RFBT 3- LAW ON NEGOTIABLE INSTRUMENTS

Pre-test

1. The following are the functions of negotiable instruments, except

a. They are substitutes for money
b. They increase the purchasing medium in circulation
c. They increase credit transactions
d. They are intended as legal tender
2. It is an attribute of a negotiable instrument which means that as the instrument is passed from one person
to another, secondary contracts are entered into thereby increasing the chances of the holder to collect
the amount payable on the instrument.
a. Accumulation of secondary contracts
b. Negotiability
c. Assignability
d. Tenderability
3. It is an attribute of a negotiable instrument which allows it to be passed from one hand to another similar
to money, so as to give the holder in due course the right to hold the instrument and collect the sum
payable, for himself free from personal defenses available to prior parties.
a. Accumulation of secondary contracts
b. Negotiability
c. Assignability
d. Tenderability
4. The following are the distinctions between assignment of non-negotiable promissory note and negotiation
by general indorsement of negotiable promissory note, except
a. Assignment is applicable to non-negotiable promissory note while negotiation is applicable to
negotiable promissory note
b. The transferee in assignment is called an assignee while the transferee in negotiation is called a holder
c. The transferor in assignment is called an assignor while the transferor in negotiation is called a general
endorser if there is indorsement
d. Assignment of credit is governed by negotiable instruments law while negotiation is governed by law
on sales.
5. The following are the kinds of negotiable instruments, except
a. Promissory note
b. Bill of exchange
c. Checks
d. Bill of lading
6. Which of the following is a negotiable instrument?
a. Certificate of stock
b. Letter of credit
c. Trust receipt
d. Bond indenture of a bonds payable
7. Which of the following statements pertains to negotiable promissory note?
a. It is an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to
order or to bearer
b. It is an unconditional order in writing addressed by one person (drawer) to another (drawee) signed
by the person giving it (drawer), requiring thwe person (drawee0 to whom it is addressed to pay on
demand or determinable future time a sum certain in money to order or to bearer
c. It is a special type of bill of exchange drawn on a bank payable on demand
d. It pertains to checks and promissory notes.
8. The following are the essential requisites of a negotiable promissory note, except
a. It must be in writing and signed by the maker
b. It must contain an unconditional promise to pay a sum certain in money
c. It must be payable on demand, or at a fixed or at a determinable future time
d. It must specify the place where the payment shall be made
9. The following are the essential requisites of a negotiable bill of exchange, except
a. It must be in writing and signed by the drawer
b. It must contain an unconditional order to pay a sum certain in money
c. It must contain an unconditional promise to pay a sum certain in money
d. The drawer or payee must be different persons
10. The sum payable is sum certain for negotiable instruments although it is to be paid under the following
instances, except

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 a. With interest
b. By stated installments
c. By stated installments with escalation clause
d. With delivery of the thing other than money
11. A promise to order to pay is unconditional for negotiable instruments although coupled with the following
except
a. An indication of a particular fund out of which reimbursement is to be made
b. An indication of a particular account to be debited with the amount
c. A statement of the transaction which gives rise to the instrument
d. An order to promise to pay out of a particular fund
12. The following are considered determinable future time, except
a. At a fixed period after the date or sight
b. On or before a fixed and determinable future time specified therein
c. On or at a fixed period after the occurrence of a specified event which is certain to happen, though
the time of happening be uncertain
d. Payable upon a contingency upon the happening of the event
13. The following provisions do not affect negotiability of an instrument, except
a. Authorization of sale collateral securities in case the instrument be not paid at maturity
b. Authorization of confession of judgment if the instrument be not paid at maturity
c. Waiver of the benefit the law intended for the advantage or protection of the obligor
d. An order or promise to do any act in addition to the payment of money
14. The negotiable character of an instrument is not affected by the following circumstances, except
a. It is not dated
b. It does not specify the value given, or than any value had been given therefore
c. It does not specify the place where it is drawn to the place where it is payable
d. It is not signed by the maker or drawer
15. The following are the instances when a negotiable instrument is payable on demand, except
a. Where it is expressed to be payable on demand, or at sight or on presentation
b. Where no time for payment is expressed
c. Where an instrument is issued, accepted, or indorsed when overdue, as regards to the person issuing,
accepting or indorsing it.
d. Where it is payable at a fixed period after date or sight
16. The instrument is payable to order where it is drawn payable to the order of a specified person or to him
or his order. An order instrument may be made payable to the order of the following payees, except
a. a payee, who is not maker, drawer, or drawee
b. the drawer
c. the maker
d. bearer
17. The following are the instances when the instrument is payable to bearer, except
a. When it is expressed to be so payable to bearer
b. When it is payable to a person named therein on bearer
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. When it is payable to a specified person
18. Which of the following statements is incorrect?
a. The instrument need not to follow the language of Act No. 2031, but any terms are sufficient which
clearly indicate an intention to conform to the requirements thereof
b. Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed
“prima facie” to be the true date of the making drawing, acceptance, or indorsement, as the case
may be
c. The person to whom ante-dated or post dated instrument is delivered acquires title thereto as of the
date of delivery
d. The instrument is not valid for the reason only that it is ante-dated or post-dated even if it is not done
for an illegal or fraudulent purpose.
19. Under section 6, the date is not necessary for the negotiability of the instrument. The following are the
instances where the date may be inserted to determine the date of maturity but not essential for
negotiability, except
a. Where an instrument expressed to be payable at a fixed period after date issued undated
b. Where the acceptance of an instrument payable at a fixed period after sight is undated
c. Where interest are to be paid
d. Where the instrument is payable on demand is undated

