DMC COLLEGE FOUNDATION

Sta. Filomena, Dipolog City

2nd Semester SY: 2016-2017

SCHOOL OF BUSINESS AND ACCOUTANCY

HIGHER EDUCATION LAW ON NEGOTIABLE INSTRUMENTS

PRELIM EXAMINATION ANGEVIN B. ACAYLAR, CPA

NAME:____________________________________________ DATE:________________
COURSE/YEAR:_________________ SCORE:______________
MULTIPLE CHOICE (1 point each)
INSTRUCTION: Encircle the letter of your best choice. Strictly no erasures. Use ballpen only.

1. Which of the following 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 P P10,000 (Sgd.) M”
b. “On or before October 30, 2016, I promise to pay P or order P10,000 (Sgd.) M”
c. “Sixty days after sight, I promise to pay 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”
2. Statement 1: A makes a promissory note payable to the order of B and delivers it to C.
Under the Law, C is considered as the holder.
Statement 2: “Due to B P5,000 on demand” signed by A, is a good promissory note.
a. Both are true c. No. 1 is true, No. 2 is false
b. Both are false d. No. 1 is false, No. 2 is false
3. M makes a negotiable promissory note payable to P or order, P indorses to A but it to B.
Who is the holder?
a. B c. A
b. P d. None of the above
4. 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 fictitious or non-existing persons and such fact was
known to the person making it so payable.
d. none of the above.
5. 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.
6. 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, P30,000”. (Sgd. M)
c. “I promise to pay or order P30,000 on June 30.” (Sgd. M)
d. “I promise to pay P or order P5,000.” (Sgd. M)
7. Holder H altered the amount of a negotiable note from P10,000 to P110,000 then
negotiated the note to P.
a. If P is a 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 a holder in
due course.
d. P10,000 if P is a holder in due course.

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8. M makes a promissory 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, 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 for P3,000.
d. B and C are not liable to D.
9. 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 parties, the drawer, the payee and the drawee.
10. What feature or characteristic of a bill of exchange is 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.
11. 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 Y the sum of $900 at DBP Manila.”
b. “I promise to pay to the order of Y the sum of $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 Philippine pesos or in
U.S. dollars.”
d. “I promise to pay E or bearer in Manila the sum of P27,000 in Philippine pesos or
U.S. dollars at the option of the holder.”
12. Which instrument is negotiable?
a. “I promise to pay P20,000.” (Signed: Jose Santos)
b. “Pay to Pedro Torres or order P20,000 if he marries Maria Cunanan.”
c. “Good to Mario Cruz or order P20,000.” (Signed: Jose Santos)
d. “I promise to pay Oscar Bamba or order 20 canvases of IR rice in January, 2016.”
(Signed: Jose Santos)
13. Statement 1: An ante-dated or post-dated instrument is valid, and it does not lose its
negotiable character just because it is ante-dated or post-dated, provided it is not
done for an illegal or fraudulent purpose.
Statement 2: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was thereon before delivery.
a. Both are true. c. No. 1 is true, No. 2 is false.
b. Both are false. d. No. 1 is false, No. 2 is true.
14. Statement 1: An order or promise to pay is unconditional though coupled with an
indication of particular fund of which reimbursement is to be made, or particular account
to be debited with the amount.
Statement 2: An order or promise to pay out of a particular fund is not unconditional.
a. Both are true. c. No. 1 is true, No. 2 is false.
b. Both are false. d. No. 1 is false, No. 2 is true.
15. Three of the following are not negotiable. Which is the exception?
a. “Good to B or order P3,000 upon demand.” (Sgd. M)
b. “Pay to bearer G P3,000: To B.” (Sgd. A)
c. “Pay to bearer J. Cruz P10,000 and reimburse yourself from the money I deposited
with you.” (Sgd. A)
d. “Pay to P. Reyes or bearer P2,000 out of the funds I deposited with you.” To: B (Sgd.
A)
16. An instrument is rendered non-negotiable if

