2015-2016 Evaluation Examinations 2nd Semester

NEGOTIABLE INSTRUMENT LAW

1. Lalaine, a manufacturer with low liquidity, obtained raw materials from her
supplier by issuing a negotiable promissory note in favor of the latter, in this
transaction the negotiable instrument was used as:
a. a substitute for money;
b. a medium of exchange;
c. a credit instrument;
d. a document of title.
2. It is a transfer of negotiable instrument from one person to another in such a
manner as to constitute the transferee the holder thereof:
a. presentment;
b. delivery;
c. negotiation;
d. indorsement.
3. Presentment for acceptance is required when:
a. the negotiable instrument is payable at a fixed period after sight;
b. it is necessary to fix the maturity of a draft;
c. the instrument expressly states that it shall be presented for acceptance;
d. all of the above.
4. A bill of exchange to which no document is attached when presentment is made:
a. documentary;
b. trade acceptance;
c. demand;
d. clean.
5. A bill of exchange may be treated as a promissory note:
a. when the drawee is a non-existing person;
b. when the drawee and the payee are the same person;
c. when the drawer has no capacity to contract;
d. none of the above.
6. In a negotiable instrument, the unconditional order means:
a. a command;
b. a request;
c. language of negotiability;
d. authority to transfer title.
7. A stipulation that makes a promise or order conditional:
a. an indication of an account of which payment shall be made;
b. an indication of a particular account to be debited with the amount;
c. an indication of a particular fund out of which reimbursement is to be
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made;
d. a statement that the issuance of the negotiable instrument is pursuant to a
contract.

8. “I promise to pay Rica P10,000.00 or order on the death of Mr. Tubols” is

payable at a determinable future time and an example of:
a. payable on a fixed time;
b. payable at a fixed period after the occurrence of the specified event;
c. payable on the occurrence of a specified event;
d. answer not given because it is conditional.
9. The date of the instrument is not necessary to make it negotiable, however the
date is important to:
a. fix the value given;
b. fix the maturity of the instrument;
c. determine the principal amount of the instrument;
d. determine the date of issue.
10. “Pay to the order of Eva P10,000.00 or deliver 10 cavans of rice at her option.”
It is:
a. a demand instrument;
b. a negotiable instrument;
c. an order instrument;
d. all of the above.
11. “Accumulation of secondary contracts” means:
a. various contracts are added for every negotiation made;
b. through negotiation, indorsers become secondarily liable not only to their
immediate transferees but also to any holder;
c. the liability of the person principally liable is extended to all subsequent
parties;
d. more persons are made liable by the delivery of the instrument.
12. “I promise to pay to the order of Sherrily or Albert P10,000.00 on or before
September 27, 2016” is:
a. not negotiable because the instrument is payable to several payees;
b. negotiable because indorsement of only one payee is sufficient to transfer
title;
c. not negotiable because it will be difficult to determine the date of
negotiation;
d. negotiable because all payees must indorse to transfer title.
13. An illustration of a bearer bill of exchange:
a. “Pay to bearer P10,000. (Sgd) Clarice. To Grace;”
b. “Pay to cash P10,000;”
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c. “Pay to the order of sundries P5,000.00;”

d. all of the above.
14. In case there is doubt whether an instrument is a bill or note, the holder may
treat it as either at his election, which legal effect is correct?
a. when treated as a note, the one who issued the instrument is secondarily
liable;
b. when the holder opted to consider it a promissory note, the holder may
present it for acceptance;
c. when treated as a bill of exchange, the holder may hold the drawee
principally liable;
d. when treated as a promissory note, the holder may directly collect from
the one who issued it.
15. It is a time bill of exchange across the face of which the bank has written
“accepted:”
a. demand bill of exchange;
b. bank draft;
c. banker’s acceptance;
d. certified check.
16. The maturity of a bill of exchange payable 10 days after sight is determined
from:
a. the date of the bill;
b. the date of presentment for acceptance;
c. the date of presentment for payment;
d. the date of demand.
17. When the drawee destroys the bill or refuses to return it within the period
provided by law, the bill is considered:
a. dishonored by non-acceptance;
b. dishonored by non-payment;
c. constructively accepted;
d. non-negotiable.
18. It may be negotiable but without an unconditional promise or order to pay a
sum certain in money:
a. due bill;
b. debenture;
c. bill of lading;
d. bills in set.
19. A promissory note payable on demand must be presented for payment:
a. within a reasonable time from its presentment for acceptance;
b. within a reasonable time from its issue;
c. within a reasonable time from its last negotiation;
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d. on the day it falls due.

