negotiable instruments

Q#1:
A draws a bill payable to B or order with X, as the drawee. The bill was successively endorsed to C, D, E and F, holder. X does not pay and F has duly protested non-payment. Y pays for the honor of C.

Which of the following statement is wrong?

a. D is discharged.
b. E is discharged.
c. C is discharged.
d. Y can ask reimbursement from A.

Answer: C

All parties subsequent to the party whose honor it is paid are discharged but the payor for honor is subrogated for, and succeeds to both the rights and duties of the holder as regards for the party whose honor he pays and all the parties liable to the latter.

Q#2:
When an endorser waives presentment and notice of dishonor, he increases his liability. His endorsement is:

a. Facultative endorsement
b. Qualified endorsement
c. Alternative endorsement
d. Restrictive endorsement

Answer: A

A facultative endorsement is one where the indorser enlarges his liability by waiving the usual deman and notice of dishonor.

Q#3:
Ariel issued a note to Brando. There was a total failure of consideration. Brando issued the note for consideration to Cecil who is a holder in due course. Cecil indorsed the note to David who knew of the failure of consideration. Can David successfully collect from Ariel?

a. No, because David knew the failure of consideration.
b. No, although David acquired the rights of Cecil, a holder in due course and he was not a party to any illegality.
c. Yes, because David acquired the note for consideration.
d. No, becuase David is not a holder in due course.

Answer: C

Sec. 58 of Negotiable Instrument Law provides that in the hands of any holder other than the holder in due course, the negotiable instrument is subject to any defenses as if it were non-negotiable. But a holder who derives through a holder in due course and who is not a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

David, a holder in due course, may go against Ariel beacuse of Sec. 58. David acquired all the rights of Cecil, a holder in due course. It is worth noting the David acquired the rights of Cecil because he was not a party to fraud; otherwise, he would be disqualified.

1. The Negotiable Instruments Law of the Philippines took effect on
A. June 2, 1911
B. July 2, 1911
C. June 1, 1911
D. July 1, 1911

2. Negotiable instruments allow a person to avail of his existing credit.
A. Substitute for money
B. Medium of exchange
C. Medium of credit transactions
D. All of the above

3. It is a form of deferred payment
A. Credit
B. Money
C. Debt
D. Currency

4. Which law applies primarily to crossed checks?
A. Negotiable Instruments Law
B. New Civil Code
C. U.S. Uniform Commercial Code
D. Code of Commerce

5. Which law applies primarily to promissory notes?
A. Negotiable Instruments Law
B. New Civil Code
C. U.S. Uniform Commercial Code
D. Code of Commerce

6. It is a special type of bill of exchange
A. Promissory Note
B. Check
C. Money
D. Special Bill

7. A quality of a bill or a note whereby it may pass from hand to hand similar to money.
A. Tranferability
B. Assignability
C. Negotiability
D. Capability

8. An instrument is non-negotiable under the Negotiable Instruments Law (NIL) if it states:
A. The amount is payable out of a particular fund.
B. There is a stipulation that interest shall be paid.
C. Designates the account out of which reimbursement is to be made.
D. Designates the account where the amount payable shall be debited.

9. The following are persons involved in a bill of exchange, except:
A. Drawer
B. Maker
C. Drawee
D. Payee

10. Which of the following bills of exchange may be treated as a promissory note by the holder?
A. To C. Pay P100.00 to the order of P. Signed A.
B. To X. Pay P1,000.00 to P or bearer. Signed X.
C. To Drawee. Pay P10,000 to P or order. Signed Drawer.
D. To Metrobank. Pay P100,000 to bearer. Signed Mr. Luhit.

