LAW ON NEGOTIABLE INSTRUMENTS

Name: _______________________________ Date: ____________

Section : ______________________________

TEST I – MULTIPLE CHOICE. Select the best answer by encircling the letter of your choice. NO
ERASURE ALLOWED AND THE SAME WILL BE CONSIDERED WRONG ANSWER.

I. Determine whether the following instruments are negotiable or non-negotiable.

1. I promise to pay B or bearer P50,000 worth of sugar on demand.nn

Sgd. A
2. I promise to pay B or order P200,000 out of the proceeds of the sale of my jeep.nn

Sgd. A

3. I promise to pay B or order P500,000 and to deliver my Toyota Altis with the plate # MQ M125 on
December 15, 2005.nn

Sgd. A

4. To Mr. X
123 Rizal Avenue, Manila

Pay to Y or bearer P500,000 or to deliver 500 sacks of rice at your election.nn

Sgd. Z

5. I promise to pay B or bearer P500,000 or to deliver 500 sacks of rice at my election.nn

Sgd. A

6. I promise to pay B or order P500,000 or to deliver 500 sacks of rice on or before December 15,
2005.nn

Sgd. A

7. I promise to pay P or order P100,000 in ten installments starting July 20, 2005.nn

Sgd. A

8. To Mr. X
123 Rizal Avenue, Manila

Pay to Y or order P1,000.000 as follows P500,000 on July 20,2005, P200,000 on August 19, 2006 and
P3000,000 on December 15, 2006.n

Sgd. A

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9. I promise to pay B or order P1,000.000 on or before August 19, 2005. If on said, this note is not
paid, I further bind myself to pay 25% of the amounting outstanding as cost of collection and
attorney’s fees.n

Sgd. A

10. I promise to pay B or order P500,000 10 days after he passes the CPA exams to be given in
October, 2005.nn

Sgd. A

11. I promise to pay B or bearer P200,000 if he reaches the age of P75.nn

Sgd. A

12. I promise to pay B or order P200,000. After the death of X by assassination.nn

Sgd. A

13. I promise to pay B or bearer P500,000 15 days before the death of X.nn

Sgd. A

14. I promise to pay B or order P100,000 on December 15.nn

Sgd. A

15. I promise to pay B or order P100,000 on December 15.nn

Sgd. A

16. To Mr. X

123 Rizal Avenue, Manila

Pay to Y or order P100,000 on or before July 20, 2005.nn

17. I promise to pay B or P200,000 on or before December 15, 2005. If on said date this note is not
paid, I further authorize the holder to sell the diamond ring that I have delivered by way of
pledge.n

Sgd. A

18. I promise to pay Jesus Santos the bearer the sum of P20,000 on demand.nn

Sgd. A

19. I promise to pay the bearer Jesus Santos the sum of P20,000 on presentation.nn

Sgd. A

20. Due B P5,000 on demand.nn

Sgd. A

21. Due B order P5,000.n

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 Sgd. A

22. To Mr. X
123 Rizal Avenue, Manila

Please naman please pay to Y or order P100,000 on demand.n

Sgd. Z

23. What is meant by holder of a negotiable instrument?

a. A possessor of a bill or note
b. A bearer of a note or bill
c. A payee of an instrument who is in possession thereof, or bearer of a bill or not.
d. A party to whom the instrument is negotiated.
24. Is a letter of credit negotiable instrument?
a. No, because it gives the holder thereof the option to pay money or deliver goods
b. No, because it is payable in goods or merchandise
c. No, it does not have all the requisites of negotiable instrument
d. No, it is neither payable to order nor bearer.
25. M made a promissory note in the amount of P10,000.00 payable to the order of P in two equal
monthly installments. The promissory note is dated March 5, 2011. Is he instrument negotiable?
a. It is not negotiable because it is not payable by stated installments
b. It is not negotiable because the sum payable is not certain or ascertainable
c. It is not negotiable. The maturity dates of installment are not fixed or determinable
d. It is not negotiable. The installments are not certain.
26. M makes a promissory note payable to bearer. The bearer who happens to be P specially indorses
the note to A. thereafter, A indorses the note in blank to B. how may B negotiate the note to C?
a. B may negotiate the note to C by delivery. Reason: the blank indorsement of A to B
converted the note into bearer instrument
b. B may negotiate the note to C by delivery because the blank indorsement of A renders
the special indorsement of P inconsequential.
c. B may negotiate the note to C by mere delivery. Reason: Since the last indorsement is an
indorsement in blank, it becomes a bearer instrument
d. B may negotiate the note to C by mere delivery because the instrument is originally
payable the bearer. Settled is the rule that bearer instrument is always a bearer
instrument.
27. An instrument which contains an order or promise to do any act in addition to the payment of
money is not negotiable. However, the negotiable character of an instrument is not affect by a
provision which
a. Authorizes a confession of judgment
b. Authorizes the sale of collateral securities
c. Waives the benefit of any law
d. Contains an alternative obligation provided that the option belongs to the holder
28. When the instrument is payable to the order of a fictitious or non- existing person, it is payable to
bearer provided that – (UNDERSTANDING)
a. The maker was aware that the payee’s name does not purport to be the name of any
person,
b. The drawer knew that payee is fictitious or non-existing person

