BUSINESS LAW

BY
SORIANO

Submitted to:

Prof. Ardee Dela Cruz

Submitted by:

Dancel, Regine May

Marty, Ira Rhomela

Flores, Donna
OBLIGATIONS – DIAGNOSTIC EXERCISES
TEST 1 – MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. The following are the requisite of an obligation, except:

a. Passive subject, debtor or obligor
b. Active subject, creditor or oblige
c. Efficient cause
d. Demand
2. Obligations may arise from any of the following, except:
a. Contracts
b. Quasi-contracts
c. Law
d. Prestation
3. It is the voluntary administration of the property of another without his consent.
a. Negotiorum gestio
b. Solution indebiti
c. Quasi-delict
d. Contracts
4. It is a wrong committed without any pre-existing relations between the parties.
a. Natural obligation
b. Quasi-delict
c. Quasi-contract
d. Crime
5. Unless the law or the stipulations of the parties require another standard of care, every
person obliged to give something is also obliged to take care of it with:
a. Extra-ordinary diligence
b. Diligence of a father of a good family
c. Diligence of a good father of a family
d. Good diligence of a father of a family
6. The creditor has a right that is enforceable against a definite passive subject. The right is
known as:
a. Personal right
b. Real right
c. Natural right
d. Civil right
7. It is a thing that is particularly designated or physically segregated from all others of the
same class.
a. Generic thing
b. Indeterminate thing
c. Determinate thing
d. Real thing
8. One of the following is determinate thing. Which is it?
a. A cow
b. A horse
c. A Toyota car with engine no. 12345, body no. 35787 and plate no. ABC 123.
d. A ring with diamond embellishment
9. Demand must be made on the due date of the obligation in order for delay to exist in
one of the following cases. Which is it?
a. When it was stipulated by the parties that demand need not be made.
b. When the law provides that demand need not be made.
c. When the obligation does not indicate whether demand must be made or not on
due date.
d. When time is of the essence of the contract.
10. This refers on the delay on the part of the creditor.
a. Mora solvendi ex re
b. Compensation morae
c. Mora solvendi ex personae
d. Mora accipiendi
11. There shall be no liability for loss due to fortuitous events in one of the following cases.
Which is it?
a. When the debtor delays.
b. When the parties so stipulated that there shall be liability even in case of loss due to
fortuitous events.
c. When the nature of the obligation requires the assumption of risks.
d. When the obligation is to deliver a determinate thing and there was no stipulation
as to the liability of the debtor in case of loss due to fortuitous events.
12. The following are the remedies of the creditor to pursue his claims against the debtor,
except to:
a. Pursue the property owned and in possession of the debtor.
b. Exercise all the rights and bring all the actions of the debtor (accion subrogatoria)
c. Impugn the acts which the debtor may have done to defraud his creditors (accion
pauliana)
d. Compel the debtor to perform the service in obligations to do.
13. D borrowed P50, 000 from C. C dies before he has collected the debt leaving S, his son,
as heir. Which of the following statements is correct?
a. S can collect from D although D and C did not agree that the credit right will pass on
to the heirs of C.
b. S cannot collect because the credit right is personal to C.
c. S can collect only f D and C agreed that the credit right will pass on the heirs of C.
d. S cannot collect because the law prohibits the transmission of the credit right.
14. D is obliged to give C a specific car if C passes the CPA Licensure Examination.
D’s obligation is an example of:
a. A pure obligation
b. An obligation with a suspensive condition
c. An obligation with a resolutory condition
d. An obligation with a period
15. One of the following obligations is not immediately demandable.
 a. Pure obligation
b. Obligation with a resolutory condition
c. Obligation with an in diem period
d. Obligation with ex die period
16. One of the following is a void obligation:
a. D is obliged to give C P5,000.00 if C does not go to the moon.
b. D is obliged to give C P5,000.00 if D does not go to Baguio.
c. D is obliged to give C P5,000.00 if C does not go to Baguio.
d. D is obliged to give C P5,000.00 if D wins first prize in the sweepstakes on a ticket
that he had already purchased.
17. D is obliged to give C P10,000.00 if X dies. This is an example of:
a. An obligation with a suspensive condition
b. An obligation with a resolutory condition
c. An obligation with a period
d. A pure obligation
18. When the debtor binds himself to pay when his means permit him to do so, the
obligation is:
a. An obligation with a resolutory condition
b. A pure obligation
c. An obligation with a suspensive condition
d. An obligation with a suspensive period
19. Whenever a period is designated in an obligation, the said period shall be presumed to
have been established for the benefit of:
a. The debtor
b. The creditor
c. Both the debtor and the creditor
d. Neither of the parties
20. The debtor shall lose the right to make use of the period in the following cases, except
when he:
 a. Becomes insolvent.
b. Violates any undertaking in consideration of which the creditor agreed to the period.
c. Attempts to abscond.
d. Does not furnish any guaranty or security to the creditor.
21. An obligation ceases to be alternative and becomes a simple obligation in the following
cases, except when:
a. The debtor has communicated his choice to the creditor.
b. The right of choice has been expressly granted to the creditor and his choice has
been communicated to the debtor.
c. Among the several prestations that are due only one is practicable.
d. Three prestations are due but one of them is unlawful or impossible.
22. D s obliged to give C a specific watch, a specific ring, or a specific bracelet. The parties
agreed that C will have the right to choose the thing which will be given to him. Before C
could make his choice, the watch and the ring are lost through D’s fault,
successively. What is the right of C?
a. C may choose the delivery to him of the bracelet, or the price of watch or the price
of the ring plus damages.
b. C cannot choose the price of the watch or the price of the ring because the said
objects have already been lost.
c. C can only choose to have the bracelet because anyway, D can still perform his
obligation.
d. C can only choose to have delivery of the bracelet or the price of the ring which was
the last item that was lost plus damages.
23. D is obliged to give C a specific ring. The parties agreed that D may give a specific
bracelet as substitute. Which of the following statements is true?
a. If the ring is lost through a fortuitous event before substitution, the obligation is
extinguished.
b. If the bracelet is lost through a fortuitous event before the substitution, the
obligation is extinguished.
 c. If the ring is lost through a fortuitous event after substitution, the obligation is
extinguished.
d. If the ring is lost through the debtor’s fault after substitution, the debtor shall
pay damages.
24. A, B, C and D are obliged to give V, W, X, Y and Z P20,000.00.
a. V may collect from A P20,000.00
b. V may collect from A P5,000.00
c. V may collect from A P1,000.00
d. V may collect from A P4,000.00
25. A, B, C and D joint debtors, are obliged to give V, W, X, Y and Z, solidary creditors,
P20,000.00.
a. V may collect from B P20,000.00
b. V may collect from B P4,000.00
c. V may collect from B P5,000.00
d. V may collect from B P1,000.00
26. A, B, C and D, solidary debtors, are obliged to give V, W, X, Y and Z, joint creditors,
P20,000.00.
a. V may collect from B P20,000.00
b. V may collect from B P4,000.00
c. V may collect from B P5,000.00
d. V may collect from B P1,000.00
27. A, B, C and D, solidary debtors, are obliged to give V, W, X, Y and Z, solidary creditors,
P20,000.00.
a. V may collect from B P20,000.00
b. V may collect from B P4,000.00
c. V may collect from B P5,000.00
d. V may collect from B P1,000.00
28. A, 25, B, 35, and C, 17, are solidary debtors of X in the amount of P9,000.00.
a. X may collect from A P9,000.00
 b. X may collect from A P6,000.00
c. X may collect from A P1,000.00
d. X may collect nothing because the obligation is voidable, C being a minor.

29. The following obligations are divisible, except an obligation:

a. To give definite things.
b. Which has for its object the execution of a certain number of days of work.
c. Which has for its object the accomplishment of work by metrical units.
d. Which by its nature is susceptible of partial performance.
30. In obligations with a penal clause, the creditor as a rule may recover from the debtor in
case of breach the following:
a. The penalty as agreed upon, plus damages and interest.
b. The penalty and damages.
c. The penalty and interest.
d. Only the penalty
31. Consider the following statements:
I. The nullity of the principal obligation carries with it the nullity of the penal
clause.
II. The nullity of the principal obligation does not carry with it the nullity of the
penal clause.
III. The nullity of the penal clause carries with it the nullity of the principal
obligation.
IV. The nullity of the penal clause does not carry with it the nullity of the principal
obligation.
a. Statements I and III are true.
b. Statements I and IV are true.
c. Statements II and III are true.
d. Statements II and IV are true.
32. D borrowed from C P50,000.00. the obligation is secured by a chattel mortgage
on D’s Toyota car. Subsequently, D paid C P20,000.00. unknown to D, T, a third person,
pays C P50,000.00 believing that D still owed C such amount.
a. T can recover P50,000.00 from D. if D cannot pay, T can foreclose the mortgage on
D’s Toyota car.
b. T can recover nothing from D because he paid C without the knowledge and consent
of D.
c. T can recover P30,000.00 from D. If D cannot pay, T can foreclose the mortgage on
D’s Toyota car.
d. T can recover P30,000.00 from D. if D cannot pay, T cannot foreclose the mortgage
on D’s Toyota car.
33. The following statements concerning payment by cession are true, except one. Which is
it?
a. The creditors become the owners of the properties of the debtor that were ceded to
them.
b. Payment by cession extinguishes the obligation only to the extent covered by the
proceeds of the sale of the debtor’s properties.
c. The debtor must be insolvent.
d. Cession affects all the properties of the debtor except those exempt from execution.
34. D obtained from ABC Bank a loan of P12,000.00 payable at the end of 10 years. Before
maturity, an extraordinary inflation supervened causing the value of the debt to fall to
P4,000,000.00 on the date of maturity. On due date, D must pay ABC Bank:
a. P12,000,00.00
b. P4,000,000.00
c. P36,000,000.00
d. P3,000,000.00
35. D borrowed from XYZ Bank P2,000,000.00 payable at the end of 5 years. Before
maturity, an extraordinary deflation supervened causing the value of the debt to rise to
P5,000,000.00 on the date of maturity. On due date, B must pay XYZ Bank:
 a. P2,000,000.00
b. P5,000,000.00
c. P800,000.00
d. P20,000,000.00
36. The money or currency which the debtor may compel the creditor to accept in payment
of a debt, whether public or private, is known as:
a. Notes payable to order
b. Legal tender
c. Bill of exchange
d. Mercantile document
37. The delivery and transmission of ownership of a thing by the debtor to the creditor as
an accepted equivalent of performance is known as:
a. Payment by cession
b. Dation in payment
c. Application of payment
d. Consignation
38. D owes C the following debts: P6,000.00 due on June 12; P6,000.00 due on June 15;
P6,000.00 due on June 18; and P6,000.00 due in June 20. All debts are unsecured except
the debt due on June 20 which is secured by a pledge of D’s diamond ring to C.
By agreement, the benefit of the term on the 4 debts was granted to C. assuming that D
has P6,000.00 on June 18 and is ready to pay C, which of the following statements is
correct?
a. D may apply his payment of P6,000.00 to any of the debts due on June 12, June 15,
and June 18 since they are all due as of June 18.
b. D may apply his payment only to the debt due on June 20 because it is the most
burdensome to him.
c. D must apply the payment proportionately to the debts due as of June 18 at
P2,000.00 each.
d. D may apply the payment to any of the four debts.
39. The offer made by the debtor to pay his obligation to his creditor is known as:
a. Consignation
b. Tender of payment
c. Application of payment
d. Dation in payment
40. Consignation alone without any tender of payment is sufficient in the following cases,
except:
a. When the creditor is absent or unknown or does not appear at the place of
payment.
b. When the creditor presents the title to the obligation for collection.
c. When without just cause, the creditor refuses to give a receipt.
d. When two or more persons claim the same right to collect.
41. M owes P P10,000.00. the obligation is evidenced by a promissory note. Subsequently, P
assigned the note to A, A to B, B to C, and C back to M. the obligation of M is
extinguished by:
a. Compensation
b. Confusion
c. Condonation
d. The obligation is not extinguished because there was no payment.
42. In order that condonation may extinguish an obligation involving a movable property
whose value exceeds P5,000.00 –
a. It is sufficient that the condonation and the acceptance are in writing, even a private
one.
b. It is required that the condonation and the acceptance be in a public instrument.
c. The delivery of the document evidencing the debt is sufficient since the property is
movable.
d. The condonation and the acceptance may be made orally.
43. One of the following is not a requisite of legal compensation, which is it?
 a. That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other.
b. That the two debts be due.
c. That both debts be liquidated and demandable.
d. That the debts are payable at the same place.
44. Henry, husband, and Wilma, wife, are legally separated. By order of the court which
decreed the legal separation, Henry is obliged to give a monthly support of P10,000.00
to Wilma payable within the first five days of the month. Wilma owes Henry P10,000.00
by way of a business loan. On the other hand, Henry has not yet given Wilma’s
support of P10,000.00 for this month. Both debts are already due. Which of the
following statements is correct?
a. Both debts are extinguished by legal compensation because both are already due.
b. Wilma can claim compensation but not Henry.
c. Henry can claim compensation but not Wilma.
d. Neither one may claim compensation because the debts are not of the same kind.
45. D owes C P10,000.00 with G as guarantor. C, on the other hand, owes D, P8,000.00.
both debts are already due but D is insolvent. In this case –
a. C may collect from G P10,000.00
b. C may collect from G P2,000.00 because a guarantor can set up compensation as
regards what the creditor owes the principal debtor.
c. C may collect nothing from G because D is insolvent.
d. C may collect P8,000.00 from G.
46. D borrowed P50,000.00 from C. subsequently, D proposed to C that T would assume his
(D’s) debt. C accepted the proposal of D. This substitution of the debtor is known
as –
a. Expromision
b. Delegacion
c. Tradition
d. Dation en pago
47. Refer to the facts of No. 46. Assume also that on due date, T could not pay because of
his insolvency which was in fact subsisting but was known to D or of public knowledge at
the time that D delegated his debt. In this case –
a. C can revive D’s debt because T’s insolvency was already existing at the time that
D delegated his debt.
b. C can revive D’s debt whether or not he (D) was aware of T’s insolvency
since he (D) proposed the substitution.
c. C cannot hold D liable because his (D’s) obligation was extinguished when he
was substituted by T.
d. The novation is void because D did not take steps to determine the solvency of T
when he (D) delegated his debt.
48. D obliged himself to give 5 grams of “shabu” to C. later, the parties agreed that D
would instead give to C 5 sacks of rice. Which of the following statements is correct?
a. The novation is void because the original obligation is void. Hence, C cannot demand
the delivery of 5 sacks of rice from D.
b. The novation is valid because the new obligation is valid. Hence, C can demand the
delivery of 5 sacks of rice from D.
c. The original obligation although void is validated by the new obligation. Hence, C can
demand the delivery of 5 sacks of rice from D.
d. The new obligation is only voidable because had not yet performed the original
obligation at the time of the novation. Accordingly, the new obligation is binding and
C may demand the delivery of 5 sacks of rice from D until the new obligation is
annulled by a proper action in court.
49. On July 1, 2010, D obliged himself to give C P50,000.00 if C will marry X on or before
December 31, 2010. The condition of the obligation is a:
a. Positive condition
b. Negative condition
c. Joint condition
d. Impossible condition
50. Refer to No. 49. Which of the following statements is incorrect?
a. The obligation of D is demandable if C marries X on or before December 31, 2010.
b. The obligation of D is extinguished if it is already January 1, 2011 and C has not yet
married X.
c. The obligation of D is extinguished on December 2, 2010 if X dies on the same date
and C has not yet married X.
d. The obligation is demandable if C marries X on January 1, 2011.
51. On July 1, 2010, D obliged himself to give C a specific car if C will not marry X on or
before December 31, 2010. The condition of the obligation is a:
a. Positive condition
b. Negative condition
a. Divisible condition
b. Impossible condition.
52. Refer to N. 51. Which of the following statements is incorrect?
a. The obligation of D is demandable if C marries X on January 1, 2011.
b. The obligation of D is demandable on December 2, 2010 if X dies on the same date
and D has not yet married X.
c. The obligation of D is demandable if it is already January 1, 2011 and D has not yet
married X.
d. The obligation is demandable if C marries X on December 2. 2010.
53. D owes C P5,000.00. T, a third person and without any intention to be reimbursed by D,
paid the debt without the consent of D. C accepted the payment.
a. The payment did not extinguish the debt of D to C because it was made without the
consent of D.
b. The payment did not extinguish the debt because it was not made by D himself.
c. The payment is considered valid because it was accepted by the creditor.
d. The payment may be considered valid if T had the intention to be reimbursed.
54. A mode of extinguishing obligations up to their concurrent amount when two persons
are principal debtors and creditors of each other is called:
 a. Novation
b. Payment
c. Compensation
d. Merger
55. D owes C P6,000.00. No date for payment was stipulated by the parties.
a. C cannot require D to pay because there is no date for payment.
b. C can require D to pay at any time.
c. D is not liable to C because the obligation is void there being no date of payment.
d. D is not required to pay unless C goes to court and asks the court to fix a period for
the payment.
56. Under a contract executed on November 1, 2010, D obliged himself to give a specific
horse to C on December 10, 2010. On December 8, 2010, C demanded the delivery of
the horse but D did not comply. The following day, the horse was struck by lightning and
died instantly.
a. The obligation of D is extinguished because the loss is due to fortuitous event and D
was not in default.
b. The obligation of D is not extinguished because D can deliver another horse.
c. The obligation of D is not extinguished because D was in default.
d. The obligation of D is not extinguished because the demand was not made on due
date.
57. Which of the following is not considered a conditional obligation?
a. D to pay c P5,000.00 as soon as D has the means.
b. D to pay c P5,000.00 if C marries X.
c. D to pay c P5,000.00 if C tops the CPA Examinations.
d. D to pay C if X dies of malaria.
58. The distinction between merger and compensation is that in merger:
a. The two debts may be payable at different places.
b. Two persons are in their own right debtors and creditors of each other.
c. The debtor and creditor may agree on the set-off of debts that are not yet due.
 d. The debtor and the creditor refer to only one person.
59. The passage of time as a mode of acquiring or losing a right including the
extinguishment of an obligation is called:
a. Remission
b. Novation
c. Prescription
d. Merger
60. Legal compensation shall not be proper in three of the following cases. Which is the
exception?
a. Commodatum
b. Civil liability arising from a criminal offense
c. Gratuitous support
d. Bank deposit
61. Cecilia, the owner of a sari-sari store, purchased several bags of “Dulcita” candy
worth of P5,000.00 from Olga, an authorized dealer of the product. On due date, Cecilia,
who sells the candies at P1.00 each, tendered her payment to Olga consisting of 5,000
pieces of P1.00 coins.
a. Olga may refuse to accept the payment and demand that she be paid in bills.
b. Olga may not refuse to accept the payment because what Cecilia was offering as
payment is money circulated in the Philippines.
c. Cecilia may consign the payment in court if Olga refuses to accept it.
d. The tender made by Cecilia was valid because the P1.00 coins came from her sales
and she had plenty of them.
62. Dominico and Domingo are jointly and severally liable to Crispino for P100,000.00. the
obligation is due on June 30, 2010. On June 25, 2010, Domingo paid the whole amount
of the note to Crispino. If Domingo reimburses Dominico on July 15, 2010, Dominico is
entitled to receive from Domingo:
a. P50,000.00 plus interest from June 25 to July 15, 2010.
b. P50,000.00 plus interest from June 25 to June 30, 2010.
 c. P50,000.00 plus interest from June 30 to July 15, 2010.
d. P50,000.00 with no interest because Dominico paid the note before due date.
63. One of the following statements does not pertain to dacion en pago. Which is it?
a. Ownership of the thing is transferred to the creditor.
b. The debtor must be insolvent.
c. It does not affect all the properties of the debtor.
d. It does not require plurality of creditors.
64. One of the following does not apply to payment by cession. Which is it?
a. Ownership of the debtor’s properties is transferred to the creditor.
b. The debtor must be insolvent
c. It affects all the properties of the debtor except from execution.
d. There are several creditors.
65. A, B and C are solidarily liable to X for P30,000.00. A pays X the whole amount due. C,
however, is insolvent.
a. A alone will bear the share of c who is insolvent since he (A) made the payment.
b. A can collect from B P10,000.00.
c. A can collect from B P15,000.00.
d. A can demand a refund of P10,000.00 from X pertaining to C’s share since C
is insolvent.
66. Anna Almeda, Belinda Bersola, and Claudia Cabrera executed the following promissory
note:
“ I promise to pay Dolores Dominguez or order the sum of P30,000.00 on
June 30, 2010.
(Sgd.) Anna Alameda
(Sgd.) Belinda Bersola
(Sgd.) Claudia Cabrera”

On June 30, 2010, Dolores Dominguez can collect from Anna Almeda:

a. P10,000.00
 b. P30,000.00
c. P20,000.00
d. Nothing, because the note is void since it says “I promise” but was signed by
three persons.
67. One of the following is a valid obligation. Which is it?
a. D promised to give C P50,000.00 if C will not swim across the Pacific Ocean.
b. D promised to give C P50,000.00 if D goes to Tokyo.
c. D promised to give C P50,000.00 if C can fly to the moon.
d. D promised to give C P50,000.00 if C gives him 5 grams of marijuana.
68. An obligation where various prestations are due but the performance of all of them is
required in order to extinguish the obligation is known as:
a. Alternative obligation
b. Facultative obligation
c. Conjunctive obligation
d. Simple obligation
69. A, B and C are solidary debtors of X in the amount of P9,000.00. subsequently, X
renounced the share of A. A accepted the renunciation of his share. On due date, B paid
X P6,000.00. B demanded reimbursement from C but C is insolvent. In this case:
a. B may demand the payment of P3,000.00 from A.
b. B may not demand any payment from A because the share of A had already been
renounced or condoned.
c. B may demand P1,500.00 from A representing A’s share in C’s insolvency.
d. B may demand from A P4,500.00 so that their sharing in the total debt is equal.
70. D is indebted to C for P20,000.00 which is due on June 10. C owes D 15,000.00 which is
due on June 5. On June 8, C assigned his credit rights to T. D gave his consent to the
assignment but did not reserve his right to the compensation. On June 10, how much
may T collect from D?
a. P20,000.00
b. P15,000.00
 c. P5,000.00
d. Nothing.
71. On May 1, 2010, D executed a written undertaking obliging himself to deliver 100 sacks
of rice to C on May 31, 2010. On May 28, 2010, C demanded the delivery of 100 sacks of
rice from D but D did not comply. The following day, a fire of undetermined origin
destroyed D’s warehouse together with about 500 sacks of rice stored therein and
from which D intended to get 100 sacks of rice for delivery to C.
a. D’s obligation to deliver 100 sacks of rice to C is extinguished, the cause of
the loss being a fortuitous event.
b. D’s obligation to deliver 100 sacks of rice to C is not extinguished because he
can get 100 sacks of rice from other sources.
c. D’s obligation to deliver 100 sacks of rice to C is not extinguished because D
was in default.
d. D’s obligation is to pay damages because he was in default.
72. On June 1, 2009, Demetrio obtained a loan of P100,000.00 from Cornelio. The loan,
which is payable on or before June 1, 2010, is secured by a chattel mortgage on
Demetrio’s brand-new Toyota car with plate number XYZ 123. On February 1, 2010,
while Demetrio was opening the trunk of his car at the parking lot of a grocery store to
place the groceries he had just purchased, three unidentified men approached him and
took his car at gunpoint. He reported the carnapping to the authorities but his car has
not been recovered.
a. Cornelio may demand immediate payment of the loan unless Demetrio gives
another security therefore.
b. Cornelio may demand payment only on June 1, 2010 because Demetrio has the
benefit of the period and the loss of the car was due to force majeure.
c. Cornelio may no longer demand payment since the loan was extinguished by reason
of the loss of the car due to fortuitous event.
d. Cornelio may demand immediate payment even if Demetrio offered another
security because the car is determinate and could not be replaced.
73. The estate of X who died recently, shows among other documents/contracts, the
following:
I. A certificate from Harvard University granting a scholarship to X. X was subjected
to exhaustive examination and interviews before he was granted the scholarship.
He was supposed to start studying at Harvard in 3 months’ time.
II. Articles of partnership of XYZ Enterprise showing X as a general partner.
III. A stock certificate of DEF Corporation showing X as the owner of P5,000.00
shares of stock.
IV. A promissory not amounting to P100,000.00 executed by M in favor of X. the
note is due after 90 days.

Which of the rights of X arising from the said documents/contacts will be transmitted to
the heirs of X?

a. I and II
b. II and III
c. III and IV
d. I and IV
74. The following statements pertain to either payment by cession or dacion en pago.
I. The debtor is insolvent.
II. Ownership of the thing/s is transferred to the creditor/s.
III. Plurality of creditors is required.
IV. Obligations are totally extinguished as a rule.
a. Statement I and IV pertain to payment by cession.
b. Statement I and III pertain to dacion en pago.
c. Statement II and IV pertain to dacion en pago.
d. Statement III and IV pertain to payment by cession.
75. The return of what has been paid by mistake is known as:
a. Solution indebiti
b. Negotiorum gestio.
 c. Quasi-delict.
d. Natural obligation.

Items 76, 77, and 78 are based on the following information:

Dolores borrowed P15,000.00 from Consuelo. On due date, Dolores was not able
to pay but she promised to give Consuelo a specific ring, a specific bracelet, or a
specific necklace, in payment of the debt. Consuelo accepted the offer of
Dolores.

