LAW ON NEGOTIABLE INSTRUMENTS:

MULTIPLE CHOICE QUESTIONS

A Compilation of Multiple Choice Questions

Presented to the
Faculty of the College of Accountancy
University of Southern Philippines Foundation
Cebu City, Cebu

In Partial Fulfillment
Of the Requirements for the Course
LAW2N: Law on Negotiable Instruments

BY
ABRILLA, GRACE
AREVALO, ANDRE GOLDWYN
ANDALES, ANNE
BOLOCBOLOC, CYRILL
ESCALONA, MARIA LALYN
MERCADO, EUWILLA JUDEEN
TAMAYO, VIRGIETTE

1. The Negotiable Instruments Law of the Philippines took effect on

A.
B.
C.
D.

February
February
February
February

3,
5,
3,
5,

1912
1911
1911
1912

Answer: C
2. A quality of a bill or a note whereby it may pass from hand to hand similar to money.
A. Transferability
B. Assignability
C. Negotiability
D. Capability
Answer: C
3. 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
Answer: D
4. The counterfeit-making or fraudulent alteration of a writing.
A. Allonge
B. Forgery
C. Procuration
D. Issuance
Answer: B
5. 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.
Answer: C
6. 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.
Answer: B
7. 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. promissory note.
B. non-negotiable instrument.
C. letter of credit.
D. check.
Answer: A

8. M found a check on the street, drawn by L against ABC Bank, with Z as payee. M
forged Z's signature as an indorser, then indorsed it personally and delivered it to
DEF Bank. The latter, in turn, indorsed it to ABC Bank which charged it to the Ls
account. L later sued ABC Bank but it set up the forgery as its defense. Will it
prosper?
A. No, since the payee's signature has been forged.
B. No, since Ls remedy is to run after the forger, M.
C. Yes, since forgery is only a personal defense.
D. Yes, since ABC Bank is bound to know the signature of Y, its client.
Answer: D
9. Statement 1: If a transfer of a nonnegotiable instrument is made, it is an assignment.
Statement 2: In order to negotiate any instrument, it must be indorsed.
A. S2 is False
B. S1 is False
C. Both are True
D. Both are False
Answer: C
10. Statement 1: An instrument payable in gold in not negotiable.
Statement 2: Acceptance occurs with as signature on the back of an instrument.
A. S2 is False
B. S1 is False
C. Both are True
D. Both are False
Answer: A
11. Under the Negotiable Instruments Law, a certificate of stock is not a negotiable
instrument because it lacks the requisites of:
A. It must contain an unconditional promise or order to pay sum certain in money
B. It must be payable to order or bearer
C. It must be in writing and signed by the maker or drawer
D. It must be payable on demand or at a fixed or determinable future time
Answer: A
12. Which of the following denotes non-negotiability?
A. I promise to pay to the order of Luke the sum of P1,000 at ABC Cebu
B. I promise to pay to the order of Yngwie the sum of P4,600 and to deliver oneC.

fourth of the rice harvest in my farm

I promise to pay Nero or bearer in Cebu the sum of P20,000 in Philippine pesos or

D.

in U.S dollars
I promise to pay Erick or bearer in Cebu the sum of the P30,000 in Philippine
pesos or U.S dollars, at the option of the holder.

Answer: B
13. A check for P1,000,000 was drawn against drawee bank and made payable to Stark
Industries or order. The check was deposited with payee's account at Gotham Bank
which then sent the check for clearing to drawee bank. May the drawee bank refuse
to honor the check on ground that the serial number thereof had been altered?
A. Yes, since the serial number is an item which is an essential requisite for
B.

negotiability
No, since the serial number is not an essential requisite for negotiability and its

alteration is not a material alteration

C. Yes, because the alteration of the serial number is a material alteration
D. No, since the serial number is not an essential requisite for negotiability even if its
alteration is a material alteration

Answer: B
14. Statement 1: If a promissory note is incomplete and undelivered by the maker, a
holder in due course can still recover from the maker.
Statement 2: A holder in due course does not have the right to recover from the
maker if the maker did not deliver the complete promissory note to the payee
A. Statement 1 is true; statement 2 is true
B. Statement 1 is true; statement 2 is false
C. Statement 1 is false; statement 2 is false
D. Statement 1 is false; statement 2 is true
Answer: C
15. Adam signed a check which he inadvertently left on his desk at his Cebu office. The
same was later stolen by Bane, who filled in the amount of P3,000,000 and a
fictitious name as payee. Bane then endorsed the check in payee's name and passed
the check to Odin; thereafter Odin passed it to Peter; then Peter to Allen, and Allen to
Tom.
Q1: Can Tom enforce the instrument to Adam if Tom is a holder in due course?
Q2: Can Tom enforce the instrument against Bane?
Q3: Can Tom enforce the instrument against Odin?
A.
B.
C.
D.

