CPAR BL Compilation

BUSINESS LAW & TAXATION CPA Review School of the Philippines First Pre-board Examination
OBLIGATIONS Fruits (1164)

General Provisions Different Kinds of Fruits; Right of Creditor to the Fruits; When Obligation to Deliver Fruits Arises
Meaning of Obligation; Meaning of Juridical Necessity; Nature of Obligations; Essential Requisites; 1. S agreed to sell B his land and B agreed to pay P10,000 if X will pass CPA Exams of 2002. X
Form of Obligations; Kinds of Obligation According to Subject Matter (1156) passed. Meantime, interest earned is P1,200, while the fruits harvested is P2,000.
10. 1st Statement: In alternative obligations, it is the communication of which prestation to perform A. S will deliver the land to B
made by the debtor shall convert the alternative obligation into a pure or simple one. B. B will pay S the price of the sale
2nd Statement: In case of a joint obligation, the co-debtors may be held liable for the C. Combination of A and B
share of an insolvent co-debtor D. Combination of A and B, together with the fruits and interest
A. B. C. D.
1st Statement True False True False 1. The buyer has the right to the fruits of the thing from:
2nd Statement True False False True A. Time of delivery C. Time contract of sale is perfected
B. Time of obligation to deliver it arises D. Time fruits are delivered
Sources of Obligations (1157)
Meaning of Personal Right and Real Right; Personal Right and Real Right Distinguished;
Legal Obligations (1158)
Ownership Acquired by Delivery
Contractual Obligations, Compliance in Good Faith (1159)
Remedies of Creditor in Real Obligation; Responsibility of Debtor who Delays or Has Promised
Quasi-Contracts (1160) Delivery to Separate Creditors (1165)
Quasi-Contractual Obligations; Kinds of Quasi-Contracts
Accessions and Accessories (1166)
Civil Liability Arising from Crimes or Delicts; Scope of Civil Liability (1161) Meaning of Accessions and Accessories; Right of Creditor to Accessions and Accessories
Quasi-Delicts (1162) Situations Contemplated in Art. 1167; Remedies of Creditor in Positive Personal Obligation;
Obligations Arising from Quasi-Delicts; Requisites of Quasi-delict; Crime Distinguished from Quasi- Performance by Third Person (1167)
delict
4. A mango tree in the land of O is reclining towards the road. All of a sudden, without a storm or Remedies of Creditor in Negative Personal Obligation (1168)
an earthquake or even strong wind, the tree falls hitting a car belonging to X causing a
P200,000 damage. The liability of O to X arises from Delay (1169)
A. Contract C. Delict Meaning of Delay; Kinds of Delay or Default
B. Quasi-contract D. Quasi-delict 2. The delay of the part of the creditor to accept the performance of an obligation
A. Dolo incidente C. Dolo causante
Nature and Effect of Obligations B. Mora accipiendi D. Mora solvendi
Specific & Generic Thing (1163)
Meaning of Specific or Determinate Thing; Meaning of Generic or Indeterminate Thing; Specific No Delay in Negative Personal Obligation; Requisites of Delay or Default by the Debtor; Effects of
Thing and Generic Thing Distinguished; Duties of Debtor in Obligation to Give a Determinate Delay; When Demand is Not Necessary to Put Debtor in Delay
Thing; Duties of Debtor in Obligation to Deliver a Generic Thing 2. Rose obliges herself to give Jack 1 dozen of eggs on January 15, 2003. When the date
arrived, Rose failed to deliver despite repeated demands from Jack. Jack’s remedy is:
February 19, 2005 Page 1 of 48
A. Compel Rose to deliver the eggs plus damages. value of the ring plus damages because there was a breach of contract. The shop cannot
B. Compel Rose to pay the amount of the eggs. escape liability because there was delay.
C. Rescind the contract. A. B. C. D.
D. Ask a 3rd person to deliver the eggs to him but chargeable to Rose. st
1 Statement True False True False
2nd Statement True False False True
2. Debtor obliged himself to deliver to creditor 100 cavans of rice on June 1, 2001. On said date,
D failed to make delivery despite repeated demands by C. In this case: Grounds for Liability; Fraud and Negligence Distinguished (1170)
A. C has no remedy under the law 2. A, B and C are obliged to give X, Y and Z a specific car valued at P600,000. On due date, X,
B. C can compel D to deliver 100 cavans of rice plus damages Y, and Z demanded delivery from A but A did not deliver. The following day, the car is lost due
C. C may ask a third person to deliver 100 cavans of rice to him, the value recoverable from to fortuitous event.
D plus damages A. The obligation is extinguished because the loss is due to fortuitous event
D. None of the above. B. The obligation is extinguished because the debtor are guilty of default, but instead
converted into money consideration
4. D obliges himself to pay C P100,000 in 30 days plus a penalty of P20,000 if A fails to pay the C. the creditor can require the debtor to deliver another car but more valuable
obligation in due time. D failed to pay his obligation in 30 days. C can demand from D D. Answer not given
A. The principal amount of P100,000 plus the penalty of P20,000 plus interest.
B. The principal amount of P100,000 plus legal interest. 3. Christine obliged herself to give to Conrad her BMW car on October 10, 2003 but she failed to
C. The principal amount of P100,000 plus the penalty of P20,000, plus interest, plus deliver on that date. On the following day, a lightning completely destroyed the car.
damages. A. Christene is still liable for she is in default already.
