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Accountancy Department

Pre-board Examination (Business Law)

INSTRUCTIONS: Select the best answer for each of the following
questions. Mark only one answer for each item on the answer sheet
provided. Strictly no erasures allowed. Use blue pen only.
1. Three of the following are personal defenses. Which one is not?
a. Want of delivery of an incomplete instrument
b. Want of delivery of a complete instrument
c. Acquisition of an instrument by unlawful means
d. Filling up of wrong date
Ans. A
2. When a signature in an instrument does not indicate in what
capacity a person had intended to sigh, the person whose signature
appears on the instrument is deemed to be:
a. Drawer
b. Drawee
c. Indorser
d. Indorsee
Ans. C
3. A issued a negotiable note to B. B indorsed it to C, a minor. C
indorsed to D and D to E. Who will be liable to E, if A will dishonor
the note
a. Only D being the immediate transferor
b. B, C, and D being secondary parties
c. Only B and D, C is not liable being a minor
d. Only B, being the original payee
Ans. C
4. Which of the following is a bearer instrument?
a. Pay P the sum of 10,000 on demand.
b. Pay to the order of P the sum of 10,000 on December 31 of this
current year.
c. Pay order 10,000 upon sight.
d. None of the foregoing
Ans. C

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5. Three of the following are requirements of a valid indorsement.

Which one is not?
a. The indorsement must be written on the instrument itself or upon
a paper attached thereto
b. It must be completed by delivery
c. The indorsement should not contain any conditions or restrictions
d. It must be an indorsement of the entire instrument
Ans. C
6. Which is an element of the doctrine of piercing the veil of corporate
a. Complete control over the business.
b. Control is used to commit fraud or wrong.
c. Control and breach of duty are the proximate cause of the injury
or loss.
d. All of the foregoing.
Ans. D
7. One of the following attributes is not common to both a corporation
and a partnership:
a. Succession
b. Income tax rate
c. Juridical personality
d. Can act through agents only
Ans. A
8. One of the following entities cannot be organized as a stock
a. Bank
b. Close corporation
c. Religious corporation
d. Educational corporation
Ans. C
9. Which of the following entities are private corporations, as
distinguished from public corporations?
b. National Power Corporation
c. Public utilities
d. All of the foregoing
Ans. D

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10. A corporation may be a partner to another corporation where:

a. All partners are managing partners and the articles of
incorporation expressly
allow it.
b. The foreign corporation is a general partner in a domestic limited
c. A joint venture is entered into that is not in line with its business.
d. None of the foregoing.
Ans. A
11. Which of the following statements relative to a corporation, stock or
non-stock, is true?
a. All incorporators are stockholders.
b. All corporators are incorporators.
c. All incorporators are subscribers.
d. None of the foregoing.
Ans. D
12. Which of the following statements in relation to capital stock is
a. There is no authorized capital stock in no-par value shares.
b. Subscribed capital stock is still unissued.
c. Treasury stock is not part of outstanding capital stock.
d. None of the foregoing.
Ans. D
13. One of the following is not a feature of authorized capital stock:
a. It applies only to par value stock.
b. It represents the maximum stock that may be issued by the
c. It may include subscribed capital stock.
d. It may include retained earnings.
Ans. D
14. To bind third persons, the chattel mortgage executed on a private
motor vehicle must be registered with the:
a. Chattel Mortgage Registry
b. Land Transportation Office
c. Both (a) and (b)

d. Neither (a) nor (b)

15. One of the following incidents is a cause for involuntary dissolution
of the partnership:

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a. termination of the definite term of partnership

b. insolvency of a partner
c. express will of a partner in a partnership at will
d. expulsion of a partner of a cause as stated in the articles of part
Ans. B
16. A partners interest in the partnership is not assignable unless the
other partners consent.
An act of strict dominion may be performed by a partner without the
consent of his co-partners if it is advantageous to the partnership.
a. both statements are false
first is true, second is false
b. both are true
first is false, second is true
Ans. A


