RIZAL TECHNOLOGICAL UNIVERSITY

Junior Philippine Institute of Accountants

Boni Avenue, Brgy. Malamig, Mandaluyong City

SET A

NAME: 1ST SEM._SY. 17-18

MOCK COMPREHENSIVE EXAMINATION LAW ON NEGOTIABLE INSTRUMENTS

Subject in the Actual CPA Board Examination:

REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS (RFTB)
Pray before taking the examination. God Bless us!

MULTIPLE CHOICE THEORIES: Indicate your answers by writing the letter of your answer choice
on the provided answer sheet.

Nature
1. A letter of credit is beyond the scope of the negotiable instrument law, because
A. It is in favor or a specific person or not to order
B. It is an order to pay out of a particular fund
C. It is without an unconditional promise or order to pay a sum certain in money
D. It is not payable on demand or at a fixed or determinable future time

Form and interpretation of negotiable instruments

2. Omissions that do not affect the negotiability of an instrument, except
A. It is not dated
B. Does not specify the value given
C. Does not specify the place where it is drawn
D. Does not name the payee where the instrument is payable to order

3. When the instrument is complete but undelivered, delivery is presumed to have been made in favor of
the holder, the presumption is
A. Conclusive whether holder in due course or for value
B. Prima-facie whether holder in due course or for value
C. Conclusive if holder for value and prima facie if holder in due course
D. Prima-facie if holder for value and conclusive if holder in due course

4. Which of the following is negotiable instrument?

A. Pay to bearer C P1M. Reimburse yourself out of the house rentals of my house in Manila. (Sgd) A
To: B
B. Pay to C or his order P1M out of the rentals of my house in Manila. (Sgd) A To: B or in his absence
X
C. Pay to C P1M (Sgd) A To: B
D. Pay to the order of C and reimburse yourself out of the rentals of my house in Manila. (Sgd) A To: B
or in his absence X

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5. Which of the following is not negotiable
A. Documentary Bill of Exchange C. Certificate of deposit
B. Clean bill of exchange D. Postal money order

6. It contains an order to pay out of a particular fund rendering the instrument beyond the scope of the
negotiable instrument law
A. Bill of lading C. Certificate of stock
B. Treasury warrant D. Warehouse receipt

7. Which of the following is not negotiable instrument?

A. Pay to the order of Pedro Cruz P1M (Sgd) Jose Santos To: A or B
B. I promise to pay to the order of the bearer P1M. (Sgd) M
C. Due to Bearer P1M or a BMW car worth P1M at his option. (Sgd) M
D. Pay to the order of myself P1M. (Sgd) D To: W

8. The following are negotiable except:

A. Drawer A directs drawee B to pay C or order P10,000, 30 days after demand
B. Drawer A directs drawee B to pay C or order P10,000, 30 days after C passes the CPA board
examinations
C. A promises to pay B or order P10,000 within 30 days after the death of C
D. A promises to pay B or order P10,000 on or before August 14, 2002

9. A note reads “I promise to pay B or order P1,000, 30 days after B resolves the proceeds of his loan from
ABC Bank. Sgd. A. The instrument is
A. Subject to a condition
B. Payable at a determinable future time
C. Payable on demand
D. Non-negotiable because the payment is indefinite

10. This provision renders a note non-negotiable

A. A promises to pay to the order of B the sum of US $1,000 payable in pesos at the rate of exchange
prevailing on August 14, 2002
B. A promise to pay B P1,000 with 12% interest thereon
C. A promises to pay B P1,000 and all costs charges and expenses including reasonable attorney’s fee
D. A promises to pay B P1,000 in two equal installments, the first payable on August 14, 2002 and the
second on September 14, 2002

11. Which of the following is not negotiable?

A. I promise to pay B or order P10,000 on or before September 14, 2002 in payment of the purchase
price of the merchandise I bought from him. Sgd. A
B. Pay to the order of B P20,000 on or before September 14, 2002 and change the same to my account.
To C Sgd. A
C. Pay to the order of B P30,000 out of my deposit with you. To C sgd. A
D. Pay to B or order P40,000 for payment under contract of August 14, 2002. To C Sgd. A

