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CEBU CPA REVIEW CENTER

NEGOTIABLE INSTRUMENTS QUIZZER Instruction: Select the best answer to each of the following questions. 1. A check upon which the holder’s signature must appear twice, one to

be affixed by him at the time it is issued and the second or counter-signature, to be affixed by him before it is paid, otherwise it is incomplete is called a. Certified check. b. Stale check. c. Answer not given. d. Answer not given.

2. 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.

3. A general indorser is distinguished from the irregular indorser in that a general indorser:: a. Makes either a blank or special indorsement. b. Indorses after its delivery to the payee. c. Is liable to the payee and subsequent parties unless he signs for

the accommodations of the payee, in which case he is liable only to all parties subsequent to him.

d. Answer not given.

4. Presentment for acceptance of a bill of exchange is not necessary: a. Where the bill is payable after sight; b. Where the bill is drawn payable elsewhere than at the residence or

place of business of the drawee; c. Where it is payable at a certain number of days after date; d. Answer not given.

5. Protest is not necessary: a. Upon dishonor by non-acceptance of a foreign bill appearing on its face

to be such; b. Upon dishonor by non-payment of a foreign bill appearing on its face to

be such, if not having been previously dishonored by non-acceptance; c. In cases of inland bills and promissory notes; d. Answer not given.

6. The distinction between acceptance for honor and ordinary acceptance is that: a. In acceptance for honor, protest is not required while in ordinary

acceptance, there must be previous protest; b. In acceptance for honor, the acceptor is the drawee while in ordinary

acceptance, the acceptor must be a stranger to the bill; c. In acceptance for honor, the consent of the holder is required while in

ordinary acceptance, such consent is not required; d. Answer not given.

7. Ricardo Montejo owes Pablo Mendez P15,000. Upon maturity of the debt, Montejo fails to pay and so Mendez sues him in a complaint. Montejo answers the complaint and before actual hearing, Mendez assigns the

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promissory note assigned by Montejo to Alfredo Castro, for P10,000 because Mendez needs the money badly. Now Castro demands payment from Montejo. In the case at bar, Montejo is: a. Not liable to Castro for the amount; b. Liable only to the extent of P10,000 plus cost and interest; c. Liable for the entire amount of P15,000 plus cost and interest; d. Answer not given.

8. A promissory note is signed in behalf of the principal by an agent as follows: Juan de la Cruz P Per procuration: Manuel S. Canete This operates as notice that the agent has:

a. Unlimited authority for and in behalf of the principal; b. A limited authority to sign, and the principal is bound only in case the

agent in so signing acted within the actual limits of his authority. c. A limited authority to sign, but the principal is bound even in case the

agent in so signing acted outside the actual limits of his authority. d. Answer not given.

9. Marcelo makes a note payable to the order of Patricio who indorses it to Alfonso. Fidel obtains possession of the note fraudulently, forges Alfonso’s signature and indorses it to Bartolome who in turn indorses it to Catalino. In this case Catalino can: a. Enforce the instrument against Marcelo and Patricio; b. Enforce the instrument against Alfonso; c. Enforce the instrument against Bartolome; d. Answer not given.

10. M makes a promissory note for P2,000 payable to the order of P. P negotiates the note to A who, with the consent of P, raises the amount to P20,000 and thereafter indorses it to B, B to C, and C to D who is not a holder in due course. In this case: a. D can recover P2,000 as against M; b. P and A are liable to D for P20,000; c. B and C are liable to D; d. Answer not given

11. 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.

12. 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.

13. “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.

14. Which of the following instruments is non-negotiable? a. “Pay to C or order P20,000 out of my cash in your possession.”

(Addressed to T, signed by D)

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b. “Pay to C or order P20,000 and reimburse yourself out of my cash in your possession.” (Addressed to T, singed by D)

c. “I promise to pay C or order, P20,000.” (Signed D) d. “Pay C or order P20,000.” (Addressed to T, signed by D)

15. A feature or characteristic of a bill of exchange not found in a promissory note: a. Promise to pay. b. Order to pay. c. Promise in writing to pay. d. Unconditional promise in writing.

16. One of the requisites of a negotiable instrument is that it must contain an unconditional promise or order to pay a sum certain in money. Which of the following denotes non-negotiability?

a. I promise to pay to the order of L the sum of $ at the DBP Manila b. I promise to pay to the order of Y the sum of P4,600 and to deliver

one-fourth of the rice harvest in my farm. c. I promise to pay N or bearer in Manila the sum of P18,000 in the

Philippine pesos or in U.S. dollars. d. I promise to pay E or bearer in Manila the sum of P27,000 in the

Philippine pesos or U.S. dollars, at the option of the holder.

17. 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.

18. One of the following statements is not true, which is it? a. A creditor is not bound to accept a check in satisfaction of his

demand, because a check even if good when offered, does not meet the requirements of legal tender.

b. The obligation of a debtor who had agreed to pay in dollars in a foreign bill of exchange shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred.

c. The Philippine peso bills when attempted to be exported, as when carried in excess of that allowed by the CB requlation, may be deemed to have been taken out of a domestic circulation as legal tender and thus, treated as commodity.

d. The purchasing power or value of money or currency depends upon, can come into being, can be created or brought about by a law enacted by the legislative department of the Government.

19. 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.

20. “Pay to Maria Ramos, notice of dishonor waived” is an example of: a. Special endorsement

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b. Facultative endorsement c. Qualified endorsement. d. Restrictive endorsement.

21. The following are functions of a negotiable instrument. Which is the exception? a. It increases purchasing power in circulation. b. It increases credit circulation. c. As substitute for money. d. As legal tender.

22. 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.

23. Which of the following promissory note is not negotiable for reason that the instrument is not payable in sum certain in money? a. X promises to pay to the order of A P10,000 payable in dollars at

the rate of exchange prevailing on October 13, 2003. b. X promises to pay to the order of A P10,000 with 12% interest

thereon. c. X promises to pay to the order of A P10,000 in installment. d. X promises to pay to the order of A P10,000 in two equal

installments, the first installment on or before October 12, 2003.

24. Antonio issues a bill to the order of Juan, and Juan indorses it to Pedro. Pedro indorses the bill to Mario, Mario to Rodolfo and Rodolfo indorses the bill to Jose, the holder. Which of the following is not true, if Jose decides to strike out any indorsement not necessary to his title? a. If Jose cancels the indorsement of Pedro, Pedro is relieved from

liability. b. If Jose cancels the indorsement of Juan; Juan, Pedro, Mario and

Rodolfo are relieved from liability. c. If Jose cancels the indorsement of Pedro; Pedro, Mario, and

Rodolfo are relieved from liability. d. If Jose cancels the indorsement of Mario; Mario and Rodolfo are

relieved from liability.