76. What kind of obligation is the new obligation of Dolores?

a. Facultative obligation
b. Compound obligation
c. Alternative obligation
d. Simple obligation
77. How was the obligation of Dolores to pay P15,000.00 extinguished?
a. By compensation
b. By novation
c. By confusion
d. By condonation
78. Assume that before Dolores could deliver any of the ring, bracelet or necklace, the ring
and the bracelet were lost successively through the fault of Dolores. In this case:
a. Consuelo may demand the payment of the price of the ring or the price of the
bracelet plus damages, or the delivery of the necklace.
b. Dolores may deliver the necklace to Consuelo without any obligation to pay
damages.
c. Dolores may deliver the necklace to Consuelo with the obligations to pay damages
because the ring and the necklace were lost through her fault.
d. Consuelo may demand the payment of the price of the bracelet which was the last
item that was lost, plus damages.
79. D obtained a loan of P100,000.00 from C. D used the amount as placement fee for a job
in the Middle East. The loan agreement showed that the loan was payable within one
year with interest at 6% per annum. However, there was no provision saying that the
rights and obligations of the parties would be transmitted to their heirs or successors-in-
interest. Before maturity, D died leaving his son as heir. Which of the following is
correct?
a. C cannot collect from S because no mention was made in the agreement between D
and C that the rights and obligations of the parties would be transmitted to their
heirs.
b. C can collect from S although no mention was made in the agreement that rights
and obligations would be transmitted to the heirs.
c. C cannot collect from S because the obligation is personal to D.
d. C cannot collect from S because the law prohibits the transmission of the obligation.
80. Hilario, husband, and Wynona, wife, are legally separated. By order of the court which
decreed the legal separation, Hilario is obliged to give a monthly support of P20,000.00
to Wynona payable in advance within the first five days of the month. Wynona owes
Hilario P20,000.00 by way of loan. On the other hand, Hilario has not yet given
Wynona’s support of P20,000.00 for the preceding month and another P20,000.00 for
the present month. All the debts are already due. Based on the foregoing facts, which of
the following statements is incorrect?
a. If Wynona demands her support for the preceding month, Hilario may set up
compensation as regards the loan that Wynona owes him.
b. If Wynina demands her support for the current month, Hilario may claim
compensation as regards the loan that Wynona owes him.
c. If Hilario demands the payment of the loan, Wynona may set up compensation as
regards her support for the preceding month that Hilario owes her.
d. If Hilario demands payment of the loan, Wynona may set up compensation as
regards her support for the current month that Hilario owes her.
81. One of the following is not demandable at once. Which is it?
 a. D to give his car to C. No date was fived by the parties for the date of the delivery.
b. D to give his car to C until C completes his course in BS Accountancy.
c. D to give his car to C until X dies.
d. D to give C his car should C enroll in BS Accountancy.
82. D owes C the following debts: P6,000.00 due on January 1; P6,000.00 due on January 15;
P6,000.00 due on January 31; P6,000.00 due on February 15; P6,000.00 due on February
28; and P6,000.00 due on March 15. All the debts are unsecured except the one on
February 28. The parties stipulated that C may demand payment on or before due date
of each debt. Assume that today is February 16. D, however, has not yet paid any of the
debts. He has in possession P6,000.00 which he intends to pay C.
a. D may apply the payment to the debt due on February 28 because it is the most
burdensome to him.
b. D may apply the payment to any of the five unsecured debts.
c. D may apply the payment to any of the four debts that have become due as of
today, February 16.
d. D may apply the payment to all of the debts that have become due as of today,
February 16, proportionately at P1,500.00 each.
83. D made a promise to give a ring to C. Before D could deliver a ring to C, C
borrowed D’s ring. After a week, D demanded the return of the ring that he had lent to
C. c refused to return the ring claiming that there was compensation between his
obligation to return the ring of D and D’s obligation to give him a ring. Based on
the foregoing facts, which of the following statements is incorrect?
a. C entitled to claim compensation.
b. C is not entitled to claim compensation.
c. D may oppose the compensation being claimed by C.
d. Only D may claim the compensation should C demand the delivery of a ring from
him (D).
84. Maila made a non-negotiable promissory note with Pia as payee. Pia assigned the note
to Aiko, Aiko signed the note to Bea, Bea assigned the not to Carmina, Carmina signed
the note to Helen, and Helen assigned it back to Maila.
a. Maila’s obligation is extinguished by condonation.
b. Maila’s obligation is extinguished by confusion.
c. Maila’s obligation is extinguished by compensation.
d. Maila’s obligation is not extinguished because the note is not negotiable.
85. Lafuente is a lessee of Oberon’s building. Under the lease contract, Lafuente must
pay the monthly rental of P10,000.00 to Oberon at Oberon’s office within the first
5 days of the month in advance. On the sixth month of the lease, Lafuente went
to Oberon’s office to pay the rental but he as told by Elcano, an employee of Oberon,
that Oberon was confined at the hospital. Elcano told Lafuente that he could entrust the
payment to him. Santiago, a son of Oberon, who happened to be around, however,
demanded that Lafuente must pay to him claiming that as Oberon’s son, he was
the one authorized to receive the payment. Given the situation where you do not know
to whom you will give your payment, which of the following mode of payment would
you avail yourself of if you were Lafuente?
a. Dacion en pago
b. Payment by cession
c. Consignation
d. Application of payment
86. D promised to give C 10 sacks of rice when X, C’s father, dies. The obligation of D to C s:
a. An obligation with a suspensive condition.
b. An obligation with a resolutory condition.
c. An obligation with a period.
d. A pure obligation.
87. D bought a plane ticket for Hong Kong from Wings Travel Company. Later, however, D
cancelled his flight to Hong Kong because of the SARS epidemic in the place. Upon being
informed of the cancellation, Wings Travel told D that D could get the refund of his
 plane ticket within two days. In the meantime, D thought of going instead to Australia so
he called Wings Travel to send him a ticket for Brisbane promising to pay the cost of the
ticket in two days. Assuming that the refund due to D for his unused plane ticket to
Hong Kong is of the same amount as the cost of his plane ticket to Australia, D two days
later need not pay Wings Travel by reason of:
a. Confusion.
b. Novation.
c. Compensation.
d. Condonation.
88. On a certain year, D was obliged under a contract executed on March 1 to deliver an
agricultural land to C on April 1. D, however, actually delivered the land and the fruits
thereof to C on May 1. C had the right to the fruits of the agricultural land beginning on:
a. March 1
b. April 1
c. May 1
d. The period should be fixed by the court so that it can be determined when C is
entitled to the fruits.
89. Refer to the foregoing number. C became the owner of agricultural land and the fruits
thereof on:
a. March 1
b. April 1
c. May 1
d. The period should be fixed by the court so that it can be determined when C actually
became the owner of the agricultural land and its fruits.
90. The right of C before the delivery, on one hand, and his right after the delivery, on the
other hand, of the agricultural land and its fruits, to him are referred to as:
a. Personal right and real right, respectively.
b. Real right and personal right, respectively.
c. Both are considered a personal right.
 d. Both are considered real right.
91. Assuming that in No. 88, D did not deliver the land and its fruits to C. instead, he
delivered the same to X, who was in good faith when he acquired the land and its fruits,
on April 30.
a. X is the rightful owner of the land.
b. C is the rightful owner of the land.
c. C has a right of action against X.
d. C cannot ask for damages against D.
92. Which of the following is not a proper remedy for the creditor?
a. To compel the debtor to make the delivery, if the obligation is to deliver a
determinate thing.
b. To ask that the obligation be complied with at the expense of the debtor, if the
obligation is to deliver a generic thing.
c. To compel the debtor to perform the obligation, if the obligation is an obligation to
do.
d. To ask the debtor that what has been done be undone, if the obligation is an
obligation not to do.
93. The delivery of the creditor of mercantile documents such as checks shall produce the
effect of payment:
a. Upon the delivery.
b. When they have been cashed.
c. When through the fault of the debtor they have been impaired.
d. When they are deposited in the bank.
94. Which of the following statements concerning delay is incorrect?
a. There is no delay in obligations not to do.
b. Delay, as a rule, exists, when the debtor does not perform his obligation on the date
it is due.
c. Demand, as a rule, is required, in order for delay to exists.
 d. When time is of the essence of the contact, delay on part of the debtor exists
despite the absence of demand.
95. When the debtor and the creditor agree to a dacion en pago (transfer of ownership of
property to the creditor to settle a monetary obligation), before such transfer of
ownership, there is actually a:
a. Compensation
b. Confusion
c. Condonation
d. Novation
96. The delivery of mercantile documents such as checks will produce the effect of
payment:
a. When through the fault of the creditor they have been impaired.
b. Upon delivery of the mercantile document.
c. When they are certified by the bank.
d. When they are presented to the bank for payment.
97. XYZ is a cooperative store. On July 1, 2010, it paid the Government of the City of Manila
certain taxes believing that it owed the same. After six months, XYZ learned that it was
not subject to the said taxes. Accordingly, it sought to recover the said taxes it
previously paid. The obligation of the Government of the City of Manila to return the
said taxes paid is based on:
a. Negotiorum gestio.
b. Solution indebiti.
c. Quasi-delict.
d. The Government is exempt from giving tax refunds.
98. S sold 100 bottles of imported “Fundador” brandy to B who paid immediately the
price thereof amounting to P20,000.00. S promised to deliver the brandy to B within
one week from their agreement. On the agreed date of delivery, S delivered to B 100
bottles of fake “Fundador” brandy. The contract between S and B is:
a. Voidable
 b. Void
c. Valid
d. Rescissible
99. D obtained a loan from C amounting to P50,000.00 which is payable in 10 equal monthly
installments. The loans bears interests of 1% per month which D agreed to give to T, a
student whom C is sending to school. To secure the loan, D executed a chattel mortgage
on his car. Although D has been paying the monthly interest to T, D could not pay any of
the installments due. In view thereof, D proposed, and C accepted that D should give
instead a diamond ring to C in place of the loan of P50,000.00 within two months from
their new agreement. T, however, was not notified of the new obligation. Based on the
forgoing facts, which of the following statements is incorrect?
a. D’s obligation to give C P50,000.00 is extinguished by novation.
b. The accessory contract of the chattel mortgage is extinguished by the new
agreement between D and C.
c. T is a party to the original agreement between D and C.
d. The new contract did not extinguish D’s liability to pay interest to T.
Alternative obligation and facultative obligation are similar in which of the following
respects?
100. Alternative obligation and facultative obligation are similar in which of the
following respects?
a. The right of choice may be given either to the debtor or creditor.
b. Several prestations are due.
c. Only one prestation is due but the debtor may render another in substitution.
d. The obligation becomes a simple obligation once the choice of the prestation is
made and communicated.
101. D borrowed P5,000.00 from C. the obligation is payable in full after 30 days. In
which of the following cases is D justified in making a consignation of his payment in
court?
 a. If C refuses to accept the payment in the form of a check which is certified by the
bank to be supported by sufficient funds.
b. If C refuses to accept the payment consisting of 5,000 pieces of P1.00 coins.
c. If C refuses to accept the first instalment in the form of a P1,000.00 bill, D
promising to pay the balance of the debt in 4 equal monthly installments.
d. If C refuses to accept the payment consisting of 250
pieces of P20.00 bills.
102. Which of the following condonations will not extinguish
the debtor’s obligation?
a. The condonation is in a public instrument. The acceptance is
made orally. The condonation involves a computer printer whose
value is P4,000.00.
b. The condonation and the acceptance are in a public instrument.
The condonation involves a parcel of land.
c. The condonation and the acceptance are made orally with the
creditor delivering to the debtor simultaneously the promissory
note amounting to P10,000.00.
d. The condonation is in a public instrument. The acceptance is
made in a private instrument. The condonation involves a
television set worth P20,000.00.
103. In which of the following independent cases is the payor of the
debtor’s debt not subrogated to the rights of the creditor?
a. D owes C P10,000.00. The debt is secured by a pledge of D’s
ring to C. D also owes X, P8,000.00. X pays C P10,000.00 without
the knowledge of D.
b. D owes C P10,000.00. the debt is secured by a pledge of D’s ring to
C. X pays C P10,000.00 with the consent of D.
c. D owes C P10,000.00. the obligation is guaranteed by G. G pays C
P10,000.00 without the knowledge of D.
 d. D owes C P10,000.00. The obligation is guaranteed by G. X pays C
P10,000.00 without the knowledge of D.
104. S sold his only horse to B for P10,000.00 cash. The parties agreed
that S shall deliver the within one week from their agreement. Nothing is
mentioned in the agreement on how the horse will be cared for by S
before delivery.
a. S must take care of the horse with the diligence of a good father
of a family before delivery.
b. S need not take care of the horse because nothing was mentioned
in the agreement on how the horse will be cared for.
c. S must take care of the horse with extraordinary diligence.
d. The absence of a stipulation on how the horse must be cared for
renders the sale void because such stipulation is an essential
element of the contract.
105. D owes C the following debts: P3,000.00 due on August 10;
P3,000.00 due on August 15; and P3,000.00 due on August 25which is
secured by a pledge of D’s ring. If today is August 22, and D pays
C P3,000.00 with neither D nor C designating the debt to which the
payment shall pay, the payment shall be applied:
a. To the debt due on August 10, following the “first-due, first-
pay” basis.
b. To the debts due on August 10, August 15, and August 20,
proportionately at P1,000.00 each.
c. To the debt due on August 25, since it is the most onerous to D.
d. To all the debts proportionately at P750.00 each.
106. M executed a promissory note payable to P for P100,000.00. the
note, which bears interest at 2% per month, is payable after 60 days. On
the date of maturity, P proceeded to M’s place to collect but when
M demanded the presentation of the promissory note, P could not
present it claiming that it had been lost. M is able and willing to pay the
whole amount due including the interest but he is at loss on what to do
because P does not have the instrument. On the other hand, if he does
not pay the amount due, the interest on the principal will continue to
accrue. If you were M, the remedy that you will likely avail yourself of is:
a. Dacion en pago
b. Payment by cession
c. Consignation
d. Application of payment
107. A, B,C, and D owe X, Y and Z the sum of P12,000.00. based on the
foregoing data, which of the following statements is incorrect?
a. The obligation is joint.
b. There are seven distinct debts in the obligation.
c. Each debtor is liable only for a total P3,000.00.
d. Each creditor is entitled to collect a maximum of P4,000.00.
108. P took a public bus in going to his office. Although P paid his fare,
the bus conductor does not issue to him a ticket. Along the way, the met
an accident causing a slight injury to P and other passengers. If P is to
recover damages from the bus owner, the source of the bus owner’s
liability is:
a. Contract
b. Quasi-delict
c. Law
d. P cannot recover any amount because no ticket was not issued.
109. One of the following obligations is void. Which is it?
 a. D to give C P50,000.00 if C does not run 100 miles without
stopping.
b. D to give C P50,000.00 when D has the means.
c. D to give C P50,00000 if D buys a brand-new car.
d. D to give C P50,000.00 if C runs for barangay chairman next year.
110. Which of the following obligation is a pure obligation and is
demandable at once?
a. D to allow C to use D’s car until December 31, 2011.
b. D to allow C to use D’s car until C finishes his course in accounting.
c. D to give C his car. No mention is made when D shall give the car.
d. D to give C a car if C finishes his course in accounting.
111. On January 1, 2010, D obtained a loan of P100,000.00 from C. the
loan is secured by a chattel mortgage on D’s car and is payable on
December 31, 2010. On September 26, 2010, the car was taken at
gunpoint from D while he was starting its engine at the parking lot of a
department store.
a. D’s loan obligation is extinguished. However, D must give a
property which C may sell to satisfy his claim.
b. D’s loan obligation is subsists. However, C may demand its
immediate payment unless D gives another security.
c. D’s loan obligation subsists. However, C may not demand
immediate payment since the loss of the security was without the
fault of D. D, moreover, is not required to give a new security.
d. D’s obligation is extinguished together with the mortgage
since the loss of the car was without the fault of D.
112. A and B are the owners of adjacent poultry and piggery farms.
One day, B got sick and failed to visit the farm. When A noticed that B
was not again around during the second day, he himself took care of the
animals by feeding them and cleaning the pig and poultry pens. A did this
for the next three days until B returned. A incurred necessary and useful
expenses amounting to P5,000.00 in the process. Under the
circumstances, B is obliged to reimburse A for such expenses which the
latter incurred by reason of:
a. Contract
b. Solutio indebiti
c. Negotiorum gestio
d. Quasi-delict
113. D has a savings deposit with XYZ Bank in the amount of
P20,000.00 which D may withdraw anytime from the bank. He also has a
loan obligation to XYZ Bank amounting to P20,000.00 which has become
due. D wants to withdraw his savings deposit but XYZ Bank informs D that
it has claimed compensation of D’s deposit and his loan obligation.
a. Both D and XYZ Bank may claim compensation.
b. Neither D nor Xyz bank may claim compensation
c. Only D may claim or oppose compensation
d. Only XYZ Bank may claim or oppose compensation
114. Which of the following is an indivisible obligation?
a. To give a rendition tonight of Handel’s “Messiah” in a concert
at the Folks Arts Theater.
b. To construct a pavement measuring 2 meters wide and 10 meters
long.
c. To lecture for 5 Saturdays in a tax seminar.
d. To pay a loan obligation of P100,000.00 in 10 equal monthly
installments.
115. Devera obtained a loan of P50,000.00 from Centeno who is
engaged in the business of financing. The written contract of the parties
provides that the loan shall bear interest of 12% per annum and shall be
paid in full together with the interest at the end of 12 months at
Centeno’s business office. On due date, Devera proceeded to
Centeno’s business office to pay his debt but the place was padlocked
and shows no signs that it had been occupied for some time. Devera is
now at a loss on what to do as Centeno did not forward his present
address to him. Devera does not want to have any outstanding obligation
at the end of the year and incur further interest. Which course of action
will you recommend to Devera?
a. Tender of payment
b. Compensation
c. Consignation
d. Application of payment
116. D borrowed P100,000.00 from C. the parties agreed at the time
the obligation was constituted that should D so desire, he may give his
agricultural land to C by way of dacion en pago to pay his loan obligation
on due date. The obligation of D to C is:
a. A conjunctive obligation
b. A simple obligation
c. An alternative obligation
d. A facultative obligation
117. One of the distinctions between a facultative obligation and an
alternative obligation is that in an alternative obligation.
a. Only one thing is principally due.
b. The right of choice belongs to the debtor alone.
c. If the obligation to give a principal thing is void, the obligation to
give the substitute is also void.
 d. If all prestations except one are impossible, that which is possible
must still be given.
118. D stole the carabao of C. D was arrested, tried in court and
convicted. Aside from being sentenced to a prison term, D was also
ordered by the court to return the carabao. However, the carabao died
before D could deliver it to C.
a. D is not liable to C if the cause of the death of the carabao is a
fortuitous event.
b. D is liable to C only if the carabao died because of D’s fault.
c. D is liable to C whatever may be the cause of death of the carabao.
d. D has no liability to C whatever may be the cause of the death of
the carabao because his obligation to return the carabao was due
to an order of the court and not on his own volition.
119. Under a contract between 0 and C, D is obliged to deliver 10 bags
of detergent soap to C 10 days after the execution of their agreement. On
due date, D delivered to C 10 bags of detergent soap which he mixed
with chalk.
a. The contract entered into between D and C is voidable because of
the.-fraud employed by D.
b. The contract is valid. The fraud employed by D does not affect the
validity' of the contract but D is obliged to pay damages to C.
c. The contract is void because of the fraud employed by D in the
performance of his obligation.
d. The contract is rescissible because of the damages suffered by C.
120. D obtained a loan from C in the amount of P50,000.00. Unable to
give cash on due date in payment of his loan obligation, D proposed to C
that he would be giving instead his diamond ring to settle his debt. C
agreed and accepted the ring from D. The new agreement between D
and C involved both:
 a. Novation and application of payment.
b. Novation and dacion enpago.
c. Compensation and payment by cession.
d. Confusion and tender of payment.
121. Salas and Bersamin entered into a contract whereby Salas would
deliver 5 pieces of genuine Rolex wristwatches to Bersamin. Salas
proposed to Bersamin that should Salas deliver 5 units of fake pieces of
Rolex wristwatches by reason of financial difficulties on his part,
Bersamin would not sue him for damages on the ground of fraud.
Bersamin accepted the proposal. On due date, Salas delivered 5 pieces of
fake Rolex wristwatches. Upon discovery of the fraud, Bersamin sues
Salas for damages. Salas contends that he cannot be held liable for
damages because Bersamin waived his right to hold him (Salas) liable on
the ground of fraud if the reason thereof is the financial difficulties of
Salas.
a. Bersanding cannot sue Salas for damages because the reason for
the waiver is valid, i.e., financial difficulties of Salas, which is a
valid reason for the waiver.
b. Bersamin can sue Salas for the annulment of the contract since it
is voidable.
c. Bersamin can sue Salas for damages because the waiver he made
is void. Nonetheless, the contract is valid.
d. Bersamin can sue Sales for the rescission of the contract since it is
rescissible.
122. B ordered 10 boxes of "X" shirts worth P2,000.00 per box from S paying
immediately the total, price of P20,000.00. While inspecting the goods after their
delivery to his store, discovered that one box was missing. Upon being informed,
apologized for the error and promised to refund the price ofP2,000.00 within three days
as there was no more stock of "X" shirts available. In the meantime, B ordered and
 received from Sone box of "Y" shirts which was also worth P2, 000.00 promising to pay
the same within three days. On the third day, assuming that S had not yet refunded the
price of the undelivered "X" shirts to B, B need not pay S the price of "Y" shirts by
claiming:
a. Consignation.
b. Compensation.
c. Condonation.
d. Novation.
123. The following are obligations with a term or period, except?
a. D to give C P50, 000.00 on December 1, 2011.
b. D to give C P50, 000.00 on Christmas day next year.
c. D to give C P50, 000.00 upon the death of C's father.
d. D to give C P50, 000.00 if C's father dies within 2 years.
124. A, B and C are liable, in solidum to X for P12,000.00. X renounced the share
of A who accepted it. Later, B becomes insolvent.
a. X can collect from C P8,000.00.
b. X can collect from C P4,000.00.
c. X can collect from C P12,000.00.
d. X can collect nothing from C.
125. Ace Realty Company (Ace) ordered6units of "Bordenoftypewriters from Central
Office Machines (Central) at the priceunitsP8,000.00 per unit. However, Central
delivered to Ace 6 units of "Remington" typewriters, a superior brand, which was priced
P8,500,00 per unit. Central informed Ace that it will bill the latter for the
“Remington typewriters at P8,000.00 only. Ace refused to accept the "Remington"
typewriters.
a. Central can compel Ace to the accept the "Remington" typewriters since they are
of superior quality.
b. Central cannot compel Ace to the accept the "Remington" typewriters although
they are of superior quality.
 c. Central can compel Ace to accept the "Remington" typewriters since Ace is
required to pay only the price of "Borden" typewriters.
d. Central can compel Ace to accept the "Remington" typewriters since all that is
required of Central is to deliver a typewriter that can perform the same function
as the one that was ordered.
126. Prime Engineering Review Center (PERC) stated in the leaflets it distributed last
January that any reviewee who places first in licensure examinations for engineers this
year will receive a cash prize of P150,000.00.
a. The obligation of PERC is subject to a suspensive condition.
b. The obligation of PERC is subject to a resolutory condition.
c. The obligation of PERC is a pure obligation.
d. The obligation of PERC is an obligation with suspensive period.
127. Three of the following statements pertain to natural obligation. Which one does
not?
a. It is not enforceable in a court of justice.
b. Obligation exists by reason of equity and moral justice.
c. If performed voluntarily, recovery can no longer be made.
d. There is juridical necessity to perform
128. D has a grains warehouse in Davao, while C has a grains in Cebu. D
borrowed10sacks of rice worthP10,000.00 from C for D's customer in Cebu. Later, C
borrowed sacks of rice which was also worth P10,000.00 from D for C's in Davao. Both
the obligations are already due. Transport costs to Davao amount to P1,000.00, while
those for Cebu amount to P800.00.
a. D and C need not pay each other since their debts compensated each other.
b. D and C need not pay each other since their debts compensated each other,
except for the delivery charges which C must pay to D in the amount of
P200.00(P1,000.00 less P800.00).
c. Compensation cannot take place because the debts are payable at different
places.
 d. D must pay C P10,800.00, while C must pay D P11,000.00.
129. D owes C P20,000.00 due on March 25. C, on the other hand, owes D the
following debts: P8,000.00due on March1,P3,000.00 due on March 8, P5,000.00 due -on
March 14, andP2,000.00 due on March 24. On March 18 , C assigned his credit right to T
without informing D who learned of the assignment on March 20. On March 25, T may
collect from D:
a. P20, 000:00.
b. P2, 000.00.
c. P4,000.00.
d. None, because the assignment made by C was without tthe knowledge of D.
130. D owes C P20,000.00 due on March 15. C, on the other hand, owes D the
following debts: P8,000.00 due on March 1,P3,000.00 due on March 8, P5,000.00 due on
March 14. On March 12, C assigned his right to T with notice to D but with D not giving
his consent to the assignment. On March 15, T can collect from u:
a. P20,000.00.
b. P9,000.00.
c. P4,000.00.
d. None, because the assignment made by C was without the consent of D.
131. On December 1, 2009, Miss Santos, a professor of Manila College, engaged the
services of Lepanto Transport to bring her class to Calamba, Laguna in time for the Rizal
Day celebration on December 30, 2009 which would start at nine o'clock in the morning,
The contract signed by the parties specified that a bus would be in the school premises
at six o'clock in the morning and would leave at exactly 6:320 a. m. However, Lepanto
Transport failed to send a busy on the date, time and place agreed upon.
CONTRACTS- DIAGNOSTIC EXERCISES
TEST 1 – MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. A meeting of minds between two persons whereby one binds himself with respect to
the other to give something or to render some service is known as:
a. Obligation
b. Consent
c. Contract
d. Stipulation
2. The stages of a contract according to the order of their accurence are:
a. Birth, conception, and consummation
b. Conception, consummation, and birth
c. Conception, birth, and consummation
d. Consummation, conception, and birth
3. The elements of a contract without which a contract would not exist are known as:
a. Accidental elements
b. Natural elements
c. Special elements
d. Essential elements
4. Consensual contract has the following essential elements:
a. Consent of the contracting parties, object certain and cause or consideration.
b. Consent of the contracting parties, object certain, cause or consideration and
delivery of the object.
c. Consent of the contracting parties, object certain, cause or consideration and
formalities required by law.
d. Consent of the contracting parties, object certain, delivery of the object, and
formalities required by law.
5. A real contract has the following essential elements:
a. Consent of the contracting parties, object certain and cause or consideration
 b. Consent of the contracting parties, object certain, cause or consideration and
delivery of the object
c. Consent of the contracting parties, object certain, cause or consideration and
formalities required by law
d. Consent of the contracting parties, object certain, delivery of the object, and
formalities required by law
6. A solemn or formal contract has the following essential elements:
a. Consent of the contracting parties, object certain and cause or consideration.
b. Consent of the contracting parties, object certain, cause or consideration and
delivery of the object.
c. Consent of the contracting parties, object certain, cause or consideration and
formalities required by law.
d. Consent of the contracting parties, object certain, delivery of the object, and
formalities required by law.
7. Elements that accompany certain contracts unless set aside or suppressed by the parties
are known as:
a. Natural elements
b. Accidental elements
c. Essential elements
d. Original elements
8. The warranty against hidden defects in a contract of sale is an example of:
a. Natural elements
b. Accidental elements
c. Original elements
d. Stipulated elements
9. They refer to particular stipulations of the parties in a contract:
a. Accidental elements
b. Natural elements
c. Inherent elements
 d. Essential elements
10. One of the following is a natural element of a sales contract.
a. Terms of payment
b. Rate of interest
c. Place of delivery
d. Warranty against eviction
11. A contract that can stand by itself is known as:
a. Accessory contract
b. Principal contract
c. Commutative contract
d. Gratuitous contract
12. A contract that does not have any special name under the law is known as:
a. Nominate contract
b. Innominate contract
c. Special contract
d. Nominal contract
13. A contract where both parties are required to do or to give something is known as a:
a. Bilateral contract
b. Unilateral contract
c. Gratuitous contract
d. Commutative contract
14. A contract where the parties contemplate a real fulfillment, hence, equivalent values
are given is known as:
a. Commutative contract
b. Gratuitous contract
c. Onerous contract
d. Aleatory contract
15. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient provided they are not contrary to law, morals, good
customs, public order or public policy. This is known as a principle of:
a. Liberty of contract
b. Mutuality of contract
c. Relativity of contract
d. Obligatory force of contract
16. The contract must bind both contracting parties; its validity, or compliance cannot be
left to the will of one of them. This is known as the principle of:
a. Mutuality of contract
b. Relativity of contract
c. Consensuality of contract
d. Freedom to contract
17. Contracts take effect only between the contracting parties, their assigns and heirs,
except in cases where the obligations and rights arising from the contract are not
transmissible by their nature, or by stipulation, or provision of law. This principle of
contract is known as:
a. Relativity of contract
b. Mutuality of contract
c. Obligatory force of contract
d. Liberty of contract
18. D borrowed P500,000.00 from C. D died without having paid his loan obligation to C. He
left S, his son and heir, properties worth P400,000.00.
a. S is liable to C for P500,000.00
b. S is liable to C for P400,000.00
c. S is liable to C for P100,000.00
d. S is not liable at all because he should not be made to shoulder the obligation of his
father.
19. A contract may be enforced by or against a third person, except:
 a. In the case of stipulation pour autrui
b. When a third person induces another to violate his contract
c. In case of contracts intended to defraud creditors.
d. When the benefit to the third person is merely incidental
20. The principle that contracts are perfected by mere consent is known as:
a. Consistency of contract
b. Consensuality of contract
c. Consummation of contract
d. Mutuality of contract
21. Obligation arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. From perfection, the parties are bound not
only for the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith,
usage and law. This is known as the principle of:
a. Consummation of contract
b. Consensuality of contract
c. Obligatory force of contract and compliance in good faith
d. Mutuality of contract
22. One of the following is not a real contract:
a. Pledge
b. Commodatum
c. Deposit
d. Sale
23. D borrowed P100,000.00 from C. the obligation is secured by a mortgage on
D’s land and building. C registered the mortgage with the register of Deeds.
Thereafter, D sold the land and building to X who was not personally aware of the
existence of the mortgage at the time of sale since only the photocopy of the transfer
certificate of title which did not yet contain the annotation of the mortgage was
shown to him . It was
 only when he went to the Register of Deeds to register the sale of the land and building
to him that he learned of the mortgage.
a. C can collect from D and if D cannot pay, C can foreclose the mortgage although
the land and building are now owned by X.
b. C can collect from D, but if D cannot pay, C cannot foreclose the mortgage because X
was not aware of the existence of the mortgage at the time he bought the land and
building.
c. C cannot collect from D. He can only go after the mortgage which was given as
security.
d. C cannot foreclose the mortgage because X was not a party thereto.
24. It is the manifestation of the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.
a. Consideration
b. Contract
c. Consent
d. Cause
25. On June 1, 2010, S offered to sell his only car to B for P100,000.00. B accepted the offer
by mailing his letter of acceptance on June 10, 2010. On June 12, 2010, B revoked his
previous acceptance and mailed his letter of revocation on the same date. S received
the letter of revocation on June 15, 2010.
a. The contract was perfected on June 14,2010 when s received B’s letter
of acceptance.
b. The contract was not perfected because at the time the acceptance was received,
the parties were no longer of one mind.
c. The contract was perfected on June 10, 2010 when B sent his letter of acceptance.
d. The perfection of the contract retroacts to June 1, 2010 when the offer was made.
26. On May 1, 2010, S offered to sell a specific car to B for P500,000.00. B sent his letter of
acceptance to S on May 8, 2010. On May 10, 2010, however, S died in a vehicular
 accident and his secretary received the letter of acceptance on May 12, 2010 unaware
that S had already paid.
a. The contract was perfected on May 8, 2010 when B sent his letter of acceptance.
b. The contract was perfected on May 12, 2010 when the secretary of S received
the letter of acceptance.
c. The contract was not perfected because the offer of S became ineffective when he
died.
d. The contract was perfected on May 1, 2010 because the acceptance made by B on
May 8, 2010 retroacts to the date of the offer.
27. Three of the following instances will render an offer ineffective before acceptance is
conveyed. Which one will not?
a. Civil interdiction of either party
b. Insolvency of either party
c. Insanity of either party
d. Intoxication of either party
28. S offers to sell his car to B for P125,000.00 cash. B accepts the offer but is willing to pay
only P120,000.00.
a. The contract was perfected at the price of P125,000.00 .
b. The contract was perfected at the price of P120,000.00.
c. The contract was perfected at the price of P122,500.00, the average price of the
offer and the acceptance.
d. The contract was not perfected because the acceptance by B was qualified and
it constituted a counter-offer.
29. P appointed A as his agent to sell P’s only Honda Civic car for P400,000.00
cash. On November 7, 2010, A, pursuant to the authority granted to him by P, offered
to sell the car to B at the price of P400,000.00. B accepted the offer on November 8,
2010 by sending a letter of acceptance to A, which letter of acceptance was received by
A on November 9, 2010. On November 10, 2010, A informed P that B had accepted the
offer.
 a. The contract was perfected on November 8, 2010 when B sent his letter of
acceptance.
b. The contract was perfected on November 9, 2010 when A received the letter of
acceptance.
c. The contract was perfected on November 10, 2010 when A notified P, the true
owner of the car, that B had accepted the offer.
d. The contract was perfected on November 7, 2010, since the acceptance by
B retroacts to the date of the offer.
30. On July 1, 2010, Serrano offered to sell his only Mercedes Benz car for P1,000,000.00 to
Benitez who was interested in buying the same. In his letter to Benitez, Serrano stated
that he was giving Benitez up to July 31, 2010 to make up his mind whether to buy the
car or not. On July 25, 2010, Serrano personally went to Benitez to inform him that he
was no longer willing to sell the car unless the price was increased to P1,400,000.00
because another buyer was interested in buying the car for the said amount of
P1,400,000.00.
a. Benitez may compel Serrano to sell to him the car for P1,000,000.00
b. Serrano may validly withdraw his offer to Benitez because the option was not
founded upon a consideration.
c. Serrano may not withdraw his offer until after the lapse of the option period that he
gave to Benitez.
d. The increase in price made by Serrano was not valid because it was made within
the option period.
31. Rockman and Company published an advertisement in the newspapers which reads as
follows “INVITATION TO BID: Construction of the company’s warehouse located at
123 Luzon Street, Sta. Quiteria, Quezon City.” The advertisement also included
the specifications of the warehouse to be constructed. Three companies submitted
their bids: ABC Company, with a bid price of P4,500,000.00; DEF Company,
P4,750,000.00; and GHI Company, P5,000,000.00. After considering the financial
capability, reputation and experience of the bidders, the kind and quality of materials
to be used and other
 factors, Rockman and Company accepted the bid of DEF Company. ABC Company, the
lowest bidder, now questions the award made by Rockman and Company to DEF
Company which submitted a higher bid.
a. The award to DEF Company is voidable because it was only the second
lowest bidder.
b. ABC Company should be the winning bidder having submitted the lowest bid.
c. The award to DEF Company is valid because Rockman and Company was not
bound to accept the lowest bidder.
d. The award to DEF Company is void by reason of Rockman’s violation of the
terms of the invitation to bid.
32. One of the following is incapable of giving his consent.
a. Insane persons
b. Deaf-mutes who do not know how to write
c. Deaf-mutes who know how to read
d. Unemancipated minors
33. A contract entered into by an incapacitated person is:
a. Void
b. Voidable
c. Rescissible
d. Void
34. Contracts entered into in a state of drunkenness or during hypnotic spell are:
a. Valid
b. Voidable
c. Rescissible
d. Void
35. A contract entered into by an insane person during a lucid interval is:
a. Valid
b. Voidable
c. Rescissible
 d. Void
36. Aside from fraud and undue influence, the following are the vices of consent, except:
a. Violence.
b. Intimidation.
c. Mistake.
d. Dealer's talk.
37. Mistake in three of the following will make a contract voidable. Which one will not?
a. Mistake as to the substance of the thing which is the object of the contract.
b. Mistake as to the principal conditions which principally moved one or both parties to
enter into the contract.
c. Mistake as to the identity or qualifications of one of the parties, which identity or
qualifications have been the principal cause of the contract.
d. Simple mistake of account.
38. It involves the employment of serious or irresistible force to obtain consent.
a. Intimidation.
b. Threat.
c. Violence.
d. Moral coercion.
39. It is present when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the
person or property of his spouse, descendants, and ascendants, to give his consent.
a. Violence.
b. Physical coercion.
c. Intimidation.
d. Mistake.
40. One of the following contracts is not vitiated by intimidation or violence, and hence
valid.
a. A contract of sale which was signed by a party because his arm was being twisted by
a .third person.
 b. A contract of sale which was entered into because the other party was pointing a
gun at his wife.
c. A contract where a party was compelled to assign his property to the other to pay a
just debt because the latter threatened to sue him in court if he does not pay his
debt.
d. A contract of donation of a parcel of land which a party signed because the other
party threatened to burn his house.
41. It exists when a person takes improper advantage of his power over the will of another
depriving the latter of a reasonable freedom of choice.
a. Intimidation
b. Duress
c. Threat
d. Undue influence
42. Fraud-exists in three of the following. Which is the exception?
a. When through the insidious words or machinations of one of the contracting-
parties, the other is induced to enter into a contract which, without them, he would
not have agreed to.
b. When there is a failure to disclose facts, when there is. A to reveal them, as when
the parties are bound by confidential relations.
c. When there, is an expression of an opinion by an expert which turned out to be
wrong, and other party relied upon such expert knowledge.
d. When the misrepresentation refers to the usual exaggerations in. trade, and' the
other party had an opportunity to know the facts.
43. Abuiencia, who knew that his ring was embellished with glass, told Banzon that the
embellishment was emerald. Banzon, who knew that his watch was gold-plated, told
Abuiencia that it was made of pure gold. Banzon, believing that Abulencia's ring was
embellished with emerald, and Abuiencia; believing that Banzon's watch was made of
pure gold, then entered into a contract whereby they exchanged their respective
 articles. A week later, Banzon discovered that the ring was adorned only with an
ordinary glass.
a. The contract may be annulled at the instance of Banzon since he discovered the
fraud.
b. b. The contract may be annulled at the instance of Abulencia since Banzon also
employed fraud.
c. The contract is void because of the bad faith of both parties, hence, it shalt not
produce any effect.
d. Neither' party may ask for annulment since both are guilty of fraud. The
contract, thereof is valid.
44. An absolutely simulated contract is:
a. Void.
b. Voidable
c. Valid
d. Unenforceable
45. One of the following statements does not pertain to relatively simulated contract.
a. The parties conceal their real agreement.
b. The parties are bound by their real agreement provided it does not prejudice third
persons.
c. The parties are bound by their real agreement provided it is not contrary to law,
morals, public order or public policy.
d. The parties do not intend to be bound at all.
46. Servando and Bernardo entered into a contract where they made it appear that
Servando was mortgaging his lot and building to Bemardo to secure a contract of loan.
The truth, however, was that Servando was selling his lot and building to Bernardo.
Which of the followings statements is true?
a. The parties are bound by the contract of sale.
b. The parties are bound by their contract of loan and mortgage.
c. The parties are not bound at all
 d. The parties are bound by the contract of sale only when third persons are affected.
47. One of the following is not a requisite of the object of a contract.
a. It must be within the commerce of men.
b. If it is a right, it must be intransmissible.
c. It must not be contrary to law, morals, good customs, public order or public policy.
d. It must be determinate as to its kind or capable of being made determinate without
the need of the parties entering into a new agreement.
48. S and B orally entered into a contract whereby S sold his one-year production of eggs in
his poultry farm to B for P50,000.00 which amount B immediately gave in cash to S. the
contract between S and B is:
a. Void because the object was not existing at the time of the execution of the
contract.
b. Valid because future things may be the object of contracts.
c. Ressiscible because B will likely suffer damage if the eggs do not come into
existence.
d. Unenforceable because the contract was not in writing.
49. A died leaving properties estimated at P1,000,000 00 to his sons S and T. Subsequently,
S sold one-half of his inheritance to X for P3,000,000.00, although his share was still to
be delivered.
a. The contract is valid since the inheritance is an existing inheritance.
b. The contract is void because what S sold is future inheritance which may not be the
object of a contract as a rule.
c. The contract is resissible.
d. d. The contract is unenforceable.
50. A contract whose cause is the promise of a thing or service by the other party is:
a. Onerous contract.
b. Gratuitous contract.
c. Lucrative contract.
d. Remuneratory contract.
51. A contract whose cause is the liberality of the benefactor is:
a. A gratuitous contract or contract of pure beneficence.
b. A remuneratory contract
c. An aleatory contract
d. An onerous contract.
52. S sold his only car for P100,000.00 to B. Unknown to S, B bought the car from him so
that he could use the same in a bank robbery. What is the status of the sale of the car by
S to B?
a. The sale is void because the motive of B is illegal.
b. The sale is valid because the illegality of the motive of the parties to the contract
does not have any effect on its validity.
c. The sale is voidable because of the failure of B to disclose his motive to S.
d. The sale is rescissible at the instance of S because he would be damaged by the
illegal motive of B.
53. One of the following is not a requisite of cause in a contract. Which is it?
a. It must exist.
b. It must be lawful.
c. It must not be false.
d. It must be clearly stated in the contract.

54. D and C entered into a contract wherein D agreed to give to C P50,000.00 within 30 days
from the date of the execution of their agreement, which, however, does not state the
consideration received by D from C. What is the status of the contract between D and C?
a. The contract is void because. the cause is riot stated in the contract.
b. The contract is valid because the cause is presumed to exist and that it is lawful.
c. The contract is rescissible because D suffered damage by reason of absence of
cause.
d. The contract is valid provided another contract is executed between D and C to state
the cause.
55. The defective contracts arranged according to the degree of their defectiveness from
the least defective to the most defective are:
a. voidable, rescissible, unenforceable, and void contracts.
b. rescissible, unenforceable, voidable, and void contracts.
c. rescissible, voidable, unenforceable, and void contracts.
d. unenforceable, rescissible, voidable, and void contracts.
56. The following are characteristics of rescissible contracts, except:
a. they may be set aside for equitable reasons.
b. they are valid until rescinded.
c. the action to rescind them prescribes.
d. the action to rescind them are not available to third persons even if their interests
are directty affected.
57. The following contracts are rescissible, except:
a. Those entered into by guardians whenever the wards whom they represent suffer
lesion by more than one- fourth of the value of the things which are the object of
the contract
b. Those entered into in representation of absentees, if the latter suffer lesion by more
than one-fourth of the value of the things which are the object of the contract.
c. Those undertaken in fraud of creditors but the latter can still collect the claims due
them through other means.
d. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent
judicial authority.

58. G, the guardian of M, a minor, sold the fish harvested from the fishpond of M for P7,
400.00. The fish, however, had a value of P10, 000.00.
a. The sale is rescissible because M suffered lesion by more than one-fourth of the
value of the fish sold.
b. The sale is voidable because M is a minor.
 c. The sale is unenforceable because G sold the fish without approval of the courts.
d. The sale is void because the object is outside the commerce of men.
59. The following are the requisites of a rescissible payment except:
a. The debt is already due.
b. the debtor is insolvent.
c. the debtor pays the debt.
d. the payment is not yet due.'
60. Rescission of a contract will prosper in one of the following cases. Which is it?
a. When there are other legal means to obtain reparation of the damages caused.
b. When he who demands rescission cannot return whatever he may be obliged to
restore.
c. When the object of the contract is in the possession of a third person who
purchased the property of the debtor in bad faith.
d. When the action to bring rescission has prescribed.

61. D owes the following creditors: X, P50, 000.00; Y, P60, 000.00; and Z, P90, 000.00. He
has assets valued Pt P400,000.00. Subsequently, D donated, among his assets a parcel of
land valued at P250,000.00 to C. The donation and acceptance were made in a public
instrument. The donation of the land made by D to C is:
a. Ressiscible, because it was presumed to have been made in fraud of creditors.
b. Unenforceable, because D was not authorized by his creditors.
c. Void, because the donation and acceptance should be registered.
d. Voidable, because D does not have the free disposal of his property.
62. C filed a complaint in court against D to collect a money debt amounting
to P500,000.00. After due hearing, the court rendered judgement in favor of C. Shortly
after the rendition of the judgment and before C has collected D's debt, D sold a parcel
of land to X. Z, another creditor, learned of the sale made by D to X and now files an
action to rescind the sale.
 a. The right to rescind the sale is exclusively granted to because it was he who first
learned of the sale and he has still to file a claim to collect D's debt.
b. The right to rescind the sale is exclusively granted to C because it was he who
obtained a favorable judgement and he has not yet collected D's debt.
c. Both C and Z have a right to rescind the sale since the sale is presumed in fraud of
creditors having been made by party against whom judgment has been rendered.
d. Neither C nor Z has a right to rescind the sale.
63. R, the representative of A, an absentee, sold the corn with a value of P30,000.00 and the
palay with a value of P50,000.00,harvested from A's agricultural farm for a total price
ofP50,000.00. A, whose domicile was subsequently known, was informed of the sale
made by G. Based on the foregoing facts, which of the following statements incorrect?
a. A may seek payment of an additional P30,000.00 to recover the damages suffered.
b. A may just seek rescission of the sale of the corn to recover the damages he
suffered.
c. A may seek rescission of the sale of part of the corn and part of the rice to the extent
of the damages he sustained.

SALES- DIAGNOSTIC EXERCISES

TEST I- MULTIPLE CHOICE- select the best answer by writing the letter of your choice.

