1.

The following are the conditions to constitute a holder in due course,

except:

a. He took the instrument in good faith and for value.

b. He has knowledge of infirmity in the instrument.
c. He took the instrument complete and regular in its face.
d. He became the holder of the instrument before it was overdue.

Answer: b. He has knowledge of infirmity in the instrument. The NIL in Sec.

52 par. 5 provides that at the time of negotiation, the holder in due course must
not have notice of infirmity or defect in the title of the person negotiating it.

2. A obtained the note of M through simple fraud and negotiates it to Z, Z

to Y, Y to X, and X to E, the present holder. Which is correct?

a. E is presumed a holder in due course.

b. E is a mere holder for value only.
c. E must prove that he is actually a holder in due course.
d. All are correct.

Answer: a. E is presumed a holder in due course. Every holder is prima facie

presumed a holder in due course (sec. 59, NIL)

3. The following are the rights of an ordinary holder, except:

a. He may sue on the instrument on his own name.

b. He may receive payment in due course in effect discharges the
instrument.
c. He may enforce payment for the full amount thereof against all parties
liable thereon.
d. He holds the instrument subject to the same defenses as if it were non-
negotiable.

Answer: c. He may enforce payment for the full amount thereof against all
parties liable thereon. An ordinary holder cannot enforce payment against a
party who has a defense.

4. A) Notice of defect or infirmity to an agent is deemed a notice to the

principal.
B) Notice to a partner is a notice to the partnership.
 C) To constitute a notice of defect, holder must have actual knowledge.

a. Only A and B are incorrect.

b. Only A and C are correct.
c. All are correct.
d. All are incorrect.

5. Jeff issues a promissory note payable to the order of Ancheta. Ancheta

indorses in blank to Ryan. Paul stole the promissory note from Ryan and
delivered the note to Mansano, a holder in due course. Mansano
delivered to Joseph, who was informed by Ryan that said note was
stolen.

a. Joseph can collect from Jeff.

b. Joseph cannot collect from Jeff.
c. Joseph should ran after Paul for payment.
d. Both B and C are collect.

Answer: a. Joseph can collect from Jeff. Joseph delivered his title through a
holder in due course and was not a part a party to any fraud or illegality
affecting the instrument. Hence, Joseph is subrogated to the rights of a
holder in due course. Jeff cannot raise the personal defense of complete and
undelivered.

6. Dan, a holder in due course, came to Nick, the maker, for collection of
payment. In order for Nick to escape liability, which defense can he
interpose against Dan.

a. Failure of consideration
b. Want of delivery but complete instrument
c. Fraud in essecontractus
d. Spoliation

Answer: C. Fraud in essecontractus. This is a real defense which can stand

against a holder in due course.

7. Joey upon hearing that his best friend is in need of money issued a check
payable to his best friend Romel. Romel, for consideration, indorsed it
to Dondy, an ordinary holder. The following are all correct, except:
 a. Joey cannot be liable to Dondy.
b. Romel was a holder for value.
c. Romel should be liable to Dondy.
d. If Dondy is a holder in due course, Joey can be held liable to Dondy.

Answer: b. Romel was a holder for value. Love and affection does not
constitute value.

8. Which of the following is not a right of a holder in due course?

a. He can hold the instrument free from defect of title of prior parties.
b. He can hold the instrument free from personal defenses.
c. He can hold the instrument free from real defenses.
d. He can enforce payment of the instrument for the full amount thereof
against all parties liable thereon.

Answer: c. He can hold the instrument free from real defenses. A Real
defense is available even against a holder in due course.

9. Amer made a promissory note indicating that Nassief is the maker and is
payable to order of Amer. Amer forges Nassief’s signature. Amer
indorses the note to Norsad and Norsad to Ahmed, the present holder.

a. Whether Ahmed is a holder in due course or not, he cannot collect to

Nassief.
b. Whether Ahmed is a holder in due course or not, he can collect to
Nassief.
c. Whether Ahmed is a holder in due course or not, he can collect to Amer.
d. Ahmed can collect to Nassief, provided he is a holder in due course.

Answer: d. Ahmed can collect to Nassief, provided he is a holder in due

course. Forgery is a real defense which is available even against a holder in due
course.

10. Which is available against any holder?

a. Failure or absence of consideration.

b. Complete but undelivered instrument.
c. Incomplete but delivered instrument.
d. Incomplete and undelivered instrument.
 Answer: d. Incomplete and undelivered instrument. It is a real defense
available against any holder, whether holder in due course.

11. These stamen are presented to you:

A) Minority is a real defense available against a holder in due course.

B) Prior parties of a minor indorser can set-up minority as a defense
against a holder in due course.

a. Both statements are true.

b. Both statements are false.
c. Only statement A is true.
d. Only statement B is false.

Answer: a. Both statements are true. Minority as a defense passes to the

minor. On the minor can avail of said defense.

12. Gloria makes a promissory note for Three Million to the order of
Benigno. To secure benigno’s debt to Mar of Two million, he pledges the
nore to Mar as a security.

A) Mar may recover Three Million, holding the surplus One million for
Benigno, if the note matured.
B) If Gloria has defense of failure of consideration against Benigno,
Mar can collect Two Million if he is a holder in due course.

a. Both statements are true.

b. Both statements are false.
c. Only statement A is true.
d. Only statement B is false.

Answer: a. Both statements are true. Mar is deemed a holder for value to the
extent of his lien.

13. A) A payee may be a holder in due course.

B) A drawee may be a holder in due course.

a. Both statements are true.

b. Both statements are false.
 c. Only statement A is true.
d. Only statement B is false.

Answer: c. Only statement A is true. Payee may become a holder in due

course, so long as Sec. 52 of the NIL is complied with.

14. Mahal signed a promissory note for P500, 000 as maker, and payable to
bearer, delivered to Belo in payment for Mahal’s scheduled medical
operation that will make her tall. Later, Mahal was informed that it is
impossible to make her tall. However, Belo has already delivered the
note to Haden upon the terms of payment of P 300, 000 and the balance
in a month. Haden received notice of the defect. Which is true?

a. Haden can collect P 500, 000 because he is a holder in due course entitle
to the full amount of the instrument.
b. Haden must pay the balance before he can collect for the full amount.
c. Haden is a holder in due course to the extent of P300, 000, the amount
paid by him.
d. Haden cannot collect because of the failure or absence of consideration.

Answer: c. Haden is a holder in due course to the extent of P300, 000, the
amount paid by him. Sec. 54 of the NIL provides that, where the transferee
receives notice of any infirmity in the instrument or defect in the title of the
person negotiating the same before before he has paid the full amount agreed
to be paid therefore, he will be deemed a holder in due course only to the extent
of the amount paid by him.

15. A holder is not deemed a holder in due course, except:

a. When instrument is payable on demand is negotiated payable on

demand is negotiated in an unreasonable length of time after its issue.
b. Where instrument taken by a holder, who has not yet paid anything, and
he receives notice of infirmity in the instrument.
c. Where a holder took instrument for value and in good faith.
d. Where a postal money order is delivered to Ryan, the holder.