11. Statement I: Payment by check extinguishes an obligation. Statement II: A check is always drawn on a bank.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

12. Statement I: An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. Statement II: An instrument that gives the holder an election to require something to be done in lieu of payment of money is negotiable.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

13. The following are bearer instruments, except:
A. “I promise to pay bearer P1,000”
B. “I promise to pay P or bearer P1,000”
C. “I promise to pay to the order of Harry Potter P1,000”
D. “I promise to pay Ms. Eyas or order P1,000”

14. Statement I: Once a bearer instrument, always a bearer instrument. Statement II: A bearer instrument becomes an order instrument if it has been specially indorsed.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

15. The following are parties to a bill of exchange, except:
A. Drawer
B. Drawee
C. Acceptor
D. Payee

16. He makes the promise and signs the instrument.
A. Maker
B. Drawer
C. Payee
D. Drawee

17. He is ordered to pay under the instrument.
A. Maker
B. Drawer
C. Payee
D. Drawee

18. He is the person to whom the promise is made or the instrument is made payable.
A. Holder
B. Referee
C. Payee
D. Acceptor

19. The following are exceptions to the general rule that only persons who sign the negotiable instrument are liable thereon, except:
A. Agent who fails to disclose his principal
B. Written promise to accept a bill before it is drawn
C. Acceptance of a bill on a separate paper
D. Persons signing under a trade name

20. Order by one person to another to pay money to a third person.
A. Payable to order
B. Good order
C. Mail order
D. Bill of exchange

21. Statement I: In case of conflict between words and figures, the words control. Statement II: The written words prevail over the printed words.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

22. If this is the last indorsement, the instrument may be negotiated by delivery.
A. Special
B. Restrictive
C. Blank
D. Qualified

23. The counterfeit-making or fraudulent alteration of a writing.
A. Allonge
B. Forgery
C. Procuration
D. Issuance

24. Ante-dating or post-dating a negotiable instrument
A. is not invalid
B. is valid if done for an illegal purpose
C. is valid if done for a fraudulent purpose
D. is invalid

25. M wrote a complete promissory note payable to bearer. The note was stolen and his signature forged. It ends up in the hands of a holder in due course. Which of the following is true?
A. M can set up the defense of want of delivery of a complete instrument.
B. M is liable because he is an indorser.
C. M is not liable because the forged signature is inoperative.
D. M is liable to a holder in due course.

26. Which of the following are requirements for acceptance of a bill on a separate piece of paper?
A. acceptance must be shown to the person to whom the instrument is negotiated
B. such person must take the bill for value on the faith of such acceptance
C. A and B
D. None of the above

27. The transfer of possession, actual or constructive, from one person to another with intent to transfer title thereto
A. Delivery
B. Negotiation
C. Assignment
D. Indorsement

28. X forged the signature of an indorser on a bill of exchange payable to order. Which of the following is true?
A. Only X is liable as forger
B. All indorsers prior to the forgery are liable
C. All indorsers after the forgery are liable
D. Blank indorsers are not liable

29. M signs a blank piece of paper and delivers it to P with the intention of making the instrument negotiable.
A. P can fill it up for any amount
B. P has implied authority to complete it
C. A and B
D. None of the above

30. 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

31. They are parties who are not in direct contractual relation to each other.
A. remote parties
B. immediate parties
C. Drawers
D. Holders

32. An indorsement is made by:
A. Writing the signature on the instrument
B. Allonge
C. A and B
D. None of the above

33. There can be no partial indorsement of a negotiable instrument, except:
A. If the parties agree to a partial indorsement
B. If part of the amount has already been paid
C. If the instrument is indorsed jointly
D. If the instrument is indorsed severally

34. It is the final act essential to the consummation of an obligation under a negotiable instrument.
A. Delivery
B. Indorsement
C. Transfer
D. Signature

35. 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

36. The writing of the signature on a paper attached to the negotiable instrument.
A. Allonge
B. Procuration
C. Forgery
D. Issuance

37. The following omissions do not affect negotiability, except:
A. Date
B. Value
C. Seal
D. Order

38. The act by which a principal gives power to another to act in his place as he could himself.
A. Allonge
B. Forgery
C. Procuration
D. Issuance

