2011 MCQ

(8) A negotiable instrument can be indorsed by way of a restrictive indorsement, which prohibits further negotiation
and constitutes the indorsee as agent of the indorser. As agent, the indorsee has the right, among others, to
(A) demand payment of the instrument only.
(B) notify the drawer of the payment of the instrument.
(C) receive payment of the instrument.
(D) instruct that payment be made to the drawee.

(10) Under the Negotiable Instruments Law, if the holder has a lien on the instrument which arises either from a
contract or by implication of law, he would be a holder for value to the extent of
(A) his successor's interest.
(B) his predecessor's interest.
(C) the lien in his favor.
(D) the amount indicated on the instrument's face.

(16) P sold to M 10 grams of shabu worth Php5,000.00. As he had no money at the time of the sale, M wrote a
promissory note promising to pay P or his order Php5,000. 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 subsisting.
(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 defense.

(24) X is the holder of an instrument payable to him (X) or his order, with Y as maker. X then indorsed it as follows:
"Subject to no recourse, pay to Z. Signed, X." When Z went to collect from Y, it turned out that Y's signature was
forged. Z now sues X for collection. Will it prosper?
(A) Yes, because X, as a conditional indorser, warrants that the note is genuine.
(B) Yes, because X, as a qualified indorser, warrants that the note is genuine.
(C) No, because X made a qualified indorsement.
(D) No, because a qualified indorsement does not include the warranty of genuineness.

(25) A bill of exchange has T for its drawee, U as drawer, and F as holder. When F went to T for presentment, F
learned that T is only 15 years old. F wants to recover from U but the latter insists that a notice of dishonor must first
be made, the instrument being a bill of exchange. Is he correct?
(A) Yes, since a notice of dishonor is essential to charging the drawer.
(B) No, since T can waive the requirement of notice of dishonor.
(C) No, since F can treat U as maker due to the minority of T, the drawee.
(D) Yes, since in a bill of exchange, notice of dishonor is at all times required.

(28) X, drawee of a bill of exchange, wrote the words: "Accepted, with promise to make payment within two days.
Signed, X." The drawer questioned the acceptance as invalid. Is the acceptance valid?
(A) Yes, because the acceptance is in reality a clear assent to the order of the drawer to pay.
(B) Yes, because the form of the acceptance is really immaterial.
(C) No, because the acceptance must be a clear assent to the order of the drawer to pay.
(D) No, because the document must not express that the drawee will perform his promise within two days.

(36) If the drawer and the drawee are the same person, the holder may present the instrument for payment without
need of a previous presentment for acceptance. In such a case, the holder treats it as a
(A) non-negotiable instrument.
(B) promissory note.
(C) letter of credit.
(D) check.
(45) A bill of exchange has D as drawer, E as drawee and F as payee. The bill was then indorsed to G, G to H, and H
to I. I, the current holder presented the bill to E for acceptance. E accepted but, as it later turned out, D is a fictitious
person. Is E freed from liability?
(A) No, since by accepting, E admits the existence of the drawer.
(B) No, since by accepting, E warrants that he is solvent.
(C) Yes, if E was not aware of that fact at the time of acceptance.
(D) Yes, since a bill of exchange with a fictitious drawer is void and inexistent.

(50) 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, O's wife wrote the figure "2" on the note
after "Php1" without O's 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.

(52) Notice of dishonor is not required to be made in all cases. One instance where such notice is not necessary is
when the indorser is the one to whom the instrument is suppose to be presented for payment. The rationale here is
that the indorser
(A) already knows of the dishonor and it makes no sense to notify him of it.
(B) is bound to make the acceptance in all cases.
(C) has no reason to expect the dishonor of the instrument.
(D) must be made to account for all his actions.

(59) 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.

(72) The rule is that the intentional cancellation of a person secondarily liable results in the discharge of the latter.
With respect to an indorser, the holder's right to cancel his signature is:
(A) without limitation.
(B) not limited to the case where the indorsement is necessary to his title.
(C) limited to the case where the indorsement is not necessary to his title.
(D) limited to the case where the indorsement is necessary to his title.

