Business Law Test Bank PDF

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Comprehensive Business Law – Test bank The difference between negotiation and assignment are that negotiation refers only to negotiable instruments while assignment refers generally to an ordinary contract. Negotiation is governed by Negotiable Instruments Law while assignment is governed by the law...

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Comprehensive Business Law – Test bank

1. The difference between negotiation and assignment are that negotiation refers only to negotiable instruments while assignment refers generally to an ordinary contract. Negotiation is governed by Negotiable Instruments Law while assignment is governed by the laws on assignment of credits of the new Civil Code a. Both statements are false b. First statement is true, Second is false c. First statement is false, Second is false d. Bothe statements are true  Ans. D 2. Three of the following are requirements of a valid indorsement. Which one is not? a. The indorsement must be written on the instrument itself or upon a paper attached thereto b. It must be completed by delivery c. The indorsement should not contain any conditions or restrictions d. It must be an indorsement of the entire instrument  Ans. C 3. Three of the following are the legal effects of the delivery of an order instrument without indorsement. Which one is not? a. The transfer operates as an ordinary assignment and the transferee acquires the instrument subject to all defenses, real or personal b. The transferee acquires all the rights of a holder c. The transferee can demand from the transferor that the instrument be properly indorsed to him d. The transferee is not a holder as defined under the Negotiable Instruments Law  Ans. B 4. In case of undelivered and incomplete instruments, a maker is still liable thereon. The indorsement of a minor does not make him liable on the instrument, although such indorsement passes title over the instrument a. First statement is true, Second is false b. First statement is false, Second is true c. Both statements are true d. Both statements are false  Ans. B 5. In three of the following, a person whose signature does not appear in the instrument, Is nonetheless liable. Which is not? a. Where a person signs in a trade or assumed name b. The forger, in cases of forgery of instruments c. A person who negotiates by delivery is liable to his immediate transferee d. A person whose signature was forged  Ans. D 6. A holder has no right to sue on the instrument in his own name. However, he may receive payment, and if the payment is in due course, the instrument is discharged a. Both statements are true b. Both statements are false c. First statement is true, Second is false d. First statement is false, Second is true  Ans. D

7. Three of the following are personal defenses. Which one is not? a. Want of delivery of an incomplete instrument b. Want of delivery of a complete instrument c. Acquisition of an instrument by unlawful means d. Filling up of wrong date  Ans. A 8. When a signature in an instrument does not indicate in what capacity a person had intended to sigh, the person whose signature appears on the instrument is deemed to be: a. Drawer b. Drawee c. Indorser d. Indorsee  Ans. C 9. A issued a negotiable note to B. B indorsed it to C, a minor. C indorsed to D and D to E. Who will be liable to E, if A will dishonor the note a. Only D being the immediate transferor b. B, C, and D being secondary parties c. Only B and D, C is not liable being a minor d. Only B, being the original payee  Ans. C 10. One of the following is not a requisite for the negotiability of a promissory note: a. The promissory note must be in writing and signed by the maker b. The promissory note must be payable on demand or at a fixed or determinable future time c. The promissory note must be payable to a specified person named therein d. The payee of a promissory note payable to order must be named or otherwise indicated therein with reasonable certainty  Ans. C 11. Which of the following instruments is non-negotiable? a. A bill of exchange written with the use of a pencil b. A bill of exchange written on a wall c. A promissory note written on a piece of cloth d. A promissory note signed with a mark  Ans. B 12. One of the following is not a negotiable instrument: a. Treasury warrant b. Bond c. Certificate of deposit d. Banker’s acceptance  Ans. A 13. Which of the following instruments is not payable with a sum certain in money and is, therefore, non-negotiable? a. “I promise to pay bearer ₱ 25,000 plus interest at the end of the current calendar year.” b. “Pay to P or order ₱ 25,000 in installment.” c. “I promise to pay P or order $500 with exchange at the current rate.” d. “I promise to pay bearer ₱ 25,000 on or before December 31 of this year, with 10% attorney’s fee and costs of collection in case of default.”  Ans. B

