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MAY 11, 2015
NAME: __________________________
I. Answer the following questions. If an item is answerable by Yes
or No, do not answer with a simple YES or No. Explain it briefly. (5
points each) GOOD LUCK!
1. What is Section 1 of the Negotiable Instruments Law?
2. What is the purpose of the enactment of the Negotiable
Instruments Law?
3. What are the functions of a Negotiable Instruments Law?
4. Define the following: (1) a negotiable promissory note, (2) a bill
of exchange and (3) a check.
5. You are Pedro Cruz. Draft the appropriate contract language for
(1) your negotiable promissory note and (2) negotiable bill of
exchange, each containing the essential elements of a negotiable
6. Who are the parties to a promissory note?
7. Who are the parties to a bill of exchange?
8. MP bought a used cellphone from JR. JR preferred cash but MP is
a friend so JR accepted MPs promissory note for P10,000.00. JR
thought of converting the note into cash by endorsing it to his
brother KR. The promissory note is a piece of paper with the
following hand-printed notation: MP WILL PAY JR TEN THOUSAND
Below this notation MPs signature with 8/1/ 00 next to it,
indicating the date of the promissory note. When JR presented
MPs note to KR, the latter said it was not a negotiable instrument
under the law and so could not be a valid substitute for cash. JR
took the opposite view, insisting on the notes negotiability. You
are asked to referee. Which of the opposing views is correct?
9. What constitutes a determinable future time?
10. PN makes a promissory note for P5, 000.00, but leaves the
name of the payee in blank because he wanted to verify its correct
spelling first. He mindlessly left the note on top of his desk at the
end of the workday. When he returned the following morning, the
note was missing. It turned up later when X presented it to PN for
payment. Before X, T, who turned out to have filched the note from
PNs office, had endorsed the note after inserting his own name in
the blank space as the payee. PN dishonored the note, contending
that he did not authorize its completion and delivery. But X said he

had no participation in, or knowledge about, the pilferage and

alteration of the note and therefore he enjoys the rights of a holder
in due course under the Negotiable Instruments Law. Who is
correct and why?
11. What are the 2 kinds of delivery? Explain each.
12. X, Y, and Z signed a promissory note in favor of A stating: We
promise to pay A on December 31, 2001 the sum of P5, 000.00.
When the note fell due, A sued X and Y who put up the defense that
A should have impleaded Z. Is the defense valid?
13. May the signature be made through an agent? How should the
authority be shown?
14. What is a signature by procuration? What is the effect thereof?
15. What constitutes a holder for value?
16. What is the nature of the relationship between
accommodation party and an accommodated party? Explain.


II. Identify if the following instruments are Negotiable or Not. If an

instrument is Non-Negotiable, explain what makes it nonnegotiable. (5 points each)

I promise to pay ABC or bearer
the sum of FiftyThousand Pesos
if his father should die within 5

I promise to pay ABC or bearer

the sum of Fifty Thousand Pesos
in Central Bank Notes of Fifty-Peso
Bill on December 5, 2015.


August 30, 2015

I promise to pay ABC or order the
sum of Ten Thousand Pesos in two


August 30, 2015

I promise to pay ABC or order
the sum of Ten Thousand Pesos
in two installments.


1. A promissory note states, on its face: I, X, promise to pay Y the
amount of Php 5,000.00 five days after completion of the on-going
construction of my house. Signed, X. Is the note negotiable?
A. Yes, since it is payable at a fixed period after the occurrence of a
specified event.
B. No, since it is payable at a fixed period after the occurrence of an event
which may not happen.
C. Yes, since it is payable at a fixed period or determinable future time.
D. No, since it should be payable at a fixed period before the occurrence of a
specified event.
2. B borrowed Php1 million from L and offered to him his BMW car
worth Php1 Million as collateral. B then executed a promissory note
that reads: I, B, promise to pay L or bearer the amount of Php1
Million and to keep my BMW car (loan collateral) free from any
other encumbrance. Signed, B. Is this note negotiable?
A. Yes, since it is payable to bearer.
B. Yes, since it contains an unconditional promise to pay a sum certain in
C. No, since the promise to just pay a sum of money is unclear.
D. No, since it contains a promise to do an act in addition to the payment of
3. X issued a check in favor of his creditor, Y. It reads: Pay to Y the
amount of Seven Thousand Hundred Pesos (Php700, 000.00).
Signed, X. What amount should be construed as true in such a
A. Php700, 000.00.
B. Php700.00.
C. Php7, 000.00.
D. Php700, 100.00
4. Due to his debt to C, D wrote a promissory note which is payable
to the order of C. Cs brother, M, misrepresenting himself as agent
of C, obtained the note from D. M then negotiated the note to N
after forging the signature of C. May N enforce the note against D?
A. Yes, since D is the principal debtor.
B. No, since the signature of C was forged.
C. No, since it is C who can enforce it, the not being payable to the order of
D. Yes, since D, as maker, is primarily liable on the note.

5. Which of the following indorsers expressly warrants in

negotiating an instrument that 1) it is genuine and true; 2) he has a
good title to it; 3) all prior parties have capacity to negotiate; and
4) it is valid and subsisting at the time of his indorsement?
A. The irregular indorser.
B. The regular indorser.
C. The general indorser.
D. The qualified indorser.
6. M, the maker, issued a promissory note to P, the payee which
states: I, M, promise to pay P or order the amount of Php1 Million.
Signed, M. P negotiated the note by indorsement to N, then N to O
also by indorsement, and O to Q, again by indorsement. But before
O indorsed the note to Q, Os wife wrote the figure 2 on the note
after Php1 without Os knowledge, making it appear that the
note is for Php12 Million. For how much is O liable to Q?
A. Php1 Million since it is the original tenor of the note.
B. Php1 Million since he warrants that the note is genuine and in all respects
what it purports to be.
C. Php12 Million since he warrants his solvency and that he has a good title
to the note.
D. Php12 Million since he warrants that the note is genuine and in all
respects what it purports to be.

7. P sold to M 10 grams of shabu worth Php 5,000.00. As he had no

money at the time of the sale, M wrote a promissory note
promising to pay P or his order Php 5,000. P then indorsed the note
to X (who did not know about the shabu), and X to Y. Unable to
collect from P, Y then sued X on the note. X set up the defense of
illegality of consideration. Is he correct?
A. No, since X, being a subsequent indorser, warrants
that the note is valid and subsisting.
B. No, since X, a general indorser, warrants that the note is valid and
C. Yes, since a void contract does not give rise to any right.
D. Yes, since the note was born of an illegal consideration which is a real
8. D draws a bill of exchange that states: One month from date,
pay to B or his order Php100,000.00. Signed, D. The drawee
named in the bill is E. B negotiated the bill to M, M to N, N to O, and
O to P. Due to non-acceptance and after proceedings for dishonor

were made, P asked O to pay, which O did. From whom may O

A. B, being the payee
B. N, as indorser to O
C. E, being the drawee
D. D, being the drawer