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 c. The person making it so payable does not intend that the proceeds thereof will go to
the payee named therein.
d. The payee named therein is not the real recipient of the proceeds of the instrument.
29. P having constructed a fence around the house of M, the latter made a promissory note payable
to the order of the former. However, M left the sum payable in blank and delivered the note to P.
although the agreed consideration amounted to P50,000, P filled up the blank in the sum of
P150,000 and subsequently negotiated it to A. on the maturity date, how much can A, the holder,
recover from M? Explain briefly.
a. A can recover P150,000 provided that he is a holder in due course
b. A can recover P150,000 as he is presumed to be a holder in due course. To him, the
blank is deemed completed in accordance with the authority given
c. A can recover P150,000 if M fails to prove that a is not qualified as holder in due course
d. A can recover P150,000. M is liable according to the sum payable set forth therein.
Having left the sum payable in blank, M assumed the risk of being liable not in
accordance with the agreed amount. He is, therefore, estopped from denying such
greater ability.
30. Explain the meaning of a qualified drawer
a. A drawer of a bill of exchange imposing a special restriction
b. A drawer that admits the existence of the payee and his then capacity to indorse.
c. A drawer who inserts in the instrument an express stipulation negativing or limiting
his own liability to the holder
d. A drawer who engages that on due presentment and proper notice of dishonor, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it
31. M made a promissory note containing a facultative obligation. What is the effect of such
stipulation on the negotiable character of the instrument? Explain briefly.
a. It renders the note non-negotiable because the right of choices does not belong to the
holder
b. The note becomes non-negotiable. The prestation may no longer be in a sum certain in
money
c. It renders the note non-negotiable. The Negotiable Instrument Law only allows
alternative obligation. Hence, facultative prestation makes the sum payable uncertain
d. The note becomes non-negotiable. The maker may choose the substitute prestation
32. Jose delivered a negotiable check complete in all particulars to Pedro for safe keeping. In breach
thereof, Pedro negotiated the check to John who subsequently indorsed it to Mario. Upon
presentment, Jose refused to pay it raising the defense of undue delivery. On the other hand,
Mario asserted that he is a holder in due course.
a. Mario’s assertion is meritorious provided that it is proven that he is a holder in due
course
b. Jose’s refusal is unjustified because the defense of undue delivery is a personal defense
which cannot be interposed against a holder in due course.
c. Mario’s assertion holds water. Mario is presumed to be a holder in due course.
d. Jose’s refusal is unfounded because to a holder in due course, there exists a conclusive
presumption of delivery.
33. Forging the signature of Dario, Fanny made a check payable to the order of Popoy, addressed to
X Bank. Thereafter, Popoy indorsed it to Andy. Since the signature of Dario was ingeniously
replicated, X Bank failed to detect such forged signature is indeed a forgery. Can X Bank recover
from Andy? Explain briefly/

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 a. No, because such erroneous payment is a recognized exception to the principle of unjust
enrichment
b. No, the provision of the Negotiable Instrument Law, a special provision, prevails over
the principle of unjust enrichment
c. No, the drawee who paid a bill bearing the forged signature of the drawer could not
recover the money paid out thereon. Reason: Drawee is guilty of negligence
d. No, because the Negotiable Instrument Law holds the drawee bank liable on a forged
check bearing the forged signature of the drawer.
34. Jojo issued a crossed check payable to the order of Boboy addressed to BPI. There was breach of
promise as to the delivery of the goods, the agreed consideration. Nonetheless, boboy indorsed
the check to Cocoy. In due course, Jojo issued stop payment order to BPI. As it happened, BPI
dishonored the check upon presentment by Cocoy. Eventually, Cocoy filed an action for
collection against Jojo.
a. The action will jot proper. Reason: Cocoy is not a holder in due course and therefore, the
drawer may validly raise the defense of failure of consideration.
b. The action is dismissible because Cocoy cannot invoke the presumption of a holder in
due course under the Negotiable Instrument Law. Hence, the drawer can raise the
defense of failure of consideration.
c. The action will not proper . reason: the crossing of a check serves as warning to the
holder that check has been issued for a definite purpose. It is incumbent upon the
holder to inquire into the indorser’s title. Here, Cocoy failed to make such inquiry
thereby disqualifying him as holder in due course.
d. The action is bound to fail because the drawer can validly raise the defense of failure of
consideration. Cocoy evidently failed to prove that he is a holder in due course.
35. Explain the doctrine of comparative negligence in forgery cases?
a. It is one which holds that the loss shall be borne by the party that is most neglectful.
b. It is one which espouses that the active negligence of a party prevails over the
constructive negligence of the other party. Hence, the party guilty of active negligence
shall bear the loss
c. It dictates that as between two banks innocent of forgery, the least negligent shall be
absolved from liability
d. It advances the rule that the party whose negligence is the immediate cause of the loss
shall ultimately be held liable.
36. In a catena of cases, the Supreme Court held that a drawee bank is liable, irrespective of its good
faith, in paying a forged check. What do you think is the doctrinal basis therefor?
a. A drawee bank is bound by its acceptance
b. The doctrine of estoppel applies in view of the drawees acceptance of the check
c. If a bank pays a forged check, it must be considered as paying out of its funds and
cannot charge the amount so paid to the account of the depositor.
d. A drawee, upon acceptance, is liable on the check. The Negotiable Instrument Law
provides that such an acceptor warrants that the signature of the drawer is genuine. On
this score, the doctrine of estoppel clearly applies
37. Spouses Abad were engaged in the informal lending business. In line with their business they
had a discounting arrangement with the UST employees Savings and Loan Association (UST-
ESLA), an association of UST employees. Spouses Abad and UST-ESLA were clients of Security
Bank as they both maintained Checking and Current Account therewith