39. Statement I: A due bill is a special type of bill of exchange. Statement II: Acceptor is a drawer who accepts a bill of exchange.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

40. Statement I: A person who places his signature on an instrument where it is not clear in what capacity he is signing is deemed a holder. Statement II: An instrument that states: "Pay to bearer Jill P1,000.00" is not negotiable.
A. Only Statement I is true
B. Statements I and II are true
C. Only Statement II is true
D. Statements I and II are false

1. "PAY TO MARIA IN TRUST FOR JESUS" (Sgd.) Jose, is an example of:

a. Conditional endorsement
b. Qualified endorsement
c. Facultative endorsement
d. Restricted endorsement

ANSWER: D

2. The following, except one, are the requisites for honor on a bill:

a. The bill must be previously protested for dishonor by non-acceptance or protested for better security.
b. The bill is overdue.
c. The holder must give his consent.
d. The acceptor for honor must be a stranger to the bill.

ANSWER: B

3. Which of the following is not a secondary party?

a. Acceptance for honor
b. Drawer
c. Payor for honor
d. Endorser

ANSWER: C

4. When an endorser waives presentment and notice of dishonor, he increases his liability. His endorsement is:

a. Alternative endorsement
b. Qualified endorsement
c. Facultative endorsement
d. Restrictive endorsement

ANSWER: C

5. A holder not in due course has the following rights, except:

a. He may receive payment and if the payment is in due course, the instrument is discharged.
b. He may sue on the instrument in his own name.
c. He cannot recover on the instrument.
d. He is entitled to the instrument but holds it subject to the same defense as if it were non-negotiable.

ANSWER: C

6. Which of the following is a negotiable bill of exchange?

a. Pay to the order of Y the sum of P30,000. (Sgd. X) To A or in his absence, to B.
b. Pay to the order of X the sum of P20,000. (Sgd. X) To A or B.
c. Pay to the order of X or Y the sum of P40,000. (Sgd. C) To A or B.
d. Pay to the order of Y the sum of P50,000. (Sgd. X) To A and B.

ANSWER: D

7. A feature or characteristic of a bill of exchange not found in a promissory note:

a. Promise to pay
b. Order to pay
c. Promise in writing to pay
d. Unconditional promise in writing

ANSWER: B

8. 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

9. A check drawn by the bank upon itself and payable to third person:

a. Certified check
b. Manager's check
c. Traveler's check
d. Crossed check

ANSWER: B

10. Which of the following is not a personal defense?

a. Absence of consideration
b. Forgery of a signature
c. Non-delivery of a complete instrument
d. Failure of consideration

ANSWER: B

. Which of the following instrument is negotiable? A. I promise to pay P P 10,000.00 ten days after the death of his grandfather (Sgd.M)B. Pay to the order of Superman P 10, 000.00 and reimburse yourself out of money inyour possession (Sgd. D, addressed to X)C. Ten days after passing the 2011 Bar Exams, I promise to pay P or order P 10,000.00 (Sgd. M)D. Pay to the order of P the amount of P 10, 000.00 (Sgd. D, addressed to X or Y)

Jenny is the maker of a promissory note in which she covenants to pay $1 000 to a lender on demand. Subsequently, Jenny pays an installment of $300 to the lender against this liability. What steps should Jenny take to ensure that she will not have to pay the $300 again at some later date? Do nothing. Get a written letter or receipt from the lender for the partial payment. Write "cancelled" on the note and write a new note for $700. Ensure that an endorsement is put on the note to acknowledge the partial payment of $300. Get the lender’s oral acknowledgement that the payment has been made.