25. A bill of exchange to which no document is attached when presentment for payment or acceptance is made: a. Trade acceptance. b. Bank acceptance. c. Clean bill of exchange. d. Documentary bill of exchange.

26. Which of the following does not discharge a negotiable instrument? a. Payment in due course by the accommodated party which the

instrument’s made or accepted for his accommodation. b. Payment in due course by the principal debtor. c. Intentional cancellation of the instrument by the maker. d. Payment in due course by the accommodation maker.

27. Which of the following is an example of Real Defense? a. Acquisition of the instrument by force. b. Acquisition of the instrument for illegal consideration. c. Fraud in the endorsement. d. Fraud in factum.

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28. Which of the following instruments is not negotiable for the reasons that the instrument is not payable at a determinable future? a. “One week after X passes the CPA Board Examination, I promise

to pay to the order of Y P10,000” (sgd.) Z. b. “Thirty days after demand, Drawer Z directs Drawee X to pay Y or

order P10,000.” c. “Ten days after death of X, I promise to pay to the order of Y

P10,000.” (sgd.) Z. d. “On or before October 31, 2003, I promise to pay Y or his order

P10,000.” (sgd.) Z

29. In the renunciation of holder of his rights against any party to the instrument, which of the following statements is false? a. If the instrument is delivered to the person primarily liable without

collecting, it constitutes oral renunciation. b. If renunciation is made in favor of any party secondarily liable, all

parties subsequent to him are discharged from liability. c. Renunciation will not affect the rights of a holder in due course

without notice. d. If the renunciation is made in favor of the party primarily liable, it

must be made before, at or after maturity date.

30. The following are instances when a drawee 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.

31. 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.

32. A check drawn by the bank upon itself and payable to a third person: a. Certified check. b. Manager’s check. c. Traveler’s check. d. Crossed check.

33. A Issues a bill payable to the order of B. Later B without endorsing the bill transfers for a consideration said bill to C. The following except one, are the valid effects of the transfer: a. C acquires the right to have the endorsement of B. b. The bill is merely assigned and not negotiated. c. C becomes a holder. d. The transfer vests in C such title as B had thereon.

34. A issued a negotiable promissory note to the order of B for P10,000 payable 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 statements is not correct and invalid? a. F can collect from either D or E, because their signatures are genuine

and the note is operative against them. b. F can collect from A because A cannot put up forgery as his defense. c. F cannot collect from C because it was C’s signature which was forged.

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d. F cannot collect from B because B is a party prior to the forgery.

35. 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 accepted the instrument as indorsed? a. Yes, because D is a holder in due course. b. No, because D knew by prior indorsement that A is merely a trustee for

B and has no right to negotiate the instrument. c. Yes, because D acquired the instrument for value. d. No, because D did not get the consent of B.

36. Which of the following is non-negotiable? a. I bind myself to pay B or bearer P10,000 (sgd.) A. b. I acknowledge being indebted to B in the amount of P10,000.

(sgd.) A. c. I promise to pay to the order of B P10,000 (sgd.) A. d. I agree to pay B or order P10,000 on demand. (sgd.) A.

37. X obtains the signature of Y for autograph purpose. X writes 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.

38. Which of the following is not a personal defense? a. Absence of consideration. b. Forgery of a signature. c. Non-delivery of a complete instrument. d. Failure of consideration.

39. A issued a promissory note to the order of B for P10,000 payable on September 30, 2003 in payment of a TV set sold by B to him. B failed to deliver the TV set to A and instead transferred the note to C for value but without indorsement. Which of the effects of the transactions listed below is valid? a. C is deemed a holder in due course when B transferred the note to

him. b. C becomes a holder in due course when B indorsed the note to C

on October 4, 2003. c. C has no right to compel B to make the proper indorsement to him. d. C cannot collect from A because of A’s defense of lack of

consideration. 40. Manuel makes a promissory note for P3,000 payable to the order of

Pedro. Pedro negotiates the note to Antonio who with the consent of Pedro raises the amount to P30,000 and thereafter endorses it to Boy, Boy to Cris, and Cris to Doy, who is a holder in due course. In this case:

a. Doy can recover P30,000 as against manuel. b. Doy can recover P3,000 from manuel. c. Pedro and Antonio are liable to Doy for P3,000. d. Boy and Cris are not liable to Doy.

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41. 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.

42. Which of the following is not a secondary party? a. Acceptor for honor. b. Drawer. c. Payor. d. Endorser

43. 1st Statement : A holder for value is an endorsee 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.

2nd Statement: A holder in due course is one who possesses both the legal and beneficial interest to the instrument but is subject to personal defenses only. a. Both statements are false. b. First statement is false, second statement is true. c. Both statements are true. d. First statement is true, second statement is false.

44. “I promise to pay to the order of B P10,000 30 days after sale.” (sgd.) A. Which of the following indorsements of the above promissory note is not valid? a. “Pay to C and D.” (sgd.) B b. “Pay to C P5,000, balance of this Note” (sgd.) B if P5,000 has

been paid by A. c. “Pay to C P5,000 to D P5,000” (sgd.) B d. “Pay to C and D, partners’ (sgd) B

45. M makes a P10,000 note payable to the order of O who indorses it to A. F obtains possession of the note fraudulently, forges A’s signature, alters the amount to P70,000 and endorses it to B who in turn endorses to C. In this case: a. C can enforce the note against A. b. C can enforce the note against any person. c. C can enforce the note against M and O d. C can enforce the note against B.

46. “Pay to Maria in trust for Jesus” (sgd.) Jose, is the example of a. Conditional endorsement. b. Qualified endorsement. c. Facultative endorsement. d. Restricted endorsement

47. “I promise to pay to the order of X P10,000 30 days after date: (sgd.) Y, dated blank.

“Pay to the order of X P10,000 30 days after sight: to Y (sgd.) Z, dated 10/15/03.

1st Rule: The maturity date of the above promissory note will be counted 30 days from the date of the instrument.

2nd Rule: The maturity of the above bill of exchange will be counted 30 days from the date the instrument is accepted by Y.

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a. Both rules are wrong. b. Both rules are correct. c. 1st rule correct, 2nd rule wrong. d. 1st rule wrong, 2nd rule correct.

