ABUYOG COMMUNITY COLLEGE

Name: Adolfo, Ma. Estella S.

YR. & section: BS Entrep 3A

NEGOTIABLE INSTRUMENTS LAW-PART I

LESSON I: INTRODUCTION TO NEGOTIABLE INSTRUMENTS, FORM AND INTERPRETATION

Activity 2: Analysis Activity

1. What are the reasons why negotiable instruments play an important role in trade and
commerce?
Answer: negotiable instrument are critical to our economy because they allow you to do
business and to be certain you’ll receive money for services or goods without actually
transferring any cash.
2. In what sense is a negotiable instrument analogous to money?
Answer: simply put, the negotiable instrument is a substitute for money or serves an extension
of credit. Fir it to work, it is imperative that the instrument be easily transferable without danger
of being uncollectible.
3. An important feature of a negotiable instrument is the accumulation of secondary contracts as it
is transferred from one person to another. Illustrate.
Answer:
4. In case there is doubt as to the negotiability of an instrument, should it be held negotiable or
non-negotiable? Why?
Answer: non-negotiable because negotiable instrument cannot be denied or refuse to pay
5. Is postal money order a negotiable instrument? Why?
Answer:
6. R signs a check with the name of the payee and the amount in blank and keeps the check in his
safe. P, his secretary, learns of the check and steals it. She places the amount P50,000 on the
check and her name as payee. She thereafter indorses the check to A, then A to B, B to C and C
to H, holder. Can H enforce the check against R? Against P, A, B and C?

Activity 3 (Application)

Explain or state briefly the rule or reason for your answers.

1. A bill of exchange signed by W addressed to X states: “Please pay Y or order P10,000.” Is the bill
negotiable.

Answer: yes, because is signed by maker and the payee

2. I promise to pay X P10,000 within 10 days before I retire from government service.” Is the note
negotiable?

Answer: yes, because there is an exact date of negotiation.

3. An instrument signed by W payable to X was indorsed in blank by X by simply writing his name on
the back thereof. The instrument was given by X to Y in payment for goods sold by Y. Is the note
negotiable in the hands of Y?

Answer: no, because X just simply writing his name on the back without signature.
4. I promise to pay X P10,000 or if he wants a brand new six (6) feet refrigerator. Is the promissory
note negotiable?

Answer: Yes, because of the word promise.

5. W, a retiree, issued a promissory note, to wit: “I promise to pay X or order the sum of P50,000

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out of the retirement pay which I will receive from the government.” Actually, W will get more than
P200,000 as retirement benefits. Is the note negotiable?

Answer: yes, because W didn’t promise that W would pay all of the amount from his retirement
6. I promise to pay X or order P10,000 on or before September 30, 2012, following the terms and
conditions of the contract executed by W this date.” Is the note negotiable?

Answer: Yes, the note is negotiable

7. W, maker of a promissory note which reads: “I promise to pay X or order P50,000 after I sell my
car.” The following day, W was able to sell his car. Is the note a negotiable instrument?

Answer: Yes, still negotiable instrument, even the maker was not able to sell his car. W can’t refuse
to pay the promissory note
8. W signs an instrument as follows: “I promise to pay X or order P10,000.” The instrument is
addressed to Y. Is the instrument a promissory note or a bill of exchange?

Answer: a bill of exchange

Activity 4 (Evaluation Self Check Questions)

Test I. Multiple Choice. Select the best answer by writing the letter of your choice.
1. An instrument which is not dated will be considered dated as at the time of:
a. acceptance b. first indorsment c. last indorsement e. issuance

2. “I promise to pay P or his order the sum of P10,000.00 30 days after the death of X”. This is an
instrument payable:
a. at a determinable future time b. on demand
b. upon the fulfillment of a condition c. at an indefinite time, hence, non-negotiable

3. Who among the following is the holder of a negotiable instrument originally payable to order?
a. The original payee who has negotiated the instrument
b. The indorsee who is in possession of the instrument
c. The possessor of the instrument to whom the instrument was delivered without any
indorsement
d. The indorsee who has negotiated the instrument

4. An instrument payable to bearer may be negotiated through any of the following means, except
by:
a. Special indorsement plus delivery
b. mere delivery
c. blank indorsement plus delivery
d. no delivery is required as long as there is an indorsement, whether blank or special