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 UST-ESLA regularly granted loans to its members: Spouses Abad would rediscount the
postdated checks issued to members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members. It was UST-ESLA’s policy not to approve applications for loans of
members with outstanding debts. To subvert this policy, some UST-ESLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in
the names of unknowing members, without the knowledge or consent of the latter. The UST –
ESLA checks issued for these loans were given to the spouses for rediscounting. The officers
carried this out by forging the indorsement of the named payees in the checks.

In return, the spouses issued their personal checks in the names of the members and delivered
the checks to an officer of UST-ESLA. The UST-ESLA checks, on the other hand, were deposited
by the spouses to their account.
The Security Bank eventually discovered these fraudulent acts. To forestall such deceitful
scheme, Security Bank closed the current account of UST-ESLA. Consequently, the UST-ESLA
checks deposited by the spouses were returned or dishonored for the reason “Account Closed”
The corresponding spouses Abad checks, however, were deposited as usual to the UST-ESLA
savings account. Since the UST-ESLA checks given as payment were returned, spouses Abad
incurred losses from the rediscounting transactions.

Inevitability, spouses Abad filed a civil complaint for damages against UST-ESLA and the
Security Bank. In its Answer, Security Bank claimed that spouses Abad, the drawers actually did
not intend for the named payees to receive the proceeds of the checks. Accordingly, the payees
were considered as “fictitious payees” under the Negotiable Instrument Law.” Being checks
made payable to fictitious payees which are bearer instrument, the checks were negotiable by
delivery.

a. Security Bank’s theory is unpersuasive. The checks were considered order instruments as
they were payable to the order of specified persons. Hence the bank violated its contractual
duty to pay only to the legitimate payees.
b. Spouses stance is persuasive. Since the checks contained no words bearer or possessor, they
were considered payable to order. Indeed, the bank should bear the loss for having made an
erroneous payment.
c. The complaint of spouses Abad is meritorious. For the fictitious payee rule to be available
as a defense, the bank must show that the drawer did not intend for the named payees to
be part of the transaction involving the checks. Lack of knowledge on the part of the
payees, however, was not receive the check’s proceeds. Hence, the subject checks are
presumed order instruments.
d. Security Bank’s thesis is untenable. The checks were considered order instruments because
the named payees are not fictitious. Crediting the spouses checks to UST-ESLA account
without indorsements, the bank violated its absolute and contractual duty to pay only to the
persons named in the check or upon their genuine indorsements. The loss must perforce fall
on the bank.
38. Jose made a promissory note as follows:
I promise to pay bearer or Mario P10,00.00 on or before December 5, 2006
(Sgd.) Jose
Is the instrument negotiable?