48. The following except one, are the requisites of acceptance for honor on a bill: a. The bill must be previously protested for dishonor by non-

acceptance or protested for better security. b. The bill is overdue. c. The holder must give his consent. d. The acceptor for honor must be a stranger to the bill.

49. Which of the following is not a real defence? a. Fraud in factum. b. Incomplete and undelivered instrument. c. Insertion of a wrong date. d. Forgery of a signature.

50. Under the Negotiable Instruments Law, a certificate of stock is not a negotiable instrument because it lacks the requisites of: a. It must contain an unconditional promise or order to pay a sum

certain in money. b. It must be payable on demand or at a fixed or determinable future

time. c. It must be payable to order or bearer. d. It must be in writing and signed by the maker or drawer.

51. A makes a promissory note payable to B or order. B indorses the note to C, then C to D, D to E and E to F, the holder whose hands the note is dishonored. F notifies B, C, D and E about the dishonor of the note and subsequently indorses it to G. Which is not correct? a. The notice to C inures to the benefits of D, E, and G. b. The notice given by F to B inures to the benefits of C, D, E, and G. c. The notice to E inures to the benefit of D. d. The notice to D inures to the benefits of E and G.

52. P appointed A as his agent to buy sugar. Thereafter, A drew a bill of

exchange for the price of the sugar in favor of S, the seller. P accepted the bill. After the acceptance of P, A negotiated the bill to H, a holder in due course. When the sugar was delivered, P refused to pay the bill on the ground that the sugar was deteriorated. Is P liable? a. No, the sugar was defective. b. No, there is an absence of consideration. c. No, because there is failure or consideration. d. Yes, even if the consideration failed because H is a holder in due

course.

53. Which of the following is not a secondary party? a. Acceptor for honor. b. Drawer. c. Payor for honor. d. Endorser.

54. “I promise to pay to the order of B P10,000 30 days after sale” (sgd.) A. Which of the following indorsements of the above promissory note is not valid? a. “Pay to C and D” (sgd.) B

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b. “Pay to C P5,000, balance of this note” (sgd) B if P5,000 has been paid by A.”

c. “Pay to C P5,000 to D P5,000 (sgd.) 5,000 d. “Pay to C and D, partners” (Sgd). B.

55. The holder is required to give notice of dishonor to the drawer to make him liable on the instrument in one of the following cases:

a. Where the drawer is the person to whom the instrument is

presented for payment. b. Where the drawer and the drawee are the same person. c. Where the drawer has countermanded payment. d. Where the instrument was made or accepted for his

accommodation.

56. When is a negotiable instrument not discharged? a. When the holder thereof intentionally cancel the instrument. b. When the principal debtor becomes the holder of the instrument

before, at or after maturity in his own right. c. When it is paid in due course by the principal debtor. d. When it is paid in due course by the party accommodated where

the instrument is made or accepted for accommodation.

57. When an indorser waives presentment and notice of dishonor, he increases his liability. His endorsement is: a. Alternative endorsement. b. Qualified endorsement. c. Facultative endorsement. d. Restrictive endorsement.

58. Which of the following instruments is not negotiable?

a. “I promise to pay A or order P20,000. (sgd.) D. b. “I promise to pay A or order P20,000 on June 30. (sgd.) E. c. “I promise to pay to the order of A P30,000” (sgd.) B. d. “Good for P20,000 to A or order” (sgd. C)

59. Which of the following is not payable to bearer. a. “Pay to the order of bearer P1,000.00—To: X—(Sgd.) A”. b. “Pay to 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”.

60. Which of the following is not requisite to consider a person an

accommodation party. a. He must not be liable to a holder in due course b. He must be a party to the instrument signing as a maker, drawer,

acceptor or indorser c. He must not receive value therefor d. He must sign for the purpose of lending his name or credit.

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SUGGESTED ANSWERS & EXPLANATIONS

1. Letter “C” is the correct answer. It is only in a traveler’s check that the holder’s signature must appear twice,

one at the time it is issued, and countersigned before it is paid. Letter “A” is incorrect because a certified check is a check with the word

“certified” written on its face which the drawee bank agrees to pay upon presentment for payment. Letter “B” is incorrect because a stale check is worthless and valueless by reason of non-presentment of the check within a reasonable time after its issuance. In both cases, only one signature appears in the check. Letter “D” is incorrect, because the answer is given in letter C.

2. Letter “C” is the correct answer. The requisites for a negotiable instrument are as follows: a) it 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) must be payable on demand, or at a fixed or determinable future time; d) must be payable to order or bearer; e) where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty (Section 1, Negotiable Instruments Law). By express provision, an order or promise to pay out of a particular fund is not unconditional (Section 3, supra), the instrument being qualified by a particular fund out of which it is to be paid, the same is non-negotiable.

Letter “A” is incorrect because as provided, an unqualified order or promise to pay is unconditional within the meaning of the (Act) though coupled with an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount (ibid). Letter “B” is incorrect because for the reason given in letter A. In both instances, the instrument is negotiable. Letter “D” is incorrect because by express provision the instrument is negotiable.

3. Letter “B” is the correct answer. A general endorser is the one who indorses the negotiable instrument after

its delivery to the payee. Letter “A” is incorrect because an endorser who places its signature in blank

before delivery is an irregular endorser (Section 64, Negotiable Instruments Law).

Letter “C’ is incorrect because by specific provision, a person not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as endorser, that if the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties; if the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer; if he signs for accommodation of the payee, he is liable to the parties subsequent to the payee. (Section 64, supra). The law contemplates liability of irregular not general endorser. A general endorser warrants to all subsequent holder in due course (Section 66, ibid). Letter “D” is incorrect because the answer is given in letter B.

4. Letter “C” is the correct answer. The instances where presentment of instrument is required for acceptance

are: a) where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or b) where the bill expressly stipulate that it shall be presented for acceptance; or c) where the bill is drawn payable elsewhere than at the residence or place of business of the drawee (Section 143, Negotiable Instruments Law). In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

Letter “A” is incorrect because it falls within the first category of the provision. Letter “B” is incorrect because it falls within the last category of the provision.

