LAW ON NEGOTIABLE INSTRUMENTS

(CPA Review School of the Philippines)

April 4, 2017/Tuesday/Group 4

1. A promissory note reads: I promise to pay B or order P100, 000. Sgd. A

B negotiated the note to C. Later, Y stole the note from C. Y indorsed the note to D. Which of the following
statements is correct?

a. If A pays D in good faith, As obligation is extinguished

b. D can collect from B
c. D cannot collect from A
d. D can collect from C

Ans. C

2. Which of the following is not negotiable under the negotiable instruments law?
a. Pay to E or order P20, 000. (Sgd. M)
To: A Accepted and payable 60 days from today.
b. Pay to order of J P20, 000. (Sgd. E)
To N- Accepted for P20, 000
c. Pay to P or order P20, 000. (Sgd. J)
To C- Accepted if P tops the CPA board exams
d. Pay to T P10,000 30 days after sight (Sgd. G)
To H- Accepted payable on Oct. 27, 2014

Ans. D

3. Which of the following statements is correct?

a. If the maker is an infant, the promissory note is not negotiable
b. Love and affection can be valid consideration
c. Endorsement of an infant transfers title to a negotiable instrument
d. Parties prior to the infant can escape liability by invoking such infancy

Ans. C

4. When a bill of exchange is payable on demand, presentment must be made.

a. On the day it falls due
b. b. Before the maturity date
c. Within a reasonable time after its issue
d. Within a reasonable time after the last indorsement thereof

Ans. D
5. Consider the two statements.
Statement 1- An instrument originally payable to order may be converted into bearer instrument
Statement 2- An instrument originally payable to order may be converted into an order instrument
a. True, true
b. False, false
c. False, true
d. True, false

Ans. D

6. A promissory note reads : I promise to pay B or order P100, 000. Sgd. A

B assigned the note to C. Later, Y stole the note from C. Y indorsed the note to D. Which of the
following statements is correct?

a. If A pays Y in good faith, As obligation is extinguished

b. C can collect from B
c. C cannot collect from A or B
d. C can collect from A

Ans. D

7. A issued a negotiable promissory note to B. There was a total failure of consideration. B indorsed the
note to C, a holder is due course. C indorsed the note to D who knew of the failure of consideration. Which
is correct?

a. D may collect from A

b. D may collect from C
c. D may collect only from B
d. D may collect from either B or C but not from A

Ans. A

8. A check drawn by the bank upon itself and payable to a third person:
a. Certified check
b. Managers check
c. Travelers check
d. Crossed Check

Ans. B

9. Consider these two statements:

Statement 1- An instrument originally payable to order maybe converted into a bearer instrument
Statement 2- An instrument originally payable to bearer maybe converted into an order instrument

a. True, true
b. False, false
c. False, true
d. True,false

Ans. D

10. This is not negotiation of a negotiable instrument:

a. Assignment;
b. Delivery of a bearer instrument;
c. Indorsement completed by delivery of an instrument payable to order.
d. Delivery of an instrument to the payee.

