill of exchange to which no document is attached

when presentment for payment or acceptance is made:

a. Trade acceptance
b. Bank acceptance
c. Clean bill of exchange
d. Documentary bill of exchange

ANSWER: C

9. A check drawn by the bank upon itself and payable

to third person:
a. Certified check
b. Manager's check
c. Traveler's check
d. Crossed check

ANSWER: B

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

a. Absence of consideration
b. Forgery of a signature
c. Non-delivery of a complete instrument
d. Failure of consideration

ANSWER: B