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12. This is not negotiable
A. I promise to pay to the order of myself P10,000 signed by A, the maker
B. Pay on the order of the Commissioner of Internal Revenue P10,000 to ABC bank. Sgd. A
C. I promise to pay to order P10,000. Sgd. A
D. Pay to the order of X, Y and Z, P10,000. to B. Sgd. A

Endorsements
13. M makes a note payable to bearer and delivers the same to P who endorses it to X in this manner:
“Payable to X. (Sgd) P.”
Later X, without indorsing the note delivers the same to Y. The note subsequently dishonored by M.
May Y proceed against M for the note?
A. No, because the special indorsement of P has made the note to be payable to order and must be
endorsed to negotiate
B. Yes, because an instrument originally payable to bearer remains to be payable to bearer despite
special indorsement made thereon
C. Yes, because M, as maker, is absolutely liable to pay the instrument in the hands of any holder
D. No, because Y did not acquire title to the instrument due to lack or proper indorsement.

Rights of the Holder

14. A holder in due course has the following rights except:
A. He holds the instrument free from defects of title of prior parties
B. Free from defenses of prior parties among themselves
C. Enforce payments against all parties liable thereon
D. Holds the instrument as if it were non-negotiable

15. Three of the following are requisites to be a holder in due course except:
A. That the instrument is complete and regular upon its face
B. That the holder took it in good faith and for value
C. That he became the holder of it before it was overdue and without notice that it had been previously
dishonored if such was the fact
D. That he had no knowledge of any fact, which would impair the validity of the instrument or render
its valueless.

16. Under the Negotiable Instrument Law, to be holder in due course, a person must have acquired the
instrument before it is overdue. Does this apply to the payee to whom the maker issued an overdue
note?
A. Yes, because the payee is still considered a holder under the law
B. No, because issuance to the payee is not considered a holder under the law
C. Yes, because the law does not distinguished between payee and subsequent holder
D. No, because the payee is privy to the contract between himself and the maker

17. There is no difference between a holder in due course and one who is not, since as regards them, real and
personal defenses may always be raised if
A. Intervening parties C. Immediate parties
B. Remote parties D. Subsequent parties

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18. Real and personal defenses may be raised between
A. Immediate parties C. Intervening parties
B. Remote parties D. Subsequent parties

19. This is a real defenses

A. Fraud is inducement
B. Want or consideration
C. Want of delivery of an incomplete instrument
D. Duress in the absence of physical pressure

20. This is a personal defense

A. Absolute defense C. Real defense
B. Equitable defense D. National defense

21. A issued a promissory note payable to B or order for P10,000 for 10 bottles of whisky sold by B to A.
Later B negotiated the note to C. Subsequently, A discovered that only 5 bottles of whisky are genuine.
As a result
A. C can enforce the note against A for P10,000 regardless of whether C is holder in due course or not
B. C cannot enforce the note against A for P10,000 even if he is a holder in due course
C. C can enforce the note against A only for P5,000 regardless of whether he is a holder in one course
or not
D. C can enforce the note against A only for P5,000 if he is not a holder in course.

22. A issued a note payable to bearer. He delivers the note to B, B indorses the note especially to C, then C
negotiates the note by delivery to D. Which of the following is not correct?
A. D can enforce the note against C C. D can enforce the note against A
B. D can enforce the note against B D. Can enforce the note against B

Liabilities of Parties
23. M makes a negotiable promissory note for P10,000 with the name of the payee in blank. The note was
stolen by P, who inserts his name as payee and then indorses the note to A, then A to B, and B to C, who
is a holder in due course. On maturity, C cannot enforce the note against
A. M C. A
B. P D. B

24. The indorser who simply signs his name renders himself liable to all subsequent holder as
A. Primarily liable C. Secondarily liable
B. Solidarily liable D. Subsidiary liable

25. In a blank indorsement, the indorser renders himself

A. Primarily liable C. Solidarily liable
B. Secondary liable D. Subsidiary liable

26. A delivered to B the following instrument

“One month after date, I promise to pay to B P10,000. Sgd. A”. B indorsed the note in blank before
maturity and delivered it to C for value. When due, A refused to pay and C sued B. Could C
recovered from B?