1. A contract whereby one of the parties obligates himself to transfer the ownership of and to
deliver a determinate thing and the other to pay therefor a price certain in money or its
equivalent is a contract of;
a. Barter
b. Sale
c. Dacion en pago
d. Mortgage
2. The following are the essential elements of a contract of sale, except:
a. Consent of the contracting parties
b. Subject matter which should be determinate
c. Price which is certain in money or its equivalent
d. Warranty against eviction and against hidden defects
3. The following are the characteristics of a contract of sale, except:
a. principal , which means that a contract of safe can stand by itself
b. Real, which requires the delivery of the object of the contract of sale for its perfection.
c. Onerous, where rights are required in exchange of a valuable consideration.
 d. Bilateral, which means that both parties are bound reciprocally to each other.
4. One of the following characteristics of dacion en pago is also characteristic of a contract of
sale. Which is it?
a. There is a pre-existing credit.
b. Obligations are extinguished.
c. There is less freedom in fixing the price.
d. Ownership of the object is transferred to the other party.
5. The following are characteristics of a contract of sale except for one which refers to
payment by cession. Which characteristic refers to payment by cession?
a. There is no pre-existing credit.
b. The cause or consideration is the price.
c. There is more freedom in fixing the price.
d. Assignee of the property acquires the right to sell the thing but not the ownership thereof.
6. The following items pertain to either a contract- of sale or a contract to sell.
I. Ownership of the thing sold is transferred upon delivery.
II. Ownership of the thing is transferred to the buyer at some future time.
III. The risk of loss is on the buyer.
IV. The risk of loss is on the seller.
Based on the above data, which of the following is correct?
a. Items I and III pertain to a contract to sell.
b. Items II and III pertain to a contract to sell.
c. Items II and IV pertain to a contract of sale.
d. Items I and III pertain to a contract of sale.
7. One of the following is not a requisite of the object of a contract of sale. Which is it?
a. It must be within the commerce of men.
b. It must be licit.
c. It must be determinate or determinable.
d. Vendor must have the right to transfer the ownership of the thing at -the time of sale.
8. The following items pertain to either emptio rei sperati or emptiospei. Based on the above
information, which of the following is correct?
a. Items I and iI pertain to emptio rei sperati,
b. Items II and III pertain.to emptiospei.
c. Items II and III pertain to emptio rei sperati.
d. Items III and IV pertain to emptiospei
11. process of manufacturing for its customers at the time the orders were received. Michael
Barkley, who is 7' tall and wears size 18shoes, was provided three days later, with a pair that
was specially made for him since Armstrong does not make shoes of his size. What kind of
contracts were entered into for the shoes provided to the two basketball players?
a. The contract for the pair of shoes provided to Charles Jordan is a contract for a piece of
work, while that for Michael Barkley is a contract of sale.
b. The contract for the pair of shoes provided to Charles Jordan is a contract of sale, while that
for Michael Barkley is a contract for a piece of work.
c. Both contracts are contracts of sale.
d. Both contracts are contracts for a piece of work.
12. S and B entered into a contract whereby S transferred to B a specific car for the price of
P200,000.00, while B gave to SP90,000.00in cash and a diamond ring worth P110,000.00.The
heading of the written contract signed by the parties reads “Contract of Sale".
 a. The contract is void because the intention of the parties is void since the value of the
diamond ring is more than the monetary consideration given.
b. The contract is a valid contract of sale as intended by the parties regardless of whether the
monetary consideration is more or less than the value of the property consideration.
c. The contract is a valid contract of barter since the value of the property given is more than
the monetary consideration. The intention of the parties is immaterial.
d. The contract is partly a contract of barter and partly a contract of sale.
13. The price in a contract of sale is certain, except:
a. when the parties have fixed or agreed upon a, definite amount.
b. if the price is certain with 'reference to another thing certain.
c. if the fixing of the price is left to the discretion of one of the contracting parties and the
price fixed is not accepted by the other party.
d. if the price fixed is that which the thing sold would have on a definite day or in a particular
exchange or market.
14. On January 1, S orally sold to B a specific ring for P450.00. The parties agreed that S shall deliver
the ring to B on January 5, while B shall pay the price on January 7.
a. The contract is perfected on January 5, when the ring is delivered by S to B.
b. The contract is perfected on January 1, when the parties had a meeting of mind on the
object and the price.
c. The contract is perfected on January 7, when the price is paid, since both parties would by
then have performed their obligations in the contract.
d. There is no perfected contract because the sale was made orally.
15. A sum of money paid, or a thing delivered upon the making of a contrast for the sale of goods,
to bind the bargain, the delivery and acceptance of which makes the final assent of both parties
to the contract.
a. Option money
b. Earnest money
c. Reservation money
d. Down payment
16. S orally offered to sell a certain diamond ring .to B for P50,000.00. B accepted the offer and to
prove that he was in earnest, he gave S P1,000.00. The parties agreed that the delivery of the
ring and the payment of the price would be made 30 days later. On due date:
a. S may collect from B P50,000.00.
b. S may collect from B P49,000.00.
c. S cannot enforce payment because the contract was not reduced to writing.
d. S cannot enforce payment because there was no contract of sale yet.
17. On June It 2010, S sold to B 50 units of machines which were scheduled to arrive from Japan the
following day on board the, vessel "MT Nippon Maru". The sale was evidenced by an invoice
identifying each machine by serial number. Each machine was priced at P10,000.00.
Unknown to the parties, 30 units were damaged beyond repair by seawater on May 31, 2010.
Based on the foregoing, which of the following statements is incorrect?
a. B may rescind the whole contract.
b. B may demand delivery of the remaining 20 units and pay the price therefor.
c. S may require payment of the whole shipment from B since S was not aware of the damage
caused on the machines at the time of sale.
d. S has no option to rescind the whole contract or require payment of the remaining 20 units.
18. It refers to the delivery of the thing sold from hand to hand in case of movables, or the taking of
possession with respect to immovables, in the presence and with the consent of the vendor.
a. Actual or real delivery.
b. Traditio constitutum possessorium.
c. Traditio longa manu.
d. Traditio brevi manu.
19. On May 1 , 2010, S sold to B through a private instrument 20 sacks of corn stored in the only
warehouse of S. On May 10, 2010, S delivered the keys to the warehouse to B. The delivery
made by S to B is known as:
a. constructive delivery by legal formalities.
b. symbolic delivery by tradition clavium.
c. traditio Tonga mane.
d. Tradition brevi mane,
20. Delivery of incorporeal property may be made through any of the following means, except:
a. execution of a public document.
b. placing the titles of ownership in the possession of the vendee.
c. use by the vendee of his rights, with the debtor's consent.
d. execution of private instrument.
21. One of the following statements on the transfer of ownership of the thing in "sale on trial" is
incorrect. Which is it?
a. Ownership of the thing is transferred to the vendee when he signifies his approval or
acceptance to the vendor.
b. Ownership of the thing is transferred to the vendee when he does an act adopting the
transaction.
c. Ownership of the thing is transferred to the vendee if the time fixed for the return of the
thing has expired and the vendee retains the thing without giving notice of rejection or
acceptance to the vendor.
d. Ownership of the thing is transferred to the vendee upon
e. delivery.
22. On March 1, 2010, S sold and delivered to B a television set for P10,000.00 "on sale or return"
giving B up to March.16, 2010 within which to return the television set. On March 10, 2010, the
television set was burned through no fault of B. Based on the foregoing, which of the following
statements is incorrect?
a. B must pay' the price of the television set.
b. S must bear the loss since the time for the return of the television set had not yet expired.
c. The ownership of the television set was transferred to B upon delivery to him.
d. B must bear the loss of the television set.
23. In one of the following cases, delivery of the goods to a carrier for the purpose of transmission
to the buyer transfers ownership to the latter. Which one is it?
a. When by the terms of the bill of lading, the goods are to be delivered to the seller or his
agent.
b. When by the terms of the bill of lading, the goods are to be delivered to the order of the
buyer or his agent but the seller retains the bill of lading.
c. When the seller draws a bill of exchange on the buyer for the price of the ' goods and
transmits such bill of exchange and the bill of lading to the buyer to secure acceptance or
payment of the bill of exchange and the buyer dishonors the bill of exchange.
d. When the owner does not reserve the right of possession or ownership of the thing sold
upon delivery to the carrier.
24. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies, except to:
a. exact fulfillment of the obligation, should the vendee fail to pay any number of installments.
b. cancel the sale, should the vendee's failure to pay cover two or more installments.
c. foreclose the chattel mortgage on the property if the vendee's failure to pay cover two or
more installments and recover any deficiency after the foreclosure sale if they have
stipulated it.
d. foreclose the chattel mortgage on the property if the vendee's failure to pay cover two or
more installments but he may no longer recover any deficiency after the foreclosure sale.
25. Baldomero bought a residential house and lot from Sta. Ana Realty for P250,000.00 giving a
down payment of P10,000.00and promising to pay the balance of P240,000.00 in 20 years in
installments of P1,000.00. After paying 72 installments, Baldomero defaulted in the payment of
the 73rd installment and subsequent ones. Despite the grace- period he had earned, he was not
able to make any further payments. Accordingly, Sta. Ana Realty cancelled the sale. How much
cash surrender value is Baldomero entitled to receive?
a. P45,100.00.
b. P39,600.00.
c. P36,000-00.
d. P41,000-00.
26. S stole a ring belonging to 0. Subsequently, the ring was offered for sale at a public auction
where X, who was not aware that the ring was stolen, bought it. A few weeks later, 0 saw the
ring and recognized it as his. Based on the foregoing information, which of the following
statements is correct?
a. 0 may recover the ring from X without reimbursing X since 0 was unlawfully deprived of the
ring.
b. 0 may recover the ring from X but he has to reimburse X since X acquired title to the ring.
c. 0 may no longer recover the ring even if he is willing to reimburse X.
d. X did not acquire title to the ring since the auctioneer had no valid title thereto.
27. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the
time of the sale, the buyer acquires title' to the goods. Such acquisition of title has the following
requisites, except the:
a. buyer must have bought the goods in good faith.
b. buyer must have bought them for value.
c. buyer bought them without notice of the seller's defect of title.
d. party from whom the seller obtained the goods must ratify the sale.
28. An unpaid seller has the following rights, except:
a. A lien on the goods or the right to retain them for the price while he is in possession of
them.
b. In case of insolvency of the buyer, a right of stopping the goods in transitu after he has
parted with the possession of them.
c. A right of repurchase.
d. A right to rescind.
29. An unpaid seller loses his lien on the goods in the following cases, except:
a. when he delivers the goods to a carrier or other bailee for the purpose of transmission to
the buyer without reserving the right of ownership in the goods.
b. when the buyer or his agent lawfully obtains possession of the goods.
c. when the seller waives his possessory lien.
 d. when he has obtained judgment for the price of the goods.
30. Three of the following are the requisites in order that an unpaid seller may exercise his right of
stoppage of transitu. Which one is not?
a. The seller is unpaid.
b. The seller has not parted. with the possession of the goods.
c. The goods are in transit.
d. The buyer is or becomes insolvent.
31. Goods are still in transit:
a. If the buyer or his agent obtains delivery of the goods before their arrival at the appointed
destination.
b. when the carrier acknowledges possession of the goods as bailee for the buyer after the
arrival of the goods at the place of destination.
c. if the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his
agent.
d. if the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them, even if the seller has refused to received them back.
32. An unpaid seller's right to resell the goods is available in the following cases, except:
a. if the goods are of a perishable nature.
b. when the seller reserved the right to resell the goods.
c. when the buyer has defaulted in the payment of the price for an unreasonable time.
d. when the seller has lost his lien on the goods.
33. Barrameda bought a piece of land from Sarmiento for a lump sum of P120,000.00. Aside from
mentioning the boundaries in the contract which is required in the sale of real estate, the
contract also states that the piece of land consists of1,000square meters. Before delivery,
Sarmiento discovered that the piece of land actually contains 1,200 square meters.
a. Sarmiento must deliver all the1,200 square meters; Barrameda must pay P120,000.00plus
an additional amount for the excess of 200 square meters.
b. Sarmiento is required to deliver only1,000square meters; Barrameda must pay the contract
price of P120,000.00.
c. Sarmiento must deliver all the1,200square meters; Barrameda has to pay only P120,000.00.
d. Neither party is required to perform the obligation because of mistake.
34. Sison sold a registered piece 'of land to Bautista on May 1,2010in a public instrument. On May 3,
2010, Sison sold in a private instrument the same piece of land to Cruz, who took physical
possession of the land. Neither buyer was aware of the sate made to the other.
a. The land belongs to Bautista.
b. The land belongs to Cruz.
c. The land still belongs to Sison, because both sales are void.
d. The land 'should be divided equally between Bautista and Cruz to give effect to both sales.
35. Refer No. 34. Assume that on May.5, 2010, Sison sold the Landin a public instrument to
Domingo who was not aware of the two previous sales. Domingo then registered the sale with
the Register of Deeds.
a. The land belongs to Bautista.
b. The land belongs to Cruz.
c. The Iand belongs to Domingo.
d. The land will be equally divided among the three buyers.
36. On June1,2010, Sanchez sold to Borlaza in a private instrument a certain computer. Two days
later, Sanchez orally sold the same computer to Contreras who immediately took possession of
the computer. Neither party was aware of the sale made to the other.
 a. The computer belongs to Borlaza.
b. The computer belongs to Contreras.
c. The computer will be co-owned by Borlaza and Contreras to give effect to both sales.
d. Both sales are void. Accordingly, Sison will still be the owner.
37. This refers to the implied warranty on the part of the seller that he has the right to sell the thing
at the time when ownership is to pass, and that the buyer from that time shall have and enjoy
legal and peaceful possession of the thing.
a. Warranty against hidden defects.
b. Warranty against eviction.
c. Warranty of ownership.
d. Warranty of possession.
38. Three of the following are the requisites in order that the vendee may enforce the vendor's
liability in case of eviction. Which one is not?
a. There must be a final judgment depriving the vendee of a part or the whole of the thing
sold.
b. The vendee must have appealed from such judgment rendered 2gainst him.
c. The deprivation of the vendee is based on a right prior to the state or an act imputable to
the vendor.
d. The vendor is notified of the suit at the instance of the vendee.
39. This refers to an encumbrance imposed upon an immovable for the benefit of another
immovable belonging to a different owner.
a. Easement or servitude
b. Real estate mortgage
c. Pledge
d. Chattel mortgage.
40. Three following are the requisites in order that the buyer may inform the seller's liability for
hidden defects Which one is not?
a. The defects of the thing sold must not be patent or visible.
b. The ducts render the thing unfit for the use for which it is intended, or which diminish its
fitness for such use to an extent that had the buyer been aware thereof, he would not have
bought it.
c. The defects must be existing at the time of sale.
d. The defects must be capable of determination by an expert.
41. Alessandra purchased from Rose Tan's Department Store, two pieces of imported identical
bathrobe, one of which was embroidered with "HIS" and the other with "HERS", which she
planned to give to his friends Jules and Assunta as a wedding present. She inspected the items
very carefully with the assistance of the store clerk before paying for them. While she was
wrapping them shortly after she arrived home, she noticed that the hem of the 'HERS" bathrobe
had disintegrated because it was loosely sewn, which damage was not apparent because of the
many colors of the apparel.
a. Alessandra can rescind the sale of both pieces of bathrobe.
b. Alessandra can rescind only the sale of the bathrobe marked "HERS"
c. Alessandra cannot rescind because she should have inspected the item well when she
bought it.
d. Alessandra must pay for both pieces of bathrobe.
42. The vendor shall be liable for the death of the animal sold when the following requisites are
present, except:
 a. the disease existed at the time of sale.
b. the disease is the cause of the death of the animal.
c. the disease must be redhibitory.
d. the animal dies within 3 days from the time of purchase.
43. The justified refusal of the buyer to accept the goods produces the following effects, except:
a. buyer has no duty to return the goods, unless otherwise stipulated.
b. title to the goods does not pass in to him,
c. buyer shall not be obliged to pay the price.
d. buyer is obliged to constitute himself as depositary until he returns the goods.
44. In three of the following cases, the buyer is not entitled to suspend the payment of the price.
Which one will give him the right to suspend payment?
a. Disturbance in the possession or ownership of the thing purchased.
b. The seller gives him security for the return of the price.
c. It has been stipulated that the buyer shall pay the price notwithstanding any disturbance.
d. The disturbance is a mere act of trespass.
45. A contract of sale with a right to repurchase and other contracts including a contract purporting
to be an absolute sale shall be presumed to be an equitable mortgage in the following cases,
except when the:
a. price of sale with right to repurchase to repurchase is unusually inadequate.
b. vendor remains in possession of the thing sold.
c. period to repurchase the property is extended.
d. vendee binds himself to pay the taxes due.
46. An owner of a rural land has the right of legal redemption of an adjoining rural land sold if the
following requisites are present, except when the:
a. adjoining rural land is not' separated by any apparent servitudes for the benefit of other
estates..
b. land sold does not exceed one hectare.
c. grantee owns another rural land.
d. grantee owns an urban land.
47. This refers to the right of a n adjoining owner of an urban land to be given preference to the
purchase of a small piece of urban land which is held for speculation before it offered for sale to
others.
a. Right of subrogation.
b. Right of redemption.
c. Right of pre-emption.
d. Right of repurchase.
48. A, B, and C, are co-owners of an undivided parcel, of land. On May 1, A sold his share to X; on
June 1, 13 sold his share also to X; and on July 1, C sold his share also to X. Each sale was with a
right to repurchase.
a. X may compel A, B and C to come to an agreement to repurchase the whole land.
b. Each co-owner may exercise his right of redemption on the whole property including the
share of the other two co-owners.
c. Each co-owner may exercise his right of redemption only with respect to his share.
d. Any two of the three co-owners may redeem the property proportionately.
49. R, S and T are co-owners of an undivided parcel of land. R sold his 1/3 interest to T in a deed of
absolute sale. Which is correct?
a. S may exercise the right of redemption on the interest sold by R to T.
b. cannot exercise the right of redemption.
 c. The sale made by R to T is voidable.
d. S may redeem only 1/2 of the interest sold by R to T.
50. T steals the goods of 0 and deposits them in the warehouse of W. W issues to T a warehouse
receipt which by its terms indicates that goods are to be delivered to the order of T, thereafter.
negotiates the receipt to H who purchases me document in good faith and for value.
a. H may obtain delivery of the goods from W because H was an innocent purchaser for value.
b. H can obtain delivery of the goods from W because the issuance of the ware house receipt
to T conferred a valid to him over the goods.
c. H can obtain delivery of the goods from IV because the acquisition b y H of the warehouse
receipt in good faith; cured the defect in T's title.
d. H cannot obtain delivery of the goods because he acquired whatever title T had over such
goods, which is the title of a thief.
51. O delivered certain goods to C, a common carrier, which issued to O a bill of lading stating that
the goods are to be delivered to bearer. Without O's fault, the bill of lading was stolen by T who
thereafter negotiated the document by mere delivery to H ,purchaser for value and without
notice of the defect in the title of T.
a. The negotiation of the bill of lading by T to H is not valid because of T's defective title.
b. The negotiation of the bill of lading by T to H is valid. T's defective title does not have any
effect on the validity of the negotiation.
c. H may not obtain delivery of the goods from C because H acquired whatever title T had over
the document.
d. H acquired title to the document but not to the goods.
52. D , obtained from C a- loan amounting to P50,000.00, the same being secured by a mortgage on
D's lot. Thereafter, C assigned his credit right to T with notice to D. Based on the foregoing
facts, which of the following statements is incorrect?
a. T cannot collect from D if D does not give his consent to the assignment.
b. T can collect from D. D's consent to the assignment is not required.
c. T can collect from D and if D cannot pay, T can foreclose the mortgage on the lot.
d. The notice to D of the assignment is sufficient. D must make his payment to T and no longer
to C.
53. A kind of mortgage which, although lacking some formality, form of words, or requisites
prescribed by law, shows the intention of the parties to charge real property as security for debt
and contains nothing impossible or contrary to law is known as:
a. legal mortgage.
b. equitable mortgage.
c. conventional mortgage.
d. voluntary mortgage.
54. If a movable property is sold separately to two or more different vendees, ownership shall
belong to the person:
a. who in good faith first paid the purchase price in full.
b. who in good faith first recorded the sale in the Registry of Property.
c. who in good faith presents the oldest title.
d. who in good faith first took possession of the property.
55. A contract of sale is perfected upon:
a. compliance with the requirements of the law as to form.
b. delivery of the object of the contract.
c. the meeting of the minds. on the thing which is the object of the contract and upon the
price.
 d. demand.
56. It is a contract by virtue of the terms of which the parties thereto promise and obligate
themselves to enter into another contract at a future time, upon the happening of certain
events, or the fulfillment of certain conditions.
a. Contract of adhesion
b. Contract of option
c. Contract of sale
d. Auto-contract
57. A contract of sale is not a:
a. principal. contract.
b. nominate contract.
c. consensual. contract.
d. real contract.
58. The following may not be valid objects of. a contract of sale, except:
a. objects outside the commerce of men.
b. Illicit things.
c. Future goods.
d. impossible service.
59. This is a kind of constructive delivery where the vendor remains in possession of the property
sold, such as by virtue of a, lease agreement with the vendee.
a. traditio longa manu.
b. Tradition brevi manu.
c. Tradition constitutum possessorium.
d. delivery to common carrier.
60. When the goods are delivered to the buyer, the ownership thereof passes to the buyer in:
a. sale on approval.
b. sale or return.
c. sale on trial.
d. contract to sell.
61. S promised to sell his car to B for P200,000.00 giving B 30 days to decide. B accepted the
promise of S and informed S that he (B) would make known his decision before the lapse of 30
days. He also gave S P2,000.00 as consideration so that S would hold on to his promise. The
contract entered into between S and B and the consideration given by B to S are known as:
a. Option contract and option money, respectively.
b. Contract of sale and earnest money, respectively.
c. Contract of sale and down payment, respectively.
d. Contract to sell and reservation money, respectively.
62. Refer to No. 61.
a. S may withdraw his offer to sell before the lapse of 30days by informing B.
b. S may not withdraw his offer before the lapse of 30 days.
c. S may withdraw the offer by returning the amount of P2,000.00 that was paid to him by B.
d. S may withdraw his offer even before the lapse of 30days if a favorable price, i.e., more than
P200,000.00, is offered to him by another prospective buyer.
63. The Recto Law applies to which of the following examples of sale?
a. Sale of a car on straight term.
b. Sale of house and lot on installment.
c. Sale of car on installment where the buyer constituted a mortgage on his truck.
 d. Sate of a piano on installments where the buyer constituted a chattel mortgage on the
piano.
64. S sold to B a lot through a deed of absolute sale duly acknowledged before a. notary public.
Three days later, S sold the same lot to X, also through a deed of sale duly acknowledged before
a notary public. X had the sale registered with the Register of Deeds. Neither B nor X was aware
of the sale made by S to the other and neither took physical possession of the lot. Who is the
present owner of the lot?
a. B, because he was the first purchaser in good faith.
b. X, because he registered the sale in good, faith.
c. Neither B nor X.
d. S, as long as he does not surrender physical possession of the lot.
65. Purchased from S a laptop computer worth P100,000.00. The terms of sale provide for a down,
payment of P20,000.00 with the balance payable in 8 equal monthly installments secure the
balance, S required B to execute a chattel mortgage on the laptop computer and a real mortgage
on B's lot. B complied with all the requirements but defaulted in the payment of, the third and
fourth installments. These remedies are available to S except one. Which is it?
a. Cancel the sale.
b. Exact fulfillment of the obligation.
c. Foreclose the real mortgage and thereafter recover any deficiency from B.
d. Foreclose the chattel mortgage and thereafter foreclose the real mortgage in case of
deficiency.
66. S and B entered into a contract whereby S transferred to B a specific piano for the price of
P80,000.00, while B gave to S cash of P30,000.00 and a diamond ring worth P50,000.00. What
kind of contract was entered into between S and B?
a. A contract of barter.
b. A contract of sale.
c. The contract is partly a contract of barter and partly a contract of sale.
d. The contract is an innominate contract because the intention of the parties cannot be
determined.
67. One of the distinctions between option money and earnest money is that earnest money is:
a. the consideration paid for the purpose of holding one to his promise to buy or sell a
determinate thing for a certain period of time.
b. not part of the purchase price.
c. proof of the perfection of the contract of sale.
d. paid before the perfection of the contract of sale.
68. This refers to the warranty of the seller that he has the right to sell the thing at the time when
ownership is to pass, and which can be enforced if the buyer is deprived pf the property sold by
a final judgment in court.
a. Warranty against hidden defects.
b. Warranty of merchantable quality.
c. Warranty against eviction.
d. Warranty of possession.
69. P, who was in Hong Kong, made an overseas call to A, his friend, to sell P's lot in Quezon City
immediately as P needed cash. Accordingly, A sold the lot to B. The deed of sale was in a public
document. The sale of P's lot is:
a. valid.
b. rescissible.
c. unenforceable.
 d. void.
70. One of the distinctions between a contract of sale and a contract for a piece work is that a
contract for a piece of work:
a. is not governed by the Statute of Frauds.
b. refers to a contract for the delivery goods which are manufactured in the ordinary course of
business although the same are not available.
c. has for its parties the vendor and the vendee.
d. has for its consideration the price of the thing.
71. A and B are co-owners of a rural lot not exceeding 1hectare.The lot is surrounded on its four
sides as follows: on the North, by the road; on the East, by the lot of X consisting of 2 hectares;
on the South, by the lot of Y consisting of 2 '/2 hectares; and on the West, by Z's lot consisting of
2 ¾ hectares. A sells his undivided interest in the agricultural lot to T, who owns several hectares
of rural land in the area. Who has the right of legal redemption over the undivided interest in
the lot sold by A to T?
a. B
b. X
c. Y
d. Z
72. It is an affirmation of fact or any promise by the seller relating to the thing which has a natural
tendency to induce the buyer to induce the buyer to purchase the same, relying on such
promise or affirmation.
a. Cordon
b. False representation
c. Warranty
d. Sellers talk
73. In one of the following cases, the ownership of the thing object of the contract is transferred to
the other party upon delivery.
a. Contract to sell.
b. Agency to sell.
c. Sale or return.
d. Sale on approval.
74. Under the "Realty Installment Buyer Act", the buyer of real estate on installment payments may
pay an installment defaulted without additional interest if he has paid at least two years of
installments. The law is applicable to sales/transactions involving:
a. industrial lots.
b. commercial buildings.
c. residential lots.
d. sales to tenants under the Land Reform Law.
75. S, the owner of a rent-a-car business, leased one of his cars to B for one month. On the day of
the expiration of the lease and while B was still in physical possession of the car, B offered to buy
the car from S for P200,000.00. Believing the price to be a good one, S readily accepted B's offer
and then and there executed a deed of absolute sale in favor of B who immediately paid the
price in cash. Thereafter, B drove away from place of S.
a. The delivery of the car by S to B is by constitutum posssessorium.
b. This delivery of the car by S to B is by traditio longa manu.
c. The delivery of the car by S to B is traditio brevi man
 d. There was no delivery because B should have turned over the physical possess on of the car
to & upon the expiration of the lease so that could make the proper delivery to him upon
the execution of the contract of sale.
76. B called on S at the shoe factory of S for the latter to make a pair of shoes which B would be
needing in the play "Romeo and Juliet." B provided S with the description of the pair of shoes
that he wanted since S did not manufacture the kind of shoes that B needed. S quoted a price of
P1,000.00 which B agreed to pay upon delivery to him of the pair of shoes: Since S and B had
been neighbors for a long time, their agreement was sealed with handshake.
a. The contract between S and B becomes enforceable if Shad already completed making the
pair of shoes.
b. The contract between S and B becomes enforceable if B had already paid the amount
agreed upon for the work.
c. The contract between S and B is enforceable even if it is still executory.
d. The contract cannot be enforced by either party because it was not in writing.
77. Which of the following contracts of sale is void?
a. Oral sale of a piece of land made through an agent whose authority is in a public instrument.
b. Sale of a piece of land in a public instrument made through an agent whose authority was
given orally byte principal.
c. Sale of a piece of land in a private instrument made through an agent whose authority is in a
public instrument.
d. Sale of a piece of land in a public instrument made through an agent whose authority is in a
private instrument.
78. D deposited his goods in the warehouse of W who issued to D aware house receipt stating that
the goods are to be delivered to bearer. Thereafter, A obtained possession of the warehouse
receipt from D in exchange for what A claimed to be a bar of gold, which, however, was
discovered by D to be fake. D demanded the return of the warehouse receipt from A but the
same had already been negotiated by A to H who purchased the document for value, in good
faith and without notice that D was deprived possession thereof by fraud. The negotiation by A
to His:
a. voidable.
b. valid.
c. void.
d. rescissible.
79. B purchased a pair of leather shoes from the store of S. Shortly after leaving the store, B decided
to return and requested S, the owner, to place a protective rubber covering on the sole of each
shoe. Since the job required at least 30 minutes to complete, B left the store of S to shop at the
neighboring stores. When he returned to the store of S after 30 minutes, the pair of shoes was
nowhere to be found. It turned out that C, a sales clerk, had sold the pair of shoes that B bought
to X, another customer.
a. X acquired ownership of the pair of shoes earlier bought by B.
b. X did not acquire ownership of the pair of shoes earlier bought by B.C.
c. B remained the owner of the pair of shoes that he had bought despite its sale to X.
d. S reacquired ownership of the pair of shoes when it was brought to him for additional work.
80. S sold 500 shares of stock of San Manuel Corporation to B at P50.00 per share. The transfer of
the ownership of the shares of stock may be made through any of the following means, except:
a. execution of the sale in a public instrument.
b. The giving by S to B of the, power to vote in the stockholders' meeting of San Manuel
Corporation and its exercise thereof by B.
 c. the indorsement by S of the stock certificate. covering the 500 shares of stock and its placing
it in the possession of B.
d. the issuance by S of the official receipt for the full payment of the purchase price of the
shares by B.
81. Which of the following documents of title requires indorsement and delivery for its negotiation?
a. A warehouse receipt which states that the goods are to be delivered to bearer.
b. A bill of lading which states that the goods are to be delivered to the order of a specified
person but such person indorsed it in blank.
c. A warehouse receipt which states that the goods are to be delivered to bearer but the
bearer indorsed it to a specified person.
d. A bill of lading which states that the goods are to be delivered to a specified person.
82. S and B executed a deed of absolute sale involving a parcel of land supposedly containing 2,000
square meters. B paid a lump sum of P2,200,000.00 for the purchase. Based on the foregoing
facts, which of the following statements is .correct?
a. If the parcel of land is actually*'2,200 square meters in area, S has to deliver only 2,000
square meters. Thereof and B must pay P2,200,000.00 as agreed upon.
b. If the parcel of land is actually1,800 square meters in area, S must deliver only 1,800 square
meters and B has to pay only the price equivalent to 1,800 square meters.
c. If the parcel of land actually contains2,200squaremeters, S must deliver all of 2,200 square
meters with B still paying the amount of P2,200,000.00.
d. If the parcel of land actually contains2,200squaremeters, S must deliver all of2,200 square
meters but B must pay a proportionate amount for the additional 200square meters in
addition to the price of P2,200,000.00.
83. S sold a specific parcel of land separately to the following persons: on July 1, 2010, to X, in a
public document; on July 5,2010 in a private document to Y, who took physical possession of the
land; and on July 9, 2010, to Z, who registered the sale with the Register of Deeds. Neither X, Y
nor Z was aware of the sale made to the other two buyers. Who is the owner of the parcel of
land?
a. X, because he was the first purchaser.
b. Y; because he took physical possession.
c. Z, because he registered the sale.
d. S, because the multiple sales he made rendered each sale a void contract.
84. In which of the following cases is the seller not obliged to make any payment to the buyer for
breach of warranty against eviction?
a. When such warranty has not been agreed upon,
b. When there was no stipulation exempting the seller from liability.
c. When there was a stipulation exempting the seller (who was in good faith) from breach of
warranty and the waiver was made by the buyer without knowledge of the risks of eviction.
d. When there was a stipulation exempting the seller (who was in good faith) from breach of
warranty and the waiver was made by the buyer with knowledge of the risks of eviction.
85. Mother Lilly purchased from Santiago Farms four horses with different colors: a white, a gray, a
black, and a brown, which Mother Lilly intended to use in a movie to be starred in by four movie
actors each one of whom represents one of the colors. Each horse was certified to be fit by the
veterinarian who was hired by the parties to examine them. Mother Lilly paid a separate price
for each of the horses. the filming of the movie, the brown horse was always sick and could not
function as the three others. It was subsequently discovered that it was suffering from an
incurable heart ailment.
 a. Mother Lilly may ask for the rescission of the sale of the brown horse only since she paid a
separate price for each of the horses.
b. Mother Lilly may ask for the rescission of the sale of all the horses.
c. Mother Lilly may not ask for rescission of the sale of any horse because she freely entered
into the contract of sale.
d. Mother Lilly is bound by the sale of all the four horses and must honor such contract
because the veterinarian certified that all horses were fit.
86. The buyer is obliged to pay interest for the period between the delivery of the thing sold and the
payment of the price in the following cases, except if:
a. there is a stipulation to pay interest.
b. there is no such stipulation but the thing sold produces fruits or income.
c. the buyer is in default, from the time of judicial or extra-judicial demand for the payment of
the price.
d. none of the foregoing.
87. Earnest money possesses three of the following characteristics. Which is the exception? a. It is
part of the purchase price.
b. is proof of the perfection of the contract of sale.
c. It is paid at the time of the perfection of the contract of sale.
d. It is paid as a consideration for the purpose of holding one to his promise to buy or sell a
determinate thing fora certain period.
88. S sold his farm lot to B with S reserving his right to repurchase the property within five years
from the date of the sale. Based on the foregoing facts, which of the following statements is
incorrect?
a. The sale is subject to a suspensive condition.
b. B may validly sell the lot to third person against whom S may exercise the right to
repurchase provided the right is registered
c. B is subrogated to the rights and actions of S.
d. B's ownership of the lot becomes irrevocable if S fails to exercise his right to repurchase
within the period stated.
89. D borrowed P50,000.00 from C. The obligation is secured by a mortgage of D's house and lot.
Thereafter, C assigned his credit right to T. Based on the foregoing facts, which of the following
statements is incorrect?
a. The consent of D to the assignment is not required in order that T may collect from D.
b. The assignment of the credit right did not carry with it the assignment of the mortgage.
c. If D pays C before D was notified of the assignment, D is released from liability.
d. The assignment, to bind third persons, must be in a public instrument and recorded with the
Registry of Property.
90. A contract of sale possesses three of the following characteristics. Which is the exception?
a. Bilateral, since the parties are bound by reciprocal prestations.
b. Commutative, because the parties give almost equivalent values.
c. Onerous, since there is an exchange of valuable consideration.
d. Real, because the object of sale must be delivered for the perfection of the contract.
91. S sold his lot to B reserving his right to repurchase the same within 5 years from the date of the
execution of their agreement. The sale together with the right to repurchase was registered
with the Register of Deeds. Two years after the execution of the sale. B sold the same lot to X
who was not aware that S reserved his right to repurchase the lot.
a. The sale by S to B is subject to a suspensive condition.
b. The sale by S to B is subject to a resolutory condition.
 c. The sale by S to B is subject to a condition which is neither suspensive or resolutory.
d. The sale by S to B is absolute without any condition.
92. Refer to Item 91.
a. S may repurchase the lot from X within the five-year period although X was not aware of the
reservation of the right to repurchase.
b. S may not repurchase the lot because X was not aware of the reservation of the right.
c. S may repurchase the lot from X if X was aware of such reservation.
d. The sale by B to X is void because the acquisition of the lot by B from S is subject to a
contingency.
93. B wanted to buy the car of S for P100,000.00 and to show that he was in earnest, he gave to S
P2,000.00 which S accepted. There was no written -instrument signed by S and B to incorporate
their agreement. Based on the foregoing, which of the following statements does not pertain to
the contract?
a. B, thereafter, needs to pay P98,000.00.
b. The giving of earnest money binds S and B to a contract of sale.
c. B, thereafter, must pay C the amount of P100,000.00.
d. The contract between S and B is enforceable although there was no written agreement
between them.
94. When the buyer is justified in refusing to accept the goods being delivered to him and has
relayed such refusal to the seller, such refusal produces the following effects, except:
a. buyer has no duty to return the goods unless stipulated.
b. title to the goods does not pass to the buyer.
c. buyer is not obliged to pay the price.
d. buyer automatically becomes a depositary of the goods
95. The unpaid seller, in addition to his right to retain the goods while he is in possession of them,
has the following rights: except the right:
a. of stoppage in transitu.
b. to resell the goods.
c. to rescind the sale.
d. to bid when the goods are resold.
96. One of the following is a natural element of a contract of sale.
a. The price of the goods.
b. The goods sold.
c. The stipulation to pay interest on the purchase price of the goods.
d. The seller's warranty against hidden defects.
97. On January 1, 2010, Santos offered to sell his only diamond ring for P50,000.00 cash to Bersola
who was interested in buying the same. Santos told Bersola that he was giving the latter up
toJanuary31,2010to decide whether to buy the ring or not. Bersola agreed to the option and
gave Santos option money ofP500.00. On January18,2010, Santos found another buyer who was
willing to pay P70,000.00cash. Santos personally visited Bersola to inform him that he was
withdrawing his offer unless Bersola agreed to buy the ring for P70,000.00.
a. Santos may validly withdraw the offer without being held liable for breach of contract since
it would be unfair to him if he would receive only P50,000.00 as the price of his ring when
another person is willing to buy it at a higher amount.
b. Bersola is bound to pay P70,000.00 if he were to avail himself of his option to buy the ring.
c. Santos cannot withdraw the offer because the option is founded upon a consideration of
P500.00.
 d. Bersola needs to pay only P49,500.00 if he decides to buy the ring since the option money of
P500.00 that he paid forms part of the purchase price.
98. S and B executed a deed of absolute sale duly acknowledged before a notary public whereby S
conveyed his car to B forP100,000.00. B, however, informed. S that he would be going away on a
business trip and that he would be taking the car from the place of S when he returned after
two weeks. Three days after the sale of the car to B, S sold the same car to X through a deed of
absolute sale which was also acknowledged before notary public. X then drove the far away
from the place of S and had the sale recorded with the Land Transportation Office which issued
to him a certificate of registration of the car in his name. Neither B nor X was aware of the sale
made to the other until B returned from his business trip.
a. Preference shall be given to B since the car was first sold to him.
b. X did not acquire title to the car because S was no longer the owner when the sale was
made to him.
c. X acquired title to the car because S appeared to be the owner in the record of the Land
Transportation Office.
d. S remained the owner of the car because the sale made to one buyer nullified the sale to
the other.
99. D gives his ring worth P25,000.00 to C in consideration of C's giving of P10,000.00and a bracelet
worth P15,000.00to D. Based on the. foregoing facts, which of the following statements is
incorrect?
a. The transaction between D and C is a sale if they intended it to be a contract of sale.
b. The transaction between D and C is a barter if they intended it to be a contract of barter.
c. The transaction is barter regardless of the intention of the parties because the bracelet is of
more value thanP10,000.00.
d. The transaction is barter if the intention of the parties cannot be determined.
100. S, the proprietor of a rent-a-car enterprise, sold his business and his fleet of 10 cars to B
for a lump sum of P3,000,000.00. S physically delivered the permits and other papers for the
operation of the business and the vehicles to B at the latter’s office except for one car which the
parties agreed shall be leased by S for one month while he was winding up his affairs in the
Philippines as he was then leaving for abroad. In the meantime, the contract of sale and the
contract of lease, though already signed by the parties, have not been acknowledged before a
notary public, and hence, were still private instruments.
a. The ownership of the car leased by S remained with S.
b. The ownership of the car leased by S has been transferred to B although there was no
physical delivery thereof to B.
c. The execution of the private instrument for the sale of the business and the cars likewise
transferred the ownership to B of the car leased by S.
d. Both the contract of sale and the contract of lease must be acknowledged before a notary
public by the parties before the ownership of the car leased by S is transferred to B.
101. King Gems Company, a jewelry manufacturer, shipped five dozen necklaces to Queen
Jewelry Store. The shipment was made under a written agreement allowing Queen Jewelry Store
to return the necklaces within a period of one month from delivery. Based on the foregoing
facts, which of the following statements is incorrect?
a. Title to the necklaces passed to Queen upon delivery.
b. If Queen does not return the necklaces within one month, the sale to it becomes absolute.
c. If the necklaces are destroyed by fire without the fault of Queen, Queen need not pay the
price thereof.
 d. If the necklaces are destroyed through the fault of Queen, Queen must pay the price thereof
to King Gems Company.
102. On January 3,2010,D deposited his goods with W, warehouseman, who issued a
warehouse receipt which states that the goods are to be delivered "to the order of D". On
January5, 2010 D indorsed the receipt to A. On January8,2010,however, D sold the goods
represented by the receipt to X who informed W immediately of the sale to him of the goods by
D. At that time, W was not aware that D had indorsed the receipt to A.
a. A acquired title to the goods as represented by the receipt at the time such receipt was
indorsed to him
b. X acquired title to the goods because at the time of the sale to him, W, the warehouseman
was not yet aware that D had indorsed the receipt to A.
c. D retained ownership of the goods because he cannot indorse the receipt to one person and
sell the goods to another.
d. W will be bound to deliver the goods to X.
103. One of the following statements pertaining to a sale by auction is incorrect. Which is it?
a. A sale by public auction is perfected when the auctioneer announces its perfection by the
fall of the hammer, or in any other manner.
b. Before perfection, any bidder may retract his bid.
c. Before perfection, the auctioneer may withdraw the goods unless the auction was
announced to be without reserve.
d. The seller may validly participate in the bidding without prior notice to the bidders.
104. S sold a laptop computer to B for P120,000.00 with B giving a payment of P10,000.00
and promising to pay the balance in equal monthly installments. B likewise executed a chattel 11
mortgage on the computer and a real mortgage on his lot to secure the payment of the balance
of the purchase price. After paying the first two installments, B defaulted in the payment of next
three installments. S may avail himself of any of the following remedies except to:
a. At exact fulfillment of the obligation.
b. cancel the sale.
c. foreclose the chattel mortgage and recover any deficiency during the foreclosure sale if
there is an agreement to that effect.
d. foreclose the real mortgage and recover the deficiency during the foreclosure sale even if
there is no agreement to that effect.
105. B bought from Century Properties, Inc.- a 1,000 square-meter lot located beside the
Manila International Airport on which he intended to construct a warehouse condominium. The
terms of the sale provided for the payment of the contract price of P300,000.00 in 60 equal
monthly installments of P5,000.00 each. After having paid 36 installments, B defaulted in the
payment of the succeeding - installments. As a consequence, Century cancelled the sale. B now
wants to claim the return of the cash surrender value of the payments he had made pursuant to
the "Realty Installment Buyer Act", otherwise known as the Maceda Law.
a. B is entitled to a cash surrender value of50% ofP180,000.00, or P90,000.00 under the
Maceda Law.
b. B is entitled. to a cash surrender value of 55% ofP180,000.00, or P99,000.00 under the
Maceda Law.
c. B is entitled to a cash surrender value of90% ofP180,000.00, or P162,000.00 under the
Maceda Law.
d. B cannot invoke the Maceda Law for the return of any of the payments he had made for the
lot he purchased.
106. S shipped FOB Manila, perishable goods worth P50,000.00 to B who is based in Cebu. B
remitted a check amounting toP50,000.00 for the price of the goods. While the carrier was on
its way to Cebu, S was informed by his bank that the check issued by B was dishonored for
insufficient funds. On further inquiry, he learned that B had become insolvent. Accordingly, S
obtained physical possession of the goods from the carrier After ratifying B. S resold the goods.
Case A - If the goods are resold for P52,000.00, the profit ofP2 000 00 belongs to B
since title had already passed to him.
Case B - If he proceeds of sale, net of incidental expenses a rated to P4 ,000.00, S can
recover the loss of P3,O00.00from B.
a. Born Cases are true
b. Cases are false.
c. Case A is true. Case B is false.
d. Case A is false. Case B is true.
107. B visited a store selling lamps, light bulbs and similar items. He informed the seller that
he was buying 2units of a50-watt “Philips” bulb. Though he intended to use the 2 bulbs for
the headlight of his car, he did not inform the seller of his purpose. Thereafter, he installed the 2
units of “Phillips" bulb on his car but they did not function. Based on the foregoing, which of
the following statements is incorrect?
a. The seller is liable for breach of warranty of fitness for a particular purpose.
b. The seller is not liable for breach of warranty of fitness for a particular purpose because the
buyer did not rely on the seller's skill or judgment.
c. The seller is not liable to B since the seller's warranty is only for merchantability, or that the
bulb is fit for the general purpose for which it was intended.
d. There is no warranty of fitness for a particular purpose since the bulb was sold to B under its
trade name.
108. S delivered a diamond ring to B for B's necklace worthP10,000.00and cash of P15,000.00
which B is scheduled to deliver one week after their agreement. The contract between Sand B
was not in writing. The contract between S and B is:
a. an enforceable contract of barter.
b. an enforceable contract of sale.
c. Can enforceable contract that is partly a sale and partly a barter.
d. A sale but it is unenforceable not being in writing and the cash to be paid by B is at least
P500.00.
109. These contracts are presented to you for evaluation:
I. A contract for the delivery of an article which is manufactured in the ordinary course of
business, but the article was not available at the time of the contract was executed.
II. A contract for the delivery' of an article to be manufactured especially for the customer
and upon his special order.
In your evaluation of the said contracts:
a. Both contracts refer to a contract of sale.
b. Both contracts refer to a contract for a piece of work.
c. I refers to a contract of sale; II refers to a contract for a piece of work.
d. I refers to a contract for a piece of work; it refers to a contract of sale.
110. These statements are presented to you:
I. The sale of a thing having a potential existence is not effective if the thing does
not come into existence.
II. Sale of hope or expectancy produces effects even if the thing hoped for does
not come into existence.
 In your evaluation of the foregoing statements:
a. Both are true.
b. Both are false.
c. Only Statement I is true.
d. Only Statement II is true.
111. The following terms are presented to you:
I. Contract to sell.
II. Sale or return.
III. Sale on trial.
IV. Agency to sell.
Upon the delivery of the goods by the owner thereof to the other party, ownership is
not transferred in:
a. I, II and III
b. I, III and IV
c. I, II and IV
d. II, III and IV
e. 111.
112. Salvosa shipped FOB Manila goods worth P20,000.00 to Bordelo who is based in Davao
City. While the carrier was on a stopover in Cebu City, Salvosa was informed by his bank that the
check issued by Bordelo was dishonored by reason of insufficiency of funds. He also learned
from the Credit Bureau that Bordelo had become insolvent, Accordingly, Salvosa notified the
carrier that he was taking possession of the goods.
The right availed of by Salvosain the situation is known as the right of:
a. stoppage to transitu.
b. Subrogation.
c. attachment.
d. garnishment.
113. Refer to No. 112. After obtaining actual possession of the goods, Salvosa offered them
for sale at public auction. Based on the foregoing facts, which of the following statements is
incorrect pertaining to the sale of the goods?
a. Salvos--4 mabidtthyae public auction provided there is notice of his participation.
b. The buyer of the goods at the public auction acquires Title to the goods as against Bordelo.
c. If the goads are soldt P19a,000.00 net of cost of selling and other expenses, Salvosa may
recover the amount ofP1,000.00 from Bordelo.
d. If the goods are sold at P22,000.00net of cost of selling and other expenses, the profit of
P2,000.00 belongs to Salvosa.
114. Antonio, Benito, Carmelo and Donato are co-owners of an agricultural lot which they
inherited from their parents. Antonio sold his undivided share in the property to Teodulfo.
Either Benito, Carmelo and Donato may purchase Antonio’s share in the property from
Teodulfo by virtue of their right of
a. legal redemption.
b. pre-eruption.
c. conventional redemption.
d. consolidation.
115. C, owner of certain goods, deposited the goods with W, a warehouseman, who issued to
D a warehouse receipt which states that The goods are to be delivered to the order of D. D
may negotiate the warehouse receipt by any of the following means; except by:
a. Mere delivery.
 b. Indorsement completed by delivery.
c. Blank indorsement completed by delivery.
d. Indorsement to bearer completed by delivery.
116. Palmares ordered from Superstar sportswear Company, a sportswear manufacturer,
2 dozens of jackets and jogging pants Styled and designed by Palmares for the use of his
basketball team. This was not the type of sportswear normally manufactured by Superstar. The
price agreed upon by the parties was P72, 000.00. After the articles were
manufactured,Palmares refused to accept them and claimed that he was not liable since the
contract did not. comply with the Statute ofFrauds.
a. Palmares is liable although the contract was not in writing.
b. The contract is a contract of sale.
c. The contract is a contract to sell.
d. There was no contract at all because no writing was executed by the parties.
117. It refers to the right which the vendor reserves to himself to repurchase the thing sold,
with the obligation to reimburse the vendee of the price, the expenses of the contract, any
other legitimate payments made therefor and the necessary and useful expenses made on the
thing sold.
a. Conventional redemption.
b. Legal redemption.
c. Equity of redemption.
d. Right of pre-emption.
118. The following are characteristics of certain contracts:
I. Nominate
II. Real
III. Aleatory
IV. Commutative
A contract for the sale of a sweepstakes ticket is considered-as:
a. I and II.
b. I and IV.
c. I and 111.
d. III and IV.
119. These statements are presented to you for evaluation:
I. Option money is part of the purchase price.
II. Earnest money is proof of the perfection of the contract of sale.
In your evaluation of the said statements:
a. Both are true.
b. Both are false.
c. Only I is true.
d. Only II is true.
120. S sold a computer to B for P120, 000.00 under the following terms: P20, 000.00 down;
balance payable in 10 equal monthly installments with an acceleration clause. To secure
payment of the balance, B executed a chattel mortgage on the computer and a real mortgage
on his lot. After paying the first two installments defaulted in the payment of the third, fourth
and fifth installments. S wants to recover in full the balance ofP80,000.00 even in case of
deficiency so he consults you on which of the following courses of action to take to achieve that
purpose:
I. Exact fulfillment of the balance by suing B and have the computer sold for the
execution of the judgment against.
 II. Foreclose the chattel mortgage on the computer.
III. Foreclose the real mortgage on the lot.
Based on your evaluation of the foregoing data, the course of action that you will likely
recommend to S to achieve his purpose is:
a. Either I or II.
b. Either Ii or III.
c. Either I or Ill.
d. Any of I, II or III.
121. On January 5, Samonte, who was going abroad as an immigrant, offered to sell his car
for P150,000.00 to Baldriga. He informed Baldriga, however, that he wanted to rent the car for
P1,000.00per day up to January 15 as soon as the sale is executed since
his flight was not scheduled until the 16 TH. Baldriga accepted both offers, and accordingly, he and
Samonte executed a contract of sale and a contract of lease simultaneously on the same day,
January 5. All the while, Samonte remained in physical possession of the car until January 10
when the car was stolen without his fault. The car was never recovered.
a. Samonte must bear the loss by returning the sum of P50,000.00 since, Baldriga did not
become the owner not having obtained physical possession thereof.
b. Baldriga must bear the loss because he acquired ownership of the car despite its lack of
physical delivery to him.
c. Both Samonte and Baldriga must share equally in the loss.
d. Kamonte must bear the loss by returning P150, 000.00less P5, 000, 00, the rental of the
car for 5 days, in partial compensation.
122. S, who is based in Manila, shipped FOB Cebu goods worthP50, 000.00 to B. While the
goods were on their way to Cebu, S was informed by his bank that the check remitted by B was
dishonored for insufficient funds. Accordingly, S notified the carrier not to proceed with the
delivery and that he was taking possession of the goods. Based on the foregoing facts, which
remedy is available to S?
a. Resale of the goods.
b. Rescission of the sale.
c. Either resale or rescission of the goods, at the option of S.
d. Newer resale nor rescission.
123. Before perfection in a sale by auction:
I. Any bidder may withdraw his bid.
II. The auctioneer may withdraw the goods from the sale unless the auction has been
announced to be without reserve.
The statement is true for:
a. Both I and ll.
b. Neither I nor II.
c. I only.
d. II only.
124. The following contracts of sale are presented to you:
I. S sold a certain ring to B. It turned out that the ring was stolen from 0, its true
owner.
II. S, a jewelry store sold a certain ring to B. The ring, however, actually belongs to
0 who had lost it a few days earlier.
III. S, a pawnshop, sold at a public auction a certain ring with B as the winning
bidder.0, however, is the true owner of the ring but the pawnshop thought it
was owned by X, a defaulting borrower of the pawnshop.
 In your evaluation of the above sales, B acquired title to the ring in:
a. I and II.
b. II and Ill.
c. I and 111.
d. None of the three contracts.
125. 125.
126. Refer to No.125. O may recover the ring. from B without the need of reimbursement in:
a. I only.
b. II only.
c. Ill only.
d. All three contracts.
127. S sold a brand-new electric typewriter to B for P20,000.00 on a credit term of 30days.
The agreement between the parties provides that B may return the typewriter within the same
period. Ten days after delivery to B, burglars entered the office of B and carted away various
valuables including the typewriter he bought from S.
a. B must pay the price of the typewriter to S.
b. B is not obliged to pay the price of the typewriter because the loss thereof was without his
fault.
c. S must shoulder the loss because B's ownership of the typewriter was not absolute since he
had the option to, return it within 30 days.
d. The loss must be shared equally by S and B in fairness to both.
128. The following statements are presented to you:
I. A bearer document of title if it is specially indorsed can be negotiated thereafter only by
indorsement completed by delivery.
II. A bearer negotiable instrument if it is specialty indorsed be negotiated thereafter only
by indorsement completed by delivery.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
c. Only I is true.
d. Only 11 is true.
129. S sold to B a specific car for P200,000.00. The terms of the sate provide the following:
down payment of P40,000.00; balance payable in 8 equal monthly installments of P20,900.00
each, with a real estate mortgage to be executed by B on his lot to secured the said balance.
After paying 3 installments, B defaulted the payment of 3 more installments. Based on the
foregoing facts, the following remedies were presented to B:
I. Exact fulfillment of the obligation.
II. Cancel the sale.
III. Foreclose the real mortgage on the lot and recover any deficiency in the foreclosure
sale.
If you were B, the remedy that you may avail yourself of is:
a. Either I or ll.
b. Either II or Ill.
c. Either I or Ill
d. Any of the three remedies presented.
130. An. unpaid seller may avail himself of the following remedies, except the right to:
a. Retain the goods while he is in possession of them.
b. Resume possession of the goods at any time while they are in transit.
 c. Buy the goods at any public sale if he decides to resell them.
d. Rescind the sale.
131. S sold his lot to X on April 1, 2010. The deed of sale was duly acknowledged by the
parties before a notary public. However, X did not take physical possession of the lot. On April
10,2010, S sold the same lot to Y under a deed of sale which was still to be notarized. Y
immediately took physical possession of the lot. Y was not aware of the previous sale to X.
When X visited the property, he found Y already building a structure thereon. It was also then
that he discovered that S had sold the same lot to Y.
a. The lot belongs to X.
b. The lot belongs to Y.
c. The lot will be co-owned by X and Y in fairness to both of them since they were in good
faith.
d. The lot still belongs to S until it can be determined who between X and Y is the owner of the
lot.
132. A contract of sale is perfected upon the:
a. full payment of the purchase price by the buyer.
b. delivery of the object of the contract to the buyer.
c. Meeting of minds between seller and the buyer on the object and the price.
d. Acknowledgment of the deed of sale by the seller and the buyer before a notary public.
133. These statements are presented to you:
I. It is part of the purchase price.
II. It is paid before the contract of sale is perfected.
III. When given, it entitles the party making the payment to hold the recipient from
offering the object of the contract to other persons within the period agreed
upon.
IV. It is proof the perfection of the contract of sale.
Based on your evaluation of the foregoing statements, which of the following is true?
a. I and III refer to option money.
b. II and III refer to option money.
c. II and IV refer to earnest money.
d. III and IV refer to option money.
134. Orlando is the owner of an agricultural lot consisting of 9,000 square meters (or 9
hectare). The lot is surrounded on the North by Nonato's lot consisting of 7,000 square meters;
on the East, by Espino's lot consisting of 6,500 square meters; on-the South, by Serrano's lot
consisting of 8,500 square meters; And on the West, by the road, across which was Wagan's lot
consisting of 6,300 square meters. Orlando donates the lot to Benito, his brother, who is the
owner of several rural lots in . Of the adjoining owners, only Serrano expressed to Benito his
desire to redeem the lot. The right of legal redemption is available to:
a. Serrano because it was only he who offered to redeem the lot.
b. Wagan because he is the owner of the smallest adjoining lot.
c. Espino because he is the owner of the smallest lot that is nearest to the lot of Benito.
d. None of the adjoining owners may avail himself of the right of legal redemption including
Nonato.
135. Barrameda visited the furniture store of Farrales to buy window frames for his house
.which was. undergoing construction. Not finding any window frame. of his liking, he made a
sketch of the design he wanted and asked Farrales if he- could make four pieces of the
specification for delivery after one week. Farrales answered that he could at the price of
P2,000.00. per frame. The window frames ordered by Barrameda was of such odd shape and
 design that when completed and installed, Barrameda's house would be the only one in the
community that had windows of such type. Barrameda left the sketch with Farrales who did. not
ask any down payment since he had previously transacted with Barrameda and knew him.
During all the time that Barrameda and Farrales were dealing with each other, Arnulfo, the
assistant of Farrales, was present. When the window frames were finished, Farrales proceeded
to the house of Barrameda to deliver them but Barrameda refused to accept them saying that
he had changed his mind, and that at any rate, the contract was unenforceable, not being in
writing.
a. The contract is enforceable because the sketch made by Barrameda was sufficient to bind
him.
b. The contract is enforceable because Arnulfo can testify in court to prove its existence.
c. The contract is enforceable even if no writing was executed by the parties.
d. The contract is unenforceable because no writing was subscribed by the parties.
136. Refer to the preceding number. What contract was entered into between Barrameda
and Farrales?
a. Contract of sale.
b. Contract for a piece of work.
c. Contract to sell.
d. An innominate contract.
137. A contract for a piece of work is different from a contract of sale in that in a contract for
a piece of work:
a. the Statute of Frauds does not apply.
b. the article object of the contract is manufactured or procured in the ordinary course of
business.
c. there is usually a stock which is kept on hand and made available to anyone.
d. the article is not available, there is no change or modification of it when it is ordered by the
customer.
138. Which of the following statements is common to both sale or return and sale on trial?
a. Ownership of the thing is transferred upon delivery to the buyer.
b. Ownership of the thing is transferred to the buyer at some future time.
c. Ownership of the thing may be reverted to the seller should the buyer return it within the
time agreed upon.
d. In case the thing is lost through a fortuitous event after the lapse of the time to keep or
return it and the buyer was still in possession of it, the risk of loss is with the buyer.
139. The full payment of the price is a positive suspensive condition in:
a. contract to sell.
b. contract of sale.
c. sale or return.
d. sale on trial.
140. The non-payment of the price is a negative resolutory condition in:
a. contract to sell.
b. contract of sale.
c. contract of agency to sell.
d. sale on approval.
141. When there is a stipulation exempting the vendor from the obligation to answer for
eviction and the vendee made the waiver with knowledge of the risks of eviction and assumed
the consequences, such waiver is known as:
a. waiver intencionada.
 b. waiver consciente.
c. forfeiture of rights.
d. surrender of rights.
142. In case of eviction, the vendor shall be liable to the vendee only for the value of the
thing sold at the time of eviction in which of the following cases?
a. When there is waiver intencionada
b. When there is waiver conscience
c. When the vendor was in bad faith and there was no stipulation exempting the vendor from
liability in case of eviction.
d. When the vendor was in bad faith and there was stipulation exempting the vendor from
liability in case of eviction.
143. S and B entered into a contract for the sale of the car of S to B for P100,.000.00. In
reality, however, B did not give any amount to S because the latter intended to donate the car to
B. In this case:
a. The contract between S and B is void because the prices simulated.
b. The contract between S and B is a valid contract of donation.
c. The contract between S and B is a void contract of donation.
d. The contract between S and B is a valid contract of sale.
144. On July 1, Serena sold to Berbola through a private instrument a specific piano for
P20,000.00. Simultaneous with the sale, the parties agreed that Serena would lease the piano
for one week in preparation for a concert after which Berbola could physically get the piano.
Before the week was over, Serena sold the same piano, also in a private instrument and for
P25,000.00, to Jezebel who immediately loaded the piano in her van. Neither Berbola nor
Jezebel was aware of the sale made to the other. Who is the owner of the piano?
a. Berbola
b. Jezebel
c. Berbola and Jezebel, as co-owners.
d. Serena who retained ownership because of Berbola and Jezebel's conflicting rights.
145. B bought two carabaos, one male and one female, from, S. He paid P2,000.00and
P3,000.00, respectively, for the animals which he intended to use for breeding. Later, the female
carabao was found unfit for breeding because of a redhibitory defect.
a. B can rescind the sale of the female carabao only because he paid a separate price for it.
b. B can rescind the sale of both animals because he would not have bought the male carabao
without the female carabao.
c. B cannot rescind the sale of either animal under the "let the buyer beware" rule.
d. B can rescind the sale of both animals only if he had paid a single price for both them.
146. What may the consideration consist of in an option contract in order to bind the
offerer?:
a. Monetary.
b. Other things or undertakings.
c. Either (a) or (b).
d. May not be a valuable consideration, i.e., may be gratuitous.
147. The following statements pertaining to sale by auction are presented to you:
I. The auctioneer may not withdraw the goods from the auction sale if the sale was
announced to be without reserve.
II. The auctioneer may withdraw the goods from the auction sale if the sale was
announced to be with reserve.
In your evaluation of the foregoing statements:
 a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.
148. Under the Maceda Law, in determining the number of installments paid by the buyer,
the following payments are included, except:
a. down payments.
b. deposits.
c. option money.
d. none of the foregoing.
149. Necessaries. include everything indispensable for sustenance, clothing and medical
attendance, and which of the following?
a. Dwelling
b. Education
c. Transportation
d. All of the foregoing.
150. While her parents were away on a visit to the province, M, 17 years old, entered. into a
contract for the purchase of textbooks prescribed in his course and an evening gown. Which sale
to M is/are considered valid and binding, i.e., not voidable?
a. sale of the textbooks.
b. The sale of the evening gown.
c. Both (a) and (b).
d. Neither (a) nor (b) because a minor is incapable of giving consent.
151. B bought a refrigerator from S for P20,000.00 which is payable in20 installments at
P1,000.00 per month. After paying6 installments, B defaulted in the payment of the seventh and
eight installments. Should S decide to enact fulfillment of the obligation, how much, as a rule,
may S collect from B?
a. The total amount of installments defaulted, i.e.,P2,000.00.
b. The remaining balance of P14,000.00.
c. Either (a) or (b) at the option of S.
d. Neither (a) nor (b) because S has to wait for the sale of the property to third persons.
152. A, B and C were the co-owners of a lot in the ratio of 1:2:1. A died. He was succeeded to
the property by S, his son and heir. Who may redeem the lot of A from S?
a. B, because as the owner of a bigger portion, he enjoys preference in the exercise of the right
of legal redemption.
b. C, so that he and B will have an equal share in the lot.
c. B and C, in proportion to the share of each in the lot.
d. Neither B nor C may exercise the right of legal redemption.
153. When is the vendor bound to deliver the thing sold?
a. If the vendee has not paid him the price.
b. If no period for the payment of the price has been fixed in the contract.
c. If the buyer has been given the benefit of the period.
d. None of the foregoing.
154. These statements concerning the double sale of an immovable are presented to you:
I. The first buyer who was in good faith at the time the sale was made to him, remains in
good faith not withstanding that he subsequently obtains knowledge of the second sale.
II. In order that the second buyer may be given preference he must possess good faith
from the time of sale in his favor until the registration of the same.
 In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement 11 is true.-
155. A credit right is considered to be in litigation:
a. as soon as a complaint is filed by the creditor against the debtor.
b. when the debtor has filed his answer to the complaint.
c. when the case is scheduled for pre-trial conference between the parties.
d. when the trial has started.
156. D owed C P100,000.00. The debt is evidenced by a promissory note and secured by a
mortgage of D's lot. Before due date, C assigned his credit right to T by executing a deed of
assignment but without the parties informing D. On due date, T went to D to collect the debt at
which time D learned of the assignment.
a. T cannot collect from D because the latter was not informed of the assignment at the time it
was made.
b. T can collect from D but if D cannot pay, T can foreclose the mortgage in the lot.
c. T can collect from if D cannot pay, T can foreclose the mortgage which is deemed assigned
together with the credit right.
d. T can only go after C, the assignor, since the assignment was without D's knowledge.
157. What does the assignor of a credit warrant?
a. The legality and existence of the credit.
b. The solvency of the debtor.
c. Both (a) and (b).
d. Neither (a) nor (b).
158. The right of pre-emption differs from the right of redemption in that in pre-emption:
a. the action is directed against the buyer.
b. the action is directed against the seller.
c. the right arises after the sale.
d. there can be a rescission of the original sale.
159. The following are certain modes of acquisition of property :
I. Purchase
II. Dacion en pago
III. Succession
IV. Donation
Legal redemption is available when the transferee acquired the property through:
a. I or II.
b. III or IV.
c. I or Ill.
d. II or IV.
160. A sale between husband and wife is valid in which of the following cases?
a. When a separation of property has Teen agreed upon in the marriage settlements or when
there has been judicial separation of property.
b. When price of the sale is a moderate amount.
c. When the object of the sale is a necessary such as food or clothing.
d. When the spouses are living separately.
TEST II - MATCHING TYPE. Indicate your answers by writing the letter representing the
statement or phrase that best describes, defines or explains the numbered items.
Terms
1. Barter 13. Document of title
26. Pactum commissorium 39. Sale on trial
2. Piece of work 14. Bill of lading
27. Conventional redemption 40. Absolute incapacity
3. Price 15. Sale or return
28. Vendor 41. Payment by cession
4. By-bidders/puffers 16. Dacionenpago
29. Relative incapacity 42. Future goods
5. Policitacion 17. Fungible goods
30. Waiver consciente 43. Bearer document of title
6. Symbolic delivery 18. Straight sale
31. Emptiospei 44. Waiver intencionada
7. Traditioconstitutumpossessoriu 19. Emptio rei sperati
m 45. Traditio brevi menu
32. Legal formalities 20. Earnest money
33. Necessaries 46. Assignment of credit
8. Unpaid seller 47. Bailee
9. 34. 21. Traditio longa manu
34. Stoppage in transitu 48. Redhibitory defect
9. Warranty against eviction 49. 22.
35. Order document of title 22. Possessory lien
10. 1Accion redhibitoria 49. Auction
36. Right of pre-emption 23. Eviction
11. Legal redemption 50. Option money
37. Warehouse receipt 24. Easement or servitude
12. Equitable mortgage 25. Accionquanti minor's
38. Vendee