Answer: c. Where a holder took instrument for value and in good faith. This
constitutes a condition of a holder in due course.
FORGERY
1. Forgery is the counterfeit-making or fraudulent alteration of writing and
may consist in the signing of another’s name or the alteration of an
instrument in the name, amount, description of the person and the like,
with intent thereby to –
a. defraud
b. dishonor
c. confound
d. alter
2. What kind of defense is forgery under Section 23 of the Negotiable
Instrument Law?
a. Forgery can be presumed and the burden of proof lies on the party
alleging forgery.
b. Forgery is a real defense which means that it could be raised
against any holder, including a holder in due course.
c. Section 23 purports to declare neither the instrument totally void
nor the genuine signatures thereon inoperative.
d. Forgery is a real or absolute defense except a holder in due course
as provided in Section 58.
3. One of the various kinds of forgery is Simple forgery.
Statement A: It occurs when a person signs the name of another
without the authority of the person whose signature
it purports to be.
Statement B : Simple forgery also occurs when the person to whom
the instrument has been delivered impersonated the
real person named as payee and signs his name.
a. Both statements are true.
b. Both statements are false.
c. Only statement A is true.
d. Only statement B is true.

4. What kind of forgery is covered by Section 23 of the Negotiable

Instruments Law?
a. Section 23 applies only to forgery of signature
b. Section 23 applies both to forgery of signature and and alteration of
the instrument
c. Section 23 covers only alteration of instrument
d. Section 23 covers neither alteration and forgery

5. The rules on liabilities of parties on a forged documents in a bill of

exchange are:
 Statement A: the drawer’s account cannot be charged by the drawee
where the drawee paid
Statement B : the drawer has no right to recover from the collecting
bank
Statement C : the payee can recover from the drawer
Statement D : the payee can recover from the receipt of the payment,
such as the collecting bank

a. All statements are true.

b. Both statements A and B are true.
c. Both statements A and C are true.
d. Both statements B and C are true.
e. All statements are false.

6. A signature which is forged or made without the authority is wholly

inoperative.
a. Only the signature forged or made without authority is
inoperative, the instrument or other signatures which are genuine
are affected.
b. Signature made with authority is inoperative.
c. A signature which is not forged or made with authority is wholly
inoperative.
d. Signature forged or made with authority is wholly operative.
7. R, debtor of S, wrote a promissory note payable to the order of S. T, S’s
brother, misrepresenting himself as S’s agent, obtained the note from R,
then negotiated it to A after forging S’s signature. A indorsed it to B,
who indorsed it to F, a holder in due course. May F recover from B?
a. Yes, since the signature of S is immaterial, he being the payee.
b. No, since the forgery of S’s signature results in the discharge of B.
c. Yes, since only the forged signature is inoperative and B is bound
as indorser.
d. No, since the signature of S, the payee, was forged.

8. A found a check on the street, drawn by B against CHI Bank, with C as

payee. A forged C’s signature as an indorser then indorsed it personally
and delivered it to MET Bank. The latter, in turn, indorsed it to CHI Bank
which charged it to the B’s account. B later sued CHI Bank but it set up
the forgery as its defense. Will it prosper?
a. Yes, since forgery is only a personal defense.
b. Yes, since CHI Bank is bound to know the signature of B, its client.
c. No, since B’s remedy is to run after the forger, A.
d. No, since the payee’s signature has been forged.
9. Suppose C represents himself as Alex Santos when he is not to B. Due to
such misrepresentation, he obtained from B a note payable to the order
of Alex Santos. If B intends that the proceeds of the note will go to the
real Alex Santos and not C, but to whom B issued the note on the belief
that C was Alex Santos, would be a forgery. This is an example of:
a. Fraudulent impersonation
b. Fraud amounting to forgery
c. Double intent in fraudulent impersonation
d. Fraud in factum

10. The effects of forgery of a signature are as follows except:

a. That the signature forged or made without authority is wholly
inoperative
b. That no right to retain the instrument, or to give discharge thereof,
c. to enforce payment thereof
d. When the party against whom it its sought to enforce such right is
precluded from setting up the forgery or want of authority as a
defense.

11. 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. An example of such a defense is –
a. duress amounting to forgery
b. fraud in inducement
c. alteration
d. fraud in esse contractus

12. Forgery of bills of exchange may be subdivided into, a) forgery of an

indorsement on the bill and b) forgery of the drawer’s signature, which
may either be with acceptance by the drawee, or
a. with acceptance but the bill is paid by the drawee.
b. without acceptance but the bill is paid by the drawer.
c. without acceptance but the bill is paid by the drawee.
d. with acceptance but the bill is paid by the drawer.

13. In case the bill is originally payable to bearer, the drawee may debit the
drawer’s account in spite of the forged instruments. The reason is that:
a. the forged instruments is necessary to the title of the holder.
b. the drawee can recover from the holder.
c. the forged instruments is not necessary to the title of the holder.
The drawee cannot recover from the holder.
 d. the drawee cannot recover from the holder since the forged
instrument is necessary to the holder.

14. The following are precluded from raising the defense of forgery except:
a. The forger as he cannot raise his own malfeasance as a defense
b. The indorsees and persons negotiating the instrument by delivery
as they do not warranted that the instrument is genuine and in all
respects what it purports to be.
c. Those who are barred by estoppels or by their own negligence from
raising the defense of forgery.
d. The acceptor with respect to the signature of the drawer as he
admits the existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the instrument.

15. The rules on liabilities of parties on a forged documents in a promissory

note are:
Statement A: A party whose indorsement is forged on a note
payable to order and all parties prior to him including
the maker can be held liable by any holder.
Statement B : A party whose indorsement is forged on a noted
originally payable to bearer and all other parties prior
to him including the maker may be held liable by the
holder in due course provided that it was mechanically
complete before the forgery.
Statement C : A maker whose signature was forged cannot be held
liable by any holder.

f. All statements are true.

g. Both statements A and B are true.
h. Both statements A and C are true.
i. Both statements B and C are true.
j. All statements are false.

NEGOTIABLE INSTRUMENTS LAW

FORGERY

1. Forged signature makes the instrument

a. wholly inoperative
b. unenforceable
c. invalid
 d. none of the above

2. Forgery is a real or absolute defense when

a. drawer is guilty of negligence

b. drawer whose signature was forged
c. drawee’s negligence
d. a&b
e. b&c

3. If a bank pays a forged check

a. bank is liable
b. drawee bank bears the loss
c. drawee bank considered as paying out of its funds
d. b&c
e. all of the above

4. In the case of PNB vs. CA, for bearer instrument the signature of payee or
holder is

a. unnecessary to pass title to the instrument

b. essential to transfer title to the instrument
c. necessary to indorse the instrument
d. unnecessary to indorse the instrument
e. none of the above

5. Indorser of order instrument warrants that

a. instrument is genuine and in all respect what it purports to be

b. has a good title to it
c. all prior parties had capacity to contract
d. instrument is valid and subsisting
e. all of the above

6. In the case of PNB vs. CA, for order instruments the signature of its rightful
order is

a. unnecessary to pass the title to the instrument

b. essential to transfer title to the instrument
c. necessary to indorse the instrument
d. unnecessary to indorse the instrument
e. none of the above
7. Payment under a forged instrument is

a. violation of a bank’s duty

b. n ot th e d ra we r’s o rd e r
c. drawee’s bank right to reimbursement
d. none of the above

8. In the case of Samsung vs. FEBTC, drawee who has paid upon the forged
signature bears the loss except when

a. drawee’s negligence
b. negligence can be traced on the part of the drawer
c. a&b
d. none of the above

9. Fiduciary relationship exists between a bank and depositor where

a. simple care and diligence is required

b. extraordinary care and diligence is required
c. highest degree of care and diligence is required
d. b&c