D. The principal amount of P100,000 plus the penalty of P20,000. B. Christene is no longer liable there being no demand, there is no delay and the thing is lost
due to fortuitous event.
7. Paula obliged herself to give to Cathy her BMW car on October 10, 2004 but she failed to C. Conrad can demand for a substitute.
deliver on that date. On the following day, a lighting completely destroyed the car. D. Christene is not liable even if she is in default.
A. Paula is still liable for she is in default already.
B. Paula is no longer liable there being no demand, there is no delay and the thing is lost due Responsibility Arising from Fraud Demandable; Waiver of Action for Future Fraud Void; Waiver of
to fortuitous event Action for Past Fraud Valid (1171)
C. Cathy can demand for a substitute. 1. In the execution of obligations, liability for malice or bad faith
D. Paula is not liable even if she is in default. A. Extends not only to results intended but also to their foreseen consequences.
B. Is demandable in all obligations but may be renounced in advance.
4. R bought her diamond ring to a jewelry shop for cleaning. The jewelry shop undertook to C. Extends only to results intended but excluding exemplary damage
return the ring by February 1, 2001. When the said date arrived, the jewelry shop informed R D. Extends to natural consequences even if they exceed the debtor's expectations.
that the job was not yet finished. They asked her to return five days after. On February 6,
2001, R went to the shop to claim the ring, but she was informed that the same was stolen by 1. 1st Statement: Negligence in the performance of a pre existing contract or culpa contractual is
a thief who entered the shop the night before. Later, the ring was found in the possession of one of the sources of obligations.
“T”, the thief. 2nd Statement: Waiver for a future fraud is void but a waiver for a fraud done (past fraud) is
1st Statement: The jewelry shop is not liable because the lost of the ring is due to force valid.
majeure. The right of R is to proceed against T, the theft. A. B. C. D.
2nd Statement: The right of R is to proceed against the jewelry shop owner and ask for the
1st Statement True False False True
2nd Statement True False True False C. No, the dismissal of the criminal case against Y carries with it the dismissal of the civil
aspect which was not reserved
D. Yes, so long as he can prove the existence of a contract of common carriage between him
Negligence (1172-1173) and the bus company at the time he sustained the injuries.
Responsibility Arising from Negligence Demandable; Validity of Waiver of Action Arising from
Negligence; Kinds of Negligence According of to Source of Obligation; Effect of Negligence on the 2. A person is entitled to adequate compensation only for such pecuniary loss suffered by him as
Part of the Injured Party he has duly proved, except as provided by law or by stipulation. Such payment is referred to
as
Meaning of Fault or Negligence; Factors to be Considered; Measure of Liability for Damages; A. Nominal damages C. Liquidated damages
Kinds of Diligence Required B. Compensatory damages D. Monetary damages
5. Which of the following is not a ground for damages?
A. Promising to deliver the same thing to two different persons not having the same interest Fortuitous Event (1174)
therein. Meaning of Fortuitous Event; Fortuitous Event Distinguished from Force Majeure; Kinds of
B. Performance of an act which impairs the strict and faithful fulfillment of the obligation. Fortuitous Events; Requisites of a Fortuitous Event; Rules as to Liability in Case of Fortuitous
C. Non-performance of an obligation with respect to time. Event
D. None of the above.
Loan, Usury, Interest (1175)
1. The standard of care that a person obliged to give something must observe in the preservation Meaning of Simple Loan or Mutuum; Meaning of Usury; Requisites for Recovery of Interest
of the specific thing subject matter of an obligation.
A. That diligence of a good father of a family Presumption (1176)
B. That diligence which the parties have stipulated on Meaning of Presumption; Two Kinds of Presumption; When Presumptions Do Not Apply
C. That diligence which the law provides
D. All of the above Remedies Available to Creditors for the Satisfaction of their Claims (1177)
1. The initial standard of care that a person is obliged to give something must observe in the Transmissibility of Rights (1178)
preservation of the specific thing subject matter of an obligation.