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 a. It is not negotiable because it is not payable to bearer under Section 9 of the Negotiable
Instrument Law.
b. It is not negotiable because it does not have all the requisites of a negotiable instrument
c. It is not negotiable because the requisites of a bearer instrument are absent.
d. It is not negotiable. Reason: It is not payable to bearer as it is payable to a specified
person.
39. Art issued a check in favor of Tess against his account with BPI. Butch erased the name of Tess
and superimposed his name. thereafter, butch deposited the check with PNB which cleared the
same through the Central Bank Clearing House. PNB paid the check to Butch. Informed of such
material alteration, Art asked BPI to re-credit the amount charged against his account. May Art
compel the BPI to re-credit the amount of the check to his account?
a. Yes, because the alteration was made without the consent of Art.
b. Yes, because BPI has breached its warranty that the check is genuine and in all
respects what it purports to be.
c. Yes, because BPI did not act with prudence in checking the genuineness of the check.
d. Yes, because BPI, as drawee, was deemed aware of the alteration.
40. Mario issued a check payable to bearer. Metro bank is the drawee bank. Cleaning Mario’s desk,
Jose, his janitor, took to check and indorsed it to Pedro. Upon presentment, the Metro Bank paid
it to Pedro. Having discovered the encashment thereof, Mario asked the Metro Bank to return the
amount to his account. On the other hand, Metro Bank refused to re-credit the amount
contending that the check is by its terms payable to any possessor.
a. Metro Bank’s refusal is justified. Reason: The encashment is deemed authorized by the
tenor of the check.
b. Metro Bank’s refusal is valid. Reason: there is no breach of contractual duty to pay only
to the person upon whom it is issued or upon his genuine indorsement as the check is
not payable to order.
c. Mario is not correct because the check being payable to bearer, Metro Bank made due
payment.
d. Mario is not correct. Reason: Metro Bank does not warrant the genuineness of the
indorser signature.

41. Ramos draws a bill of exchange payable to the order of Palma. Palma presents the bill to Wagan,
drawee, for acceptance, and the latter accepts it. Thereafter, Palma indorses the note to Alunan,
Alunan to Bernarte, Bernarte to Hornedo, holder. On due date, horned presents the bill to Wagan
for payment but Wagan dishonors it claiming that Palma is a minor. Wagan, Ramos, Alunan and
Bernarte claim that they did know that Palma was a minor at the time that they transacted on the
instrument. Aside from Palma, who may claim the defense of minority?
a. Ramos
b. Wagan
c. Alunan and Bernarte
d. None of the four.
42. A promissory note reads as follows:

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 November 1, 2015

I promise to pay pay Paloma Perez or order the sum of P20,000.00

(Sgd.) Maria Montano

The above promissory note was delivered by Maria Montano to Paloma Perez who made
the following indorsement at the back of the promissory note:

Pay to Alona. Almonte if she finishes her course in Business Administration

(Sgd.) Paloma Perez

I. The condition of the indorsement is suspensive

II. The condition placed on the indorsement renders the instrument non-negotiable
III. Maria Montano may waive the fulfillment of the condition and pay Alona Almonte

a. All statements are true

b. I and II are true
c. II and III are true
d. I and III are true
43. The acceptor, by accepting the instrument, admits the following, except the:
a. Existence of the payee
b. Capacity of the payee to indorse
c. Genuineness of the drawer’s signature
d. Right of the holder to enforce payment of the instrument.
44. The maker, by making the instrument, has the following liabilities, except:
a. The engagement to pay the instrument according to its tenor
b. The admission of the existence of the payee
c. The admission of the capacity of the payee to indorse the instrument
d. The admission of the right of the holder to enforce payment of the instrument.
45. M makes a promissory note payable to the order of P P indorses the note specially to A, A
indorses the note in blank and delivers the same to B. B specially indorses the note to C. C
specially indorses the note to D. D indorses the note in blank and delivers it to E. E specially
indorses the note to H, holder. Whose indorsement may H strike out?
a. The special indorsement of P to A
b. The special indorsement of E to H
c. The blank indorsement made by A
d. The blank indorsement made by D.
46. M makes a promissory note payable to the order of P and delivers the same to P. P indorses the
note to A who keeps it in his drawer. F steals the note and negotiates the same to B by forging A’s
signature. Thereafter, B negotiates the note to C, C to D and D to H, a holder in due course. Based
on the foregoing information, which of the following statements is true?

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 a.H can hold M and P liable because they became bound under the instrument before the
forgery
b. H cannot hold B, C and D liable because they have no participation whatsoever in the
commission of the forgery
c. H can enforce the instrument only against F, the forger, since he is the perpetrator of the
forgery
d. H can enforce instrument against F, B, C and D, but not against M, P and A.
47. A check must be in writing and signed by the drawer for it to be negotiable. In addition, a check
must have the following requisite, except:
a. It must contain an unconditional order to pay a sum certain in money
b. It must be payable at a fixed or determinable future time
c. It must be payable to order or to bearer
d. The bank drawee must be named with reasonable certainty

48. These two instruments are presented to you for evaluation:

Instrument I

Manila, Philippines
October 21, 2015
Pay to the order of Pedro Panelo the sum of P20,000.00 or deliver to
him a brand new Arcer computer of the same value.
(Sgd.) Roberto Ramirez

To: Walter Wenceslao

Instrument II

Manila, Philippines
October 21, 2015
Pay to the order of Pedro Panelo the sum of P20,000.00 and reimburse
yourself out of the proceeds of my loan from PNB which are in your
possession.
(Sgd.) Roberto Ramirez

To: Walter Wenceslao

a. Both instruments are negotiable

b. Both instruments are non-negotiable
c. Instrument I is negotiable. Instrument II is non-negotiable
d. Instrument I is non-negotiable, Instrument II is negotiable

