STATUTE: LAW ON NEGOTIABLE INSTRUMENTS

I. NEGOTIABLE INSTRUMENTS, Defined

 The Negotiable Instrument Law (Act No. 2031) applies ONLY to negotiable instruments (GSIS vs.
Court of Appeals G.R. No. 40824, February 23, 1989)
 Written contracts for the payment of money; by its form, intended as a substitute for money
and intended to pass from hand to hand, to give the holder in due course the right to hold the
same and collect the sum due

II. FUNCTIONS OF NEGOTIABLE INSTRUMENTS

 Although they do not constitute legal tender, they are used as a substitute for money.
 Negotiable papers, particularly checks, constitute, at present, the media of exchange for most
commercial transactions.
 Negotiable instruments also serve as a medium of credit transactions.
 Negotiable instruments shall produce the effect of payment only when they have been
encashed or when through the fault of the creditor they have been impaired. [Article 1249, Civil
Code]

III. ATTRIBUTES OF A NEGOTIABLE INSTRUMENT

1. Negotiability
 Signifies the capability of negotiable instruments of passing from one hand to another
2. Accumulation of Secondary Contract
 Once an instrument is issued, additional parties can become involved.
3. Presumption of Consideration
 Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.

IV. NEGOTIABILITY OF NEGOTIABLE INSTRUMENTS

SECTION 1: FORM OF NEGOTIABLE INSTRUMENTS
An instrument to be negotiable must conform to the following requirements:
a. It must be writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money
 What constitutes certainty as to sum:
• The sum payable is a sum certain within the meaning of this act, although it is to be
paid:
i. With interest; or
ii. By stated installments; or
iii. By stated installments, with a provision that, upon default in payment of any
installment or of interest, the whole shall become due; or
iv. With exchange, whether at a fixed rate or at the current rate; or
v. With costs of collection or an attorney's fee, in case payment shall not be made
at maturity. [Section 2, Negotiable Instruments Law]
 When promise is unconditional
• An unqualified order or promise to pay is unconditional. It is still unconditional though
coupled with:
 i. An indication of a particular fund out of which reimbursement is to be made or
a particular account to be debited with the amount; or
ii. A statement of the transaction which gives rise to the instrument.
 When promise is not unconditional
• An order or promise to pay out of a particular fund is not unconditional. [Section 3,
Negotiable Instruments Law]
c. Must be payable on demand or at a fixed or determinable future time;
 When payable on demand
i. When it is so expressed to be payable on demand, or at sight, or on
presentation
ii. In which no time for payment is expressed
iii. Where an instrument is issued, accepted, or indorsed when overdue, it is, as
regards the person so issuing, accepting, or indorsing it, payable on demand
[Section 7, Negotiable Instruments Law]
 Determinable future time
i. An instrument is payable at a determinable future time, within the meaning of
this Act, which is expressed to be payable:
1. At a fixed period after date or sight; or
2. On or before a fixed or determinable future time specified therein; or
3. On or at a fixed period after the occurrence of a specified event which
is certain to happen, though the time of happening be uncertain.
ii. An instrument payable upon a contingency is not negotiable, and the happening
of the event does not cure the defect. [Section 4, Negotiable Instruments Law]
d. Must be payable to order or bearer; and
 The instrument is payable to order where it is drawn payable to the order of a specified
person or to him or his order. [Section 8, Negotiable Instruments Law]
 Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
 When payable to bearer
i. When it is expressed to be so payable
ii. When it is payable to a person named therein or bearer
iii. When it is payable to the order of a fictitious or non-existing person, and such
fact was known to the person making it so payable
iv. When the name of the payee does not purport to be the name of any person
v. When the only or last indorsement is an indorsement in blank [Section 9,
Negotiable Instruments Law]
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
 To whom may it be drawn payable to
i. It may be drawn payable to the order of —
i. A payee who is not a maker, drawer, or drawee; or
ii. The drawer or maker; or
iii. The drawee; or
iv. Two or more payees jointly; or
v. One or some of several payees; or
vi. The holder of an office for the time being.
NOTE:
1. Any instrument which has the requisites of enumerated therein is negotiable and is
governed by the NIL. All other instruments are non-negotiable.
2. Note that the fact that an instrument does not meet the requisites will not affect its validity.
Only consequence is that it will not be governed by the NIL but by the general law on
contracts (New Civil Code).