Ans. A

11.The following are considered negotiation except

a. Issue
b. Indorsement plus delivery
c. Delivery
d. None of them
e.
f. Answer: D
g. 12. A promissory note is payable to bearer when:
h. a. It is payable to a person named therein or bearer
i. b. The only indorsement is blank
j. c. The name of payee does not support to be the name of a person
k. d. All of the above
l.
m. Answer: D
n.
o. 13.A makes a note payable to bearer and delivers it to B. in turn, B negotiated it by mere delivery to
C, who indorses it specially to D. D negotiates it by special indorsement to E, who negotiates it to F
by mere delivery. A did not pay. One is not correct:
a. F may go after E, his immediate transferor
b. b.F cannot hold D liable because F did not acquire title through the indorsement of D
c. D can hold C liable as C is not only his immediate transferor but he got his title through Cs special
indorsement
d. F can hold B and C liable because they are parties prior to F
p.
q. Answer: D
r.
s. 14.A is the drawer of a bill addressed to B, payable to C or order 10 days after acceptance for P
8,000. C negotiated the bill to D, to E and E to F. The bill was accepted by B when presented by F.
If the signature of A is forge, which of the following is false?
t. a. B is required to pay F even if the signature of A is a forgery
u. b. B is not required to pay F since he has the defence of forgery
v. c. Forgery is considered a real defence
w. d. None of the above
x.
y. Answer: B
z.
aa. 15.M is the maker of a note payable to J. Cruz or order for P 5,000 due July 30, 2009. Cruz
borrowed P 2,000 from C payable July 31, 2009 and pledged the note by indorsing it to C. Which of
the following is correct?
ab. a. promissory note cannot be pledged without the consent of the maker
ac. b. On July 30, 2009 C can collect from M only P 2,000
ad. c. on July 30, 2009 C can collect from M P 5,000
ae. d. partial endorsement is allowed
af.
ag. Answer: C
ah.
ai. 16.Pay to Maria or order P 20,000 upon demand, signed by A as drawer and addressed to B.
Maria negotiated the bill to C, C to D, E stole the bill from D and indorsed it to F by forging the
signature of D. F in turn indorsed the bill to G & G to H. Which of the following is false?
aj. a. All indorsers prior to the forger are discharged
ak. b. The drawer is liable to H
al. c. F is liable to H
am. d.Forgery is real defense
an.
ao. Answer: B
ap. 17.Which of the following is negotiable?
aq. I promise to pay Jose Cruz or order P 10,000 or deliver 1 cow 20 days after date at the option of
the holder signed by M as maker
ar. Forgery is a real defence.
as. Forgery is a not a real defence.
at. None of these
au. Answer: A
av. 18.When a bill of exchange is payable on demand, presentment must be made
a. On the day it falls due
b. Before the maturity date
c.
d. Within a reasonable time after its issue
e. Within a reasonable time after the last indorsement thereof
f. Answer: C
g. 19.Indorsement of an infian transfer tittle to a negotiable instrument.
a. True
b. False
c. None of these
h.
i. Answer: A
j.
k. 20.An instrument originally payable to bearer may be converted into an order instrument.
a. True b. False c. None of these
l.
m. Answer: B
n.
o. 21. Which of the following instruments is not negotiable because it lacks the requirements of an
unconditional promise or order to pay a sum certain in money?
a. Bill of exchange;
b. Check;
c. Certificate of stock;
d. Promissory note.

p. Ans. C

q. 22. This is not negotiation of a negotiable instrument:

a. Assignment;
b. Delivery of a bearer instrument;
c. Indorsement completed by delivery of an instrument payable to order;
d. Delivery of an instrument to the payee.

r. Ans. A

s. 23. The P1,000 bills issued by the Central Bank and in circulation are
considered:

a. Checks.
b. Bills of exchange.
c. Legal tender.
d. Promissory notes.

t. Ans. C

u. 24. The following are functions of a negotiable instrument. Choose the exception.

a. It increases purchasing power in circulation.

b. As legal tender.
c. As substitute for money.
d. It increases credit circulation.
v. Ans. B

w. 25. I promise to pay to bearer, Juan dela Cruz, the sum of P20,000. (Signed)
Jose Paz. The promissory note is:

a. Negotiable promissory note payable on demand;

b. Negotiable promissory note payable to order;
c. Negotiable promissory note payable to bearer;
d. Non-negotiable.

x. Ans. D

y. 26. Ellen signed a promissory note in favor of Flor promising to pay P10,000, 30
days after sight. Who can sue on this note and enforce the obligation?

a. Both Ellen and Flor.

b. Only Ellen
c. Only Flor.
d. Neither Ellen nor Flor.

z. Ans. C

aa. 27. Atoy issued a bearer note to Boy. The note is negotiated by delivery by Boy to
Cris to Doc, by Doc to Ely, by Ely to Fe, the holder. Fe can hold liable:

a. Cris.
b. Atoy.
c. Doc.
d. Boy.

ab. Ans. B.

ac. 28. An instrument is rendered non-negotiable if

a. There is an indication of a particular fund out of which reimbursement is to be