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 49. Which of the following is not a promise to pay, and thus will make an instrument non-
negotiable?
a. I agree to pay P
b. I bind myself to pay P
c. I acknowledge my debt to P
d. I oblige myself to pay P
50. An instrument to be negotiable must be payable at a fixed or determinable future time. Which of
the following does not comply with the said requisite?
a. I promise to pay P or order on Christmas day 2 years from now
b. I promise to pay P or order on the death of X
c. I promise to pay P or order 10 days before the death of X
d. I promise to pay P or order before Valentine’s day next year
51. Which of the following instruments is not payable to order?
a. I promise to pay P or his agent P10,000.00
b. I promise to pay P or his assigns P10,000.00
c. I promise to pay to the order of myself P10,000
d. Pay to the order of yourself P10,000.00
52. P executes a promissory note for P20,000.00 indicating therein that the maker is M and that it is
payable to the order of P. thereafter, he forges the signature of M and indorses the note to A, A to
B, B to C, and C to H, holder. Based on the foregoing data, which of the following statement is
incorrect?
a. H can collect from M if H is a holder in due course
b. H cannot collect from M whether H is a holder in due course or not
c. H can collect from A, B or C whether H is a holder in due course or not
d. H can collect from P whether H is a holder in due course or not
53. An instrument reads as follows:

I promise to pay to the order of P the sum of P50,000.00 sixty

(60) days after date

(Sgd.) M

On September 1, 2015, M issued the promissory note to P, P indorsed the note to A, A to B, and B to C. C
indorsed the note to H on September 20,2105, but before delivering it to H, C inserted August 1, 2015 as
the date of issue. H is holder in due course. The due date of the promissory note insofar as H is concerned
is:

a. October 31, 2015

b. September 30, 2015
c. The promissory note becomes demandable at once
d. The promissory note is avoided because of the insertion of a wrong date; hence it is of no use to
determine the date of maturity.

54. Which of the following defenses may a party to an instrument avail himself of against any
holder?

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 a. Want of delivery of incomplete instrument
b. Want of authority to complete an instrument that was delivered
c. Want of delivery of complete instrument
d. Want or absence of consideration
55. M makes a promissory note payable to the order of P for PH P5,000.00. after delivery to P, P
changed the amount to US $5,000.00. thereafter, P indorsed the note to A, A to B, B to C, C to D,
and D to H. the parties subsequent to P were not aware of the alteration made by P. based on the
foregoing facts, which of the following statements is incorrect?
a. H can hold M liable for US$5,000.00 if H is a holder in due course
b. H can hold M liable for PHP5,000,00 if H is a holder in due course
c. H cannot hold M liable for any amount if H is not a holder in due course
d. H can hold A, B, C and liable for US$5,000.00 even if H is not a holder in due course.

56. A holder is a holder in due course if he has taken the instrument complete and regular on its face
and three of the following conditions, except:
a. That he became the holder of the instrument before it was overdue and without notice
that it had been previously dishonored if such was the fact.
b. That he took it in good faith and for value
c. That there is no fraud or illegality affecting the instrument
d. That 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 the same.
57. Marilou Mateo executed a promissory note in favor of Patria Palata as follows:

I promise to pay Patria Plata or order P50,000.00 or to deliver to herba brand new
laptop computer.

(Sgd.) Marilou Mateo

Based on the foregoing instrument, which of the following statements is true?

a. The instrument is negotiable

b. The obligation is an alternative obligation
c. The choice as to which prestation will be performed belongs to Patria Plata
d. The obligation is payable at a determinable future time

58. M executes a promissory note for P10,000.00 payable to the order of P, a minor, M and P had a
private understanding that M is liable only for the discounted amount of P9,500.00. O indorsed
the note to A, A to B, B to C, C to D, and D to H, holder.
a. M may refuse to pay H on the ground that P is a minor
b. If M dishonors the note, A may refuse to pay H on the same ground that P is a minor
c. The indorsement made by P passed title to the instrument in favor of A
d. Assuming that P was already of the age of majority at the time of the execution of the
note, M is liable to H for P9,5000.00 since that was the amount that he agreed with P that
he should pay
59. On august 1, 2015. M executed a promissory note for P50,000.00 payable to the order of P which
is payable “30 days after.” Thereafter, P indorsed the note to A, A to B, B to C, C to D and D to M.
the indorsement by D to M was made on August 29, 2015

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 a. The obligation on the note was extinguished by merger or confusion on August 29, 2015
b. M may reissue/renegotiate the promissory note after it was indorsed to him
c. M can go after P, A, B, C and D to collect
d. M may strike out the indorsement to him by D.
60. M, make, O, payee, of a note payable to the order of P. the back of the note contains the
indorsement of P to A, A to B, B to C, C to D, and D to H, a holder in due course. Assume the
following independent facts:
i. M is insolvent
ii. P is a minor
iii. A’s signature was forged