Smith, the owner of The Corner Dry Cleaner, endorses the cheques he receives from his customers, as he receives them “For deposit only to bank account number 003-456738." This is an example of a payee doing what? Simply carrying out a clerical task that is no legal effect. Ensuring that the promisor will not put a stop payment on the cheque. Ensuring that the cheque will never be stolen. Ensuring that the cheque cannot be negotiated if stolen. Placing a conditional endorsement on the cheque. In which of the following situations could a bill of exchange not be negotiated? The promise to pay is conditional. The amount to be paid is “the amount owing on account." The time to pay is not determinable. All of the above. The bill of exchange could be negotiated in all of the above instances
Ruby, a 15 year old, gives a trendy local clothing store a cheque to pay for some new clothes that she has picked out for the winter season. What is Ruby’s liability on the instrument? Ruby cannot be sued on the instrument unless there is some irregularity with it. Ruby can only be sued on the instrument by a holder in due course. Ruby can be sued on the instrument because it was used to purchase necessities. Ruby can be sued on the instrument provided there are no irregularities and it was used to purchase necessities. Ruby cannot be sued on the instrument.

Milton has given a certified cheque to Palmer in payment for goods he purchased from Palmer. Palmer has not cashed the cheque. Milton is unhappy with the quality of the goods and orders the bank to “stop payment” of the cheque. Which of the following accurately reflects the consequences? Palmer would have to give the cheque back immediately and sue Milton for not paying for the goods. Palmer could use the cheque as legal tender to pay other debts. The bank, as an agent of Palmer, could cash the cheque at any time because it is certified. The bank will require that the cheque be returned to it for cancellation, or that Milton must agree to indemnify the bank if the cheque is presented for payment, before the bank will honor the "stop payment." The bank can make the cheque “N.S.F.” and return it to Palmer if he tries to cash it.

A cheque has been drawn in the amount of $500 and is dated as of today’s date. No name has been written on the cheque as the payee. Who can negotiate the cheque and by what means? By the bearer of the cheque by endorsement. By the bearer of the cheque with the written consent of the payor (drawer of the cheque). Only the intended payee of the cheque, proven on a balance of probabilities, upon delivery to the drawee bank. By the bearer of the cheque by delivery to the drawee bank It cannot be negotiated by anyone.

On June 14, Skyview Limited delivered $100 000 worth of airplane parts to Air Alberta and drew a bill of exchange on Air Alberta for that amount, payable on July 31. Air Alberta accepts the goods initially, and Skyview sells the bill of exchange to a third party for $98 000. After several days, Air Alberta realizes that the parts are inadequate. On July 31, Air Alberta refuses to honour (or pay) the bill of exchange when presented by the third party for payment. Who should the third party sue for payment? The third party can sue Skyview because it drew the instrument and it owes the third party the money. The third party cannot sue anyone because the bill of exchange has been dishonoured. The third party can sue either Skyview or Air Alberta because it is a holder in due course. The third party should sue Air Alberta because it accepted the bill of exchange. The third party can sue either Air Alberta or Skyview because each has received consideration stemming from the transaction on which the bill of exchange was a drawn.

Fred made a note dated March 1 for $1 000, payable to the order of his son, Steve, as a birthday present. The note was due March 31. Steve misplaced the note and his father refused to pay its amount until it was found. Steve did not locate the note until June 2, by which time his father had died. Steve presented the note for payment to the executor of his father’s estate, who refused to honor it. Can Steve successfully sue the estate for payment? No, because the note was gratuitous so it is not binding for a lack of consideration. Yes, because a note, unlike a cheque, cannot become stale dated. No, because a note, like a cheque, can become stale dated. Yes, because the note is a negotiable instrument that an estate is required to pay. Yes, because, although the note was gratuitous, it is binding even if it is given without consideration.

Which of the following is NOT part of the criteria for a holder in due course? The instrument is taken before it is overdue and without notice of any dishonour. The instrument is taken complete and regular on its face. The instrument is taken by someone, or through someone, who has given consideration for it. The instrument is held by a party immediate to the promisor. None of the above

Arthur writes a cheque payable Bernice. Bernice endorses the cheque over to Charles in consideration of outstanding indebtedness. Charles endorses the cheque over to his wife Donna. What type of defence(s) can Arthur use should Donna sue him demanding on the cheque? He has none. He must accept liability on the cheque. Assuming Donna is a holder in due course, Arthur may assert either a mere personal defence or a real defence. Since Donna is a remote party to him, Arthur may only assert mere personal defences. Assuming Donna is a holder in due course, Arthur can only assert a “real defence." Since Donna is an immediate party to him, Arthur may assert personal defences or real defences.