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 a. an instrument is rendered 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. none of the above.
17. Which of the following instruments is non-negotiable?
a. “Pay to P or order P20,000 out of cash in your possession.” (Addressed to X, Signed
D)
b. “Pay to P or order P20,000 and reimburse yourself out of my cash in your
possession.” (Addressed to X, Signed D)
c. “I promise to pay P or order, P20,000.” (Signed D)
d. “Pay P or order P20,000.” (Addressed to X, Signed by the D)
18. Which of the following instruments is negotiable?
a. “I promise to pay C or order P20,000 if he will pass the CPA examination in October
this year.” (Signed D)
b. “I promise to pay C or order P20,000 in four installments.” (Signed D)
c. “I promise to pay C or order P20,000, 60 days after the death of his father.” (Signed
D)
d. “I promise to pay C P20,000.” (Signed D)
19. Which of the following is an example of a non-negotiable instrument?
a. Treasury Warrant c. Bill of Lading
b. Money Order d. All of the above
20. In order to satisfy the requirements of a promissory note:
a. It must be payable to order or bearer.
b. It must be signed by the maker.
c. It must contain an unconditional promise to pay a sum certain in money.
d. All of the above.

TRUE or FALSE (1 point each)

INSTRUCTION: Write “True” if the statement is correct and “False” if the statement is incorrect.
_________21. An instrument which is payable to bearer is negotiated by mere delivery. This
statement is true.
_________22. An ante-dated or a post-dated instrument is valid, and it does not lose its
negotiable character just because it is ante-dated or post-dated, provided this is
not done for an illegal or fraudulent purpose. This statement is false.
_________23. An instrument where no time for payment is expressed is payable on
demand. This statement is false.
_________24. Where the instrument is not dated, it will be considered to be dated as of the
time it was issued. This statement is true.
_________25. An instrument which contains an order or promise to do any act in addition to
the payment of money is not negotiable. This statement is true.
_________26. 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. This statement is false.
_________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. This statement is true.
_________28. The liability of an acceptor is secondary. This statement is false.
_________29. The drawer’s liability is primary. This statement is true.
_________30. Absence or failure of consideration is a matter of defense as against any
person not a holder in due course. This statement is false.
_________31. The liability of an indorser is primary. This statement is false.
_________32. An order or promise to pay out of a particular fund is not negotiable. This
statement is true.

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 _________33. Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty. This statement is false.
_________34. An order or promise to pay is unconditional though coupled with an indication
of particular fund out of which reimbursement is to be made, or particular
account to be debited with the amount. This statement is false.
_________35. The validity and negotiable character of an instrument is not affected by the
fact that it is not dated. This statement is false.

IDENTIFICATION (1 point each)

______________36. It is a written contract for the payment of money which is intended as a
substitute for money and passes from one person to another as money, in
such a manner as to give a holder in due course the right to hold the
instrument free from defenses available to prior parties.
______________37. It is that attribute or property whereby a bill or note or check may pass
from hand to hand similar to money so as to give the holder in due course the
right to hold the instrument and to collect the sum payable for himself free
from defenses.
______________38. Person who executes the written promise to pay.
______________39. Person who draws the bill of exchange and orders the drawee to pay a
sum certain in money.
______________40. The person who is given the command by the drawer to pay the
payee.
______________41. The person who, by the terms of the note or the bill, is to receive
payment.
______________42. A non-existent person is one who does not exist in the sense that he
was not intended to be the payee by the drawer.
______________43. This is a form of a bill of exchange issued by a person (drawer)
ordering his bank to pay the person named.
______________44. A written document indicating that a named warehouseman has
received certain goods in trust, which he agrees to deliver on presentation of
the document.
______________45. This defense is available only against holders who are not in due
course.

ENUMERATION (1 point each)

a. What are the principal features of negotiable instruments?
46.
47.
b. What are the requisites of negotiability?
48.
49.
50.
51.
52.
c. Who are the parties involved in a promissory note?
53.
54.
d. Who are the parties involved in a bill of exchange?
55.
56.
57.
e. How do you negotiate an instrument payable to order?
58.
59.

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f. What are the requisites of a negotiable promissory note?
60.
61.
62.
63.
g. According to Sec. 6, the validity and negotiable character of an instrument are not
affected by the fact that: (Give 2 facts)
64.
65.

b. ESSAY(5 points each)

A. M makes the following note: “I promise to pay P or order __________on demand. (Sgd.)
M.” M delivers this mechanically incomplete note to P on April 16, 2016. He authorized P
to put in the blank only P10,000. Suppose that P, however, puts in the blank P20,000.
Then he indorses the note to C, C to D, and D to E, who is a holder in due course. Can
E collect from M P20,000? Why?

B. Suppose that A signed a blank check which was subsequently stolen by B who filled in
the amount and a fictitious name as payee. B then indorsed the payee’s name and
passed the check to C, C to D, D to E, and E to F, who is a holder in due course. Can F
enforce the instrument against A? Why?

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