10. Concept of general indorser guarantees

a. all prior indorsements

b. only present indorsements
c. all prior indorsements including forged indorsement.
d. None of the above

11. Chain of liability in cases involving forged indorsements

a. does not end with the drawee bank and pass liability back through the
collection chain to the party who took from the forger and to the
forger himself
b. ends with the drawee bank
c. does not end with the drawee bank and collect reimbursement
d. a&c
12. Forge is real defense when

a. it can be presumed
b. could be raised against any holder, including a holder in due course
c. raised against a holder
 d. none of the above

13. Irrespective of good faith in paying a forged check

a. bank is not liable

b. bank is liable
c. bank and drawer are liable
d. b&c
e. none of the above

14. Forgery is committed through

a. dishonor of checks
b. counterfeit and alteration
c. counterfeit-making or fraudulent alteration of writing and may consist
i n the si g n in g of an othe r’s n ame or th e alte ra ti on of an i
n strume n t in the name, amount, description of the person and the
like, with intent thereby to defraud
d. none of the above

15. In the case of Samsung vs. FEBTC, condition which bars a party from
setting up the defense of forgery

a. guilty of negligence
b. guilty of fraud
c. a&b
d. none of the above

Warranties and Liabilities

1. A person becomes a party to an instrument by:

a. certifying a check
b. accepting the instrument in which case the party becomes an
acceptor
c. indorsing a bill or note
d. signing the instrument

A person becomes a party to an instrument by signing his name thereon.

The general rule is that no person is liable on an instrument unless his
signature appears thereon.

2. The following are true about promissory note except:

 a. It must be in writing and signed by the maker.
b. The maker is the primary liable as he is the one to whom the
holder will look first for payment and the one expected to pay.
c. Due presentment and due notice of dishonor are required for
the purpose of charging the maker with liability.
d. A person placing his signature on the face of a note is prima
facie a maker and liable as such

In promissory note, due presentment for payment and due notice of

dishonor are not necessary for the purpose of charging the maker with
liability, which is necessary, however, to fix the liability of any drawer or
indorser.

3. A drawer’s liability to the holder arises after the following conditions

are complied with except:
a. The bill is presented for acceptance or for payment, as the case
may be, to the drawee.
b. The drawer promise to pay the bill absolutely whether it was
accepted or paid.
c. The bill is dishonored by non-acceptance or non-presentment,
as the case may be.
d. The necessary proceedings of dishonor are duly taken

The drawer does not promise to pay the bill absolutely, his liability to the
holder, or to any subsequent indorser, who may be compelled to pay it,
is only secondary. His liabilities are conditional and he engages to pay
the bill only after certain conditions are complied with.

4. What may be the liability of the drawee to the drawer before

acceptance?
a. A drawee is only secondary liable he is not obligated to the
payee or any holder to accept the bill
b. A drawee of the bill is not liable to the drawer before
acceptance, his liability arises only if he accepts by which he
becomes an acceptor.
c. A drawee may be liable to the drawer for breach of contract if
he refuses without valid reason to accept the bill.
d. A drawee is primarily bound on the instrument whether he
accepts it or not.

As a rule, the drawee of a bill is not liable on the instrument before

acceptance. He is not obligated to the payee or any holder to accept a
 bill although he may be liable to the drawer for breach of contract if he
refuses without valid reason to accept the bill.

5. X draws on Y a bill for P1,000 payable 30 days after sight. If Y accepts

the bill for P500 only, can the payee hold Y liable to the other P500 that
he did not accept?
a. Yes. When Y accepted the bill, he becomes primarily bound on
the instrument and he engages to pay it according to its terms,
subject to no condition whatsoever.
b. No. Y as an acceptor engages to pay only according to the
tenor of his acceptance.
c. Yes. Because no one else would pay the balance of P500 other
than Y.
d. No. X, as a drawer, is the one primarily liable.

While the maker of a note or the drawer of a bill engages to pay

according to the tenor of the instrument, the acceptor engages to pay
only according to the tenor of his acceptance, which is not the same as
the tenor of the bill itself because the acceptance may be qualified.

Answer questions no. 6 and 7 based on the case in no. 5.

6. In no. 5 case, supposed W, the payee, altered the bill which was
originally P1,000 to P1,500 and is accepted by Y for P1,500, how much is
Y liable to A, a holder in due course – for P1,000 or P1,500?
a. Y should be liable to A for P1,500 because it is the tenor of his
acceptance.
b. Y should be liable to A for P1,000 only because the collectible
debt is only P1,000
c. Y should be liable to A for P1,500 because Y, as an acceptor,
assented to the alteration.
d. Y should be liable to A for P1,000 only because a holder in due
course may enforce payment of a materially altered
instrument according to its original tenor only.

An acceptor could not have assented to the alteration by accepting an

altered bill if he had no knowledge of the alteration. A holder in due
course may enforce payment of a materially altered instrument not
according to its altered tenor but according to its original tenor. (Sec.
124, par. 2)

7. If Y merely signs the bill as acceptor, when would Y be bound to pay?

a. As soon as he accepts it.
 b. 30 days after sight.
c. After due presentment.
d. Only when he is able to do so.

As an acceptor, Y is bound to pay unconditionally the bill according to its

tenor which is the same as the tenor of his acceptance. The instrument
in no. 5 case is payable “30 days after sight.”

8. The following are true about an indorser and a drawer, except:

a. An indorser and a drawer are similar in that they are both
secondarily liable on the instrument.
b. The liabilities of the drawer are conditional in the same manner
as those of general indorser.
c. An indorser and a drawer both have warranties.
d. An indorser and a drawer are parties to a bill.

An indorser has warranties, while a drawer makes no warranties, but he

engages to pay after certain conditions are complied with. (Secs. 61 and
66)

9. M makes a promissory note payable to bearer and delivers the same to

P, who negotiates it to A by delivery. If the note is dishonored in the
hands of A due to the insolvency of M, can A recover from P?
a. Yes. By indorsing the instrument to A, P warrants payment of
the instrument.
b. No. Because M, as the maker, is the one primary liable.
c. Yes. Because if M is insolvent, P is the one secondary liable.
d. No. By indorsing the instrument to A, P does not warrant the
solvency of M.

A cannot recover from P because P does not warrant M’s solvency. P

would be liable, however, if he knew of M’s insolvency but concealed
that fact from A for he warrants that “he has no knowledge of any fact
which would impair the validity of the instrument or render it useless.”
(Sec. 65,(d))

10. In no. 9 case, supposed the note is negotiated by P to A, and A to B, all

by delivery, is P liable to B for concealing the fact that M is insolvent?
a. Yes. Because P indorsed the instrument notwithstanding the
fact that M is insolvent.
b. No. Because the warranties of P extend only to A, his
immediate transferee.
c. Yes. P and A are both liable to B as the general indorsers.
 d. No. Because M, as the maker, is the one primary liable.

When the negotiation is by delivery only, the warranty extends in favor

of no holder other than the immediate transferee. In the instant case,
the warranties of P extend only to A his immediate transferee. A, of
course, is liable to B, his immediate transferee. (Section 65)

11. If an indorser writes in addition to his signature on the back of the

instrument, “I hereby guarantee payment of this instrument”, is he
discharged from liability for lack of due presentment or due notice of
dishonor?
a. Yes. A person signing his name on the back of the instrument is
a general indorser and liable as such. Being an indorser, he is
chargeable only after presentment and notice of dishonor.
b. No. By guaranteeing the payment, he becomes a guarantor
who is now jointly liable with the principal debtor.
c. Yes. Since he did not expressly stipulate his intention to be
bound as a guarantor.
d. No. He waives the need for presentment, protest, or notice of
dishonor but his liability is only subsidiary.