GUIDELINES IN DETERMINING NEGOTIABILITY (CLA)

1. C – Consider the ENTIRE instrument
2. L – Limit your determination of negotiability on what appears ONLY on the face of the
instrument , and
3. A – Apply the requisites of negotiability

REQUISITES OF NEGOTIABILITY IN DETAIL

1. IN WRITING
b. Rationale: To enable the instrument to pass from one hand o another just like money.
c. Manner of Writing: May be handwritten, typewritten, engraved, printed, or computer
processed
d. Writing Instrument: Any will do (pen, marker, crayons, pencil, typewriter ribbon)
e. Writing Material: paper or any substitute for paper so as long as it is MOVABLE
2. SIGNED BY THE MAKER OR BY THE DRAWER
a. Rationale: This serves as proof of the maker’s or of the drawer’s intention to be
contractually bound on the instrument he signed.
b. Manner of Signing: Any manner of signing will do (full name, initials, nickname,
assumed name, trade
i. (name, ”X” mark, thumbmark, etc.). What is important is that the maker or
drawer intended
ii. to be bound by such manner of signing
c. Basic Rule: NO SIGNATURE, NO LIABILITY
i. No person is liable on the instrument whose signature DOES NOTAPPEAR
thereon
d. Exception: NO SIGNATURE, NO LIABILITY
i. No signature yet LIABLE
ii. Signature appears and yet NOT LIABLE

V. COMMON FORMS OF NEGOTIABLE INSTRUMENTS

1. PROMISSORY NOTES (Sec. 184, NIL)
An unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at fixed or determinable future time, a sum certain in money to
order or to bearer.
a. Certificate of Deposit
b. Bonds
c. Bank Note
d. Due Bills
e. Mortgage Note
f. Title-Retaining Note
g. Collateral Note
h. Judgment Note
 i. Installment Note
2. BILL OF EXCHANGE (Sec. 126, NIL)
An unconditional order in writing addressed by one person to another, signed by the person
giving it, and requiring the person to whom it is addressed to pay upon demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.
a. Check- most common bill of exchange. It is drawn against a bank and payable upon
demand
b. Trade acceptance- drawn by a seller on the purchaser of goods
c. Bank Draft- drawn by a bank against its branch or another bank
d. Foreign Bill of Exchange- drawn in a foreign country and payable in another foreign
country
e. Inland Bill of Exchange- drawn and payable within the Philippines

 COMMERCIAL PAPERS WHICH ARE NON-NEGOTIABLE INSTRUMENTS

a. Letter of Credit - not payable to order nor bearer
b. Treasury Warrant- payable out of specific fund
c. Postal Money Order- subject to restrictions provided for under the postal laws and
hence, conditional
d. Bill of Lading- no conditional promise nor order to pay a sum certain in money
e. Certificate of Stock- no unconditional promise nor order to pay a certain in money
f. Warehouse Receipt- no unconditional promise nor order to pay a certain in money

VI. PARTIES TO A NEGOTIABLE INSTRUMENT

A. AS TO ORDER OF APPEARANCE
ORIGINAL PARTIES
PROMISSORY NOTES BILL OF EXCHANGE
Maker- the maker who makes the promise and Drawer- the person who issues and draws the order
signs the instruments the bill
Payee- the person to whom the promise to pay Drawee- to whom the bill is addressed and who is
is made ordered and expected to pay
Payee- person to whom the payment is to be made

