ASIA PACIFIC COLLEGE OF ADVANCED STUDIES

FINAL EXAMINATION
LAW 3
LAW ON NEGOTIABLE INSTRUMENTS

NAME: ___________________________________________ DATE:_______________

MATCHING TYPE. Identify the following indorsement.

1. Pay to A only. Sgd M a. Special

2. Pay to A, without recourse. Sgd. M b. Conditional
3. Pay to A. Sgd. M c. Restrictive
4. _________. Sgd. M d. Facultative
5. Pay to A if he passes the board exam. Sgd. M e. Blank
6. Pay to A, notice of dishonor waived. Sgd. M f. Qualified

FILL IN THE BLANKS

Items 7-20. Identify what defense is applicable with the following infirmities or defects. Write P
if the answer is Personal Defense and R if Real Defense.

____7. Want of delivery of incomplete instrument

____8. Forgery
____9. Fraud in inducement
____10. Absence or failure of consideration
____11. Minority
____12. Filling up of blanks not in accordance with authority given
____13. Insertion of a wrong date
____14. Fraud in factum
____15. Discharge
____16. Acquisition of signature by force or fear
____17. Negotiation of instrument by breach of faith
____18. Illegality of contract
____19. Renunciation or release before maturity
____20. Duress amounting to forgery

TRUE OR FALSE
____21. A conditional indorsement renders the instrument non-negotiable.
____22. Absence or failure of consideration is a matter of defense as against any person not a
holder in due course.
____23. An order or promise to pay out of a particular fund is not negotiable.
____24. An order or promise to pay is unconditional though coupled with an indication of
particular fund out of which reimbursement is to be made.
____25. The acceptor admits the existence of the drawer, the genuineness of his signature and
his capacity and authority to draw the instrument.
____26. Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
____27. Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears thereon to have become a
party thereto for value.
____28. 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
accommodation party.
____29. A signature by procuration operates as notice that the agent has but a limited authority
to sign, and the principal is bound only in the case the agent in so doing acted within the
actual limits of his authority.
____30. An antedated or postdated instrument is valid, and it does not lose its negotiable
character just because it is antedated or postdated, provided this is not done for an illegal
or fraudulent purpose.
____31. An instrument where no time of payment is expressed is payable on demand.
____32. Where the instrument is not dated, it will be considered to be dated as of the time it
was issued.
____33. An instrument which contains an order or promise to do any act in addition to the
payment of money is not negotiable.
____34. An instrument payable upon contingency is not negotiable and the happening of the
event does not cure the defect.
____35. Where a signature is so placed upon the instrument, that it is not clear in what capacity
the person making the same intended to sign, he is deemed an indorser.