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

I. Pay to the order of Pablo Patricio P20,000
II. Pay to the order of Pablo Patricio P20,000 or deliver to him a computer of the same value at his
option
III. Pay to the order of Pablo Patricio P20,000 or deliver to him a computer of the same value
IV. Pay to the order of Pablo Patricio a computer worth P20,000

Assuming all the other requisites of negotiability are present, which of the foregoing instruments are
negotiable?
a. I and II b. I and III c. II and III d. III and IV

6. The separate paper attached to an instrument on which an indorsement or acceptance of the

instrument is written is called:
a. allonge b. memorandum c. enclosure d. attachment

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7. Assuming all the other requisites of negotiability are present, which of the following instruments
is not payable to bearer?
a. “Pay to the order of cash”
b. “Pay to the order of Jose Rizal, national hero”
c. “Pay to Pedro Padernal, bearer”
d. Pay to Pedro Padernal or bearer

8. Consider these two statements:

I. An instrument originally payable to order may be converted into a bearer instrument
II An instrument originally payable to bearer may be converted into an order instrument
In your evaluation of the foregoing instruments:
a. Both statements are true
b. Both statements are false
c. Statement I is true; Statement II is false.
d. Statement I is false; Statement II is true

9. Which of the following is a valid address to a drawee so as to make the instrument negotiable?
a. “To Walter Wenceslao or Wilfredo Wycoco”
b. “To Walter Wenceslao, or in his absence, Wilfredo Wycoco”
c. “To Walter Wenceslao and Wilfredo Wycoco”
d. “To Walter Wenceslao and another drawee named Wilfredo”

10. M signs a promissory note payable to the order of P which is blank as to amount. M delivers the
note to P with the instruction to type the amount of P20,000.00 on the blank. P, however, types the
amount of P50,000.00, and negotiates the same to A, A to B, B to C and C to H, a holder in due
course. A, B, C and also H had no knowledge of the wrongful completion of the blank.
a. H may collect from M nothing because P violated M’s instructions
b. H may collect from M P20,000.00 the amount M instructed P to place on the space for the
amount.
c. H may collect from M P50,000, the amount actually place by P.
d. H may collect from A, B or C P20,000.00 since they had no knowledge of the wrongful completion

11. R signs a check amounting to P50,000.00 but which is blank as to the name of payee. He keeps
the check in his drawer but S, his secretary steals it, places her name as payee on the blank and
negotiates it to A, A to B, B to C and C to H, holder. A, B and C have no knowledge of the theft of the
check and its unauthorized completion by S. Based on the foregoing, which of the following
statements is incorrect?
a. H may enforce payment of the check against R if H is a holder in due course
b. H may enforce payment of the check against S, whether S is a holder in due course or not.
c. H may enforce payment of the check against A, B and C, whether H is a holder in due course or
not.
d. H may not enforce payment of the check against R, whether H is a holder in due course or not

12. M makes a note payable to the order of P. He delivers the note to P with the instruction that P
should keep the same until M has obtained the proceeds of his loan from the bank. P, however,
disregarded the instruction of M and indorsed the note to A, A to B, B to C and C to H, holder. A, B
and C have no knowledge of P’s defective title. Based on the foregoing, which of the following
statements is incorrect?
a. H may enforce payment against M if H is a holder in due course
b. H may not enforce payment against M if H is not a holder in due course.
c. H may not enforce payment against A, B and C, whether H is a holder in due course or not.
d. H may enforce payment against P, whether H is a holder in due course or not.

13. One of the following can set up the defense of forgery in an instrument payable to order. Who

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 is it?
a. An indorser, if the maker’s signature is forged.
b. The acceptor, if the drawer’s signature is forged.
c. A person negotiating by mere delivery if a prior party’s signature is forged.
d. The maker, if an indorser’s signature is forged.

14. M makes a note payable to P or bearer and delivers the note to P. P indorses the note to A. A
keeps the note in his drawer but it is stolen by F who negotiates the same to B by forging A’s
signature, B indorses the note to C, C indorses the note to H, a holder in due course. Who among
the following can set up the defense of forgery?
a. M, maker b. P, payee c. A, indorser d. None of the above

References:

Notes in Business Law (For Accountancy Students and CPA Reviewees) 2016 Edition by Fidelito R.
Soriano

The Law on Negotiable Instruments (with Documents of Title) 2014 Revised Edition by Hector S. de Leon
and Hector M. de Leon, Jr.