LAW ON NEGOTIABLE INSTRUMENTS (CPA Review School of the Philippines Ap!il "# $%&'T)es*+,G!o)p $%&'T)es*+,G!o)p " &- A p!o.isso!, p!o.isso!, note !e+*s/ 0I p!o.ise to p+, B o! o!*e! P&%%# %%%- S1*- A2 B ne1oti+te* the note to C- L+te!# 3 stole the note f!o. C- 3 in*o!se* the note to 4- Which of the followin1 st+te.ents is co!!ect5 +7c*-
If A p+,s 4 in 1oo* 1oo* f+ith# f+ith# A6s A6s o7li1+tio o7li1+tionn is e8tin1)ishe e8tin1)ishe** 4 c+n c+n coll collec ectt f!o f!o. .B 4 c+nn c+nnot ot coll collec ectt f!o. f!o. A 4 c+n c+n coll collec ectt f!o f!o. .C
Ans- C $- Which of the followin1 is not ne1oti+7le )n*e! the ne1oti+7le inst!).ents l+w5 +- P+, to E o! o!*e o!*e!! P$%# P$%# %%%% %%-- (S1* (S1*-- M To/ A 9 Accepte* +n* p+,+7le :% *+,s f!o. to*+,7- P+, to o!*e o!*e!! of ; P$%# P$%# %%%% %%-- (S1* (S1*-- E To N< Accepte* fo! P$%# %%% c- P+, to P o! o!*e o!*e!! P$%# P$%# %%%%%%- (S1*(S1*- ; ; To C< Accepte* if P tops the CPA CPA 7o+!* e8+.s *- P+, to T P&%#%%% P&%#%%% =% *+,s +fte! si1ht (S1*(S1*- G To >< Accepte* p+,+7le on Oct- $'# $%&" Ans- 4 =- Which of the the followin1 st+te.ents st+te.ents is co!!ect5 +- If the the .+?e! .+?e! is +n inf+nt# inf+nt# the p!o.isso!, p!o.isso!, note is not not ne1oti+ ne1oti+7le 7le 7- Love +n* +ffection +ffection c+n 7e v+li* v+li* consi*e!+ consi*e!+tion tion c- En*o!se.e En*o!se.ent nt of +n inf+n inf+ntt t!+nsfe!6s t!+nsfe!6s title title to + ne1oti ne1oti+7le +7le inst!) inst!).ent .ent *- P+!ties P+!ties p!io! p!io! to the inf+n inf+ntt c+n esc+pe esc+pe li+7il li+7ilit, it, 7, invo?in1 invo?in1 s)ch inf+nc, inf+nc, Ans- C "- When + 7ill of e8ch+n1e is p+,+7le on *e.+n*# p!esent.ent p!esent.ent .)st 7e .+*e+- On the *+, it f+lls *)e 7- 7- Bef Befo! o!ee the the .+t) .+t)!i !it, t, *+t *+tee c- Within Within + !e+so !e+son+7 n+7le le ti.e ti.e +fte +fte!! its iss) iss)ee *- Within Within + !e+son+ !e+son+7le 7le ti.e ti.e +fte! +fte! the the l+st in*o!se.e in*o!se.ent nt the!eof the!eof Ans- 4
@- Consi*e! the two st+te.entsSt+te.ent &< An inst!).ent o!i1in+ll, p+,+7le to o!*e! .+, 7e conve!te* into 7e+!e! inst!).ent St+te.ent $< An inst!).ent o!i1in+ll, p+,+7le to o!*e! .+, 7e conve!te* into +n o!*e! inst!).ent +- T!)e# t!)e 7- +lse# f+lse c- +lse# t!)e *- T!)e# f+lse Ans- 4 :- A p!o.isso!, note !e+*s / 0I p!o.ise to p+, B o! o!*e! P&%%# %%%- S1*- A2 B +ssi1ne* the note to C- L+te!# 3 stole the note f!o. C- 3 in*o!se* the note to 4- Which of the followin1 st+te.ents is co!!ect5 +7c*-
If A p+,s 3 in 1oo* f+ith# A6s o7li1+tion is e8tin1)ishe* C c+n collect f!o. B C c+nnot collect f!o. A o! B C c+n collect f!o. A
Ans- 4 '- A iss)e* + ne1oti+7le p!o.isso!, note to B- The!e w+s + tot+l f+il)!e of consi*e!+tion- B in*o!se* the note to C# + hol*e! is *)e co)!se- C in*o!se* the note to 4 who ?new of the f+il)!e of consi*e!+tion- Which is co!!ect5 +7c*-
4 .+, collect f!o. A 4 .+, collect f!o. C 4 .+, collect onl, f!o. B 4 .+, collect f!o. eithe! B o! C 7)t not f!o. A
Ans- A - A chec? *!+wn 7, the 7+n? )pon itself +n* p+,+7le to + thi!* pe!son/ +- Ce!tifie* chec? 7- M+n+1e!6s chec? c- T!+vele!6s chec? *- C!osse* Chec? Ans- B
