NEGOTIABLE INSTRUMENTS LAW SAMPLE QUIZ

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?

• The promissory note is negotiable because the forms of payment are clearly stated.

• The promissory note is non-negotiable because the option as to which form of payment is with the maker.

• The promissory note is an invalid instrument because there is more than one form of payment.

• The promissory note can be negotiated by way of delivery.

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?

• Yes, the promissory note is negotiable even though the amount is stated in foreign currency

• No, the promissory note is not negotiable because the amount is in foreign currency.

• No, the promissory note becomes invalid because the amount is in foreign currency.

• Yes, the promissory note is negotiable because the Hong Kong dollar is a known foreign currency in the Philippines.

A promissory note which does not have the words "or order" or "or bearer" will render the promissory note non-negotiable, and therefore

• it will render the maker not liable

• the note can still be assigned and the maker made liable

• the holder can become holder in due course

• the promissory note can just be delivered and the maker will still be liable

Negotiable instruments are used as substitutes for money, which means

• that they can be considered legal tender

• that when negotiated, they can be used to pay indebtedness

• that at all times the delivery of the instrument is equivalent to delivery of the cash

• that at all times negotiation of the instruments requires proper indorsement

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

• the sum expressed in words will prevail over the one expressed in numbers

• the sum expressed in numbers will prevail over the one expressed in words

• the instrument becomes void because of the discrepancy

• this will render the instrument invalid

Under the Negotiable Instruments Law, what makes an instrument a Negotiable Instrument?

Answer explanation

Sec. 1

a. Must be in writing and signed by the drawer or maker.

b. Must contain and unconditional promise or order to pay a sum certain in money.

c. Must be payable on demand or at a fixed, or determinable future time.

d. Must be payable to order or to bearer.

e. If addressed to a drawee he must be named or indicated therein with reasonable certainty

What makes a holder, a holder in due course?

Answer explanation

SEC 52.

a. Obtained the instrument as complete and regular upon its face.

b. Obtained the instrument before it was overdue and without notice that it has been previously dishonored, if such was fact.

c. He obtained it in good faith and for value.

d. When it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

What are the warranties of a General Indorser?

Answer explanation

Sec. 66

a. That the instrument is genuine and in all respects what it purports to be.

b. That he has good title to it.

c. That all prior parties have the capacity to contract.

d. That he has no knowledge of any fact that would impair the validity of the instrument or render it valueless.

What are the liabilities of a General Indorser?

Answer explanation

Sec. 66

The General indorser is liable to a holder in due course to the matters involving subsections a-c of Section 66 of the Negotiable Instruments Law. A general indorser likewise warrants that the instrument is valid and subsisting at the time of indorsement.

What are the real defenses?

Answer explanation

1. Minority

2. Forgery

3. Non-delivery of an incomplete instrument

4. Material Alteration

5. Ultra Vires Acts of a Corporation

6. Fraud in Factum

7. Illegality

8. Vicious force or violence

9. Prescription

10. Want of Authority

11. Discharge in Insolvency