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

ad. Ans. C

ae. 29. Marcelo makes a promissory note for P2,000 payable to the order of Patricia.
Patricia negotiates the note to Amel who, with the consent of Patricia, raises the
amount to P20,000 and thereafter indorses it to Ben, Ben to Cale, and Cale to
Dan who is not a holder in due course. In this case:
a. Dan can recover P2,000 as against Marcelo;
b. Patricia and Amel are liable to Dan for P20,000;
c. Ben and Cale are liable to Dan;
d. Answer not given

af. Ans. A

ag. 30. Which of the following does not discharge a negotiable instrument?

a. Payment by maker of a promissory note before maturity date.

b. Intentional cancellation of the instrument by the holder.
c. Payment by party primarily liable to holder or his authorized representative.
d. Voluntary surrender of the instrument by the holder to the maker without
collecting.

ah. Ans. A

ai. 31. The promise or order is conditional, hence non-negotiable?

a. I promise to pay B or order P60,000. (Signed Z)

b. Pay B or order P60,000. (Addressed to Y signed by Z)

c. Pay B or order P60,000 and reimburse yourself out of my money in

your possession. (Addressed to Z signed by Y)

d. Pay B or order P60,000 out of my money in your possession.

( Addressed to Y signed by Z)

aj. Answer: d

ak. 32. A promissory note as distinguished from a bill of exchange.

a. It contains an unconditional order.

b. The one who issues it is primarily liable.

c. The one who issues it is secondarily liable.

d. There are three (3) parties, the drawer, the payee and the drawee.

al. Answer: b

am. 33. A is maker of a promissory note for P100,000 payable to the order of
B who negotiates the same in favor of C. C loses 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
to F and F to G who is a holder in due course. Under the circumstances 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 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.

an.Answer: b

ao. 34. A promissory note is payable to bearer when:

ap. a. It is payable to a person named therein or bearer

a. the only indorsement is blank

b. the name of payee does not support to be the name of a person

c. all of the above

aq.Answer: d

ar. 35. Marie makes a promissory note payable to bearer to bearer and delivers the
same to Polido, who negotiates it to Arman by indorsing it without recourse. If the
note is dishonored in the hands of arman due to insolvency Marie.

a. Arman cannot recover from Polido because the latter does not warrant
Maries solvency.

b. Arman can recover from Polido because the latter is secondarily liable on
the instrument as indorser.

c. Arman can recover from Polido because of breach of warranty.

d. Arman cannot recover from Polido because his indorsement is conditional.

as. Answer: a

at. 36. Which of the following is not an essential element of a bill of exchange?

au.

av. a. must be written and signed by the drawee

aw. b. must contain an unconditional promise to pay a sum certain in money

ax. c. must be payable to order or bearer

ay. d. drawee must be named therein

az. Answer: a

ba.

bb. 37. Which is not correct? The acceptor by accepting a negotiable instrument:

e. Admits the existence of the payee and his capacity to endorse

f. Admits the existence of the drawer, the genuineness of his signature and
his authority to draw the instrument.

g. Admits the existence of the endorser, the genuineness of his signature

and his authority to draw the nstrument.

h. Admits that he will pay it according to the tenor of his acceptance.

bc.Answer: c

bd. 38. M is the maker of a note for P 30,000 payable to C or bearer. C negotiated
the note to D, D to E, E to F and F to M. Which is correct?

i. the note is discharged

j. the noted is not discharged since there is no payment

k. M cannot re-issued the note

l. The indorsers are not discharged

be. Answer: a

bf. 39. A delivered to B the following instrument:

bg. In payment of a gambling debt, A made a promissory note which reads: 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 recover from B?

m. No, C could not sue B because B did not write the name of C as indorsee

n. No, the instrument is not negotiable and B is a mere assignor of credit

o. Yes, provided C gives notice of dishonor to B otherwise B discharged from

liabilities.
 p. Yes, the endorsement will be considered as an assignment, hence B will
be liable as an assignor of the instrument.

bh. Answer: d

bi. 40. M is the maker of a note payable to J. Cruz or order for P 5,000 due July 30,
2009. Cruz borrowed P 2,000 from C payable July 31, 2009 and pledged the note by
indorsing it to C. Which of the following is correct?

bj.

q. a promissory note cannot be pledged without the consent of the maker

r. On July 30, 2009 C can collect from M only P 2,000

s. on July 30, 2009 C can collect from M P 5,000

t. partial indorsement is allowed

bk. Answer: c

bl.

bm.