HW LAW NEG O - law on negotiable instruments PDF

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LAW ON NEGOTIABLE INSTRUMENTS(CPA Review School of the Philippines) April 4, 2017/Tuesday/Group 4 A promissory note reads: “I promise to pay B or order P100, 000. Sgd. A” B negotiated the note to C. Later, Y stole the note from C. Y indorsed the note to D. Which of the following statements is correc...

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L AWONNEGOT I ABL EI NSTRUMENT S ( CP ARe v i e wSc h o o l o f t h ePh i l i p p i n e s ) Ap r i l 4 , 2 0 1 7 / T u e s d a y / Gr o u p4 1 .Ap r o mi s s o r yn o t er e a d s : “ I p r o mi s et op a yBo r o r d e rP1 0 0 , 0 0 0 . Sg d . A” Bn e g o t i a t e dt h en o t et oC. L a t e r , Ys t o l et h en o t ef r o mC. Yi n d o r s e dt h en o t et oD. Wh i c ho f t h ef o l l o wi n g s t a t e me n t si sc o r r e c t ? a .I f Ap a y sDi ng o o df a i t h , A’ so b l i g a t i o ni se x t i n g u i s h e d b .Dc a nc o l l e c t f r o mB c .Dc a n n o t c o l l e c t f r o mA d .Dc a nc o l l e c t f r o mC An s . C 2 . Wh i c ho f t h ef o l l o wi n gi sn o t n e g o t i a b l eu n d e r t h en e g o t i a b l ei n s t r u me n t sl a w? a .Pa yt oEo r o r d e r P2 0 , 0 0 0 . ( Sg d . M) T o : A–Ac c e p t e da n dp a y a b l e6 0d a y sf r o mt o d a y . b .Pa yt oo r d e r o f JP2 0 , 0 0 0 . ( Sg d . E) T oNAc c e p t e df o r P2 0 , 0 0 0 c .Pa yt oPo r o r d e r P2 0 , 0 0 0 . ( Sg d . J ) T oCAc c e p t e di f Pt o p st h eCPAb o a r de x a ms d .Pa yt oTP1 0 , 0 0 03 0d a y sa f t e r s i g h t ( Sg d . G) T oHAc c e p t e dp a y a b l eo nOc t . 2 7 , 2 0 1 4 An s . D 3 .Wh i c ho f t h ef o l l o wi n gs t a t e me n t si sc o r r e c t ? a .I f t h ema k e r i sa ni n f a n t , t h ep r o mi s s o r yn o t ei sn o t n e g o t i a b l e b .L o v ea n da ff e c t i o nc a nb ev a l i dc o n s i d e r a t i o n c .En d o r s e me n t o f a ni n f a n t t r a n s f e r ’ st i t l et oan e g o t i a b l ei n s t r u me n t d .Pa r t i e sp r i o r t ot h ei n f a n t c a ne s c a p el i a b i l i t yb yi n v o k i n gs u c hi n f a n c y An s . C 4 . Wh e nab i l l o f e x c h a n g ei sp a y a b l eo nd e ma n d , p r e s e n t me n t mu s t b ema d e . a .Ont h ed a yi t f a l l sd u e b .b . Be f o r et h ema t u r i t yd a t e c .Wi t h i nar e a s o n a b l et i mea f t e r i t si s s u e d .Wi t h i nar e a s o n a b l et i mea f t e r t h el a s t i n d o r s e me n t t h e r e o f An s . D