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 A. No, C could not sue B and hold him liable as an indorser because the instrument is payable to a
specified person
B. No, the instrument is not negotiable because it is neither payable to order or to bearer
C. Yes, provided C to give notice if dishonor to B, otherwise B is discharged from liability
D. Yes, the endorsement will be considered as an assignment, hence B will be liable as an assignor of
the instrument

27. A, knowing that there is no such person by the name of B, makes out and signs a promissory note
payable to B or order. A delivers the note to C. C in turn delivers the note to D without indorsement.
Later, D delivers the note to E, a holder in due course, which of the following is correct?
A. Being payable to order, the note can be negotiated by indorsement and delivery
B. E has no right to collect from C because a person negotiating an instrument merely by delivery is
liable only to the immediate transferee
C. E becomes holder only if D will indorse the instrument
D. The instrument is not-negotiable because it is payable to the order of a non-existing person

28. A makes a negotiable note to bearer and delivers it to B for safe-keeping. The note is negotiated by B to
C. Can A refuse to pay C on the ground that the note was originally delivered to B for a special purpose
only?
A. Yes, A can prove that he delivered the instrument to B for a special purpose
B. No, where the instrument is in the hands of any holder, a valid delivery thereof by all parties prior to
him so as to make them liable to him is conclusively presumed
C. Yes, because B negotiated the note without authority
D. No, if C is a holder in due course

29. A made a negotiable promissory note in favor of B who negotiated it to C under the following
indorsements. “Pay to C after passing the CPA examination in October 1999”. At maturity of the note,
C presented it to A for payment and it was duly paid, C did not pass the CPA examination. Which of the
following is correct?
A. The promissory note is not negotiable because of the condition imposed
B. The promissory note becomes negotiable because the condition was satisfied
C. A had no right to pay C, and therefore can compelled to pay again
D. A may disregard the condition and make payment whether the condition is fulfilled or not

30. The drawee bank may not refuse to pay check drawn against it
A. If there is a “stop payment “ issued by the drawer
B. If the drawer is insolvent
C. If the drawer’s deposits is insufficient
D. When the bank receives notice of the drawer’s death

Notice of Dishonor
31. A makes a note payable to B or order. The following are the indorsers of the note in the order of their
indorsement: B, C, D, E, F(holder) and G(subsequent holder). The note is dishonored in the hands of F,
who notifies B, C, D, E. Which is not correct?
A. The notice given by F to B operates to the benefit of C, D, E, and G
B. The notice to C inures to the benefit of D, E, and G
C. The notice to D inures to the benefit of E and G
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 D. The notice to C inures to the benefit of B

Discharge of negotiable instruments

32. The negotiable instrument is not discharged:
A. When the principal debtor becomes the holder thereof before or after maturity in his own behalf
B. By the intentional cancellation of the instrument
C. By payment in due course by the accommodation
D. By any other act which discharges a simple contract for the payment of money

Various
33. When the instrument is completed but undelivered, delivery is presumed to have been made in favor of a
holder in due course, the presumption is
A. Pro tanto
B. Prima facie
C. Conclusive
D. None of these

Various
34. A makes a note payable to B or order. The following are the endorsers of the note in the order if their
endorsements: B, C, D, E, F (holder) G (subsequent holder). The note is dishonoured in the hands of F,
who notifies B, C, D, E. Which is not correct?
A. The notice given by F to B operates to the benefits of C, D, E and G
B. The notice of C inures to the benefit of D, E and G
C. The notice to D inures to the benefit of E and G
D. The notice to C inures to the benefit of B

Various
35. A delivered to B the following instrument: “One month after date, I promise to pay to B P10 000. Sgd
A.” B endorsed the note in blank before maturity and delivered it to C for value. When due, A
refused to pay and C sued B. Could C recover from B?
A. No, C could not sue B and hold him liable as an endorses because the instrument is payable to a
specified person
B. No, the instrument is not negotiable because it is neither payable to order or to bearer
C. Yes, provided C to gives notice if dishonor to B, otherwise B is discharged from liability
D. Yes, the endorsement will be considered as an assignment, hence B will be liable as an assigned of
the instrument

Various
36. This is a personal defense
A. Absolute defense
B. Equitable defense
C. Real defense
D. National defense

Various
37. Statement 1: W prepares a promissory note payable to order of X, his nephew, who steals the same and
indorses it Y, then Y to Z, from Z to A who was unaware of the theft. A may recover from W.
Statement 2: W, a retiree issued a promissory note, to wit: “I promise to pay X or order the sum of P50
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 000 out of the retirement pay which I will receive from the government.” Actually, W will get more than
P200 000 as retirement benefits. The note is not negotiable.
A. Only statement 1 has correct conclusion C. Only statement 2 has correct conclusion
B. Both statements have correct conclusion D. Both statements have wrong conclusion