If an indorser indicates his intention to be bound as guarantor, he is not

discharged from liability merely because of the lack of due presentment
or due notice of dishonor. As a guarantor, he waives the need for
presentment, protest, or notice of dishonor. Unlike, however, an
indorser, a guarantor is liable only subsidiarily after the assets of the
principal debtor have been exhausted. (Art. 2058, Civil Code)

12. M issues a promissory note to P for P500 payable on demand. P

indorses the note to A. Upon being sued by A, M claims that the
agreement between him and P was to pay only P300. Is the defense of
M correct?
a. Yes. Because he is the party privy in making the promissory
note.
b. No. Because oral agreement is inferior to the actual figure on
the instrument.
c. Yes. Because P altered the amount payable.
d. No Because M admits the existence of P and his then capacity
to indorse it.

Upon being sued by A, M cannot say that the agreement between him
and P was to pay only P300. Neither can he allege that P is a non
 existent or fictitious person. He is also precluded from setting up such
defense as minority, insanity, or ultra vires act of corporation.

13. R draws on W a bill for P500 payable 30 days after sight. Upon
presentment for payment, W paid the bill without proper acceptance.
Is R discharged from his obligation?
a. Yes. Because there is no debt anymore.
b. No. Because payment by the drawee may not be considered as
equivalent of acceptance.
c. Yes. Because payment amount to more than an acceptance.
d. No. Because payment by the drawee does not imply assent to
his obligation.

While it is true that payment by the drawee may not be considered as

equivalent of acceptance, payment implies not only acceptance but also
complaiance with drawee's obligation. Indeed, payment amounts to
more than an acceptance, for the secon dis an obligation to pay, the
first, a discharge of indebtedness.

14. The phrase "to any subsequent indorser" refers to:

a. indorsers in good faith
b. indorsers without any knowledge of any fact which would
impair the validity of the instrument or render it useless.
c. indorsers who is obliged to pay.
d. indorsers between the drawer and the holder.

The phrase "to any subsequent indorser" refers to any indorsers

between the drawer and the holder. They may also be called as
intervening indorsers.

15. A qualified indorser is liable to the following except:

a. Lack of good title to the instrument indorsed
b. lack of capacity to contract on the part of prior parties
c. insolvency of the person primary liable
d. forgery

The effect of qualified indorsement is merely to limit his liability. He is secondarily

liable for breach of his warranties as an indorser under Section 65. Warranty
liability is still present even if indorsement is qualified unless such indorsement
specifically excludes warranties. But the qualified indorser is not liable to the
indorsee if the instrument is dishonored for some other reason like the
insolvency of the person primarily liable
Multiple Choice Questions in Negotiable Instruments (Section 1-9)
1. Which of the following renders the instrument non-negotiable?
a. An indication of a particular fund our 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 or promise to pay out of a particular fund

Answer : D; the promise is conditional (Sec. 3)

e. The following instruments were presented to you for evaluation:

I. “Pay to the order of A, P20,000.”
II. “Pay to the order of A P20,000 or deliver to him a piano of the same
value, at his option.”
III. “Pay to the order of A P20,000 or deliver to him a TV of the same
value.”
IV. “Pay to the order of A a piano worth P20,000.”

Assuming all the other requisites of negotiability are present, which

of the foregoing instruments are not negotiable?
a. Instruments I and II b. Instruments I and
III
b. Instruments II and III d. Instruments III and IV

Answer: D; Sec. 5

c. The following are functions of a negotiable instrument. Choose the

exception:
a. It is a substitute for money.
b. It increases credit circulation.
c. It increases purchasing power in circulation.
d. It extinguishes obligation if its delivery is accepted by the creditor.
Answer: D
e. Which of the following instruments is not negotiable for the reason that
the instrument is not payable at a determinable future time?
a. 30 days after demand, drawer A directs B to pay C or order P10,000.
b. 20 days after the death of Z, I promise to pay to the order of B,
P10,000. Sgd. Q
10 days after A passes the Bar exams, I promise to pay to the order of B P10,000.
Sgd. CSgd. B

Answer: C
 c. Which of the following is negotiable?
a. “I promise to pay B or order P20,000 if he will pass the Bar exams
on 2013.” (Sgd.) A
b. “I promise to pay B or order P20,000 in four instalments.” (Sgd. A)
c. “I promise to pay B or order P20,000, 30 days after the death of his
father.” (Sgd.) A
d. “I promise to pay B, P20,000.” (Sgd.) A

Answer: C

e. Which of the following instruments 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 B P1,000.” (Sgd)
A
b. “On or before October 30, 2015, I will promise to pay B or his order
P10,000.” (Sgd A)
c. Sixty days after sight, I promise to pay to the order of B P5.000.”
(Sgd.) A
d. “Ten days before the death of X, I promise to pay B or his order
P10,000.” (Sgd. ) A

Answer: D

e. Which of the following instruments is negotiable?

a. “Pay to B or order P1,000 and reimburse yourself out of my money
in your hands.” (Sgd.)A/(to C)
b. “I hereby authorize you to pay P1,000 on your account to the order
of X.” (Sgd.) A
c. “I promise to pay X or order P1,000 in or before October 25.” (Sgd.
)A
d. “Please let the bearer have P1,000 and place to my account and you
will oblige.” (Sgd.) A

Answer: A
e. A certificate of stock is not a negotiable instrument because it lacks the
requirement of:
a. The instrument 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. It must be payable to bearer or order.
d. It must be payable on demand, or at fixed determinable future time.
 Answer: B

e. An instrument is considered payable on demand:

a. When no time of payment is required
b. When payable to order
c. When the last indorsement is in blank
d. When the last indorsement is restricted

Answer: A

e. Which of the following is not negotiable?

a. “Pay to C or order, P20,000 with interest at 2.5%.” To XY, signed: CB
b. “Pay to the order of C within six months from date the sum of
P20,000 with interest at 12% per annum.” To TP, signed: XY.
c. “Pay to C or bearer P20,000 six months after date. If not paid on
due date, I agree to pay collection and attorney’s fees.” To MN,
signed: DG.
d. “Pay to C or order P20,000 on instalment.” To OP, signed: AB.

Answer: D

e. When is a negotiable instrument payable to order?

a. When payable to the order of a specified person of to him or his
order
b. When payable to the order of a fictitious or non-existing person, an
such fact is known to the person making it
c. When the name of the payee does not purport to be the name of
any person
d. When the only or last indorsement is an indorsement in blank
Anwer: A

e. “I promise to pay to bearer, Juan dela Cruz, the sum of P20,000..” (Sgd.)
Jose dela Cruz. 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

Answer: D

e. 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 denoted non-negotiablity?
a. I promise to pay to the order of L the sum of $900 at the 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 P20,000 in
Philippine pesos or in US dollars.
d. I promise to pay E or bearer the sum of P27,000 in Philippine pesos
or in US dollars, at the option of the holder.

Answer: B

e. “ 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

08/30/2012.