- Consi*e! these two st+te.ents/
St+te.ent &< An inst!).ent o!i1in+ll, p+,+7le to o!*e! .+,7e conve!te* into + 7e+!e! inst!).ent St+te.ent $< An inst!).ent o!i1in+ll, p+,+7le to 7e+!e! .+,7e conve!te* into +n o!*e! inst!).ent +7c*-
T!)e# t!)e +lse# f+lse +lse# t!)e T!)e#f+lse
Ans- 4 &%- This is not ne1oti+tion of + ne1oti+7le inst!).ent/ +- Assi1n.entD 7- 4elive!, of + 7e+!e! inst!).entD c- In*o!se.ent co.plete* 7, *elive!, of +n inst!).ent p+,+7le to o!*e!*- 4elive!, of +n inst!).ent to the p+,eeAns- A &&-The followin1 +!e consi*e!e* ne1oti+tion e8cept +- Iss)e 7- In*o!se.ent pl)s *elive!, c- 4elive!, *- None of the. ef. Answer: D 1- &$- A p!o.isso!, note is p+,+7le to 7e+!e! when/ h- +- It is p+,+7le to + pe!son n+.e* the!ein o! 7e+!e! i- 7- The onl, in*o!se.ent is 7l+n? - c- The n+.e of p+,ee *oes not s)ppo!t to 7e the n+.e of + pe!son ?- *- All of the +7ove lm. Answer: D n. o- &=-A .+?es + note p+,+7le to 7e+!e! +n* *elive!s it to B- in t)!n# B ne1oti+te* it 7, .e!e *elive!, to C# who in*o!ses it speci+ll, to 4- 4 ne1oti+tes it 7, speci+l in*o!se.ent to E# who ne1oti+tes it to 7, .e!e *elive!,- A *i* not p+,- One is not co!!ect/ +- .+, 1o +fte! E# his i..e*i+te t!+nsfe!o! 7- 7- c+nnot hol* 4 li+7le 7ec+)se *i* not +cF)i!e title th!o)1h the in*o!se.ent of 4 c- 4 c+n hol* C li+7le +s C is not onl, his i..e*i+te t!+nsfe!o! 7)t he 1ot his title th!o)1h C6s speci+l in*o!se.ent *- c+n hol* B +n* C li+7le 7ec+)se the, +!e p+!ties p!io! to pq. Answer: D r.
s- 14.A is the *!+we! of + 7ill +**!esse* to B# p+,+7le to C o! o!*e! &% *+,s +fte! +ccept+nce fo! P #%%%- C ne1oti+te* the 7ill to 4# to E +n* E to - The 7ill w+s +ccepte* 7, B when p!esente* 7, If the si1n+t)!e of A is fo!1e# which of the followin1 is f+lse5 t- +- B is !eF)i!e* to p+, even if the si1n+t)!e of A is + fo!1e!, )- 7- B is not !eF)i!e* to p+, since he h+s the *efence of fo!1e!, v- c- o!1e!, is consi*e!e* + !e+l *efence w- *- None of the +7ove 8y. Answer: B z. ++- &@-M is the .+?e! of + note p+,+7le to ;- C!) o! o!*e! fo! P @#%%% *)e ;)l, =%# $%%- C!) 7o!!owe* P $#%%% f!o. C p+,+7le ;)l, =&# $%% +n* ple*1e* the note 7, in*o!sin1 it to C- Which of the followin1 is co!!ect5 +7- +- p!o.isso!, note c+nnot 7e ple*1e* witho)t the consent of the .+?e! +c- 7- On ;)l, =%# $%% C c+n collect f!o. M onl, P $#%%% +*- c- on ;)l, =%# $%% C c+n collect f!o. M P @#%%% +e- *- p+!ti+l en*o!se.ent is +llowe* +fag. Answer: C ah. +i- &:-0P+, to M+!i+ o! o!*e! P $%#%%% )pon *e.+n*2# si1ne* 7, A +s *!+we! +n* +**!esse* to BM+!i+ ne1oti+te* the 7ill to C# C to 4# E stole the 7ill f!o. 4 +n* in*o!se* it to 7, fo!1in1 the si1n+t)!e of 4- in t)!n in*o!se* the 7ill to G H G to >- Which of the followin1 is f+lse5 +- +- All in*o!se!s p!io! to the fo!1e! +!e *isch+!1e* +?- 7- The *!+we! is li+7le to > +l- c- is li+7le to > +.- *-o!1e!, is !e+l *efense +nao. Answer: B