(75) X executed a promissory note in favor of Y by way of accommodation. It says: "Pay to Y or order the amount
of Php50,000.00. Signed, X." Y then indorsed the note to Z, and Z to T. When T sought collection from Y, the latter
countered as indorser that there should have been a presentment first to the maker who dishonors it. Is Y correct?
(A) No, since Y is the real debtor and thus, there is no need for presentment for payment and dishonor by the
maker.
(B) Yes, since as an indorser who is secondarily liable, there must first be presentment for payment and
dishonor by the maker.
(C) No, since the absolute rule is that there is no need for presentment for payment and dishonor to hold an
indorser liable.
(D) Yes, since the secondary liability of Y and Z would only arise after presentment for payment and dishonor
by the maker.

(86) P sold to M a pair of gecko (tuko) for Php50,000.00. M then issued a promissory note to P promising to pay the
money within 90 days. Unknown to P and M, a law was passed a month before the sale that prohibits and declares
void any agreement to sell gecko in the country. If X acquired the note in good faith and for value, may he enforce
payment on it?
(A) No, since the law declared void the contract on which the promissory note was founded.
(B) No, since it was not X who bought the gecko.
(C) Yes, since he is a holder in due course of a note which is distinct from the sale of gecko.
(D) Yes, since he is a holder in due course and P and M were not aware of the law that prohibited the sale of
gecko.

(87) P authorized A to sign a bill of exchange in his (P’s) name. The bill reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The bill was drawn on P. B indorsed the bill to C, C to D, and D to E.
May E treat the bill as a promissory note?
(A) No, because the instrument is payable to order and has been indorsed several times.
(B) Yes, because the drawer and drawee are one and the same person.
(C) No, because the instrument is a bill of exchange.
(D) Yes, because A was only an agent of P.

(88) Z wrote out an instrument that states: "Pay to X the amount of Php1 Million for collection only. Signed, Z." X
indorsed it to his creditor, Y, to whom he owed Php1 million. Y now wants to collect and satisfy X's debt through
the Php1 million on the check. May he validly do so?
(A) Yes, since the indorsement to Y is for Php1 Million.
(B) No, since Z is not a party to the loan between X and Y.
(C) No, since X is merely an agent of Z, his only right being to collect.
(D) Yes, since X owed Y Php1 Million

(94) A bill of exchange states on its face: "One (1) month after sight, pay to the order of Mr. R the amount of
Php50,000.00, chargeable to the account of Mr. S. Signed, Mr. T." Mr. S, the drawee, accepted the bill upon
presentment by writing on it the words "I shall pay Php30,000.00 three (3) months after sight." May he accept under
such terms, which varies the command in the bill of exchange?
(A) Yes, since a drawee accepts according to the tenor of his acceptance.
(B) No, since, once he accepts, a drawee is liable according to the tenor of the bill.
(C) Yes, provided the drawer and payee agree to the acceptance.
(D) No, since he is bound as drawee to accept the bill according to its tenor.

(95) May the indorsee of a promissory note indorsed to him "for deposit" file a suit against the indorser?
(A) Yes, as long as the indorser received value for the restrictive indorsement.
(B) Yes, as long as the indorser received value for the conditional indorsement.
(C) Yes, whether or not the indorser received value for the conditional indorsement.
(D) Yes, whether or not the indorser received value for the restrictive indorsement.

(99) P authorized A to sign a negotiable instrument in his (P’s) name. It reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The instrument shows that it was drawn on P. B then indorsed to C, C to
D, and D to E. E then treated it as a bill of exchange. Is presentment for acceptance necessary in this case?
(A) No, since the drawer and drawee are the same person.
(B) No, since the bill is non-negotiable, the drawer and drawee being the same person.
(C) Yes, since the bill is payable to order, presentment is required for acceptance.
(D) Yes, in order to hold all persons liable on the bill.

2012 MCQ

23. A issued a check in the amount of Php20,000 payable to B. B endorsed the check but only to the extent of
Php10,000. Which statement is most accurate?
a. The partial indorsement is not a valid indorsement, although will result in the assignment of that part.
b. The partial indorsement will invalidate the whole instrument.
c. The endorsee will be considered as a holder in due course.
d. The partial indorsement is valid indorsement up to the extent of the Php10,000.