Statements
a. Ownership of a thing is transferred to the creditor to settle a monetary obligation.
b. Lacks formalities but nevertheless shows the real intention of the parties to create a
specific property to secure the performance of an obligation.
c. They refer to interchangeable goods such as grain, oil, etc., that allow one to be
replaced by another without loss of value.
d. Proof of the perfection of a contract of sale.
e. Includes a warehouseman, carrier or other person who receives the possession or
custody of the thing delivered.
f. Even professional inspection is not sufficient to discover it.
g. Exercised by the seller by obtaining actual possession of the goods or by giving notice to
the carrier or other bailee having actual possession of the goods.
h. It is made by the buyer with knowledge of the risk of eviction, hence, the seller will not
have any liability if the buyer is evicted.
i. Ownership is transferred to buyer upon delivery but he has the option to revert such
ownership to the seller.
j. Ownership of the thing sold is retained by the seller despite delivery to the buyer, but
the latter agrees to pay the price if he finds the thing satisfactory.
k. Delivery that takes place when the buyer who was in possession of the thing sold at the
time of sale continues in possession of the same as an owner.
l. Negotiated by indorsement.
m. Sale of property to the highest bidder.
n. The party in a contract of sale who is obligated to transfer the ownership of and to
deliver a determinate thing.
o. The consideration paid for the purpose of holding one to his promise to buy or sell a
determinate thing for a certain period of time, which consideration is separate and
distinct from the purchase price.
p. Applies to persons who, under certain circumstances,- cannot purchase certain
property.
q. The person obligated to pay the price of the thing purchased.
r. Delivery of a movable by mere agreement of the parties if the thing cannot be
transferred to the vendee at the time of sale.
s. Negotiated by mere delivery.
t. It is made by the buyer without knowledge of the risk of eviction.
u. The consideration of the contract is another thing.
v. Applies to persons who cannot bind themselves in a contract including a contract of
sale.
w. A document used as proof of the possession or control of the goods, or authorizing or
purporting to authorize the possessor of the document to transfer or receive, either by
indorsement or by delivery, the goods represented by such document.
x. Right given to an adjoining owner of an urban land to purchase the same ahead of
others if such land is held for speculation.
y. Delivery through the execution of a public document.
z. The deprivation by final judgment of the vendee of the whole or a part of the thing
sold based on a right prior to the sale or an act imputable to the vendor.
aa. Refer to goods to be manufactured, raised or acquired by the seller.
bb. The sale of hope or expectancy.
cc. Includes one who has received as conditional payment for the goods a negotiable
instrument but the condition' has been broken by reason of the dishonor of the
instrument or the insolvency of the buyer.
dd. Include everything indispensable for sustenance, dwelling, clothing, medical
attendance, education and transportation.
ee. The balance is payable in its entirety after the payment of an initial sum.
ff. A contract for the delivery at a certain price of an article to be manufactured specially
for the customer and upon his special order, and not for the general market.
gg. The sum stipulated as the equivalent of the thing sold.
hh. The right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase or dation in payment, or
by any other transaction whereby ownership is transmitted by onerous title.
ii. Seller's undertaking that the buyer shall enjoy legal and peaceful possession of the thing
sold.
jj. A stipulation in a contract of sale involving an immovable that the sale is automatically
rescinded upon failure of the buyer to pay the price.
kk. Delivery of the keys of the place where a movable is kept or stored.
 ll. Contract for the storage of goods for a compensation.
mm. Buyer's remedy which involves the proportionate reduction in the price of the
thing purchased.
nn. A unilateral promise to buy or sell a thing which is not accepted by the promisee.
oo. An unpaid seller's right to retain the goods for the price while he is in possession of
them.
pp. Remedy of buyer to withdraw from the sale and ask for damages.
qq. An encumbrance imposed upon an immovable for the benefit of another immovable
belonging to a different owner.
rr. A person employed by the seller or auctioneer to raise the price in an auction sale.
ss. A document issued by a common carrier acknowledging the receipt of the goods and
agreeing to transport and deliver them to a specified place.
tt. Right of seller to repurchase the thing sold and the exercise of which was reserved by
the seller at the time of sale.
uu. Delivery that takes place when the seller continues in possession of the thing sold after
the sale but as lessee, depositary or otherwise.
vv. The creditors are given the right to sell the debtor's properties and apply the proceeds
to their respective claims.
ww. It has for its purpose the transfer to another person of the right to collect the
debt.
xx. Sale of an expected thing.
yy. None of the foregoing.

TEST III - TRUE OR FALSE. Write the word "TRUE" if the statement is true, and the word
“FALSE" if the statement is false.
1. Warranty against eviction is inherent in a contract of sale; hence, it is an essential element
thereof.
2. Dacion en pago partakes of the nature of a sale; hence, there is more freedom in fixing the price
of the thing conveyed.
3. Acontract for a piece of work must comply with the Statute of Frauds. Accordingly, it must be in
writing to be enforceable ifthe price is P500.00or more.
4. A sales contract requires the delivery of the thing sold for itsperfection.
5. If the consideration received for a thing is another thing and amonetary consideration and the
intention of the parties does notclearly appear, the contract, will be considered a contract ofbarter if the
value of the property consideration is greater thanthe monetary consideration.
6. Ina contract to sell, the full payment of the price is a- suspensivecondition which upon -
fulfillment will require the execution of acontract of sale.
7. It is not necessary that the vendor of a thing must be the ownerthereof at the time of sale as
long as he can transfer itsownership to the buyer upon delivery.
8. The sale of hope or expectancy is valid even if the thing hopedfor does not come into existence.
9. If the sale of a piece of land is made through an agent, theauthority of the agent must be in
writing for the sale to be valid.
10. In a sale by auctionan, Any bidder may retract his bid before tiesale is perfected.
11. If a "by-bidder` or "puffer is employed by a seller without noticein sale by auction, the sale ma/
be treated as fraudulent by thebuyer.
12. The ownership of the thing sold is transferred upon theperfection of the contract of sale.
13. A unilateral promise to buy or sell a determinate thing at acertain price is binding upon the
promissor if the promise issupported by a consideration distinct from the price.
14. Earnest money is part of the purchase price of a thing; hence,deductible from the total selling
price.
15. In sale of personal property payable in installments, the sellermay exact fulfillment of the buyers
obligation when the buyerdefaults in the payment of one or more installments.
16. In sale of real property where the buyer has defaulted after paying at least 2 years installments,
he shall be entitled to pay,without additional interest, the unpaid installments due within thegrace
period earned by him.
17. The purchase by a guardian of the property of the person underhis guardianship is valid.
18. The buyer shall be entitled to the fruits of the thing sold from thetime of the perfection of the
contract.
19. The delivery of incorporeal property may be made through theexercise by the vendee of his
rights with the consent of thevendor.
20. If goods are sold on "sale or return", the risk of loss of the thingsold remains with the seller after
its delivery to the buyer.
21. In "sale on approval", the buyer becomes the owner of the thingupon delivery, but he may
revert such ownership to the seller byreturning it.
22. The delivery of specific goods to a carrier or other bailee for thepurpose of transmission to the
buyer generally .transfersownership of the goods to the buyer.
23. When a thing is purchased from a merchant's store, fair ormarket, the buyer acquires title to the
thing although the sellermay have stolen it or acquired it from a thief.
24. A warehouse receipt is also a contract between thewarehouseman. and the depositor of the
goods.
25. A bearer document of title becomes an order document of title ifit is specially indorsed.
26. The delivery of an order document of title without anyindorsement does not constitute
negotiation.
27. A negotiable document of title of title becomes non-negotiable if it is stamped with the r-nark
" non- negotiable.
28. If the goods told are in the possession of a third person, the seller is deemed to have delivered
the goods to the buyer if the third person acknowledges to the buyer that he holds the goods in the
buyer's behalf.
29. If a period has been fixed for the payment of the price which has not yet arrived, the seller in
the meantime is bound to deliver the thing sold.
30. An unpaid seller exercising his right to resell the goods may buy the goods either directly or
indirectly.
31. When an unpaid seller exercises his right of stoppage in transit, the contract of carriage ceases,
the carrier becoming liable as a depositary.
32. If real estate is sold for a lump sum, the vendor is bound to deliver all that is included within the
boundaries stated in the contract although the actual area is greater than that stated in the contract.
33. If the same immovable is sold to two or more persons who are all in good faith, ownership shall
belong to the buyer who first paid its price.
34. In order that the buyer may enforce the seller's liability for breach of warranty against eviction,
the judgment depriving the buyer of the thing must first be appealed by the buyer.
35. The vendor's liability for breach of warranty against eviction, may be validly waived by the
vendee.. However, the vendor will still be liable if the waiver was made by the vendee without
knowledge of the risks of eviction.
36. As a rule, the vendor shall not be liable for a non-apparent easement that is recorded in the
Registry of Property.
37. The vendor shall be liable generally for any defect on the thing sold even if he was not aware
thereof.
38. When animals are sold as a pair, the vendee may ask for the rescission of the sale of both
animals although only one of them suffers from a redhibitory defect.
39. The sale of animals suffering from contagious diseases is voidable. ls sold at
40. There is no warranty against hidden defects of animal sold at fairs or at public auctions, or of
animals sold as condemned.
41. Acceptance of the goods by the buyer generally discharges theseller from his liability for any
breach of warranty.
42. if the buyer is justified in refusing to accept the goods, he shallbe obliged to hold the goods as
depositary.
43. The buyer is obliged to pay interest on the price of the goods forthe period between the delivery
of the goods and the payment ofthe price if the thing sold produces fruits or income.
44. The buyer may suspend the payment of the price of the thingpurchased by reason of trespass
on the thing.
45. A stipulation that the sale of an immovable is automatically rescinded upon the default of the
buyer in the payment of theprice is valid.
46. In conventional redemption, the creditors of the vendor maymake use of the right of
redemption against the vendee althoughthey have not exhausted the properties of the vendor.
47. In case of doubt, a contract purporting to be a sale with a right torepurchase shall be construed
as an equitable mortgage.
48. For an assignment of credit to be binding against third persons ifa movable property is involved,
the same must be in a. public instrument and recorded in the Registry of Property.
49. A debtor who has paid his creditor before he learns of theassignment of his debt shall be
released from his liability to theassignee.
50. The debtor's consent is required for the validity of theassignment of the credit made by his
creditor to another person.

ANSWERS TO DIAGNOSTIC EXERCISES

SALES

1. B 15. B
2. D 16. B
3. B 17. C
4. D 18. A
5. D 19. B
6. D 20.D
7. D 21.D
8. B 22. B
9. C 23. D
10. C 24. C
11. B 25. A
12. B 26. B
13. C 27. D
14. B 2 8. C
29. D 33.C 34.A
30. B 35. C
31,D 36. B 37.B 38.B
32.D 39. A 40.D 41.A
42. C 77.B
43.D . 78.B
44. A 79.A
45.C 80.D
46. D 81.C
47. C 82.C
48. C 83.C
49. B 84.D
50. D 85.B
51.B 86. D
52.A 87. D
53.B 88. A
54. D 89. B
55. C 90.D
56. B 91. B
57.D 92. A
58. C 93. C
59. C 94. D
60. B 95.D
61.A 96. D
62.B 97. C
63.D 98. C
64.B 99. C
65.D 100. B
66.A 101. C
67.C 102. A
68.C 103. D
69.D 104. C
70.A 105. A
71.A 106. D
72.C 107. A
73.C 108. A
74.C 109. A
75.C 110. B
76.C 111. A
112. A
113. A
114. A
115. B
116. C
117. A
118. B
119. C
120. D
121. C
122. B
123. D
124. A
125. B 129. D
126. A 130. C
127. A 131. A
128. C 132. C
133. B 145.B
134.D 146. C
135. C 147..A
136. B 148. D
137. A 149. D
138.D 150. A
139. A 151. A
140. B 152. D
141. A 153. C
142. B. 154.A
143. B 155. B
144. A 156.C
157. A
158. B
159. A
160. A

TEST II.- MATCHING TYPE

1.U 26. JJ
2.FF 27. TT
3.GG 28. N
4. RR 29. P
5. NN 30. T
6.KK 31.BB
7. UU 32. Y
8.CC 33. DD
9. II 34.G
10. PP 35. L
11.HH 36.X
12.B 37. LL
13. W 38.Q
14.SS 39. J
15. I 40. V
16.A 41. W
17.C 42. AA
18.EE 43. S
19. XX 44.H
20. D 45. K
21.R 46. ww
22.OO 47. E
23. Z 48. F
24. QQ 49.M
25. MM 50. O

