LAW ON NEGOTIABLE INSTRUMENTS

Midterm Examination Part 1 of 2

Instructions: Write the letter that best corresponds to your answer in the booklet that
was given to you. Do not write on the test paper and return it after use. Thank you and
GODBLESS!

1. Which statement is incorrect regarding forgery of a negotiable instrument?

a. It is only the negotiation predicated on the forged indorsement that should
be declared inoperative.
b. A drawee bank who has paid a check on which indorsement has been
forged cannot charge the drawers account for the amount of the check,
except if the drawer is guilty of negligence which causes the bank to honor
the check.
c. A forged signature is a real or absolute defense, hence, can be set up as a
defense against any holder of the instrument.
d. None of the statements are correct.

2. The indorsement “pay to Ultimate Bank for collection and deposit only, without
recourse to me” is
a. special-qualified-non-restrictive
b. special-unqualified-non-restrictive
c. blank-qualified-restrictive
d. special-qualified-restrictive

3. A obtained the note of M through simple fraud and negotiates it to Z, Z to Y, Y to

X, and X to E, the present holder. Which is correct?
a. All are correct.
b. E is presumed a holder in due course.
c. E is a mere holder for value only.
d. E must prove that he is actually a holder in due course.

4. Azalea has with her a postdated check in the amount of P10,000.00. Azalea
needs money so she asks Betty to discount her check. In return for Azaleas
check, Betty issued a check in favor of Azalea less the agreed interest. Which of
the following statement is not correct?
Choose the best answer.
a. Betty is a holder for value if Azalea negotiated the check to a third person
who is a holder in due course.
b. Betty is a holder for value when the check she issued was impaired without
her fault.
c. Betty is a holder for value if Azalea already encashed the check.
d. Betty can never be a holder for value.

5. The following are the conditions to constitute a holder in due course, except:
a. He has knowledge of infirmity in the instrument.
b. He took the instrument complete and regular in its face.
c. He became the holder of the instrument before it was overdue.
d. He took the instrument in good faith and for value.

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6. The effects of forgery of a signature are as follows except:

a. That the signature forged or made without authority is wholly inoperative
b. When the party against whom it its sought to enforce such right is precluded
from setting up the forgery or want of authority as a defense.
c. to enforce payment thereof
d. That no right to retain the instrument, or to give discharge thereof,

“Pay to the order of X P1,000 (Sgd.) Z”

To: The Dean of the College of Law of UE Recto or the Dean of the
College of Accountancy of UE Recto”
7. Is this a negotiable instrument?
a. Yes, even if it is undated
b. Yes, because it substantially complies with all the requisites under Section 1 of
the NIL
c. No, because the drawees are named in the alternative
d. No, because the drawees are not named with reasonable certainly

8. Any person signing an instrument as agent or in a representative capacity is not

liable on the instrument if
a. duly authorized as agent and discloses the name of his principal
b. he is equipped with the written authority
c. he signs the instrument the scope of his authority
d. duly authorized and described himself as agent

9. A statement of the transaction that gave rise to the instrument

a. Does not render an instrument negotiable
b. Renders an instrument negotiable
c. Renders an instrument non-negotiable
d. Does not render an instrument non-negotiable

10. L is a Chinese business tycoon. He has this usual practice of leaving unsigned
checks to his office. One day, M his secretary stole one of the checks and put
the amount of P500,000.00 and affixed the signature of his boss, as the former
was authorized to sign in behalf of L whenever the latter is not available. M
thereafter, for value, negotiates it to N his best friend. N further negotiates it to O,
who endorsed the check to P. May P enforce the check against L?
a. It depends, whether or not P is a holder in due course, because only a holder
in due course of the instrument previously completed in breach of instruction
can enforce the same as if regularly completed.
b. No, because if completed and delivered without authority the instrument is
not a valid contract as against any person whose signature appears thereon
before delivery.
c. Yes, because if the instrument is out of the hands of the person who signed it,
a valid and intentional delivery is disputably presumed.

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d. No, because even if M is authorized to sign in behalf of L, the problem did not
state that M is authorized to put P500,000.00 for the amount. Thus, the note
was not filled up strictly in accordance with the authority given.

