BUSINESS LAW

NEGOTIABLE INSTRUMENTS (PART III) ATTY. MACMOD

TRUE OR FALSE

1. An antedated or a post dated instrument is valid, and it does lot lose it negotiable character just because it is
antedated or post dated, provided this is not done for an illegal or fraudulent purpose.
2. An instrument where no time for payment is expressed is payable on demand.
3. Where the instrument is not dated, it will be considered to be dated as of the time it was issued.
4. Where an incomplete instrument has not been delivered, it will not be completed and negotiated without authority,
be a valid contract in hands of any holder, as against any person whose signature was placed thereon before
delivery.
5. An indorsement payable upon a contingency is not negotiable and the happening of the event does not cure the
effect.
6. An instrument payable upon a contingency is not negotiable and the happening of the event does not cure the
effect.
7. Where a signature is so placed upon the instrument that is not clear in what capacity the person making the same
intended to sign, he is deemed an indorser.
8. A holder in due course is also a holder for value and vice versa.
9. The acceptor admits the existence of the drawer, the genuineness of his signature and his capacity and authority to
draw the instrument.
10. The liability of an indorser is primary.
11. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable
certainty.
12. A check if certified by a bank on which it is drawn, such certification is equivalent to acceptance, where the holder
procures a check to be certified or accepted the drawer and all indorsers are discharged form liability thereon.
13. Where the instrument is negotiated back to a prior party, such a party may reissue and further negotiate the same
but he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.
14. The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose
signature is struck out, and all subsequent indorsers, are hereby relieved from liability on the instrument.
15. The bank is not liable to the holder, unless and until it accepts.
16. A check is required to be presented for payment within reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the delay.
17. Notice of this must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is
not given is discharged.
18. Every negotiable instrument is deemed a prima facie to have been issued for a valuable consideration, and every
person whose signature appears thereon to have party thereto for value.
19. An instrument which is payable to bearer is negotiated by mere delivery.
20. An accommodation party is liable on the instrument to a holder for value, notwithstanding such holder at the time
of taking the instrument knew him to be only an accommodation party.
21. A signature by “procuration” operates as notice that the agent has a limited authority to sign, and the principal is
bound only in case the agent in so long doing within the actual limits of his authority.
22. The liability of an acceptor is secondary.
23. The drawers liability is primary.
24. Absence or failure of consideration is a matter of defense as against any person not a holder in due course.
25. The indorsement or assignment of the instrument by a corporation or by infant passes the property therein,
notwithstanding that from want of capacity, the corporation or infant may occur no liability thereon.
26. An order or promise to pay out of a particular fund is not negotiable.
27. An order or promise to pay is unconditional through coupled with an indication on particular fund out of which
reimbursement is to be made, or particular account to be debited with the amount.
28. The following instrument is negotiable:
“ Please pay to Jose Santos or bearer the sum of P60,000 “
(Sgd. Pedro Gil)
29. There is payment when a negotiable instrument is delivered and accepted by the creditor.
30. Creditors are bound to accept in payment of the debtor’s obligation.
31. Fraud in inducement is a real defense.
32. An infant or minor’s indorsement is void.
33. In the hands of a holder in due course, valid delivery of negotiable instrument is a disputable presumption.
34. A drawee can be a holder in due course.
35. Material alteration just like forgery voids the instrument against any party as arule.

MULTIPLE CHOICE

1. A person secondarily liable on the instrument is discharged, except

a. by any act which discharged the instrument
b. By the intentional cancellation of his signature by maker
c. By the discharge of a prior party
d. By a valid tender of payment made by a prior party

2. Every person negotiating an instrument by delivery or by qualified endorsement warrants the following. Which
doers do not belong to the warranties?
a. That the time of his endorsement the instrument is valid and subsisting
b. That the instrument genuine and in all respect what it purports to be
 2
c. That he has good title to and that all prior parties and capacity to contract
d. That he has no knowledge of any fact which would impair the validity or the instrument or render it value
less.