5 . Co n s i d e r t h et wos t a t e me n t s . St a t e me n t 1 Ani n s t r u me n t o r i g i n a l l yp a y a b l et oo r d e r ma yb ec o n v e r t e di n t ob e a r e r i n s t r u me n t St a t e me n t 2 Ani n s t r u me n t o r i g i n a l l yp a y a b l et oo r d e r ma yb ec o n v e r t e di n t oa no r d e ri n s t r u me n t a .T r u e , t r u e b .F a l s e , f a l s e c .F a l s e , t r u e d .T r u e , f a l s e An s . D 6 . Ap r o mi s s o r yn o t er e a d s: “ I p r o mi s et op a yBo r o r d e r P1 0 0 , 0 0 0 . Sg d . A” Ba s s i g n e dt h en o t et oC.L a t e r ,Ys t o l et h en o t ef r o m C.Yi n d o r s e dt h en o t et oD.Wh i c ho ft h e f o l l o wi n gs t a t e me n t si sc o r r e c t ? a .I f Ap a y sYi ng o o df a i t h , A’ so b l i g a t i o ni se x t i n g u i s h e d b .Cc a nc o l l e c t f r o mB c .Cc a n n o t c o l l e c t f r o mAo r B d .Cc a nc o l l e c t f r o mA An s . D 7 .Ai s s u e dan e g o t i a b l ep r o mi s s o r yn o t et oB.Th e r ewa sat o t a l f a i l u r eo fc o n s i d e r a t i o n .Bi n d o r s e dt h e n o t et oC, ah o l d e ri sd u ec o u r s e . Ci n d o r s e dt h en o t et oDwh ok n e wo f t h ef a i l u r eo f c o n s i d e r a t i o n . Wh i c h i sc o r r e c t ? a .Dma yc o l l e c t f r o mA b .Dma yc o l l e c t f r o mC c .Dma yc o l l e c t o n l yf r o mB d .Dma yc o l l e c t f r o me i t h e r Bo r Cb u t n o t f r o mA An s . A 8 . Ac h e c kd r a wnb yt h eb a n ku p o ni t s e l f a n dp a y a b l et oat h i r dp e r s o n : a .Ce r t i fi e dc h e c k b .Ma n a g e r ’ sc h e c k c .T r a v e l e r ’ sc h e c k d .Cr o s s e dCh e c k An s . B

9 . Co n s i d e r t h e s et wos t a t e me n t s : St a t e me n t 1 Ani n s t r u me n t o r i g i n a l l yp a y a b l et oo r d e r ma y b ec o n v e r t e di n t oab e a r e r i n s t r u me n t St a t e me n t 2 Ani n s t r u me n t o r i g i n a l l yp a y a b l et ob e a r e r ma y b ec o n v e r t e di n t oa no r d e r i n s t r u me n t a .T r u e , t r u e b .F a l s e , f a l s e c .F a l s e , t r u e d .T r u e , f a l s e An s . D 1 0 . Th i si sn o t n e g o t i a t i o no f an e g o t i a b l ei n s t r u me n t : a .As s i g n me n t ; b .De l i v e r yo f ab e a r e ri n s t r u me n t ; c .I n d o r s e me n t c o mp l e t e db yd e l i v e r yo f a ni n s t r u me n t p a y a b l et oo r d e r . d .De l i v e r yo f a ni n s t r u me n t t ot h ep a y e e . An s . A 1 1 . Th ef o l l o wi n ga r ec o n s i d e r e dn e g o t i a t i o ne x c e p t a .I s s u e b .I n d o r s e me n t p l u sd e l i v e r y c .De l i v e r y d .No n eo f t h e m Ans we r : D 1 2 . Ap r o mi s s o r yn o t ei sp a y a b l et ob e a r e r wh e n : a . I t i sp a y a b l et oap e r s o nn a me dt h e r e i no r b e a r e r b . T h eo n l yi n d o r s e me n t i sb l a n k c . Th en a meo f p a y e ed o e sn o t s u p p o r t t ob et h en a meo f ap e r s o n d . Al l o f t h ea b o v e Ans we r : D 1 3 . Ama k e san o t ep a y a b l et ob e a r e ra n dd e l i v e r si t t oB. i nt u r n , Bn e g o t i a t e di t b yme r ed e l i v e r yt oC, wh o i n d o r s e si ts p e c i a l l yt oD.Dn e g o t i a t e si tb ys p e c i a li n d o r s e me n tt oE,wh on e g o t i a t e si tt oFb yme r e d e l i v e r y . Ad i dn o t p a y . On ei sn o t c o r r e c t : a .Fma yg oa f t e r E, h i si mme d i a t et r a n s f e r o r b .b . Fc a n n o t h o l dDl i a b l eb e c a u s eFd i dn o t a c q u i r et i t l et h r o u g ht h ei n d o r s e me n t o f D c .Dc a nh o l dCl i a b l ea sCi sn o t o n l yh i si mme d i a t et r a n s f e r o rb u t h eg o t h i st i t l et h r o u g hC’ ss p e c i a l i n d o r s e me n t d .Fc a nh o l dBa n dCl i a b l eb e c a u s et h e ya r ep a r t i e sp r i o rt oF Ans we r : D