17. A partnership contract begins form the moment of the execution of

the contract unless it is otherwise stipulated.
Even if a third person is in good faith, the partnership is not bound in
contract entered into by a partner after the dissolution of the
partnership if the business of the partnership has become unlawful.
a. first statement is false, second is true
both are false
b. first is true, second is false
both are true
Ans. D


18. Type of partnership in which the partners enjoy practically all the
a. General partnership
b. Limited partnership
c. Universal partnership
d. De facto partnership
19. A partnership which compromises all that the partners may acquire
by their work or industry during the existence of the partnership is:
a. Universal partnership of present property
b. Universal partnership of profits
c. Particular partnership
d. General partnership
Ans. B

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20. May be required additional contribution in case of imminent loss:

a. Capitalist partner
b. Industrial partner
c. Limited partner
d. None of the above
Ans. A
21. Sometimes termed dormant partner
a. Limited partner
b. Secret partner
c. Capitalist partner
d. None of the above
22. As regards treasury shares, which is not correct?
a. they have no voting rights while in the treasury
b. they may be distributed as property dividend if there surplus profit
c. they are not entitled to dividends
d. they are considered part of the earned or surplus profits thus
distributable as dividends
Ans. D
23. The following is considered fraud or fraudulent
a. Failure to disclose facts when there is duty to reveal them
b. The usual exaggeration in trade, when the other party had the
opportunity to know the facts
c. Misrepresentation not made in bad faith
d. Caveat Emptor or Let the Buyer Beware
Ans. A
24. Through insidious words or machinations, Abion was able to induce
Blanco to enter into contract without them Blanco would not have
agreed to it. There is:
a. Undue influence
b. Fraud
c. Mistake
d. Misrepresentation
Ans. B
25. A intimidated B to marry As daughter. After a year, B would like to
file action for annulment but could not be do so because A was
around to intimidate him. The marriage contract isa. Rescissible
b. Voidable

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c. Void
d. Unenforceable
Ans. B
26. Which of the following contracts may not be annulled on ground of
a. Eddie sold to Atty. Malaya 200 copies of Transfer and Business
Taxes by Ampongan at P250 each. Atty. Malaya paid P50,000 for
the books but the amount appeared in the receipt issued was
P45,000 only.
b. ARTS Review Center hired the services of Atty. Dipasipa as
lecturer in Business Law. His resume which made as the basis
for hiring him indicates that he is a CPA-Lawyer when in fact he
is not a CPA although he graduated with a degree of Bachelor of
Science in Accountancy.
c. A owns a piece of untitled land which to his knowledge
measures 15 hectares and sold it to B for P300,000 and B
thinking it really contains 15 hectares bought it from A.
d. None of the above.
Ans. A
27. France offered to sell her cellular phone for P10,000 to her friend,
Serra. Serra accepted the offer but is willing to pay only P8,000. Is
there a perfected contract?
a. Yes, for a price of P10,000.
b. Yes, for a price of P8,000.
c. No, because the acceptance was qualified and it constituted a
d. No, because the offer was rejected.
Ans. C
28. Tindero sold to Mamimili the computer owned by Mabait without
Mabaits authority. The contract is
a. Perfectly valid
b. Voidable
c. Void
d. Unenforceable
Ans. D
29. Ayubo owes Babagay P200,000 payable December 31, 2008. On
December 1, 2008, Ayubo died leaving property worth P100,000 to
his only son, Cayat. Cayat should pay Babagal
a. P100,000
b. P200,000
c. P50,000