Q1:
Q1:
Q1:
Q1:

Yes; Q2: Yes; Q3: Yes

Yes; Q2: No; Q3: No
No; Q2: Yes; Q3: Yes
Yes; Q2: Yes; Q3: No

Answer: C
16. Steve makes a note payable to the order of Tony who indorses it to Scott. Loki obtains
possession of the note fraudulently, forges Scott's signature and indorses it to Wade
who in turn indorses it to Peter. In this case, Peter can
A. Enforce the instrument against Steve and Tony
B. Enforce the instrument against Scott
C. Enforce the instrument against Wade
D. Answer not given
Answer: C
17. A bill of exchange to which no document is attached when presentment for payment
or acceptance is made:
A. Trade acceptance
B. Bank acceptance
C. Clean bill of exchange
D. Documentary bill of exchange
Answer: C
18. Thor issued a negotiable promissory note and authorized Hulk to fill up the amount in
blank up to P50,000 only. However, Hulk filled it up to P75,000 and negotiated the
note to Matt, a holder in due course. Which of the following is false?
A. Thor is liable only to Matt up to P50,000.
B. If Thor dishonors the note, Hulk is liable to Matt for the full amount of the note.
C. If the note is presented to Thor, he is liable to Matt for P75,000.
D. Both Thor and Hulk can be held liable for the full amount of the note.
Answer: A
No. 19-21

I promise to pay P or order 10,000.

Sgd. M

M, maker issued a note to P,payee. P, indorsed the note to A by signing his name and
delivers the same to A. Thereafter, A specially indorses the note to B. B specially indorsed it
to C,indorsee.
19. Can C negotiate the instrument by mere delivery?
A. Yes, since the order instrument was converted into a bearer instrument when it
was indorsed by A in blank.
B. Yes, because the instrument is a bearer instrument.
C. No, because the instrument is originally payable to order.
D. No, because it was indorsed specially.
Answer: C
20. If it turns out that the instrument is originally payable to bearer, can C negotiate the
instrument by mere delivery, considering the fact that it was specially indorsed to
him?
a.) Yes, since the instrument is originally payable to bearer.
b.) Yes, since mere delivery is sufficient in any negotiation,
c.) No, since it was indorsed specially to C.
d.) No, since he became the holder through indorsement and delivery.
Answer: A
21. If C delivered the instrument to D for value, what are the rights of D?
a.) D can collect payment from M, because the transfer vests in the transferee such
title as the transferor had therein.
b.) The transferee has the right to require the transferor to indorse the instrument to
him.
c.) Once indorsement is obtained, D can negotiate.
d.) All of the above.
Answer: D
No. 22-23

June 10, 2016

I promise to pay P or order 10,000.
Sgd. M

M, maker, issued the instrument to P because she likes P. P delivered the instrument to A on
June 10. Five (5) days after the delivery and prior to the indorsement, A learned of Ms
reason of the issuance of the instrument and it turns out A doesnt like P.
22. Can A collect from M, maker?
a.) Yes, since the consideration is sufficient.
b.) Yes, since upon the delivery of the instrument, A had no notice of any defect in
the instrument.
c.) No, because A doesnt like P and so M cannot be compelled to pay
d.) No, since A acquires only Ps rights.
Answer: D

23. A therefore, is not a _________.

a.) Holder
b.) Possessor
c.) Assignee
d.) Transferee
Answer: A
24. The following are true after date of maturity, except for:
a.) Negotiable instrument ceases to be negotiable
b.) Transferee ceases to be a holder in due course
c.) Transfer to such transferees subject to defense, both personal and real
d.) The contract of the contracting parties continues to be governed by Negotiable
instrument law.
e.) All are true
Answer: B
25. An instrument may be written on the following, except on:
a.) On the instrument itself
b.) In a separate paper, clipped or pinned
c.) In a separate paper, tacked on the instrument
d.) In a separate paper, pasted on the instruement
e.) B and C
Answer: B
26. The following may be made liable in a Negotiable instrument, except:
a.) Maker
b.) Drawer
c.) Indorser of a bill
d.) Drawee of a bill
e.) All may be made liable
Answer: D
No. 27-28

I promise to pay P or order 10,000.