1st rule: The maturity date of the above promissory note will be counted
30 days from date of the instrument.
2nd rule: The maturity date of the above bill of exchange will be counted
30 days from the date the instrument is accepted by Y.
a. Both rules are wrong.
b. Both rules are correct.
c. 1st rule is correct, 2nd rule is wrong.
d. 1st rule is wrong, 2nd rule is correct.

Answer: D

e. Which of the following is non-negotiable?

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

WARRANTIES AND LIABILITIES OF THE PARTIES

1. On the right bottom margin of PN appeared the signature of the
corporation’s president and treasurer above their printed names with the
phrase ““aanndd in his personal capacity.” The corporation failed to pay its
obligation. Are the officers primarily liable?
A. YES, the president and treasurer acted as accommodation party.
Accommodation party is always primarily liable.
 B. YES, the officers the officers who places their signature on the note are
prima facie makers and liable as such.
C. NO, the officers in this case acted thus accommodation party thus, they
are only secondarily liable.
D. NO, the corporate has separate juridical personality distinct from its
officers, thus, the officers signing the PN only acted as guarantor.
Hence, liability is only secondary.
AnswerB.
Reason: Persons who write their names on the face of the promissory notes
are makers and are liable as such. The officers are co-makers and as such,
they cannot escape liability arising therefrom. (Republic Planters bank v. CA,
GR No. 93073, Dec. 21, 1992)
2. Does the indorser warrant the solvency of the prior parties?
A. YES, in all cases.
B. Yes, if he is a general indorser.
C. No. The general indorser does not warrant solvency of prior parties.
D. No, the indorser only warrants the solvency of the immediate transferor.
Answer B.
Reason: The general indorser warrants the solvency of prior parties while
qualified indorser does not.
3. Who among the following is secondarily liable?
A. Juan, the maker of a promissory note who thereafter delivered it to
Pedro
B. Bingo, the drawer of a bill payable to Carlos or order
C. Charlie, who accepts the bill of exchange payable to Darling or order
D. Denver, who is named as a drawee but refused to accept the
instrument when presented by the payee.
Answer: B
Reason: Drawer, is a always secondarily liable.

4. X draws a check against his current account with Mayaman Bank in favor of
Y. Although X does not have sufficient funds, the bank honors the check
when it is presented for payment. Apparently, X has conspired with the
bank’s bookkeeper so that his ledger card would show that he still has
sufficient funds. The bank files an action for recovery of the amount paid to
Y because the case presented has no sufficient funds. Can Mayaman Bank
recover from Y?
A. YES, the bank can recover from Y, the latter being not a holder in due
course.
B. YES, the bank can recover from Y there being no sufficient funds on the
account of the drawer.
C. NO, the bank cannot recover from Y, the former being a drawee-
acceptor.
 D. NO, the bank cannot recover from Y, the former being negligent.

Answer: C.
Reason: When the bank honored the check, it became an acceptor. As
acceptor, the bank became primarily and directly liable to payee/holder Y.

5. The acceptor warrants the following EXCEPT

A. Existence of the drawer
B. Genuineness of the indorser’s signature
C. Existence of the payee
D. Authority and capacity to draw the bill
Answer B.
Reason: The acceptor does not admit the genuineness of the indorser’s
signature because it is only the signature of the drawer that he warrants
although the purported indorsement was on the bill at the time it was
accepted. (First nat. bank v. Northwestern Nat. Bank).
Portia issued a PN payable to Juliet or bearer. Juliet indorsed the note to Romeo.
Romeo placed the note in his drawer, which was stolen by the janitor William.
William indorsed the note to Antonio who in turn delivered It to Shylock, a holder in
due course, without indorsement.

6. What is the liability of Portia to Shylock?

A. Primary
B. Secondary
C. Not liable at all
D. Discharged from payment thereof

Answer A.
Reason: Portia is the maker of PN, thus she is primarily liable to Shylock, a
holder in due course. The presence of special indorsements on the PN does
not detract the fact that the bearer instrument is always negotiable by mere
delivery.

7. What is the liability of Juliet to Shylock?

A. Primary
B. Secondary
C. Not liable at all
D. Discharged from payment thereof
Answer: B.
Reason: Juliet, as a general indorser is liable to Shylock secondarily.

8. What is liability of Romeo to Shylock?

 A. Primary
B. Secondary
C. Not liable at all
D. Discharged from payment thereof

Answer C.
Reason: Romeo is not liable to Shylock because his signature was
forged. He can raise the defense of forgery.

9. An indorser is liable to the following EXCEPT:

A. All indorsers subsequent to him
B. All indorsers prior to him
C. Any holder in any order
D. None of the above.
Answer: A
Reason: Every indorser is liable to all indorsers subsequent to him , but
not those indorsers prior to him.

10. As a general rule, an agent or broker who negotiates an instrument without

indorsement is liable as:
A. Maker or drawer
B. Accommodation party
C. General indorser
D. Qualified indorser

Answer C
Reason Sec. 69 NIL. The agent or broker who negotiates an instrument
without indorsement incurs all liabilities prescribed to a general
indorser unless he discloses the name of his principal and the fact that
he is only acting as an agent.

11. The following are warranties provided by the person negotiating an

instrument EXCEPT:
A. That the instrument is genuine and in all respects what it purports to be
B. That he has a good title to it
C. That all prior parties had capacity to contract
D. That he has knowledge of any fact which would impair the validity of
the instrument or render it useless.

Answer: D
Reason: A person negotiating an instrument warrants that he has NO
knowledge of any fact which would impair the validity of the instrument
or render it useless.
12. Can a collecting bank debit the account of the depositor when the check
indorsed to it were forged?

A. YES, because the depositor of a check as indorser warrants that it is genuine

and in all respect what it purports to be.
B. YES, because the depositor of a check as holder warrants that the check is
free from any defect that impair the validity of the instrument or render it
useless
C. NO, the colle cting bank was negligent, thus it cannot recover.
D. NO, the collecting bank has no authority to debit until notice of dishonor
has been given.

Answer: B
Reason: When checks deposited had forged indorsements and the
collecting bank as a consequence of such forgery, was made to pay the
drawee bank, the collecting bank can debit the account of the depositor for
his breach of warranty. (Jai-alai Corp. of the Phil V. BPI, G.R. No. L-39432,
August 6, 1975)

13. Brad indorsed a check to Angelina. Julie stole the check from Angelina,
forged the latter’s signature and indorsed it to Pitt. Holly Bank encashed the
check upon presentment thereof by Pitt. Is the bank liable?
A. YES, it is the primary duty of the bank to know that the check was duly
endorsed by the original payee.
B. YES, the bank who encashed a stolen check always bears the loss.
C. NO, the bank is only bound to know the signature of the drawee, not of
the payee
D. NO, the bank can raise the defense of forgery since the payee’s
signature was forged.
Answer: A.
Reason: The bank has the primary duty to know that check was duly
indorsed by the original payee and, where it pays the amount of the checks
to a third person who has forged the signature of the payee, the loss falls on
the bank who encashed the checks. A bank engaged in business is invested
with public interest and its duty to protect its clients and all persons who
transacts with it. (Traders Royal bank v. RPN, G.R. No. 138510, Oct. 10, 2002)

14. The following are the liabilities of an acceptor EXCEPT:

A. Engages to pay according to the original tenor of the bill
B. Admits the existence of the drawer, the genuineness of his signature,
and his capacity and authority to draw the instrument
 C. Admits the existence of the payee
D. Admits the capacity of the payee to indorse.
Answer A
Reason: The acceptor engages to pay according to the TENOR OF HIS
ACCEPTANCE.