11. The holder may treat an instrument at his option, either as a bill of exchange or a
promissory note, but not in the following
a. drawer and drawee are the same person
b. where maker is non-existent
c. where the drawee is a fictitious person
d. where the drawee is a person not having capacity to contract

12. A found a check on the street, drawn by B against CHI Bank, with C as payee. A
forged Cs signature as an indorser then indorsed it personally and delivered it to
MET Bank. The latter, in turn, indorsed it to CHI Bank which charged it to the Bs
account. B later sued CHI Bank but it set up the forgery as its defense. Will it
prosper?
a. Yes, since CHI Bank is bound to know the signature of B, its client.
b. No, since Bs remedy is to run after the forger, A.
c. No, since the payees signature has been forged.
d. Yes, since forgery is only a personal defense.

13. X makes a promissory note payable to bearer and delivers the same to Y. Y
indorses it to Z in this manner: “Pay to Z, Sgd Y”. Later Z, without indorsing the
promissory note, transfers and delivers the same to R. X subsequently dishonors
the note
a. R may hold X liable as the special indorsement of Y converted the note to
one that is payable to order
b. R may not hold X liable as there was no valid negotiation of the note
c. R may hold X liable as the transfer and delivery of the note to R by Z
constituted a valid negotiation, vesting in R all the rights of a holder
d. R may hold X liable since the note is payable to bearer on its face and the
special indorsement of Y did not affect the right of the holder to negotiate it
by mere delivery
14. Which one is a negotiable instrument?
a. certificate of time deposit
b. postal money order
c. warehouse receipt
d. letter of credit

15. Any person signing an instrument as agent or in a representative capacity is not

liable on the instrument if
a. duly authorized as agent and discloses the name of his principal
b. duly authorized and described himself as agent
c. he signs the instrument the scope of his authority
d. he is equipped with the written authority

16. The effects of forgery of a signature are as follows except:

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a. When the party against whom it its sought to enforce such right is precluded
from setting up the forgery or want of authority as a defense.
b. That no right to retain the instrument, or to give discharge thereof,
c. That the signature forged or made without authority is wholly inoperative
d. to enforce payment thereof

17. Pay to the order of X P1,000. (Sgd) Z

To: The Dean of the College of Law of UE Recto or the Dean of the College of
Accountancy of UE Recto
Is this a negotiable instrument?
a. No, because the drawees are not named with reasonable certainty
b. Yes, even if it is undated
c. No, because the drawees are named in the alternative
d. Yes, because it substantially complies with the all the requisites under Section
1 of the NIL

18. I promise to pay P or his order the sum of P 10,000.00 30 days after the death of X.
This is an instrument payable:
a. On Demand
b. At an indefinite time, hence, non-negotiable
c. At a determinable future time
d. Upon the fulfillment of a condition

19. Can a bill of exchange qualify as a negotiable instrument if the day and the
month but not the year of its maturity is given?
a. Yes, the date of issuance is not a requisite prescribed by Sec. 1
b. No, if the holder inserts the incorrect date
c. Yes, the negotiability of an instrument is not affected if it is not dated
d. No, the intent is to make the instrument payable on a fixed date but the year
was omitted. Hence, the time payable is not determined in this case

20. A holder is not deemed a holder in due course, except:

a. Where a postal money order is delivered to Ryan, the holder.
b. Where a holder took instrument for value and in good faith.
c. Where instrument taken by a holder, who has not yet paid anything, and he
receives notice of infirmity in the instrument.
d. When instrument is payable on demand is negotiated payable on demand is
negotiated in an unreasonable length of time after its issue.

21. B forged A’s signature as a drawer of a check drawn on Citibank. The check was
purportedly payable to the order of B. B then indorsed the check to C, a holder
in due course, who deposited the same to his account with BPI. The check
passed through the normal with BPI. The check passed through the normal
course of clearing and accordingly the drawee Citibank credited the collecting
bank BPI with the amount of the check which Citibank in turn debited from A’s
deposit. Upon receiving his monthly statement from Citibank, together with the
canceled checks debited from his deposit account, discovered the forgery. Can
A compel Citibank to re-credit to his account the amount of the forged check?

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a. Yes, because the check was actually cleared
b. Yes, because of forgery
c. Yes, because of forgery
d. No, because C is a holder in due course

22. When the maturity of payment falls on a Sunday, when shall be the presentment
for payment?
a. The last working day prior to that Sunday.
b. The Saturday before the Sunday.
c. The Friday before the Sunday.
d. The next succeeding business day.