1 4 . Ai st h ed r a we ro fab i l l a d d r e s s e dt oB, p a y a b l et oCo ro r d e r1 0d a y sa f t e ra c c e p t a n c ef o rP8 , 0 0 0 .C n e g o t i a t e dt h eb i l l t oD, t oEa n dEt oF . T h eb i l l wa sa c c e p t e db yBwh e np r e s e n t e db yF . I f t h es i g n a t u r eo f Ai sf o r g e , wh i c ho f t h ef o l l o wi n gi sf a l s e ? a . Bi sr e q u i r e dt op a yFe v e ni f t h es i g n a t u r eo f Ai saf o r g e r y b . Bi sn o t r e q u i r e dt op a yFs i n c eh eh a st h ed e f e n c eo f f o r g e r y c . F o r g e r yi sc o n s i d e r e dar e a l d e f e n c e d . No n eo f t h ea b o v e An s we r : B 1 5 . Mi st h ema k e ro fan o t ep a y a b l et oJ .Cr u zo ro r d e rf o rP5 , 0 0 0d u eJ u l y3 0 ,2 0 0 9 .Cr u zb o r r o we dP 2 , 0 0 0f r o mCp a y a b l eJ u l y3 1 ,2 0 0 9a n dp l e d g e dt h en o t eb yi n d o r s i n gi tt oC.Wh i c ho ft h ef o l l o wi n gi s c o r r e c t ? a . p r o mi s s o r yn o t ec a n n o t b ep l e d g e dwi t h o u t t h ec o n s e n t o f t h ema k e r b . OnJ u l y3 0 , 2 0 0 9Cc a nc o l l e c t f r o mMo n l yP2 , 0 0 0 c . o nJ u l y3 0 , 2 0 0 9Cc a nc o l l e c t f r o mMP5 , 0 0 0 d . p a r t i a l e n d o r s e me n t i sa l l o we d An s we r : C 1 6 . “ Pa yt oMa r i ao ro r d e rP2 0 , 0 0 0u p o nd e ma n d ” ,s i g n e db yAa sd r a we ra n da d d r e s s e dt oB.Ma r i a n e g o t i a t e dt h eb i l l t oC, Ct oD, Es t o l et h eb i l l f r o mDa n di n d o r s e di t t oFb yf o r g i n gt h es i g n a t u r eo f D. Fi n t u r ni n d o r s e dt h eb i l l t oG&Gt oH. Wh i c ho f t h ef o l l o wi n gi sf a l s e ? a . Al l i n d o r s e r sp r i o r t ot h ef o r g e r a r ed i s c h a r g e d b . T h ed r a we r i sl i a b l et oH c . Fi sl i a b l et oH d . F o r g e r yi sr e a l d e f e n s e An s we r : B

