Law 3 – Negotiable Instruments

PRELIMS 2009-2010

1.Give the instrument listed herein which is not negotiable as it is beyond the scope of the
Negotiable Instruments Law:

A. Certificate of Deposit
B. Due Bill
C. Post-Office Money Order
D. Trade Acceptance

2.Under the Negotiable Instruments Law, a certificate of stock is not negotiable instrument
because it lacks the requisites of:

A. The instrument must be in writing and signed by the maker or drawer.

B. It must contain an unconditional promise or order to pay a sum certain in money.
C. It must be payable on demand, or at a fixed or determinable future time.
D. It must be payable to order or bearer.

3. This negotiable instrument is always drawn against a bank.

A. Bill of Exchange
B. Check
C. Due Bill
D. Promissory Note

4. Which of the following instruments is not payable to bearer?

A. “Pay to the order of bearer P1,000.00.

To:X Sgd.A”

B. “Pay to the bearer the sum of P1,000.00.

To:X Sgd.”A”

C. “Pay to B or bearer the sum of P1,000.00.

To:X Sgd.”A”

D. “Pay to Cash the sum of P1,000.00.

To:X Sgd.”A”

5. Which of the following instruments is not negotiable for the reason that the instrument is not
payable at a determinable future time.

A .“On the death of X, I promise to pay to the order of B P1,000.00.

Sgd.”A”

B. “On or before October 30, 2009, I promise to pay B or his order P1,000.00.
Sgd.”A”

C. “Sixty days after sight, I promise to pay to the order of B P1,000.00.

Sgd.”A”

D. “Ten days before the death of X, I promise to pay B or his order P1,000.00.
Sgd.”A”
6. An instrument is considered payable on demand:

A. When no time of payment is expressed.

B. When payable to order.
C. When the last endorsement is in blank.
D. When the last endorsement is restricted.

7. This negotiable instrument is always drawn against a bank:

A. Bill of exchange
B. Check
C. Due bill
D. Promissory note

8. This instrument is negotiable:

A. “I promise to pay P20,000.00” (Signed: Jose Santos).

B. “Pay Pedro Torres or order P20,000.00 if he marries Maria Perez”.(Sgd: Santos)
C. “Good to Mario Cruz or order P20,000.00”. (Sgd: Jose Santos).
D. “I promise to pay Oscar Perez or order 20 cavans of IR Rice in January, 2010”
(Sgd:Jose Santos)

9. When there are three (3) parties, the drawer, the payee and the drawee, the instrument is a:

A. Promissory note
B. Certificate of indebtedness
C. Bank Check
D. Bill of exchange

10. A bill of exchange may be treated and considered a promissory note:

A. When the drawer and the drawee are the same person.
B. When the drawee is fictitious.
C. When the instrument is ambiguous.
D. All of the above.

11. Which of the following instruments is not negotiable?

A. “I agree to pay to the order of A, P30,000.00.” (Sgd. X)

B. “Good to A or order, P30,000.00.” (Sgd. X)
C. “I promise to pay A or order P30,000.00 on June 30.” (Sgd.X)
D. “I promise to pay to A or order P5,000.00.” (Sgd.X)

12. The promise or order is conditional, hence non-negotiable.

A. “I promise to pay to B or order P20,000.00.” (Sgd.Y)

B. “Pay to B or order P20,000.00.” (Addressed to Z, signed by Y)
C. “Pay to B or order P20,000.00 and reimburse yourself out of my money in your
possession.” (Addressed to Z signed, by Y)
D. “Pay to B or order P20,000.00 out of my money in your possession .”
(Addressed to Z, signed by Y)

13. An instrument is payable on demand:

A. When payable to order.

B. When the last endorsement is in blank.
C. When no time of payment is expressed.
D. When payable within a period of time.

14. Which of the following is not necessary in order to make an instrument negotiable?

A. It must be in writing and signed by the maker.

B. It must contain an unconditional promise or order to pay a sum certain in money.
C. It must be payable on demand or at a fixed future time.
D. It must be payable only to a specific person.