A. That diligence of a good father of a family. Comprehensive
B. That diligence which the parties have stipulated on. 5. 1st Statement: Mr. X waived in advance his right to sue Mr. A, if A will cause him injury due to
C. That diligence which the law provides. A’s negligence. The waiver is void.
D. None of the above. 2nd Statement: Dolo incidente or fraud in the celebration of contacts is a ground to annul the
obligation.
4. X a passenger of a bus plying the Manila-Baguio route, sustained serious physical injuries A. B. C. D.
brought about by the reckless driving of Y, the designated bus driver, when the bus rammed 1st Statement True False True False
into a concrete wall at around 11:00 pm that day. In a criminal case against the driver, the 2nd Statement True False False True
latter was acquitted. Thereafter, X filed a case against the bus company for culpa contractual.
Will the suit prosper? Different Kinds of Obligations
A. No, this would constitute double jeopardy Pure and Conditional Obligations (1179)
B. Yes, provided he can prove the negligence of Y, the driver Meaning of Pure Obligation; Meaning of Conditional Obligation; Meaning of Condition;
Characteristics of a Condition; Two Principal Kinds of Condition; Distinctions beween Suspensive

and Resolutory Conditions; When Obligations is Demandable at Once; Past Event Unknown to the Positive Condition (1184)
Parties
8. A promissory note signed by D and dated March 15, 2002 is worded as follows, “I promise to Negative Condition (1185)
pay C the sum of Fifty Thousand Pesos (P50,000) provided that if she should fail in the
October, 2002 CPA Examination, she shall return to me said amount.” The above note gives Constructive Fulfillment of Condition (1186)
rise to an obligation with Constructive Fulfillment of Suspensive Condition; Constructive Fulfillment of Resolutory Condition;
A. Suspensive condition C. Resolutory condition
B. Casual condition D. None of the above Retroactive Effect of Fulfillment of Condition (1187)
Retroactive Effects of Fulfillment of Suspensive Condition; Retroactive Effects as to Fruits and
Interests in Obligations to Give
Where Duration of Period Depends Upon the Will of Debtor (1180)
Rights Pending Fulfillment of Suspensive Condition (1188)
Effect of Happening of Condition (1181)
Loss (1189)
Classification of Conditions (1182) Requisites for Application of Article 1189; Kinds of Loss; Rules in Case of Loss, Deterioration, or
Potestative Condition; Where Suspensive Condition Depends upon Will of Debtor; Where Improvement of Thing During Pendency of Suspensive Condition
Suspensive Condition Depends upon Will of Creditor; Where Resolutory Condition Depends upon
the Will of Debtor; Casual Condition; Mixed Condition; Where Suspensive Condition Depends Fulfillment of Resolutory Condition (1190)
Partly upon Will of Debtor. Effects of Fulfillment of Resolutory Condition; Applicability of Article 1189 to Party with Obligation to
3. DR promised to give DE, his grandson, a car if the latter will pass the bar examinations. When Return)
his grandson passed the said examinations, which of the following statements is true?
A. DR may refuse to deliver because the condition is purely a potestative one. Art. 1191
B. The obligation is valid because the condition depends upon the sole will of the donor. Kinds of Obligation According to the Person Obliged; Remedies in Reciprocal Obligations; Court
C. Both the obligation and the condition are ineffective because they depend upon the sole may Grant Guilty Party Term for Performance; Remedies are Alternative; Limitations on Right to
will of the donor. Demand Rescission; Rescission Without Previous Judicial Decree
D. The obligation is valid although potestative because they depend upon the sole will of the
donee. Breach (1192)
Where Both Party are Guilty of Breach
Impossible Conditons (1183) Comprehensive
Two Kinds of Impossible Conditions; Effect of Impossible Conditions
4. 1st Statement: “I will give you a specific car if you will not marry X this year (1999). If by the end Obligations with a Period (1193)
of 1999, both parties are alive and no marriage has taken place, my obligation is extinguished. Meaning of Obligation with a Period; Meaning of Period or Term; Period and Condition
2nd Statement: “I will give you P10,000 if you cannot make a dead man alive. This is Distinguished; Kinds of Period or Term
impossible condition, obligation not demandable. 9. “Conrado will continue giving Pedro the latter’s meal allowance until the end of this year”, is an
A. B. C. D. obligation subject to:
1st Statement True False True False A. a resolutory period C. a resolutory condition
2nd Statement True False False True B. a suspensive condition D. a suspensive period
their respective obligation. The obligation of A is

2. Which of the following is not an obligation with a period? A. To deliver the horse immediately as there is a perfected contract
A. Obligation payable within 2 years B. To deliver the horse within a reasonable time of two months from the contract date
B. Obligation payable within a reasonable time C. To deliver the horse upon payment by B of P5,000
C. Obligation payable on or before a given date in the future D. To rescind the contract as there is no time fixed for the delivery and payment
D. None of the above
Exceptions to the General Rule; Computation of Term or Period
5. 1st Statement: “To Maria, my true love, I obliged myself to give you my one and only horse
when I feel like it. Court Generally Without Power to Fix a Period; Exceptions to the General Rule; Legal Effect
2nd Statement: “To Perla my true sweetheart, I obliged myself to pay you the P500.00 I owe Where Suspensive Period/Condition Depends upon the Will of Debtor; Period Fixed Cannot be
you when I feel like it. Changed by the Courts
A. B. C. D. 3. 1st Statement: If the obligation does not fix a period, but from its nature and the circumstances,
1st Statement Void Valid Void Valid it can be inferred that a period was intended, the court may fix the duration thereof. Once it is
2nd Statement Void Valid Valid Void fixed by the court, the parties cannot change the fixed date for performance.
