Negotiable Instruments

Midterm Examination
First Semester, Q1-School Year 2020-2021

Name: _____________________________ Date: _____________________

Year and Course: ____________________ Instructor: _________________

General Direction: This is a 50-item test, read each direction carefully.

I. MULTIPLE CHOICE
Direction: Choose the letter of the correct answer.
_______1. I. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration.
II. Every person whose signature appears on every negotiable instrument is deemed prima facie to have become a party thereto for value.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______2. This is any consideration sufficient to support a simple contract.

a. Cash c. Money
b. Value d. Price

_______3. I. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future
time.
II. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become
such prior to that time.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______4. 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.
a. Accommodated party c. Primary liable
b. Accommodation party d. Secondary liable

_______5. I. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder
thereof.
II. If an instrument is payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder
completed by delivery.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______6. I. The indorsement must be written on the instrument itself or upon a paper attached thereto.
II. The signature of the indorser, without additional words, is a sufficient indorsement.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______7. I. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the
instrument tot wo or more indorsees severally, does not operate as a negotiation of the instrument.
II. Where the instrument has been paid in part, it may be indorsed as to the residue.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______8. A kind of indorsement which specifies the person to whom, or to whose order, the instrument is to be payable.
a. Conditional indorsement c. Special indorsement
b. Blank indorsement d. Qualified indorsement

_______9. A kind of indorsement which specifies no indorse, and an instrument so indorsed is payable to bearer, and may negotiated by delivery.
a. Conditional indorsement c. Special indorsement
b. Blank indorsement d. Qualified indorsement

_______10. I. The holder may convert a blank indorsement into a special indorsement into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of the indorsement.
II. A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable; and the indorsement od such
indorsee is necessary to the further negotiation of the instrument.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______11. The following are restrictive indorsements, except:

a. Prohibits the further negotiation of the instrument
b. An indorsement which specifies no indorsee
c. Constitutes the indorsee the agent of the indorser
d. Vests the title in the indorsee in trust for or to the use of some other persons

_______12. The following are restrictive indorsements, except:

a. Prohibits the further negotiation of the instrument
b. Constitutes the indorsee the agent of the indorser
c. An indorsement which constitutes the indorser a mere assignor of the title to the instrument
d. Vests the title in the indorsee in trust for or to the use of some other persons
_______13. A restrictive indorsement confers upon the indorsee the right, except:
a. To receive payment on the instrument
b. To hold the instrument free from any defect of title of prior restrictive indorser
c. To bring any action thereon that the indorser could bring
d. To transfer his rights as such indorsee

_______14. A kind of indorsement which constitutes the indorser a mere assignor of the title to the instrument.
a. Conditional indorsement c. Qualified indorsement
b. Blank indorsement d. Special indorsement

_______15. I. A qualified indorsement impairs the negotiable character of the instrument.

II. Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the
indorsee or his transferee whether the condition has been fulfilled or not.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______16. I. Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person
indorsing specially is liable as indorser to only such holders as make title through his indorsement.
II. Where an instrument is payable to the order of two or more payees or indorsees who are not partners, any may indorse, unless the one
indorsing has authority to indorse for the others.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______17. I. Where an instrument is drawn or indorsed to a person as “cashier” or other fiscal officer of a bank or corporation, it is deemed prima
facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation,
or the indorsement of the officer.
II. Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described
adding, if he thinks fit, his proper signature.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______18. I. Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been
effected before the instrument was overdue.
II. Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is
dated.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______19. I. An instrument negotiable in its origin continues to be negotiable until it has been respectively indorsed or discharged by payment or
otherwise.
II. The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck
out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

_______20. I. Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee
such title as the transferor had therein, and the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the indorsement is actually made.
II. Where an instrument is negotiated back to a prior party, such party may reissue and further negotiate the same. But he is not entitled
to enforce payment thereof against any intervening party to whom he was personally liable.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

______21. I. The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course, discharges the instrument.
II. Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is a holder in due
course.
a. Both are true c. Only I is true
b. Both are false d. Only II is true

______22. A holder in due course is a holder who has taken the instrument under the following conditions, except:
a. That it is complete and regular upon its face
b. That he became the holder of it after it was overdue, and without notice that it has been previously dishonored, if such was the
fact
c. That he took it in good faith and for value
d. That at the time 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

______23. A holder in due course is a holder who has taken the instrument under the following, except:
a. That is complete and regular upon its face
b. That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the
fact
c. That he took it in good faith and for value
d. That at the time it was negotiated to him, it has no infirmity in the instrument or defect in the title of the person negotiating it

______24. I. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he
has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.
II. The title of a person who negotiates an instrument is defective when he obtained the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.
a. Both are true c. Only I is true
b. Both are false d. Only II is true
______25. The following are rights of a holder in due course, except:
a. Holds the instrument free from any defect of title of prior parties
b. Holds the instrument free from defenses available to prior parties among themselves
c. May enforce payment of the instrument for the full amount thereof against all parties liable thereon
d. To bring any action thereon that the indorser could bring

II. ESSAY
Directions: Answer the following questions below on your own words. Write one paragraph only per number with at least 5 sentences.

1. What constitutes negotiation? (5pts)

2. What are the effects of indorsement? (10pts)
3. What are the rights of the holder? (10pts)