Which of the following is a legitimate form of endorsement? Endorsing a cheque “for deposit only." Endorsing a cheque “pay to my daughter Joan Smith, Signed, John Smith” Applying a stamp bearing only one’s name. Both answer 1 and 2. All of answers 1, 2 and 3.

Lorenzo drew a bill of exchange in the amount of P100,000.00 payable to Barbara or order, with his wife, Diana, as drawee. At the time the bill was drawn, Diana was unaware that Barbara is Lorenzo’s paramour. Barbara then negotiated the bill to her sister, Elena, who paid for it for value, and who did not know who Lorenzo was. On due date, Elena presented the bill to Diana for payment, but the latter promptly dishonored the instrument because, by then, Diana had already learned of her husband’s dalliance.

a. Was the bill lawfully dishonored by Diana? Explain.

b. Does the illicit cause or consideration adversely affect the negotiability of the bill? Explain.

a. No. Illegal consideration is merely a personal defense which cannot be raised against a holder in due course. In this case, Elena is a holder in due course because she received the instrument for value and without notice of any defect in the title of the person negotiating the instrument. Diana therefore cannot refuse to accept the instrument by reason of illegal consideration because it is merely a personal defense which cannot be raised against a holder in due course. The bill was not lawfully dishonored by Diana. Elena, to whom the instrument was negotiated, was a holder in due course inasmuch as she paid value therefore in good faith.

b. No, illegal consideration does not affect the negotiability of the instrument. Under the Negotiable Instruments law there are only two ways by which the negotiable character of the instrument can be terminated and this is by restrictively indorsing the instrument or by discharge through payment or otherwise. Illegal consideration is not one of the means of destroying the negotiable character of the instrument. (2009 Bar Question)

Q#1:
A draws a bill payable to B or order with X, as the drawee. The bill was successively endorsed to C, D, E and F, holder. X does not pay and F has duly protested non-payment. Y pays for the honor of C.

Which of the following statement is wrong?

a. D is discharged.
b. E is discharged.
c. C is discharged.
d. Y can ask reimbursement from A.

Answer: C

All parties subsequent to the party whose honor it is paid are discharged but the payor for honor is subrogated for, and succeeds to both the rights and duties of the holder as regards for the party whose honor he pays and all the parties liable to the latter.

Q#2:
When an endorser waives presentment and notice of dishonor, he increases his liability. His endorsement is:

a. Facultative endorsement
b. Qualified endorsement
c. Alternative endorsement
d. Restrictive endorsement

Answer: A

A facultative endorsement is one where the indorser enlarges his liability by waiving the usual deman and notice of dishonor.

Q#3:
Ariel issued a note to Brando. There was a total failure of consideration. Brando issued the note for consideration to Cecil who is a holder in due course. Cecil indorsed the note to David who knew of the failure of consideration. Can David successfully collect from Ariel?

a. No, because David knew the failure of consideration.
b. No, although David acquired the rights of Cecil, a holder in due course and he was not a party to any illegality.
c. Yes, because David acquired the note for consideration.
d. No, becuase David is not a holder in due course.

Answer: C

Sec. 58 of Negotiable Instrument Law provides that in the hands of any holder other than the holder in due course, the negotiable instrument is subject to any defenses as if it were non-negotiable. But a holder who derives through a holder in due course and who is not a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

David, a holder in due course, may go against Ariel beacuse of Sec. 58. David acquired all the rights of Cecil, a holder in due course. It is worth noting the David acquired the rights of Cecil because he was not a party to fraud; otherwise, he would be disqualified.