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20. The following are the rules for the construction of the negotiable instrument where the language of the
instrument is ambiguous or there are omissions’ thereon, except
a. Where the sum payable is expressed in words and also in figures and there is discrepancy between
the two, the sum denoted by the words is the sum payable, but if the words are ambiguous or
uncertain, reference may be had to the figures to the fix amount
b. Where the instrument provides for the payment of interest, without specifying the date from which
interest is to run, the interest runs from the date of instrument, and if the instrument is undated, from
the issue thereof
c. Where the instrument is not dated, it will be considered to be dated as of the time it was issued
d. Where an instrument containing the words “ I promise to pay” is signed by two or more persons, they
are deemed to be jointly liable thereon while where an instrument containing the words “ we promise
to pay” is signed by two or more persons, they are deemed to be solidary liable
21. The signature of any party may be made by a duly authorized agent. No particular form of appointment
is necessary for this purpose; and the authority of the agent may be established as in other cases of
agency. The following are the requisites for an agent signing the instrument in behalf of principal to
escape liability on the instrument, except
a. The agent must be duly authorized by the principal
b. The agent must add words to his signature indicating that he signs as an agent, that is for on or behalf
of a principal, or in representative capacity
c. The agent must disclose his principal and need not be in the signature
d. The authority of agent must be in a Notarized Special Power of Attorney
22. Which of the following persons whose signature appears in a negotiable instrument is liable thereon?
a. A person whose signature is merely forged by another person
b. A person who signed in behalf of another person indicating that he is only signing as an agent and
disclosing his principal
c. A person whose signature appears in a sheet of paper intended merely as an autograph
d. A person who signs in a trade or assumed name
23. It is a signature which operates as a notice that the agent has but limited authority to sign, and the
principal is bound only in case the agent is so signing acted within the actual limits of his authority
a. Signature by preparation
b. Signature by procuration
c. Signature by presentation
d. Signature by preservation
24. The following statements concerning consideration and value in relation to negotiable instruments are
correct, except
a. Every negotiable instrument is deemed prima facie to have been issued for valuable consideration
b. Every person whose signature appears in a negotiable instrument is presumed to have become a
party thereto for value.
c. Value is any consideration sufficient to support a simple contract
d. Lending a name constitutes value that will make the accommodating party primarily liable to the
negotiable instrument
25. He refers to a person who gives valuable consideration for an instrument issued or negotiated to him and
he will be deemed as such in respect to all parties who become such prior to that time
a. Holder in due course
b. Holder for value
c. Holder in bad faith
d. Holder in good faith
26. He is the one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving
value therefore, and for the purpose of lending his name to some other person and he shall be liable to
a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be acting
as such.
a. Third party
b. Accommodation party
c. Stranger
d. Non-liable party
27. The following statements pertain to the incidents in the life of negotiable instrument particularly bill of
exchange. Which of the following refers to negotiation?
a. It is the first delivery of the instrument complete in form to a person who takes it as a holder(issuance)
b. It refers to the transfer of possession with intent to transfer title consisting principally by placing the
transferee in possession of the instrument(endorsement)
c. It is the transfer of an instrument form one person to another as to constitute the transferee the holder
of the instrument(negotiation)