14. Which of the following promissory notes payable in installment is negotiable? a. “I promise to pay P or order ₱30,000 payable in (2) equal installments.” b. “I promise to pay P or order ₱30,000 payable in (4) quarterly installments effective to date.” c. “I promise to pay P or order ₱ 30,000 payable at ₱500 for each installment.” d. None of the foregoing  Ans. D 15. Which of the following instruments is not unconditional and is, therefore, non-negotiable? a. “Pay P or order ₱ 40,000 and reimburse yourself with the proceeds of the watch you are selling to me.” b. “Pay bearer ₱ 40,000 from my share in the profits of our partnership business.” c. “I promise to pay P or order ₱ 40,000 as payment for the ring I purchased from him.” d. “Pay bearer ₱ 40,000 and charge the payment to my account in your hands.”  Ans. B 16. Which of the following instruments is payable at a fixed or determinable future time? a. “I promise to pay P or order ₱ 20,000 30 days before X’s demise.” b. ‘’I promise to pay P or order ₱20,000 upon sight.” c. ‘’I promise to pay P or order ₱20,000.” d. None of the foregoing  Ans. A 17. Which of the following instruments is still negotiable despite the additional provision thereof: a. “I promise to pay P or order ₱ 50,000 or to paint his house, at the option of the holder.” b. “I promise to pay bearer ₱50,000 and all the taxes that may be assessed on the mortgage securing the note.” c. “I promise to pay P or order ₱ 50,000 and to insure the movable pledged to secure this note.” d. “I promise to pay bearer ₱50,000 and to give him a gold ring.”  Ans. A 18. Which of the following omissions will render the instrument non-negotiable? a. It is not dated b. It does not specify the value given c. It does not specify the place where it is payable d. None of the foregoing  Ans. D 19. Which of the following statements relative to instruments payable on demand is false? a. A bill of exchange which is payable “at sight” is payable as soon as it is seen by the drawer b. An instrument which is payable “on call” is payable on demand c. An instrument where no time for payment is expressed is payable on demand d. An instrument which is issued, accepted or indorsed when overdue is deemed payable on demand as regards the person so issuing, accepting or indorsing it  Ans. A 20. Which of the following is an order instrument? a. “I promise to pay X or bearer.” b. “I promise to pay Captain Barbell or order.” c. Indorsements made at the back of an order instrument: Pay to A, (Sgd.) P; Pay to B, (Sgd.) A; Pay to C, (Sgd.) B; (Sgd.) C. d. None of the foregoing  Ans. D 21. Which of the following is a bearer instrument?

a. “Pay P the sum of ₱ 10,000 on demand.” b. “Pay to the order of P the sum of ₱ 10,000 on December 31 of this current year.” c. “Pay order ₱10,000 upon sight.” d. None of the foregoing  Ans. C 22. Which of the following statements is correct? a. The determination of the maturity date is not necessary in an instrument which is payable at a fixed period after date b. The date of issue of a promissory note payable on demand is essential to make the instrument negotiable c. An instrument which is ante-dated is an invalid instrument d. The holder of an instrument which is payable at a fixed period after date but is issued undated may insert therein the true date of issue  Ans. D 23. M made a promissory note payable to P’s order and authorized P to fill up the amount of not more than ₱ 50,000. P filled up the amount of ₱75,000 and indorsed the note to A. A then indorsed it to B, present holder. Who may be held liable to B for ₱75,000? a. P only b. A only c. P and A only d. M, P and A  Ans. D 24. X stole a pre-signed promissory note from M’s office cabinet. He then placed the amount of ₱ 20,000 and P’s named as the payee, then indorsed the note to A using P’s name. A then indorsed the same to B, and B to C, present holder in due course. Who may be held liable to C for ₱20,000? a. M, P, X, A and B b. P, X, A and B only c. X, A and B only d. M, P and X only  Ans. C 25. X stole a promissory note that is completely made by M. X indorsed the note to A, then A to B, present holder in due course. Who may be liable to B? a. A only b. X only c. X and A only d. M, X and A  Ans. D 26. Which of the following statements relative to the construction of ambiguous instruments is incorrect? a. Where there is a discrepancy between the sum payable expressed in words and that which is expressed in figures, the former prevails b. Where there is a conflict between the written provisions and the printed provisions of the instrument, the former prevails c. Where there is a doubt whether an instrument is a bill or a note, the issuer or drawer may treat it as either at his election d. Where the instrument which contains the words “I promise to pay” is signed by two or more persons, they are deemed to be solidarily liable thereon  Ans. C