15. Mariah issued a check to Carrie. Carrie subsequently indorsed it to Celine.

When Celine is about to encash the check, the drawee, Superbank refused
to encash it due to insufficiency of funds. Celine sued Carrie for payment of
money. Carrie moved for dismissal of the case on the contention that
Mariah is an indispensable party. Does the argument hold water?
A. YES, there is privity between the drawer and the holder
B. YES, the drawer is liable together with the indorser.
C. NO, there is no privity between the drawer and the holder.
D. NO, indorsers are always secondarily liable.

Answer: C
Reason: The drawer is merely secondarily liable. The indorser (Carrie in the
above case) warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor, and in case they were
dishonored, she would pay the corresponding amount. After instrument is
dishonored by non-payment, indorsers cease to be secondarily liable. They
become principal debtors whose liability becomes identical to that of the
original obligor. (Tuason v. Heirs of Bartolome ramos, G.R. No. 156262, July
14, 2005)

Patrick Famillaran
1. The following are instances when a negotiable instrument is considered
to be dishonored except.
a) If it is not accepted when presented for acceptance.
b) If it is not paid when presented for payment at maturity.
c) If presentment is excused or waived and the instrument is past due
and unpaid.
d) All of the above.

Answer: D

2. Who are entitled to notice of dishonor?

a) Maker
 b) Acceptor
c) Drawer, indorsers or their agents
d) Drawee

Answer: C

3. The Notice of Dishonor shall be in

a) Writing
b) Mere oral notice will suffice
c) Both a and b
d) None of the above

Answer: C

4. When the maturity of payment falls on a Sunday, when shall be the

presentment for payment?
a) The next succeeding business day.
b) The last working day prior to that Sunday.
c) The Friday before the Sunday.
d) The Saturday before the Sunday.

Answer: A

5. The instrument without grace falls due on April 30, 2006 which is a
Sunday, when shall be the presentment for payment?
a) Any time before the maturity date.
b) April 30, 2006 for it is the maturity date.
c) May 1, 2006 for it is the next day after April 30, 2006 which falls on a
Sunday.
d) May 2, 2006.

Answer: D

6. Is the Notice of Dishonor needs to be signed?

a) Yes, for a signature signifies acceptance.
b) No, a written notice that is not signed would not invalidate it.
c) Yes, to be sure that there is consent from the person who issued it.
d) No, as long as it is in possession of a holder in due course.

Answer: B

7. Waiver of protest constitutes

a) Waiver of formal protest.
 b) Waiver of presentment.
c) Waiver of Notice of Dishonor.
d) A and B only.
e) B and C only.
f) A and C only.
g) All of the above.
h) None of the above.

Answer: G

8. May a Bill of Exchange be addressed to more than one drawee?

a) Yes, as long as the drawees are not alternative or in succession.
b) Yes,
c) No, the drawee must be specific.
d) No, for it might cause confussion.

Answer: A

9. Instances wherein a bill of exchange may be treated as promissory note

except.
a) When the drawer and drawee are the same person.
b) The drawee is a fictitious person
c) When the drawee refuses to honor the bill.
d) The drawee has no capacity contract.

Answer: C

10. All are true about a check except

a) Always drawn on a bank or banker.
b) Supposed to be drawn against previous deposit of funds.
c) Payable on demand or at a fixed and determinable future time.
d) Need not be presented for acceptance

Answer: C

11. In banking practice, a check will be considered stale if not

presented for payment after its issue within
a) 1 year.
b) 6 months.
c) 4 months.
d) 8 months.

Answer: B
 12. The following are cases where notice of dishonor is not required to be given
to an indorser, except
a) Where the indorser is the person to whom the instrument is
presented for payment.
b) When the drawee is a fictitious person and the indorser was aware of
that fact at the time he indorsed the instrument.
c) When the holder is a holder in due course.
d) Where the instrument was made for his accommodation.

Answer: C

13. The following are effects of a bank certifying a check except

a) Making the bank primary liable on the check.
b) The drawer may issue a stop payment order.
c) It discharges persons secondarily liable if procured by the holder.
d) It is equivalent to acceptance.

Answer: B

14. How shall a Notice of Dishonor be given to joint parties who are not partners?
a) You can give the Notice to any of the parties.
b) There should only be one specific person who shall accept the notice
for the partners.
c) Notice is not required to be given to all parties as long as it is given to
the majority of the parties.
d) Notice must be given to each of them unless one has the authority to
receive it for the others.

Answer: D

15. (1) A check is always drawn on a bank or banker and always payable on
demand.

(2) A bill of exchange may not be drawn on a bank and need not be drawn
against a deposit.
a) 1 is correct and 2 is wrong.
b) 1 is wrong and 2 is correct.
c) Both are correct.
d) Both are wrong.

Answer: C
1. The following are material alterations except:
a. Substituting the words “or bearer” for “Order”
b. Writing “protest waived” above a blank indorsement
c. Changing the date from which interest is to run
d. Changing “I promise to pay” to “we promise to pay
2. Any change in the instrument which affects or changes the the liability
of the parties in any way.
a. Material alteration
b. Immaterial alteration
c. Spoliation
d. Material particular
3. Changes in the following constitutes material alteration except
a. Date
b. Sum payable
c. Interest
d. Serial number
4. When the date of the instrument is in blank. The may fill the
blank by writing the date intended.
a. Payee
b. Drawee
c. Holder
d. Maker
5. What acts are necessary to complete an instrument?
a. Mechanical act of writing, and delivery
b. Mechanical act of writing, or delivery
c. Mechanical act of writing, and issuing
d. Mechanical act of writing, or issuing
6. In order that a person may have a prima facie authority to convert a
signature on a blank paper into a negotiable instrument and fill it up for
any amount, the following must be present. Except.
a. The blank paper bears the name of the payee
b. The blank paper bears the signature of the maker or drawer
c. It was delivered by the person making the signature
d. It was delivered in order that the paper may be converted into a
negotiable instrument
7. When may blanks in the document be filled?
a. When an instrument is wanting in any material particulars
b. When an instrument is not delivered
c. When an instrument is negotiated
d. When an instrument is assigned
8. When an instrument is a mechanically incomplete but delivered
instrument, any person who becomes a party thereto after its
completion shall be liable to:
a. A holder in due course
b. Any holder
c. Maker
d. Indorser
9. It operate as a prima facie authority to fill up an instrument as such for
any amount
a. Indorsement
b. Signature
c. Blank paper
d. Delivery
10. Alteration by a stranger is called
a. Spoliation
b. Forgery
c. Mechanical act
d. Ultra vires act
11. This means the transfer of the possession of the instrument by the
maker or drawer with the intent to transfer title to the payee
a. Delivery
b. Issue
c. Assign
d. Transfer
12. ABC signs a piece of paper and delivers it to XYZ with the intention of
making the instrument negotiable
a. XYZ can fill it up for any amount
b. XYZ has implied authority to complete it
c. A and B
d. None of the above
13. It is the first delivery of the instrument complete in form to a person
who takes it as a holder
a. Assignment
b. Negotiation
c. Issuance
d. Indorsement
14. A signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a negotiable
instrument operates as a authority to fill it up as such for
any amount
a. Absolute
b. General
c. Special
 d. Prima facie
15. The writing of the signature on a paper attached to the negotiable
instrument
a. Allonge
b. Procuration
c. Forgery
d. alteration
Reiner O. Querubin

Negotiable Instruments Law

Atty. Ma. Ella Cecilia Escalante Dumlao
1st Semester 2012-2013

1. An instrument “Payable to Angel Locsin or order the sum of P1, 000. Signed X”
is:
a. Non-negotiable
b. A bearer instrument since it is an instrument payable to the
order of a fictitious person.
c. Negotiable because it complies with the requisites of
negotiability.
d. A bearer instrument since the name of the payee does not
purport to be the name of any person.