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 d. It consist of exhibiting the bill to the drawee, and demanding that he accepts it, that is, signify his
assent to the order or command of the drawer(presentment)
28. How may an instrument payable to bearer or bearer instrument be negotiated?
a. It may be negotiated by mere indorsement
b. It may be negotiated by indorsement with delivery of the instrument
c. It may be negotiated by mere delivery
d. Either B or C
29. How is instrument payable to order or order instrument negotiated?
a. It is negotiated by mere indorsement
b. It is negotiated by indorsement with delivery of the instrument
c. It is negotiated by mere delivery
d. Any of the above
30. What is the effect if an instrument originally payable to bearer is negotiated by indorsement plus delivery?
a. It remains to be a bearer instrument that may be negotiated by mere delivery
b. It becomes an order instrument that must be negotiated by indorsement plus delivery
c. It becomes a non- negotiable instrument
d. It is equivalent to assignment of credit
31. In case an instrument payable to order is merely delivered without indorsement, which is true?
a. The transferee becomes a holder of a negotiable instrument.
b. The transferee shall not be subject to personal defense.
c. The transferee acquires the right to compel the transferor to indorse the instrument ot the former.
d. The transferee cannot collect the amount form the maker under any instances.
32. It is the method of transferring a non-negotiable instrument whereby the assignee is merely 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. It occurs in a negotiable instrument payable to order that is negotiated by
mere delivery.
a. Indorsement
b. Assignment
c. Negotiation
d. Discounting
33. The following statements concerning indorsement of negotiable instrument are correct, except
a. The indoresement must be written on the instrument itself or upon a paper attached thereto.
b. The signature of the indorser, without additional words, is a sufficient indorsement.
c. The indorsement must be an indorsement of the entire instrument.
d. An indorsement which purports to transfer to the indorse a part only of the amount payable, or which
purports to transfer the instrument to two or more indorses severally is a valid negotiation of the
instrument.
34. It is a paper which is attached to a negotiable instrument and where the indorsement is written.
a. Allonge
b. Attaché
c. Align
d. Average
35. Which of the following statements concerning the indorsement of negotiable instruments is correct ?
a. Where the name of the payee or indorsee is wromgly designated or misspelled , he may indorse the
instrument as therein described adding, if he thinks fit, his proper signature
b. Where any person is under obligation to indorse in a representative capacity, he may indorse in such
terms by indicating that he is merely an agent and disclosing his principal to negate personal ability.
c. Both A and B
d. Neither A nor B
36. What is prima facie presumption of law regarding the time of indorsement where an instrument does not
bear date after the maturity of the instrument?
a. Every negotiation is deemed prima facie to have been effected before the instrument was overdue.
b. Every negotiation is deemed prima facie to have been effected after the instrument was overdue.
c. Every negotiation is deemed prima facie to have been effected at maturity date.
d. None of the above.
37. What is the prima facie presumption of law regarding the place of indorsement in the absence of contrary
evidence?
a. Every negotiation is deemed prima facie to have been effected at the place where the instrument is
dated.
b. Every negotiation is deemed prima facie to have been effected at the place where the instrument is
accepted.

