MIDTERMS

Set A

1. What is a signature by procuration? What is the effect thereof? (3pts)

2. Define the following: (2pts each)

a. Promissory note
b. Bill of Exchange
c. Check

3. A writes a promissory note in favor of his creditor, B. It says: “Subject to my opinion, I

promise to pay B Php 1 million or his order or give Php 1 million worth of cement or to
authorize him to sell my house worth Php 1 million. Signed, A.” Is this note negotiable? (1pt)
a. NO, because the exercise of the option to pay lies with A, the maker and debtor
b. NO, because the note authorizes the sale of collateral securities in case the note is
not paid at maturity,
c. YES, because the note is really payable to B or his order, the other provisions being
merely optional.
d. YES, because an election to require something to be done in lieu of payment of
money does not affect negotiability.

4. Santos purchased Vera’s car for Php 50,000.00. Not having enough cash on hand, Santos
offered to pay in check. Vera refused to accept the check unless it is endorsed by Reyes,
their mutual friend. Reyes, endorsed Santos’ check and accepted it. The next day, Vera
presented the check to the drawee bank for payment. Payment was refused for lack of
funds. Vera gave notice of dishonour to Reyes, but Reyes refused to pay, saying that he
endorsed merely as a friend.
a. Is Reyes liable to Vera? Explain. (2.5pts)
b. In the event Reyes voluntarily pays Vera, does Reyes have the right to recover from
Santos? Explain. (2.5pts)

5. A promissory note states, on its face: “I, X, promise to pay Y the amount of Php 5,000.00 five
days after completion of the on-going construction of my house. Signed, X.” Is this note
negotiable? (1pt)
a. YES, since it is payable at a fixed period after the occurrence of a specified event.
b. NO, since it is payable at a fixed period after the occurrence of an event which may
not happen.
c. YES, since it is payable at a fixed period or determinable future time.
d. NO, since it should be payable at a fixed period before the occurrence of a specified
event.

6. B borrowed a Php 1 million from L and offered to him his BMW car worth Php 1 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? (1pt)
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.

7. Which of the following stipulations or features of a promissory note (PN) affect or do not
affect its negotiability, assuming that the PN is otherwise negotiable? Indicate your answer

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 by writing the paragraph number of the stipulation o feature of the PN as shown below and
your corresponding answer, either “AFFECTED” or “NOT AFFECTED”. Explain. (3pts each)
EX: 1. Date of the PN is “February 30, 2002”- NOT AFFECTED; the instrument is not valid for
the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. Thus, date is not essential for its negotiability.

a. The PN bears interest payable on the last day of each calendar quarter at a rate
equal to five percent (5%) above the then prevailing 91-day Treasury Bill rate as
published at the beginning of such calendar quarter.
b. The PN gives the maker the option to make payment either in money or in quantity
of palay of equivalent value.
c. The PN gives the holder the option either to require payment in money or to require
the maker to serve as the bodyguard or escort of the holder for 30 days.

8. 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? (1pt)
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.

9. X found a check on the street, drawn by Y against ABC Bank, with Z as payee. X forged Z’s
signature as an indorser, then indorsed it personally and delivered it to DEF Bank. The latter,
in turn, indorsed it to ABC Bank which charged it to the account of Y. Y later sued ABC Bank
but it set up the forgery as its defense. Will it prosper? (1pt)
a. NO, since the payee’s signature has been forged.
b. NO, since Y’s remedy is to run after the forger, X.
c. YES, since forgery is only a personal defense.
d. YES, since ABC Bank is bound to know the signature of Y, it client.

10. X executed a promissory note with a face value of Php 50,000.00, payable to the order of Y.
Y indorsed the note to Z, to whom Y owed Php 30,000.00. If X has no defense at all against
Y, for how much may Z collect from X? (3pts)

11. Who is an accommodation party? (3pts)

12. What is the effect of partial indorsement? (3pts)

13. Can a blank indorsement be changed to a special indorsement? How? (3pts)

14. Z wrote out an instrument that states: “Pay to X the amount of Php 1 Million for collection
only. Signed, Z.” X indorsed it to his creditor, Y, tto whom he owed Php1 Million. Y now
wants to collect and satisfy X’s debt through the Php 1 Million on the check. May he validly
do so? (3pts)

15. When is indorsement considered restrictive? (3pts)

16. What if on the face of the instrument, there is the absence of words implying the power to
negotiate, does it make the indorsement restrictive? (3pts)

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 17. What are the effects of restrictive indorsement? (3pts)

18. A negotiable instrument can be indorsed by way of a restrictive indorsement, which

prohibits further negotiation and constitutes the indorsee as agent of the indorser. As
agent, the indorsee has the right, among others, to (1pt)
a. Demand payment of the instrument only
b. Notify the drawer of the payment of the instrument
c. Receive payment of the instrument
d. Instruct that payment be made to the drawee.

19. What is a qualified indorsement? How is it made? (3pts)

20. Does a qualified indorsement impair the negotiable character of the instrument? Explain.
(3pts)

21. In conditional indorsements, can the fact that the condition had not yet been fulfilled be
disregarded by the party required to pay? Explain. (3pts)

22. What is the effect of an indorsement made in an instrument which is payable to bearer?
(3pts)

23. How can an instrument be indorsed if it is payable to two or more persons? (3pts)

24. In the case of Gempesaw vs Court of Appeals, it made mention that the case of forged
indorsements may be broken into two (2) types, to wit: (1) where forgery was
accomplished by a person not associated with the drawer — for example a mail
robbery; and (2) where the indorsement was forged by an agent of the drawer.
Which of the following stated above reflects the kind of forgery committed in the
abovementioned case and explain or illustrate why? (10 pts)

25. In the case of Metropolitan Bank and Trust Company vs BA Finance Corporation and
Malayan Co., Inc, was Metropolitan Bank and Trust Company, through its employee,
negligent when it allowed the deposit of the crossed check, despite the lone endorsement
of Bitanga? Explain. (10 pts)

GOOD LUCK!

So whoever knows the right thing to do and fails to

do it, for him it is sin.

JAMES 4:17

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