MCQ Negotiable Instruments Law Hello, strangers. The following are some exam questions I used for my BS Accountancy students for the subject Negotiable Instruments. They're very basic so I decided not to post the answers. Test yourselves.
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
MCQ 2 1. X acted as an accommodation party in signing as a maker of a promissory note. Which phrase best completes the sentence - This means that X is liable on the instrument to any holder for value: a. for as long as the holder does not know that X is only an accommodation party. b. even though the holder knew all along that X is only an accommodation party. c. for as long as X did not receive any consideration for acting as accommodation party. d. provided X received consideration for acting as accommodation party. 2. X issued a promissory note which states, "I promise to pay Y or order Php100,000.00 or one (1) unit Volvo Sedan." Which statement is most accurate? a. The promissory note is negotiable because the forms of payment are clearly stated. b. The promissory note is non-negotiable because the option as to which form of payment is with the maker.
c. The promissory note is an invalid instrument because there is more than one form of payment. d. The promissory note can be negotiated by way of delivery. 3. X issued a promissory note which states "I promise to pay Y or bearer the amount of HK$50,000 on or before December 30, 2013." Is the promissory note negotiable? a. No, the promissory note becomes invalid because the amount is in foreign currency. b. Yes, the promissory note is negotiable even though the amount is stated in foreign currency. c. No, the promissory note is not negotiable because the amount is in foreign currency. d. Yes, the promissory note is negotiable because the Hong Kong dollar is a known foreign currency in the Philippines. 4. X delivered a check issued by him and payable to the order of CASH to Y in payment for certain obligations incurred by X in favor of Y. Y then delivered the check to Z in payment for certain obligations. Which statement is most accurate? a. Z can encash the check even though Y did not indorse the check. b. Z cannot encash the check for lacking in proper endorsement. c. Y is the only one liable because he was the one who delivered the check to Z. d. The negotiation is not valid because the check is an instrument payable to order. 5. A stale check is a check a. that cannot anymore be paid although the underlying obligation still exists. b. that cannot anymore be paid and the underlying obligation under the check is also extinguished. c. that can still be negotiated or indorsed so that whoever is the holder can d. which has not been presented for payment within a period of thirty (30) days. 6. In payment for his debt in favor of X, Y gave X a Manager's Check in the amount of Php100,000 dated May 30, 2012. Which phrase best completes the statement - A Manager's Check: a. is a check issued by a manager of a bank for his own account. b. is a check issued by a manager of a bank in the name of the bank against the bank itself for the account of the bank.
c. is like any ordinary check that needs to be presented for payment also. d. is better than a cashier's check in terms of use and effect. 7. Which phrase best completes the statement -- A check which is payable to bearer is a bearer instrument and: a. negotiation can be made by delivery only; b. negotiation must be by written indorsement; c. negotiation must be by specific indorsement; d. negotiation must be by indorsement and delivery. 8. As payment for a debt, X issued a promissory note in favor of Y but the promissory note on its face was marked non-negotiable. Then Y instead of indorsing the promissory note, assigned the same in favor of Z to whom he owed some debt also. Which statement is most accurate? a. Z cannot claim payment from X on the basis of the promissory note because it is marked non-negotiable. b. Z can claim payment from X even though it is marked non-negotiable. c. Z can claim payment from Y because under the Negotiable Instrument Law, negotiation and assignment is one and the same. d. Z can claim payment from Y only because he was the endorser of the promissory note. 9. Negotiable instruments are used as substitutes for money, which means a. that they can be considered legal tender. b. that when negotiated, they can be used to pay indebtedness. c. that at all times the delivery of the instrument is equivalent to delivery of the cash. d. that at all times negotiation of the instruments requires proper indorsement. 10. The signature of X was forged as drawer of a check. The check was deposited in the account of Y and when deposited was accepted by AAA Bank, the drawee bank. Subsequently, AAA Bank found out that the signature of X was actually forged. Which statement is most accurate? a. The drawee bank can recover from Y, because the check was deposited in his account.
b. The drawee bank can recover from X, because he is the drawer even though his signature was forged. c. The drawee bank is estopped from denying the genuineness of the signature of the X, the drawer of the check. d. The drawee bank can recover from Y because as endorser he warrants the genuineness of the signature. 11. A issued a check in the amount of Php20,000 payable to B. B endorsed the check but only to the extent of Php1 0,000. 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. 12. A promissory note which does not have the words "or order" or "or bearer" will render the promissory note non-negotiable, and therefore a. it will render the maker not liable; b. the note can still be assigned and the maker made liable; c. the holder can become holder in due course; d. the promissory note can just be delivered and the maker will still be liable. 13. A check is a. a bill of exchange; b. the same as a promissory note; c. is drawn by a maker; d. a non-negotiable instrument. 14. A check was issued to Tiger Woods. But what was written as payee is the word "Tiger Woods". To validly endorse the check a. Tiger Woods must sign his real name. b. Tiger Woods must sign both his real name and assumed name. c. Tiger Woods can sign his assumed name.
d. the check has become non-negotiable. 15. Y, as President of and in behalf of AAA Corporation, as a way to accommodate X, one of its stockholders, endorsed the check issued by X. Which statement is most acurate? a. It is an ultra vires act. b. It is a valid indorsement. c. The corporation will be held liable to any holder in due course. d. It is an invalid indorsement. 16. In a negotiable instrument, when the sum is expressed both in numbers and in words and there is discrepancy between the words and the numbers a. the sum expressed in words will prevail over the one expressed in numbers. b. the sum expressed in numbers will prevail over the one expressed in words. c. the instrument becomes void because of the discrepancy. d. this will render the instrument invalid. 17. A promissory note which is undated is presumed to be a. dated as of the date of issue; b. dated as of the date of the first indorsement; c. promissory note is invalid because there is no date; d. dated on due date.
