MIDTERM EXAM IN
NEGOTIABLE INSTRUMENTS LAW
1st Semester 2020-2021
Name: ____________________________________________ Date:____________
1. When a negotiable instrument has been dishonored by non-acceptance or non-
payment, notice of dishonor must be given to the following, otherwise they are
discharge.
O a. Maker
O b. Drawer
O c. Drawee
O d. Acceptor
2. Three of the following are not negotiable. Which is the exception?
O a. Good to B or order P3000 upon demand (Sgd. M)
O b. Pay to bearer G P3000: To B (Sgd. A)
O c. Pay to bearer J. Cruz P10, 000 and reimburse yourself from the money I
deposited with you: To B (Sgd. A)
O d. Pay to P. Reyes or bearer P2000 out of the funds I deposited with you:
To B (Sgd. A)
3. A negotiable note for P10, 000 is payable to A or order. A signs his name at the
back and delivers the note to B. B negotiated the note to C mere delivery.
O a. Title is not transferred to c because B did not indorse C
O b. C is the mere agent of B
O c. C becomes the holder by mere delivery
O d. C cannot negotiate by delivery to D
4. Statement No. 1: The acceptor admits the existence of the drawer the genuineness of
his signature and his capacity and authority to draw the instrument.
Statement No. 2: Notice of dishonor must be given to the drawer and to each
indorser and any drawer or indorser to whom such notice is not given is
discharged.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 1 is false, No. 2 is true
5. Statement No. 1: Absence or failure of consideration is a mater of defense against
any person not a holder in due course.
Statement No.2: An accommodation party is liable on the instrument to a holder for
value notwithstanding such holder at the time of taking the instrument knew him
to be only an accommodating party.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 1 is false, No. 2 is true
6. Statement No. 1: Where to show displeasure over a bill of exchange addressed to
him, the drawee destroys the same, under the law he is deemed to have accepted
it
Statement No. 2: Where the drawer and drawee are the same persons, the bill of
exchange can be regarded as a promissory note.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 1 is false, No. 2 is true
7. Statement No. 1: Where a negotiable instrument is indorsed conditionally, the
person liable on the instrument may disregard the condition and legally pay the
same.
Statement No. 2: An instrument negotiable in origin continue to be negotiable
unless restrictively indorsed or discharged by payment.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 1 is false, No. 2 is true
O e.
8. Which of the following instrument is non-negotiable?
O a. Pay to P or order P20,000 out of my cash in your possession
(Addressed to X, sgd. D)
O b. Pay to P order P20,00 and reimburse yourself out of my cash in
your possession (Addressed to X, sgd. D)
O c. I promise to pay P or order, P20,000 (Sgd. D)
O d. Pay P or order P20,000 (Addressed to X, sgd. D)
9. Which of the following instrument is negotiable?
O a. I promise to pay to C or order P20,000 if he will pass the CPA
examination on October 1997 ( sgd. D)
O b. I promise to pay to C or order P20,000 in four installment of his
father ( sgd. D)
O c. I promise to pay to C or order P20,000 60 days after he death of
his father ( sgd. D)
O d. I promise to pay to C or order P20,000 ( sgd. D)
10. An indorsement is restrictive, which either
O a. Prohibits the further negotiability of the instrument
O b. Constitute the indorsee the agent on the indorser
O c. Vest the title in the indorsee in trust for or to the use of some
other person
O d. All of the above
O e. None of the above
11. Every person negotiating an instrument by delivey or by qualified indorsement
warrants the following. Which does not belong to the warranties?
O a. That at time of his indorsement the instrument is valid and
subsisting
O b. That the instrument is genuine and in all respect what it purports
to be
O c. That he has good title to it and that all prior parties have capacity
to contract
O d. That he has no knowledge of any fact which would impair the
validity or the instrument or render it valueless
12. Statement No. 1: A signature by procuration operates as notice that the agent has
but a limited authority to sign , and the principal is bound only in case the agent
is so doing acted within the actual limits of his authority
Staement No. 2: A conditional indorsement renders the instrument non-
negotiable
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
13. Under the Negotiable Instrument Law, a certificate of stock is not a negotiable
instrument because it lacks the requirements of
O a. The instrument must be in writing and signed by the marker or
drawer
O b. It must contain an unconditional promise or order to pay sum
certain in money
O c. It must be payable on demand, or at fixed or determinable future
time
O d. It must be payable to order or to bearer
14. Presentment for acceptance of a bill of exchange is not necessary
O a. Where the bill is payable after sight
O b. Where the bill is drawn payable elsewhere than at the residence
or place of business of the drawee
O c. Where it is payable at a certain number of days after date
O d. Answer not given
15. Statement No. 1: A negotiable instrument becomes invalid and non-negotiable if it
is postdated or mandated for an illegal or fraudulent purpose.