1 7 . Wh i c ho f t h ef o l l o wi n gi sn e g o t i a b l e ? e .“I p r o mi s et op a yJ o s eCr u zo ro r d e rP1 0 , 0 0 0o rd e l i v e r1c o w2 0d a y sa f t e rd a t ea t t h eo p t i o no f t h eh o l d e r ” s i g n e db yMa sma k e r f .F o r g e r yi sar e a l d e f e n c e . g .F o r g e r yi san o t ar e a l d e f e n c e . h .No n eo f t h e s e An s we r : A 1 8 . Wh e nab i l l o f e x c h a n g ei sp a y a b l eo nd e ma n d , p r e s e n t me n t mu s t b ema d e a .Ont h ed a yi t f a l l sd u e b .Be f o r et h ema t u r i t yd a t e c .Wi t h i nar e a s o n a b l et i mea f t e r i t si s s u e d .Wi t h i nar e a s o n a b l et i mea f t e r t h el a s t i n d o r s e me n t t h e r e o f

An s we r : C 1 9 . I n d o r s e me n t o f a ni n fi a nt r a n s f e r t i t t l et oan e g o t i a b l ei n s t r u me n t . a .T r u e b .F a l s e c .No n eo f t h e s e An s we r : A 2 0 . Ani n s t r u me n t o r i g i n a l l yp a y a b l et ob e a r e r ma yb ec o n v e r t e di n t oa no r d e r i n s t r u me n t . a .T r u e b . F a l s e c . No n eo f t h e s e An s we r : B 2 1 .Wh i c ho ft h ef o l l o wi n gi n s t r u me n t si sn o tn e g o t i a b l eb e c a u s ei tl a c k st h er e q u i r e me n t so fa n u n c o n d i t i o n a l p r o mi s eo r o r d e r t op a yas u mc e r t a i ni nmo n e y ? a .Bi l l o f e x c h a n g e ; b .Ch e c k ; c .Ce r t i fi c a t eo f s t o c k ; d. Pr o mi s s o r yn o t e . Ans. C 22. This is not negotiation of a negotiable instrument: a. b. c. d.

Assignment; Delivery of a bearer instrument; Indorsement completed by delivery of an instrument payable to order; Delivery of an instrument to the payee.

Ans. A 23. The P1,000 bills issued by the Central Bank and in circulation are considered: a. b. c. d.

Checks. Bills of exchange. Legal tender. Promissory notes.

Ans. C 24. The following are functions of a negotiable instrument. Choose the exception. a. It increases purchasing power in circulation. b. As legal tender. c. As substitute for money.

d. It increases credit circulation. Ans. B 25. “I promise to pay to bearer, Juan dela Cruz, the sum of P20,000”. (Signed) Jose Paz. The promissory note is: a. b. c. d.

Negotiable promissory note payable on demand; Negotiable promissory note payable to order; Negotiable promissory note payable to bearer; Non-negotiable.

Ans. D 26. Ellen signed a promissory note in favor of Flor promising to pay P10,000, 30 days after sight. Who can sue on this note and enforce the obligation? a. b. c. d.

Both Ellen and Flor. Only Ellen Only Flor. Neither Ellen nor Flor.

Ans. C 27. Atoy issued a bearer note to Boy. The note is negotiated by delivery by Boy to Cris to Doc, by Doc to Ely, by Ely to Fe, the holder. Fe can hold liable: a. b. c. d.

Cris. Atoy. Doc. Boy.

Ans. B. 28. An instrument is rendered non-negotiable if a. There is an indication of a particular fund out of which reimbursement is to be made. b. There is an indication of a particular account to be debited with the amount. c. The instrument is payable out of a particular fund. d. Answer not given. Ans. C 29. Marcelo makes a promissory note for P2,000 payable to the order of Patricia. Patricia negotiates the note to Amel who, with the consent of Patricia, raises the amount

to P20,000 and thereafter indorses it to Ben, Ben to Cale, and Cale to Dan who is not a holder in due course. In this case: a. b. c. d.

Dan can recover P2,000 as against Marcelo; Patricia and Amel are liable to Dan for P20,000; Ben and Cale are liable to Dan; Answer not given

Ans. A 30. Which of the following does not discharge a negotiable instrument? a. b. c. d.