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Letter “D” is incorrect because the answer is given in letter C. 5. Letter “C’ is the correct answer. The law specifically provides that where a bill does not appear on its face to

be a foreign bill, protest thereof in case of dishonor is unnecessary. Inland bills and promissory notes not being foreign bills, protest thereof is not necessary. However, this rule is not absolute in the following instances, protest is required in inland bills: 1) where a bill has been previously accepted for honor, there must be protest for non-payment before it is presented for payment to acceptor for honor; 2) where a bill contains a referee in case of need, it must be protested for non-payment before it is presented for payment to the referee in case of need; 3) in case of protest for better security; and (4) in case of payment for honor, supra protest.

Letter “A” is incorrect because where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be duly protested for non-acceptance (Section 152, Negotiable Instruments Law).

Letter “B” is incorrect because where a foreign bill, which has not previously been dishonored by non-acceptance, is dishonored by non-payment, it must be duly protested for non-payment (ibid). In both situations, if not so protested, the drawer and endorser are discharged (ibid).

Letter “D” is incorrect because the answer is given in letter C. 6. Letter “C” is the correct answer. The requisites for acceptance for honor are as follows: 1) The bill of

exchange must have been previously protested for a) non-acceptance; or b) better security; 2) The bill is not overdue at the time of the acceptance for honor; 3) The acceptance for honor is in writing and signed by the acceptor for honor; 4) The acceptance must indicate that it is one for honor; 5)There must be consent by the holder; and 6) The acceptor for honor must be a stranger to the bill because if he is already a party therein, he is already liable (Section 161, Negotiable Instruments Law).

Letter “A” is incorrect because among the distinction between acceptance for honor and ordinary acceptance, is that in the former the bill must have been previously protested for non-acceptance or for better security while in the latter, protest is not required. Letter “B” is incorrect because in acceptance for honor, the acceptor is not the drawee but a stranger to the bill while in ordinary acceptance, the acceptor is the drawee. Letter “D” is incorrect because the answer is given in letter C.

7. Letter “B” is the correct answer. Montejo is liable only for 10,000.00 plus cost and interest because as to

Castro he is liable only for the amount stated in the face value of the promissory note.

Letter “A” is incorrect because Montejo although a stranger to Castro is liable by virtue of the promissory note he issued. The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to endorse (Section 60, Negotiable Instruments Law). Letter “C” is incorrect because the liability of Montejo to pay is limited to what is written in the note which is P10,000.00 and not for the entire amount of P15,000.00 which he owes to Pablo. Letter “D” is incorrect because the answer is given in letter B.

8. Letter “B” is the correct answer. A signature by “procuration” operates as notice that he agent has but limited

authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority (Section 21, Negotiable Instrument Law).

Letter “A” is incorrect because the authority to sign for and in behalf of the principal is limited to the power granted to the agent. Letter “C” is incorrect because the principal is bound when the agent acted within the actual limits of his authority. Letter “D” is incorrect because the answer is given in letter B.

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9. Letter “C” is the correct answer. When a signature is forged or made without the authority of the person

whose signature it purports to be, it is wholly inoperative, and no write to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired though or under such signature, against the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority (Section 23, Negotiable Instrument Law).

Letter “A” is incorrect because Marcelo and Patricio are released from any liability because the signature of Alfonso to whom Patricio endorsed the check was forged. As to them the instrument is wholly inoperative. Letter “B” is incorrect because when Fidel the signature of Alfonso, the subsequent holder cannot hold Alfonso liable, as to him the instrument is wholly inoperative, and because his signature was forged, no write to retain the instrument, or to give a discharge therefor can be enforced against him. However Catalino could seek payment of the check from Bartolome who is precluded from setting up the forgery or want of authority. Letter “D” is incorrect because the answer is given in letter C.

10. Letter “A” is the correct answer. The maker of a negotiable instrument by making it engages that he will pay it

according to its tenor, and admits the existence of the payee and his then capacity to endorse (Section 60, Negotiable Instruments Law). And every person negotiating an instrument by delivery or by a qualified endorsement, warrants: a) that the instrument is genuine and in all aspects what it purports to be; b) that he has a good title to it; c) that all prior parties had capacity to contract, and; d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee (Section 65, supra). M, who is the maker of the promissory note is liable to pay D according to the tenor of the instrument, that is P2,000.00.

Letter “B” is incorrect because when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate, thus P and A not being transferor are not liable to D.

Letter “D” is incorrect because D can go against C who is the immediate transferor but not against B.

11. Letter “A” is the correct answer. An assignment is not a negotiation because the former is a transfer of a non-

negotiable instrument wherein assignee is placed in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee and an instrument said to be negotiated when the transfer from one person to another is made in such a manner as to constitute the transferee the holder of the instrument (Section 30, Negotiable Instruments Law).

Letter “B” is incorrect because an instrument payable to bearer is negotiated by delivery of a bearer instrument. Letter “C” is incorrect because if payable to order, it is negotiated by the endorsement of the holder completed by delivery of an instrument payable to order. Letter “D” is incorrect because delivery of an instrument to the payee is negotiation of bearer instrument.

12. Letter “C is the correct answer. The certificates of stock are evidences of ownership of stock in a corporation.

It is not negotiable because there is no unconditional promise or order to pay a sum certain in money. The share of the stockholders in the profit and dividends depends, as a matter of fact, on the existence of unrestricted retained earnings or profit which is left to the corporation after deducting all its expenses, credits and debts.

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Letter “A” is incorrect because a bill of exchange contains an unconditional

order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer (Section 126, Negotiable Instruments Law).

Letter “C” is incorrect because check is a bill of exchange drawn on a bank and is payable on demand (Section 185, supra).

Letter “D” is incorrect because a promissory note is an unconditional promise in writing made by one person to another, sign by maker, engaging to pay on demand or at a fixed determinable future time, a sum certain in money to order or to bearer (Section 184, supra).

13. Letter “D” is the correct answer. An instrument is payable to bearer when it is payable to a person named

therein, or bearer (Section 9, Negotiable Instruments Law).but an instrument payable to bearer, Juan dela Cruz is not payable to bearer because “bearer” is merely descriptive of Juan dela Cruz as the bearer. Thus, it cannot be negotiated, the instrument is payable to bearer.

Letter “A” is incorrect because the instrument is not negotiable promissory note payable on demand.

Letter “B” is incorrect because granting arguendo that the instrument is negotiable it is not payable to order, because it specifically states “pay to bearer”, thus it is an instrument payable to bearer.

Letter “C” is incorrect because the term “bearer” being descriptive only of Juan dela Cruz, is not negotiable.

14. Letter “A” is the correct answer. An unqualified order or promise to pay is unconditional though coupled with

an indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount (Section 3, Negotiable Instruments Law).