15. An instrument is payable on demand:

A. When no time of payment is fixed.

B. When last endorsement is in blank.
C. When the payee is blank.
D. When payable to order.

16. The following is not negotiable:

A. “Pay to C or order, P20,000.00 with exchange at 2.5%.

To: Z Sgd:”M”

B. “Pay to order of C within 6 months from date, the sum of P20,000.00 with interest at 12%
per annum.
To:Z Sgd:”M”

C. “Pay to C or bearer P20,000.00 6 months after date. If not paid on due date, I agree to pay
collection and Attorney’s fees.
To:Z Sgd:”M”

D. “Pay to C or order P20,000 in installment.

To:Z Sgd:”M”

17. This party is with primary liability:

A. Maker
B. Drawer
C. Indorser
D. None of the three.

18. If an instrument conforms to the following:

1. It must be in writing and signed by the maker or drawer.

2. It must contain an unconditional promise or order to pay a sum certain in money.
3. It must be payable on demand or at a fixed or determinable future time, and
4. It must be payable to order or to bearer, the instrument is a

A. Check
B. Promissory note
C. Bill of exchange
D. Draft

19. Which of the following instruments is negotiable?

A. “Good to Jose Paz or order, P20,000.00.” (Sgd: Pedro Go)

B. “I hereby authorize you to pay Jose Paz or order, P20,000.00 worth in sugar.”
(Sgd: Pedro Go)
C. “I promise to pay Jose Paz or order P20,000 worth in sugar.” (Sgd: Pedro Go)
D. “I promise to pay Jose Paz or order P20,000 on May 25.” (Sgd: Pedro Go)

20. Which of the following is necessary requirement in order to make an instrument negotiable?

A. It must be in writing and signed by the maker.

B. It must be payable on demand or at a fixed future time.
C. It must contain an unconditional promise to pay a sum certain in money.
D. All of the three(3) above.

21. 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.

22. Which one of the following instruments is negotiable?

A. “I promise to pay C or order P20,000.00 if he will pass the CPA examination in October,
2010.” (Sgd.D)
B. “I promise to pay C or order P20,000.00 in four (4) installment.” (Sgd:D)
C. “I promise to pay C or order P20,000.00 60 days after the death of his father.”
(Sgd.D)
D. “I promise to pay C P20,000.00.” (Sgd:D)

23. Which one of the following instruments is non-negotiable?

A. “Pay to C or order P20,000.00 out of my money in your possession.” (Addressed to

A, signed by D)
B. “Pay to C or order P20,000.00 and reimburse yourself out of my money in your
possession.” (Addressed to A, signed by D)
C. “I promise to pay C or order P20,000.00.”(Sgd.D)
D. “Pay to C or order P20,000.00.” (Addressed to A, signed D)

24. 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.

25. This is a promissory note: “We promise to pay Dada, Tina and Kate the sum of
P18,000.00.” (Signed) Jing, Baby and Gail.

A. Gail is obliged to pay Kate P6,000.00.

B. Gail is obliged to pay Kate P2,000.00.
C. Gail is obliged to pay Kate P12,000.00.
D. Gail is obliged to pay Dada, Tina and Kate P18,000.00.

26. “I promise to pay the bearer, Juan dela Cruz the sum of P20,000.00.”(Signed)Joe Perez.
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.
27. Which of the following is non-negotiable?

A. I bind myself to pay B or bearer P10,000. (Sgd.) A.

B. I acknowledged being indebted to B in the amount of P10,000.00. (Sgd.)A.
C. I promise to pay to the order B P10,000. (Sgd)A.
D. I agree to pay to B or order P10,000 on demand. (Sgd)A.

28. Manila
P20,000.00 June 1, 2010

For value received, We promise to pay to the order of Sanrio Lumber Co. at Manila,
P20,000.00.

Sanrio Furniture Mfg. Corp.

Sgd. Pedro Sanrio
Sgd. Helen Sanrio

Statement 1. Pedro and Helen are not liable personally because they have disclosed their
principal.
Statement 2. Pedro and Helen are not liable personally because by using the word “WE”
on the body of the instrument, they have indicated that they are signing for
and on behalf of Sanrio Mfg. Corp.

A. True; False
B. False; True
C. Both statements are true.
D. Both statements are false

29. A bill of exchange drawn on a bank and payable on demand.

A. Bond C. Check
B. Due bill D. Certificate of deposit

30. Where in a bill the drawer and the drawee are the same person or where the drawee is a
fictitious person, or a person not having capacity to contract, the holder at his option may treat
the instrument as

A. Dishonored
B. Bill of exchange
C. Promissory note
D. Either Bill of exchange or a Promissory note

31. The instrument is payable to order when

A. The name of the payee does not purport to be the name of any person.
B. The only or last indorsement is an indorsement in blank.
C. Drawn payable to the order of a specified person or to him or his order.
D. Payable to the order of fictitious or non-existing person, and such fact was known
to the person making it so payable.