2. The negotiable character of an instrument otherwise negotiable is not affected

when it gives the an election to require something to be done in lieu of
payment in money.
a.Holder
b. Drawer
c. Drawee
d. Maker

3. Which of the following is a negotiable instrument?

a.Bonds
b. Postal Money Order
c. Trust Receipt
d. Treasury Warrant

4. The liability of the drawee is:

a. Zero liability
b. Primary
c. Secondary before acceptance
d. Secondary after acceptance
5. Which of the following is not a bearer instrument?
a. Pay to cash
b. Pay to the order of the king of Atlantis
c. Pay to john doe or order
d. Pay to the bearer, X

6. Insertion of a wrong date:

a. Avoids the instrument in the hands of a holder in due course
b. Avoids the instrument in the hands of any holder
c. Does not avoid the instrument in the hands of a holder in due
course
d. Does not avoid the instrument in the hands of any holder

7. Which of the following do not destroy the negotiability of an instrument?

a. Alternative Drawees
b. Joint Drawees
c. Drawees in succession
d. None of the above

8. When no time for payment is expressed, it is :

a.Payable on demand
b. Payable on a period fixed by the court
c. Payable on the date subsequently agreed upon
d. Payable based on the circumstances of each instrument

9. Which of the following is not one of the requisites in order that an agent who
signs a negotiable instrument escapes personal liability?
a. Duly authorized
b. Such authorization must be in writing
c. Adding words to his signature indicating that he signs as an
agent
d. Disclosed his principal

10.
I promise to pay X or order P 1,000.

(Signed) Y
To : Z

The instrument is:

a. A promissory note since it contains the word “promise”
b. A bill of exchange because it is addressed to a drawee
 c. Non-negotiable because it is ambiguous and therefore does
not conform to the requisites of negotiability
d. Either a promissory note or a bill of exchange

11. An instrument with the words “I promise to pay” signed by two or more
persons give rise to:
a. No Liability
b. Joint Liability
c. Solidary Liability
d. Either Joint or Solidary Liability depending on the holder

12. An instrument payable on February 29, 2015 is payable on:

a.Either on February 28, 2015 or on March 1, 2015
b. Demand since the date February 29, 2015 does not exist
c. Date fixed by court
d. February 29, 2016, the nearest year in which the month of
February has 29 days

13. An instrument payable to (blank) or order is:

a. Negotiable since the holder may insert the name of the payee
b. A bearer instrument because the name of the payee does not
purport to be the name of any person
c. Negotiable since it can be proven by extrinsic evidence who the
intended payee is
d. Non-negotiable

14. If the signature is so placed upon the instrument that it is not clear in what
capacity the person intended to sign, he is deemed :
a. Not a party to the instrument
b. A maker or a drawer
c. Indorser
d. Holder in due course

15. Acceleration clause dependent on the makes the instrument non-

negotiable.
a.Holder
b. Maker or drawer
c. Drawee
d. All of the above since the time of payment is not on demand, or
at fixed, or determinable future time
Choose the best answer.

1. Lando issued a promissory note in favor of Eva and authorized the

latter to fill up the amount in blank with his loan account in the
amount of P10,000.00. However, Eva inserted P100,000.00 in violation
of the instruction given to her by Lando. Eva negotiated the note to
Juan who had knowledge of the infirmity. Juan, in turn, negotiated the
note to Danilo for value and who had no knowledge of the infirmity of
the instrument. Supposed Danilo negotiated the note to Bobby for
value but with knowledge of the infirmity, can Bobby enforce the note
to Lando?

a. Yes, because Bobby took the instrument from Danilo, a

holder in due course.
b. Yes, because Bobby did not participate in the breach of trust
committed by Eva against Lando.
c. No, because Bobby had knowledge of the breach of trust
committed by Eva against Lando.
d. No, because Lando is not a holder in due course.

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 140-141 by Timoteo B. Aquino)

2. Aldo purchase an overdue negotiable promissory note signed by Bobby.

Therefore, Aldo is not a holder in due course. Can Aldo still enforce the
instrument to Booby and held the latter still liable for the amount stipulated in
the instrument?

a. No, because the promissory note is already overdue.

b. No, because Aldo is not a holder in due course.
c. Yes, because the Negotiable Instrument Law does not provide
that a holder who is not a holder in due course may not
recover on the instrument in any case.
d. Yes, because Booby cannot raise the defense that the
promissory note is overdue.

(Source: Chan Wan vs. Tan Kim, G.R. No. L-15380, September 30,
1960, 109 Phil. 706)
3. Azalea has with her a postdated check in the amount of P10,000.00. Azalea
needs money so she asks Betty to discount her check. In return for Azalea’s
check, Betty issued a check in favor of Azalea less the agreed interest. Which of
the following statement is not correct?
a. Betty is a holder for value if Azalea already encashed the
check.
b. Betty is a holder for value when the check she issued
was impaired without her fault.
c. Betty is a holder for value if Azalea negotiated the check
to a third person who is a holder in due course.
d. Betty can never be a holder for value.

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 132 by Timoteo B. Aquino)

4. Who is a “holder” contemplated in the Negotiable Instruments Law?

a. the payee in a bearer instrument

b. the payee or the indorsee of a bill or note who is in
possession of the instrument, or the bearer thereof
c. the bearer of an order instrument
d. the holder of a bearer instrument

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 121 by Timoteo B. Aquino)

5. Guianne issued a postdated cross-check in favor of Ryan for the payment of

dental chair which the latter promised to deliver. Ryan negotiated the check to
Jessica at a discount.
Jessica did not ask Ryan the purpose of crossing the check. Ryan, on the
other hand, failed to deliver the dental chair so Guianne ordered the drawee
bank to “STOP PAYMENT” of the check. Efforts of Jessica to collect from
Guianne failed. Can Jessica may held Guianne liable for the amount of the check?

a. Yes, Guianne is liable for the check because Jessica is a holder

in due course as the latter acquires the check in good faith
and for value.
b. Yes, Guianne is liable for the check because Jessica is a holder
in due course as the latter acquires the check without
knowledge that a crossed check is issued for deposit only.
c. No, Guianne is not liable for the check because Jessica is not a
 holder in due course as the instrument involved is a crossed
check and was supposed to be for deposit only.
d. No, Guianne is not liable because Jessica even if the latter is a
holder in due course.

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 137-138 by Timoteo B. Aquino)

6. Which of the following is not a real defense and, therefore, may not
be set up against a holder in due course?

a. incapacity as far as incapacitated person is concern

b. acquisition of instrument for an illegal consideration
c. want of delivery of incomplete instrument
d. forgery

(Source: The Philippine Negotiable Instruments Law, 2004 Edition,

page 206 by Hector S. De Leon and Hector M. De Leon, Jr.)