20. A person primarily liable in a negotiable instrument:
a. drawee-acceptor;
b. acceptor;
c. accommodated indorser;
d. all of the above.
21. An instrument is considered discharged in the following cases, except:
a. when it is paid in due course by the maker;
b. when it is paid in due course by the accommodation party;
c. when the holder intentionally cancelled it;
d. when the principal debtor acquires it in his own right at or after its
maturity.
22. Maybelle issued a bearer negotiable note to Pamela. Pamela specially indorsed
it to Andrew. However, Renz unlawfully took possession of the note from Andrew
and forged the latter’s signature by indorsing it specially to Claribel, a holder in
due course. Claribel can therefore:
a. enforce the note against all prior parties;
b. enforce it only against Maybelle and Pamela;
c. enforce it only against Maybelle;
d. enforce it only against Maybelle, Pamela and Renz.
23. A promissory note is signed in behalf of the principal by an agent as follows:
Jocy B
PP: Jobe T
This means that:
a. the agent has the authority to negotiate the instrument for any purpose;
b. the principal has given power to the agent to negotiate the instrument;
c. the agent has but a limited authority to negotiate the instrument but the
principal shall be liable for the act of the agent;
d. it is the duty of the person dealing with the agent to inquire into the extent
of his (agent) authority.
24. In this case, the agent signing a negotiable instrument is personally liable:
a. Ezekiel
by (Sgd) Jhomelyn (agent);
b. (Sgd) Jhomelyn for Ezekiel;
c. Ezekiel, Principal
(Sgd) Jhomelyn;
d. For value received by Treebols Corp, pay Eva or bearer P10,000.00.
Sgd. Jezza, Treasurer.
25. Which of the following instrument is negotiable?
a. I promise to pay to the order of Venice P20,000.00 on the last day of the
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year;
b. Pay to the order of the King of Nirvana P20,000.00 (Sgd.) Princes Shaira,
To Abby Gail;
c. I promise to pay bearer P20,000.00 in five equal monthly installments;
d. Pay to bearer Riza P20,000.00 and reimburse yourself out of my
commission.
26. An negotiable instrument payable to order is negotiated by:
a. indorsement coupled by delivery;
b. indorsement alone;
c. delivery only;
d. all of the above.
27. Presentment for acceptance may be made mandatory only to:
a. promissory notes;
b. checks;
c. bills of exchange;
d. checks and bills of exchange.
28. Acceptance is important in the determination of:
a. liability;
b. negotiability;
c. assignability;
d. all of the above.
29. The following are the functions of a negotiable instrument, except:
a. it is a legal tender;
b. it is a substitute for money;
c. it increases the purchasing power;
d. it is a medium of credit transactions.
30. Monica issued a promissory note in the amount of P1,000.00 payable to the
order of Princes. Princes negotiated it specially to Alpha, who with the consent of
Princes raised the amount to P4,000.00. The note was negotiated through special
indorsements from Alpha to Vernadette, Vernadette to Carlo, Carlo to Daryl and
Daryl to Hermae. Hermae is a holder in due course. Which of the following
statements is correct?
a. the instrument is avoided hence Hermae cannot enforce the instrument
against any party;
b. Hermae can validly demand payment of P1,000.00 from Monica;
c. Hermae cannot demand payment from Vernadette, Carlo and Daryl;
d. Hermae can validly demand payment of P4,000.00 from Monica.
31. This type of check is issued by the bank and has the same legal effect as a
certificate of deposit and may be treated as a promissory note issued by the bank in
favor of the payee:
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a. traveller’s check;
b. bank notes;
c. banker’s acceptance;
d. manager’s check.
32. A negotiable instrument which may not be indorsed but must be deposited
only:
a. memorandum check;
b. postal money order;
c. cashier’s check;
d. crossed check.
33. A mere stranger to the bill of exchange:
a. drawer;
b. payee;
c. drawee;
d. answer not given.
34. What is the effect when a holder of a check procures its certification?
a. it operates as an assignment of funds in favor of the holder;
b. all persons secondarily liable, before and after certification, are
discharged;
c. it is akin to a non-negotiable certificate of deposit taken by the holder;
d. all of the above.
35. A clause in the negotiable instrument wherein payment can be demanded
earlier than the original date fixed:
a. acceleration clause;
b. extension clause;
c. installment clause;
d. exchange clause.
36. Which of the following instruments is not negotiable?
a. Pay to Patricio P50,000.00 ten (10) days after the death of his grandfather
(Sgd) Domingo, To: Wilmer;
b. I agree to pay Patricio or bearer P50,000.00 in two equal monthly
installments beginning April 15, 2016. (Sgd.) Marie;
c. Pay to Patricio or order P10,000.00 upon demand. (Sgd) Domingo, To:
Wilmer and Zirka;
d. I oblige myself to pay bearer P10,000.00 ten days before Good Friday,
2017. (Sgd) Marie.
37. Which of the following is not a valid indorsement of an order instrument
amounting to P5,000.00?
a. Pay to Arvin P2,000.00 and to Bryan P3,000.00 (Sgd) Patricio;
b. Pay to Antonieta when she passes the May 2017 CPA Board Exam.
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(Sgd) Patricio;
c. Pay to Alyzajie only (Sgd) Patricio;
d. Pay to Angelica P2,500.00, the balance of this note. (Sgd) Patricio.
38. An indorsement “Pay to Cielo, notice of dishonor waived” is:
a. facultative;
b. restrictive;
c. conditional;
d. qualified.
39. Statement A: The rule that “one can pass no better title to personal property
than he himself has” does not apply to negotiation of negotiable instruments.
Statement B: In assignment, the transferee merely steps into the shoes of the
assignor.
a. Both statements are correct;
b. Both statements are incorrect;
c. Only statement A is correct;
d. Only statement B is correct.
40. A requisite of a negotiable instrument:
a. the holder can determine from the instrument itself the amount he is
entitled to receive at maturity;
b. the maker or acceptor has the right to ascertain the amount payable;
c. at the time of demand, the total amount payable can be computed in
order to be certain;
d. the sum payable must be in certain money.
41. A bill of exchange may not be accepted in this instance:
a. before it is signed by the drawer;
b. when it is already overdue;
c. when the bill has been dishonored;
d. none of the above.
42. A local qualified acceptance:
a. “Good, as soon as the goods arrive in my Manila warehouse:”
b. “Accepted, payable at Landbank;”
c. “Accepted 10 days from today” where the bill is payable 5 days from date;
d. “Good, payable only at BPI.”
43. A defense that is available against all parties and attached to the res:
a. personal;
b. absolute;
c. absence of consideration;
d. want of delivery of complete instrument.
44. An alteration made by a stranger to an instrument:
a. forgery;
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b. spoliation;
c. material alteration;
d. apparent alteration.
45. Any change in the instrument which affects the liability of the parties in any
way:
a. discharge;
b. material alteration;
c. tampering;
d. cancellation.
46. Statement A: A holder of a bill of exchange may refuse to take a qualified
acceptance.
Statement B: If the holder does not obtain an unqualified acceptance, he may
treat the bill as overdue.
a. Both statements are correct;
b. Both statements are incorrect;
c. Only statement A is correct;
d. Only statement B is correct.
47. Statement A: In case an overdue instrument is negotiated, the holder may be a
holder in due course.
Statement B: If a dishonored instrument is negotiated, the holder cannot be a
holder in due course.
a. Both statements are correct;
b. Both statements are incorrect;
c. Only statement A is correct;
d. Only statement B is correct.
48. Parties who are not in direct contractual relation to each other:
a. immediate parties;
b. prior parties;
c. remote parties;
d. privies.
49. Which of the following is not a valuable consideration under the Negotiable
Instrument Law?
a. right;
b. pre-existing debt;
c. love and affection;
d. services.
50. A formal instrument executed by a notary public certifying that the facts
necessary to the dishonor of the instrument have taken place:
a. protest;
b. notice of dishonor;
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c. presentment;
d. demand.
51. It is not payable to the bearer:
a. payable to bearer or Juan;
b. pay to holder;
c. payable to holder or order;
d. pay to the order of Pedro or bearer.
52. Release of all parties, whether primary or secondary, from the obligations
arising from the instrument:
a. discharge of an instrument;
b. discharge of parties;
c. restrictive indorsement;
d. waiver.
53. Who is the party to whom the promise is made or the instrument is expressly
made payable?
a. holder;
b. indorsee;
c. payee;
d. drawer.
54. Statement A: A stipulation for an increased rate of interest if the instrument is
not paid at maturity destroys negotiability.
Statement B: If a negotiable order instrument is delivered with intent to
transfer title without indorsement, the transferee is neither a holder
nor a bearer.
a. Only statement A is true;
b. Only statement B is true;
c. Both statements are true;
d. Both statements are false.
55. Marinelle issued a promissory note to Paolo which states: “I promise to pay
Paolo or order P10,000.00 on or before December 31, 2017. In case of my failure
to pay the note on time, I will be given sufficient time within which to pay the
holder.” Is the promissory note negotiable?
a. the note is not negotiable because the due date of the extension given to
Marinelle is uncertain;
b. the note is non-negotiable because the principal sum payable is uncertain;
c. the note is negotiable because an extension clause does not affect the
negotiability of the instrument;
d. the note is negotiable because the sum payable is certain.
56. A phrase which is not equivalent to a promise:
a. “for value received;”
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b. “to be paid;”
c. “good for;”
d. “I oblige myself to pay.”
57. It does not constitute a determinable future time:
a. “5 days before the death of Pempe’s father, I promise to pay to the order
of Pempe P2,500.00;”
b. “on or before 27 September 2017, I promise to pay bearer P3,000.00;”
c. “10 days before Independence Day of 2017, I promise to pay Pipo or
order P3,500.00;”
d. “15 days after Christmas day of 2017, Pay to the order of Pipo P2,000.00.
58. It is an expression of consent that the instrument may be transferred to
whomever the payee orders:
a. “or assigns;”
b. “or holder;”
c. “or order;”
d. all of the above.
59. A characteristic of a material alteration:
a. the alteration must be deliberately done;
b. it refers to physical alteration;
c. it must be favorable to the person making it;
d. all of the above.
60. This defense exists where a person signed an instrument but deceived as to its
character and without knowledge of it:
a. want of authority, apparent or real;
b. fraud in factum;
c. simple fraud;
d. duress amounting to forgery.
61. Statement A: An indorsee who presented for payment a crossed check has no
right of recourse against the drawer of the check.
Statement B: Crossing a check serves as a warning that the check should be
deposited to the account of the holder only.
a. Only statement A is true;
b. Only statement B is true;
c. Both statements are true;
d. Both statements are false.
62. What is the legal effect when a check is not presented for payment within a
reasonable time after its issue and the drawer suffered a loss?
a. the bank is not mandated to pay the check;
b. the drawer is released from all obligations arising from the check;
c. the drawer is discharged from liability thereon to the extent of the loss;
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d. it produces payment of obligation.