1.FALSE
2.FALSE
3.FALSE
4. FALSE

5. TRUE
6. TRUE
TEST III- TRUE OR FALSE 7. TRUE
8. TRUE 35. TRUE
9. TRUE 36. TRUE
10. TRUE 37. TRUE
11. TRUE 38. TRUE
12. FALSE 39. FALSE
13. TRUE 40. TRUE
14. TRUE 41. FALSE
15. TRUE 42. FALSE
16. TRUE 43. TRUE
17. FALSE 44. FALSE
18. TRUE 45. FALSE
19. TRUE 46. FALSE
20. FALSE 47. TRUE
21. FALSE 48. FALSE
22. TRUE 49. TRUE
23. TRUE 50. FALSE
24. TRUE
PLEDGE, MORTGAGE AND ANTICHRESIS -
DIAGNOSTIC EXERCISES
MULTIPLE CHOICE. Select the best answer by
25. TRUE writing the letter of your choice.
26. TRUE 1. One of the distinctions between pledge
27. FALSE and mortgage is that pledge:
28. TRUE a. is constituted to secure the fulfillment
29. TRUE of a principal obligation.
30. FALSE b. requires absolute ownership on the
31. TRUE part of the person constituting the security.
32. TRUE c. requires that the one constituting the
33. FALSE security must have the free disposal of the thing
34. FALSE or be legally authorized for the said purpose.
d. requires the actual delivery of the thing
given as security to the creditor or a third
person by common agreement.
2. In order to bind third persons, a pledge:
a. must be recorded with the Register of
Deeds.
b. must be in a public instrument showing
a description of the thing pledged and the date
of the pledge.
c. is sufficient that it be in a private
instrument showing a description of the thing
pledged and the date of the pledge.
d. must be accompanied by an affidavit of
good faith.
3. The following is required in order that a
chattel mortgage will bind third persons.
a. The chattel mortgage must be mortgage. .
accompanied by an affidavit of good faith and c. It is sufficient that the chattel mortgage be in
recorded in the Chattel Mortgage Register. writing, public or private.
b. The chattel mortgage must be in a d. The thing mortgaged must be delivered to the
public instrument showing a description of the creditor.
thing mortgaged and the date of the chattel 4. The following is required in order that a real
mortgage will bind third persons, ring would secure theshare of X of the credit,
a. The real mortgage must be the wristwatch the share of Y, and thenecklace
accompanied by an affidavit of good faith and the share of Z. Later, D pays X P10,000.00.
recorded with the Registry of Property. a. D can demand the extinguishment of
b. The real mortgage must be in a public the pledge of the,ring.
instrument showing a description of the thing b. X may release the pledge of the ring.
mortgaged and the date of the real mortgage. c. The pledge of the ring will remain until
c. It is sufficient that the real mortgage be the shares of Yand z are paid by D
in writing, public or private.
d. The real mortgage must be recorded in d. D can demand the extinguishment of
the Registry of Property. the pledge of thering, wristwatch and necklace
5. When is appropriation by the creditor because there has beenpartial payment.
of the thing given as security allowed in pledge,
real mortgage and chattel mortgage? 8. T he following may be the object of
a. When the thing given as security in real pledge, except,
mortgage is not sold at two public auctions. a. all movables within the commerce of
b. When the thing given as security in men whichsusceptible of possession.
pledge is not sold at two public auctions. b. bills of lading.
c. When the thing given as security in c. shares of stock
chattel mortgage is not sold at one public d. parcels of land.
auction. 9. A kind of mortgage which lacks the
d. No appropriation is allowed in either formalities required by law,but nevertheless
pledge, real mortgage or chattel mortgage. shows the intention of the parties to secure
6. This is a stipulation in pledge or adebt with real property is known as:
mortgage providing that the ownership of the a. conventional mortgage.
thing given as security will pass to the pledgee b. voluntary mortgage.
or mortgagee upon. default of the debtor. c. equitable mortgage.
a. Constitutum possessorium d. legal mortgage.
b. Pactumcommissorium 10. The debtor/pledgor has the following
c. Legal subrogation rights, except to:
d. Redemption a. ask for the return of the thing pledged
7. D borrowed P30,000.00 from C. To after he has paidthe debt, its interests, and with
secure the debt, D pledgedh is ring, wristwatch, expenses in a propercase.
and necklace. Before the debt could bepaid, C b. continue to be the owner of the thing
died leaving X, Y and Z as heirs. By agreement pledged unless it isexpropriated.
amongthe heirs who inherited the credit, the c. require the deposit of the thing with a
third person if it isin danger of being impaired
or lost through thenegligence or willful act of
the pledgee.
d. alienate the thing pledge without the
consent of the pledgee.
11. The creditor/pledgee has the following
rights, except to:
a. retain the thing in his possession until
the debt is paid.
b. use the thing pledged even without
authority if such useis necessary for its
preservation.
c. demand reimbursement of the pledged upon defaultof the debtor in the payment
expenses made for thepreservation of the of his debt.
thing. 12. On March 1, 2010, D obtained a loan of
d. automatically appropriate the thing P10,000.00 from C. Tosecure the debt which is payable
on May 1, 2010, D pledged apromissory note the debt, so C caused the sale of the shares at
amounting to P12,000.00 which was executedin publicauction, The shares of stock were sold at
his favor by M. The promissory note is due April P4,500.00.
25, 2010 andproperly endorsed by D to C. a. To extinguish the obligation, C may
a. On April 25, 2010, C can collect the note recover thedeficiency of P500.00 from O if
of P12,000.00from M. The entire proceeds will there in a stipulation tothat effect.
belong to C. b. To extinguish the obligation, C may
b. On April 25, 2010, C ccn collect the note recover the deficiency even if there is no
of P12,000.00from M. However, he must give stipulation to that effect.
P2,000.00 to D. c. The obligation is extinguished even .if
c. C cannot collect from M. D is the one there is a deficiency of P500.00. Accordingly, C
entitled to collectthe note from M. can norecover the deficiency.
d. C cannot collect from M. He must sell d. The obligation is extinguished only if
the note at publicauction at maturity if D the proceeds ofsale amount to P5,000.00 or
cannot pay. more.
13. A third person who pledges his property 16. This refers to the right of a person to
to secure another,person's debt is released retain a thing until hereceives payment of his
from liability in the following cases,except: claim in the cases provided by law suchas one
a. when the creditor voluntarily accepts who has executed work on a movable.
an immovableproperty in payment of the debt. a. Conventional pledge.
b. when the creditor voluntarily accepts a b. Voluntary pledge.
movable propertyin payment of the debt. c. Legal pledge.
c. if an extension of time is granted to the d. Chattel Mortgage.
debtor by thecreditor with the pledgor's 17. One of the following may not be the
consent. object of a real mortgage:
d. if through some acts of the creditor, the a. Land, buildings, roads and construction
pledgee cannotbe subrogated to the rights, of all kindsadhered to the soil.
mortgages and preferencesof the creditor. b. Fertilizer actually used on a piece of
14. A pledge is extinguished through any of land.
the following, except: c. Animal houses, pigeon houses or other
a. sale of the thing pledged. breeding placesintended by the owner to be
b. appropriation of the thing pledged after permanently attached to the land, including the
the thing is notsold at one public auction. animals therein.
c. written abandonment of the pledge in d. Growing fruits that have been gathered
writing. from treesplanted on land.
d. return of the thing pledged. 18. D borrowed P100,000.00from C. To
15. D pledged his 100 shares of stock of San secure the debt, Dmortgaged his land and
Miguel Corporation toC to secure his debt of building in favor of C. The mortgage isregistered
P5,000.00. On due date, t0 was not ableto pay with the Registry of Property. Sometime later, D
soldthe land and building to X who was not
aware of the mortgage ofthe land and building.
Based on the above information, which ofthe
following statements is false?
a. X must respect the mortgage although
he was not aparty thereto.
b. X was not bound by the mortgage
because he was notof it.
c. If C forecloses the mortgage and the proceeds of theforeclosure sale exceed the amount
proceeds of theforeclosure sale are not enough of debt, D is entitledto the excess.
to pay for the debt, Ccan recover the deficiency 19. It is the right of the mortgagor to redeem the
from D. property that wasmortgaged after it was sold.
d. IfC forecloses the mortgage and the a. Equity of redemption.
b. Right of redemption. in the contract referred to in No. 21 isthe actual
c. Right of subrogation. value of the fruits at the time they are:
d. Right of pre-emption. a. gathered.
20. A chattel mortgage may have the b. applied.
following as object, except: c. gathered less reasonable depreciation,
a. motor vehicles. if any, of theimmovable.
b. shares of stock. d. Theapplied less reasonable
c. vessels. depreciation, if any, ofimmovable.
d. floating docks and structures which are 24. Which of the following statements is
intended by theirnature and object to remain at incorrect with respect to thecontract referred
a fixed place on a river lake or coast. to in No. 21?
21. D borrowed P50,000.00 from C. The a. An immovable belonging to aperson
obligation bears interest of10% per annum. To other than the debtor may secure the
secure the debt, D agreed with C that thefruits obligation of the debtor.
from the agricultural lot of D shall answer for b. The contract subsists as long as the
the interestand the principal obligation. obligation of thedebtor remains unpaid.
Assuming the form required by lawwas c. The creditor may appropriate for
complied with, the contract entered into himself the immovableif the debtor fails to *pay
between D and Cfor the application of the fruits his obligation.
of the lot to the interest andprincipal obligation d. The debtor may be, compelled by the
is known as: creditor to enterinto the enjoyment of the
a. antichresis. immovable if the creditor desires to exempt
b. pledge. himself from the taxes and chargesupon the
c. real estate mortgage. estate and the expenses for its preservationand
d. chattel mortgage. repair.
22. For its validity, the contract referred to 25. D pledged his computer to secure a
in the preceding number: loan which he obtained from C. The debt which
a. must be in writing, whether public or amounts to P10,000.00 is due after 60 days.
private. Before the due date, C executed an instrument
b. must be in a public instrument. abandoning thepledge.
c. may be in any form, whether oral or I. debt of P10,000.00 is extinguished.
written. II. The' pledge of the computer is
d. may be inferred from the conduct of extinguished even if Dhas not yet accepted the
the parties. renunciation of the pledge.
23. The measurement of the application of III. The pledge is not extinguished until C
the fruits to the interestand principal obligation returns the ring to D.
IV. The pledge is extinguished even if C has
not returned the ring to C.
Based or the foregoing, which is false among
the fourstatements?
a. I and Ill.
b. II and IV.
c. I and II.
d. II and III.
26. In a contract of pledge, the
pledgee/creditormay do thefollowing, except
.to:
a. use the thing pledged for purposes of on the substanceor quality of the thing pledged.
preservation. d. Sellthe thing pledged without notice to
b. retain the thing pledged unl the thepledgor/debtor.
principal obligation issatisfied. 27. The following are the characteristics of a
c. ask for a substitute if he was deceived chattel mortgage,except:
a. the mortgagor must be the absolute c. The excess of the proceeds of sale over
owner of theproperty mortgaged. the amount ofthe obligation belongs to the
b. it is an accessory contract. pledgor/mortgagor.
c. it involves movable or immovable d. An affidavit of good faith is required to
property. bind thirdpersons.
d. the deed of chattel mortgage must be 31. D borrowed P100,000.00 from C. The
accompanied byan affidavit of good faith to be loan is secured by amortgage of T's lot. On due
binding against thirdpersons. date, D was unable to pay.Accordingly, C
28. The 'following elements are common in foreclosed the mortgage*on the lot and during
both pledge andmortgage, except: thepublic auction, the lot was sold for
a. the contract is constituted to secure the P90,000.00.
fulfillment of aprincipal obligation. a. C can recover the deficiency from D.
b. the property on which the security is b. C can recover the deficiency from T.
constituted must bedelivered to the creditor. c. C can recover the deficiency from both
c. the debtor must be the absolute owner D and T.
of the propertypledged or mortgaged. d. C can no longer recover the deficiency.
d. the debtor- must have free disposal of 32. Consider the following cases:
the propertypledged or mortgaged. I. D owes C P10,000.00. To secure the
29. In the sale of the thing pledged at public debt, D pledgedhis cell phone. D defaults. The
auction, which of thefollowing statements is cell phone is sold forP9,000.00 at the public
incorrect? auction.
a. The sale extinguishes the principal II. D bought a car for P360,000.00 from C.
obligation regardlessof the amount of the The price, whichispayable in12equal monthly
proceeds of sale. installments ofP30,000.00, is secured by a
b. The pledgee can appropriate the thing chattel mortgage on the car.After paying 2
pledged if it is not sold at the first public installments, D defaults in the payment of 3
auction. installments. C forecloses the chattel mortgage
c. The creditor has no. right to recover andthe car is sold at the public auction for
deficiency. P280,000.00.
d. The debtor is not entitled to the excess The deficiency is recoverable in:
of proceedsunless there is an agreement. a. Both I and 11.
30. Which of the following is a similarity of b. I only.
chattel mortgage andpledge? c. II only.
a. Deficiency is recoverable in case of sale d. No deficiency is recoverable in both l
of the thingpledged/mortgaged. and U.
b. The object of the contract is a movable 33. D pledged his diamond ring and gold
property. watch to C to secure adebt of P 10, 000.00 .
a. If D defaults and the ring and watch are
sold at publicauction, C may recover any
deficiency if the proceeds of sale amount to less
than P10,000.00.
b. if D defaults, C may automatically
appropriate for himself the ring and the watch.
c. If D pays C. P5,000.00 , D may demand
either the returnof
d. If C renounces the pledge in writing, the
pledgeisextinguished although C continues to
possess the ringand the watch
34. Alpine Corporation obtained a loan the bank. Thecontract of loan and deed of mortgage
amounting to P1,000,000.00from Eastern Bank. have been signed by theparties but have not been
To secure the obligation, P, the president acknowledged before a notary public,
ofAlpine, mortgaged his own building in favor of a. Alpine Corporation and P are one and the
same person. a. The loan of D amounting to
b. P may validly mortgage his own P100,000.00 is extinguishedbut the security
property to secure theobligation of Alpine to remains.
the bank. b. Only the security for the obligation is
c. The mortgage is not yet binding extinguished.
between the partiessince it has not been c. The proceeds of the insurance policy
notarized. will be the newsecurity of the loan obligation
d. The mortgage contract can stand which will subsist.
independently from the contract of loan. d. Both the loan and the mortgage
35. Pledge and real mortgage are similar in security areextinguished.
what respect? 38. D borrowed P20,000.00 from C. To
a. The object of the contract. secure 'the obligation, Dpledged his ring to C.
b. Binding effect against third persons. Before the due date, C executed a
c. Recovery of deficiency. publicinstrument stating that he was
d. The fact that third persons may pledge abandoning the pledge and informed D about it.
or mortgage theirproperty to secure another In the meantime, the ring remained in
person's debt. thepossession of C.
36. A, B and C obtained a loan from X in the a. D must accept the renunciationin order
amount of P60,000.00.To secure the debt, A to extinguish thepledge
pledged his wristwatch; B, his necklace;and C, b. C must return the ring to D to
his diamond ring. A pays his share of the debt extinguish theto
amountingto P20,000.00. c. D's loan obligation is extinguished by
I. The obligation of A, B and C is solidary. reason of theabandonment of the pledge.
II. The obligation of A, B and C is joint. d. The pledge of the ring is extinguished
III. A may demand the return of the although D doesnot accept the renunciation or
wristwatch afterpayment of his share of the has not yet received thering from C.
debt. 39. To bind third persons, the following
a. I and III are true. contracts must comply withcertain
b. II and Ill are true. formalities/requirements:
c. I and Ill are false. I. A contract of pledge must be in a public
d. II and Ill are false. instrumentshowing the date of the pledge and a
37. D obtained an interest-bearing loan description of thething pledged and recorded
from. ABC Bank amountingto P100,000.00To with the Registry ofProperty.
secure the obligation, D mortgaged his building II. A contract of real estate mortgage must
to ABC Bank. As added requirement of the loan, be recorded withthe Registry of Property.
a fireinsurance on the building was also III. A contract of chattel mortgage must
obtained by D with ABC Bankas beneficiary. contain an affidavitof good faith and be
Before the due date of the loan, the building recorded in the Chattel MortgageRegister.
wasrazed by fire. a. All statements are true.
b. I and II are true.
c. I and III are true.
d. Il and III are true.
40. Mary Montes and Melary Manalo
obtained a loan ofP 100, 000.00from Patricia
Palma. The debtors executed apromissory note
which reads as follows:
We promise to pay Patricia Palma or order
P100,000.00on April 30, 2004.
(Sgd) Mary Montes mortgage on her lot.
(Sgd.) Melany Manalo a. Mary Montes may demand the return of her
To secure the loan, Mary Montes pledged her diamond ring if she pays her share of the debt, while
diamond ring,while Melany Manalo executed a MelanyManalo's share remains outstanding:
b. Melany Manalo may demand the c. execution of private document.
cancellation of themortgage on her lot if she d. transfer of title of ownership.
pays her share of the debt,while Mary Montes's 45. D obtained a loan from C. To secure the
share remains outstanding. debt, D pledged hisring to C. Before due date, C
c. Both Mary Montes and Melany Manalo executed a private documentstating that he
must pay thetotal amount of the debt before was abandoning the pledge. In the meantime,
Mary Montes coulddemand the return of the Cremained in possession of the ring and D has
diamond ring, and MelanyManalo the yet to express hisacceptance of the
cancellation of the mortgage on her lot. abandonment of the pledge.
d. Patricia Palma may demand payment of a. The pledge of the ring is extinguished.
the amountofP100,000.00from either Mary b. The pledge is not extinguished until C
Montes orManalo. returns the ring.
c. The pledge is not extinguished unless D
41. As a general rule, any deficiency in the accepts the abandonment since it is an act of
foreclosure sale may berecovered in the generosity.
following contracts, except in: d. The pledge is not extinguished because
a. chattel mortgage. theabandonment should be in a public
b. real mortgage. instrument.
c. conventional pledge. 46. D contracted the services of T, a tailor,
d. antichresis. to sew D's pair of pantswith D providing the
42. As a general rule, in case of excess of cloth for the purpose. The parties agreedthat Is
the proceeds of theforeclosure sale over the labor shall be P500.00. The security that T holds
creditor's claim, the excess shallbelong to the for thepayment of the labor agreed upon is in
creditor in: the nature of:
a. chattel mortgage. a. chattel mortgage.
b. real mortgage. b. legal pledge.
c. conventional pledge. c. conventional pledge.
d. antichresis. d. antichresis.
43. Recording in the Registry of Property in 47. The requirement that the thing on
the appropriate book isrequired for the validity which the security isconstituted must be
of the contract of: delivered by the debtor to the creditor or athird
a. chattel mortgage. person by common agreement refers to the
b. real mortgage. characteristic ofa pledge being:
c. conventional pledge. a. an accessory contract.
d. antichresis. b. a real contract
44. The delivery required in pledge for its c. an indivisible contract
perfection and validity is: d. a consensual contract
a. actual delivery. 48. The creation of a lien on the property
b. execution of public instrument. upon which it is imposed,whoever may be the
possessor of the property, to the fulfillmentof
the obligation for whose security it was
constituted refers tothe characteristic of a real
mortgage being:
a. an accessory contract.
b. an indivisible contract
c. an inseparable contract.
d. a real property in itself.
49. D obtained a loan of P5.000.00from C. through a public instrument to the X who was not
The obligation issecured by a pledge of D's ring aware of the pledge. Under the deed of sale, D obliged
which he delivered to C. Both the loan and the himself to deliver the ring physically to X after a week.
pledge were in a private instrument. While Before X could obtain actual delivery of the ring,he
theloan was outstanding. D sold the ring learned that D had earlier pledged the same and that
C wasselling the ring in a public sale because 52. D applied with C for a loan of
of D's default in thepayment of his debt. P100,000.00 at 10% interest perannum
a. X is bound by the pledge made by D to promising to constitute a mortgage on his
C. condominiumunit to secure the loan within one
b. X is not bound by the pledge made by D month from the time hereceived the proceeds.
to C. On the strength of D's promise tofurnish a
c. C can sell the ring to satisfy his claim. security, C granted the loan application and
d. X did not acquire ownership of the ring gave D theoption to pay the loan on or before
from D. the lapse of one year. D,however, failed to
50. D borrowed P10,000.00 from C the debt constitute the mortgage on his
being payable in 6months. To secure the debt, condominiumunit within one month as he had
D promised to pledge his ringwithin2 weeks. promised. A list containing thefollowing
Two weeks had already lapsed but D had notyet possible remedies were presented to you by C
constituted the pledge. forevaluation.
I. C may demand the constitution of the I. Demand immediate payment of the
pledge. debt from D.
II. D loses the benefit of the period given II. Demand that D constitute the mortgage
to him to pay thedebt; hence, C may demand as he had promised.
immediate payment of thedebt. III. Foreclose the mortgage on the
a. Both statements are true. condominium to satisfythe claim.
b. Both statements are false. Which of the foregoing possible remedies may
c. I is true; II is false. you validly recommend to C?
d. I is false; II is true. a. I or 11.
51. Carmona, a creditor of Delantes, b. II or III.
telephoned the latter to inform him that he c. I or III.
(Carmona) was abandoning the pledge of the d. II or Ill.
ringwhich Delantes had constituted to secure 53. D, your client, is applying for a loan of
his loan obligation toCarmona amounting to P200,000.00 with C. He is proposing to C that he
P20,000.00, Carmona told Delantes thathe will secure the loan with a chattelmortgage on
would personally deliver the ring to Delantes his car. He made a list containing the items-
within one week. belowand asks you to check whether they are
a. Both the loan obligation and the pledge correct
are extinguishedby the abandonment. I. D will no longer be liable for deficiency
b. Neither the loan obligation nor the to C in case hedefaults in the payment of the
pledge is extinguishedby the abandonment. loan and the car is sold atthe foreclosure sale
c. Only the loan obligation is extinguished. for less than P200,000.00.
d. Only the pledge is extinguished. II. D and C must record the deed of chattel
mortgage in theChattel Mortgage Register for
the validity of the chattelmortgage.
III. D must execute an affidavit of good
faith to beappended to the deed of chattel
mortgage to bind thirdpersons.
IV. D will be entitled to the excess of the
proceeds of theforeclosure sale over the loan
obligation in case hedefaults in the payment of
the loan.
Which of the foregoing will you relay to D as
correct?
a. I, II,and Ill.
b. I, Il and IV.
c. I, Ill and IV.
d. II,Illand IV.
54. D obtained a loan of P1,000,000.00
from C. To secure the debt,D executed deed of
mortgage covering two of his lots, Lot A andLot
B, each of which is in the name of D in the
certificate of title
'

PARTNERSHIP - DIAGNOSTIC EXERCISES

TEST I - MULTIPLE CHOICE. Select the best answer by writing the
letter of your choice.
1. A contract where two or more persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves.
a. Voluntary association.
b. Corporation
c. Partnership
d. Sale proprietorship.
2. One of the following is not a characteristic of contract of partnership.
a. Real, in that the partners must deliver their contribution in order for the partnership contract to be
perfected.
b. Principal, because it can stand by itself.
c. Preparatory, because it is a means by which other contracts will be entered into.
d. Onerous, because the parties contribute money property or industry to the common fund.
3. One of the following is not a requisite of a contract of partnership. Which is it?
a. There must be a valid contract.
b. There must be a mutual contribution of money, property or industry to a common fund.
c. It is established for the common benefit of the .partners which is to obtain profits and divide the same
among themselves.
d. The articles are kept secret among the members.
4. The minimum capital in money or property except when immovable property or real rights thereto are
contributed, that will require the contract of partnership to be in a public instrument and be registered
with the Securities and Exchange Commission (SEC).
a. P5,000.00.
b. P10,000.00.
c. P3,000.00
d. P30,000.00.
5. If the partnership has the minimum capital mentioned in No. 4, but the contract is not in a public
instrument or the same is not recorded with the SEG, the partnership:
a. is void.
b. is voidable.
c. does not acquire juridical personality
d. still acquires juridical personality.
6. Joseph and Edward entered into a universal partnership of all present property. At the time of their
agreement, Joseph had afour-door apartment which he inherited from his father 3 yearsearlier. Edward,
on the other hand, had a fishpond which heacquired by dacionenpago from Robert. During the first year
ofthe partnership, rentals collected on the four-door apartmentamounted to P480,000.00; while fish
harvested from thefishpond were sold for P300,000.00. During the same period,Edward received by way of
donation a vacant lot from an uncle.The partners had a stipulation that future property shall belong tothe
partnership. Which of the. following does not belong to thecommon fund of the partnership?
a. Fishpond.
b. Rental of P480,000.00
c. Apartment.
d. Vacant land.
7. Vincent and James entered into a universal partnership ofprofits. At the time of the execution of the
articles of partnership,Vincent had a two-door apartment which he inherited from hisfather 3 years earlier.
James, on the other hand, had a fleet oftaxis which he purchased 2 years before. In the first year of
thepartnership, Vincent earned P500,000.00 as a radio talent, whileJames won P1,000,000.00 in the lotto.
During the same period,rentals of P120,000.00 were collected from the apartment, whilefare revenues of
P200,000.00 were realized from the operationof the fleet of taxis. Which of the following belongs to
thepartnership?
a. Two-door apartment.
b. Lotto winnings of P1,000,000.00.
c. Salary of P500,000.00.
d. Fleet of taxis.
8. A partnership formed for the exercise of a profession which isduly registered is an example of,
a. Universal partnership of profits.
b. Universal partnership of all present property.
c. Particular partnership
d. Partnership by estoppel.
9. Three of the following partnership contracts are void. Which onis not?
a. A universal partnership of all present property betweenhusband and wife.
b. A universal partnership of profits between a man and woman living together as husband and wife
without thebenefit of marriage.
c. A particular partnership between husband and wife.
d. A universal partnership of profits between a private individual and a public officer.
10. John, Albert and Wilfred are partners in JAW Enterprises. Nothaving established yet their credit
standing, the three partnersrequested Simon, a well-known businessman, to help themnegotiate a loan
from Carlos, a money lender. With the consentof John, Albert and Wilfred, Simon represented himself as
apartner of JAW Enterprises. Thereafter, Carlos granted a loan ofP150,000.00to JAW Enterprises. What
kind of partner isSimon?
a. Managing partner.
b. Liquidating partner.
c. Ostensible partner.
d. Partner by estoppel.
11. Refer to No. 10. Assuming that JAW Enterprises was unable topay the loan on due date at which time
the assets of thepartnership amounted only to P120,000.00. From whom mayCarlos collect the payment?
a. Simon only for the whole amount of P120,000.00.
b. John, Albert and Wilfred who are liable jointly forP50,000.00 each.
c. JAW Enterprises for its assets of, P120,000.00;thereafter John, Albert and Wilfred from their
separateproperty at P10,000.00 each.
d. JAW Enterprises for its assets of P120.000.00;thereafter, John, Albert, Wilfred and Simon from
theirseparate assets at P7,500.00 each.
12. Teresa, Olga, Pamela and Sonia, partners in TOPS CompanyLimited, a trading company, have
contributions of P50,000.00each. Teresa and Olga are general partners; Pamela, a limitedpartner; and
Sonia, a general-limited partner. TOPS CompanyLimited purchased merchandise on credit from Moret
Sales Co.amounting to P180,000.00. On due date, however, TOPSCompany Limited was unable to pay.
Accordingly, Moret SalesCo. filed a case of collection against the partnership which bythen had assets
amounting to P150,000.00. From whom mayMoret Sales Co. collect the sum of P180,000.00?
a. The partnership for its assets of P150,000.00; thereafter,from Teresa and Olga at P15,000.00 each from
theirseparate assets.
b. Teresa and Olga only at P90,000.00 each from theirseparate assets.
c. The partnership for its assets of P150,000.00;thereafter, from Teresa, Olga, and Sonia at
P10,000.00each from their separate property. However, Sonia canrecover P5,000.00 each from Teresa and
Olga.
d. Teresa, Olga and Sonia at P60,000.00each.Thereafter, Sonia can recover from Teresa and
OlgaP30,000.00 each.
13. Which of the following. losses will not cause the dissolution of apartnership?
a. Loss before delivery of a specific thing which a partnerhas promised to contribute to the partnership.
b. Loss of a , specific thing after its delivery to andacquisition of its ownership by the partnership from
thepartner who contributed the same.
c. Loss after delivery of a specific thing where the partnercontributed only its use and enjoyment, he
havingreserved the ownership thereof.
d. Loss before delivery of a specific thing where the partnerpromised to contribute only its use and
enjoyment,reserving the ownership thereof.
14. Gregory, Edmond and Mark are partners in GEM Company withcontributions of P10,000.00,
P40,000.00and P50,000.00,respectively. Their agreement shows that they will share in the profits in the
ratio of 2:3:4. During the year, the partnership sustained a loss of P9,000.00. How shall this loss be divided
among the partners?
a. Equally at P3,000.00 each.
b. Gregory, P900.00; Edmond, P3,600.00; and Mark, P4,500.00.
c. Gregory, P2,000.00; Edmond, P3,000.00; and Mark, P4.000.00.
d. The partners must establish first a loss sharing agreement before-the loss may be divided because they
failed to have an agreement on the division of loss.
e. 15.
15. Which of the following stipulations is valid?
a. A stipulation excluding a capitalist partnerfrom profits.
b. A stipulation exempting a capitalist partner from losses.
c. A stipulation exempting an industrial partner from losses.
d. A stipulation excluding an industrial partner from profits.
16. A partner can engage in business for himself without the consent of his co-partners if he is:
a. a capitalist partner whether or not the business he willengage in is of the same kind as or different
from thepartnership business.
b. an industrial partner whether or not the business he willengage in is of the same kind as or different
from thepartnership business.
c. a capitalist partner and the business he will engage in isof a kind different from the partnership
business.
d. an industrial partner and the business he will engage Inis of a kind different from the partnership
business.
17. Which of the following statements is false when no one amongthe partners was appointed
as manager?
a. Each partner will be considered as agent of the partnership.
b. Any one may make an important alteration in the immovable property of the partnership without
theeided it is useful to the consent of the others pro partnership.
c. In c as e the act of one partner is opposed by another, thedecision of the majority of the partners will
prevail.
d. In case of a tie in the voting, the tie shall be resolved bythe vote of the partner owning the controlling
interest.
18. The following statements pertain either to a partner appointed asmanager in the articles of
partnership or through a documentafter the formation of the partnership.
I. He may be removed as manager only for a just or lawfulcause by the vote of the partners owning the
controllinginterest.
II. He may be removed as manager with or without just orlawful cause by the vote of the partner
owing thecontrolling interest.
III. He may perform all acts of administrator despite theopposition of his partners provided he is in good
faith.
IV. He may perform all acts of administration in good faithbut opposing partners may resort to his removal
if hepersists.
Based on the foregoing:
a. I and Ill pertain to a partner appointed as manager in thearticles of partnership.
b. Iand Ill pertain to a partner appointed as managerthrough a document after the formation of
thepartnership
c. IIand Ill pertain to a partner appointed through adocument after the formation of the partnership.
d. I and IV pertain to a partner appointed as manager in thearticles of partnership
19. Campos, Urbano, Tamesis and Encanto are partners in CUTECompany each one contributing
P300,000.00 except for Encantowho is an industrial partner. The partners agreed that Camposshall be
exempted from liability to third persons. Three years ofcontinued losses after the formation of the
partnership resulted inunpaid partnership liabilities to third persons amounting toP500,000.00.
Partnership assets have also been reduced toP200,000.00.From whom may third persons collect
thepartnership debts?
a. From the partnership assets of P200,000.00; thereafter,fromthe partners for their separate , assets
atP100,000.00 each except Campos who was exemptedfrom liability to third persons by agreement.
b. From the partnership assets of P200,000.00; thereafter,from the partners for their separate assets
atP100,000.00 each except for Encanto since an industrialpartner does not share in the losses.
c. From the partnership assets of P200,000.00; thereafter,from all the partners for their separate assets
atP75,000.00 each including Campos and Encanto:
d. From the partnership assets of P200,000.00; thereafter, from Urbano and Tamesis only for their
separate assetsat P150,000.00since Campos was exempted fromliability by agreement, while Encanto,
being an industrialpartner is not liable for losses.
20. The partnership will bear the risk of the loss of three of thefollowing things. Which is the exception?
a. Things contributed to be sold.
b. Fungible things or those that cannot be kept withoutdeteriorating.
c. Things contributed so that only their use and fruits will befor the common benefit.
d. Things brought and appraised in the inventory.
21. A partner's interest in the partnership is his share of the profitsand surplus which he may assign to a
third person. Which of thefollowing statements concerning such right is correct?
a. The conveyance of a partner's interest will cause thedissolution of the partnership.
b. The assignee becomes a partner.
c. The assignee has a right to interfere in the managementof the partnership business.
d. The assignee has the right to receive the profits whichthe assigning partner would otherwise
be entitled to.
22. Torres is indebted for P5,000.00 to MACE Trading Company, apartnership managed by Mendoza
to whom Torres also owesP10,000.00.The two debts which are both demandeb!e areunsecured.
Torres remits P4,500.00 to Mendoza in payment ofhis debt to him. Accordingly, Mendoza issues a
receipt for hisown credit. To which credit should the payment be applied?
a. To Mendoza's credit because the payment made byTorres is intended for his debt to Mendoza
who issueshis own receipt
b. To both the partnership credit and Mendoza's credit proportionately at P1,500.00 and P3,000.00,
respectively.
c. To Mendoza's credit because its amount is greater than that of the partnership credit.
d. To the partnership credit because the managing partnershould not prefer his own interest to that
of thepartnership.
23. In three of the following wrongful acts of partners,thepartnership is solidarily liable with all the
partners to thirdpersons. Which one is the exception?
a. For loss or injury caused to a third person by reason ofthe wrongful act or omission of a partner acting
in theordinary course of business.
b. Where a partner acting within the scope of his apparentauthority receives money or property of a third
personand misapplies it.
c. Where the partnership receives money or property of athird person in the ordinary course of business
and suchmoney or property is misapplied by a partner while it is inthe custody of the partnership.
d. For loss or injury caused to a third person by reason ofthe use of partnership property by a partner for
personalpurpose.
24. Benito, Ignacio, Gregorio, Artemio and Servando are partners inBIGAS Company which is engaged in
the buying and selling ofrice. Benito is the manager. Ignacio was also given a specialpower of attorney by
the partnership to buy a van for thecompany. No other power was given to all the partners. In whichof the.
following acts or contracts is the partnership not boundby the act of the partner?
a. Ignacio buying rice for the partnership from Teodoro whohas no knowledge of Ignacio's lack
of authority.
b. Ignacio buying a van for the partnership from Teresa.
c. Gregorio buying a van for the partnership from Thelmawho has no knowledge of Gregorio's lack of
authority.
d. Benito selling rice for the partnership.
25. Assuming that no fraud is committed by or consented to by thepartner concerned, which of the
following statements is false?
a. Notice to any partner relating to partnership affairs while already a partner is notice to the
partnership.
b. Knowledge of a partner acting on the particular matter acquired by him while already a partner is
knowledge of the partnership.
c. Knowledge of a partner acting on the particular matter obtained by him before he became a partner is
knowledge of the partnership provided he still remembers the same.
d. Knowledge of partner not acting on the particular matter obtained by him before he became a partner
is knowledge of the partnership.
26. Which of the following statements is incorrect?
a. Partnership creditors are preferred as to partnership assets.
b. Partnership creditors are preferred as to each partner's separate assets.
c. A partner's separate creditors are preferred as to the partner's separate assets.
d. A partner's separate creditors may attach a partner's share in the partnership assets.
27. The change in the relation of the partners caused by any ceasing to be associated in the carrying on the
business is known as:
a. termination of the partnership.
b. winding up of partnership affairs.
c. liquidation of the partnership business.
d. dissolution of the partnership.
28. A decree by the court is necessary to dissolve a general partnership based on three of the following
grounds. Which one will not require such decree but 'will cause the automatic dissolution of the
partnership?
a. The business of the partnership can only be carried on at a loss.
b. A partner is shown to be of unsound mind.
c. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business.
d. A partner is civilly interdicted.
29. Three of the following will cause the automatic dissolution of a general partnership. Which one will
not?
a. When any event makes it unlawful the partnership to be carried on or , for carry it on in partnership.
b. Expulsion of any partner from the In accordance with such a power conferred by the agreement
between the partners.
c. A partner becomes in any way incapable of performing his part of the partnership contract.
d. The insolvency of a partner or of the partnership
30. When is the partnership not bound by the act/s of a partner after dissolution in the following cases?
a. Acts necessary to wind up partnership affairs.
b. Acts to complete transactions begun before dissolution,
c. New .transactions where the third person is a previous creditor and there was a publication of the
dissolution in a newspaper of general circulation in the place or places where the business had been
carried on but such third person has not read it.
d. New -transactions where the third person is a new creditor and there was publication of the
dissolution in a newspaper of general circulation in the place or places where the business had been
carried on but such creditor has not read it.
31. The partnership is not bound in three of the following acts of a partner after dissolution. However, it is
bound in one. Which is it?
a. Where the partner acting is insolvent.
b. When it is unlawful to carry on the-business.
c. When the partner has no authority to wind up partnership affairs and the third person is a previous
creditor who had no knowledge of the, partner's lack of authority.
d. When a partner has no authority to wind up partnership affairs and the third person is a new creditor
who has not read the publication of the lack of authority of the partnerin a newspaper of general
circulation in the place orplaces where the partnership business is carried on.
32. What is the order of payment of liabilities of a dissolved generalpartnership using the code
number representing each liability?
I. Those owing to partners other than for capital or for profits.
II. Those owing to creditors other than partners.
III. Those owing to partners in respect of profits.
IV. Those owing to partners in respect of capital,
a. I, II,Ill,IV.
b. II, I, IV, Ill.
c. II, I, Ill, IV.
d. I, II, IV, Ill.
33. In a limited partnership where there are 4 partners:
a. All the partners must be limited partners.
b. The number of limited partners must be equal to the number of general partner, that is, 2:2.
c. The number of limited partners must be greater than the number of general partners, that is, 3:1.
d. It is enough that there is one limited partner; the rest may all be general partners.
34. A limited partner may contribute:
a. Money and/or property.
b. Money and/or services.
c. Property and/or services.
d. Services-only.
35. A. limited partner shall be liable as general partner in three of the following cases. Which one is the
exception?
a. When he is a general-limited partner as stated in the certificate.
b. When he takes part in the control of the business.
c. When he participates in the management of the business.
d. When his surname which appears in the partnership name is also the surname of a general partner.
36. Which of the following omissions will make a partnership formed as a limited partnership liable as
a general partnership?.
I. The certificate is not signed and sworn -to by all the partners.
II. The certificate is not registered with the Securities and Exchange Commission.
III. The partnership name does not include the word
IV. "Limited" or "Ltd.", its abbreviation, in the certificate.
a. I and 11.
b. II and III.
c. I and III.
d. I, II and III.
37. A person admitted to all the rights of a limited partner who has died or has assigned his interest in the
partnership is known as:
a. An ostensible partner.
b. A liquidating partner.
c. A substituted limited partner.
d. A general-limited partner.
38. If the assignee does not become the partner referred to in the preceding number, his rights do not
include:
a. The receipt of the assignor's share of the profits.
b. The receipt of the assignor's other compensation by way of income.
c. The return. of the assignor's contribution.
d. The inspection of partnership books or account of partnership transactions.
39. What is the order of payment of liabilities of a dissolved limited partnership using the code number
representing each liability?
I. Those owing to general partners other than for capital or for profits. .
II. Those owing to creditors including limited partners, except those to limited partners on account
of their contributions and general partners.
III. Those owing to limited partners by way of their share in the profits and other compensation by way of
income.
IV. Those owing to limited partners in respect to the capital of their contributions.
V. Those owing to general partners in respect of capital.
VI. Those owing to general partners in respect of profits.
a. I, II, Ill, IV, V,, Vl.
b. II, I, Ill, IV, V, VI.
c. II, I, Ill, IV, VI, V.
d. II, Ill, IV, I, VI, V.
40. Which of the following will not cause the automatic dissolution of a limited partnership?
a. Death of a general partner.
b. Death of a limited partner.
c. Insolvency of a general partner,
d. Insanity of a general partner.
41. One of the distinctions between a partnership and a corporation is that a partnership:
a. May be formed by one person.
b. Is created by operation of law.
c. Acts through a board of directors.
d. May exist for an indefinite period.
42. Belinda, Ara, Rica and Klaudia are partners in BARK Enterprises, a pet shop, with Belinda contributing
P50,000.00; Ara, P20,000.00; and Rica, P30,000.00. Klaudia is an industrial partner and manages the
partnership. Based on the foregoing information, which of the following statements is false?
a. Belinda may engage in the buying and selling of, rice without the consent of the other partners.
b. Klaudia may engage in the buying and selling of rice without the consent of the other partners.
c. Klaudia is not liable for the losses of the partnership.
d. Klaudia may be held liable by third persons for partnership debts with her separate property.
43. Josephine. Ellen, Wilma, Edith and Lydia are partners in JEWEL Company, Ltd. Josephine, Ellen and
Wilma are general partners, Edith is a general-limited partner, while Lydia is a limited partner. Based on
the foregoing information, which of the following statements is false?
a. Josephine, Ellen and Wilma may be held liable with their separate property after the exhaustion of
partnership assets.
b. Edith may participate in the management. of the partnership.
c. Edith may not be held liable with her separate property for partnership debts after the exhaustion of
partnership assets.
d. Lydia may not be held liable with her separate property for partnership debts after the exhaustion of
partnership assets.
44. Which of the following will not cause the automatic dissolution of a general partnership?
a. Death of a partner.
b. Insolvency of a partner.
c. When the partnership business becomes unlawful.
d. Insanity of a partner,
45. Wilma, Olga and Wynona agreed to form a limited partnership with Wilma and Olga as general
partners contributing P50,000.00 each, and Wynona as limited partner contributing P100,000.00. The
partnership which is to engage in the trading of garments was named "WOW Garments Co., Limited" as
indicated in the certificate signed and sworn to by the partners before a notary public. However, the
certificate was not filed with the Securities and Exchange Commission. In the meantime, the partners
already begun operating the business and transacting with third persons.
a. The partnership entered into by the Wilma, Olga and Wynona is void.
b. The partnership will be 'considered a general partnership.
c. Accordingly, all partners will be liable with their separate - property after the exhaustion of partnership
assets.
d. The partnership will be- considered a limited partnership as indicated in its name. Only Wilma and
Olga will be liable with their separate property after the exhaustion of partnership assets. Wilma, Olga and
Wynona will be considered separately as sole proprietors with each one having a capital equivalent to
their respective contributions.
46. Fernando, Filoteo, Fortunato and Fulgencio are partners in the firm F4 Enterprises which is engaged in
the trading of fertilizers. Fernando contributed P50,000.00; Filoteo, P30,000.00; and Fortunato,
P20,000.00. Fulgencio is an industrial partner and manages the partnership. Based on the foregoing facts,
which of the following statements is incorrect?
a. Fernando may engage in the business of trading car spare parts without the consent of the other
partners.
b. Filoteo may be validly exempted from losses incurred by the partnership by agreement of the partners.
c. Fulgencio may not engage in the car repair business without the consent of his co-partners.
d. Fuigencio is exempt from losses although there is no agreement among the partners.
47. Bettina, Erlinda, Amanda, Ursula, Teresa and Yolanda are partners in BEAUTY Enterprises, a dealer in
cosmetics and other beauty products, with contributions of P60,000.00, P50,000.00, P40,000.00,
P30,000.00, P20,000.00, and P10,000.00, respectively. No one was appointed as manager in the articles
of partnership.
a. Bettina is the manager because she made the biggest investment.
b. Every act in the ordinary course of the business will have to be decided by the majority determined on
a per head basis.
c. Every act in the ordinary course -of the business will-have to be decided by the controlling interest
(biggest investment) although the partners owning them.do not constitute the majority.
d. All the partners are agents or managers of the partnership and any one of them may perform acts
of administration.
48. Which of the following will nvt cause the automatic dissolution of a general partnership?
a. Death of a capitalist, partner.
b. Insolvency of a capitalist partner.
c. Insanity of an industrial partner.
d. Civil interdiction of an industrial partner.
49. PATOK Enterprises, a partnership engaged in the business of renting out video films, is owned by
Patricia, Alice, Tina, Olga, and Kaye, with Kaye as the manager. Diana owes PATOK Enterprises P6,000.00
and Olga, P4,000.00. Both debts are unsecured and are already due. Diana pays Olga P4,000.00 for
which Olga issues her own receipt.
a. The payment should be applied to Olga's credit only.
b. The payment should be applied to PATOK's credit only.
c. The payment should be divided proportionately between PATOK and Olga, at P2,400.00 and P1,600.00,
respectively.
d. The payment should be divided equally between PATOK and Olga at P2,000.00 each.
 50. Federico, Alberto. Sofronio and Teodoro are partners in FAST Motorparts Company, a dealer of car
spare parts Federico, Alberto and Sofronio invested P500.000 00, P200,000.00 and P300,000.00,
respectively. Teodoro is an industrial partner whomanages the partnership. The partners have stipulated
thatFederico shall be exempt from liability to third persons. At theend of three years, the assets of the
partnership have dwindledto P220,000.00while its liabilities to third persons have abalance of
P340,000.00. How much ultimately will be the shareof each partner after payment to third persons and
the settlement among the partners?
a. P30,000.00 for each partner
b. Federico, P60,000.00; Alberto, P24,000.00, Sofronio, P36,000.00, and Teodoro, none.
c. Federico, none; Alberto, P48,000.00;Sofronio,P72,000.00; and Teodoro, none.
d. Federico, none; Alberto, Sofronio and TeodoroP40,000.00 each.
51. John Solanda and Sons is a partnership composed of threenpartners, namely:Robert Solanda, Simon
Solanda,, andTheodore Solanda. The partners are the sons of John Solandawho has retired from business
but who suggested that theyinclude his name in the firm to give them an advantage since heis well-known
in the business community.
I. John Solanda shall have all the rights of a general partner.
II. John Solanda shall have all the liabilities of a generalpartner.
Based on the foregoing facts:
a. Both statements are true.
b. Both statements are false.
c. Statement I is true; Statement 11 is false.
d. Statement I is false; Statement 11 is true.
52. The following partnership contracts were presented to you forevaluation:
I. A partnership engaged in the sale of office supplies with a capital of P100,000.00broken down into:
cash, P30,000.00; office supplies for sale, P50,000.00; andoffice equipment, P20,000.00. The agreement is
in a private instrument.
II. A partnership engaged in the lease of office spacesa capital of P700,000.00broken down into
landP100,000.00; building, P500,000.00; cash, P80,000.00 and office equipment, P20,000.00. The
agreement is ina public instrument attached to which is the inventory ofthe land and the building signed
by the partners. Then agreement is not recorded with the Securities andExchange Commission.
III. A partnership engaged in the trading of computerswhose name is "Lamont Enterprises, Ltd." It has a
totalcapital of P500,000.00 broken down into P100,000.00cash and computers worth P400,000.00,
contributed byboth general and limited partners. The agreement wassubscribed and sworn to by all the
partners before anotary public but not recorded with the Securities and Exchange Commission.
Based on the foregoing:
a. Each partnership has a separate juridical personality.
b. I and II have separate juridical personality.
c. II and Ill have separate juridical personality.
d. None of the partnerships has a separate juridicalpersonality.
a. G
REAT Company, a partnership engaged in the distribution. Ofgenerators, is composed of
George, Roland, Edmond, Albertand Troy. George is the managing partner. During the month
ofApril, the following transactions were - entered into by thefollowing partners in behalf of the
partnership. without anyauthority:
I. The sale of a generator by Roland to Juan Torres whowas not aware that Roland had no
authority. JuanTorres has paid for the generator which is due fordelivery.
II. The purchase of a car by Edmond from Intrepid Motorswhose owner was not aware of Edmond's lack
ofauthority. The car and the price are due for delivery andpayment, respectively.
Based on the foregoing, the partnership is bound by:
a. Transaction I only.
b. Transaction II only.
c. Both Transactions I and II.
53. Sibal, Untalan, Pareho, Eusebio, and Rances are partners inSUPER Enterprises whose business is car
painting and repairs.All partners are capitalist partners with Sibal as manager. Afterfive years of
operations, Rances resigned from the partnership.Although Sibal was aware of the resignation of Rances,
he stillboughtgallons of car paint from Masterpaint owned by Marcelo who had been dealing with SUPER
for the past 5 years,and car spare parts from Supremeparts, owned by Salviejo whowas transacting for the
first time with SUPER. The dissolution ofSUPER was published in the Manila Bulletin but neither
Marcelonor Salviejo read it.Neither one knew at the time theytransacted with Sibal that the partnership
had been dissolved.
a. SUPER is liable to both Masterpaint and Supremeparts.
b. SUPER is liable to Masterpaint only.
c. SUPER is liable to Suprereparts only.
d. SUPER is not liable to both Masterpaint and Supremeparts.