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d. Nothing
Ans. A
30. It takes place when the parties do not intend to be bound at all by
their agreement
a. Apparent contract
b. Absolutely simulated contract
c. Relatively simulated contract
d. Deed of assignment
Ans. B
31. Simulation of a contract may be absolute or relative. It is relative
a. The parties do not intend to be bound at all.
b. The contract is void.
c. The parties conceal their true agreement.
d. Answer not given
Ans. C
32. Three of the following contracts are void. Which one is not?
a. Oral contract of partnership of three partners and capital
contribution is more than P3,000 in cash.
b. Written contract contemplating impossible services.
c. Oral contract of partnership where real estate is contributed as
d. Agents authority to sell land is given orally.
Ans. A
33. When the written contract does not express the true intent of the
parties as per their meeting of the minds due to mistake, fraud,
accident or inequitable conduct the remedy isa. Ratification
b. Reformation
c. Rescission
d. Annulment
Ans. B
34. Rescission of contract can take place in this case:
a. When the thing which are the object of the contract are legally
in the possession of third person who acted in bad faith.
b. When he who demands rescission can return whatever he may
be obliged to restore.
c. When the third party seeking resolution can perform only as to
part and as to remainder.

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d. When the seller cannot return the instalments paid to him by

the buyer.
Ans. B
35. Which of the following contracts is voidable?
a. Those whose object is outside the commerce of man.
b. Those which are absolutely fictitious.
c. Those where one of the parties is incapacitated.
d. Those where contemplate an impossible service.
Ans. C
36. A contract entered into by an insane person during a temporary
period of sanity is
a. Valid
b. Rescissible
c. Voidable
d. Unenforceable
Ans. A
37. X pointed a dagger at S and compelled S to sell his land to B at a
very cheap price. Who among the three can ask for annulment of the
contract of sake?
a. X only
b. B only
c. S only
d. Anyone of them
Ans. C
38. In obligations with a penal clause, the creditor as a rule may
recover from the debtor in case of breach of 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
Ans. D
39. 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 to the
b. Several prestations are due
c. Only one prestation is due but the debtor may render another in
d. The obligation becomes a simple obligation once the choice of
the prestation is made and communicated.
Ans. D

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40. May contribute money, property or industry to the common fund:

a. Limited partner
b. General partner
c. Both limited and general partner
d. None of them
Ans. B
41. May be required additional contribution in case of imminent loss:
a. Capitalist partner
b. Limited partner
c. Industrial partner
d. None of the above
Ans. A
42. One who takes charge of the winding up of partnership affairs upon
a. Ostensible partner
b. Liquidating partner
c. Silent partner
d. None of the above
Ans. B
43. A limited partner who takes active part in the management of the
firm becomes
a. A managing partner
b. Liable as a general partner
c. A general partner
d. A general and a limited partner at the same time.
Ans. B
44. In three of the following there is no warranty against hidden defects
of animals. Which is the exception?
a. Animals sold at fairs
b. Livestock sold as condemned, declared known to the buyer
c. Animals sold at public auction
d. None of the above
Ans. D
45. Which of the following statement is not correct?
a. Actual delivery of the thing or payment of the price is not
required for the perfection of the sale
b. A stipulation that even when the object is delivered to the
buyer, ownership will not pass until the price is fully paid is not

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c. A sale is consummated upon delivery of the thing and the

payment of the purchase price
d. Sales through letters or telegrams are deemed perfected only
when the seller has received acceptance by the buyer
Ans. B
46. Pacto de retro sale as distinguished from mortgage:
a. There is redemption when the principal debt is paid
b. There is no transfer of possession of the thing sold
c. There is no foreclosure unless it is declared as an equitable
d. There is no transfer of ownership of the thing sold
Ans. C
47. Require consent, subject matter, cause consideration, and delivery
a. Formal contract
b. Consensual contract
c. Solemn contract
d. Real contract
Ans. D
48. Which of the following is not a real contract?
a. Deposit
b. Sale
c. Pledge
d. Commodatum
Ans. B
49. Contracts which must be in the form provided by law for their
a. Consensual contracts
b. Real contracts
c. Onerous contracts
d. Solemn contracts
Ans. D
50. 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
a. Liberty to contract
b. Mutuality of contract
c. Relativity
d. Consensuality
Ans. A

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