2nd Statement: “I will give you P10,000, as soon as possible.” This is an obligation
6. 1st Statement: “To Maria, my true love, I obliged myself to give you my one and only horse with a period for the benefit of both the debtor and creditor.
when I feel like it. A. B. C. D.
2nd Statement: “To Perla my true sweetheart, I obliged myself to pay you the P500.00 I owe 1st Statement True False True False
you when I feel like it. 2nd Statement True False False True
A. B. C. D.
1st Statement Enforceable Not Enforceable Enforceable Not Enforceable When Obligation Can be Demanded Before Lapse of Period
2nd Statement Enforceable Not Enforceable Not Enforceable Enforceable 3. When the period is "on or before a date", the debtor has the benefit of the period. This benefit
is lost and the obligation becomes demandable when:
Effect of Loss, Deterioration, or Improvement before Arrival of Period (1194) A. the debtors attempts to abscond.
B. after contracting the obligation, the creditor suspects the debtor to becoming
Payment before Arrival of Period (1195-1198) insolvent.
Debtor Presumed Aware of Period; No Recovery in Personal Obligations; Presumption as to C. the guarantee given by the debtor is not acceptable to the creditor.
Benefit of Period D. demand by the debtor could be useless.
16. On July 1, 1997, A signs a promissory note and binds himself to pay X P100,000 plus 15% per
annum interest on June 30, 1999 Alternative Obligations (1199-1206)
A. Before June 30, 1999. X can demand payment Kinds of Obligation According to Object; Meaning of Alternative Obligation
B. If on June 30, 1998 A is paying X, X cannot refuse the payment
C. Because the period is for the benefit of the debtor A can compel creditor X to accept Right of Choice, as a Rule, Given to Debtor; Right of Choice of Debtor Not Absolute
payment any date before June 30, 1999
D. Because the period is for the benefit of the debtor and creditor, X can refuse any tendered Communication of Notice that Choice has been Made
payment before June 30, 1999.
Effect when only one Prestation is Practicable
2. A sold to B the former’s horse for P5,000. No date is fixed by the parties for the performance of
When Debtor may Rescind Contract A. Divisible. C. Indivisible.

B. Joint. D. Solidary.
Effect of Loss of Objects of Obligation; Basis of Indemnity
6. D obliged to give C, either object No.1 valued P15,000 or object No. 2 valued P10,000; or Kinds of Obligations According to the Number of Parties; Collective Obligation Presumed to be
object No. 3 valued P5,000. All the objects were lost due to D’s fault in the following order Jointl Presumption Subject to Rules on Multiplicity of Suits; Words Used to Indicate Joint Liability;
stated. Solidarity not Presumed
A. D’s obligation is extinguished
B. D’s obligation is to pay the value of object No.1 plus damages Joint Indivisible Obligation
C. C’s right id to demand the value of any of the object plus damages
D. None of the above Indivisibility and Solidarity Distinguished
When Right of Choice belongs to Creditor; Rules in Case Loss before Creditor has Made Choice; Kinds of Solidary Obligation According to the Legal Tie; Solidarity not Affected by Diverse
Rules Applicable to Personal Obligations Stipulations
4. A obliged himself to deliver to B his dog, his cow, his carabao, his elephant or his crocodile and
gave B the right of choice. The first two were lost due to fortuitous event and the last three Act of Solidary Creditor Prejudicial to Others
were lost due to A’s fault.
A. Creditor, B may convert to cash any of them plus damages. Assignment by Solidary Creditor of His Rights
B. Debtor A may convert to cash the value of the last one lost plus damages.
C. A may rescind the contract plus damages. Payment to Any of the Solidary Creditors
D. Creditor, B may convert to cash any of the last three plus damages.
Liability of Solidary Creditor in Case of Novation, Compensation; Confusion; or Remission; Effect
Meaning of Facultative Obligation; Effect of Loss; Alternative and Facultative Obligations of Novation, etc. where Obligation Joint
Distinguished
7. Effect of the loss of the thing in a facultative obligation. Which is incorrect? Right of Creditor to Proceed Against Any Solidary Debtor
A. Before substitution: if the principal thing is lost due to fortuitous event, there is no more 2. X, Y and Z executed a promissory note for P18,000.00 payable to the orders of A, B and C. At
obligation. maturity, can the creditors proceed to collect from X alone for the payment of the entire debt?