d. The partnership cannot adopt a name which does not

include the name of at least one of the partners.

62. Ornussa, the owner of a vacant lot, leased the same to Florida
under an agreement that the rental shall be paid by Florida at the rate
of 10% of the annual net income of the flower business that she
would put up on the lot. A private agreement was signed by the
parties. In the first year of operations, Ornussa received from.
Florida the amount of P20,000.00 representing 10% of the net
income of the flower shop business.
a. Ornussa is a partner of Florida by her mere receipt of the
share of the net profits of the flower business of Florida.
b. The relationship of Ornussa and Florida is only that of a
lessor and lessee.
c. Ornussa and Florida have a dual contract: partnership
@nd lease.
d. Ornussa and Florida are not partners; neither are they
lessor and lessee because their agreement was not in a
public instrument.

63. LIFE Company, a partnership engaged in the water distribution

business, is composed of partners Larredo, Ingles, Filler and
Encanto. One, day, Larredo was driving the firm's delivery truck
beyond the speed limit in order to serve its customers, when he
rammed into and caused extensive damage on the parked car of
Tertullo..
a. Only Larredo can be held liable for damages by Tertullo.
 b. LIFE Company and Larredo are solidarily liable for
damages to Tertullo.
c. LIFE Company and the four partners are solidarily liable
for damages to Tertulbo_
d. LIFE Company and the four partners are jointly liable for
damages to Tertullo.

64. A person admitted as a partner into an existing partnership

shall be liable up to the extent of his separate assets, for what
obligations?
a. Obligations of'the partnership existing at the time of his
admission only if there was a stipulation.
b. Obligations of the partnership incurred after his
admission only if there was a stipulation.
C. Obligations of the partnership incurred before and after
his admission even if there was no stipulation.
 d. Obligations of the partnership incurred before his
admission if there was a stipulation, and those incurred
after his admission even if there was no stipulation.

65. PARAGON Enterprises, a partnership engaged in the garments

manufacturing business, is composed of partners Pacis, Ramas and
Gonzales. During the year, PARAGON bought a
computerized embroidering machine amounting to P300,000.00
from Tadena with the following stipulation: down payment of
P50,000.00; balance to be paid in amount equal to 20% of the
monthly net profits of PARAGON until the full amount is paid.
a. Tadena is an actual partner of Pacis, Ramas and
Gonzales :Turing the time that he receives a share of the
profits of PARAGON as payment of the purchase price of
the machine.
b. Tadena is only a partner by estoppel of Pacis, Ramas
and Gonzales during the time that-he receives a share of
the profits of PARAGON as payment of the purchase
price of the machine.
c. Tadena is not a partner of Pacis, Ramas and Gonzales
whether before or after he has received the full payment
of the purchase price of the machine from PARAGON.
d. Tadena is only a nominal partner of Pacis, Ramas and
Gonzales during the time that he receives a share of the
profits of PARAGON as payment of the purchase price of
the machine

66 MAGIC Company is a partnership composed of Martha, Agnes,

Glenda, Irene and Candice, with Martha as manager who is
authorized to collect the credits of the partnership. Theresa
owes Martha P4,000.00 which is due on December 10. She also
owes MAGIC Company P6,000.00 which is due on December
20. On December 15, Theresa tendered payment in the amount
of P4000.00 to Martha in payment of her debt to the latter.
Martha issued her -own receipt acknowledging the payment.
a. The payment will be applied proportionately to the
credits of MAGIC and Martha in the amount of
P1,600.00 and P2,400.00, respectively.
b. The payment will be applied in its entirety to Martha's
credit.
c. The payment will be applied in its entirety to MAGIC's
credit.
 d. The payment will be applied equally to the two debts of
Theresa.

67. Aseron, the managing partner of ACE Company, was driving the
delivery truck of the firm when he rammed it into an electric post
resulting in damages to the vehicle amounting to P50,000.00.
To make up for accident, Aseron worked long hours for the firm
and was able to increase its sales from P5,000,000.00 to
P15,000,000.00.
a. Aseron will no longer be liable for damages to ACE
because he was able to generate unusual revenues for the
firm through his extraordinary efforts.
b. Aseron will still be liable to the firm for damages but the
amount will be equitably reduced since he was able to
generate unusual profits for the firm through his
extraordinary efforts.
c. Aseron's obligation to the firm for damages will . be
extinguished by compensation since ACE is also liable
to him for the extraordinary efforts he exerted to increase
its sales.
d. Aseron and ACE will share equally in the damages of
P50,000.00.-

68. Trevor owes P3,000.00 to CHAMP Company, a partnership

composed of Charles, Harry, Albert, Mark and Prince, with Mark
as the manager who is authorized to collect all credits of the firm.
He also owes Charles the amount of.P6,000.00. Both debts are
already due. Trevor gives. P3,000.00 to Charles in payment of
his debt to the latter. Charles thus issues his own receipt.
a. Payment will be applied proportionately to the two
credits at P1,000.00 for Charles' credit and PP2,000.00 for
CHAMP's credit.
Payment will be applied equally to the two credits.
Payment will be applied in its entirety to Charles' credit.
Payment will be applied in its entirety to CHAMP'S credit.

69. Barranda wrote Salvador a letter wherein he placed an order for

a laptop computer worth P80,000.00. In writing the letter,
Barranda used a stationery which had for its letterhead
"Barranda and Bermudez, Real Estate Agents." Bermudez is
not really a partner of Barranda but they agreed to use the said
letterhead to give a semblance of bigness by making it appear
that the two of them are partners. Salvador delivered the laptop
 computer but Barranda defaulted in his payment of its price.
Against whom may Salvador proceed?
a. Barranda only since Bermudez is not his partner.
b. Barranda only since the purchase of the laptop computer
is his personal transaction
c. Barranda and Bermudez since they are partners in so
far as Salvador is concerned.
d. "Barranda and Bermudez, Real Estate Brokers," only
since an actual partnership was created between
Barranda and Bermudez and . it has a personality
separate and distinct from the two.

70. Daoang and Depante have been partners for more than 5 years
in the purified water business. At the start of the sixth year,
Daoang assigned his interest in the partnership to Trinidad, but
Depante objected on the ground that he did not want Trinidad to
be his partner.
a. Trinidad automatically became a partner of Depante
when Daoang conveyed his interest to him.
b. Daoang and Depante continue to be partners despite
Daoang's conveyance of his interest to Trinidad.
c. The partnership between Daoang and Depante was
automatically dissolved when Daoang conveyed his
interest to Trinidad.
d. The conveyance by Daoang of his interest in the
partnership to Trinidad entitled the latter to inspect
the books, and participate in the management, of the
partnership.

71. Palacios, Atienza, Tablante, Elamparo, Robledo, Ocampo and

Sajenes are partners in PATEROS Poultry Farms. Palacios,
Atienza and Tablante have been appointed as managers of the
firm with the stipulation that none shall act without the consent of
the other two. On the date of the scheduled delivery of 500 kilos
of frozen dressed chickens ordered by Caintacky Restaurant,
heavy rains caused a power failure and made transport difficult
due to landslides. A local resident offered to purchase the
dressed chickens (which were already thawing) at 80% of the .
contract price. However, only Palacios and Atienza were around
to, decide as Tablante, who was on business trip for the firm,
could not be contacted due to poor communication signals.
a. Palacios and Atienza cannot decide by themselves
because the managing partners must act with
unanimity.
 b. Palacios and Atienza may decide by themselves since
any further delay would result in more losses to the
firm.
c. Palacios and Atienza can decide by themselves since
they constitute the majority among the managing
partners, which is the required vote notwithstanding
a stipulation that one cannot act without the consent of
the other managers.
d. The absence of Tablante cannot be alleged since there
was a stipulation. that none of the managing partners
shall act without the consent of the others.

72. Querubin, Roces and Solis are partners in a law firm. Querubin
was appointed as judge of the Regional Trial Court. Such
appointment:
a. suspends the participation of Querubin in the
'management of the firm without causing the
dissolution of-the partnership.
b. prohibits the inclusion of the name of Querubin in the
firm name without dissolving the partnership.
c. results in the dissolution of the partnership.
d. merely requires the disclosure of Querubin's
appointment to the court without dissolving the
_ partnership.

73. Braganza, Ortiz and Nevado want to form a partnership with

Braganza contributing P500,000.00; Ortiz, office equipment;
and Nevado, his services. If the three were to form a limited
partnership, who among them will be the limited
partner/s?
a. Either Braganza or Ortiz or both of them.
b. Either Ortiz or Nevado or both of them.
c. Either Braganza or Nevado or both of them.
d. All the three must be limited partners.

74. Refer,to the preceding number. Assume that the three decide to
form a general partnership: As a result, which of the following is
incorrect?
a. Any of the three may be appointed as manager.
b. All of them may be appointed as managers.
c. Only Nevado may be appointed as manager because he
only contributes his services.
d. Any two of them may be appointed as managers
 75. CROWN Enterprises is composed of partners Chuck who
contributed P50,000.00; Rainier, P20,000.00; Oscar,
P40,000.00; Waldorf, P10,000.00; and Nelson, P5,000.00. No
one was appointed as manager. Two proposed contracts were
voted upon by the partners during a meeting which took place as
follows:

Contract I - Voting for approval of the contract were Chuck and

Rainier; voting for rejection were Oscar, Waldorf and Nelson.

Contract II - Voting for approval were Chuck and Rainier; voting for
rejection were Oscar and Waldorf; Nelson abstained.

Which of the foregoing contracts are considered approved?

a. Both contracts.
b. Neither of two contracts.
c. Contract I only.
d. Contract Ii only.

16. MACK's Restaurant is a partnership composed of Manalo,

Alferez, Cancio and Kilayco, with Manalo as the manager whose
contribution is 80% of the firm's capital Manalo made
Ongpauco- his associate by assigning one-half of his share in the
firm to the latter. Did Ongpauco become a partner in the firm?
a. Yes, because Manalo is the manager.
b. No, because the other partners must give their
consent in order that Ongpauco may be admitted to
the partnership.
c. Yes, because the assignment by Manalo of his share in
the firm did not affect his ownership of the controlling
interest.
d. No, because the assignment by Manalo of his share in
the firm diminished his interest in the partnership.

77. A partner is a co-owner with his partners of specific

partnership property. Such co-ownership:
a. allows a partner to assign his right in such property.
b. allows a partners to use such property for
partnership purposes.
c. entitles the spouse, children and other relatives of the
partner to claim support from such property.
d. gives the private creditors of a partner to attach his right
in such property.
78. CLEAN Laundry Services. Company is a partnership composed
of Carpio, Legaspi, Encinas, Alzate and Noval. Without the
knowledge of the other partners, Carpio used a coat brought to
the shop by a customer for dry-cleaning in a party he attended.
The coat was accidentally stained with food sauce during the
said party. Who will be liable to the customer for damages?
a. Carpio only since he used the coat without the
knowledge of the other partners.
CLEAN Laundry Services Company and Carpio
solidarily.
c. CLEAN Laundry Services Company and all the partners
jointly.
d. CLEAN Laundry Services Company and all the partners
solidarily.

79. A limited partner is prohibited on account of his claim against

the partnership from performing the following acts, except:
a. To receive or hold as collateral security any partnership
property.
b. To receive from a general partner or the partnership any
payment, conveyance or release from liability, if
partnership assets are not sufficient to discharge
partnership liabilities to outside creditors.
c. Transact business with the partnership.
d. None of the foregoing.

80. Lazarte, a limited partner in Bellevue Company, Ltd., received the

amount of P100,000.00 representing his contribution which was
being returned on the date stipulated in the certificate. Partnership
records, however, showed that the firm had liabilities of
P220,000.00 which arose before Lazarte received the return of
his contribution, and assets of only P90,000.00 after such return
of contribution.
a.- Lazarte is bound to bring back to the partnership the
amount of P100,000.00 plus interest,- thereon. '
b. Lazarte is bound to give the partnership P220,000.00
plus interest thereon.
c. Lazarte is bound to give the partnership P130,000.00
plus interest.
d. Lazarte is not bound to return to the partnership any
amount, because he received the return of his
contribution pursuant to a contractual stipulation.
TEST II - MATCHING TYPE. Indicate your answers by writing the letter
representing the statement or phrase that best describes, defines or
explains the numbered items.

Terms

1. Partnership 12. Limited partnership

2. Particular partnership 13. Winding up
3. Partnership for a fixed term 14. Partnership for a particular
4. Partnership by estoppel undertaking
5. Capitalist partner 15. Universal partnership of
6. Dissolution profits
7. Substituted limited partner 16. Termination
8. Delectus personae 17. Partnership at will
9. General partnership 18. Limited partner
10. Subsidiary liability 19. Industrial partner
11. Universal partnership of all 20. General partner
present property

Statements

A. He contributes his services to the partnership.

B. All the partners are,general partners.
C. A period is stipulated for the existence of the partnership.
D. Refers to the process of settling the business or affairs of the
partnership after dissolution.
E. Two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
dividing the profits among themselves.
F. Property belonging to each partner at the time of the
establishment of the partnership as well as the profits realized
therefrom belongs to the partnership.
G. The. pro rata liability for partnership obligations of the partners,
including industrial ones, to the extent of their separate property
after partnership assets have been exhausted.
H. The principle that a person is free to choose those whom he
wants to be associated in partnership.
1. A partnership whose existence may be terminated at any time by
the partners.
J. A partner who is liable only to the extent of his contribution to the
partnership.
K. A partnership which comprises all that the partners may acquire
by their work or industry during the existence of the partnership.
L. A partnership where there is at least one general partner and at
least one limited partner.
M. The change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business.
N. It has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession.
0. A partner who is liable to the extent of his separate property
when all the partnership assets have been exhausted.
P. He contributes money and/or property to the common fund of the
partnership.
Q. A person admitted to all the rights of a limited partner who has
died or who has assigned his interest in the partnership.
R. The point when all partnership affairs are wound up.
S. It is not in 'reality a partnership but is considered as one with
respect to those who, by reason of their conduct or admission, are
precluded from denying its existence.
T. A partnership organized for a certain purpose which when
attained will cause the dissolution of the partnership.
U. None of the foregoing.

TEST III - TRUE OR FALSE. Write the word "TRUE" if the statement is
true, and the word `FALSE" if the statement is false.

1. An artificial person like a corporation, may be a partner in a

partnership.
2. A limited partner may contribute money and/or property to a
partnership but not services.
3. A partnership has a personality separate and distinct from each
of the partners.
4. A partnership begins from the moment of the execution of the
contract, unless a different date is stipulated.
5. A partnership whose capital in money or property amounts to
P3,000.00 or more does not acquire juridical personality if the
contract. is not recorded with the Securities and Exchange
Commission.
6. The sharing of gross returns does not of itself establish a
partnership even if the persons sharing them have a joint or,
common interest in the property from which the returns are
derived.
7. In a universal partnership of all present property, the partners
may stipulate that future property shall belong to the partnership
 but the stipulation cannot include property acquired by
inheritance, legacy or donation.
8. In a universal partnership of profits, property belonging to each partner
at the time of the establishment of the partnership shall continue to
pertain to each partner with only the usufruct passing on to the
partnership.
9. Articles of universal partnership entered into without
specification of its nature, only constitute a universal partnership
of all present property.
10. A man and a woman living together as husband and wife
without the benefit of marriage may enter into a universal
partnership.
11. A partnership for a fixed term or a particular undertaking which
is continued after the expiration of the term or the attainment of
the undertaking becomes a partnership at will.
12. Spouses can validly enter into a particular partnership with each
other.
13. The profits and losses of the partnership shall be divided equally
among the partners if they have no profit and loss sharing
agreement.
14. A stipulation exempting a capitalist partner from losses is valid.
15. When a partner has been appointed manager in the articles of
partnership,, he may be removed without just cause by the vote of
the partner owning the controlling interest.
16. An industrial partner can engage in business for himself if it is of
a kind different from the partnership business even without the
consent of the other partners.
17. All partners including industrial ones shall be liable pro rata with
all their separate property after the partnership assets have
been exhausted.
18. The partnership shall bear the loss of things which are
contributed to the partnership to be sold.
19. A newly-admitted partner is liable for partnership debts
contracted before his admission to the extent of his contribution,
unless there is a contrary stipulation.
20. A partner may associate another person with him in his share but
the person admitted shall not be admitted to the partnership
without the consent of all the partners.
21. The partnership shall be solidarily liable with all the partners if
one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it.
22. When a partner is not authorized to act for the partnership
and the act of the partner is not for apparently carrying
on the
 business, the partnership shall be bound by the act of such
partner if the third person was not aware of the partner's lack of
authority.
23. Notice to any partner relating to partnership affairs is notice to
the partnership.
24. The private creditor of a partner shall have preference over such
partner's separate property.
25. A general partnership is automatically dissolved by reason of the
insanity of a partner.
26. After dissolution, a partnership is still bound by the act of a
partner authorized to act for the partnership with respect to the
completion of transactions begun before dissolution.
27. A partnership intended to be formed as a limited partnership but
without the word "Limited" or "Ltd." appended to its name shall
be considered as a general partnership.
28. A partnef may be a limited and general partner at the same time.
29. As a rule, a limited partner shall be liable as a general partner if
he allows the use of his surname to be included in the
partnership name.
30. A limited partner may assign his interest to another person..
 ANSWERS TO DIAGNOSTIC EXERCISES

PARTNERSHIP

TEST I - MULTIPLE CHOICE

1. C 21. D 41. D 61. D

2. A 22. B 42. B 62.B
3. D 23. D 43. C 63. C
4. C 24. C 44. D 64.D
5. D 25. D 45. B 65.C
6. D 26. B 46. 66.B
7. C 27. D 47.D 67.B
8. C 28. D 48.C 68.C
9. C 29. C 49.A 69.C
10. D 30. D 50.C 70.B
11. D 31. C 61. D 71. B
12. C 32.' B 52.A 72. C
13. B 33. D 53.A 73.A
14. C 34. A 54.A 74.C
15. C 35. D 55. B 75.D
16. C 36. D 56.A 76.B
17. B 37: C 57. B 77. B
18. A 38. D 58.A 78.D
19. C 39. D 59. B 79.C
20. C 40. B 60.B 80.A

TEST II -MATCHING TYPE

1. E 6. M 11. F 16. R
2. N. 7. Q 12. L 17.
3. C 8. H 13. D 18. J
4. S 9. B 14.T 19.A
5. P 10. G 15. K 20. 0
TEST III - TRUE OR FALSE

1.FALSE 11. TRUE 21. TRUE

2.TRUE 12. "TRUE 22. FALSE
3.TRUE 13. FALSE 23. TRUE
4.TRUE 14. FALSE 24. TRUE
5.FALSE 15., FALSE 25. FALSE
6.TRUE 16.' FALSE 26. TRUE
7.TRUE 17. TRUE 27. TRUE
8.TRUE 18. TRUE 28. TRUE
9.FALSE 19. TRUE 29. TRUE
10.FALSE 20. TRUE 30. TRUE

ANSWERS TO DIAGNOSTIC EXERCISES

1. C 25. D 49. A
2. A 26. B 50. C
3. D 27. D 51. D
4. C 28. D 52. A
5. D 29. C 53. A
6. D 30. D 54. A
7. C 31. C
8. C 32. B
9. C 33. D
10. D 34. A
11. D 35. D
12. C 36. D
13. B 37. C
14. C 38. D
15. C 39. D
16. C 40. B
17. B 41. D
18. A 42. B
19. C 43. C
20. C 44. D
21. D 45. B
22. B 46. B
23. D 47. D
24. C 48. C
 CORPORATIONS - DIAGNOSTIC
EXERCISES

TEST I - MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. The articles of incorporation differ from the by-laws in that the

articles of incorporation are:
a. the rules of action adopted by a corporation for its
internal government.
b. adopted before or after incorporation.
c. a condition precedentin the acquisition by a
corporation of a juridical personality.
d. approved by the stockholders if adopted after
incorporation.

2. The following may be the consideration of the shares of stock of

a corporation, except:
a. actual cash paid to the corporation.
b. previously incurred indebtedness of the corporation.
C. amounts transferred from unrestricted retained earnings.
d. service to be performed by a lawyer on the proposed
increase in capital stock of the corporation.

3. A certificate of stock is distinguished from share of stock in that

a share of stock.-
a.' is the written evidence of a stockholder's interest in the
assets and management of a corporation.
b. is tangible personal property.
c. is one of the units into which the capital stock is divided.
d. may not be issued if the subscription has not been fully
paid.
4. The articles of incorporation of Acme Corporation provide for the
issuance of 100,000 shares without par value and an issued
price per share of P10.00. At the time of incorporation, the
subscription and paid-up capital should not be less than:
a. P250,000.00 and P62,500.00, respectively.
b. P1,000,000.00 and P250,000.00, respectively.
c. P250,000.00 and P250,000.00, respectively.
d. P250,000.00 and P125,000.00, respectively.
5. Their names are mentioned in the articles of incorporation as
originally forming the corporation and are signatories thereof.
a. Corporators.
b. Stockholders.
C. Incorporators.
d. Members.

6. A corporation acquires juridical personality:

a. upon the filing of the articles of incorporation.
b. upon the filing of the by-laws.
c. upon the issuance of the certificate of incorporation.
d. within 30 days from the receipt of the notice of the
issuance of the certificate of incorporation.

7. A delinquent stockholder is not entitled to the following rights,

except the right:
a. to be voted.
b. to vote or be represented in the meetings of
stockholders.
c. to dividends.
d. He is not entitled to all the rights of a stockholder.
8. A, B, C, D, F, F and G are the duly elected directors for 2010
of Excellent Corporation whose articles of incorporation provide for
7 directors. On August 1, 2010, Directors A, B, C, D and E rnet
to fill two vacancies in the board brought about by the valid
removal of F for disloyalty to the corporation and the death of G.
In the said meeting, the remaining directors voted for X to
replace F, and Y, a son of G, to replace his father. Both X and Y
are owners of at least one share of stock of the corporation.
The election of X and Y by the remaining directors is:
a. valid for both X and Y.
b. not valid for both X and Y.
c. valid with respect to X; not valid with respect to Y.
d. not valid with respect to X; valid with respect to Y.
9. In the meeting of the board of directors of Grand Corporation, a
construction company, held on August 31, 2010; directors A, B, C, D and E were present among
the 9 directors. The meeting had for its agenda the following:

I. The appointment of a new treasurer.

II. The approval of the contract for the purchase of cement
worth P50,000.00 from X Construction Supplies Co.
When the voting took place, directors A, B, C and D voted for the
election of Y as the new treasurer; and directors A, B and C
voted for the approval of the contract with X Construction
Supplies.
a. - Both corporate acts are valid.
b. Both corporate acts are not valid.
c. The election of Y as the new treasurer is valid; the
approval of the contract with X Construction Supplies is not valid.
d. The election of Y as the new treasurer is not valid; the
approval of the contract with X Construction Supplies is
valid.
10. Under this theory, the nationality of a corporation is that of the
country under whose laws it was formed.
a. Control test.
b. Incorporation test.
c. Domiciliary test.
d. Grandfather rule.

11. Acorporation created in strict compliance with all the legal

requirements and whose right to exist as a corporation cannot be
successfully attacked in a direct proceeding for that purpose by
the State is a:
a. de jure corporation.
b. de facto corporation.
c. corporation by estoppel..
d. corporation by prescription.

12. Stock dividends differ from cash dividends in that stock

dividends:
a. do not increase the legal capital.
b. involve disbursements of corporate funds.
c. require the approval of both the board of directors
and the stockholders.
d. once received by the stockholders, are beyond the reach
of corporate creditors.
13. The subscriber of unpaid shares which are not delinquent shall
be entitled to the following rights, except the right to:
a. vote.
b. inspect corporate books.
c. a stock certificate.
d. dividends.
14. These statements pertaining to the right of a stockholder to
inspect the books and records of a corporation are presented to
you for evaluation:
1. The right may be delegated to an agent.
II. The right may be denied if in the past, the
stockholder improperly used the information which he
obtained from
the books and records of another corporation of which
he is also a stockholder.
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.
15. Under this doctrine, the separate personality of a corporation
may be disregarded if it is used for fraudulent or illegal purpose
or to escape the faithful compliance of an obligation:
a. Trust fund doctrine
b. Doctrine of piercing the veil of corporate entity
c. Doctrine of corporate opportunity
d. Doctrine of limited capacity

16. Consolidation differs from merger in that in consolidation:

a. The surviving corporation shall enjoy all the rights,
powers and attributes of a corporation under the Corporation Code.
b. The existing liabilities of the constituent corporations
shall be assumed by the surviving corporation.
c. The corporate existence of all the constituent
corporations shall be extinguished and a new
corporation emerges.
d. The surviving corporation shall possess all the rights,
privileges, immunities and franchises of the constituent corporations.
17. The right of a stockholder to demand payment of the fair value
of his shares when he dissents from certain corporate acts is
known as:
a. pre-emptive right.
b. appraisal right.
c. redemption right.
d. appreciation right.
18. These statements pertaining to the meetings of directors are
presented to you for evaluation:
1. Directors or trustees may attend or vote by proxy at
board meetings.
II. The articles of incorporation or the by-laws of a
corporation may provide for a greater majority for its
quorum during the meetings of the board of directors.
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.

19. A stock that is issued without consideration or below par value or

the issued price is known as:
a. watered stock.
b. delinquent stock.
c. redeemable stock.
d. preferred stock.

20. A non-voting stock may vote in the following corporate acts,

except.in case of:
a. approval of the compensation of directors.
b. merger or consolidation.
c. increase or decrease in capital stock.
d. sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of corporate property.

21. Directors may be given compensation through any of the

following ways, except by:
a. the vote of the stockholders representing at least a
majority of the outstanding capital stock.
b. a provision in the by-laws.
c. the vote of the board of directors If the compensation is
a reasonable per diem.
D. the vote of the board of directors if the compensation is other than per diems.

22. A is a director and owns 50% of the outstanding capital stock of

Ace Corporation which is engaged in the tradirg of computers.
Ace Corporation purchased computer tables from Top
Corporation of which A is also a director and owns 15% of its
outstanding capital stock. The articles of incorporation of both
corporations provide for 5 directors. in the approval of the
contract for the said purchase, A did not attend the meeting of
the board of directors of Ace Corporation, while in the meeting
of the board of directors of Top Corporation which was called for
the same purpose, directors A, B, C and D were present with all
of them voting for the approval of the contract. Assuming that
there is no fraud and that the contract is fair and reasonable
under the circumstances, the contract between Ace Corporation
and Top Corporation is:
a. valid.
b. voidable at the option of Top Corporation.
c. unenforceable against Top Corporation,
d. void because corporations with irrter!ockirig directorate
should not enter into a contract with each other.

23. One of the following acts may be perforrnad by the executive

committee of a corporation. Which is it?
a. Declaration of stock dividends.
b. Filling of vacancies in the board of directors:
c. Amendment or repeal of the by-laws or adoption of new
by-laws.
d. Approval of contracts in the ordinary course of business.

24. The following statements pertain to the express powers of a,

corporation.
1. A corporation may establish pension, ret+,ement, and
other plans for the benefit of its directors, trustees,
officers and employees.
II. A corporation may make donations for the benefit of a
political party or candidate or for purposes of partisan
political activity provided the donations are reasonable.

a. Both statements are true.

b. Both statements are false.
c. Statement I is true; Statement li is false.
d. Statement I is false; Statement II is true.

25. Which of the following by-laws is valid?

a. A by-law which provides that one need not be the owner
of a share of stock to become a director of the
corporation.
b. A by-law which provides that that one must be the owner
of more than one share of stock of the corporation to
become a director.
c. A by-law which provides that one can continue to be a
director throughout his terra although he has disposed all
his shares in the, corporation.
d. A by-law which provides a greater number of directors
than that stated in the articles of incorporation.
26. Winner Corporation, a dealer-manufacturer of garments and with
principal office in Caloocan City, held the meeting of its
stockholders in Nasugbu, Batangas, in conjunction with its
annual company outing. Stockholders owning 75% of the
capital stock were present, while 25% were duly represented by
proxies. , in the said meeting, the corporation by a vote of the
stockholders representing 80%'of the capital stock, approved the
purchase of sewing machines worth P5,000,000.00. The by-
laws of the Corporation provide that contracts in excess of
P3,000,000.00 must be ratified by the stockholders.The
contract for the purchase of the sewing machines was
unanimously approved by the board of directors before it was
presented to the stockholders for ratification. S, a stockholder
who did not vote for the approval of the resolution, now
questions its validity on the ground that the meeting was held
outside the place where the principal office of the corporation is
located. Whitt is the status of the contract for the purchase of
the sewing machines?
a. Void.
b. Valid.
c. Unenforceable.
d. Voidable.

27. Which of the following statements pertaining to non-stock

corporations is incorrect?
a. Members may vote by mail.
b. The number of trustees may be more than 15.
c. Any incidental income that it may earn may be
distributed as dividends to its members.
d. The meetings of members may be held outside the city
or municipality where the principal office of the corporation is located.

28. A corporation may acquire its own shares for a legitimate

purpose provided it has unrestricted retained earnings. In which of the following acquisitions is
the requirement of unrestricted retained earnings not imposed?
a. When the acquisition is made to eliminate fractional
shares.
When delinquent shares are acquired in a delinquency
sale.
c. When redeemable shares are repurchased in
accordance with the terms provided in the articles of incorporation.
When shares are acquired from stockholders who exercise their appraisal right.
Items 29, 30 and 31 are based on the following information:
Danilo, a resident of Malolos, Bulacan obtained a loan from the
Rural Bank of Sta. Rosa, Nueva Ecija amounting to P90,000.00.
The loan is secured by a pledge of shares of stock of Saint
Michael Corporation covered by 3 stock�' certificates of 1,000
shares each, which certificates are registered in the name of Servando, a friend of Danilo. The
current market value of the shares based on the records of the Philippine Stock Exchange is
P30.00 per share. Other than the pledge of the shares, no other document or information is
recorded in the books of San Michael Corporation at its office in Pasig City.
29. Who is entitled to vote the shares of stock in the stockholders'
meeting?
a. Danilo
b. Servando
c. Rural Bank of Sta. Rosa
d. None, the right to vote the shares is suspended h file-
the pledge constituted on the shares is existinnig.
30. The pledge in order that it may bind third persons requires the
following:
a. The deed of pledge must be accompanied by an affidavit
of good faith and recorded in the Register of Deeds of
Pasig.
b. It must be in a public instrument showing a description of
the thing pledged and the date of the pledge and
registered in the Register of Deeds of Pasig.
c. The pledge must be in a public instrument showing a
description of the thing pledged and the date of the
pledge.Registration in the Register of Deeds is not
required.
d. The deed of pledge must be accompanied by an affidavit
of good faith and recorded in the Register of Deeds of
Pasig and the province of Bulacan.

31. Danilo pays the Rural Bank of Sta. Rosa the sum of P30,000.00.
May Danilo demand the cancellation of the pledge of 1,000
shares of stock by reason of such payment?
a. No, Danilo has to pay his obligation of P90,000.00 in full
before he can demand any cancellation of the pledge of the'shares of stock.
b. Yes, Danilo can demand cancellation of the pledge of
1,000 shares because the market value of the same is
equivalent to the payment of P30,000.00 that was made.
c. No, Danilo can demand cancellation of the pledge only if
he has paid more than 50% of his debt.
d. Yes, Danilo can demand cancellation because the
pledge of each of the 3 stock certificates is independent
of one another.

32. S is the registered owner of 500 'shares of stock of XYZ

Corporation whose articles of incorporation provide for 11
directors. In the annual election of directors for 2010, 12
stockholders filed their certificates of candidacy for the position, namely, A, B, C, D, E, F. G, H, I,
J, K and L. K and L are minority stockholders whom S wishes to elect to represent him and the
other minority stockholders in the board. In the said election of directors, S may cast a
maximum of.
a. 500 votes.
b. 6,000 votes.
c. 5,500 votes.
d. 1,000 votes.
33. One of the distinctions between a partnership and a corporation
is that a partnership:
a. is managed by a board of directors.
b. is characterized by the principle of delectus personae.
c. has the right of succession.
d. may be dissolved only with the consent of the State.