3. Statement No.1: An antedated or a postdated instrument is valid, and it does not lose its negotiable character just
because it is antedated or postdated, provided it is not done for a voidable purpose.
Statement No. 2: Where an incomplete instrument has not been delivered, it will not, if completed and negotiated
without authority, be a valid contract in the hands of any holder, as against any person whose signature was
thereon before delivery.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

4. Statement No. 1: The holder may at any time strike out any endorsement which is not necessary to his title. The
endorser whose signature is struck out and all prior endorsers, are thereby relieved from liability on the instrument.
Statement No. 2: Where an instrument is negotiated back to a prior party, such party may reissue and further
negotiate the same but he is not entitled to enforce payment thereof against any intervening party to whom he was
personally liable.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

5. An instrument is rendered non-negotiable if

a. There is an indication of a particular fund out of which reimbursement is to be made
b. There is an indication of a particular account to be debited with the amount
c. The instrument is payable out of a particular fund.
d. Answer not given

6. Statement No. 1: Where to show displeasure over a bill of exchange addressed to him, the drawee destroys the
same, under the law he is deemed to have accepted it.
Statement No. 2: Where the drawer and drawee are the same persons, the bill of exchange can be regarded as a
promissory note of the drawee.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

7. Statement No. 1: Where a negotiable instrument is endorsed conditionally, the person liable on the instrument may
disregard the condition and legally pay the same.
Statement No. 2: An instrument negotiable in origin continues to be negotiable unless restrictively endorsed or
discharged by payment.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

8. A check which has not been presented for payment within a reasonable time after its issuance is a
a. Certified check c. Cashier’s check
b. Stale check d. Manager’s check

9. The following instruments are payable to bearer, Except

a. When it is payable to a person named therein or bearer
b. When the name of the payee does not purport to be the same person
c. When it is payable to the order of a fictitious or existing person.
d. When the last endorsement is a blank endorsement

10. Statement No. 1: A makes a promissory note payable to the order of B and delivers it to C. Under the law, C is
regarded as the holder.
Statement No. 2: “Due to B P5,000 on demand” signed by A is a good & negotiable promissory note
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

11. Statement No. 1: An order instrument will always remain an order instrument.
Statement No. 2: An instrument is considered payable to bearer where it is payable to the order of a fictitious or
non-existing person and such fact is known to the person making it so payable.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

12. If an instrument conforms to the following:

(1) it must be in writing and signed by the maker or drawer
(2) it must contain an unconditional promise or order to pay a sum certain in money
(3) it must be payable on demand or at fixed or determinable future time, and
(4) it must be payable to order or to bearer the instrument is:

a. Check c. Bill of exchange

b. Promissory note d. Draft

13. Which of the following instrument is not negotiable?

a. “I agree to pay to the order of P, P30,000” (Sgd. M)
b. “Good to P or order, P30,000” (Sgd. M)
 3
c. “I promise to pay P or order on June 30” (Sgd. M)
d. “I promise to pay P or order P5,000” (Sgd. M)

14. Which of the following alteration is not material?

a. An alteration which changes the medium or currency in which payment is to be made
b. An alteration which adds a place of payment where no place of payment is specified
c. An alteration which substitutes the words “or bearer” for the words “or order”
d. None of the above

15. A bill of exchange may be treated as a promissory note of the drawer

a. When the drawee and the payee are the same persons
b. When the drawer and the payee are the same persons
c. When the drawee and the drawer are the same persons
d. All of them

16. Statement No. 1: D has a deposit of P600,000 with the PNB against which he drew check for P100,000 in favor of
P. For no reason at all, PNB refuses to pay P100,000. P can legally hold PNB liable for P100,000 plus damages
Statement No. 2: An instrument which contains an order or promise to do any act in addition to the payment of
money is not negotiable.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

17. Which of the following is not negotiable for the reason that the instrument is not payable at a determinable future
time?
a. “On the death of X, I promise to pay to the order of P10,000. (Sgd.) M”
b. “On or before October 30, 2014, I promise to pay or P order P10,000 (Sgd) M”
c. “Sixty days after sight, I promise to pay to the order of P P10,000 (Sgd) M”
d. Ten days before the death of X, I promise to pay P or his order P10,000 (Sgd) M”