+p- &'-Which of the followin1 is ne1oti+7le5 +F- 0 I p!o.ise to p+, ;ose C!) o! o!*e! P &%#%%% o! *elive! & cow $% *+,s +fte! *+te +t the option of the hol*e!2 si1ne* 7, M +s .+?e! +!- o!1e!, is + !e+l *efence+s- o!1e!, is + not + !e+l *efence+t- None of these au. Answer: A +v- &-When + 7ill of e8ch+n1e is p+,+7le on *e.+n*# p!esent.ent .)st 7e .+*e +- On the *+, it f+lls *)e 7- Befo!e the .+t)!it, *+te c*- Within + !e+son+7le ti.e +fte! its iss)e e- Within + !e+son+7le ti.e +fte! the l+st in*o!se.ent the!eof
f. 1+7c-
Answer: C &-In*o!se.ent of +n infi+n t!+nsfe! tittle to + ne1oti+7le inst!).entT!)e +lse None of these hAnswer: A
i. j. ?- $%-An inst!).ent o!i1in+ll, p+,+7le to 7e+!e! .+, 7e conve!te* into +n o!*e! inst!).ent+- T!)e 7- +lse c- None of these lm. Answer: B no- $&- Which of the followin1 inst!).ents is not ne1oti+7le 7ec+)se it l+c?s the !eF)i!e.ents of +n )ncon*ition+l p!o.ise o! o!*e! to p+, + s). ce!t+in in .one,5 +- Bill of e8ch+n1eD 7- Chec?D c- Ce!tific+te of stoc?D d. P!o.isso!, note-
p. Ans. C q. 22. This is not negotiation of a negotiable instrument: a. b. c. d.
Assignment; Delivery of a bearer instrument; Indorsement completed by delivery of an instrument payable to order; Delivery of an instrument to the payee.
r. Ans. A s. 2. The !"#$$$ bills issued by the Central %an& and in circulation are considered: a. b. c. d.
Chec&s. %ills of e'change. (egal tender. !romissory notes.
t. Ans. C u. 2). The follo*ing are functions of a negotiable instrument. Choose the e'ception. a. b. c. d.
It increases purchasing po*er in circulation. As legal tender. As substitute for money. It increases credit circulation.
v. Ans. % *. 2+. ,I promise to pay to bearer# -uan dela Cru# the sum of !2$#$$$/. 01igned -ose !a. The promissory note is: a. b. c. d.
3egotiable promissory note payable on demand; 3egotiable promissory note payable to order; 3egotiable promissory note payable to bearer; 3on4negotiable.
'. Ans. D y. 25. 6llen signed a promissory note in favor of 7lor promising to pay !"$#$$$# $ days after sight. 8ho can sue on this note and enforce the obligation9 a. b. c. d.
%oth 6llen and 7lor. nly 6llen nly 7lor. 3either 6llen nor 7lor.
. Ans. C aa.2. Atoy issued a bearer note to %oy. The note is negotiated by delivery by %oy to Cris to Doc# by Doc to 6ly# by 6ly to 7e# the holder. 7e can hold liable: a. b. c. d.
Cris. Atoy. Doc. %oy.
ab.Ans. %. ac. 2<. An instrument is rendered non4negotiable if a. There is an indication of a particular fund out of *hich reimbursement is to be made. b. There is an indication of a particular account to be debited *ith the amount. c. The instrument is payable out of a particular fund. d. Ans*er not given. ad.Ans. C ae.2=. >arcelo ma&es a promissory note for !2#$$$ payable to the order of !atricia. !atricia negotiates the note to Amel *ho# *ith the consent of !atricia# raises the amount to !2$#$$$ and thereafter indorses it to %en# %en to Cale# and Cale to Dan *ho is not a holder in due course. In this case:
a. b. c. d.
Dan can recover !2#$$$ as against >arcelo; !atricia and Amel are liable to Dan for !2$#$$$; %en and Cale are liable to Dan; Ans*er not given
af. Ans. A ag.$. 8hich of the follo*ing does not discharge a negotiable instrument9 a. b. c. d.