34. One of the distinctions between a proxy and a voting trust

agreement is that in a voting trust agreement:
a. the representative acquires legal title to the shares to be
voted..
the exercise of the right to vote is limited to a particular meeting.
c. the representative cannot vote if the stockholder is
present during the meeting.
d. the agreement need not be recorded with the Securities
and Exchange Commission.

35. Which of the following statements is false concerning treasury

shares?
a. They are entitled to dividends.
b. They have no voting right.
c. They may be disposed of for a price lower than the par
value provided such price is reasonable.
d. They are not outstanding shares.

36. Which of the following will cause the automatic dissolution of a

corporation?
a. Continuous inoperation for a period of at least 5 years.
b. Failure to formally organize and commence the
transaction of its business or the construction of its
works within 2 years from its incorporation.
c. Failure to adopt by-laws and submit the same to the
Securities and Exchange Commission within 30 days
from the receipt of the official notice of the issuance of
its certificate of incorporation.
d. Commission by the corporation of an ultra-vires act.

S. A stock that enjoys preferences over other stocks such as with

respect to dividends and the distribution of assets upon
liquidation.
T. Shares that have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption, donation, or
through some other lawful means.
U. Those originally forming and composing the corporation whose
names appear in the articles of incorporation and are signatories thereof.
V. A corporation whose shares are not listed in any stock
exchange, the ownership is limited to a few, and the transfer
thereof is restricted.
W. That part of the capital stock which is subscribed, whether paid
or unpaid.
X. One whose shares may be listed in any stock exchange and thus
may be held by the public.
A corporation formed for a private purpose or end.
It refers to the total par value of all issued par value shares, or
the total consideration received for all issued no par value
shares.
AA. A share of stock without any nominal value appearing on the
stock certificate.
BB. A corporation that i3 defectively formed but there is an exercise
of corporate powers resulting from an attempt in good faith to incorporate on the part of its
members.
CC. An artificial being created by operation of law, having the right of
succession, and the powers, attributes and properties expressly authorized by law or incident to
its existence.
DD. Refers to the total shares of stock issued to subscribers
or stockholders, whether or not fully or partially paid, as long as
there is a binding subscription agreement, except treasury
shares.
EE. The nationality of a corporation follows that of the country under
whose laws it was formed or organized.
FF. The right of existing stockholders to purchase or subscribe to
new issuances or dispositions of shares, in proportion to their
respective stockholdings, before such shares are offered to the
public.
GG. The document issued by the Securities and Exchange
Commission which confers juridical personality upon a
corporation.
HH. A corporation that owns the shares of another corporation and
having power, directly or indirectly, over the latter including the
election of the directors thereof.
Il. They refer to the corporators of a stock corporation.
JJ. The declaration thereof requires the vote of the board of
directors and the ratification of the stockholders.
KK. Also called inherent powers; they may be exercised by a
corporation by reason of its very existence as a corporation.
LL. A corporation that has exercised corporate powers for such a
length of time without interference by the State, and which, by fiction of law, is given the status
of a corporation.
MM. It refers to the authority given by a stockholder to another person
to vote the shares and which is generally effective only for a
particular meeting.
NN. The document which evidences the interest of a stockholder in a
corporation and in its property.
00. A corporation organized under the laws of a country other than
the Philippines and whose laws allow Filipino citizens or
corporations to do business in such country.
PP. They refer to the corporators of a non-stock corporation.
QQ. Shares given to the organizers of a corporation which may be
given certain rights and privileges not enjoyed by other shares,
such as the exclusive right to vote and be voted as directors.
RR. It occurs when one, some or all of the directors of
one corporation, are also the directors of another
corporation.
SS. Shares that grant the issuing corporation the power to purchase
or reacquire them after a certain period.
IT. The separate personality' of a corporation is disregarded if it is
used for an illegal or fraudulent purpose or to evade faithful compliance of an obligation.
UU. A body within a corporation created pursuant to the by-laws and
composed of not less than three members of the board of
directors of a corporation whose function is to take immediate
action on important matters without the necessity of board
meetings.
W. The right of a stockholder to demand the payment of the fair
value of his shares in case he dissents from certain corporate
acts.
WW. A corporation can exercise only the powers expressly conferred
upon it by law and its articles of incorporation, those implied from
such powers expressly granted, and those that are incident to its
existence.
XX. A corporation formed under the laws of the Philippines.
YY. The ordinary stock of a corporation which entitles the holder to a
pro rata division of the dividends, without any preference or advantage over other
stockholders.
ZZ. They refer to the rules of action adopted by a corporation for its
own government and for the government of its stockholders or
members and those having the direction, management and
control of its affairs.
AAA. A corporate combination whereby the constituent corporations,
except one, lose their separate personalities.
BBB. Applicable generally in times of war when a corporation is
considered an enemy by the country under which it operates
although it may have been formed under the laws of such
country.
CCC. It is not in reality a corporation but is considered as one with
respect to those who are precluded by their admission or
conduct from denying its existence.
DDD. A stock the nominal value of which appears in the stock
certificate.
EEE. A corporate combination whereby the constituent corporations
lose their separate personalities and a new corporation having a
personality of its own emerges.
FFF. It is one of the units into which the capital stock is divided and
represents the intangible interest which an owner has in the
management, profits and assets of the corporation.
GGG. A stock that is sold below its par value or issued price.
HHH. A corporation which has capital stock divided into shares and is
authorized distribute dividends from its surplus profits to its
shareholders on the basis of shares held.
Ill. None of the foregoing.
TEST II - TRUE OR FALSE. Write the word "TRUE" if the statement is true, and the word 'FALSE"
if the statement is false.

1. A corporation commences to exist upon the execution of the

articles of incorporation by the incorporators.
2. A subscriber's name may appear in the articles of incorporation
but he may not be an incorporator of the corporation.
3. A stockholder can transfer his shares to another person
without the consent of the other stockholders.
4. A corporation may exist for a period not exceeding 50 years but
its life may be extended several times provided each extension does not exceed 50 years in any
single instance.
5. The due existence of a de facto corporation may be attacked
collaterally in a proceeding.
6. All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for
a?l debts and damages arising as a result thereof.
All subscribed shares are issued shares whether or not fully or
partially paid as long as there is a binding subscription
agreement.
8. A share of stock is an intangible personal property.
Redeemable shares may be reacquired by a corporation only if it
has unrestricted retained earnings.
10. Treasury shares, since they are issued, are outstanding shares.
11. Non-voting shares are not allowed to vote in all corporate acts.
12. Shares without par value may be issued for a consideration less
than P5.00 per share.
13. The entire consideration received for the issuance of no-par
shares shall all be treated as capital and no part thereof shall be
available for distribution as dividends.
14. A corporation may be formed for more than one purpose.
15. As a rule; majority of the incorporators of a corporation formed
under Philippine laws must be citizen s of the Philippines.
16. A corporation may be a stockholder of another corporation.
17. A corporation is automatically dissolved if it does not formally
organize, commence the transaction of its business or the
construction of its works within two years from the date of its
incorporation.
18. A director individually and as such can bind the corporation since
he is an agent of the corporation.
19. A director is required to be an owner of at least one share of
stock of a corporation. However, he continues to be a director although he has disposed all his
shares provided the term for which he was elected has not yet exnirec.
20. A delinquent stock is deprived of all the rights of a
stockholder including the right to dividends.
21. The by-taws of a corporation may validly provide that one may
be the President and Secretary or President and Treasurer at the
same time.
22. Unless otherwise provided by the articles of incorporation or the
by-laws, the quorum in the meetings of the board of directors is the majority of the-total
number of the board of directors.
23. in the meeting of the board of directors, the vote required for
the approval of an act is the majority of those present provided
there is a quorum except in the election of the officers which
requires majority of the total number of the board of directors.
24. As a rule, directors of a corporation may be removed With or
without cause.
25. When a vacancy in the board arises from the death of a director,
such vacancy may be filled by the remaining directors provided they still constitute a quorum
26. As a rule, directors are not entitled to compensation as such
directors but they may receive compensation if they serve the corporation in another capacity.
27. A contract entered into between a corporation and one of its
directors may still be. valid even if such director was present in the board meeting for the
approval of the contract.
28. A corporation may validly donate funds to a political party or
candidate provided the amount of the donation is reasonable.
29. The shortening of the corporate existence of a corporation will
result in the dissolution of the corporation upon the expiration of the shortened term.
30. An increase in capital stock requires that at least 25% of the
increase in capital stock must be subscribed and at least 25% of
such subscription must be paid.
31. The right of a stockholder to acquire new issues of shares may
be denied in the articles of incorporation.
32. The board of directors may abandon a previously approved
act to sell or dispose all or substantially all of corporate property
without any further approval from the stockholders or members.
33. Cash dividends increase the legal capital of a corporation.
34. A provision in the by-laws requiring that one must be the owner
of more than one share of stock to be eligible as director is valid.
35. The by-laws are not required in the acquisition by a corporation
of a juridical personality.
36. The stockholders or members cannot delegate to the board of
'directors the power to amend, repeal or adopt new by-laws.
37. The meetings of directors may be held in or outside the
Philippines, unless the by-laws provide otherwise.
38. If a meeting of stockholders or members is improperly held or
called, the act taken in such meeting will not be valid even if the
act is within the authority of the corporation and all the
stockholders were present or duly represented in such meeting.
39. If a stockholder has pledged his shares to secure a debt, the
right to vote the shares is transmitted automatically to the pledgee.
40. A voting trust agreement enables a stockholder to retain control
of the corporation of which he is a stockholder during the time
that the voting trust agreement is in effect although he may have disposed of all his shares.
41. A trustee in a voting trust agreement acquires legal title to the
shares entrusted to him.
42. A subscription contract must be in writing to be enforceable if the
amount of the subscription is P500.00 or more.
43. Shares of stock may be issued for service to be performed
at some future time such as that to be rendered by a lawyer for the
increase in the capital stock of a corporation.
44. A subscription is generally an indivisible contract. Accordingly,
the certificate of stock therefor may not be issued unless the
subscription and other amounts due from the.stockholder have
been paid.
45. If no payment is made by a subscriber on the due date of his
subscription, his shares becomes delinquent on the day
following.
46. Holders of shares-not fully paid. but which are not delinquent
shall have all the rights of a stockholder except t ;e right to a stock certificate.
47. A stockholder may be denied the right to inspect the books of the
corporation -if in the past he improperly used the information which he obtained from another
corporation of which. he is also a stockholder.
48. When a stockholder exercises his appraisal right, all his rights as
a stockholder, except the right. to receive payment of the fair value of his shares, will be
suspended.
49. The by-laws of a non-stock corporation may validly provide that
members may vote by mail.
50. The by-laws of a non-stock corporation may validly provide that
meetings of members may be held outside the city or
municipality where the principal office of the corporation is
located provided that such other place must be within the Philippines.
51. The number of trustees in a non-stock corporation may be more
than 15.
52. The officers of a non-stock corporation may be elected directly.
by the members instead of by the board of trustees.
53. The business of a close corporation may be managed by the
stockholders instead of by the board of directors.
54. In case of deadlocks in the management of the affairs of a close
corporation, the Securities and Exchange Commission may
order the corporation to acquire its own shares provided the
corporation has unrestricted retained earnings to cover the
shares. .
55. The chief archbishop, rabbi or other religious leader becomes a
corporation sole from and after the filing of the articles of
incorporation with the Securities and Exchange Commission.
56. After dissolution, a corporation shall nevertheless continue to
exist as a body corporate for 3 years not for continuing the
business but for liquidating its affairs.
57. A corporation is dissolved upon the expiration of the period for
which it was formed unless the said period is extended.
58. The continuous in operation of a corporation for a period of at
least 5 years will result in its automatic dissolution.
59. A foreign corporation may do business in the Philippines by
obtaining a license but without the need of incorporating under Philippine laws.
60. A foreign corporation shall not be allowed to do business in the
Philippines if the laws of the country under which it was incorporated do not allow Philippine.
corporations or citizens to do business in the said country.
ANSWERS TO DIAGNOSTIC EXERCISES

TEST I - MULTIPLE CHOICE

1. C 31. A 61. D 91. D

2. D 32. C 62. A 92. C
3. C 33. B 63. D 93. B
4. C 34. A 64. C 94. B
5. C 35. A 65. C 95. A
6. C 36. B 66. C 96. D
7. C 37. D 67. C 97. C
8. D 38. B 68. C 98. A
9. D 39. B 69. C 99. B
10. B 40. D 70. B 100. D
11. A 41. C 71. A 101. A
12. C 42. A 72. C 102. A
13. C 43. B 73. A 103. B
14. A 44. A 74. C 104. D
15. B 45. B 75. D 105 .B
16. C 46: B 76. B 106. A
17. B 47. C 77. A 107. C
18. D 48. B 78. C 108. B
19. A 49. C 79. C 109. B
20. A 50. A 80. B 110. C
21. D 51. A 81. A 111. A
22. A 52. B 82. B 112. A
23. D 53. C 83. C 113. D
24. C 54. A 84. B 114. D
25. B 55. B 85. C 115. B
26. B 56. C 86. D 116. B
27. C 57. A 87. A 117. C
28. C 58. A 88. C 118. A
29. B 59. B 89. B 119. B
30. C 60. C 90. C 120. B
TEST II -MATCHING TYPE
1. CC 16. 11 31. TT 46. S
2. WW 17. YY 32. NN 47. DDD
3. FFF 18. AA 33. W 48. QQ
4. DD 19. SS 34. L 49. GGG
5. Z 20. T 35. K 50. E
6. HHH 21. GG 36. 00 51. D
7. XX 22. ZZ 37. BBB 52. RR
8. EE 23. UU 38. N 53. H
9. J 24. KK 39. 54. Q
10. Y 25. M 40. G 55. C
11. BB 26. FF 41. V 56. W
12. HH 27. AAA 42. CCC 57. EEE
13. X 28. MM 43. R 58. P
14. LL 29. JJ 44. PP 59.0
15. U 30. L 45. F 60. A

TEST III - TRUE OR FALSE

1. FALSE 16. TRUE 31. TRUE 46. TRUE

2. TRUE 17. TRUE 32. TRUE 47. TRUE
3. TRUE 18. FALSE 33. FALSE 48. TRUE
4. TRUE 19. FALSE 34. TRUE 49. TRUE
5. FALSE 20. FALSE 35. TRUE 50. TRUE
6. TRUE 21. FALSE 36. FALSE 51. TRUE
7. TRUE 22. TRUE 37. TRUE 52. TRUE
8. TRUE 23. TRUE 38. FALSE 53. TRUE
9 FALSE 24. TRUE 39. FALSE 54. FALSE
10. FALSE 25. TRUE 40. TRUE 55. TRUE
11. FALSE 26. TRUE 44: TRUE 56. TRUE
12. FALSE 27. TRUE 42. FALSE 57. TRUE
13. TRUE 28. FALSE 43. FALSE 58. FALSE
14. TRUE 29. TRUE 44. TRUE 59. TRUE
15. FALSE 30. TRUE 45. FALSE 60. TRUE
NEGOTIABLE INSTRUMENTS

34. Medardo Medrano makes a note payable to the order of

Pidencio Palomar and Prudencio Perez for P20,000.00. The payees are not partners and
neither one authorized the other to act in his behalf. Based on the foregoing, which of
the following is a valid indorsement?

a. "Pay to Antonio Arevalo, P12,000.00, and to Alberto

Alvarez, P8,000.00.
(Sgd.) Pidencio Palomar (Sgd.) Prudencio Perez."

b. "Pay. to Antonio Arevalo, P14,000.00.

(Sgd.) Pidencio Palomar (Sgd.) Prudencio Perez"

Note: Medardo Medrano has paid a total of P6,000.00

to both payees before the latter made their
indorsements.

c. "Pay to Antonio Arevalo, P14,000.00.

(Sgd.) Fidencio Palomar (Sgd.) Prudencio Perez."

Note: Medardo Medrano has not paid any amount to the payees.

d. "Pay to Antonio Arevalo P20,000.00.

(Sgd.) Pidencio Palomar"

35. Which of the following may be raised as defense against any

holder?
a. Want of consideration.
b. Want of delivery of complete instrument.
c. Insertion of a wrong date.
d. Want of delivery of an incomplete instrument.

36. "Pay to Alberto Alvarez for collection only.

(Sgd.) Ponciano Parcero"

This is an example of:
a. The agency type of restrictive indorsement.
b. The trust type of restrictive indorsement.
c. A qualified indorsement.
d. A conditional indorsement.

37. M makes a promissory note for P10,000.00 payable to the order

of P for merchandise to be delivered by P to him. P, however, was able to deliver to M
merchandise worth P8,000.00 only. P indorsed the note to A, and A to H.
1. If H is a holder in due course, he can collect P10,000.00
from M.
II. If H is not a holder in due course, he can
collect P8,000.00 from M.
a. Both statements are true.
b. Both statement are false.
c. Statement I is true; Statement II is false.
d. Statement I is false; Statement II is true.

38. M makes a note payable to the order of P. P indorses the note to

A, A to B, B to C, C to D, D to E, and E back to A. Based on the
foregoing, which of the following statements is incorrect?
a. A may renegotiate, the promissory note.
b. A cannot go after B, C, D and E.
c. B, C, D and E enjoy temporary defense if A is the holder.
d. If the instrument is renegotiated by A to F, the latter
cannot go after B, C, D and E.

39. Mary Montes and Melany Manalo obtained a loan

of P1CO,000.00 from Patricia Palma. The debtors executed
a promissory note which reads as follows:

NEGOTIABLE INSTRUMENTS
- DIAGNOSTIC EXERCISES

TEST I - MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

An instrument which is not dated will be considered dated as at

the time of:
a. acceptance.
b. first indorsement.
c. last indorsement.
d. 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 futur
b. at an indefinite time, hence, non-negotiable.
c. on demand.
D. upon the fulfillment of a condition.

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 P20,000.00"

II. "Pay to the order of Pablo Patricio P20,000.00 or deliver,

to him a computer of the same, value at his option."

Ill. "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 Patricia 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 Ill.
d. Instruments III and IV
6. The separate paper attached to an instrument on which an
endorsement or acceptance of the instrument is written is called:
a. allonge.
b. memorandum.
c. enclosure.
d. attachment.
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:
1. 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 statements:
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 Wencesiao 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 P50,000.00, the amount actually
placed 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 Rif H is a
holder in due course.
b. H may enforce payment of the check against S,,whether
H 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 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 indorsers 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. Forgery is not available as defense to any party to the
instrument.

15. One of the following is not a restrictive indorsement. Which is it?

a. An indorsement that prohibits the further negotiation of
the instrument.
An indorsement that constitutes the indorser a mere assignor of the title to the
instrument.
c. An indorsement that constitutes the indorsee an agent of
the indorser.
d. An indorsement that vests title in the indorsee in trust for
some other person.

16. M makes a note payable to the nrder of P in the amount of

-. P10,000.00. P indorsers the note to A as follows "Pay to A if
he passes the 2010 Bar Examination."
a. M must wait for the condition to be fulfilled before he can
pay A.
b. M may pay. A even if the condition has not been fulfilled
but A has to hold the proceeds subject to the rights of P.
c. M cannot be compelled to pay even if the condition is
fulfilled because the conditional indorsement renders the
instrument non-negotiable.
d. M may pay A even if the condition has not been fulfilled.
The fulfillment of the condition becomes immaterial and
A becomes the absolute owner of the proceeds of the
note.

17. In order that a person may be held liable as an accommodation

party, the following requisites must concur, except:
a. He has signed the instrument as maker, drawer,
acceptor or indorser.
b. He has not received any value for such making,
drawing, accepting or indorsing the instrument.
c. His purpose of signing the instrument is to lend
his name or credit to some other person.
d. The holder must have no knowledge that such
person signed the instrument as an accommodation party.

18. An indorsement where the indorser signs only.his name at the

back of the instrument is a:
a. special indorsement.
b. blank indorsement.
c. qualified indorsement.
d. restrictive indorsement.

19. An indorsement where the indorser waives the benefit of any law
intended for his protection is known as:
a. an absolute indorsement.
b. a facultative indorsement.
c. a conditional indorsement.
d. a successive indorsement.

20. M makes a note payable to the order of P. P specially indorses

the note to A, A specially indorses the note to B, B indorses the note in blank and
delivers it to C, C specially indorses the note to D, D specially indorses the note to H,
holder. Which of the indorsements may H strike out?
a. The special indorsement of P to A.
b. The blank indorsement of B to C.
c. The special indorsement of C to D.
d. The special indorsement of D to H.

21. Which of the following is not a right of a holder in due course?

a. To hold the instrument free from defect of title of prior
parties.
To hold the instrument free from personal defenses available to prior parties among
themselves.
c. To enforce payment of the instrument for the full amount
thereof against all parties liable thereon.
d. To hold the instrument free from real defenses available
to the prior parties among themselves.

22. Which of the following statements pertaining to indorsements is

incorrect?
a. The indorsement must be of the whole instrument.
b. The signature of the indorser without additional words is
sufficient.
c. Indorsers are liable in the order in which they indorse.
d. If an instrument is delivered without indorsement,
negotiation takes effect at the time of delivery even if the instrument is subsequently
indorsed.

23. M executed a note payable to the order of P. P indorsed the

note to,A, A to B (by qualified indorsement), B to C (by general indorsement), and C (by
general indorsement) to, H, a holder in due course. Later, it was discovered that P was a
minor. None, except P, knew that he was a minor. Who, aside from P, may avail himself
of the minority of P as a defense?
a. M, maker.
b. A, qualified indorser.
c. B, general indorser.
d. None, only P may avail himself of his minority as a
defense.

24. Which of the following does not discharge the instrument?

a. Payment in due course by the accommodated party .
b.. Intentional cancellation of the instrument 'by the holder.
c. When the principal debtor becomes the holder in his own
right before maturity.
d. Payment in due course by or on behalf of the principal
debtor.

25. A party secondarily liable is discharged through any of the

following means, except by the:
a. intentional cancellation of his signature by the holder.
b. discharge of a prior party.
c. release of the principal debtor.
d. extension of the time of payment which is assented to by
such party secondarily liable.

26. Which of the following instruments is negotiable?

a. Treasury warrant.
b. Postal money order.
c. Letter of credit.
d. Trade acceptance.

27. An instrument reads as follows:

November 30, 2010

I promise to pay to the order of Paolo Pimentel the sum of

P50,000.00 if he places first in the May 2011 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.
28. An instrument reads as follows:

I promise to pay to the order of Patrick Pelaez the sum of P50,000.00 sixty (60) days
after date.

(Sgd.) Minerva Maceda

The instrument was delivered by Mine. va Maceda on December

1, 2010 to Patrick Pelaez who indorsed and delivered the note
on the same day to Alberto Antonio. Immediately upon receipt,
Alberto Antonio wrote on the note "November 1, 2010" as its
date of issue. The following day, Alberto Antonio indorsed and delivered the note to
Herman Hernandez who knew nothing with respect to the insertion of a different date
of issue.
a. Herman Hernandez can collect the amount of the note
from Minerva Maceda on December 31, 2010.
b. Herman Hernandez can collect the amount of the note
from Minerva Maceda on January 30, 2011.
c. Herman Hernandez can collect nothing from Minerva
Maceda because of the insertion of a wrong date.
d. Herman Hernandez can collect the amount of the note
on December 2, 2010 when it was negotiated to him.

29. An instrument. reads as follows:

November 1, 2010
I promise to pay to the order of Perla Persida the surn
of P30,000.00 on November 30, 2010.
(Sgd.) Melba Montinola (Sgd.) Milnore Manuel
(Sgd.) Maila Medina

On November 30, 2010, Perla Persida may collect from Melba

Montinola:
a. P30,000.00.
b. P20,000-00.
C. P10,000.00.
d. Nothing, because the note is void since it reads "I
promise to pay" but it was signed by three makers.

30. At a movie premier, Perfecto Palmares approached Sharon

Morales, the star of the movie, and requested an autograph from
her. Sharon Morales willingly obliged and signed her name at
the bottcm right portion of a white 8" x 11" stationery which
Perfecto Palmares presented to her. Shortly after reaching
home, Perfecto Palmares printed above the signature of Sharon
Morales through his computer the following : "I promise to pay
Perfecto Palmares or his order P50,000.00". Thereafter, Perfecto Palrares negotiated the
paper to Arturo Alvarez, Arturo Alvarez to Bernardo Benitez, and Bernardo Benitez to
Henry Hilado, holder. Alvarez, Benitez, and Hilado knew nothing about how the
apparent note came into being.
a. If he is a holder in due course. Henry Hilado can
collect from Sharon Morales,
Whether he is a holder in due course or not, Henry, Hilado cannot collect from Sharon
Morales.
c. Whether he is a holder in due course or not, Henry
Hilado cannot collect from Arturo Alvarez.
d. Whether he is a holder in due course or not, Henry
Hilado cannot collect from Bernardo Benitez.

31. M makes a promissory note payable to the order of P for

P10,000.00. P indorses the note to A, and A to B. Thereafter, S indorsed the amount of
the note in full to H to secure his (B's) debt of P8,000.00 to H. Based on the foregoing,
which of the following statements is incorrect?
a. If M has no defenses against H, H may collect
P10,000.00 from M.
b. If M has personal defenses against H, H may
collect P8,000.00 from M.
c. If M has real defenses against H, H may collect nothing
from M.
d. H cannot ccllect anything from M whether M has real or
personal defenses.

32. Which of the following renders an instrument non-negotiable?

a. The promise or order is to pay the amount of the
instrument out of a particular fund.
b. The promise or order to pay is coupled with a statement
of the transaction that gave rise to the transaction.
c. The sum payable is to be paid with costs of collection or
an attorney's fee in case payment is not made at
maturity.
d. The instrument contains a provision authorizing the sale
of collateral securities in case the instrument is not paid
at maturity.

33. Which of the following omissions on the face of an instrument

will render it non-negotiable?
a. The omission of the date of issue.
b. The omission of any statement that value has been
given.
c. The omission of the place where the instrument was
drawn.
d. The omission of the signature of the maker above his
typewritten name.

34. Medardo Medrano makes a note payable to the order of

Pidencio Palomar and Prudencio Perez for P20,000.00. The payees are not partners and
neither one authorized the other to act in his behalf. Based on the foregoing, which of
the following is a valid indorsement?
a. "Pay to Antonio Arevalo, P12,000.00, and to Alberto
Alvarez, P8,000.00.
(Sgd.) Pidencio Palomar (Sgd.) Prudencio Perez."

b. "Pay, to Antonio Arevalo, P14,000.00.

(Sgd.) Pidencio Palomar (Sgd.) Prudencio Perez"

Note: Medardo Medrano has paid a total of P6,000.00

to both payees before the latter made their
indorsements.

c. "Pay to Antonio Arevalo, P14,000.00.

(Sgd.) Fidencio Palomar (Sgd.) Prudencio Perez."

Note: Medardo Medrano has not paid any amount to the payees.

d. "Pay to Antonio Arevalo P20,000.00.

(Sgd.) Pidencio Palomar"

35. Which of the following may be raised as defense against any

holder?
a. Want of consideration.
b. Want of delivery of complete instrument.
c. Insertion of a wrong date.
d. Want of delivery of an incomplete instrument.

36. "Pay to Alberto Alvarez for collection only.

(Sgd.) Ponciano Parcero"
This is an example of:
a. The agency type of restrictive indorsement.
b. The trust type of restrictive indorsement.
c. A qualified indorsement.
d. A conditional indorsement.

37. M makes a promissory note for P10,000.00 payable to the order

of P for merchandise to be delivered by P to him. P, however, was able to deliver to M
merchandise worth P8,000.00 only. P indorsed the note to A, and A to H.
1. If His a holder in due course, he can collect
P10,000.00 from M.
11. If H is not a holder in due course, he. can
collect P8,000.00 from M.
a. Both statements are true.
b. Both statement are false.
c. Statement I is true; Statement II is false.
d. Statement I is false; Statement II is true.

38. M makes a note payable to the order of P. P indorses the note to

A, A to B, B to C, C to D, D to E, and E back to A. Based on the
foregoing, which of the following statements is incorrect?
a. A may renegotiate. the promissory note.
b. A cannot go after B, C, D and E.
c. B, C, D and E enjoy temporary defense if A is the holder.
d. If the instrument is renegotiated by A to F, the latter
cannot go after B, C, D and E.

39. Mary Montes and Melany Manalo obtained a loan

of P1C0,000.00 from Patricia Palma. The debtors
executed a promissory note which reads as follows:

We promise to pay Patricia Palma or order P100,000.00 on November 30,

2010. (Sgd.) Mary Montes (Sgd.) Melany Manalo

To secure the loan, Mary Montes pledged her diamond ring, while Melany Manalo
executed a mortgage on her lot.
a. Mary Montes may demand the return of her diamond
ring if she pays her share of the debt, while Melany .Manalo's share remains
outstanding.
b. Melany Manalo may demand the cancellation of the
mortgage on her lot if she pays her share of the debt,
while Mary Montes's share remains outstanding.
c. Both Mary Montes and Melany Manalo must pay the
total amount of the debt before Mary Montes could
demand the return of the diamond ring, and Melany
Manalo the cancellation of the mortgage on her lot.
d. Patricia Palma may demand payment of the amount
of P100,000.00 from either Mary Montes or 1Vlelany
Manalo.

40. M executed a promissory note in the amount of P20,000.00

payable to the order of P. M made the promissory note for
goods purchased by M from P shortly after M obtained the
consent of P whether the latter would accept the promissory note
in the meantime. When P visited M's office to collect the note, M
was not around, but P found on M's table the completed note
that M made for him. Without waiting for M, P took the note.
Based on the foregoing, which of the following statements is
incorrect?
a. P cannot enforce payment of the note if M refuses to pay
it.
b. If P indorses the note to H who knows nothing on how
P obtained the note, H can collect on the note from M.
c. If P indorses the note to H who knows how P
obtained the note from M, H cannot collect from M.
d. If P indorses the note to H, H can collect from M whether
H was aware or not on how the note was obtained by P
since he (H) was not a party to the wrongdoing
committed by P.

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

1. "Pay to the order of Pablo Patricio P20,000.00 in goods
which are displayed at your store."
II. "Pay to the order of Pablo Patricio P20,000.00 or deliver
to him a computer of the same value at his option."
Assuming all the other requisites of negotiability are present:
a. Both instruments are negotiable.
b. Both instruments are not negotiable.
c. Instrument I is negotiable; Instrument II is not negotiable.
d. Instrument I is not negotiable; Instrument II is negotiable.

42. The following are two of several requisites of an instrument:

1. The instrument must be payable on demand or at a
fixed or determinable future time.
II. The instrument must be payable to order or to bearer.
a. Both requisites apply to promissory notes only.
b. Both requisites apply to bills of exchange only.
c. Both requisites apply to both promissory notes and bills
of exchange.
d. Requisite I applies to promissory notes; Requisite II
applies to bills of exchange.

43. The attribute of a negotiable instrument which allows it to be

passed from one hand to another similar to money, so as to give
a holder in due course the right to hold the instrument free from
defect of title of prior parties, and free from defenses available to
prior. parties among themselves, and to enforce payment of the
instrument for the full amount thereof against all parties liable
thereon is known as:
a. Assignability.
b. Negotiability.
c. Transferability.
d. Acceptability.
44. An instrument is not payable on demand in one of the following
cases. Which case is it?
a. When the instrument is expressed to be payable at sight.
b. When the instrument is expressed to be payable upon
presentation.
c. When no time for payment is expressed.
d. When the instrument is expressed, to be payable after
the occurrence of a specified event which is certain to happen.

45. Consider the following statements on the interpretation of

instruments:
1. Where the sum payable is expressed in words and also
in figures and there is a discrepancy between the two,
the sum denoted by the words is the sum payable.
II. Where there is a conflict between the written and printed
provisions of the instrument, the printed provisions
prevail.
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.

46. A bill of exchange reads as follows:

January 1, 2011

Pay to the order of Pamela Pineda the sum of

P50,000.00 thirty (30) days after sight.
(Sgd.) Rosita Rodriguez
To: Wilma Warner

The above bill was issued by Rosita Rodriguez to Pamela

Pineda on December 28, 2010 and was presented for
acceptance by Pamela Pineda to Wilma Warner on January 10,
2011.
Based on the foregoing facts, the maturity date of the bill is:
a. January 27, 2011.
b. January 31, 2011.
c. February 9, 2011.
d. January 10, 2011.

47. Ramos draws a bill of exchange payable to the order of Palma.

Palma presents the bill to Wagan, drawee, for acceptance, and
the latter accepts it. Thereafter, Palma indorses the note to
Alunan, Alunan to Bernarte, Bernarte to Hornedo, holder. On
due date, Hornedo presents the bill to Wagan for payment but
Wagan dishonors it claiming that Palma is a minor. Wagan,
Ramos, Alunan and Bernarte claim that they did know that
Palma was a minor at the time that they transacted on the
instrument. Aside from Palma, who may claim the defense of
minority?
a. Ramos.
b. Wagan.
c. Alunan and Bernarte.
d. None of the four.

48. A promissory note reads as follows:

November 1, 2010
I promise to pay Paloma Perez or order the sum of
P20, 000.00.
(Sgd. Maria Montano

The above promissory note was delivered by Maria Montano to Paloma Perez who
made the following indorsement at the back of the promissory note:

Pay to Alona Almonte if she finishes her course in Business Administration.

(Sgd.) Paloma Perez

1. The condition of the indorsement is suspensive.
II. The condition placed on the indorsement renders the
instrument non-negotiable.
III. Maria Montano may waive the fulfillment of the condition
and pay Alona Almonte.
a. All statements are true.
b. I and II are true.
c. II and Ill are true.
d. I and III are true.

49. The acceptor, by accepting the instrument, admits the following,

except the:
a. existence of the payee.
b. capacity of the payee to indorse.
c. genuineness of the drawer's signature.
d. right of the holder to enforce payment of the instrument.

50. The maker, by making the instrument, has the following

liabilities, except:
a. the engagement to pay the instrument according to its
tenor.
b. the admission of the existence of the payee.
C. the admission of the capacity of the payee to indorse the
instrument.
d. the admission of the right of the holder to enforce
payment of the instrument.

51. M makes a promissory note payable to the order of P. P

indorses the note specially to A, A indorses the note in blank and delivers the same to B.
B specially indorses the note to C, C specially indorses the note to D, D indorses the note
in blank and delivers it to E, E specially indorses the note to - H,, holder. Whose
indorsement may H strike out?
a. The special indorsement of P to A.
b. The special indorsement of E to H.
c. The blank indorsement made by A.
d. The blank indorsement made by D.

52. M makes a promissory note payable to the order of P and

delivers the same to P. P indorses the note to A who keeps it in his drawer. F steals the
note and negotiates the same to B by forging A's signature. Thereafter, B negotiates the
note to C, C to D, and D to H, a holder in due course. Based on the foregoing
information, which of the following statements is true?
a. H can hold M and P liable because they became bound
under the instrument before the forgery.
b. H cannot hold B, C and D liable because they have
no participation whatsoever in the commission of the
forgery.
c. H can enforce the instrument only against F, the
forger, since he is the perpetrator of the forgery.
d. H can enforce instrument against F, B, C and D, but not
against M, P and A.

53. 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.

54. These two instruments are presented to you for evaluation:

Instrument I
Manila, Philippines
October 21, 2010
Pay to the order of Pedro Panelo the sum of P20,000.00 or deliver to him a brand new
Acer computer of the same value.
(Sgd.) Roberto Ramirez
To: Walter Wenceslao

Instrument II
Manila, Philippines
October 21, 2010

Pay to the order of Pedro Panelo the sum of P20,000.00 and reimburse yourself out of
the proceeds of my loan from PNB which are in your possession.
(Sgd.) Roberto Ramirez
To: Walter Wenceslao
a. Both instruments are negotiable.
b. Both instruments are non-negotiable.
c. Instrument I is negotiable; Instrument II *is non-
negotiable.
d. Instrument I is non-negotiable; " Instrument II is
negotiable.
55. Which of the following is not a promise to pay, and thus will
make an instrument non-negotiable?
a. "I agree to pay P"
b. "I bind myself to pay P"
c. "I acknowledge. my debt to P"
d. "I oblige myself to pay P"

56. An instrument to be negotiable must be payable at a fixed or

determinable future time. Which of the following does not
comply with the said requisite?
a. "I promise to pay P or order on Christmas day 2
years from now"
b. "I promise to pay P or order on the death of X" -
c. "I. promise to pay P or order 10 days before the death of
X"
d. "I promise to pay P or order before Valentine's Day next
year"

57. Which of the following instruments is not payable to order?

a. "I promise to pay P or his agent P10,000.00"
b. "I promise to pay P or his assigns P10,000.00"
c. "I promise to pay to the order of myself P10,000.00"
d. "Pay to the order of yourself P10,000.00"

58. P executes a promissory note for P20,000.00 indicating therein

that the maker is M and that it is payable to the order of P. Thereafter, he forges the
signature of M and indorses the note to A, A to B, B to C, and C to H, holder. Based on
the foregoing data, which of the following statement is incorrect?
a. H can collect from M if H is a holder in due course.
b. H cannot collect from M whether H is a holder in due
course or not.
c. H can collect from A, B or C whether H is a holder in due
course or not.
d. H can collect from .P whether H is a holder in due course
or not.

59. An instrument reads as follows:

I promise to pay to the order of P the sum of P50,000.00 sixty (60) days after date.
(Sgd.) M

On September 1, 2010, M issued the promissory note to P, P

indorsed the note to A, A to B, and B to C. C indorsed the note
to H on September 20, 2010, but before delivering it to H, C
inserted August 1, 2010 as the date of issue. H is a holder
in
due course. The due date of the.promissory note insofar as H is concerned is:
a... October 31, 2010.
b. September 30, 2010.
c. The promissory note becomes demandable at once.
d. The promissory note is avoided because of the insertion
of a wrong date; hence, it is of no use to determine the
date of maturity.

60. Which of the following defenses may a party to an instrument

avail himself of against any holder?
a. Want of delivery of incomplete instrument.
b. Want of authority to complete an instrument that was
delivered.
c. Want of delivery of complete instrument.
d. Want or absence of consideration.

61. M makes a promissory note payable to the order of P for

PHP5,000.00. After delivery to P, P changed the amount to US$5,000.00. Thereafter, P
indorsed the note to A, A to B, B to C, C to D, and D to H. The parties subsequent to P
were not aware of the alteration made by P. Based on the foregoing facts, which of the
following statements is incorrect?
a. H can hold M liable for US$5,000.00 if H is a holder
in due course.
b. H can hold M liable for PHP5,000.00 if H is a holder in
due course.
c. H cannot hold M liable for any amount if H is not a holder
in due course.
D. H can hold A, B, C and D liable for US$5,000.00 even if H is not a holder in due
course.