27. Which of the following statements relative to forgery is false? a. It is the intent to defraud that distinguishes forgery from spoliation b. Forgery has the effect of making the instrument void c. Parties subsequent to a forged indorsement cannot acquire any right as against parties prior to the forgery d. The party whose indorsement is forged in a note which is originally payable to bearer is liable to a holder in due course  Ans. B 28. Parties who are precluded from setting up forgery as a defense (Principle of estoppel) may be held liable by the holder of a negotiable instrument despite the forged or unauthorized signature. Examples of these parties are: a. Acceptors b. Indorsers and persons negotiating by delivery c. All of the foregoing d. None of the foregoing  Ans. C 29. Which of the following statements relative to forgery in negotiable instruments is false? a. The drawee-bank can recover the payment it made to a holder in due course where the drawer’s signature on the check is forged b. The drawee-bank can recover the payment it made to the encasher of the check where the payee’s signature on the check is forged c. The drawee-bank that paid a check with a forged indorsement cannot debit or charge the drawer’s account in the absence of negligence on the part of the drawer d. None of the foregoing  Ans. A 30. Which of the following statements relative to a forged indorsement of a negotiable instrument is true? a. If the note is payable to order, the party whose indorsement is forged is liable only to a holder not in due course but is not liable to a holder in due course b. If the note is payable to bearer, the party whose indorsement is forged is liable to any holder whether or not he is a holder in due course c. If the bill of exchange is payable to order, the party whose indorsement is forged is liable only to a holder not in due course but is not liable to a holder in due course d. None of the foregoing  Ans. D 31. M made a promissory note to the order of P for ₱10,000. P indorsed the note to A. X stole the note from A, forged his (A’s) signature and indorsed it to B. B, in turn, indorsed the note to C, holder in due course. Who among the parties can be held liable to C? a. M, P, X, A and B b. P, X, A and B only c. X, A and B only d. X and B only  Ans. D 32. M executed a promissory note in the sum of ₱ 100,000 to the order of P for the purchase of jewelry which P does not own or possess. P indorsed the note to A, a holder in due course. Which of the following statements relative to the absence of consideration in the promissory note is correct? a. A can collect ₱100,000 from both M and P

b. A can collect ₱ 100,000 from M only c. A can collect ₱100,000 from P only d. A can collect ₱ 100,000 from M and P  Ans. A 33. M wanted to help his friend P who needed cash desperately. In exchange for P’s valuable painting, M executed a promissory note for ₱300,000 naming P as the payee therein. P then indorsed the note at S bank and received the proceeds out of the discounted note. Upon maturity date, P and S bank decided to extend the maturity date by (6) months without the knowledge and consent of M. the grace period also matured without the note being paid. Which of the following statements is correct? a. M is primarily liable to S bank, whereas P is only secondarily liable to S bank b. Only P is liable to S bank because M is released from his obligation when the period was extended without his knowledge and consent c. Only M is liable to S bank as an accommodation party to the note d. None of the foregoing  Ans. D 34. Which of the following exemplifies negotiation within the meaning of the Negotiable Instruments Law? a. A promissory note executed by M in favor of P or his order is delivered by P to A without indorsement b. A promissory note executed by M in favor of P is indorsed and delivered by P to A c. A promissory note is executed by M in favor of bearer is delivered by M to P for safekeeping d. None of the foregoing  Ans. D 35. Which of the following is an invalid indorsement? a. An indorsement which is contained in an “allonge” where there is still sufficient space at the back of the negotiable instrument b. A partial indorsement is made where part of the amount has already been paid c. A note for ₱ 10,000 is indorsed by A for ₱ 7,000 and by B for ₱3,000 simultaneously d. A note for ₱ 10,000 is indorsed by A and B for the full amount  Ans. C 36. Which of the following statements relative to indorsements is true? a. A blank indorsement of an order instrument converts the instrument into a bearer instrument b. An order instrument which is special indorsed by P can only be further negotiated by P’s special indorsement c. A bearer instrument cannot be negotiated by indorsement coupled with delivery d. A special indorsement must contain the words “or order” or “to the order of’ to make it further negotiable  Ans. A 37. Which of the following is not a restrictive indorsement under the Negotiable Instruments Law? a. “Pay to A or B.” (Sgd.)P b. “Pay to A only.” (Sgd.)P c. “Pay to A for collection.” (Sgd.)P d. “Pay to A in trust for X.” (Sgd.)P  Ans. A 38. M made a promissory note payable to P’s order. X stole the note and forged P’s signature as indorser to A. A indorsed the note to B as follows: “Pay to B sans recourse, (Sgd.)A.”