6. Zeke writes a check payable to "XXXXX XXXXX or Sally Jones." Sally endorses the check, but Peter is out of town. Which of the following statements is true?

A. The check need not be honored because it's not properly endorsed.
B. Sally can deposit the check, but it will be honored only to the extent of half the amount.
C. Sally will need to wait until Peter gets back into town and can sign the check before depositing it.
D. Sally can deposit the check, and it will be honored.

7. Carl is a holder in due course of a negotiable instrument. What defenses can be asserted against Carl against enforcing that instrument by persons with whom Carl has not dealt?

A. Neither real nor personal defenses
B. Both personal and real defenses
C. Only personal defenses
D. Only real defenses

8. Jayla and Jamal enter an agreement in which Jamal agrees to pay Jayla $500 over the next three months for a new stereo. Jamal calls Jayla on the phone and promises to pay her the entire $500 no later than 90 days from that date. This agreement fails to constitute a negotiable instrument, because negotiable instruments must

A. be payable on demand or at a definite time.
B. be in writing.
C. state an unconditional promise or order to pay.
D. state a fixed amount of money.

9. Attorney Smith receives a check from the defendant to settle a case. The check is made payable to Smith. Smith endorses the check, adding the words "without recourse," and gives it to Clara Client. Clara deposits the check but it fails to clear. Which of the following statements is true?

A. Smith will have to pay the check amount to Clara but can sue the defendant for reimbursement.
B. Smith will have to pay the check amount to Clara.
C. Clara has no remedy against Smith or the defendant because the check contained the words "without recourse."
D. Smith doesn't have to pay the amount of the check to Clara.
10. Bob writes a check to Sally. Sally endorses it over to Carl. Carl endorses and deposits it in his accountat Big Bank. It turns out there are insufficient funds in Bob's account to cover the check and the check isdishonored. Which of the following statements is true?

A. Bob is primarily liable to satisfy the check.
B. Bob is secondarily liable to satisfy the check.
C. Sally is primarily liable to satisfy the check.
D. Big Bank is primarily liable to satisfy the check
Submitted: 1 year ago.
Category: Business Law
Expert: lwpat replied 1 year ago.
D. Sally can deposit the check, and it will be honored.

D. Only real defenses

B. be in writing.

D. Smith doesn't have to pay the amount of the check to Clara.

A. Bob is primarily liable to satisfy the check.

11. Leroy writes a $50 check made payable to "Cash" and gives the check to Laurie. Which of the following best describes what has happened?

A. Taking for value
B. Transfer to a holder in due course
C. Transfer by negotiation
D. Transfer by assignment

12. Samantha writes a check to Miranda for $2,500, to be drawn from her account with Mahopani Bank.Miranda deposits the check into her account with Central Bank. Central Bank sends the check to Buffalo Bank, which sends the check to Mahopani Bank for payment. Which of the following statements regarding this set of facts is true?

A. Central Bank is the payor bank.
B. Buffalo Bank is an intermediary and collecting bank.
C. Buffalo Bank is the depository bank.
D. Mahopani Bank is an intermediary and collecting bank.

13. Without authority to do so and unbeknownst to Candy, Amos signed Brook's name to a promissory note to pay Candy $3,000 with 6 percent interest in 90 days in exchange for a used car. Candy negotiated the promissory note to David, who was a holder in due course, who presented the note to Brook for payment on the due date. Which of the following statements is true?

A. Candy won't have to pay the note because she was a holder in due course.
B. Brook will have to pay the note because David was a holder in due course.
C. Brook won't have to pay the note because the signature was unauthorized.
D. Candy won't have to pay the note because the original signature was unauthorized.

14. Janice gives Chandler a promissory note made out in her favor, signed by Joey for $1,000. When the note comes due, Joey asserts a personal defense to avoid liability on the note. Chandler isn't a holder in due course and thus doesn't benefit from the protections afforded a holder in due course, because Chandler

A. should have known a defense existed to the note.
B. should have known the note would be dishonored.
C. didn't take the note in good faith.
D. didn't take the note for value.