62. A holder is a holder in due course if he has taken the instrument

complete and regular on its face and three of the following conditions, except:
a. That he became the holder of the instrument before
it was overdue and without notice that it had been
previously dishonored if such was the fact.
b. That he took it in good faith and for value.
c. That there is. no fraud or illegality affecting the
instrument.
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
the same.
63. M executed a promissory note as follows:
"I promise to pay P or order P50,00'0.00 or to deliver to him a brand new laptop
computer."
(Sgd.) M M.
Based on the foregoing instrument, which of the. following
statements is true?
a. The instrument is negotiable.
b. The obligation is an alternative obligation.
c. The choice as to which prestation will be performed
belongs to P.
d. The obligation is payable at a determinable future time.

64. M executes a promissory note for P10,000.00 payable to

the order of P, a minor. M and P had a private understanding that
M
is liable only for the discounted amount of P9,500.00. P
indorsed the note to A, A.tc B, B to C, C to D, and D to H,
holder.
a. M may refuse to pay H on the ground that P is a minor.
b. If M dishonors the note, A may refuse to pay H on the
same ground that P is a minor.
c. The indorsement made by P passed title to the
instrument in favor of A.
d. Assuming that P was already of the age of majority at
the time of the execution of the note, M is liable to H for
P9,500.00 since that was the amount that he agreed with P that he should pay.

65. On August 1, 2010, M executed a ' promissory note for

P50,000.00 payable to the order of P which is payable "30 days after date." Thereafter, P
indorsed the note to A, A to B, B to C, C to b, and D to M. The indorsement by D to M
was made on August 29, 2010.
a. The obligation on the note was extinguished by merger
or confusion on August 29, 2010.
b. M may reissue/renegotiate the promissory note after it
was indorsed to him.
c. M can go after P, A, B, C and D to collect.
d. M may strike out the indorsement to him by D.

66. M, maker, P, payee, of a.. note payable to the order of P., The
back of the note contains the indorsement of P to A, A to B. B to
C, C to D, and D to H, a holder in due course. Assume the
following independent facts:
1. M is insolvent.
11. Pisaminor.
III. A's signature was forged.-
If C were a qualified indorser, which of the foregoing
independent facts will not affect his liability (i.e., he will, still be
liable) although he was not aware of any of them?
a. I and II.
b. 11 and Ill
c. I and Ill.
d. I, II and Ill.

67 Refer. to the preceding number.. Assuming that C were a general

indorser, which of the foregoing facts enumerated (I, II and III)
will not- affect his liability (i.e., he will still be liable) although he
was not aware' of any of them?
a. I and II.
b. II and Ill.
c. Iand111.
d. I, 11 and Ili.

68., One of the distinctions between negotiation and assignment of a

negotiable instrument is that in assignment the:
a. transferor of the instrumet t warrants the solvency of
prior parties.
transferee of the instrument is subject to both personal and real defenses.
c. transferee of the instrument holds the instrument free
from defect of title of prior parties.
d. transferor is not liable in case no presentment for
payment is made to the party primarily liable and notice of dishonor is not given to such
transferor.

69. M made a promissory note in favor of P or order. The

note, which was payable after 60 days from date of issue,
amounts to P100,000.00 and bears interest at 10% 'per annum.
After the delivery of the note to him, P altered the interest rate to
18% per annum without the knowledge of M and indorsed it to A
who knew nothing of the alteration. Thereafter, A indorsed the
note
to H, a holder in due course.
a. H may not collect any amount, whether of the principal
or of the interest, from M..
b. H may collect P100,000.00 and interest at10% per
annum from M.
c. H may collect P100,000.00 and interest at18% per
annum from M.
d. H may not collect any amount, whether of the -principal
or of the interest, from A, since A was not aware of the
alteration.
70 Which of the following indorsements is a qualified indorsement?
a. "Pay to Angelo Amores for collection."
b. "Pay to Angelo Amores in trust for Teofilo Tangco."-
c. "Pay to Angelo Amores. Indorser not holden":
d. "Pay to Angelo Amores. Notice of dishonor waived."
71. Manuel Miranda wrote a letter to his goddaughter which reads as
follows:
To Pilar Perez:
Dear Pilar:
I am greatly pleased that you have enrolled in
accounting in response to my continual urging.

I am formally making the promise I have made earlier to you to pay you or your order
P500,000.00 or a brand-new Toyota Corolla, at your option, as soon as you graduate.
Your Godfather,
Sgd.) Manuel Miranda
a. The instrument is valid and negotiable.
b. The instrument is valid but not negotiable.
c. The instrument is not valid but negotiable.
d. The instrument is not valid and not negotiable.

72. M made a promissory note payable to P or bearer. After its

delivery to him, P indorsed the note to A. While the note was in
the possession of A, F stole the note and negotiated it to B by
forging A's signature. Thereafter, B indorsed the note to C, C to
D, and D to H, a holder in due course. - Which of the following
defenses are available to M, P and•A against H?.
1. Forgery of A's signature.
II. Want of delivery of the note by A since the note
was stolen from him.
a. Both defenses are available to M, P and A.
b. Both defenses are not available to M, P and A.
c. Only I is available.
d. Only II is available.

73. The following promissory notes are presented to you:

I promise to pay to the order of Pancho Pineda the sum of P20,000.00 if he passes the
CPA Board Examination.
(Sgd.) Mario Marquez

At the back of the promissory note, the following appears:

Pay to the order of Antonio Abad.
(Sgd.) Pancho Pineda

II.

I promise to pay to the order of Pancho Ptneda the sum of P20,000.00.

(Sgd.) Mario Marquez
I
At the back of the promissory note, the following appears:
Pay to Antonio Abad only and no other.
(Sgd.) Pancho Pineda

In your evaluation of the foregoing instruments:

a. Both instruments are negotiable in origin but ceased to
be negotiable at the time of indorsement.
b. Both instruments are non-negotiable in origin.
C. Only Instrument I is negotiable in origin but ceased to be
negotiable at the time of indorsement.
d. Only Instrument 11 is negotiable in origin but ceased to be
negotiable at the time of indorsement.
74. M issued a promissory note payable to the order of P for
P50,000.00. Thereafter,-'P indorsed the note to A. While the
note was in the possession of A, F stole it and negotiated it to B
by forging the signature of A. B was not aware of the forgery of
A's signature. B then indorsed the note to H, a holder in due
course. The parties who may raise forgery as a defense are:
a. A and B.
b. M and P.
c. M, P and A..
d. None of the parties may seise forgery as a
defense because H is a holder in due course.
75. Refer to the preceding number. Assume the same farts except
that the note is payable ,to bearer. In such a case, the parties
who may raise forgery as a defense are:
a. A and B.
b. M and P.
c. M, P and A.
d. None of the parties may raise the defense of forgery.
76. M makes a promissory note for P10,000.00 payable to the order
of P. After the issuance to him of the note., P altered the amount to US$10,000.00. P
then indorsed the note to A, A to B, and B to H. Only P knew of the alteration.
The parties and their possible liabilities are:
I: M, P10,000.00.
II. M, US$10,000.00.
Ill. M, nothing.
IV. A and B, P10,000.00.
V. A and B, US$10,000.00.
VI. A and B, nothing.
If H is a holder in due course, the parties from whom he may
collect and the amount of the said parties' liability are:
a. I and IV.
b. II and V.
c. I and V.
d. Ill and VI.

77. A check differs from a bill of exchange because a check;

a. does not require the drawer to have funds with the
drawee.
b. may be drawn against a person other than a bank.
c. is always payable on demard.
d. is required to be presented for acceptance in certain
cases.,

78. The placing of a date in an instrument is necessary in the

following cases, except:
a. to fix the maturity of the instrument.
b. to determine when interest is to run.
c. to fix the prescriptive period.
d. to make the instrument negotiable.

79. A holder is still a holder a holder in due course although:

a. he received the instrument after it has become overdue
but he has no knowledge of it.
b. he received the instrument after it was dishonored and
he has no notice of such dishonor.
c. he did not give any value for it.
d. the instrument was not complete and regular on its face.
80. On May 1, 2010, Manolo Montes executed the following
promissory note for goods he purchased from Peter Perez:

(No date)
I promise to pay Peter Perez or order the sum of
P20,000.00 with interest, thirty days after date, in payment of
the goods I purchased from him today. To secure the amount of this note, I hereby
pledge my ring which I authorize Peter Perez to sell in case of my default on due date.

(Sgd.) Manolo Montes

The part of the above instrument that renders it non-negotiable is the phrase or
statement:
a. "in payment of the goods that l purchased from
him today."
b. "with interest, thirty days after date."
c. "To secure the. amount of this note, I hereby pledge my
ring which I authorize Peter Perez to sell in case of my default on due date."
The instrument is negotiable notwithstanding the
presence of such phrases or statements in the body
thereof.

81,. Medardo Medrano has an obligation to give 10 sacks of rice

worth P10,000.00 to Pancho Panza, the same being due on
September 5, 2010. Medardo Medrano fails to deliver 10 sacks
of rice to Pancho Panza on due date despite the latter's demand.
Medardo Medrano requested Pancho Panza to give him a, period
of 30 days to give the amount of P10,000.00 or to deliver 10
sacks of rice, assuring Pancho Panza of the payment by issuing the promissory note,
shown below. Pancho Panza agreed to Medardo Medrano's proposal.

September 6, 2010
I promise, to pay Pancho Panza or order the sum
of P10,000.00 or to deliver him 10 sacks of rice.
(Sgd.) Medardo Medrano

a. The new obligation is a facultative obligation.

b. The promissory note is negotiable.
c. Medardo Medrano has the choice whether to give
P10,000.00 or deliver 10 sacks of rice.
d. The instrument is payable at a determinable future time.
82. The following are certain conditions in an instrument or the
transfer thereof:
1. A condition placed on the face of the instrument that the
maker will pay it to the payee upon the fulfillment of the condition.
H. A condition placed on an indorsement that the
instrument wilt be paid upon the fulfillment of the condition.
141. A condition placed upon the delivery of the instrument,
such as when the maker delivers the note to the payee and instructs him not to
negotiate the instrument until the maker obtains the proceeds of his loan.

In your evaluation of the above statements, the instruments that are negotiable or
remain negotiable despite the presence of the condition mentioned are:
a. I and II.
b. 11 and III.
C. I and 111.
d. I, II and Ili.

83. This promissory note was issued by Maila Moreno to Patricia

Pineda on August 1, 2010:

August 1, 2010
I promise to pay Patricia Pineda or order the sum
of P20,000.00 thirty (30) days after date.
(Sgd.) Maila Morena

The note was thereafter indorsed by Patricia Pineda to Alma Alajar, Alma Alajar to
Brenda Bermejo, and Brenda Bermejo to Carmela Castro. On August 30, 2010, Carmelo
Castro indorsed the note as follows:
Pay to Maila Morena. I
(Sgd.) Carmela Castro.

a. The promissory note was extinguished when Maila

Morena became the holder.
b. The promissory note was not extinguished when Maila
Morena became the holder.
c. Maila Morena may not renegotiate the instrument after it
was indorsed to her.
d. Maila Morena may go after Patricia Pineda, Alma Alajar,
Brenda Bermejo and Carmela Castro.

84. Refer- to the preceding number. Assuming that the note was
extinguished when it was indorsed by Carmela Castro to Maila
Morena, the cause of the extuinguishment is:
& Confusion.
b. Condonation
c. Compensation.
d. Novation.

85. The following are defenses in a negotiable instrument:

1. Want of delivery of incomplete instrument.
11. Want of authority to complete instrument.
Ill. Want of consideration.

Which of the above defenses may be raised against a holder not

in due course?
a. I and II only.
b. II and III only.
c. I and III only.
d. I, II and III.

86. Which of the following indorsements is a valid negotiation of the

instrument?
a. "Pay to Arnulfo Alvez, P20,000.00" The
instrument shows an amount of P30,000.00.
b. "Pay to Arnulfo Alvez and Benito Baldoz."
c. "Pay to Arnulfo Alvez, P20,000.00, and Benito Baldoz,
P10,0000.00."
d. "Pay to Arnulfo Alvez, P20,000.00 from the amount of
P30,000.00 on this note."

87. M delivers a promissory note payable to the order of P for.

P10,000.00. P alters the amount to P40,000.00 and thereafter
indorses the note to A who had no knowledge of the alteration;
then A to H, holder in due course. Which of the following is
incorrect?
a. H can recover P10,000.00 from M.
b. H can recover P40,000.00 from P.
c. H can recover P40,000.00 from A.
d. H cannot recover any amount from M because M is a
party before the alteration. H cannot also recover from A
because A was not aware of the alteration.

88. The signification by the drawee of his assent to the order of the
drawer.
a. Acceptance
b. Approval
C. Recommendation
d. Indorsement

89. The acceptance that takes place when a drawee to whom a bill
is delivered for acceptance destroys the bill the bill, or refuses
within 24 hours after such deiivery, or within such other period as
the holder may allow, to return the bill accepted or non-accepted,
to the holder.
a. Implied acceptance
b. Qualified acceptance
c. Constructive acceptance
d. Oral acceptance

90. The following are the requisites of actual acceptance of a bill of

exchange, except.
a. It must be in writing.
b. It must be signed by the drawee.
c. There must be delivery or notification thereof.
d. It must express that the drawee will perform his promise
by the payment of money, the delivery of a thing or the
rendering of some service.

91. These statements are presented to you:

1 The holder of a bill may require that the acceptance be
written on the face of the bill, and if such request' is
refused, he may treat.the bill as dishonored.
II. Acceptance of a bill may be made even before . it is
drawn.
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

92. These statements are presented to you:

1. A general acceptance assents without qualification to the
order of the drawer.
II. An acceptance to pay at a particular place is a qualified
acceptance.
a. Both statements are true.
b. Both statements are false.
C. Only Statement I is true.
d. ' Only Statement II is true.

93. These statements are presented to you:

I. The holder may refuse to take a qualified acceptance,
and if he does not obtain an unqualified acceptance, he
may treat the bill as dishonored by non-acceptance.
It, As a rule, a qualified acceptance taken by the holder will
discharge the drawer and indorsers.
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

94. The time within which the drawee is allowed to give his
acceptance is:
a. 12 hours.
b. 24 hours.
C. 48 hours.
d. 72 hours.

95. These statements are presented to you:,

1. A bill may be accepted before it has been signed by the
drawer.
II. A bill cannot be accepted while it is still incomplete.
a. Both statements are true.
b: Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

96. These statements are presented to you:

1. A bill may be accepted although it is already overdue.
II. A bill cannot be accepted after it has been previously
dishonored by a refusal to accept, or by non-payment.
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

97. In which of the following cases is presentment for acceptance of

a bill optional?
a. Where the bill is payable after sight, or in any other case,
where presentment for acceptance is necessary to fix the maturity of the instrument.
b. Where the bill expressly stipulates or provides that it
shall be presented for acceptance.
c. Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
d. Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawer.

98. These statements are presented to you:

1. The payee of a bill which is required to be presented for
acceptance must present it for acceptance within a
reasonable time before he can negotiate it
II. A holder of a bill which is required to be presented for
acceptance cannot receive the bill unless it was first
presented for acceptance by the payee.
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

99. These statements are presented to you:

1. Presentment for acceptance can be made on a
Saturday whether the instrument is payable on demand or not.
II. Presentment for payment can be made on a
Saturday only for instruments payable on demand.
a. Both statements are true.
b. Both statetents are false.
c. Only Statement I is true.
d. Only Statement II is true.

100. A formal written statement made by a notary public at the

request of a holder of bill of exchange stating that he has demanded acceptance or
payment of the bill, and that it has been refused, with the reasons, if any, given by the
drawee or acceptor for the dishonor.
a. Certification
b. Demand letter
c. Protest
d. Affidavit

101. Protest is required in the case of a:

a. Foreign bill of exchange.
b. Inland bill of exchange.
C. Foreign promissory note.
d. Inland promissory note.

102. Who is qualified to be an acceptor for honor?

a. A person already a party to the bill.
b. A stranger to the bill.
c. Either (a) or (b).
d. Both (a) and (b).

103. Who is qualified to be a payer for honor?

a. A person already a party to the bill.
b. A stranger to the bill.
c. Either (a) or (b).
d. Neither (a) nor (b).
104. An acceptance for honor which does not expressly state for
whose honor it is made is deemed to be for the honor of the:
a. drawee.
b. drawer.
C. acceptor.
d. payee.

105. These statements are presented to you:

I, A bill in set is one composed of several parts, each set
being numbered and containing a reference to the other
parts.
II. In a bill in set, the number of bills depends upon the
number of parts; hence, if there are four parts, there will
be four separate bills.
a. Both statements are true.
b. Both statements are false.
C. Only Statement I is true:
d. Only Statement II is true.

106. R, drawer; W, drawee. The bill is payable to the order of P for

P10,000. Assume the following independent acceptances by W.
1. "Accepted. Payable for P10,000.00. (Sgd.) W"
II. "Accepted. Payable in gold worth P10,000.00. (Sgd. W'

Which of the foregoing is a valid acceptance?

a. I only.
b. 11 only.
c. Both I and II.
d. Neither I nor II.

107. P is the payee of a check on which two diagonal parallel lines

appear on the upper left portion of the check. R is the drawer; W
Bank is the drawee bank. P has a savings account in C Bank
where he regularly deposits checks ,and cash given to him as
payment. What may P do with the check so that he can receive
payment thereon?
a. Cash the check with W Bank only.
b. Deposit the check in his savings account with C Bank
only.
c. Demand paymr, nt of the check against R, the
drawer, only.
d. None of the foregoing.
108. R draws a check for P100,000.00 payable to the order of P and
against his deposit of P2,000,000.00 at W Bank. The check is indorsed by P to H, holder.
H delays the presentment of the check to W Bank. By the time he presents it for
payment, W Bank is already insolvent. R is able to recover P500,000.00 from the
Philippine Deposit Insurance Corporation on his deposit. Will R still be liable to H?
a. Yes, for P100,000.00.
b. Yes, for P75,000.00.
c. Yes, for P25,000.00.
d. No, R will no longer be liable because H's delay in
presenting the check for payment totally discharged him
from liability on the check.

109. Refer to the preceding number. May H go after P, the party who
indorsed the check to him?
a. Yes, for P1.00,000.00 in view of his warranty as an
indorser.
b. Yes, for only P75,000.00.
c. Yes, for only P25,000.00.
d. No, P was discharged by reason of the lack of due
presentment of the check.

110. These statements are presented to you:

1. A check is payable on demand although such fact is not
stated on its face.
II. A check that is post-dated can be deposited even before
the date indicated thereon since a check is always
payable on demand.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

111. Which of the following statements on post-dated check is

correct?
a. A post-dated check is payable on, demand starting from
the date of issue.
b. The post-dating of a check converts it into time
instrument.
c. The dishonor of a post-dated check when it is presented
before the date appearing thereon makes the drawer criminally liable.
d. A post-dated check may be cashed with the bank
against which it is drawn before the date indicated thereon.
112. R drew a check against his account with W Bank payable to the
order of P for P20,000.00. F stole the check, forged P's signature, and deposited.the
check in his account with C Bank. After clearing, F withdrew the amount of the check
and fled. Who among the following will shoulder the loss?
a. R.
b. P
c. W Bank,
d. C Bank

113. On October 1, 2010, 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 BIg. 22 (Bounching Checks
Law.)
b. Estafa under the Revised Penal Code.
c. Both (a) and (b).
d. Neither (a) nor (b).

114. The following are some causes of discharge of a prior party to

an instrument.
I. , Discharge of a prior party because the holder failed to
give him a notice of dishonor.
II Discharge of a prior party because he was adjudged a
bankrupt.
Ill. Discharge of a prior party because he was released for
value by the holder.
Which of the foregoing will not discharge subsequent indorsers?
a. I and II.
b. II and III.
c. I and III.
d. 1, II and Ill.

115. M is the maker of a promissory payable to the order of P which is

payable 30 days after date. The note dated August 1, 2010 was
issued on the same day by M to P. P indorsed the note to A, A
to B, and B to H. On September 1, 2010, H renounced
unconditionally his claim on the note against M who accepted the
renunciation. Nonetheless, H still negotiated the note on the
same day to X who had no knowledge of the renunciation. May
X still collect on the note from M and parties subsequent to M?
a. Yes, against M. No, against parties subsequent to M.
b. No, against M. Yes, against parties subsequent to M.
c. Yes, against M and parties subsequent to M.,
d. No, against M and parties subsequent to M.

116. P, by means of fraud, induced M to issue a promissory note

payable to the order of P for P21,000.00. The note was indorsed by P to A, and A to H. A
and H had agreed to a consideration of P20,000.00 (or a discount of P1,000.00). Initially,
H gave A the amount of P18,000.00. Before he could give the balance of P2,000.00 to A,
H learned that P's title was defective. Is H a holder in due course?
a. Yes, for P21,000.00.
b. Yes, for P18,900.00.
c. Yes, for P18,000.00
d. No, he is not a holder in due course because he
obtained knowledge of a defect in the title of a prior party
before he could pay in full to A the agreed consideration
of P20,000.00

117. Refer to the preceding number. Can H still collect on the note
from M?
a. Yes, for P21,000.00.
b. Yes, for P18,900.00.
c. Yes, for P18,000.00.
d. No, he cannot collect at all because he is not a holder
in due course.,

118. Which of the following is a real defense?

a. Illegality of contract expressly so declared in a statute.
b. Illegality of the contract because it was issued for
unlawful consideration.
c. Renunciation before maturity.
d. Fraud in inducement.

119. These statements- are presented to you:

1. An instrument payable on demand has no date of
maturity.
II. When a transfer of an instrument is effected on the date
of maturity, the holder is considered to have taken the instrument when it is already
overdue; hence, he is no longer a holder in due course.

In your evaluation of the foregoing statements:

a. Both statements are true.
b. Both statements are false
c. Only Statement I is true.
d. Only Statement II is.true.
120. Which of the following is a common liability of the drawer, maker
and acceptor?
a. The admission of the genuineness of the signature of
any indorser.
b. The admission of the existence of the payee and his
capacity of the payee to indorse.
c. The admission that the instrument j s covered with
sufficient funds.
The engagement on the payment of the instrument according to its tenor.

TEST 11- MATCHING TYPE. Indicate your answers by writing the letter representing the
statement or phrase that best describes, defines or explains the numbered items.
Terms

1. Issue
2. Holder for value
3. _ Negotiation
4. Accommodation party
5. Presentment for acceptance
6. Presentment for payment
7. Acceptance
8. Assignment
9. Special indorsement
10.Dishonor by non-acceptance
11. Dishonor by non-payment
12.Blank indorsement
13.Notice of dishonor
14.Protest
15.Holder
16.Restrictive indorsement 17.Bill of exchange
18.Qualified indorsement 19.Promissory note
20.Maker
21.Conditional indorsement
22.Irregular or anomalous
indorser
23. Acceptor
24. Exchange
25., Bills in set

26.Fraud in inducement
27.Holder in due course 28.Payee
29.Indorser
30.Drawer
31.Drawee
32.Check
33.Negotiability
34.Indorsee
35.Cognovit actionem 36.Relicta verificatione 37.Ante-dating
38.Acceleration clause 39.Post-dating
40.Immediate party
41.Real defense
42.Personal defense
43.Signature by procuration 44.Forgery
45.Warrant of attorney 46.Value
47. Cognovit note
48. Fraud in factum or in esse
contractus
49.Spoliation
50.Allonge

Statements
A. It exists in those cases in which a person, without negligence,
has signed an instrument which was, in fact, a negotiable instrument, but was deceived
as to the character of the instrument and without knowledge of it.
An alteration made by a stranger to the instrument.
A separate paper attached to a negotiable instrument where an
indorsement or the acceptance of a bill of exchange is written.
D. The authority for confession of judgment before the action is
begun.
E. Any consideration sufficient to support a simple contract.
F. The counterfeit making or fraudulent alteration of any writing,
and may consist in the signing of another's name, or the
alteration of an instrument in the name, amount, description of
the person and the like, with intent to defraud.
G. Includes not only a promise to pay on the part of the maker but
also grants permission to the payee to take judgment against the maker without trial if
the maker fails to pay on maturity date.
H. The act of appointing another as one's agent or attorney and
which operates as a notice that an agent has a limited authority
to sign.
The provision in a negotiable instrument which states that the whole amount on the
instrument shall become due in case of default in the payment of an installment or of
interest.
Literally, "his pleading' being abandoned'; it refers to a confession of judgment
accompanied by withdrawal of defense.
K. The party who executes the written promise to pay.
L. The payee or indorsee of a bill or note who is in possession of
the instrument, or the bearer thereof.
M. A, personal defense where a party is deceived into signing for a
larger amount than he intended, or on different terms, in a negotiable instrument.
N. The act of informing the drawer and each indorser that
an instrument has not be been accepted by the drawee, or that it
has not been paid by the acceptor, in the case of bill of
exchange, or by the maker, in the case of promissory note.
An unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand or at
a fixed or determinable future time, a sum certain in money, to
order or to bearer.
The difference in value of the same amount of money in different countries.
A holder who takes the instrument free from defect of title of prior parties and free
from personal defe,ises available to prior parties among themselves.
The person who executes the written order to pay a bill of
exchange.
S. A bill of exchange drawn on a bank which is payable on demand
T. Literally, "he has confessed action': it refers to a written
confession of defendant acknowledging indebtedness to plaintiff
after action has been filed.
U. An indorsement that constitutes the indorser a mere assignor of
the title the instrument; it is usually made by adding to the
indorser's signature the words "without recourse."
V. The transfer of a negotiable instrument from one person to
another in such a manner as to constitute the transferee the
holder thereof.
W. An unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to
whom it is addressed, to pay on demand or at a fixed or
determinable future time, a sum certain in money to order or
bearer.
X. It takes place when an instrument is presented for payment
but payment is refused or cannot be obtained..
The formal declaration drawn up and signed by a notary that he presented a bill of
exchange for acceptance or for payment and that it was refused.
An indorsement that specifies no indorsee and makes the instrument payable to bearer.
AA. The production of the bill of exchange to the drawee for
acceptance.
BB. It grows out of the agreement or the conduct of a particular
person in regard to the instrument which renders it inequitable
for him, though holding legal title, to enforce it against the
defendant, but which is not available against a holder in due
course.
CC. One that attaches to the instrument itself and can be set up
against the whole world including a holder in due course.
DD. It takes place when a bill of exchange is presented for
acceptance and such acceptance is refused or cannot be
obtained.
EE. A method of transferring an instrument whereby the transferee is
merely placed in the position of the transferor and acquires the instrument subject to all
defenses that might have been set up against the original payee.
FF. An indorsement that-.:prohibits the further negotiation of the
instrument, or constitutes the indorsee a mere agent of the
indorser, or vests the. title in the indorsee in trust for some other
person.
GG. The production of a promissory note to the party primarily liable
on the instrument for the .payment of the same, or of a bill
of exchange to the drawee or acceptor for payment.
HH. One who gives valuable consideration for an instrument issued
or negotiated to hi.n.
II. The first delivery of an instrument, complete in form, to a person
who takes it as holder.
JJ. The person who is given the command by the drawer to pay the
payee.
KK. The person or party to whom an instrument is negotiated by
indorsement.
LL. The person who signifies his acceptance to the order of the
drawer.
MM. One that has knowledge of the conditions or limitations placed
upon the delivery of the instrument or the fact that the instrument
was never delivered.
NN. Dating an instrument earlier than the date of issue.
00. An indorsement that is subject to the happening of a contingent
event.
PP. A person who transfers a negotiable instrument by means of an
indorsement.
QQ. The. party to whom a bill of exchange is, drawn payable or in
whose favor a promissory note is made payable.
RR. An indorsement that specifies the person to whom or to whose
order, the instrument is to be payable.
SS. A person who, not otherwise a party to the instrument, places
thereon his signature in blank before. delivery.
TT. He is one who has signed the instrument as maker, drawer,
indorser, or acceptor, without receiving value therefor, and for
the purpose of I3nding his name to some other person.
UU. The attribute that allows a negotiable instrument to be passed
from one person to another so as to give a holder in due course
the right to hold the instrument free from defect of title of prior.
parties and free from'defenses available to prior parties among themselves, and to
enforce the full amount of the instrument against all parties liable thereon.
W. Dating an instrument later than the date of issue.
WW. The signification by the drawee of his assent to the order of the
drawer.
A bill composed of various parts, each part being numbered, and containing a reference
to the other parts, all of which parts constitute but one bill.
YY. None of the foregoing.

TEST 111- TRUE OR FALSE. Write the word "TRUE" if the statement is true, and the word
'FALSE" if the statement is false.
1. An instrument which contains a promise or order to pay a sum of
money which is subject to a condition is negotiable as long as the condition happens.
2. An instrument where no time for payment is expressed is
payable on demand.
3. An instrument payable to a specified person or his agent is
payable to order.
The negotiable character of an instrument is not affected by the fact that it is not dated.
A bill of exchange which is addressed to two or more drawees alternatively does not
affect the negotiable character of an instrument.
Where the name of the payee does not purport to be the name of any person, the
instrument is payable to bearer.
7. Where an instrument is payable to the order of a "fictitious
person", the instrument is still payable to bearer although such person is actually
existing as long as he was not the intended recipient of the payment.
A bearer negotiable instrument is converted into an order negotiable instrument if it is
specially indorsed.
9. An order instrument becomes a bearer instrument if one of
several indorsements is an indorsement in blank.
10. The ante-dating or post-dating of an instrument does not render
it invalid provided it is not done for an illegal purpose.
11. An instrument that it is incomplete but delivered, when
,completed without authority, shall be considered to have been
completed with authority in the hands of a holder in due course.
12. An instrument that is complete but is undelivered shall be
considered validly delivered if it is in the hands of a holder in due
course.
13. If the amount due on an instrument is payable in installments,
the amount and maturity of each installment must be stated so
that the negotiable character of the instrument will not be
affected.
14. When - there is a conflict between the written and printed
provisions of an instrument, the printed provisions will prevail.
15. When an instrument provides for the payment of interest without
specifying the date from which the interest is to run, the interest
runs from the date of the instrument.
16. When an instrument is not dated, it will be dated as of the time it
was issued.
17. When
an instrument containing the words "I promise to pay" is
signed by two or more persons, they are deemed to be jointly
and severally liable:.
18. When a signature is so placed upon the instrument that it is not
clear in what capacity the person making it intended to sign, he
is deemed to be an indorser.
19. When an indorsement is forged in a promissory note payable to
bearer, the party whose indorsement was- forged and all parties
prior to him may raise the defense of forgery against any holder.
20. A pre-existing debt constitutes value and may be the
consideration of an instrument.
21. Want or absence of consideration is a defense against a holder
in due course.
22. A negotiable instrument may not be transferred by assignment.
23. A person signing an instrument as an agent is not liable thereon
provided he is duly authorized, discloses his principal, and indicates that he is signing as
an agent.
24. An indorsement made by a minor passes title to the instrument
although he himself does not incur any liability on the instrument.
25. An indorsement may be written on a separate sheet which is
attached to the instrument.
26. As a rule, an indorsement must be of the whole amount of the
instrument.
27. An indorsement to two or more indorsees severally such as "Pay
to A, 10,000.00 and to B. P5,000" is a valid indorsement of the
instrument.
28. An indorsement that prohibits the further negotiation of th,6
instrument renders the instrument non-negotiable.
29. If an indorsement is conditional, the party required to pay the
instrument may disregard the condition and make payment but the indorse must hold
the proceeds subject to the rights of the person indoksing conditionally.
30. If an instrument is indorsed to two or more persons jointly, all
of them must indorse unless one is authorized to indorse for the
others.
31. An instrument negotiable in origin continues to be negotiable
until it is restrictively indorsed or discharged by payment or
otherwise.
32. When an instrument is negotiated to a prior party, the prior .party
can go after the intervening parties for the amount of the
instrument,
33. A holder may still be a holder in due course even if the
instrument is not dated.
34. If an instrument stamped with the words "no sufficient funds" is
negotiated, the holder will no longer be considered a holder in
due course.
35. A personal defense is available only against a holder not in due
course.
36. Every holder is presumed to be a holder in due course.
37. A holder can still collect on the instrument even if he is not a
holder in due course provided he derives his title from a holder in due course and he
himself is not a party to any fraud or illegality affecting the instrument.
38. If a holder has received notice of any defect or infirmity of the
instrument 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 paid by him.
39. When a negotiable instrument is delivered without any
indorsement, the negotiation takes effect at the time of its first delivery if it is
subsequently indorsed.
40. When an instrument originally payable to bearer is specially
indorsed, the person indorsing specially is liable only to such
holders as make title through his indorsement.
41. Indorsers are liable prima facie in the order in which
they indorse.
42. Joint payees or joint indorsees are deemed to indorse jointly
and severally.
43. Payment in good faith before maturity which is made by. the
principal debtor to the holder and without notice that his title is defective discharges
the instrument.
44. The cancellation of a negotiable instrument which is made by the
holder is presumed to have been made intentionally.
45. When the principal debtor becomes 'the holder in his own
right before maturity, the instrument is discharged by confusion or
merger.
46. An. absolute and unconditional renunciation made by the holder
before, at or after. maturity in favor of the principal. debtor discharges the instrument.
47. A bill of.exchange does not operate as an assignment of funds in
the hands of the drawee and the drawee is not liable until he
accepts the same.
48. The certification of a check by a bank is equivalent to
acceptance, and when procured by the holder, the drawer
and the indorsers are discharged.
49. A check is always payable on demand.
50. The drawer of a bill of exchange need not have funds with the
drawee except in the case of a check.

TEST IV - NEGOTIABLE OR NON-NEGOTIABLE. Indicate your

answers by writing "0" if the instrument is negotiable, and "X" if it is
not.
1.

December 1, 2010
I promise to pay Pablo Patricio' or order
P10,000.00 in two equal monthly installments.
(Sgd.) Manuel Morales

2.
December 1, 2010
Pay to Pablo Patricia or order P10,000.00 and debit my account thereafter.
(Sgd.) Romeo Ramos

To: Walter Wenceslao

3.
(No Date)
I promise. to pay Pablo Patricio or bearer
P10,000.00 thirty (30) days after date.
(Sgd.) Manuel Morales

December 1, 2010

I promise to pay Pablo Patricio or order

P10,000.00 or deliver to him a television set at my
option.
(Sgd.) Manuel Morales

5.
December 1, 2010

Pay to Pablo Patricio or order P10,000.00 representing the purchase price of the ring
that I bought from him yesterday.
(Sgd.) Rompo Ramos
To: Walter Wenceslao
6.
December 1, 2010
Pay to Pablo Patricio or order P10,000.00 if
he passes the May 2011 CPA Board Examination.
(Sgd.) Romeo Ramos
To: Walter Wenceslao

Note: Pablo Patricio eventually passed the May 2011 CPA Board Examination.

December 1, 2010
Pay to the order of Jose Rizal, national hero.
P10,000.00.
(Sgd.) Romeo Ramos
To: Walter Wenceslao
8.

December 1, 2010
I promise to pay Pablo Patricio or order
P10,000.00 and 2 units of Nokia cell phone.
(Sgd.) Manuel Morales
11
9.
December 1. 2010
I promise to pay Pablo Patricio P10,000.00
with interest at 10% per annum.
(Sgd.) Manuel Morales

14
10.

December 1, 2010
I promise to pay Pablo Patricio or order
P10,000.00 sixty (60) days after date. Should I fail to
pay on due date, I hereby authorize Pablo Patricio to foreclose the chattel mortgage
that I executed on my car to secure this debt.

(Sgd.) Manuel Morales

ANSWERS TO DIAGNOSTIC EXERCISES
NEGOTIABLE INSTRUMENTS
TEST I - MULTIPLE CHOICE
1. D 31.D 61. A 91. A
2. A 32.A 62.C 92. C
3. B 33.D 63.B 93. A
4. D 34.B 64.C 94. B
5. A 35.D 65. B 95. C
6. A 36.A 66.B 96. C
7. C 37.A 67. D 97. D
8. C 38.D 68.B 98. B
9 C 39.C 69.B 99. A
10. C 40.D 70.C 100. C
11. A 41.D 71. B 101. A
12. C 42.C 72. B 102. B
13. D 43.B 73. D 103. C
14. D 44.D 74.C 104.. B
15. B 45.C 75. D 105. C
16. B 46.C 76.C 106. A
17. D 47.D 77.C 107. B
18. B 48.D 78. D 108. C
19. B 49.D 79. B 109. D
20. C 50.D 80,D 110. C
21. D 51.B 81. C 111. B
22. 0 52.D 82.B 112. D
23. D 53.B 83. B 113. C
24. C 54.D 84.A 114. A
25. D 55.C 85. D 115. C
26. D 56.C 86.B 116. B
27. B 57.A 87. D 117. B
28. A 58.A 88.A 118. A
29. A 59.B 89. C 119. B
30. B 60.A 90.D 120. B
TEST II -MATCHING TYPE
1. II 11. X 21. 00
2. HH 12. Z 22. SS
3. V 13. N 23. LL
31. JJ 41 CC
32. S 42 BB
33. UU 43 H
4. TT 14. Y
5. AA 15. L
6. GG 16. FF
7. WW 17. W
8. EE 18. U
9. RR 19. 0
10. DD 20. K
TEST III - TRUE OR FALSE
1. FALSE 11. TRUE 21. FALSE
2. TRUE 12. TRUE 22. FALSE
3. FALSE 13. TRUE 23. TRUE
4. TRUE 14. FALSE 24. TRUE
5. FALSE 15. TRUE 25. TRUE
6. TRUE 16. TRUE 26. TRUE
7. TRUE 1.7. TRUE 27. FALSE
8. FALSE 18. TRUE 28. TRUE
9. FALSE 19. FALSE 29. TRUE
10. TRUE 20. TRUE 30. TRUE
31. TRUE
24. P
25. XX
26. M
27. Q
28. QQ
29. PP
30. R
41TRUE
32. FALSE 42. TRUE
33. TRUE 43. FALSE
34. TRUE 44.TRUE
35. TRUE 45. FALSE
36. TRUE 46. FALSE
37. TRUE 47. TRUE
38. TRUE 48. TRUE
39. FALSE 49. TRUE
40. TRUE 50. TRUE
TEST IV - NEGOTIABLE OR NON-NEGOTIABLE

1. X
2. 0
3. 0
4.- X
5. 0
6. X
7. 0
8.X
9.X
10.- 0