Statement No.2: The chief function of a negotiable instrument is for it to take the
place or be a substitute for money.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
16. V signed a blank check which he inadvertently left in his desk at his office. P later
stole the same, who filled in the amount of P30,000 and a fictitious name as payee.
P then indorsed the check in the payee’s name and passed the check to A: thereafter,
A passed to B; then B to C, and C to D.
O a. D cannot enforce the instrument against V only if D is holder in due
course
O b. D can enforce the instrument against V even if D is not a holder in
due course because the signature of V is genuine
O c. D cannot enforce the instrument against any one of the prior parties
because the instrument is not valid instrument and therefore, not
negotiable
O d. D can enforce the instrument against any one of the prior parties
expect V.
17. A holder in due course is a holder who has taken the instrument under the following
conditions
O a. That it is complete and regular upon its face
O b. That he become the holder of it before it was overdue, and without
notice that it has been previously dishonored if such was the fact
O c. That he took it in good faith and for value
O d. That at the same 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 it.
O e. All of the above.
18. One of the requisites of a negotiable instrument is that it must contain an
unconditional promise or order to pay certain in money. Which of the following
denotes non-negotiability?
O a. I promise to pay the order of Y the sum of $ 900 at DBP Manila
O b. I promise to pay to the order of Y the sum of $600 and to deliver
one-fourth
O c. Promise to pay N or bearer in Manila the sum of P18,000 in
Philippines pesos or in U.S. dollors
O d. I promise to pay E or bearer in Manila the sum of P27,000 in
Philippines pesos or U.S. dollors at the option of the holder.
19. The validity and negotiable character of an instrument are not affected by the
following ommission, except
O a. It is not dated
O b. Does not specify the value given, or that any value has been
given therefor
O c. Does not specify where it is drawn or the place where it is
payable
O d. Designated a particular kind of current money in which payments is to
be made.
O e. None of the above
20. Which instrument is negotiable
O a. I promise to pay P20,000 (Sgd. Jose Santos)
O b. Pay to Pedro Torres or order P20,000 if he marries maria
Cunanan
O c. Good to Mario Cruz or order P20,000 (Sgd. Jose Santos)
O d. I promise to pay oscar Bamba or order 20 canvass of IR rice in
January, 1997 (Sgd. Jose Santos)
21. Statement No.1: An antedated or postdated instrument is valid and it does not lose
its negotiable character just because it is antedated or postdated, provided it is
not done for an illegal or fraudulent purpose.
Startement No.2: Where an incomeplete instrument has not been delivered, it will
not, if completed and negotiated without an uauthority, be valid contract in the
hands of any holder, as against any person whose signature was thereon before
delivery.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
22. Statement No.1 The holder may at any time strike out any indorsement which is not
necessary to his title. The indorser whose signature is struck out, and all
subsequent indorsers, are thereby relieved from liability on the instrument.
Startement No.2: Where an instrument is negotiated back to a prior party, such party
may reissue and further negotiate the same but he is not entitled to enforce
payment therefo against any intervening party to whom he was personally liable.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
23. The following, expect one, are rights of a holder in due course. Which is the
exception?
O a. He may enforce payment of the instrument for the full amount thereof
against all parties liable thereon.
O b. He may enforce payment and if payment is in due course, the
instrument is discharged.
O c. He holds the instrument subject to the same defense as if it were non-
negotiable.
O d. He may sue on the instrument in his own name.
24. Statement No.1 A holder in due course is always a holder for value, but a holder for
value is not always a holder in due course.
Startement No.2: Where an indorsement is not necessary to his title he may strike out
the same.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
25. The sum payable is a sum certain, although it is to be paid
O a. With interest
O b. By stated installment
O c. With exchange
O d. With cost of collection or an attorney’s fee, in case payment shall not
be made at maturity.
O e. All of the above
26. Statement No.1 Where it can be determined in what capacity a person signed a
promissory note; he is to be demand a maker.
Statement No.2: If a note for P10,000 to the order of B is indorsed by B in favor of C
or D, such indorsement is not valid because it is an indorsement in favor of two
or more indorsee severally.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
27. Statement No.1 An order or promise to pay is unconditional though coupled with an
indication of particular fund of which reimbursement is to be made, or particular
account to be debited with the amount.
Statement No.2: An order or promise to pay of a particular fund is not unconditional
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
28. Statement No.1 A restrictive indorsement constitutes the indorser a mere assignor of
the title to the instrument.