Various
38. Which of the following laws cannot be found in the Civil Code?
A. Negotiable instrument law C. Mortgage law
B. Law on agency D. Law on sales

39. As regards an accommodation party, one of the following is not correct

A. The accommodation party is generally regarded as a surety for the party accommodated
B. When the accommodation party makes payment to the holder of the note, he has the right to sue the
accommodated party for reimbursement
C. An accommodation party does not receive any consideration arising from the instrument
D. An accommodation maker is liable to the accommodated party

40. This is not negotiable

A. I promise to pay to the order of myself P10 000. Sgd. A
B. Pay to the order of X, Y and Z P10 000. To B. Sgd. A
C. I promise to pay to order P10 000. Sgd. A
D. Pay to the order of the Commissioner of Internal Revenue P10 000. To ABC Bank. Sgd. A

41. A holder in due course has the following rights, except

A. He holds the instrument free from defects of title of prior parties
B. Free from defenses of prior parties among themselves
C. Enforce payment against all parties liable thereon
D. Holds the instrument as if it were non negotiable

42. Which of the following is not negotiable instrument?

A. Pay to the order of Pedro Cruz P1M (Sgd) Jose Santos to: A or B
B. I promise to pay to the order of the bearer P1M. (Sgd) M
C. Due to the Bearer P1M or a BMW car worth P1M at his option. (Sgd) M
D. Pay to the order of myself P1M. (Sgd) D to W

43. Three of the following are requisites to be a holder in due course except
A. That the instrument is complete and regular upon its face
B. That the holder took it in good faith and for value
C. That he became the holder of it before it was overdue and without notice that it had been previously
dishonoured if such was the fact
D. That he had no knowledge of any fact which would impair the validity of the instrument or render it
valueless

44. A makes a note payable to B or order. The following are the endorsers of the note in the order if their
endorsements: B, C, D, E, F (holder) G (subsequent holder). The note is dishonoured in the hands of F,
who notifies B, C, D, E. Which is not correct?
A. The notice given by F to B operates to the benefits of C, D, E and G
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 B. The notice of C inures to the benefit of D, E and G
C. The notice to D inures to the benefit of E and G
D. The notice to C inures to the benefit of B

45. Which of the following is negotiable instrument?

A. Pay to bearer C P1M. Reimburse yourself out of the house rentals of my house in manila. (Sgd) A to
B
B. Pay to C or his order P1M out of the rentals of my house in Manila. (Sgd) A To: B or in his absence
X
C. Pay to C P1M (Sgd) A To: B
D. Pay to the order of C and reimburse yourself if out of the rentals of my house in Manila. (Sgd) A To:
B and X

46. M makes a note payable to bearer and delivers the same to P who endorses it to X in this manner.
“Payable to X. (Sgd) P”
A. No, because the special endorsement of P has made the notice to be payable to order and must be
endorsed to negotiate
B. Yes, because an instrument originally payable to bearer remains to be payable to bearer despite
special endorsement made thereon
C. Yes, because M, as make, is absolutely liable to pay the instrument in the hands of any holder
D. No, because Y did not acquire title to the instrument due to lack of proper endorsement

47. In a blank endorsement, the endorses renders himself

A. Primarily liable C. Solidarily liable
B. Secondarily liable D. Subsidiarily liable

48. Real and personal defenses may be raised between

A. Immediate parties C. Intervening parties
B. Remote parties D. Subsequent parties

49. This is a real defense

A. Fraud in inducement C. Want of delivery of an incomplete instrument
B. Want of consideration D. Duress in the absence of physical pressure

50. M makes a negotiable promissory note for P10 000 with the name of the payable in blank. The note is
stolen by P who inserts his name as payees and then endorse the note to A, then A to B, and B to C, who
is a holder in due course. On maturity, C cannot enforce the note against
A.. M C. A
B. P D. B

Prepared by: Recommending Approval:

Prof. Christian NB, CPA
Faculty, Accountancy Prof. Elizabeth E. Salvador, CPA
Department Head, Accountancy
Approved by:

Prof. Amelia M. Arganda, CPA

CBET, Dean
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