If C were a qualified indorser, which of the foregoing independent facts will not affect his liability (i.e., he
will atill be liable) although he was not aware of any of them?

a. I and II
b. II and III
c. I and III
d. I, II and III

61. Refer to the preceding number. Assuming that C were a general indorser, which of the foregoing
facts enumerated (I, II and III) will not not affect his liability (i.e., he will still be liable) although
he was not aware of any of them?
a. I and II
b. II and III
c. I and III
d. I, II and III
62. One of the distinctions between negotiation and assignment of a negotiable instrument is that in
assignment the:
a. Transferor of the instrument warrants the solvency of prior parties
b. Transferee of the instrument is subject to both personal and real defenses
c. Transferee of the instrument holds the instrument free from defect of title of prior parties
d. Transferor is not liable in case no presentment for payment is made to the party
primarily liable and notice of dishonor is not given to such transferor.
63. M made a promissory note in favor of P or order. The note, which was payable after 60days from
date of issue, amounts to P100.000.00 and bears interest at 10% per annum. After the delivery of
the note to him. P altered the interest rate to 18% per annum without the knowledge of M and
indorsed it to A who knew nothing of the alteration. Thereafter, A indorsed the note to H, a
holder in due course.
a. H may not collect any amount, whether of the principal or of the interest, from M.
b. H may collect P100,000.00 and interest at 10% per annum from M.
c. H may collect P100,000.00 and interest at 18% per annum from M.
d. H may not collect any amount, whether of the principal or of the interest, from A, since A
was not aware of the alteration.
64. Which of the following indorsements is a qualified indorsement?
a. Pay to Angelo Amores for collection
b. Pay to Angelo Amores in trust for Teofilo Tangco

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 c. Pay to Angelo Amores. Indorser not holden
d. Pay to Angelo Amores. Notice of dishonors waived
65. Manuel Miranda wrote a letter to his goddaughter which reads as follows:

To Pilar Perez:

Dear Pilar:

I am greatly pleased that you have enrolled in accounting in response to my

continual urging

I am formally making the promise I have made earlier to you to pay you or your
order P500,000.00 or a brand new Toyota Corolla Altis, at your option, as soon as you graduate.

Your Godfather,

(Sgd.) Manuel Miranda

a. The instrument is valid and negotiable

b. The instrument is valid but not negotiable
c. The instrument is not valid but negotiable
d. The instrument is not valid and not negotiable

66. M made a promissory note payable to P or bearer. After its delivery to him, O indorsed the note
to A. while the note was in the possession of A, F stole the note and negotiated it to B by forging
A’s signature. Thereafter, B indorsed the note to C, C to D, and D to H, a holder in due course.
Which of the following defenses are available to M, P and A against H?
i. Forgery of A’s signature
ii. Want of delivery of the note by A since the note was stolen from him
1. Both defenses are available to M, P and A
2. Both defenses are not available to M, P and A
3. Only I is available
4. Only II is available
67. The following promissory notes are presented to you:

I promise to pay to the order of Pancho Pineda the sum of

P20,000.00 if he passes the CPA Board Examination

(Sgd.) Mario Marquez

At the back of the promissory note, the following appears:

II
Pay to the order of Antonio Abad.

(Sgd.) Pancho Pineda

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 I promise to pay to the order of Pancho Pineda the sum of
P20,000.00.

(Sgd.) Mario Marquez

At the back of the promissory note, following appears:

In your evaluation of the foregoing instruments.

a. Both instruments are negotiable in origin but ceased to be negotiable at the time of
indorsement.
b. Both instruments are non-negotiable in origin
c. Only instrument I is negotiable in origin but ceased to be negotiable at the time of
indorsement
d. Only instrument II is negotiable in origin but ceased to be negotiable at the time of
indorsement
68. M issued a promissory note payable to the order of P for P50,000.00. thereafter, P indorsed the
note to A. whole the note was in the possession of A, F stole it and negotiated it to B by forging
the signature of A. B was not aware of the forgery of A’s signature. B then indorsed the note to H,
a holder in due course. The parties who may raise forgery as a defense are:
a. A and B
b. M and P
c. M, P and A
d. None of the parties may raise forgery as a defense because H is a holder in due course
69. Refer to the preceding number. Assume the same facts excepts that the note is payable to bearer.
In such a case, the parties who may raise forgery as a defense are:
a. A and B
b. M and P
c. M, P and A
d. None of the parties may raise the defense of forgery
70. M makes a promissory note for P10,000.00 payable to the order of P. after the issuance to him of
the note, P altered the amount to US$10,000.00. p then indorsed the note to A, A to B, and B to H.
only P knew of the alteration.