Statement No.2: A restrictive indorsement which vests title in the indorsee in trust
for or for the use of other person renders the instrument non-negotiable.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
29. Statement No.1: D has deposited of P6,000 with PNB against which he drew check
for P100,000 in favor of P. for no reason at all, PNB refuses pay P100,000.P can
legally hold PNB liable for P100,000 plus damages.
Statement No.2: An instrument which contains an order or promise to do any act in
addition to the payment of money is negotiable.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
30. Which of the following is not negotiable for the reason that the instrument is not
payable at a determinable future time?
O a. On the death of X, I promise to pay the order of P P10,000 (Sgd.
M)
O b. On or before October 30, 1996, I promise to pay P or order
P10,000 (Sgd. M)
O c. Sixty days after sight, I promise to pay the order of P P10,000
(Sgd. M)
O d. Ten days before the death of X, I promise to pay P or his order
P10,000 (Sgd. M)
31. Statement No.1 Discharged of a prior party is made of discharging the instrument
Statement No.2: An accommodating party may be held liable by a holder for valu not
withstanding that at the timer talking the instrument knew him to be such
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
32. Statement No.1 A makes a promissory note payable to the order of B and delivers to
C. Under the Law, C considered at the holder.
Statement No.2: Due to B P5,000 on demand, (Sgd. A is good promissory note.)
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
33. Statement No.1 An order instrument will always remain an order instrument.
Statement No.2: An instrument is considered payable to order where it is payable to
the order of a fictitious or non-existing person and such fact is known to the
person making it so payable.
O a. Both are true
O b. Both are false
O c. No. 1 is true, No. 2 is false
O d. No. 2 is true, No. 1 is false
34. The following instrument promissory note payable to P or order, P indorse to A but
delivers to B. Who is the holder?
O a. When it is payable to a person named therein or bearer
O b. When the name of the payee does not purport to be name of any
person
O c. When it is payable to the order of a fictitious or non-existing persons,
and such fact known to the person making it so payable
O d. None of the above
35. The following instrument are payable except
O a. When it is payable to a person named therein or bearer
O b. When the name of the payee not purport to be name of any
person
O c. When it is payable to the order of a fictitious or non0existing
persons, and such facts was known to the person making it so payable
O d. None of the above
36. The promise or order is conditional, hence non-negotiable?
O a. I promise to pay B or order P20,00 (Sgd. Y)
O b. Pay B or order P20,000 (Addressed to Z, sgd. By Y)
O c. Pay to B or order P20,000 and reimburse yourself out of my money in
your possession. (Addressed to Z, sgd. By Y)
O d. Pay B or order P20,000 out of my money in your possession. (Addressed
to Z, sgd. By Y)
37. Which of the following alteration is not material?
O a. I agree to pay to the order of P, P3,000 (Sgd. M)
O b. Good to P or order, P3,000 (Sgd. M)
O c. I promise to pay P or order P30,000 on June 30 (Sgd. M)
O d. I promise to pay or order P5,000
38. Statement No.1: A check must be presented for payment within a reasonable time
after its last negotiation
Statement No.2: A bill of exchange must be presented for payment within a
reasonable time after its last negotiation
O a. Both are true
O b. Both are false
O c. No. 1 is false, No. 2 is true
O d. No. 2 is true, No. 1 is false
39. Holder H altered the amount of a negotiable note from P10,000 to P110,000 then
negotiated the note to P.
O a. If P is holder in due course, he can require the maker to pay P110,000
O b. If P is not a holder in due course, he can require the maker to pay only
the original sum of P10,000
O c. P cannot require the maker to pay because of forgery whether or not he is
holder in due course
O d. P10,000 if P is a holder in due course
40. M makes a promissory note for P3,000 payable to the order of P. P negotiates to A
who with the consent of P raise the a\mount to P30,000 and thereafter endorses it to
B, B to C, C to D, who is not a holder in due course. In this case
O a. B can recover P3,000 as against M
O b. D can recover P3,000 from M
O c. P and A are liable to D for P3,000
O d. B and C are not liable to D
41. In the renunciation of the holder of his right against any party to the instrument
which of the following statement is false?
O a. If the instrument, is delivered to the person primarily liable without
collecting, it constitutes oral renunciation
O b. If renunciation is made in favor of any party secondarily liable, all
parties subsequent to him are discharged from liability
O c. Renunciation will not affect the rights of the holder in due course
O d. If the renunciation is made in favor of the party primarily liable it must
be made before, at or after maturity date.
42. Question 1: If a bill of exchange is accepted at the instance of the holder, the
drawers and indorsers are discharged.