SUBSEQUENT PARTIES
PROMISSORY NOTES BILL OF EXCHANGE
Indorser- the payee or any person who signs at the back of the Indorser
instrument otherwise than as maker, drawer, or acceptor (Sec.
63, NIL)
Indorsee- the person named by the indorser in his indorsement Indorsee
as the party to be paid, Thus , he is a subsequent holder unlike
the payee who is an original holder
Party Negotiating an Instrument Payable to Bearer by mere Party Negotiating an Instrument
Delivery Payable to Bearer by mere Delivery
Party Receivng an Instrument Payable to Bearer by mere Party Receivng an Instrument
Delivery Payable to Bearer by mere Delivery
 Acceptor- a drawee who signifies his
assent to the order of the drawer
(Sec. 132 NIL)

OTHER PARTIES TO A NEGOTIABLE INSTRUMENT

a. Accommodation Party
 Sec. 29. Liability of Accommodation Party
o An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the instrument to
a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.
b. Holder
 Means the payee or indorsee of a bill of a note, who is in possession of it, or the bearer
thereof. (Sec.191, NIL)
c. Bearer
 Means the person in possession of a bill or a note which is payable to bearer (Sec.191, NIL)

B. AS TO ORDER OF LIABILITY
1) Primarily Liable - First in the Order of Liability
 Maker
 Drawee
o NOTE: The drawee, although first in liability is not liable unless he
accepts (Sec. 127, NIL)
2) Secondarily Liable - Becomes liable only if the party primarily liable does not pay
 Drawer
 Indorser
 Party Negotiating a Bearer Instrument by mere delivery

VII. NEGOTIABLE INSTRUMENTS VS. NON-NEGOTIABLE INSTRUMENTS

NEGOTIABLE INSTRUMENTS NON-NEGOTIABLE INSTRUMENTS
Contains all the requisites of Sec. 1 of the NIL Does not contain all the requisites of Sec. 1 of
the NIL
Transferred by negotiation Transferred by assignment
Holder in due course may have better rights than Transferee acquires rights only of his transferor
transferor
Prior parties warrant payment Prior parties merely warrant legality of title
Transferee has right of recourse against intermediate Transferee has no right of recourse
parties

VIII. ABNORMAL INSTRUMENTS

 The abnormal instruments are:
1. Incomplete but delivered (Sec. 14 NIL);
2. Incomplete and delivered (Sec. 15 NIL);
3. Complete but undelivered (Sec. 16 NIL);
4. Forgery (Sec. 23 NIL)
I. INCOMPLETE BUT DELIVERED
 Two Kinds of Incomplete but Delivered (Sec. 14 NIL)
1. Incomplete instrument but delivered.
2. A signature and a blank piece of paper signed by the person for the purpose of
converting it into a negotiable instrument.
 Two requisites to bind the person who signed the instrument before delivery:
1. It must be filled-up strictly with the authority given; and
2. Within a reasonable time
 NOTE: Effects to a holder in due course - It is valid and effectual for all purpose as
though it was filled up strictly in accordance with the authority given and within
reasonable time.
o Sec. 14 raises a Personal Defense- if the last holder is a holder in due course,
maker is liable to pay.
 Rules where instrument is incomplete but delivered:
1. Authority to fill-up the blanks- the holder or the person in possession has prima
facie authority to complete an incomplete instrument by filling up the blanks
therein.
2. Authority to put up any amount- a signature on a blank paper delivered in order
that may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount.
3. Right against party prior to completion- the instrument may be enforced only
against a party prior to completion if filled up strictly in accordance with the
authority given and within reasonable time.
II. INCOMPLETE BUT UNDELIVERED
 This refers to an instrument which is wanting in a material particular such as the
amount of the instrument or the name of the payee, and is undelivered.
• EFFECT: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon before delivery.
[Section 15, Negotiable Instruments Law]
 If completed and delivered without authority, not a valid contract
against a person who has signed before delivery of the contract even in
the hands of HDC but subsequent indorsers are liable.
• RIGHTS AND LIABILITIES: if a mechanically incomplete instrument is completed and
delivered without authority
a. AGAINST: a party whose signature was placed on the instrument before
delivery
i. He cannot be held liable because "want of delivery of an
incomplete instrument" is a real defense. Hence, even if the
holder is a holder in due course, the latter cannot enforce the
instrument against him.
 b. AGAINST: a party who signs the instrument after completion and
delivery
i. The instrument can be enforced against the guilty party i.e., the
one who completed and delivered the instrument, as well as
those subsequent to him. For indorsers or persons negotiating
by mere delivery, they warrant "that the instrument is genuine
and in all respects what it purports to be.
III. COMPLETE BUT UNDELIVERED
 Instrument is mechanically complete if:
1. Undelivered – every contract is on negotiable instruments is still incomplete
and revocable until its delivery even if completely written for the purpose of
giving it effect
a. Delivery – transfer of possession, actual or constructive, made either by
the maker or drawer or an authorized agent
b. Issue – first delivery of the instrument to the holder
o Both issue and delivery takes intent to transfer title to the payee
recognizing him as the holder thereof
c. Holder – payee or indorsee who is in possession of it
 In the absence of delivery, the instrument even if complete constitutes no contract.
The maker does not assume any liability. The payee does not acquire any right
against the maker who may revoke, cancel or tear it up with or without any reason.
 If the instrument is in possession of a party other than the holder in due course:
 Both an immediate or remote party is prima facie presumption of valid and
intentional delivery until the contrary is proved.
 If delivery was made conditionally or for a special purpose only and not for
the purpose of transferring the title, the payee cannot enforce the
instrument to the maker because there is no intention of transferring title
to the instrument.
 If instrument is in possession of a holder in due course, a conclusive
presumption that there is a valid delivery by all parties prior to him.