B. Before substitution: if the substitute thing is lost due to debtor's fault, there is no more A. Yes, since the note is silent as to the nature of the liability of the debtors, the obligation is
obligation. presumed to be solidary.
C. After substitution, if the principal thing is lost, the debtor is no longer liable even if it was B. No, each creditor is entitled to collect only P2,000 from X.
lost due to his fault. C. Yes, any of A, B or C can collect P18,000 from X
D. None of the above D. No, each creditor can collect only P6,000 from X
3. X and Y bound themselves solidarily to deliver to A a specific motorboat worth P120,000. The
Joint and Solidary Obligations (1207-1222) motorboat was not delivered to A as it was destroyed by fire through the fault of Y. Thereupon
Meaning of Joint and Solidary Obligations; When Obligation Solidary; Words Used to Indicate A sued X in court and the court awarded P150,000 in favor of A representing the value of the
Solidary Liability; Kinds of Solidarity boat plus damages. Given this scenario, which of the following statements is correct?
3. A, B, and C secured a loan from X. The promissory note which evidences the obligation states A. X can be compelled to pay A only P60,000 as his share in the obligation, and refuse to
that: “I promise to pay” and signed by A, B, and C. Here, the obligation is pay the penalty because it should be charged against Z, the guilty party
B. If X pays A P150,000, he can collect from Y the entire amount of P150,000 A. X is obliged to pay A P20,000
C. If A successfully collects from X P150,000, X in turn, can collect P90,000 from Y B. X is obliged to pay A P60,000
D. A has to collect P60,000 from X and P90,000 from Y C. X Is obliged to pay A P180,000
D. X is obliged to pay A, B and C, P180,000
7. Debtor’s A, B, C and D are liable to creditors E, F, G and H in the amount of P200,000.
Assuming passive solidarity exists among A, B, C and D, how much can E and F collect from Effects of Payment by a Solidary Debtor
A? 6. A, B and C are solidary debtors of X for 9,000. Later, C paid X the whole obligation. Which of
A. P 50,000 C. P150,000 the following is considered a false statement as to the effects of C paying X the whole
B. P100,000 D. P200,000 obligation
A. C becomes a creditor for reimbursement
2. Debtor’s A, B, C and D are liable to creditors E, F, G and H in the amount of P400,000. B. After C paid X the whole obligation, the same is converted into a joint obligation of
Assuming passive solidarity exists among A, B, C and D, how much can E and F collect from reimbursement
A? C. If the debtor A becomes insolvent C can collect from B P6,000
A. P100,000 C. P350,000 D. None of the above
B. P200,000 D. P400,000
2. Guillermo, Hilario and Apolinario owed in solidum (solidarily) P75,000 to Conrado as
8. Debtor’s A, B, C and D are liable to creditors E, F, G and H in the amount of P200,000. If the evidenced by a promissory note due on September 29, 1990. The note prescribed on
obligation is joint, how much can E and F collect from A? September 30, 2000. On October 1, 2000, however, Apolinario paid the entire obligation to
A. P12,500 C. P 50,000 Conrado. In this case, Apolinario is:
B. P25,000 D. P200,000 A. not entitled to reimbursement from his co-debtors for the shares of the latter as there is no
more obligation to pay
3. Debtor’s A, B, C and D are liable to creditors E, F, G and H in the amount of P400,000. B. entitled to collect P25,000 each from Hilario and Guillermo
Suppose the obligation is joint, how much can E and F collect from A? C. entitled to recover from Conrado as it was already a natural obligation
A. P25,000 C. P100,000 D. entitled to recover from Conrado based on quasi-contract on solution indebiti
B. P50, 000 D. P400, 000
Effect of Payment after Obligation has Prescribed or Become Illegal; Prescriptive Periods of Action
2. Debtors A, B, C, D and E are liable to creditors F, G, H, I & J in the amount of P50,000. How
much can F, G & H collect from A & B (total amount)? Effect of Remission of Share after Payment
A. P12,000 C. P15,000
B. P18,000 D. P 6,000 No Right to Reimbursement in Case of Remission
3. Debtors A, B, C, D and E are liable to creditors F, G, H, I & J in the amount of P50,000. If Rules in Case Thing has been Lost or Prestation has become Impossible
active solidarity exists how much can F, G and H collect from A & B?