15. Zeke writes a check payable to "XXXXX XXXXX and Sally Jones." Sally endorses the check but Peter is out of town. Which of the following statements is true?

A. Sally can deposit the check, but it will be honored only to the extent of half the amount.
B. The check need not be honored because it's not properly endorsed.
C. Sally can deposit the check, and it will be honored.
D. The check will be honored if Peter and Sally are married
Submitted: 1 year ago.
Category: Business Law
Expert: lwpat replied 1 year ago.
Transfer by negotiation

B. Buffalo Bank is an intermediary and collecting bank.

Brook won't have to pay the note because the signature was unauthorized.

D. didn't take the note for value.

B. The check need not be honored because it's not properly endorsed.

16. John signs a promissory note in favor of Carl that states, "I promise to pay Carl the sum of $500 on demand." Carl gives the note to Sally in exchange for a television set. Which of the following is true?

A. Sally is a holder in due course.
B. Real defenses may be asserted against Sally.
C. Personal defenses may not be asserted against Sally.
D. Sally isn't a holder.

17. Zeke pulls out a knife and tells Bob to write him a check for $500. Bob does so. Zeke takes the check to his bank, properly endorses it, and receives $500 in cash. Bob stops payment on the check. Which of the following statements is true?

A. Bob need not pay the check because the bank is a holder, not a holder in due course.
B. Bob must pay the check because the bank is a holder in due course.
C. Bob need not pay the check because it was obtained illegally.
D. Bob must pay the check because Zeke was a holder in due course.

18. Ella owed Mark $500. Since Ella didn't have the money to pay Mark, she asked Mark if he would accept a negotiable instrument, such as a promissory note, as payment for the debt. Mark indicated he would accept a negotiable instrument as payment. Ella wrote out a promissory note in which she agreed to pay Mark $550 in 60 days if she failed to pay him the $500 in cash within the next 30 days. Ella's promissory note isn't negotiable because negotiable instruments must

A. give an unconditional promise or order to pay.
B. be payable at a definite time.
C. state a fixed amount of money.
D. be payable to order or to bearer.

19. Luke makes a check for $5,000 payable to Greg. Greg writes his name on the back of the check. This is an example of
A. special endorsement.
B. endorsement in full.
C. blank endorsement.
D. qualified endorsement.

20. Big Bank wrote a check drawn on Big Bank itself made payable to Carl and gave it to Carl. Carl now possesses a
A. cashier's check.
B. certified check.
C. teller's check.
D. bank draft.
Submitted: 1 year ago.
Category: Business Law
Expert: lwpat replied 1 year ago.
I think 16 should be "which one is not true"

a Holder in Due Course must have given value in good faith without notice of any previous dishonor in taking the bill, which appears to be complete and regular.

Sally gave value without notice so she is a holder in due course. Then B and C are also correct. So A, B and C are all true. D should be the correct answer.

C. Bob need not pay the check because it was obtained illegally.

A. give an unconditional promise or order to pay.

C. blank endorsement.

A. cashier's check.

Suppose: Toby executed a note ”I promise to pay Erwin or order-------. Sdg. Toby then gave Erwin the note authorizing him to place any amount not exceeding P5, 000. But Erwin placed P10, 000 and negotiated it to Ian. Can Ian go against Erwin? Can Ian go against Toby?

As to Erwin, being a party to the completion and having negotiated the note for such value, Erwin, regardless of whether Ian is a HIDC or not, can be held liable for the value. As to Toby, if Ian is not HIDC, Toby cannot be held liable for the erroneous completion (Toby), the holder must be a HIDC, the note would be valid and effectual as if it had been completed in strict accordance with the authority given and within a reasonable time. While it is true that Toby did not authorize such amount, by his negligence in making the fraudulent act possible, he rather the Ian- an innocent party, must suffer the consequences of its acts.