IV. FORGERY
 Takes place when the signature in the negotiable instrument is either forged or
made without the authority of the person the signature purports to be. It is wholly
inoperative and no right to retain it, discharge it or enforce its payment against any
party to the instrument can be acquired unless the party against whom it's enforced
is prohibited from raising forgery or lack of authority as a defense. It's done in any of
the following ways:
1. Signing in another's name with intent to defraud
2. Altering the name, amount, payee's name, etc. with intent to defraud
 NOTE:
1. Only the forged signature is invalid. The instrument itself and the genuine
signatures are valid.
 2. Payment under a forged instrument isn't to the drawer's order. In case of a
forged instrument or one that's payable to order, the person whose signature
is forged isn't liable; the same is true for prior parties.
3. Even if the signature is forged, there are parties who can't set up forgery or
lack of authority as a defense. These are:
 Those who are negligent
 Those who expressly or impliedly ratified the forgery (done either by
their acts or by silence)
 Those who warrant/admit the genuineness of the signature in question,
such as indorsers, acceptors and persons negotiating by delivery
 Be careful about where and/or with whom you leave your checkbook
(Ilusorio vs. CA, GR 139130, November 27, 2002.) You could be held
liable if your secretary forged your signature.
4. In case of forgery of indorsement of the payee of the check the drawee bank
can't debit the drawer's account and the loss shall be borne by the drawee
bank. The depositary or collecting bank is liable to the drawee in case of a
forged indorsement because it guarantees all previous indorsement. That's
the general rule. It is subject to the qualification that the drawer wasn't
negligent or guilty of such conduct as would estop him from asserting the
forged character of the indorsement as against the drawer. Only the drawee
may be held liable if it isn't established that the checks containing forged
instruments passed through the alleged collecting bank.
5. If the drawer's signature is forged, the drawee can't charge the drawer's
account and can't recover from the collecting bank.

