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.

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.
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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

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.
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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.
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.
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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.
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. Warehouseman’s Lien

A. Claims Included and Properties Covered

1. One of these statements is not correct:

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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 Warehouseman’s Lien

1. One of these statements is not correct:

a. A warehouseman’s 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.
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.
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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 seller’s 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.
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:

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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

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
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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.

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:

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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.

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 attorney’s 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.
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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.
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.
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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:

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.
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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:

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.
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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.

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
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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.
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
 15

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.
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:

 16

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:

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
 17

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.
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.
 18

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.
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.
 19

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 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 manager’s 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
 20

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.
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.
 21

d. Presentment for payment is required even if the bill of

exchange was dishonored by non-acceptance.

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:

 22

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.
 23

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.

b. Cancellation without intention, by mistake, or without
authority of the holder.
 24

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:

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.
 25

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.
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:
 26

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.

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.
 27

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:

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
 28

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.
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.
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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) cashier’s checks; (2)
manager’s checks; (3) memorandum checks; (4) traveler’s
checks; and (5) crossed checks.
d. Checks need not be presented for acceptance.

2. One of these statements is not correct:

a. A cashier’s check and a manager’s check are checks drawn by

officers of a bank upon the bank of which they are officers.
b. A cashier’s check and a manager’s 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 manager’s 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 manager’s check payable to the order
of cash can refuse to pay it because the buyer 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 traveler’s 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
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it is delivered to a person whose name will be indicated as the

payee. The bank will replace a traveler’s 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 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.
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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.