The parties and their possible liabilities are:

I. M, P10,000.00
II. M, US$10,000.00
III. M, nothing
IV. A and B, P10,000.00
V. A and B, US$10,000.00
VI. A and B, nothing

If H is a holder in due course, the parties from whom he may collect and the amount of the
said parties liability are:

a. I and IV

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 b. II and V
c. I and V
d. III and VI
71. A check differs from a bill of exchange because a check:
a. Does not require the drawer to have funds with the drawee
b. May be drawn against a person other than a bank
c. Is always payable on demand
d. Is required to be presented for acceptance in certain cases.
72. The placing of a date in an instrument is necessary in the following cases, except:
a. To fix the maturity of the instrument
b. To determine when interest is to run
c. To fix the prescriptive period
d. To make the instrument negotiable
73. A holder is still a holder a holder in due course although:
a. He received the instrument after it has become overdue but he has no knowledge of it
b. He received the instrument after it was dishonored and he has no notice of such
dishonor
c. He did not give any value for it
d. The instrument was not complete and regular on its face

74. On May 1, 2015, Manolo Montes executed the following promissory note for goods he purchased
from Peter Perez:

(No date)

I promise to pay Peter Perez or order the sum of P20,000.00 with

interest, thirty days after date, in payment of the goods I purchased from him
today. To secure the amount of this note. I hereby pledge my ring which I
authorize Peter Perez to sell in case of my default on due date.

(Sgd.) Manolo Montes

The part of the above instrument that renders it non-negotiable is the phrase or statement:

a. In payment of the goods that I purchased from him today

b. With interest, thirty days after date
c. To secure the amount of this note, I hereby pledge my ring which I authorize Peter
Perez to sell in case of my default on due date
d. The instrument is negotiable notwithstanding the presence of such phrases or
statements in the body thereof.

75. Medardo Medrano has an obligation to give 10 sacks of rice worth P10,000.00 to Pancho Panza,
the same being due on September 5, 2015. Medardo Medrano failed to deliver 10 sacks of rice to
Pancho Panza on due date despite the latter’s demand. Medardo Medrano requested Pancho
Panza to give him a period of 30 days to give the amount of P10,000.00 or to deliver 10 sacks of
rice, assuring Pancho Panza of the payment by issuing the promissory note shown below. Pancho
Panza agreed to Medardo Medrano’s proposal.

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 September 6, 2015

I promise to pay Pancho Panza or order the sum of P10,000.00 or

ro deliver him 10 sacks of rice.

(Sgd.) Medardo Medrano

a. The new obligation is a facultative obligation

b. The promissory note is negotiable
c. Medardo Medrano has the choice whether to give P10,000.00 or deliver 10 sacks of rice
d. The instrument is payable at a determinable future time.

76. A makes a promissory note payable to the order of B, but delivers it to C. Who may be considered
holder of the note?
a. B
b. C
c. Both B and C
d. Neither B nor C
77. The instrument is worded as follows:

To Mr. X

123 Rizal Avenue, Manila

I promise to pay B or order P500,000 on demand.

Sgd. A

B has since then presented he instrument for payment to Mr. X. The instrument is to be
considered as:

a. A promissory note because of its tenor

b. A bill of exchange because there is a drawee to whom the instrument is addressed
c. It is either a bill or a note at the election of B or his order
d. It is a bill of exchange under the facts of the case since the instrument was presented
for payment by B to X, this showing his election.
78. Admits the existence of the payee and his then capacity to indorse is a warranty of:
a. Maker
b. Drawer
c. Acceptor
d. All of the above
79. Which of these is a party primarily liable on the instrument?
a. Drawer
b. Indorser
c. Acceptor for honor
d. All of the above
e. None of them