Sgd. M

M, maker, gave the instrument to P without receiving valuable consideration. On June 22, P
negotiates the instrument to A for a partial consideration of 3,000. On June 28, A learned
that P did not give consideration to M for the execution of the instrument. Notwithstanding
such knowledge, A still paid P the balance of 7,000.
27. Based on the illustration above, the following are not true, except for:
a.) A is not a holder in due course
b.) A is a Holder in due course
c.) A is only a Holder in due course to the extent of 3,000.
d.) A is only a Holder in due course to the extent of 7,000.
Answer: C
28. For how much can A collect from P?
a.) 3,000
b.) 7,000
c.) 10,000
d.) Nothing
Answer: C

29. Marco, the maker, makes and signs a promissory note payable to the order of Piolo,
the payee. He issues the same to Piolo who indorses it to Agot, who is a minor. Agot
indorses the note to Bryan, Bryan to Charles, Charles to Harry, who is the holder. Who
may Harry collect from?
A. Marco and Piolo for the fact that they cannot raise the defense that Agot is a
minor because Agots indorsement passes title to the instrument.
B. Bryan and Charles because as indorsers, they warrant (T)hat all prior parties had
the capacity to contract.
C. Agot, if Harry is a holder in due course.
D. Both A and B
E. Both A and C
Answer: D
30. Piolo makes a promissory note payable to bearer by forging Marcos signature.
Thereafter, Piolo delivers the note to Agot, Agot to Bryan, Bryan to Charles, and
Charles to Harry, the holder. Which of the following is/are true?
A. If Harry is a holder in due course, he can hold Marco liable.
B. Agot, Bryan, and Charles are liable to Harry because they warrant (T)hat the
instrument is genuine and in all respects what it purports to be.
C. Harry cannot hold Agot and Bryan liable since the liability of a person negotiating
by mere delivery is only to the immediate transferee.
D. All of the above.
Answer: C
31. Suppose the forged promissory note on Question 30 was payable to Piolo or order.
Piolo then indorsed it to Agot, Agot to Bryan, Bryan to Charles, Charles to Harry, the
holder. Which of the following is false?
A. Harry cannot hold Marco liable because the forged signature is wholly inoperative
as to him.
B. Harry can hold Piolo liable for forging Marcos signature and liable as an indorser
on his warranty.
C. Harry can hold Agot, Bryan, and Charles liable on their warranty (T)hat the
instrument is genuine and in all respects what it purports to be
D. None of the above
Answer: D
32. Maker issues a promissory note to the order of Payee for Php50,000. Thereafter, the
Payee indorses the note to Holder as a security for his debt of Php30,000. Holder is a
holder for value to the extent of his lien of Php30,000. Maker has a personal defense
against Payee such as want of consideration, how much may Holder collect from
Maker at maturity?
A. Php30,000 if Holder is a holder in due course.
B. Php50,000 but he has the obligation to give Php20,000 to Payee.
C. Php20,000 if Holder is a holder in due course.
D. Nothing
Answer: A
33. Suppose in Question 32, Maker has a real defense against Payee, how much may
Holder collect from Maker at maturity?
A. Php30,000 if Holder is a holder in due course.
B. Php50,000 but he has the obligation to give Php20,000 to Payee.
C. Php20,000 if Holder is a holder in due course.
D. Nothing
Answer: D

34. Statement 1: A person to whom the instrument is negotiated and becomes a holder
in due course, is subject only to real defenses.
Statement 2: Want or absence of consideration is a defense against a holder in due
course.
A. Both statements are true
B. Both statements are false
C. S1 is true, S2 is false
D. S1 is false, S2 is true
Answer: C
35. Statement 1: Manolo makes and signs a note payable to Pablo or bearer. Pablo
indorses the note to Alma specially. Alma may negotiate the instrument by mere
delivery.
Statement 2: Pay to Manolo , without recourse. (Sgd) Alma is restrictive qualified.
Statement 3: When an instrument is negotiated to a prior party, the prior party can
go after the intervening parties for the amount of the instrument.
A.
B.
C.
D.