32. An instrument is payable at a determinable future time, which is expressed to be payable,

except

A. At a fixed period after date or sight.

B. On or before a fixed or determinable future time specified therein.
C. On or at a fixed period after the occurrence of a specified event, which is certain
 to happen, though the time of happening be uncertain.
D. Upon a contingency and the contingency actually happens.

33. One is not negotiable.

A. A promise to pay to the order of B P10,000 with 12% interest thereon where the period
from which interest is to be counted is not specified.
B. A promises to pay to the order of B P10,000 in four monthly installments beginning
June 12, 2009 with a provision that if A defaults in the payment of any installment,
the entire balance including the unpaid installment shall become due and
demandable.
C. A promise to pay to the order of B the sum of US$1,000 payable in pesos at the rate of
exchange prevailing on January 1, 2010.
D. A promises to pay to the order of B P10,000 with an agreement to pay attorney’s fees and
costs of collection.

34. The promise is conditional rendering the instrument non-negotiable.

A. An indication of a particular fund out of which reimbursement is to be made.

B. An indication of a particular account to be debited with the amount.
C. A statement of the transaction which gives rise to the instrument.
D. An order or promise to pay out of a particular fund

35. Which is not negotiable?

A. Pay to B or order P10,000 thirty days after sight. Sgd. A to C

B. I promise to pay B or order P10,000 on or before March 1, 2010. Sgd. A
C. I promise topay B or order P10,000 within 20 days after the death of C. Sgd. A
D. Pay to B or order P10,000 within 10 days if he marries D on June 12, 2010. Sgd. A to
C

36. Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty. This requirement is applicable to

A. Promissory notes, if negotiable

B. Promissory notes, if not negotiable
C. Bills of exchange and promissory notes
D. Bills of exchange and but not promissory notes

37. Which of the following is not a feature of a negotiable instrument?

A. As substitute for money.

B. Accumulation of secondary contracts.
C. It increases credit accumulation.
D. Represents title of goods.

(Midterm )
1.An instrument is considered payable on demand:

A. When no time of payment is expressed

B. When payable to order
C. When the last endorsement is in blank
D. When the last endorsement is restricted

2. This negotiable instrument is always drawn against a bank:

A. Bill of exchange
B. Check
C. Due bill
D. Promissory note

3.When there are three (3) parties, the drawer, the payee & the drawee, the instrument is a:

A. Promissory note
B. Certificate of indebtedness
C. Bank check
D, Bill of exchange

4. A bill exchange may be treated and considered a promissory note:

A. When the drawer and the drawee are the same person
B. When the drawee is fictitious
C. When the instrument is ambiguous
D. All of the above

5.An instrument is payable on demand:

A. when payable to order

B. when the last endorsement is in blank
C. when no time of payment is expressed
D. when within a period of time

6.Which of the following is not necessary in order to make an instrument negotiable?

A. It must be writing and signed by the maker

B. It must be contain an unconditional promise or order to pay a sum certain in money
C. It must be payable on demand or at a fixed future time
D. It must be payable only to a specific person

7. This party is with primary liability:

A. Maker
B. Drawer
C. Indorser
D. None of the three

8. An indorser of a note or a bill is

A. Secondary liable
B. Tertiary liable
C. Primary liable
D. Not liable

9. An endorsement where the indorser adds the phrase “without recourse” is called:
A. Blank indorsement
B. Restrictive indorsement
C. Qualified indorsement
D. Conditional indorsement

10. 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

11. M makes a promissory note for P2, 000.00 payable to the order of P.P negotiates the note to
A who with the consent of P raises the amount to P20, 000.00 and thereafter indorses it to B. B
to C and C to D who is not a holder in due courses. In this case:

A. B can recover P2, 000.00 as against M.

B. P and A are liable to D for P20, 000.00
C. B and C are not liable to D
D. Answer not given

12. The following are instances when a bank may refuse to pay checks drawn against it, except
one:

A. If there is a “stop payment” issued by the drawer

B. When the bank receives notice of the drawer’s death
C. If the drawer’s deposit is insufficient
D. If the drawer is insolvent

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

A. It increase purchasing power in circulation

B. As legal tender
C. As substitute for money
D. It increases credit circulation

14. X obtains the signature of Y for autograph purpose. X write a negotiable promissory note
above Y’s signature. The note was validly negotiated to Z who is a holder in due course. What
kind of defense can Y avail against Z?

A. Personal defense
B. Real defense
C. Equitable defense
D. Qualified defense

15. Which of the following is not a personal defense?

A. Absence of consideration.
B. Forgery of a signature.
C. Nondelivery of a complete instrument.
D. Failure of consideration.