Question 2: If a check is accepted at the instance of the holder the drawer and
indorsers are discharged
O a. True, true
O b. True, false
O c. False, true
O d. False, false
43. In case of the qualified indorsement, which is not correct?
O a. Constitutes the indorses a mere assignor of the title to the instrument
O b. It does not impair the negotiable character of the instrument
O c. The qualified indorser is not liable if the maker is insolvent
O d. At the time of his indorsement, the instrument is valid and subsiting.
44. M makes a negotiable note in favor of P payable on December 25, 1997, with the
following successive indorsement. P to A, A to B, B to C, C to D. On the due date
M is paying D, but D extends the payment up to December 25, 1998. Which of the
following is incorrect?
O a. If M becomes insolvent on December 25, 1998, P, A, B, C are
discharged of their obligation
O b. If the indorsers consented to the extension of the time and M
becoming insolvent the indorsers are still liable
O c. If before the extension date, D cancels the signature of P as
indorser, P, A,B,C and the instrument are discharged
O d. None of the above
45. Statement 1: A holder for value is an endorse who has both the legal title and the
beneficial interest to the instrument and is subject to both real and personal defenses
available against him
Statement 2: A holder in due course is one who possesses both the legal and
beneficial interest to the instrument but is subject to personal defense only.
O a. Both statements are false
O b. First statement is false, second statement is true
O c. Both statement are true
O d. First statement is true, second statement is false
46. A executed a bill of exchange in favor of B for P10,000. B, altered the amount to
P100,000 and presented the bill to C, the drawee who accepted the bill. There after
the bill was negotiated by C to D. Which is correct?
O a. The drawee is liable up to P10,000
O b. That drawee is not liable because of the alteration
O c. The drawee is liable only uo to P10,000 except if D is a holder in
due course in which case A is liable up to P10,000
O d. The drawee by accepting the bill is liable according to the tenor
of his acceptance, that is P100,000
47. Statement 1: The referee in case of need is liable on the instrument and if he refuses
to pay he may be used in court
Statement2: The avalista is liable on his written obligation and if he refuses to pay he
may be sued in court
O a. True, true
O b. True, false
O c. False, true
O d. False, false
48. One of the following indorsement is a valid negotiation
O a. Pay to A P6,000 (amount of the instrument is P10,000)
O b. Pay to A P7,000 and to B, the balance (amount of the note is
P10,000)
O c. Pay to A P8,000 out of the amount of P10,000 of this note
O d. Pay to A and B P10,000
49. Statement 1. An instrument drawn payable to the order of the bearer is a bearer
instrument
Statement 2. To determine whether an order instrument is negotiable, it must be
indorsed and completed by delivery
O a. True, true
O b. True, false
O c. False, true
O d. False, false
50. A issued a negotiable promissory note to the order of B for P10,000 payable after 30
days after date. Later B indorsed it to C. Then X stole the note from C, forged the
signature of C and negotiated it to D, and D to E to F, the holder. On Maturity of the
note which of the following statements is not corrected and invalid.
O a. F cannot collect from C because it was C’s signature which was forged
O b. F can collect from A because A cannot put up forgery as his defense
O c. F can collect from either D or E, because their signature are genuine and
the note is operative against them
O d. F cannot collect from B because B is party prior to the forgery.
51. C issues a bill payable to the order of R. later R without endorsing the bill transfer
for a consideration said bill to M. The following, except one, are the valid effects of
the transfer
O a. M becomes a holder
O b. M acquires the right to have the endorsement of R
O c. The transfer vests in M such title as R had thereon
O d. The bill is merely assigned and not negotiated
52. An instrument is indorsed as follows “Pay to A, for B (Sgd. C)”. Then A indorsed
the instrument “Pay to D (Sgd. A)”. in payment of A’s personal loan to D, the
instrument was accepted by D as indorsed by A. Is D acting in good faith when he
acted the instrument as indorsed?
O a. No, because D knew by prior indorsement that A is merely a trustee for
B and has no right to negotiate the instrument
O b. No, because D did not get the consent of B
O c. Yes, because D is a holder in due course
O d. Yes, because D acquired the instrument for value
53. Which of the following is not example of negotiable?
O a. To X, PLEASE pay the order of Y P5,000 on demand (Sgd. D)
O b. To X, Pay to the order of yourself the amount of P50,000 in two EQUAL
MONTHLY INSTALLMENT beginning May 31, 1999 (Sgd. D)
O c. Pay to P or bearer the amount of P50,000 on June 25, 2002 or deliver to
him ten pigs AT HIS ELECTION (Sgd. D)
O d. I promise to pay X or order P5,000 AS SOON AS I HAVE MONEY
(Sgd. M)