18. Which of the following instrument is negotiable?

a. “Good to Jose Dela Paz or order, P20,000” (Sgd Pedro Cura)
b. “I hereby authorized you to pay Jose dela Paz or order P20,000” (Sgd. Pedro Cura)
c. “I promise to pay Jose dela Paz or order P20,000 worth in sugar” (Sgd. Pedro Cura)
d. “I promise to pay Jose dela Paz or order P20,000 on may 25” (sgd. Pedro Cura)

19. Statement No. 1: Where it cannot be determined in what capacity a person signed a promissory note, he is deemed
a maker.
Statement No. 2: If a note for P10,000 payable to the order of B is endorsed by B in favor of C or D, such
endorsement is valid.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

20. When a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be
given to the :
a. Maker c. Drawer
b. Drawee d. Acceptor

21. Three of the following are not negotiable. Which is the exception?
a. “Good to B or order P3,000 upon demand” (Sgd. M)
b. “Pay to bearer G P3,000: To B (Sgd. M)
c. “Pay to bearer J. Cruz P10,000 and reimburse yourself from the money I deposited with you” To: B (Sgd.
A)
d. “Pay to P. Reyes or bearer P2,000 out of the funds I deposited with you” To: B (Sgd. A)

22. A negotiable note for P10,000 is payable to A or order. A signs his name at the back and delivers the note to B. B
negotiated the note to C by mere delivery.
a. Title is not transferred to C because B did not endorse to C
b. C is the mere agent of B
c. C becomes the holder by mere delivery
d. C cannot negotiate by delivery to D

23. Statement No. 1: A negotiable instrument is a formal or solemn contract.

Statement No. 2: The negotiable instrument law is based on Act. No. 3021 which took effect on June 2, 1911
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

24. An endorsement is restrictive and ends the negotiability of the instrument

a. Prohibits the further negotiation of the instrument
b. Constitute the endorsee the agent of the endorser
c. Vest the title in the endorsee in trust for or to the use of some other person
d. All of the above

25. The acceptor for honor which is not a requirement

a. Must be with consent of the holder c. Instrument is dishonored
 4
b. Must be a third person d. Instrument is already overdue

26. Presentment for acceptance of a bill of exchange is not necessary

a. Where the bill is payable after sight
b. Where the bill is drawn payable elsewhere than the residence or place of business of the drawee
c. Where it is payable at a certain number of days after date
d. When the drawee is unknown

27. An endorsement where the endorser adds the phrase “Notice of dishonor waived” is called
a. Blank endorsement c. Qualified endorsement
b. Restrictive endorsement d. Facultative endorsement

28. Which one of the following instrument is negotiable?

a. “I promise to pay C or order P20,000 if he will pass the May 2015 CPA Examination” (Sgd. D)
b. “I promise to pay C or order P20,000 in four (4) installments” (Sgd. D)
c. “I promise to pay C or order P20,000 60 days after the death of his father (Sgd D)
d. “I promise to pay C P20,000” (Sgd. D)

29. A non-negotiable instrument

a. Treasury warrant c. Bill of lading
b. Money order d. All of the above

30. Statement No. 1: A signature by “procuration” operates as notice that the agent has but a limited authority to sign,
and the principal is bound only in case the agent is so doing acted within the actual limits of his authority.
Statement No. 2: An irregular endorsement renders the instrument non-negotiable.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

31. One of the requisites of a negotiable instrument is that it must contain an unconditional promise or order to pay a
sum certain in money. Which of the following denotes non-negotiability?
a. I promise to pay E or bearer in manila the sum of P27,000 in Philippine pesos or US dollars, at the option
of the holder.
b. Promise to pay N or bearer in Manila the sum of P18,000 in the Philippine pesos or in US dollars.
c. I promise to pay to the order of Y the sum of $600 and to deliver one-fourth of the rice harvest in my farm
d. I promise to pay to the order of Y the sum of $900 at DBP Manila

32. Absence of failure of consideration is a matter of defense against any person

a. Holder in due course c. Who is holder of instrument
b. Not a holder in due course d. None of the above

33. If the drawee destroy the bill

a. The bill is considered accepted c. The bill is discharged
b. The bill is considered dishonored d. The bill is cancelled

34. Statement No. 1: A restrictive endorsement constitutes the endorser a mere assignor of the title to the instrument
Statement No. 2: A restrictive endorsement which vests title in the endorsee in trust for or for the use of other
person renders the instrument non-negotiable.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