Letter “B” is incorrect because it is negotiable and though it specifies the fund out of which reimbursement is to be paid.

Letter “C” is incorrect because this is unconditional promise or order to pay sum certain in money which is negotiable.

Letter “D” is incorrect because this is a case of negotiable instrument payable to order.

15. Letter “A” is the correct answer. The feature or characteristic of a bill of exchange not found in the promissory

note is the unconditional order to pay in writing (Section 126, Negotiable Instruments Law).

Letter “B” is incorrect because the promise to pay in writing is one of the requisites of a promissory note and does not exist in the bill of exchange.

Letter “C” is incorrect because as provided a negotiable promissory note is an unconditional promise in writing made by one person to another, signed by maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money or to bearer (Section 184, supra).

Letter “D” is incorrect because for the same reason previously stated. 16. Letter “B” is the correct answer. One of the requisites of a negotiable instrument is that it must contain an

unconditional promise or order to pay a sum certain in money (Section 1, Negotiable Instruments Law). Payment partly in sum of money or partly in object will render the instrument non-negotiable.

Letter “A” is incorrect. The promise to pay to the order of the sum of P900.00 at the DBP Manila is negotiable, as provided an unqualified order or promise to pay is unconditional though coupled with an indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount (Section 3, supra).

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Letter “C” is incorrect because the statement of the exchange rate in note or

bill will not destroy negotiability. Although the sum is payable either in Philippine Peso or U.S. dollars there is certainty which renders the instrument negotiable. As stated, the sum payable is sum certain, although it is to be paid with exchange, whether at a fixed rate or at a current rate (Section 2, supra).

Letter “D” is incorrect because though the sum payable is at the option of the holder, it does not affect its negotiability for it is still certain.

17. Letter “C” is the correct answer. The P1,000.00 bills issued by the Central Bank and in circulation is

considered legal tender. Letter “A” is incorrect because checks are bill of exchange drawn on a bank

and payable on demand (Section 185, Negotiable Instruments Law). This is not legal tender, it produce the effect of payment only when encashed.

Letter “B” is incorrect because a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer (Section 126, supra). It is negotiable instrument not legal tender.

Letter “D” is incorrect because a promissory note is an unconditional promise in writing made by one person to another, signed by maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money or to bearer (Section 184, supra). It is not a legal but another form of negotiable instrument.

18. Letter “B” is the correct answer. As provided, in case an extraordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary (Article 1250, New Civil Code).

Letter “A” is incorrect because checks representing demand deposit do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor (Section 60, The New Central Bank Act).

Letter “C” and “D” are incorrect because it is the primary objective of the Bangko Sentral to maintain price stability conducive to a balanced and sustainable growth if the economy. It promotes and maintains monetary stability and convertibility of peso (Section 3, supra).

19. Letter “C” is the correct answer. The holder of a negotiable instrument may sue thereon in his own name; and

payment to him in due course, discharges the instrument (Section 51, Negotiable Instruments Law). Only Flor can use sue in his own name to enforce the obligation, being a holder in due course.

Letter “A” is incorrect because it is absurd for Ellane, the maker, to enforce the obligation against herself.

Letter “B” is incorrect because for the given reason. Letter “D” is incorrect because by express provision, the holder of the

negotiable instrument in this case a promissory note may sue in his own name.

20. Letter “A” is the correct answer. When an instrument specifies the person to whom or to whose order, the

instrument is to be payable, by specific provision of law, the instrument is one of special endorsement (Section 34, Negotiable Instruments Law). It is also a facultative endorsement, because the endorser enlarges his liability by waiving usual demand and notice of dishonor. Thus it is both special and facultative endorsement.

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Letter “B” is incorrect because while the instrument is payable specifically to

Maria Ramos, the notice of dishonor is likewise waived thereby enlarging the liability of the endorser.

Letter “C” is incorrect because a qualified endorsement constitutes the endorser a mere assignor of the title to the instrument. It may be made by adding to the endorser’s the signature the words “without recourse” or any words of similar import (Section 38, supra).

Letter “D” is incorrect because an endorsement is restrictive if it prohibits the further negotiation of the instrument; constitute the endorsee the agent of the endorser; or vest the title in the endorsee in trust for or to the use of some other person (Section 36, supra).

21. Letter “D” is the correct answer. A negotiable instrument is not a legal tender, the delivery of promissory notes

payable to order, or bill of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of creditor they have been impaired (Article 1249, New Civil Code).

Letters “A”, “B” and “C” are incorrect because they are all functions of negotiable instrument, which are self-explanatory.

22. Letter “A” is the correct answer. A negotiable instrument is discharged: a) by payment in due course by or on

behalf of the principal debtor; b) by payment in due course by party accommodated, where the instrument is made or accepted for his accommodation; c) by the intentional cancellation thereof by the holder; d) by any other act which will discharge a simple contract for the payment of money; and e) when the principal debtor becomes the holder of the instrument at or after maturity in his own right (Section 119, Negotiable Instruments Law). From the cited provision only letter A is not a ground that can discharge a negotiable instrument.

Letter “B” is incorrect because it falls within the provision in letter [c]. Letter “C” is under the contemplation of letter [a], the principal debtor is the

party primarily liable to holder or his authorized representative. Letter “D” is incorrect because it is an example of situation in letter [e]. 23. Letter “C” is the correct answer. When X promises to pay to the order of P10,000.00 in installments, the

instrument is not payable in sum certain in money because it is not stated as to how many installments are to be made and it cannot be determined the exact date when are they payable.

Letter “A” is incorrect because as provided, the sum payable is a sum certain within the meaning of this Act, although it is to be paid with exchange rate, whether at a fixed rate or at a current rate (Section 2, [d], negotiable Instruments Law).

Letter “B” is incorrect because a sum payable is also certain even it is to be paid with interests (Section 2 [a], supra).

Letter “D” is incorrect because although it is paid by installments, the terms and the periods of installments are determinable.

24. Letter “A” is the correct answer. The order of endorser is as follows: Juan, Pedro, Mario, and Rodolfo. Jose

cannot cancel the endorsement of Juan because the instrument being payable to the order of Juan, the latter’s endorsement is necessary to negotiate the instrument.

Letter “B” is incorrect because a person secondarily liable on the instrument is discharge by the intentional cancellation of his signature by the holder (Section 120 [b], Negotiable Instrument Law). It is true that if Jose cancels the endorsement of Pedro, the latter is relieved from liability.