 Forged Promissory Note

A. Forged Indorsement
a. If payable to order: the party whose indorsement is forged and parties
prior to him, including the maker, aren't liable, even to a holder in due
course. Forged instruments are inoperative and can't transfer rights or
title over the instrument.
b. If payable to bearer: the party whose indorsement is forged and all
parties prior, including the maker, are liable to a holder in due course
but not to a holder who isn't in due course (a holder for value.) The
instrument can be negotiated by mere delivery (because it's payable to
bearer) so indorsement isn't necessary to transfer title. The forgery can
be discarded.
B.Forged Signature
 The maker isn't liable to any holder; it won't matter if it's a holder in due
course or not. The purported maker isn't a party to the instrument because
his signature was forged (and isn't operative.)

 Forged Bill of Exchange

A. Forged Indorsement
a. If payable to order: the drawee can't charge the drawer's account, the
drawer can't recover from the collecting bank (but the drawee can,) the
payee can recover from the drawer or the recipient of payment (but not
 from the drawee) and the collecting bank bears the loss but can recover
from the person to whom it paid the check.
b. If payable to bearer: same as in promissory notes
B. Forged Signature
a. With drawee's acceptance: drawee bears the loss; he's bound by
warranty. The drawer isn't liable; the signature isn't operative.
b. Without drawee's acceptance, but paid, by drawee: drawee can't
recover from the drawer or the recipient of payment; no warranty,
however, he's constructively negligent.
 NOTE: The above rules on forged bill of exchange and promissory notes are
subject to the rule precluding the defense of forgery by warranty, as in the
case of parties negotiating an instrument subsequent to the forgery or
estoppel, as in the case of negligence.
 STATUTE: THE ANTI-BOUNCING CHECK LAW
 BOUNCING CHECKS
o A check dishonored by its drawee- bank for nonpayment because of either
insufficiency of funds or of being drawn against a closed account. Upon dishonor, it
is a mark on its face by the drawee-bank, “DAIF” (Drawn Against Insufficient Funds)
or “CLOSED ACCOUNT” indicating the reason for its dishonor by nonpayment

 EFFECTS OF ISSUING BOUNCING CHECKS

o Negotiability is not affected and a bouncing check can still be negotiated, if however
still negotiated, the transferee will no longer qualify as a holder in due course (Sec.
52, letter (b) NIL)
o A drawer who issues a bouncing check violates Batas Pambansa Blg. 22 (The Anti-
Bouncing Check Law) and is guilty of a crime.
 CHECKS WITHOUT SUFFICIENT FUNDS (Sec. 1)
o Making and issuing check/s with knowledge by the issuer that at the time the check
is issued, he does not have sufficient funds, which check is subsequently dishonored
by the drawee bank
o Failure to keep sufficient funds to cover the full amount of the check if presented
within a period of 90 days from the date appearing on the check
o Where the check is drawn by a corporation, company or entity, the person or
persons who actually signed the check in behalf of such drawer shall be liable under
this Act.
 PUNISHMENT FOR NSF CHECKS
a. By imprisonment of not less than thirty (30) days but not more than one (1) year or;
b. By a fine of not less than but not more than double the amount of the check which
fine shall in no case exceed Two Hundred Thousand Pesos (Php 200,000), or;
c. BOTH such fine and imprisonment at the discretion of the court
 EVIDENCE OF KNOWLEDGE OF INSUFFICIENT FUNDS (Sec. 2)
 Dishonor of drawee bank is to be a prima facie evidence of knowledge of such
insufficiency of funds or credit.
UNLESS
 ○maker or drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within 5 banking days
after receiving notice that such check has not been paid by the drawee.
 For the presumption to apply, the ff. requisites must be met:
1. Check is presented within 90 days from date of the check
2. Drawer or maker of the check receives notice that such check has not been paid
by the drawee; and
3. Drawer or maker of the check fails to pay the holder of the check the amount
due thereon, or to make arrangements for its payment in 5 working days after
receiving written notice that such check has not been paid by the drawee.
NOTE: Notice of non-payment must be given for presumption to apply since lack of which prevents
the determination of the crucial 5-day period.