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80. Under which of these circumstances may the instrument be regarded as either a promissory note
or a bill of exchange?
a. When drawer and the drawee are the same person
b. When the drawee is a fictitious name
c. When the drawee is without capacity to contract.
d. When there is a doubt as to whether the instrument is a bill or a note
e. All of the above
81. A promissory note where A is a maker payable to the order of B is negotiated to C, D, E, F, G and
H who is now the holder. On maturity date, H presented for payment to A who could not pay. H
then gave notice of dishonor to F and E who in turn gave notice to dishonor to D and C. Which of
these statement is not correct?
a. C can give valid notice to B
b. Notice of dishonor given by E to D and C inures to the benefit of H
c. G is discharged from liability
d. None of the above.
82. A maker of a promissory note for P100,000 payable to the order of B who negotiates the same in
favor of C. C lost the note and is found by X who forges the signature of C and pretending to be C
negotiates the note to D, D to E, E and F and F to G who is a holder in due course. Under the
circumstance which of these is not an incorrect statement?
a. Being a holder in due course, G can recover from maker A
b. The signature of C being forged, it becomes inoperative and payment cannot be
enforced as against him
c. E is not liable to F precisely because he was not the one who forged the signature of C
d. X is not liable to any party to the instrument since his name does not appear thereon.
83. A is maker of a promissory note payable to the order of B and then successively negotiated to C
to D to E to F to G who is the holder. G strikes out intentionally the indorsement of C.
a. Only C is discharged
b. A and D are discharged but not E and F
c. All of C, D, E, and F are discharged; C by the striking out of his indorsement and D, E
and F by discharge of a prior party
d. No one is discharged because the problem does not say that the striking out of the
indorsement was before or after the maturity of the instrument.
84. The following are all personal defenses, except:
a. Fraud in factum
b. Insertion of wrong date
c. Incomplete but delivered instrument
d. Absence or failure of consideration
85. A bill of exchange payable thirty days sight is addressed to X, as drawee payable to the order of Y
for P100,000 where Z appears to be drawer. Y negotiated to A who alters the amount from
P100,000 to P400,000 and then negotiates to B and B to C choose the statement which is correct?
a. C can only recover from B P400,000 if he, is a holder in due course.
b. Even if C is not a holder in due course he can recover from B P400,000 because the latter
is an indorser after the alteration
c. Z as drawer can be held liable for P400,000 by C if he is a holder in due course
d. Z as drawer can be held liable for P100,000 by C if he is a holder in due course because
the amount is the original tenor of the bill
e. Both b and d
86. Which of these is not requisite of negotiability of a bill of exchange?

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 a. It must be in writing and signed by the drawer
b. Must contain an unconditional promise to pay a sum certain in money
c. Must be payable on demand or at a fixed or determinable future time
d. Must be payable to order or to bearer
e. None of the above
87. This instrument is inherently non-negotiable
a. Check
b. Promissory note
c. Bill of exchange
d. Treasury warrant
88. Which of these is a valid indorsement of an instrument payable to the order of B for P100,000?
a. Pay to C P600,000
Sgd. B
b. Pay to C P60,000
And to D P40,000
Sgd. B
c. Pay to C and D
Sgd. B
d. Pay to C or D
Sgd. B
e. Both (c) and (d)
89. The following are all requisites of an acceptance for honor – choose the exception.
a. That the bill must have been previously dishonored by non-acceptance or protested for
better security
b. That the bill is already overdue
c. That the acceptance for honor must be with the consent of the holder
d. That the acceptor for honor must not be a party already liable on the instrument
90. This indorsement makes the indorser a mere assignor of the title to the instrument and thus
decreases his liability
a. General indorsement
b. Qualified indorsement
c. Irregular indorsement
d. Facultative indorsement
91. Pay to C for collection only, “Sgd. B” is an example of a restrictive type of endorsement which is
classified as:
a. Prohibitive type
b. Agency type
c. Trust type
d. All of the above
92. In this instrument a protest made by a notary is needed instead of a simple notice of dishonor
a. Inland bill of exchange
b. Foreign bill of exchange
c. Traveler’s check
d. Promissory note
93. A stranger to the instrument makes a material alteration changing the amount thereof from
P100,000 to P400,000 this act is known as
a. Forgery
b. Material alteration

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 c. Spoliation
d. All of the above
94. Which of these constitutes a real defense?
a. Fraud in factum
b. Extrinsic fraud
c. Insertion of wrong date
d. Absence or failure of consideration
e. Defective delivery
95. The following are all modes of discharging negotiable instruments – choose the exception
a. Payment in due course made by or behalf of the principal debtor.
b. Payment made by or on behalf of the accommodation party
c. By the intentional cancellation of the instrument
d. By any act which discharges a simple contract for the payment of money
96. This check has drawn on its face two transversal parallel lines the effect of which is that the check
cannot be encashed but only be deposited.
a. Cashier’s check
b. Certified check
c. Crossed check
d. Memorandum check
97. In relation to checks and bills of exchange, which is not a correct statement?
a. A bill may be drawn addressed to any person as drawee, but a check can only be
addressed to a bank as drawee.
b. A check is always payable on demand whereas a bill may be made payable on demand
or at a fixed or determinable future time
c. A check must be presented for payment within a reasonable time from its date of issue,
whereas a bill within a reasonable time from the date of last negotiation
d. Where the check and the bill of exchange are not presented for payment within a
reasonable time as stated in choice (c) the drawers are considered discharged
absolutely.
98. This check is not an order for the bank to pay but merely a reminder between the parties of what
the drawer owes the payee.
a. Memorandum’s check
b. Crossed check
c. Cashier’s check
d. Certified check
99. Which of these defenses is a real defense?
a. Fraud in esse contractus
b. Forgery
c. Incomplete undelivered instrument
d. All of them
100. A as maker makes a promissory note for P500,000 payable to the order of B as payee. The note is
successively negotiated from B to C to D. D died leaving as an only heir S. S becomes the owner
of the note
a. By assignment
b. By negotiation
c. By operation of law
d. None of the above

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