Who among the partied shall be liable to B? a. X, M and P only b. X and A only c. X and M only d. X only  Ans. B 39. M made a promissory note for ₱ 25,000 payable to the order of P. P indorsed it to A as follows: “Pay A upon passing the Bar Examinations next year.” (Sgd.)P. A flunked the examinations held in the following year and the note matured. Which of the following statements is correct? a. M may or may not pay A the sum of ₱ 25,000 and in case he does, he is discharged from his obligation on the note b. M should not pay A the sum ₱25,000 because the condition is not fulfilled c. M and P should not pay A the sum of ₱25,000 because the note is not unconditional and, therefore, non-negotiable d. None of the foregoing  Ans. A

40. M made a promissory note payable to P or bearer. P specially indorsed the note to A. A also specially indorsed it to B. X stole the note from B and delivered it to C without any indorsement. Who may be held liable to C? a. X only b. M and X only c. M, P, A and X only d. M, P, A, B and X  Ans. B 41. A promissory note payable to P or order contains the following indorsements at the back thereof: (Sgd.)P; Pay to B,(Sgd.)A; Pay to C, (Sgd.)B. C is the present holder. Which of the following statements is correct? a. C cannot strike out any of the indorsements b. C may strike out both P’s and A’s indorsements, but he cannot strike out B’s immediate indorsement c. C may strike out all indorsements of P, A and B thereby converting the order instrument into a bearer instrument d. None of the foregoing  Ans. D 42. Which of the following is not a requisite of a holder in due course under the Negotiable Instruments Law? a. He took the instrument complete and regular upon its face b. He became the holder of the instrument before it was overdue, and without notice that it had been previously dishonored if such was the fact c. He took the instrument in good faith and for value d. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless  Ans. D 43. In which of the following cases is the holder deemed to be a holder in due course? a. The holder acquired the instrument through the indorsement of (1) of the two (2) payees b. The holder acquired the instrument at noontime on its maturity date c. The holder accepted the instrument from the payee under a strong and reliable warning of the latter’s swindling activities

d. None of the foregoing  Ans. B 44. Which of the following defenses is a real or absolute defense which can be successfully raised against a holder in due course? a. Want of authority of agent b. Want of delivery of complete instrument c. Absence or failure of consideration d. Acquisition of instrument by force, duress fear, or by unlawful means  Ans. A 45. Which of the following is a characteristic of “fraud in factum” or “fraud in esse contractus?” a. It is fraud in the execution of the instrument b. The person actually knows that what he signed is a negotiable instrument but he was induced to do so because of fraudulent representation on its consideration c. It is a personal or equitable defense that cannot be raised against a holder in due course d. All of the foregoing  Ans. A 46. M made a promissory note payable to P or order as payment for the purchase of what appears to be a genuine diamond ring but what in fact was a mere piece of valueless glass. Indorsements where as follows: P to A, A to B, B to C, and C to D. the parties A, B and D knew about the fraud commited by P. C, however, has no knowledge thereto. Is M primarily liable to D on the note? a. No, because M has a real defense that he can set up against any holder b. No, because M has a personal defense that he can avail against D who is an immediate party to him c. Yes, because D is deemed a holder in due course who is free from and personal defense of M. d. None of the foregoing  Ans. C 47. M made a promissory note for ₱100,000 in favor of P or order, the latter deceiving the former that he (P) was selling his car in A-1 condition which was in fact a piece of junk. P indorsed the note to A who knew about the fraud. A, in turn, indorsed the note to B, a holder in due course. B further indorsed the note to C, present holder. Which of the following statements is true? a. M is liable to C if the latter if the latter has no knowledge of the fraud b. M is liable to C whether or not the latter has knowledge of the fraud c. M is not liable to C if the latter has no knowledge of the fraud d. M is not liable to C whether or not the latter has knowledge of the fraud  Ans. D 48. Determine who among the following parties to a negotiable instrument is a party who is secondarily liable: a. Maker of a promissory note b. Drawee of a bill of exchange c. Acceptor of a bill of exchange d. Drawer of a bill of exchange  Ans. D 49. Which of the following is not a characteristic of an irregular indorser? a. His signature is placed on the instrument after its delivery to the payee b. He is not a party to the instrument c. The purpose of the indorsement is not to transfer title to the instrument d. His warranties are the same as those of a general indorser

 Ans. A 50. Which of the following is not among the warranties of a qualified indorser or a person negotiating an instrument by delivery? a. That the instrument is genuine and in all respects what it purports to be b. That he has good title to the instrument c. That all prior parties have capacity to contract d. That the instrument is, at the time of his indorsement, valid and s...