63. Which of the following is not a restrictive indorsement?
a. “Pay to John for deposit;”
b. “Pay to John and to no other person;”
c. “Pay to John at his own risk;”
d. “Pay to John for my use.”
64. As a general rule, an instrument negotiable in origin is always negotiable until
paid. What is the exception?
a. when the instrument is indorsed in this manner “Pay to Angie only;”
b. when the instrument has been discharged;
c. when the instrument is dishonored or already overdue;
d. a and b only.
65. Whose liability is conditional?
a. drawer;
b. payee;
c. drawee;
d. maker.
66. Choose the non-negotiable instrument:
a. “To Mr. Drawee: Pay to the order of Payee P2,000.00 on or before
November 21, 2017 subject to the terms and conditions of the
mortgage agreement. Sgd Drawer;”
b. “I promise to pay Payee or bearer P2,000.00. This note is in accordance
with the contract of sale dated September 10, 2015. Sgd. Maker;”
c. “To Mr. Drawee: Pay to the order of Payee P2,000.00 and reimburse
yourself from my account with you. Sgd Drawer;”
e. “I promise to pay to the order of Payee P2,000.00 twenty days after
sight. In case of my failure to pay, I authorize the holder to admit my
liability. Sgd Maker.”
67. The acceptor, by accepting the instrument, admits the existence of the payee
and his then capacity to indorse, who among the following persons is subject to the
same liability?
a. drawer;
b. maker;
c. indorser;
d. all of the above;
68. An irregular indorser, in contrast to a person negotiating by delivery:
a. warrants the instrument is genuine and in all respects what it purports to
be;
b. admits that he has good title to the instrument;
c. admits that the instrument is, at the time of his indorsement, valid and
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subsisting;
d. warrants that all prior parties had capacity to contract.
69. Which of the following does not preclude the acceptor from asserting as a
defense?
a. the drawer is fictitious;
b. forgery of the indorser’s signature;
c. want or failure of consideration between him and the drawer;
d. he has no funds belonging to the drawer with which to pay the bill.
70. It denotes an indorsement for some purpose other than to transfer the
instrument:
a. anomalous indorsement;
b. abnormal indorsement;
c. irregular indorsement;
d. all of the above.
71. A party who is not secondarily liable even if an instrument is dishonored and
the necessary proceedings on dishonor is duly taken:
a. general indorser;
b. qualified drawer;
c. accommodation indorser.
d. indorser of a bearer instrument.
72. Statement A: The signature of the indorser, without additional words, is
sufficient indorsement.
Statement B: An indorsement which purports to transfer to the indorsee a
part only of the amount payable operates as a negotiation of the
instrument.
a. only A is incorrect;
b. only B is incorrect;
c. both A and B are correct;
d. both A and B are not correct.
73. Which of the following renders the bill non-negotiable:
a. a bill payable to one or several payees;
b. a bill payable to two or more payees jointly;
c. a bill addressed to two or more drawees jointly;
d. a bill addressed to two or more drawees in the alternative.
74. When a signature is forged or made without authority of the person whose
signature it purports to be:
a. the instrument is inoperative;
b. the signature is wholly inoperative;
c. the holder has the right to retain the instrument;
d. parties subsequent to the forgery acquire rights against any party whose
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signature thereto is found to be genuine.

75. The title of a person who negotiates an instrument is defective when:
a. he obtained the instrument, or any signature thereto, by fraud, duress, or
force and fear and other unlawful means;
b. he obtained the instrument for an illegal consideration;
c. he negotiates the instrument in breach of faith;
d. all of the above.
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SUGGESTED ANSWERS:
2015-2016 Evaluation Examinations 2nd Semester
NEGOTIABLE INSTRUMENT LAW

1. C
2. C
3. D
4. D
5. A
6. A
7. A
8. C
9. B
10. D
11. B
12. B
13. A
14. D
15. C
16. B
17. C
18. C
19. B
20. A
21. B
22. A
23. D
24. C
25. B
26. A
27. C
28. A
29. A
30. B
31. D
32. D
33. C
34. A
35. A
36. A
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37. A
38. A
39. A
40. A
41. D
42. D
43. B
44. B
45. B
46. C
47. B
48. C
49. C
50. A
51. A
52. A
53. C
54. B
55. A
56. A
57. A
58. D
59. B
60. B
61. A
62. C
63. C
64. D
65. A
66. A
67. D
68. C
69. B
70. D
71. B
72. B
73. D
74. B
75. D
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