 Duty of drawee; rules of evidence (sec 3)

o It shall be the duty of the drawee of any check, when refusing to pay the same to the
holder thereof upon presentment, to cause to be written, printed, or stamped in plain
 language thereon, or attached thereto, the reason for drawee's dishonor or refusal to
pay the same.
o Provided, That where there are no sufficient funds in or credit with such drawee bank,
such fact shall always be explicitly stated in the notice of dishonor or refusal.
 In all prosecutions under this Act:
o The introduction in evidence of any unpaid and dishonored check, having the drawee's
refusal to pay stamped or written thereon or attached thereto, with the reason therefor
as aforesaid, shall be prima facie evidence of the making or issuance of said check.
o The due presentment to the drawee for payment and the dishonor thereof, and that the
same was properly dishonored for the reason written, stamped or attached by the
drawee on such dishonored check.
o Notwithstanding receipt of an order to stop payment, the drawee shall state in the
notice that there were no sufficient funds in or credit with such bank for the payment in
full of such check, if such be the fact.
 Credit Construed
o The word "credit" as used herein shall be construed to mean an arrangement or
understanding with the bank for the payment of such check."
o A credit instrument is a written instrument or evidence of the existence and nature of a
credit contract. It is evidence of an obligation or a claim.
 FEATURES OF A CREDIT INSTRUMENT
o It is a written evidence of the existence of an obligation on the part of the debtor, or a
claim on the part of the creditor.
o It shows the degree of risk that confronts the creditor with respect too the collection of
the debt.
o It shows the nature of the debtor-creditor relationship.
 FUNCTIONS OF A CREDIT INSTRUMENT
o Written documents make claims enforceable. The credit instrument enables the creditor
to hold the host instrument to collect from his debtor.
o Credit instruments facilitate exchange transactions. To increase volume production,
producer’s farmers, manufacture and merchants avail themselves credit both use of the
proper credit instrument.
o Credit instrument minimize disputes among the contracting parties. Such instruments
define the extent of the obligations and claims of debtors and creditors
o Credit instrument facilitates production and consumption. Stocks and bonds certificates
issued by corporations that are engaged in production activities.
 QUESTIONS WITH ANSWERS
1.

November 20, 2015

I promise to pay to the order of Paolo Pimentel the sum of of P50,000.00 if he places first in May
2016 CPA Examination

(Sgd.) Mariano Miranda

a. The instrument is valid and negotiable.

b. The instrument is valid but not negotiable.
c. The instrument is invalid but negotiable.
d. The instrument is invalid and not negotiable

2. A check must be in writing and signed by the drawer for it to be negotiable. In addition, a check
must have the following requisite, except:

a. It must contain an unconditional order to pay a sum certain in money.

b. It must be payable at a fixed or determinable future time.
c. It must be payable to order or to bearer.
d. The bank drawee must be named with reasonable certainty.

3. On October 1, 2015, R bought goods from the store of P amounting to P10,000.00, issuing a
check for P20,000.00 against his account with W Bank. R knew that his fund with W Bank was
insufficient to cover the check. Consequently, the check was dishonored by W Bank when P
presented it for encashment. What offense may be charged against R?

a. Violation of Batas Pambansa Blg. 22 (Bouncing Checks Law.)

b. Estafa under the Revised Penal Code.
c. Both (a) and (b).
d. Neither (a) nor (b).

4. The following instruments are presented to you for evaluation:

I. “Pay to the order of Pablo Patricio P20,000.00”

II. “Pay to the order of Pablo Patricio P20,000.00 or deliver to him a computer of the same
value at his option.”
III. “Pay to the order of Pablo Patricio P20,000.00 or deliver to him a computer of the same
value.”
IV. “Pay to the order of Pablo Patricio a computer worth P20,000.00.”
Assuming all the other requisites of negotiability are present, which of the foregoing instruments are
negotiable?

a. Instruments I and II.

b. Instruments I and III.
 c. Instruments II and III.
d. Instruments III and IV.