Payment by maker of a promissory note before maturity date. Intentional cancellation of the instrument by the holder. Payment by party primarily liable to holder or his authorized representative. Voluntary surrender of the instrument by the holder to the maker without collecting.

Ans. A 31. The promise or order is conditional, hence non-negotiable? a. “I promise to pay B or order P60,000”. (Signed Z) b. “Pay B or order P60,000”. (Addressed to Y signed by Z) c. “Pay B or order P60,000 and reimburse yourself out of my money in your possession”. (Addressed to Z signed by Y) d. “Pay B or order P60,000 out of my money in your possession”. ( Addressed to Y signed by Z) Answer: d 32. A promissory note as distinguished from a bill of exchange. a. It contains an unconditional order. b. The one who issues it is primarily liable. c. The one who issues it is secondarily liable. d. There are three (3) parties, the drawer, the payee and the drawee. Answer: b

33. A is maker of a promissory note for P100,000 payable to the order of B who negotiates the same in favor of C. C loses the note and is found by X who forges the signature of C and pretending to be C negotiates the note to D, D to E, E to F and F to G who is a holder in due course. Under the circumstances which of these is not an incorrect statement? a. Being a holder in due course, G can recover from maker A. b. The signature of C being forged, it becomes inoperative and payment cannot be enforced against him. c. E is not liable to F precisely because he was not the one who forged the signature of C. d. X is not liable to any party to the instrument since his name does not appear thereon. Answer: b 34. A promissory note is payable to bearer when: a.

It is payable to a person named therein or bearer a. the only indorsement is blank b. the name of payee does not support to be the name of a person c. all of the above

Answer: d 35. Marie makes a promissory note payable to bearer to bearer and delivers the same to Polido, who negotiates it to Arman by indorsing it without recourse. If the note is dishonored in the hands of arman due to insolvency Marie. a. Arman cannot recover from Polido because the latter does not warrant Marie’s solvency. b. Arman can recover from Polido because the latter is secondarily liable on the instrument as indorser. c. Arman can recover from Polido because of breach of warranty. d. Arman cannot recover from Polido because his indorsement is conditional. Answer: a

36. Which of the following is not an essential element of a bill of exchange?

a. must be written and signed by the drawee b. must contain an unconditional promise to pay a sum certain in money c. must be payable to order or bearer d. drawee must be named therein Answer: a

37. Which is not correct? The acceptor by accepting a negotiable instrument: e. Admits the existence of the payee and his capacity to endorse f. Admits the existence of the drawer, the genuineness of his signature and his authority to draw the instrument. g. Admits the existence of the endorser, the genuineness of his signature and his authority to draw the nstrument. h. Admits that he will pay it according to the tenor of his acceptance. Answer: c 38. M is the maker of a note for P 30,000 payable to C or bearer. C negotiated the note to D, D to E, E to F and F to M. Which is correct? i. the note is discharged j. the noted is not discharged since there is no payment k. M cannot re-issued the note l. The indorsers are not discharged Answer: a 39. A delivered to B the following instrument: In payment of a gambling debt, A made a promissory note which reads: “I promise to pay to B P10,000 Sgd. A.” B indorsed the note in blank before maturity and delivered it to C for value. When due, A refused to pay and C sued B. Could C recover from B?

m. No, C could not sue B because B did not write the name of C as indorsee n. No, the instrument is not negotiable and B is a mere assignor of credit o. Yes, provided C gives notice of dishonor to B otherwise B discharged from liabilities. p. Yes, the endorsement will be considered as an assignment, hence B will be liable as an assignor of the instrument. Answer: d 40. M is the maker of a note payable to J. Cruz or order for P 5,000 due July 30, 2009. Cruz borrowed P 2,000 from C payable July 31, 2009 and pledged the note by indorsing it to C. Which of the following is correct?

q. a promissory note cannot be pledged without the consent of the maker r. On July 30, 2009 C can collect from M only P 2,000 s. on July 30, 2009 C can collect from M P 5,000 t. partial indorsement is allowed Answer: c...