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

a. “I promise to pay B or order P20,000” (Sgd. Y)
b. “Pay B or order P20,000” (addressed to Z signed by Y)
c. “Pay B or order P20,000 and reimburse yourself out of my money in your possession” (addressed to Z
signed by Y)
d. “Pay B or order P20,000 out of my money in your possession (addressed to Z signed by Y)

36. A promissory note as distinguished from a bill exchange

a. It contains an unconditional order
b. The one who issues it is primarily liable
c. The one who issues it is secondarily liable
d. There are three (3) parties, the drawer, the payee and the drawee

37. Manager’s check may be treated and considered a promissory note, because
a. The drawer and drawee are the same person
b. The drawee is fictitious
c. The instrument is ambiguous
d. Answer not given

38. V signed a blank check which he inadvertently left in his desk at his office. P later stole the same, who filled in the
amount of P30,000 and a fictitious name as payee, P then endorsed the check in the payee’s name and passed the
check to A; thereafter, A passed to B; then B to C, and C to D
a. D can not enforce the instrument against V only if D is holder in due course.
 5
b. D can enforce the instrument against V even if D is not a holder in due course because the signature of V
is genuine
c. D cannot enforce the instrument against any one of the prior parties because the instrument is not a valid
instrument and therefore, not negotiable.
d. D can enforce the instrument against any one of the prior parties except V

39. This instrument is negotiable

a. “I promise to pay P20,000” (Sgd. Jose Santos)
b. “Pay to Pedro Torres or order P20,000 if he marries Maria Cocs” (Sgd. Jose Santos)
c. “Good to Mario Clara or order P20,000” (Sgd. Jose Santos)
d. “I promise to pay Oscar Bamboo or order 20 of IR rice in January 2006´ (Sgd. Jose Santos)

40. Payable to bearer

a. Pay to bearer b P1,000 c. Pay to possessor P1,000
b. Pay to B, the bearer; P1,000 d. Pay to agent

41. Statement No. 1: Fraud in factum is a personal defense.

Statement No. 2: An accommodation party is really a guarantor.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true

42. Which of the following instruments is non-negotiable?

a. Pay to P or order P20,000” (addressed to X, signed D)
b. “Pay to P or order P20,000 and reimburse yourself our of my cash in your possession” (addressed to X
signed D)
c. “I promise to pay P or order P20,000” (Sgd D)
d. “Pay or order P20,000” (Sgd X)

43. When is a negotiable instrument payable to order?

a. When payable to the order of a specified person or to him or its order.
b. When payable to the order of a fictitious or non-existing person, in such fact was known to the person
making it.
c. When the name of the payee does not purport to be the name of any person.
d. When the only or last endorsement is an endorsement in blank.

44. A executed a bill of exchange in favor of B for P10,000. B, altered the amount to P100,000 and presented the bill
to C, the drawee who accepted the bill. Thereafter the bill was negotiated by B to C Which is correct?
a. The acceptor is liable up to P10,000 only
b. The acceptor is not liable because of alteration
c. The acceptor is liable only up to P10,000 except if D is a holder in due course in which case A is liable up
to P100,000
d. The acceptor by accepting the bill is liable according to the tenor of his acceptance, that is P100,000

45. P appointed A as his agent to buy sugar. Thereafter, A drew a bill of exchange for the price of the sugar in favor of
S, the seller. P accepted the bill. After the acceptance of P, A negotiated the bill to H, a holder in due course.
When the sugar was delivered, P refused to pay the bill on the ground that the sugar was deteriorated. Is P liable?
a. No, the sugar was defective.
b. No, there is an absence of consideration.
c. No, because there is failure or consideration.
d. Yes, even if the consideration failed because H is a holder in due course.

46. A makes a promissory note payable to B or order. B indorses the note to C, then C to D, D to E and E to F, the
holder whose hands the note is dishonored. F notifies B, C, D and E about the dishonor of the note and
subsequently indorses it to G. Which is not correct?
a. The notice to C inures to the benefits of D, E, and G.
b. The notice given by F to B inures to the benefits of C, D, E, and G.
c. The notice to E inures to the benefit of D.
d. The notice to D inures to the benefits of E and G.