Letter “C” is incorrect because by provision of law if Jose cancels the endorsement of Pedro, the subsequent endorsers are relieved. As provided,

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the holder may at any time strike out any endorsement which is not necessary to his title. The endorser whose endorsement is struck out, and all endorser subsequent to him, are thereby relieved from liability on the instrument (Section 48, supra)

Letter “D” is incorrect because for the same reason previously given. 25. Letter “C” is the correct answer. A clean bill of exchange is one to which no attach document of title is to be

delivered to the person against whom the bill is drawn when he either accepts or face pays the bill.

Letter “A” is incorrect because trade acceptance is one kind of bill of exchange drawn by the seller in the purchaser of goods and accepted by the latter.

Letter “B” is incorrect because bank acceptance one which the acceptor is a bank or banker engages generally in the business of granting banker’s acceptance credit.

Letter “D” is incorrect because in documentary bill of exchange, the documents must be attached when presentment for payment or acceptance is to be made.

26. Letter “D” is the correct answer. A negotiable instrument is discharged by the following: a) payment in due

course by or on behalf of the principal debtor; b) payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; c) intentional cancellation thereof by the holder; d) any other act which will discharge a simple contract for the payment of money and; e) when the principal debtor becomes the holder of the instrument at or after maturity in his own right (Section 119, Negotiable Instrument Law).

Payment in due course by the accommodation maker will not discharge a negotiable instrument. The accommodation party who pays a note or bill can bring action for reimbursement against the accommodated party on an implied contract of indemnity. This situation is different from what is contemplated by the law which is discharges the instrument, if the payment is made by the party accommodated, where the instrument is made or accepted for his accommodation.

27. Letter “D” is the correct answer. Real or legal defenses are those that attached to the instrument and are

available against any holder, even a holder in due course. Fraud in factum is a real defense, as when the signature is placed in the instrument for a purpose different from that which it is being used. Example is when the signature is placed for autograph purposes, from the outset the signer do not intend to be indemnified by the instrument.

Letters “A”, “B” and “C” are incorrect because they are examples of personal or equitable defenses which are available only among prior or immediate parties or parties who have notice and are not available against a holder in due course.

28. Letter “A” is the correct answer. An instrument payable depending on the result of the CPA Board

Examination is subject to contingency which is not certain to happen. An instrument payable upon a contingency is not negotiable and the happening of the event does not cure the defect (Section 4, Negotiable Instrument Law).

Letter “B” is incorrect because thirty days after demand is negotiable because it is payable at a fixed period after date or sight. Letter “C” is incorrect because death is an event which is certain to happen, though the time of happening is uncertain. Letter “D” is incorrect because on or before a fixed or determinable future time specified in the instrument will render the instrument negotiable.

29. Letter “D” is the correct answer.

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The holder may expressly renounce his rights against any party to the

instrument before, at, or after its maturity. An absolute and unconditional renunciation of his right against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing, unless the instrument is delivered up to the person primarily reliable thereon (Section 122, Negotiable Instrument Law).

By specific provisions of the law, renunciation made in favor of the party primarily liable must be made at or after the maturity of the instrument not before as stated in the given answer in letter D, thus the statement is false.

30. Letter “D” is the correct answer. The insolvency of the drawer is not a ground wherein the drawee bank may

refuse payment of checks drawn against it, unless there is judicial declaration of insolvency and the court orders stop payment.

Letters “A”, “B” and “C” are incorrect because these are instances when a drawee bank may refuse to pay the checks drawn against it being self-explanatory.

31. Letter “B” is the correct answer. A negotiable instrument is not a legal tender, the delivery of promissory note

payable to order, or bill of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of creditor they have been impaired (Article 1249, New Civil Code).

Letters “A”, “B” and “C” are incorrect because they are all functions of a negotiable instrument, which are self-explanatory.

32. Letter “B” is the correct answer. A manager’s check is one drawn by the bank’s manager upon the bank and

payable to third person. Letter “A” is incorrect because a certified check is a check with the word

“certified” written on its face which the drawee bank agrees to pay upon presentment for payment. Letter “C” is incorrect because a traveler’s check is the kind of check when the holder’s signature must appear twice, one at the time it is issued, and countersigned before it is paid. Letter “D” is incorrect because a crossed check is one which bears two parallel lines across its face, this is only for deposit.

33. Letter “C” is the correct answer. Where the holder of an instrument payable to his order transfer it for value

without endorsing it, the transfer vest in the transferee such title as to transferor had therein, and the transferee acquired in addition, the right to have the endorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the endorsement is actually made (Section 49, Negotiable Instrument Law). By specific provision, the C is not a holder in due course until the endorsement is actually made.

Letters “A”, “B” and “D” are incorrect because by express provision of the law, they are valid effects of the transfer made by B to C without endorsement.

34. Letter “B” is the correct answer. F cannot collect from A, the drawer, when a signature is forged or made

without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired though or under such signature, against the party against whom it is sought to enforce such right is precluded from setting up the forgery or want or authority (Section 23, Negotiable Instruments Law).

Letter “A” is incorrect because of being self-explanatory. Letter “C” is incorrect because it is true that F cannot collect from C as to him the instrument is wholly inoperative, and because his signature was forged, no right to retain the instrument or to give a discharge therefor can be enforced

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against him. Letter “D” is incorrect because F cannot also collect from B, for reason previously stated.

35 Letter “B” is the correct answer. The problem is one of restrictive endorsement and when D accepted the

instrument as payment of A for his personal loan, he knew that A is merely a trustee and the latter cannot endorse the same without B’s authority, thus D acted in bad faith.

Letter “A” is incorrect because B knowing the defect in the endorsement is not a holder in due course.

Letter “C” is incorrect because he knew that the endorsement is restrictive. Letter “D” is incorrect because it’s A who should get the consent of B, and not

D because it was A who endorsed it, without authority. 36. Letter “B’ is the correct answer. The requisite for a negotiable instrument are as follows: a) it 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) must be payable on demand, or at a fixed or determinable future time; d) must be payable to order or bearer; e) where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty (Section 1, Negotiable Instrument Law.

An acknowledgment is a mere recognition of indebtedness without committing to pay. And one of the requisite of negotiable instrument is an unconditional promise or order to pay a sum certain in money.

Letters “A”, “C” and “D” are incorrect because these are examples of unconditional promise or order to pay a sum certain in money, thus, they are negotiable.