MULTIPLE CHOICE
36. 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. Thereafter, the
bill was negotiated by C to D. Which is correct?
a. The drawee is liable up to P10,000 only
b. The drawee is not liable because of the alteration
c. The drawee is liable only up to P10,000 except if D is a holder in due course in which
A is liable up to P100,000
d. The drawee by accepting the bill is liable according to the tenor of his acceptance,
that is P100,000.
37. Not a method of transferring commercial papers.
a. Assignment c. Indorsement and delivery
b. Negotiation d. None of the above
38. One of the following indorsements is a valid negotiation
a. Pay to A P6,000 (amount of the instrument is P10,000)
b. Pay to A 7,000 and B, the balance (amount of the instrument is P10,000)
c. Pay to A P8,000 out of the instrument of P10,000 of this note
d. Pay to A and B P10,000
39. A bill of exchange to which no document is attached when presentment for payment or
acceptance is made
a. Trade acceptance c. Clean Bill of exchange
b. Bank acceptance d. Documentary bill of exchange
40. Which of the following statements best describes the effect of a person endorsing a check
without recourse?
a. The person has no liability to prior endorsers
b. The person makes no promise or guarantee of payment on dishonor
c. The person gives no warranty protection to later transferees
d. The person converts the check into order paper
41. A issued a negotiable PN 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, E to F, the holder. On maturity of the note, which of the
following is not correct and invalid?
a. F cannot collect from C because it was Cs signature which was forged.
b. F can collect from A because A cannot put up forgery as his defense
c. F can collect from either D or E, because their signature are genuine and the note is
operative against them
d. F cannot collect from B because he is a party prior to the forgery
42. Which of the following is not negotiable for the reason that it is not payable at a
determinable future time?
a. On the death of X, I promise to pay to the order of P P10,000. (Sgd) M
b. On or before October 30, 2015, I promise to pay P or order P10,000.(Sgd) M.
c. Sixty days after sight, I promise to pay to the order of P P10,000. (Sgd) M
d. Ten days before the death of X, I promise to pay P or his order P10,000 (Sgd) M
43. Payable to specified person
 a. Pay to B or his agent P1,000
b. Pay to B or his assigns P1,000
c. Pay to B or his indorsees P1,000
d. None of the above
44. The following instruments are payable to bearer, EXCEPT
a. When it is payable to a person named therein or bearer
b. When the name of the payee does not purport to be name of any person
c. When it is payable to the order of a fictitious or non-existing person, and such fact
was known to the person making it so payable.
d. None of the above
45. The promise or order is conditional, hence non-negotiable.
a. I promise to pay B or order P20,000. Sgd Y
b. Pay B or order P20,000 (Addressed to Z signed by Y)
c. Pay to B or order P20,000 and reimburse yourself out of my money in your
possession. (Addressed to Z signed by Y)
d. Pay B or order P20,000 out of my money in your possession
46. 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 specified person
47. Which of the following is not negotiable?
a. I agree to pay to the order of P, P30,000 (Sgd M)
b. Good to P or order, P 30,000 (Sgd M)
c. I promise to pay P or order P30,000 on June 30 (Sgd M)
d. I promise to pay P or order P5,000 (Sgd M)
48. Holder H altered the amount of negotiable note from P10,000 to P110,000 then
negotiated the note to P.
a. If P is holder in due course, he can require the maker to pay P110,000
b. If P is not a holder in due course, he can require the maker to pay only the original
sum of P10,000
c. P cannot require the maker to pay because of forgery whether or not he is holder in
due course
d. P can collect P10,000 if P is a holder in due course
49. M makes a note for P3,000 payable to the order of P. P negotiates the note to A who with
the consent of P raise the amount to P30,000 and thereafter endorses it to B, B to C, and
C to D, who is not a holder in due course. In this case
a. B can recover P3,000 as against M
b. D can recover P3,000 from M
c. P and A are liable to D P3,000
d. B and C are not liable to D
50. A non negotiable instrument
a. Treasury warrant c. Bill of Lading
b. Money Order d. All of the above
51. Absence or failure of consideration is a matter of defense against any person
a. Holder in due course
b. Not a holder in due course
c. Who is a holder of instrument
d. None of the above
52. An instrument which is originally negotiable ceases to be negotiable when
a. Restrictively indorsed c. The last and only indorsement is blank
b. Qualifiedly indorsed d. None of the above
53. The instrument is non-negotiable when
a. There is an indication of a particular fund out of which the 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. None of the above
54. 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 discharged
a. Maker b. Drawer c. Drawee d. Acceptor
55. An indorsement where the indorser adds the phrase without recourse
a. Blank b. Restrictive c. Qualified d. Conditional
56. The sum payable is a sum certain, although it is to be paid
a. With interest c. By stated installment
b. With exchange d. All of the above
57. Payable to bearer
a. Pay to bearer B c. Pay to possessor
b. Pay to B, the bearer d. All of the above
58. A demand promissory note must be presented for payment
a. Within a reasonable time after its issuance
b. Within a reasonable time after its negotiation
c. Within a reasonable time after last indorsement
d. All of them
59. A feature characteristic of a bill of exchange not found in a promissory note
a. Promise to pay c. Promise in writing to pay
b. Order to pay d. Unconditional promise in writing
60. A promissory note as distinguished from a bill of exchange
a. Contains an unconditional order
b. One who issues it is primarily liable
c. One who issues it is secondarily liable
d. There are three parties, drawer, payee and drawee
61. The following are functions of negotiable instrument; except:
a. used as substitute for money
b. medium of credit transactions
c. medium of exchange for commercial transactions
d. none of them.
62. Kent writes on a piece of paper, I owe you $500, signs it, and gives it to
Lane. This instrument is
a. Negotiable
b. nonnegotiable, because it does not include an express promise to pay.
c. nonnegotiable, because it does not state any conditions to payment.
d. none of the above.
63. Which of the following phrases makes an order instrument negotiable?
a. "Pay to the order of Phil Palmer"
b. "Pay to the order of my brother"
c. both A and B
d. none of the above
64. Carol signs a check that is payable to the order of All-Mart Discount Stores,
Inc., but that does not include a date. This check is
a. negotiable.

b. nonnegotiable, because it does not include a date.

c. nonnegotiable, because it is payable to All-Mart Discount Stores.

d. nonnegotiable, because it is signed by Carol.

65. On May 1, Doug signs a check that is payable to the order of Excel Credit Card
Corporation and that is dated July 1. This check is

a. negotiable.

b. nonnegotiable, because it is payable to Excel Credit Card Corporation.

 c. nonnegotiable, because it is postdated.

d. nonnegotiable, because it is signed by Doug

66. With a cashier's check, a bank acts as a

a. drawee. c. payee

b. drawer. d. Both A and B

67. Which of the following language on an order will create a negotiable instrument?
a. "Pay X"
b. "Please pay X"
c. "I wish you would pay X"
d. both A and B

68. Which of the following phrases indicates a bearer instrument?

a. "payable to bearer"
b. "pay to cash"
c. "pay to the order of cash"
d. all of the above

69. Dick signs a check payable to the order of Jane, writes this is nonnegotiable in the
lower left corner, and gives it to her. This check is
a. negotiable.
b. nonnegotiable, because it includes the notation this is nonnegotiable.
c. nonnegotiable, because it is not governed by Article 3.
d. nonnegotiable, because it was given to Jane
70. Cindy signs a check payable to the order of my blue-eyed friend and gives it to Dan,
who does not have blue eyes. This check is
a. Negotiable
b. nonnegotiable, because Dan does not have blue eyes.
c. nonnegotiable, because it does not indicate a specific payee
d. nonnegotiable, because it was executed as a joke.

ESSAY 10 Points

71-75 What are the rights of the holder in forgery of indorsement if the note is payable to bearer?
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76. 80 What are the rights of the holder in forgery of indorsement if the note is payable to order?
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