Only one statement is true

Two statements are true
All statements are true.
All statements are false.

Answer: A
36. Which of the following indorsements is a valid negotiation of the instrument?
A. Pay Gustavo Olvis, Php200,000 from the amount of Php500,000 on his note.
B. Pay to Gustavo Olvis and Luzminda Molina.
C. Pay to Gustavo Olvis, Php200,000, and Luzminda Molina, Php900,000
D. The instrument has an amount of Php500,000. Pay to Gustavo Olvis, Php200,00
Answer: B
37. The negotiable promissory note signed by M as maker for P 10,000 is payable to Sana
or bearer on September 3, 2016. M however issued the note to the payee September
20, 2016. In this case:
A. The instrument is considered non-negotiable because the date of issue is later
than the date of payment.
B. Sana can ask for payment at anytime
C. Sana can require payments only on September 20, 2016
D. Sana cannot negotiate the note
Answer: B
38. Pay to Loulou or order P 20,000 upon demand, signed by A as drawer and
addressed to B. Loulou negotiated the bill to C, C to D, E stole the bill from D and
indorsed it to F by forging the signature of D. F in turn indorsed the bill to G & G to H.
Statement No.1: All indorsers prior to the forgery are discharged
Statement No.2: The drawer is liable to H
Statement No.3: F is liable to H
Statement No.4: Forgery is real defense
A.
B.
C.
D.

Statement
Statement
Statement
Statement

Answer: C

1,3,4 are false

2,3, 4 are true
2 is false
1,2,3 are true

39. M signed a promissory note payable to C or order for P 5,000 ten days after date. C
indorsed the note to D, D to E and E to F. F, without authority from the prior parties,
altered the amount to P 15,000 then indorsed the note to G.
Statement No.1: The unauthorized alteration renders the note void
Statement No.2: G cannot require M to pay anything
Statement No.3: G can require M to pay only P 5,000 if G is a holder in due course
Statement No.4: G can require M to pay P 25,000 if G is a holder in due course
A.
B.
C.
D.

Statement
Statement
Statement
Statement

1,3,4 are true

1,2,4 are false
2 is true
1,2,3 are false

Answer: B
40. I promise to pay P or order P ______
(Sgd.) M
P without knowledge that there is an instrument for him as to amount, took it
unlawfully, filled it

up, indorsed it to A, A to B, B to C, present holder.

A. C can collect from M.

B. C cannot collect from M, but he may enforce his right against P.
C. C can collect from B or A or P,as indorsers, they warrant that the instrument is
D.

genuine and in all respect what it purports to be

Both B and C

Answer: D
41. M makes a promissory note: I agree to pay P or bearer P10000. (Sgd.M) P indorsed
it to A, X took the instrument unlawfully, forged the signature of A, and then indorsed
it to B. B indorsed the note to C. Then C indorsed the instrument to D, a holder in due
course. Which is not true?
A. D may proceed against A, the forger.
B. D may also proceed against all subsequent parties, that is, B and C.
C. D cannot proceed against M, because for M the instrument is inoperative. Ds
right is to proceed only to P, A, the forger, B and C.
D. D may also proceed against M and P.
Answer: C
42. Sejeong likes to buy the ford car of Hana for P7000 but Sejeong has only P2000 and
so she asks for a loan of P5000 from Mina. Before giving P5000 to Sejeong, Mina
required Somi and Mimi to sign jointly and severally the promissory note for P5000 in
favor of Mina which Somi and Mimi did. Upon failure of Sejeong to pay P5000, Mina
sued Somi and Mimi. In answering the complaint, Somi and Mimi stated they never
received a single centavo from the P5000 which Mina loaned to Sejeong and that
they signed the note only just to help Sejeong get the loan from Mina and this is true.
Will you absolve Somi and Mimi from the complaint of Mina?
A. Yes, because Somi and Mimi are accommodation parties, they are not liable.
B. No, Somi and Mimi are considered accommodation parties and as such are liable
to a holder for value (Mina), even Mina at the time of taking the instrument knew
them to be only accommodation parties.