37. Letter “B” is the correct answer. Real or legal defenses are those that attached to the instrument and are

available against any holder, even a holder in due course. When the signature to an instrument is obtained for autograph purpose there is Fraud in factum and it is considered a real defense. From the outset the signers do not intend to be indemnified by the instrument.

Letters “A”, “C” and “D” are incorrect because personal or equitable defenses are defenses available only among prior or immediate parties or parties who have notice and are not available against a holder in due course.

38. Letter “B” is the correct answer. Forgery of signature is not a personal defense but rather a real defense. By

express provision, when a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefore, or enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority (Section 23, Negotiable Instruments Law).

Letter “A” is incorrect because absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise (Section 28, supra). This is only personal defense and cannot be raised as against holder in due course.

Letter “C” is incorrect because non delivery of complete instrument is subject to personal defense, as between immediate parties, and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting or endorsing, as the case may be. Letter “D” is incorrect because for the same reason given in letter A.

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39. Letter “D” is the correct answer. Absence or failure of consideration is a matter of defense as against any

person not a holder in due course; and partial failure of consideration is a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise (Section 28, Negotiable Instruments Law).

Letter “A” is incorrect because C is not a holder in due course. A holder in due course in one who is taken the instrument under the following conditions: a) that it is complete and regular upon its face; b) that he became a holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; c) that he took it in good faith and for value; 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 it (Section 52, supra). Letter “B” is incorrect because even if B endorsed the note to C on October 4, 1996, failure of consideration is an infirmity in the title of C which if he knows will make him a holder not in due course.

Letter “C” is incorrect C can compel B to make the proper endorsement to him.

40. Letter “B” is the correct answer. The maker of a negotiable instrument by making it engages that he will pay it

according to its tenor, and admits the existence of the payee and his then capacity to endorse (Section 60, Negotiable Instruments Law). And every person negotiating an instrument by delivery or by a qualified endorsement, warrants: a) that the instrument is genuine and in all aspects what it purports to be; b) that he has a good title to it; c) that all prior parties had capacity to contract, and: d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee (Section 65, supra).

Manuel who is the maker of the promissory note is liable to pay Doy according to the tenor of the instrument, that is P3,000.00.

Letter “A” is incorrect because Manuel is liable only according to the amount on the face of the instrument when he issue it.

Letter “C” is incorrect because when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee, thus Pedro and Antonio not being transferor is not liable to Doy for P3,000.00.

Letter “D” is incorrect because D can go against Cris who is the immediate transferor but not against Boy.

41. Letter “B” is the correct answer. The maker of a negotiable instrument by making it engages that he will pay it

according to its tenor, and admits the existence of the payee and his then capacity to indorse (Section 60, Negotiable Instruments Law).

Atoy who is the maker of the bearer note is liable to pay Fe according to the tenor of the instrument.

Letters “A”, “C” and “D” are incorrect because Cris, Doc, and Boy who negotiated the instrument by delivery, warrant the instrument only in favor of their immediate transferee,. By express provision, every person negotiating an instrument by delivery or by a qualified endorsement, warrants: a) that the instrument is genuine and in all aspects what it purports to be; b) that he has a good title to it; c) that all prior parties had capacity to contract, and; d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee (Section 65, supra). Thus, they are not liable to Fe.

42. Letter “C” is the correct answer. A payer for honor is not a secondary party. He is the one who when the bill

has been protested for non-payment, he may intervene and pay it supra

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protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn (Section 171, Negotiable Instruments Law). When a bill has been paid for honor the payer is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party to whose honor he pays and all parties liable to the latter (Section 165, supra).

Letter “A” is incorrect because acceptor for honor is a secondary party. He is one by such acceptance engages that he will on due presentment pay the bill according to the terms of his acceptance, provided it shall not have been paid by the drawee, and provided also that it shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him (Section 165, supra). Letter “B” is incorrect because a drawer is also a secondary party, for he is the person drawing or making the instrument, or the person giving the order to pay. Letter “D” is incorrect because an endorser is one who negotiates the instrument and thus a secondary party.

43. Letter “D” is the correct answer. Where the value has at any time been given for the instrument the holder is

deemed a holder for value in respect to all parties who become such prior to that time (Section 26, Negotiable Instruments Law). Absence or failure of consideration is a matter of defense as against any person not a holder in due course; a partial failure of consideration is a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise (Section 28, supra).

A holder in due course is a holder has taken the instrument under the following conditions: a) that it complete and regular upon its face; b) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; c) that he took it in good faith and for value; d) that at the time it was negotiated to him he had no notice of infirmity in the instrument or defect in the title of the person negotiating it (Section 52, supra). He holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Section 57, supra).

By express provision of the law, a holder for value is an endorsee who has both the legal title and the beneficial interest to the instrument, subject to real and personal defense. On the other hand a holder in due course holds the instrument free from defenses whether real or personal.

44. Letter “C” is the correct answer The endorsement must be an endorsement of the entire instrument. An

endorsement which purports to transfer to the endorsee a part only of the amount payable, or which purports to transfer the instrument to two or more endorsees severally, does not operate as negotiation of the instrument. But where the instrument has been paid in part, it may be endorsed as to the residue (Section 32, negotiable Instruments Law). Thus endorsement which pays in part to C P500.00 and another P500.00to D is not valid.

Letter “A” is incorrect because the same is valid because there is endorsement of the entire instrument to C and D. Letter “B” is incorrect because where the instrument has been paid in part, it may validly indorse as to the balance which is P500.00. Letter “C’ is incorrect because there is valid endorsement because the transfer is to C and D as partners and not severally.

45. Letter “D” is the correct answer. When a signature is forged or made without the authority of the person

whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give the discharge therfor, or to enforce payment thereof against any party thereto, can be acquired though or under such signature, against the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority (Section 23, Negotiable Instruments Law).

Letter “A” is incorrect because A is released from any liability because it was his signature that was forged. As to him the instrument is wholly inoperative.

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Letter “B” is incorrect because the instrument can be enforced against the person

liable for forgery, he precluded from setting up the forgery or want of authority. Letter “C” is incorrect because M and O are likewise discharge from liability.

46. Letter “D” is the correct answer. An endorsement is restrictive; which either: xxx c) vests the title in the

endorsee in trust for or to the use of some other person (Section 36, Negotiable Instruments Law).

Letter “A” is incorrect because conditional endorsement is when the endorsement is subject to condition. Letter “B” is incorrect because a qualified endorsement constitutes the endorser a mere assignor of the title of the instrument (Section 38, supra). Letter “C” is incorrect because facultative endorsement is when an endorsement is waiving notice of dishonor.