If Ian, pretending to be a fan of Erap, secures his autograph on a blank piece of paper and, then, writes a promissory note over it, may Ian enforce the note? If Ian negotiate it Toby, may the latter enforce the note against Erap?

Both may not enforce the note. Sec. 14, while it allows for the filling up of a blank paper with a signature, does not give such authority when the said paper with no intention of it being converted to a NI. It does not matter whether Toby is HIDC or not. Toby’s remedy would be to go after Ian, the endorser. Suppose Toby, before he could complete a note, placed the said paper between the pages of his book. Erwin who borrowed the book and finds the said note, completes it, signs Toby’s name and negotiates it to Ian. Ian negotiates it to Jon. Can Jon go against Ian?

As the note was incomplete and undelivered, Toby has a real defense as against Jon. It does not matter whether Jon is a HIDC or not. As to Toby, there was never any valid contract to make him liable. But, Jon can still go against Erwin and Ian as they are considered to be parties whose signature appear after the delivery (Erwin’s signature would appear as an instrument.) All notes when presented for payment arew persumed to be complete and delivered. The purpose of sec. 14, 15 & 16 is to show what defenses are available to makers/drawers upon the presentment of these instruments. For example, in the hands of a HIDC when the note is originallly incomplete and undelivered’ such presumption is only prima facie. Proof of non-delivery may be presented to rebut the presumption. In contrast, if the note was mechanically but undelivered, the presumpiton is conclusive as to a HIDC. No proof may be presentewd to rebut it. It has been held that where the custody of the incomplete instrument has been entrusted to another who wrongfully completes and negotiates the note to a HIDC, delivery to the agent is asufficient delivery to bind the drawer or maker.

Thus, the defense is only a personal defense. The one who being held liable may only show lack of delivery if and when the holder is not a HIDC (may either an immediate party or a holder not a HIDC). Once the holder proves that he is a HIDC, the defense is no longer available.

Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Suppose: Erwin, out of love and affection, issued a promissory note in favor of Anne Marie, “ I promise to pay Anne Marie or order P1,000.00. sgd. Erwin.” As a birthday gift. But Anne Marie owes Peter P6000.00. Because of the persistence of Peter for AM to pay him, she surrenders the instrument to him. Peter is now the holder. Can Peter go against Erwin?

Given the lack of valuable consideration between Anne Marie and Erwin applying Sec. 27, Peter is considered a holder for value to the extent of his debt or lien- P600 and can go against Erwin for such amount. As to the P400 remaining, as Peter is not considered a holder for value to such extent, he may not collect it. Absence of consideration, being a personal defense (Sec. 28), can be used as against those not HIDC. Since being a holder for value is one of the requisites of a HIDC, Peter can not be considered as HIDC and thus, the defense of lack of consideration is available to Erwin as against Peter. HOWEVER, if sufficient consideration existed between Anne Marie and Erwin, Peter may collect the entire sum subject to the obligation to return the excess to AM. But, also, if the defense of Erwin is a real defense, Peter may not recover from the instrument despite his lien.

A executes a note payable to bearer for P100 in favor of B. B delivered it to C. C specially indorsed it to D. D specially indorsed it to E, holder. Can E go against A,B,C,D,? E cannot go against B, because there is mere delivery and there is no unbroken chain of indorsements. The rule is that the holder must trace his title to the special indorser to make him liable through an unbroken chain of indorsement. E cannot go against B because. As a person who negotiates by mere delivery (to C), warranty under sec. 65 extends only to the immediate transferee. Thus, B is only liable to C, not to D & E. E can go against C & D because E can trace his title to C (& D) through an unbroken chain of indorsements. NOTE: this section deals with special indorsements, not blank indorsement. So, that if, in the eg. above, C blankly indorsed it to D, E cannot go against C as it would be impossible for him to trace his title to C. (my opinion) (contrary to Abad’s)