C. Yes, because they did not receive any valuable consideration when executed the
instrument.
D. Yes, to a holder for value, they are not liable notwithstanding the fact they did not
receive valuable consideration.
Answer: B
43. Momo executes a promissory note payable to Pinky or bearer. Pinky indorsed it to
Annie Kim, Annie Kim to Bada, Bada to Chu. The indorsement of Annie Kim to Bada is
qualified. If Momo is insolvent, what is the right of Chu?
A. Chu may proceed against Pinky or Bada because they indorsed the instrument
unqualifiedly.
B. Chu can proceed against Annie Kim, Pinky or Bada.
C. Chu cannot proceed against Annie Kim because she indorsed the instrument
qualifiedly.
D. Both A and C.
E. A only.
Answer: D
44. Jessica Jones, Luke Cage, and Matt Murdock executed the following promissory note:
I promise to pay Wilson Fisk or order the sum of P30,000.00 on June 30, 2016.
(Sgd.) Jessica Jones
(Sgd.) Luke Cage
(Sgd.) Matt Murdock
On June 30, 2016, Wilson Fisk can collect from Matt Murdock:
A.
B.
C.
D.

P10,000.00
P30,000.00
P20,000.00
Nothing, because the note is void since it says I promise but was signed by
three persons.

Answer: B
45. The following are the requisites of a negotiable promissory instrument, except to:
A. It must contain an unconditional promise to pay a sum certain in money.
B. It must be payable to order or to bearer.
C. The drawee must be named or otherwise indicated therein with reasonable
certainty.
D. It must be payable on demand or at a fixed or determinable future time.
Answer: C
46. The following instruments were held not complete and regular on their face, except:
A. An acceptance dated April 1, 2015 and payable November 1 without the date
of maturity.
B. A bill of exchange which was accepted but the drawee was not named.
C. A check where the amount was unmistakably altered.
D. An instrument to pay to the order P200,000.00 without consideration mentioned
Answer: D
47. Which of the following wordings does not imply promise?
A. I shall pay
B. Good to the order of P
C. I acknowledge my debt
D. I agree to pay
Answer: C
48. Which of the following may be raised as defense against any holder?
A. Want of consideration.
B. Want of delivery of complete instrument.
C. Insertion of a wrong date.
D. Want of delivery of an incomplete instrument.

Answer: D
49. The separate paper attached to an instrument on which an indorsement or
acceptance of the instrument is written called:
A. Allonge
B. Memorandum
C. Enclosure
D. Attachment
Answer: A
50. Kirk indorses and delivers to Spock as security for Kirks debt in the amount of
P10,000, a promissory note for P12,000 issued by Uhura in favor of Kirk. How much
can Spock collect from Uhura?
A. P12,000.00
B. P10,000.00
C. P2,000.00
D. Nothing
Answer: A
51. Which of the following is/are negotiable instruments:
I. Pay to the order of P1,000.00 and reimburse yourself from the rentals of my house.
II. Pay to the bearer the sum of P10,000.00 out of my share of the profits.
III. Pay P or order of P10,000.00 on account of my contract with you.
a. I
b. II and III
c. I and III
d. I and III
Answer: C
52. Jessie 26, James 28 and Meowth 17, executed a promissory note:
I promise to pay Ash Ketchum the sum of P9,000.00 on July 30, 2016.
(Sgd.) Jessie
(Sgd.) James
(Sgd.) Meowth
A.
B.
C.
D.

Ash may
Ash may
Ash may
Ash may
minor.

collect
collect
collect
collect

from Jessie P9,000.00

from Jessie P6,000.00
from Jessie P1,000.00
nothing because the obligation is voidable, Meowth being a

Answer: B
53. Statement 1: An order instrument becomes a bearer instrument if one several
indorsement is an indorsement in blank.
Statement 2: A holder is the payee or indorsee of a bill or note who is in possession of
the instrument, or the bearer thereof.
Statement 3: An indorser who transfer a negotiable instrument by means of an
indorsement.
A.
B.
C.
D.

Only 1 statement is correct

Only 2 statements are correct
All statements are correct
None of the statements are correct

Answer: C
54. I promise to pay Nana or bearer P10000. (Sgd.) Minaya. Nana delivered the note to
Sejeong. Sejeong specially indorsed it to Dara, indorsee. Dara specially indorsed it to
Bomi, indorsee. Bomi delivered it to Kahi, bearer. Which of the following questions
is/are answerable by yes?
A. Can Kahi proceed against Sejeong if Minaya is insolvent?
B. Is Sejeong liable to Dara and Bomi?
C. Both A and B
D. None of the above.

Answer: B