A. P20,000 C. P15,000 Defenses Available to Solidary Debtor
B. P 6,000 D. P12,000
Comprehensive
3. This is the promissory note; "We promise to pay A, B and C the sum of ONE HUNDRED 5. A & B are joint debtors of C, D, & E solidary creditors in the amount of P100,000. How much
EIGHTY THOUSAND (P180,000) PESOS within 60 days. Signed: X,Y and Z. can E collect from A?
A. 100,000 C. 25,000 Effect of Nullity of the Penal Clause; Effect of Nullity of the Principal Obligation
B. 50,000 D. none of the above
Comprehensive
8. W, X, Y, Z solidarily liable to A, B, C, joint creditors for P30,000. How much can A and B collect 4. Which of the following obligation is void?
from X? A. Obligation payable within a reasonable time
A. P10,000 C. P20,000 B. Obligation payable if the debtor cannot make a circle at the same time a square
B. P2,500 only D. P15,000 C. Obligation payable of the debtor cannot make a dead man alive
7. X and Y are solidary debtors of A, B and C, joint creditors to the amounts of P30,000. How
much can B collect from X? 1. “ I will give you this book provided that if I like to have it back, you will return the same to me”
A. B can collect P30,000 from X. B in turn has to give A and C P10,000 each A. The obligation is void, because the fulfillment depends upon the will of the debtor
B. B can collect P10,000 from X. B. The obligation is void, because the fulfillment depends upon the will of the creditor
C. B can collect P15,000 from X. C. The obligation is valid because the condition merely causes the loss of rights already
D. B can collect P30,000 from X. X in turn can recover from Y the amount of P15,000 acquired
D. Combination of A and B
Divisible & Indivisible Obligations (1223-1225)
Meaning of Divisible and Indivisible Obligations; Test for the Distinction; Applicability of Article; 18. Statement 1: In alternative obligations, it is the communication of which pre-station to perform
Kinds of Division; Kinds of Indivisibility; Where There is Only One Creditor and One Debtor; made by the debtor shall convert the alternative obligation into a pure or simple one.
Statement 2: In case of a joint obligation, the co-debtors may be held liable for the share of an
Effect of Noncompliance by a Debtor in a Joint Indivisible Obligation insolvent co-debtor.
A. B. C. D.
Obligations Deemed Indivisible; Obligations Deemed Divisible; Divisibility or Indivisibility in Statement 1 True False True False
Obligations Not to Do Statement 2 True False False True
Obligations with a Penal Clause (1226-1230) Extinguishment of Obligation

Meaning of Principal and Accessory Obligations; Meaning of Obligation with a Penal Clause; Causes of Extinguishment of Obligation (1231)
Meaning of Penal Clause; Purposes of Penal Clause; Penal Clause and Condition Distinguished; 12. Which of the following is not a ground for the extinguishment of an obligation?
Kinds of Penal Clause; Penalty Substitutes for Damages and Interests; When Creditor may A. Remission D. Death of either debtor or creditor
Recover Damages when Penalty may be Enforced B. Merger E. None of the above
C. Compensation
Penalty not Substitute for Performance; Penal Clause Presumed Subsidiary; When Penal Clause
Joint 10. Which of the following is not a ground for the extinguishment of an obligation?
A. Remission D. Death of either debtor or creditor
Penalty Demandable Without Proof of Actual Damages; Damages Recoverable in Addition to B. Merger E. None of the above
Penalty must be Proved C. Compensation
When Penalty May be Reduced by the Courts Payment or Performance (1232-1259)
Meaning of Payment
Effect of Payment to an Incapacitated Person; Effect of Payment to a Third Person; When Benefit
When Debt is Considered Paid to Creditor Need not be Proved by Debtor
2. This is a classification of obligations where there are several prestations due and the complete
performance of all shall extinguish the obligation. Identify this. Payment to Third Person in Possession of Credit
A. Facultative obligation. C. Alternative obligation.
B. Conjoint/conjunctive obligation. D. Obligation with a penal clause. When Payment to Creditor not Valid
Recovery Allowed in Case of Substantial Performance in Good Faith; Requisites for the Application Every Prestation Due Must be Complied with; When Prestation may be Substituted
of Art. 1234
Special Forms of Payment; Meaning of Dation in Payment; Governing Law
Recovery Allowed when Incomplete or Irregular Performance is Waived; Requisites for the
Application of Art. 1235 Rule of the Medium Quality
Persons from whom the Creditor must Accept Payment; Creditor may Refuse Payment by a Third Debtor Pays for Extrajudicial Expenses; Losing Party Generally Pays Judicial Costs
Person; Effect of Payment by a Third Person
14. A owes B P5,000. C is the guarantor of A. A was able to pay B P3,000, thus leaving P2,000 Performance of Obligation Should be Complete; When Partial Performance Allowed
unpaid. X, against the will of A and without the knowledge of the partial payment made by A,
paid B the sum of P5,000. How does this payment affect the obligation? Meaning of Legal Tender; Legal Tender in the Philippines; Payment by Means of Instruments of
A. The obligation is extinguished. X, however, cannot recover any amount from A since the Credits
payment was made against will of A. Instead, A can demand payment from C, the 5. After many of years of shopping in the Metro Manila area, housewife HW has developed the
guarantor to the amount of P5,000. sound habit of making cash purchases only, none on credit. In one shopping trip to Mega Mall,
B. The obligation is extinguished. X however, can demand only P2,000 from A as this is the she got the shock of her shopping life for the first time, a store’s smart salesgirl refused to
amount which benefited A. Instead, A can demand payment from C, the guarantor, to the accept her coins in payment for a purchase worth not more than one hundred pesos. HW was
amount of P5,000. paying seventy pesos in 25-centavo coins and twenty fives pesos in 10-centavo coins.