!ayment by ma&er of a promissory note before maturity date. Intentional cancellation of the instrument by the holder. !ayment by party primarily liable to holder or his authoried representative. ?oluntary surrender of the instrument by the holder to the ma&er *ithout collecting.
ah.Ans. A ai. ". The promise or order is conditional# hence non4negotiable9 a. ,I promise to pay % or order !5$#$$$/. 01igned @ b. ,!ay % or order !5$#$$$/. 0Addressed to signed by @ c. ,!ay % or order !5$#$$$ and reimburse yourself out of my money in your possession/. 0Addressed to @ signed by d. ,!ay % or order !5$#$$$ out of my money in your possession/. 0 Addressed to signed by @ aj. Ans*er: d
a&. 2. A promissory note as distinguished from a bill of e'change. a. It contains an unconditional order. b. The one *ho issues it is primarily liable. c. The one *ho issues it is secondarily liable. d. There are three 0 parties# the dra*er# the payee and the dra*ee. al. Ans*er: b am. . A is ma&er of a promissory note for !"$$#$$$ payable to the order of % *ho negotiates the same in favor of C. C loses the note and is found by B *ho forges the signature of C and pretending to be C negotiates the note to D# D to 6# 6 to 7 and 7 to *ho is a holder in due course. nder the circumstances *hich of these is not an incorrect statement9
a. %eing a holder in due course# can recover from ma&er A. b. The signature of C being forged# it becomes inoperative and payment cannot be enforced against him. c. 6 is not liable to 7 precisely because he *as not the one *ho forged the signature of C. d. B is not liable to any party to the instrument since his name does not appear thereon. an. Ans*er: b
ao.). A promissory note is payable to bearer *hen: ap.a.
It is payable to a person named therein or bearer a. the only indorsement is blan& b. the name of payee does not support to be the name of a person c. all of the above
aq. Ans*er: d
ar. +. >arie ma&es a promissory note payable to bearer to bearer and delivers the same to !olido# *ho negotiates it to Arman by indorsing it *ithout recourse. If the note is dishonored in the hands of arman due to insolvency >arie. a. Arman cannot recover from !olido because the latter does not *arrant >arieEs solvency. b. Arman can recover from !olido because the latter is secondarily liable on the instrument as indorser. c. Arman can recover from !olido because of breach of *arranty. d. Arman cannot recover from !olido because his indorsement is conditional. as. Ans*er: a
at. 5. 8hich of the follo*ing is not an essential element of a bill of e'change9 au. av. a. must be *ritten and signed by the dra*ee a*.
b. must contain an unconditional promise to pay a sum certain in money
a'. c. must be payable to order or bearer ay. d. dra*ee must be named therein az. Ans*er: a ba.
bb.. 8hich is not correct9 The acceptor by accepting a negotiable instrument: e. Admits the e'istence of the payee and his capacity to endorse f. Admits the e'istence of the dra*er# the genuineness of his signature and his authority to dra* the instrument. g. Admits the e'istence of the endorser# the genuineness of his signature and his authority to dra* the nstrument. h. Admits that he *ill pay it according to the tenor of his acceptance. bc. Ans*er: c
bd.<. > is the ma&er of a note for ! $#$$$ payable to C or bearer. C negotiated the note to D# D to 6# 6 to 7 and 7 to >. 8hich is correct9 i. the note is discharged F.
the noted is not discharged since there is no payment
&. > cannot re4issued the note l.
The indorsers are not discharged
be.Ans*er: a bf. =. A delivered to % the follo*ing instrument: bg.In payment of a gambling debt# A made a promissory note *hich reads: ,I promise to pay to % !"$#$$$ 1gd. A./ % indorsed the note in blan& before maturity and delivered it to C for value. 8hen due# A refused to pay and C sued %. Could C recover from %9 m. 3o# C could not sue % because % did not *rite the name of C as indorsee n. 3o# the instrument is not negotiable and % is a mere assignor of credit o. es# provided C gives notice of dishonor to % other*ise % discharged from liabilities.
p. es# the endorsement *ill be considered as an assignment# hence % *ill be liable as an assignor of the instrument. bh.
Ans*er: d
bi. )$. > is the ma&er of a note payable to -. Cru or order for ! +#$$$ due -uly $# 2$$=. Cru borro*ed ! 2#$$$ from C payable -uly "# 2$$= and pledged the note by indorsing it to C. 8hich of the follo*ing is correct9 bF. q. a promissory note cannot be pledged *ithout the consent of the ma&er r. n -uly $# 2$$= C can collect from > only ! 2#$$$ s. on -uly $# 2$$= C can collect from > ! +#$$$ t. partial indorsement is allo*ed b&. Ans*er: c bl. bm.