47. “I promise to pay to the order of X P10,000 30 days after date: (sgd.) Y, dated blank.
“Pay to the order of X P10,000 30 days after sight: to Y (sgd.) Z, dated 10/15/03.
1st Rule: The maturity date of the above promissory note will be counted 30 days from the date of the instrument.
2nd Rule: The maturity of the above bill of exchange will be counted 30 days from the date the instrument is
accepted by Y.
a. Both rules are wrong. c. 1st rule correct, 2nd rule wrong.
b. Both rules are correct. d. 1st rule wrong, 2nd rule correct.

48. M makes a P10,000 note payable to the order of O who indorses it to A. F obtains possession of the note
fraudulently, forges A’s signature, alters the amount to P70,000 and endorses it to B who in turn endorses to C. In
this case:
a. C can enforce the note against A. c. C can enforce the note against M and O
b. C can enforce the note against any person. d. C can enforce the note against B.
 6
49. “I promise to pay to the order of B P10,000 30 days after sale.” (sgd.) A. Which of the following indorsements of
the above promissory note is not valid?
a. “Pay to C and D.” (sgd.) B
b. “Pay to C P5,000, balance of this Note” (sgd.) B if P5,000 has been paid by A.
c. “Pay to C P5,000 to D P5,000” (sgd.) B
d. “Pay to C and D, partners’ (sgd) B

50. 1st Statement : A holder for value is an endorsee who has both the legal title and the beneficial interest to the
instrument and is subject to both real and personal defenses available against him. 2nd Statement: A holder in due
course is one who possesses both the legal and beneficial interest to the instrument but is subject to personal
defenses only
a. Both statements are false.
b. First statement is false, second statement is true.
c. Both statements are true.
d. First statement is true, second statement is false.

51. The following are warranties of a qualified indorser, except

a. that the instrument is genuine and in all respect what it purports to be
b. that he has a good title to it
c. that he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless
d. that all prior parties had capacity to contract
e. none of the above

52. The following, except one, are rights of a holder in due course. Which is the exception?
a. he may enforce payment of the instrument for the full amount thereof against all parties liable thereon
b. he may receive payment and if payment is in due course, the instrument is discharged
c. he holds the instrument subject to the same defense as if it were non-negotiable
d. he may sue on the instrument in his own name

53. A check
a. is not required to be presented for acceptance or certification
b. is required to be presented for payment within reasonable time after its issuance
c. if certified by the bank at the instance of the holder, the drawer and all indorsers are discharged from
liability thereon
d. does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and
the bank is not liable to the holder, unless and until it accepts or certifies the check.
e. All of the above

54. Statement 1. In payment for honor, the instrument is already overdue.

Statement 2. An accommodation party is liable on the instrument to a holder for value notwithstanding such
holder at the time of taking the instrument knew him to be only an accommodation party.
a. Both are true c. No. 1 is true, No. 2 is false
b. Both are false d. No. 1 is false, No. 2 is true

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

a. Restrictively indorsed
b. Qualified indorsement
c. The last and only indorsement is in blank
d. None of the above

56. A issued a check in favour of B for P10,000 to accommodate the request of B to help him buy books in the
bookstore of C. B indorsed the check to C who delivered the books to B. C indorsed the check to D who tried to
encash it in A’s bank (BPI) but was dishonoured upon the instruction of A. Which statement is correct?
a. D cannot compel A since A is only an accommodated party.
b. The liability of A is only secondary as guarantor hence it is B and C who must be sued by D.
c. A is a surety hence D can compel him even if he did not really benefit from the transaction.
d. D must compel A and B who are jointly liable to him.

57. A issued and delivered a promissory note for B but left the amount blank with an instruction to place P200,000. B,
however placed P500,000 and indorsed it to C, a holder in due course. Which statement is correct?
a. C can compel A to pay the P200,000 and P300,000 from B.
b. C can compel A to pay P300,000 and P200,000 balance from B.
c. C must go to B who was the guilty party.
d. C can compel A to pay P500,000 under comparative negligence rule.

The true source of your power is your ability to focus with a strong belief to get what you want.- ASM