C. The obligation is extinguished. X can demand P2,000 from A, but if A cannot pay, X Strange as it may seem, the salesgirl told HW that her coins were not “legal tender”. Do you
cannot ordinarily proceed against guarantor C because having paid against the will of A, X agree with the salesgirl in respect for the 10-centavo coins and 25-centavo coins the legal
is not entitled to subrogation tender is up to P50.00 only.
D. X’s payment, having been made against the will of A does not extinguish the obligation. 1st Statement: No, because for the 10-centavo coins and 25-centavo coins the legal tender is
up to P50.00 only
Right of a Third Person to Subrogation; Subrogation and Reimbursement Distinguished 2nd Statement: All coins issued by the Central Bank in any amount are considered legal
tender.
Payment by a Third Person Who Does Not Intend to be Reimbursed A. B. C. D.
1ST Statement True False True False
Meaning of “Free Disposal of Thing Due” and “Capacity to Alienate”; Free Disposal of Thing Due 2nd Statement True False False True
and Capacity to Alienate Required
Meaning of Inflation and Deflation; Basis of Payment in Case of Extraordinary Inflation or Deflation.
Person to Whom Payment Shall be Made; Meaning of “Any Person Authorized to Receive it.”
Place where Obligation Shall be Paid
Payment
Meaning of Application of Payments Requisites of Application of Payments; Application as to Debts
not yet Due; Rules of Application of Payments Consignation must be with Proper Judicial Authority; Notice to be Given to Interested Parties of the
Consignation Made
Interest Earned Paid Ahead of Principal
Creditor Bears Expenses of Consignation; When Consignatoin Deemed Properly made
Legal Application of Payments; When a Debt More Onerous than Another; Where Debts Subject to
Different Burdens Withdrawal by Debtor of Thing or Sum Deposited
Meaning of Payment by Cession; Requisites of Payment of Cession; Effect of Payment by Effect of Withdrawal with Authority of Creditor
Cession; Dation in Payment and Cession Distinguished
18. Requisites of application of payment, except Loss of the Thing Due (1260 -1269)
A. Debts are all due C. Two or more debts When a Thing is Considered Lost; When Loss of Thing will Extinguish an Obligation to Give; When
B. Debts are of different kinds D. One debtor and one creditor Loss of Thing will not Extinguish Liability
6. A obliged himself to deliver to B his 7650 Nokia cellphone or as a substitute he may deliver his
9. When the debtor abandons and assigns all his properties in favor of his creditors for the latter cute kitten. After substitution was made, the former was lost due to A’s fault.
to sell and satisfy their credits, this is: A. A is liable and must pay damages.
A. Application of payment C. Dacion en pago B. A will simply deliver his cute kitten plus damages for the loss of the cellphone.
B. Assignment in favor of creditors D. Expromission C. The loss has no effect to the obligation.
D. Obligation was extinguished.
10. When the debtor abandons and assigns all his properties in favor of his creditors for the latter
to sell and satisfy their credits, this is: Effect of Loss of a Generic Thing
A. Payment by cession C. Dacio en pago
B. Application of payment D. Expromission Effect of Partial Loss of a Specific Thing
9. When the debtor’s property are not enough at the moment to pay all his debt in full. This Presumption of Fault in Case of Loss of Thing in Possession of Debtor
conditions is called:
A. Antichresis C. insolvency When Presumption not Applicable
B. Pactu commissorio D. suspension of payment
Effect of Impossibility of Performance; Kinds of Impossibility
13. Insolvency of the debtor is required in:
A. Dation in payment C. Tender of payment and consignation Effect of Difficulty of Performance
B. Payment by cession D. Application of payment
Effect of Fortuitous Event Where Obligation Proceeds from a Criminal Offense
Meaning of “Tender of Payment”; Meaning of “Consignation”; Requisites of a Valid Consignation;
When Tender of Payment not Required; Requirements for Valid Tender of Payment Right of Creditor to Proceed Against Third Persons
Prior Notice to Persons Interested Required; Consignation Must Comply with Provisions on
Condonation or Remission of Debt (1270-1274) B. Partial D. Facultative

Meaning of Condonation or Remission; Requisites of Condonation or Remission; Kinds of
Remission; Effect of Inofficious Remission 8. Type of compensation which arises from a proven counterclaim is called
A. Facultative compensation. C. Voluntary or conventional compensation.
Presumption in Case of Voluntary Delivery of Document of Indebtedness by Creditor; Payment, not B. Judicial compensation. D. Legal compensation .