7. Angelo draws a bill for P10,000.00 with Budoy as payee and Xavier
as drawee. Budoy indorses the bill to Cathy, who fails to give a value
thereon. Cathy indorses the bill to Daniella who, on maturity date pay
the amount of P6,000.00 only. Five (5) days after such payment,
Daniella learns that Cathy did not give value for the instrument. Can
Daniella be considered a holder in due course?

a. No, because when Cathy failed to give a consideration to

Budoy the bill cease to become a negotiable instrument.
b. No, because the instrument is already overdue when Daniella
acquired the knowledge of the infirmity of the instrument.
c. No, because Daniella is not a holder in due course.
d. Yes, but limited to the amount of P6,000.00 or the amount
Daniella paid before she had knowledge of the infirmity.

(Source: Section 54, Negotiable Instruments Law/Commentaries and

Jurisprudence on the Commercial Law of the Philippines,
1975 Edition, page 254 by Aguedo F. Agbayani)

8. Which of the following instrument is complete and regular upon its face?

a. a trade acceptance dated September 20, 2012 and payable on

 December 20
b. a promissory note with alteration, but the court, upon
inspecting the same, found that the alteration was not
apparent
c. an accepted bill where no drawee is named
d. a check containing unmistakable evidence on its face that it
has been altered innocently

(Source: Chamberlain vs. Geer, 237 Pac. 719)

9. Which of the following statement is correct?

a. A claim of a holder in due course can still be defeated by the

person primarily and secondarily liable if the latter has in its
favor personal and real defenses.
b. A claim of a holder in due course cannot be defeated by a real
defense of forgery.
c. Forgery cannot be raised against a holder in due course.
d. A holder in due course is free from real defenses.

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 138 by Timoteo B. Aquino)

10. Alfo was indebted to Bugsy in the amount of P200,000.00. In order

to raise funds to pay his obligation, Alfo sold his old car to Chevy for
P200,000.00 on September 15, 2012. Alfo promised to deliver the car
to Chevy on October 15, 2012. However, Alfo convinced Chevy to
immediately issue a check and to make the check payable to Bugsy.
Chevy was informed that the check will be issued to pay for the loan of
Alfo’s outstanding obligation to Bugsy. Hence, Chevy issued a check in
favor of Bugsy. The check was delivered to Bugsy through Alfo. Bugsy
and Chevy was not aware that at the time the car was sold to Chevy,
it was already destroyed by fire. Can Bugsy be considered a holder in
due course?

a. No, because fraud was largely a factor for the issuance of the
check.
b. No, because it is Alfo who is indebted to Bugsy and therefore
the Bugsy should have inquire on the purpose for the issuance
of the check upon acquiring the knowledge that Alfo is
not drawer therein.
 c. Yes, because Bugsy is not a party to the contract of sale
entered into by Alfo and Chevy.
d. Yes, because Bugsy acquires the instrument in good faith and
for value and regular on its face and in good faith and for
value.

(Source: Notes and Cases on Banking and Negotiable Instruments Law

Volume I, 2009 Edition, page 136 by Timoteo B. Aquino)

11. Mary issues a note to Pedro, the payee, without consideration.

Pedro, also without consideration, indorses it Annie. But Annie, with
value, indorses the note to Baby. Which of the following
statement is incorrect?

a. Baby is deemed a holder for value not only as regard Annie

but also as regards Mary and Pedro.
b. Baby is deemed a holder for value only as regard Annie but
not as regards Mary and Pedro.
c. If Baby is a holder in due course, he may enforce payment
for the full amount of the note against Mary, Pedro and Annie.
d. If Baby is not a holder in due course, Mary can set up the
defense of want of consideration.

(Source: The Philippine Negotiable Instruments Law, 2004 Edition,

page 121 by Hector S. De Leon and Hector M. De Leon, Jr.)

12. Supposed Mary makes a promissory note for P1,000.00 to the

order of Pedro. Pedro pledges the note to Annie to secure the payment
of his debt of P800.00. The note is indorsed and delivered by Pedro to
Annie. Which of the following statement is correct?

a. If Mary has defenses against Pedro, indorser, such as absence

of consideration, Annie cannot collect on the note even if she
is a holder in due course.
b. If Mary has defenses against Pedro, indorser, such as absence
of consideration, Annie can collect the full amount of
P1,000.00 even if she is not a holder in due course.
c. On maturity of the note, even if the debt of P800.00 is not yet
due, Annie may recover the full amount of P1,000.00, holding
the P200.00 for Pedro.
d. On maturity date of the note, Annie may only recover to the
 extent of P800.00 which is also the extent of his lien.

(Source: The Philippine Negotiable Instruments Law, 2004 Edition,

page 123 by Hector S. De Leon and Hector M. De Leon, Jr.)

13. Supposed Mary issues a note for P1,000.00 without placing her
signature and the name of the payee. Pedro stole the note, forged the
signature of Mary and named himself the payee thereon. Pedro
pledges the note to Annie, a holder in due course, to secure the
payment of his debt of P800.00. The note is indorsed and delivered by
Pedro to Annie. Can Annie may recover from the instrument?

a. Yes, Annie may recover P1,000.00 from Mary because she is a

holder in due course.
b. Yes, because Annie is a holder for value to the extent of
P800.00 which is also the extent of his lien.
c. No, because as against Mary, Annie acquired no right to
enforce the instrument because forgery is a real defense and
may be set up even against a holder in due course.
d. No, because the signature of Mary is inoperative.

(Source: The Philippine Negotiable Instruments Law, 2004 Edition,

page 128 by Hector S. De Leon and Hector M. De Leon, Jr.)

14. Reema purchased from Banco ng Filipino a cashier’s check for

P800,000.00. The check was stolen from the Manager of Banco ng
Filipino to whom Reema entrusted the check for safekeeping.
Investigation pointed to Amy as the culprit. Reema immediately
demanded “stop-payment” order.
Ben, the holder of the check, when asked how he came to
possess the check said that it was paid to him by Amy in a “certain
transaction” but refused to demonstrate further. Is Ben a holder in due
course?

a. No, because Ben refused to say how and why the check was
passed to him by Amy.
b. No, because from the moment the check was stolen, no one
outside of Reema can be termed a holder in due course as the
latter had not indorsed it in due course.
c. Yes, because Ben acquired the check in good faith and for
value.
d. Yes, because Ben had no knowledge that the check was stolen
 by Amy.

(Source: Mesina vs. Intermediate Appellate Court, 145 SCRA 497)

15. Kathleen is induced through simple fraud committed by Denise to

issue a promissory note in favor of the latter. Denise indorsed the note to Alva.
Alva has noticed of the fraud but did not take part in it. Alva indorsed the note to
Betty, a holder in due course.
Assuming Alva, with valuable consideration, reacquires the note from
Betty. Can Alva enforce the note against Kathleen?

a. Yes, because Alva acquires the note Carla, a holder in due

course.
b. Yes, because Alva acquires the note in exchange for some
valuable consideration. Thus, Alva acquires the status of a
holder in due course.
c. No, because Alva acquires the note in bad faith.
d. No, because the act of Alva in negotiating the note to a holder
in due course in order to cut-off Kathleen’s defense upon her
reacquisition of the note may be considered fraud.

(Source: The Philippine Negotiable Instruments Law, 2004 Edition,

page 213 by Hector S. De Leon and Hector M. De Leon, Jr.)