5. S1: It is a violation of BP 22 when the maker or drawer of such a check fails to maintain sufficient
funds in, or enough credit with, the drawee bank to cover the full amount of the check for a
period of sixty (60) days from the date appearing on the check and the check is dishonored for
such reason.

S2: The penalty for violation of BP 22 is imprisonment for 30 days to one year or a fine not less
than but not more than double the amount of the check which fine shall in no case exceed Php
200,000.00 or both.

a. Both statements are true.

b. Both statements are false.
c. Only S1 is true.
d. Only S2 is true.

6. A check drawn had no sufficient funds in, or enough credit with, the drawee bank for the
payment of such check or when the maker or drawer of the check issues a stop payment order
on such a check without any valid reason.

a. Stale check
b. Bouncing check
c. Postdated check
d. Blank check

7. The following are among the requisites for a negotiable instrument to be negotiable, except
one:
a. It must be writing and signed by the maker or drawer
b. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein even with no certainty
c. Must be payable to order or bearer
d. None of the above

8. As per the Negotiable Instruments Law, the term negotiable means:

a. Money
b. Transferable
c. Can be passed
d. Bargaining

9. Which of the followings is not the Negotiable Instruments

a. Currency Note
b. Promissory Note
c. Bill of Exchange
d. Cheques

10. S1: An instrument payable upon a contingency is negotiable, and the happening of the event
cures the defect.
 S2: Although they do not constitute legal tender, Negotiable Instruments are used as a
substitute for money.
a. Both statements are true.
b. Both statements are false.
c. Only S1 is true.
d. Only S2 is true.

11. P rode a Sentinel Liner bus going to Baguio from Manila. At a stop-over in Tarlac, the bus driver,
the conductor, and the passengers disembarked for lunch. P decided, however, to remain in the
bus, the door of which was not locked. At this point, V, a vendor, sneaked into the bus and
offered P some refreshments. When P rudely declined, V attacked him, resulting in P suffering
from bruises and contusions. Does he have cause to sue Sentinel Liner?
A. Yes, since the carrier's crew did nothing to protect a passenger who remained in the bus
during the stop-over.
B.No, since the carrier's crew could not have foreseen the attack.
C. Yes, since the bus is liable for anything that goes wrong in the course of a trip.
D. No, since the attack on P took place when the bus was at a stop-over.

12. (30) D, debtor of C, wrote a promissory note payable to the order of C. C's brother, M,
misrepresenting himself as C’s agent, obtained the note from D, then negotiated it to N after
forging C's signature. N indorsed it to E, who indorsed it to F, a holder in due course. May F
recover from E?

a. No, since the forgery of C's signature results in the discharge of E.

b. Yes, since only the forged signature is inoperative and E is bound as indorser.
c. No, since the signature of C, the payee, was forged.
d. Yes, since the signature of C is immaterial, he being the payee.

13. B borrowed Php1 million from L and offered to him his BMW car worth Php1 Million as
collateral. B then executed a promissory note that reads: "I, B, promise to pay L or bearer the
amount of Php1 Million and to keep my BMW car (loan collateral) free from any other
encumbrance. Signed, B." Is this note negotiable?
a. Yes, since it is payable to bearer.
b. Yes, since it contains an unconditional promise to pay a sum certain in money.
c. No, since the promise to just pay a sum of money is unclear.
d. No, since it contains a promise to do an act in addition to the payment of money.

14. D draws a bill of exchange that states: "One month from date, pay to B or his order
Php100,000.00. Signed, D." The drawee named in the bill is E. B negotiated the bill to M, M to N,
N to O, and O to P. Due to non-acceptance and after proceedings for dishonor were made, P
asked O to pay, which O did. From whom may O recover?
a. B, being the payee
b. N, as indorser to O
c. E, being the drawee
d. D, being the drawer

15. A material alteration of an instrument without the assent of all parties liable thereon results in
its avoidance, EXCEPT against a
a. prior indorsee.
b. subsequent acceptor.
c. subsequent indorser.
d. prior acceptor.