23. The instrument is discharged in the following instances except one?

a. payment by maker of a promissory note before maturity date
b. intentional cancellation of the instrument by the holder.
c. voluntary surrender of the instrument by the holder to the maker without
collecting
d. payment by party primarily liable to holder or his authorized representative

24. Which phrase best completes the statement - A check which is payable to
bearer is a bearer instrument and:
a. negotiation most be by written endorsement
b. negotiation must be by specific endorsement
c. negotiation can be made by delivery only
d. negotiation must be by endorsement and delivery.

25. When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative. Hence there is no right to:
a. Contract an endorsement
b. Accept payment
c. Retain the instrument
d. Effect delivery

26. When the instrument is complete but undelivered, delivery presumed to have
been in favor of the holder, the presumption is
a. Conclusive whether holder in due course or for value.
b. Conclusive if holder for value and Prima- facie if holder in due course
c. Prima- facie whether holder in due course or for value
d. Prima- facie if holder for value and conclusive. If holder in due course

27. M makes a negotiable promissory note for P10, 000 with the name of the
payable bank. The note is 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. P
b. A
c. B
d. M

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28. In a negotiable instrument, when the sum is expressed both in numbers and in
words and there is discrepancy between the words and the numbers-
a. this will render the instrument invalid.
b. the sum expressed in words will prevail over the one expressed in numbers.
c. the instruments becomes void because of the discrepancy.
d. the sum expressed in numbers will prevail over the one expressed in words.
29. Drawee who has paid upon the forged signature bears the loss except when
a. drawees negligence and negligence can be traced on the part of the
drawer
b. drawees negligence
c. negligence can be traced on the part of the drawer
d. None of the choices

30. The signature of Mark was forged as drawer of a check. The check was
deposited in the account of Paul and when deposited was accepted by PNB
Bank, the drawee bank. Subsequently, PNB Bank found out that the signature of
Mark was actually forged. Which statement is most accurate?
a. The drawee bank is estopped from denying the genuineness of the signature
of the Mark, the drawer of the check.
b. The drawee bank can recover from Paul, because the check was deposited
in his account.
c. The drawee bank can recover from Paul because as endorser he warrants
the genuineness of the signature.
d. The drawee bank can recover from Mark. because he is the drawer even
though his signature was forged.

31. 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 board examination
in October 1999". At the maturity of the note, C presented it to A for payment
and it is duly paid, C did not pass the CPA board examination. Which of the
following is correct?
a. A may disregard the condition and make payment whether the condition is
fulfilled or not.
b. A had no right to pay C, and therefore can compelled to pay again.
c. The promissory note becomes negotiable because the condition was
satisfied.
d. The promissory note is not negotiable because of the condition imposed.

32. One of the requirements needed for a holder of a negotiable instrument to be a

holder in due course is the value requirement. Rodrigo is a holder of a P10,000
check written out to him. Which of the following would not satisfy the value
requirement?
a. Rodrigo received the check for a tax service debt for a close relative.
b. Rodrigo took the check in exchange for a negotiable note for P11,200 which
was due on that day.
c. Rodrigo received the check from a tax client to pay off a four-month-old
debt.

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d. Rodrigo received the check in exchange for a promise to do certain
specified services three months later.

33. A promissory note which does not have the words or order or or bearer will
render the promissory note non-negotiable, and therefore
a. the note can still be assigned and the maker made liable
b. the promissory note can just be delivered and the maker will still be liable.
c. the holder can become holder in due course
d. it will render the maker not liable

34. Y issued a promissory note which states, I promise to pay V or order P100,000.00
or one (1) unit Volvo Sedan. Which statement is most accurate?
a. The promissory note is non-negotiable because the option as to which form of
payment is with the maker.
b. The promissory note is an invalid instrument because there is more than one
form of payment.
c. The promissory note is negotiable because the forms of payment are clearly
stated.
d. The promissory note can be negotiated by way of delivery.

35. An instrument Payable to Angel Locsin or order the sum of P1, 000. Signed X is:
a. A bearer instrument since it is an instrument payable to the order of a fictitious
person.
b. A bearer instrument since the name of the payee does not purport to be the
name of any person.
c. Non-negotiable
d. Negotiable because it complies with the requisites of negotiability.