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 c. Every negotiation is deemed prima facie to have been effected at the place where the instrument is
issued originally.
d. Every negotiation is deemed prima facie to have been effected at the place where the instrument is
discharged.
38. In case an instrument payable to order is merely delivered without indorsement and the transferor
indicates the indorsement at a date later than the date of delivery, when does the negotiation takes
effect for the purpose of determining whether the transferee is a holder in due course?
a. At the time the indorsement was actually made.
b. At the time of the delivery of instrument.
c. At the time of filing the case to compel the transferor to indicate the indorsement.
d. At the time of the original issuance of instrument.
39. Which of the following statements is true if a holder negotiates the instrument to a prior party?
a. The prior party may reissue and further negotiate the instrument if he is not an accommodated party
by the maker or acceptor and the instrument is not yet discharged by any other means.
b. The instrument is automatically discharged even if the prior party is general indorser.
c. After maturity date, the instrument may still be renegotiated by the prior party even if he is the
accommodated party by the maker or acceptor.
d. The prior party is entitled to enforce payment of the instrument against any intervening party to whom
he was primarily liable.
40. Where an instrument is payable to the order of two or more payees or indorsees who are not partners,
who must indorse the instrument to effectuate valid negotiation?
a. All of two or more payees or insorsees unlees the one indorsing has the authority to indorse for others.
b. Anyone of the payees because the instrument is presumed to be solidary.
c. Anyone of the payees because the payees are presumed to be partners.
d. Anyone of the payees because there is presumption of mutual agency among the payees.
41. Where an instrument is payable to the order of two or more payees or indorsees who are partners, who
must indorse the instruments to the effectuate valid negotiation?
a.) All of two or more payees or indorses unless the one indorsing has the authority to indorse for others.
b.) Anyone of the payees only if there is authority given by majority of the partners.
c.) Anyone of the payees only if there is authority given by all of the partners.
d.) Anyone of the payees because there is presumption of mutual agency among the payees.
42. The following are the effects restrictive indorsemenrt, except
a. Prohibits the further negotiation of the instrument
b. Constitutes the indorsee the agent of the indorser
c. Vests the title in the indorsee in trust for or to the use of some other person
d. Waives the benefit provided by the law to the indorser.
43. Which of the following indorsements may render the instrument non-negotiable or may prohibit the further
negotiation of the instrument?
a. Conditional indorsement
b. Qualified indorsement
c. Restrictive indorsement
d. Facultative indorsement
44. The holder of a negotiable instrument may at the any time strike or cancel out any indorsement not
necessary to his title. What are the effects of striking or cancelling out of indorsement?
I. The indorser whole indorsement is struck out is relieved from his liability on the instrument.
II. All subsequent indorsers are likewise relieved from their liability on the instrument.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
45. The following are the requisites of a holder in due course (COGI), except
a. He hold an instrument that is complete and regular upon its face
b. He becomes the holder of the instrument before it is overdue, and without notice that it had been
previously dishonored if such was the fact
c. He takes the instrument in good faith and for value
d. That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless
46. In which of the following instances is a holder still considered to be in due course even to a limited or
partial extent?
a. Where an instrument payable on demand is negotiated to him on an unreasonable length of time
after its issue

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 b. When the holder obtained the instrument, or any signature thereto, by fraud, duress, or force and
fear, or other unlawful means, or for an illegal consideration, or when he negotiates It in breach of
faith, or under such circumstances as amount to a fraud
c. When the holder has actual knowledge of the infirmity or defect, or knowledge of such facts that his
action in taking the instrument amounted to bad faith
d. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the
person negotiating the same before he has paid the full amount agreed to bepaid thereto, he will be
deemed a holder in due course only to the extent of the amount therefore paid by him
47. It is a type of defense of a party in a negotiable instrument which cannot be set up against a holder in
due course but available against a holder not in due course. It grows out of the agreement or conduct
of a particular person in regard to the instrument which renders in inequitable for him, though holding
legal title, to enforce it against the defendant, but which are not available against a holder in due course.
a. Movable defense
b. Immovable defense
c. Real, legal, or absolute defense (can be setup in any holder in due course ex. Incomplete, undelivered, juress, fraud
in factum-visation in the consent, minority, insanity,lack of aunthority, illegality of the contract, forgery)
d. Personal or equitable defense
48. What is the liability of a maker in a negotiable promissory note?
a. He engages that he will pay if it the general indorser will pay for it.
b. He engages that he will pay it only if notice of dishonor is given to him.
c. He guarantees the solvency if indorsers.
d. He engages that he will pay it according to its tenor.
49. What are the warranties of a maker in a negotiable promissory note by making the instruments?
a. He admits the existence of the payee.
b. He admits the capacity of the payee to indorse.
c. Both A and B.
d. Neither A nor B.
50. What is the liability of Acceptor by accepting the order by the drawer in a negotiable bill of exchange?
a. He engages that he will pay it if the general indorser will not pay it.
b. He engages that he will pay it only if notice of dishonor is given to him.
c. He engages that he will pay it according to its tenor.
d. He engages that he will pay it according to the tenor of his acceptance.

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