47. Letter “D” is the correct answer. The thirty (30) days will be counted from the date of acceptance by Y. by express

provision, where an instrument expresses to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, and holder may insert therein he true date of issue or acceptance and the instrument shall be payable accordingly (Section 13, Negotiable Instruments Law). The instrument is considered payable at a fixed period after sight.

48. Letter “B” is the correct answer. When a bill of exchange has been protested for dishonor by non-acceptance or

protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon, or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party (Section 161, Negotiable Instruments Law).

As clearly provided, the bill of exchange that has been protested for dishonor by non-acceptance or protested for better security must not be overdue.

49. Letter “C” is the correct answer. Insertion of wrong date is a personal defense, any holder may insert therein the

true date of issue or acceptance and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date (Section 13, Negotiable Instruments Law).

Letter “A” is incorrect because fraud in factum is a real defense, as when the signature is placed in the instrument for the purpose different from that to which it is being used. Example is when the signature is placed for autograph purposes, from the outset the signer do not intend to be indemnified by the instrument. Letter “B” is incorrect because non delivery of complete instrument is subject to personal defense, as between immediate parties, and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting or endorsing, as the case may be (section 16, supra).

Letter “D” is incorrect because forgery of signature is a real defense. By express provision, when a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefore, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority (Section 23, supra).

50. Letter “A” is the correct answer. The certificates of stock are evidences of ownership of stock in a corporation. It

is not negotiable because there is no unconditional promise or order to pay a sum certain in money. The share of the stockholders in the profit and dividends depends, as a matter of fact, on the existence of unrestricted retained earnings

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or profit which is left to the corporation after deducting all its expenses, credits and debts.

51. Letter “C” is the correct answer. When notice is given by or on behalf of the holder, it inures to the benefit of all

subsequent holders and all prior parties who have a right of recourse against the party to whom it is given (Section 92, Negotiable Instruments Law). The notice given to E does not inure to the benefit of D who is prior party without the right of recourse against the party to whom it is given.

Letter “A” is incorrect because D, E and G are subsequent holders of C, thus notice to C will inure tot heir benefits.

Letter “B” and “D” are incorrect because for the same reason previously given. 52. Letter “D” is the correct answer. Absence or failure of consideration is a matter of defense as against any person

not a holder in due course (Section 28, Negotiable Instruments Law). It is a personal defense which cannot be used as a defense against a holder in due course. A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Section 57, supra).

Letters “A”, “B” and “C” are incorrect because for the reasons stated above. 53. Letter “C” is the correct answer. A payer of honor is not a secondary party. He is the one who when the bill has

been protested for non-payment, he may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn (Section 171, Negotiable Instruments Law). When a bill has been paid for honor the payer is subrogated for, and succeed to, both the rights and duties of the holder as regards the party to whose honor he pays and all parties liable to the latter (Section 175, supra).

Letter “A” is incorrect because acceptor for honor is a secondary party. He is one by such acceptance engages that he will on due presentment pay the bill according to the terms of his acceptance, provided it shall not have been paid by the drawee, and provided also that it shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him (Section 165, supra) Letter “B” is incorrect because a drawer is also a secondary party, for he is the person drawing or making the instrument, or the person giving the order to pay. Letter “D” is incorrect because an endorser is one who negotiates the instrument and thus a secondary party.

54. Letter “C” is the correct answer. The indorsement must be an indorsement of the entire instrument. An

endorsement which purports to transfer to the endorsee a part only of the amount payable, or which purports to transfer the instrument to two or more endorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to residue (Section 32, Negotiable Instrument Law). Thus endorsement which pays in part to C P500.00 and another P500.00 to D is valid.

Letter “A” is incorrect because the same is valid because there is endorsement of the entire instrument to C and D. Letter “B” is incorrect because where the instrument has been paid in part, it may be validly indorsed as to the balance which is P500.00. Letter “D” is incorrect because there is valid endorsement because the transfer is to C and D as partners and not severally.

55. Letter “D” is the correct answer. Where the instruments was made or accepted for accommodation of the

drawer, notice of dishonor must be given to him because as an accommodation indorse he is entitled to notice of dishonor otherwise he is discharge from liability (11 Am, Jur. 2nd ed,. 880)

Letters “A”, “B” and “C” are incorrect because as provided notice of dishonor is not required to be given to the drawer in either of the following case: a) where the drawer and drawee are the same person; b) when the drawee is a fictitious person or a person not having capacity to contract; c) when the

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drawer is the person to whom the instrument is presented for payment; d) where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; and e) where the drawer has countermanded payment (Section 114, Negotiable Instrument Law).

56. Letter “B” is the correct answer. A negotiable instrument is not discharge when the principal debtor becomes

the holder of the instrument before, at or after maturity in his own right. If he becomes the holder of the instrument before maturity the right to demand has not yet arises, thus the principal debtor is not released nor the instrument is discharge.

Letters “A”, “C” and “D” are incorrect because a negotiable instrument is discharge: a) by payment in due course by or on behalf of the principal debtor; b) by payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; c) by the intentional cancellation thereof by the holder; d) by any other act which will discharge a simple contract for the payment of money; and e) when the principal debtor becomes the holder of the instrument at or after maturity in his own right (Section 119, Negotiable Instruments Law).

57. Letter “C” is the correct answer. An endorsement is facultative when the endorser enlarges his liability by

waiving usual demand and notice of dishonor. Letter “A” is incorrect because this is a not an alternative endorsement. Letter “B” is incorrect because a qualified endorsement constitutes the

endorser a mere assignor of the title to the instrument. It may be made by adding to the endorser’s signature the words “without recourse” or any words of similar import (Section 38, supra).

Letter “D” is incorrect because an endorsement is restrictive if it prohibits the further negotiation of the instrument; constitute the endorsee the agent of the endorser; or vest the title in the endorsee in trust for or to the use of some other person (Section 36, supra).

58. Letter “B” is the correct answer. When the promise to pay to A or order P20,000.00 on June 30 the instrument

is not payable at a determinable future time because it is not stated what exact year the instrument is payable, thus it is not negotiable.

Letters “A”, “C” and “D” are incorrect because these are instruments payable on demand because no time for payment is expressed (Section 7, Negotiable Instruments Law).

59. Letter “A” is the correct answer. 60. Letter “A” is the correct answer.