36. Which of the following do not destroy the negotiability of an instrument?

a. Joint Drawees
b. Drawees in succession
c. Alternative Drawees
d. None of the choices
37. Which of the following is not an essential element of a bill of exchange?
a. must be written and signed by the drawee
b. must contain an unconditional order to pay a sum certain in money
c. must be payable to order or bearer
d. drawee must be named therein
38. The following are functions of negotiable instrument; except:
a. used as substitute for money
b. medium of credit transactions
c. medium of exchange for commercial transactions
d. none of them.
39. Which of the following is no an incident in the life of negotiable instrument?
a. Issue c. Preparation
b. notice of dishonor d. Negotiation
40. Which of the following is negotiable?
a. Postal Money order

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b. Certificate of stock
c. Treasury warranty
d. None of them
41. Which of the following is true that an instrument will be negotiable if it is in writing,
except:
a. Writing includes not only which has been written on paper and with a pen or
pencil but also that is in print.
b. There is no such thing as negotiable oral instrument.
c. An oral promise can make it difficult to determine liability and create the
danger or fraud which makes as a void contract.
d. The maker’s signature may be placed anywhere in the face of the
instrument.
42. In its broadest sense, refers to written promises or obligations that arise out of
commercial transactions from the use of such instruments as promissory notes or
bill of exchange.
a. Commercial paper
b. Bill of lading
c. Negotiable instruments
d. Banker’s acceptance
43. It is a document of title likewise without an unconditional promise or order to pay
a sum certain in money.
a. Postal money order
b. Treasury warrant
c. Bill of lading
d. Warehouse receipt
44. In determining the negotiability of an instrument, the following must be
considered. Which is not?
a. Only what appears on the face of the instrument;
b. The sum of money or goods to be paid by the maker or the drawer;
c. The whole of the instrument;
d. The provisions of the Negotiable Instruments Law especially Section 1 thereof
which fully define the requirements an instrument must meet in order to be
negotiable.
45. Which of the following statement is false about a negotiable instrument?
a. A negotiable instrument ceases its negotiability after it matured or is overdue.
b. A negotiable instrument which has an attorney’s fee and costs of collection
to be collected if not paid on maturity makes the sum of money uncertain
and renders the instrument non-negotiable.
c. A transferee acquiring the instrument when it is overdue would not be a
holder in due course and consequently, would hold the instrument subject to
defenses, as if it were non-negotiable.
d. If the attorney’s fee is not specified, then it shall be in a reasonable sum.
46. In order that a promissory note may be negotiable are listed below, which is not?
a. A mere acknowledgement of indebtedness is sufficient to make the
instrument negotiable.
b. Must contain an unconditional promise to pay.
c. Any equivalent to promise or assumption of liability will do to constitute an
unconditional promise to pay.

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d. Words of negotiability are necessary to make it negotiable.
47. “I promise to pay Mary Martin P10,000.” (Sgd.) Maria Mario. Which of the
following is true?
a. The instrument is a promissory note and is negotiable.
b. The instrument is non-negotiable because it does not recite the consideration
received by Maria Mario.
c. The instrument is valid and may be sold but the acquirer will be an assignee.
d. The instrument is non-negotiable for it does not have the words of
negotiability and date is not stated.
48. Which is true about non-negotiable instruments?
a. An instrument that is overdue ceases to be non-negotiable.
b. A non-negotiable instrument may not be indorsed but it may be negotiated.
c. Person who transfer or assign non-negotiable rights pass only rights they had.
d. Transfers of non-negotiable instruments are governed by the provisions of the
Civil Service Commission.
49. Which of the following is false about money?
a. Money is a medium of exchange authorized or adopted by a domestic or
foreign government as part of its legal tender.
b. Bills and coins are example of Cash.
c. Gold and Silver are legal tender.
d. Money are the only thing to be use in an instrument to be negotiable.
50. The instrument without grace falls due on April 30, 2019 which is a Sunday, when
shall be the presentment for payment?
a. May 2, 2019.
b. April 30, 2019 for it is the maturity date.
c. Any time before the maturity date.
d. May 1, 2019 for it is the next day after April 30, 2019 which falls on a Sunday.

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