Remission of Debt
20. In three of the following cases, facultative compensation shall prosper. Which is the
Presumption in Case Document Found in Possession of Debtor exception?
A. gratuitous support C. mutuum
Effect of Renunciation of the Principal Debt of the Accessory Obligation B. civil liability arising from crime D. depositum
Presumption in Case Thing Pledged Found in Possession of Debtor Requisites of Legal Compensation
Confusion or Merger of Rights (1275-1277) Compensation Benefits Guarantor

Confusion or Merger – Meaning, Reason or Basis, Requisites
Total and Partial Compensation
Effect of Merger in the Person of (1) Principal Debtor or Creditor; (2) Guarantor
Voluntary Compensation
Confusion in a Joint Obligation, Confusion in a Solidary Obligation
Judicial Compensation
Compensation (1278-1290)
Meaning of Compensation; Compensation and Confusion Distinguished; Kinds of Compensation Compensation of Rescissible or Voidable Debts
19. D owes C P10,000 payable on December 25, while C owes D P10,000 payable on December
30. In here, C can set up compensation (or cum pondere) on December 25, and this is called: Where Compensation has Taken Place before Assignment; Where Compensation has Taken Place
A. Legal C. Judicial or “set-off” after Assignment
B. Partial D. Facultative
Compensation where Debts Payable at Different Places (1286)
9. D deposited his car to C as he would go to the U.S. to visit his father. In the meantime, D
owed C a specific car. In case of a facultative compensation, which statement is correct? Instances when Legal Compensation is not Allowed by Law (1287-1288)
A. Only C may raise facultative compensation in this case.
B. Only D may raise facultative compensation to set off his obligation to D with the latter’s Rules on Application of Payments Apply to Order of Compensation (1289)
obligation.
C. Either or both C and D may raise compensation to set off the two obligations Consent of Parties not Required in Legal Compensation (1290)
D. There cannot be a case of facultative compensation in this case. Comprehensive
6. 1st Statement: D owes C P10,000 due on December 25, C owes D P6,000 on December 25.
15. D owes C P10,000 payable on December 25, while C owes D P10,000 payable on December D’s obligation is guaranteed by G. On the due date if D is insolvent G is liable to C for
30. In here, C can set up compensation (or cum pondere) on December 25, and this is called: P10,000, the latter (G) cannot set up compensation because he is not a principal debtor.
A. Legal C. Judicial or "set-off" 2nd Statement: D owes C P10,000 payable on December 25. Later, D through intimidation,
was able to make C sign a promissory note stating that C is indebted to D for the same C. A is liable because he did not exercise due diligence in determining the insolvency of X.
amount. In here, D cannot be required to pay C P10,000 because he (D) can set up D. A is liable because X agreed to the proposal to make himself solidary liable for the
compensation against C. obligation
A. B. C. D.
st
1 Statement True False True False Effect of Novation on Accessory Obligations
Effect where the New Obligation Void; Effect where the New Obligation Voidable
Novation (1291-1299) Effect where the Old Obligation Void or Voidable

Meaning of Novation; Dual Function of Novation; Kinds of Novation
Presumption where Original Obligation subject to a Condition
Requisites of Novation; Novation is not Presumed; Test of Incomparability between Two
Obligations or Contracts Comprehensive
16. In novation, which of the following is incorrect?
Kinds of Personal Novation; Kinds of Substitution; Right of New Debtor who Pays A. If the new obligation is void, original obligation shall subsist.
10. When the third person assumes the payment of the obligation without the knowledge or B. In expromission, the insolvency of the new debtor shall not revive the action of the creditor
against the will of the debtor but with the consent of the creditor, there is against the original debtor.
A. Delegacion C. Subrogation C. If the original obligation is subject to a suspensive condition, the new obligation is not
B. Expromission D. Novation subject to the same condition unless stated
D. While if the condition is resolutory the new is also resolutory condition, unless otherwise
Effect of New Debtor’s Insolvency or Nonfullment of the Obligation in Expromision stated.
11. A owes B – P10,000. Without the consent of A, B agreed with C’s proposal (C is suitor of A) to
answer for A’s obligation for which A vehemently objected to but could not do anything. The Subrogation (1300-1304)
following week all of C’s properties were destroyed by fire, hence he could no longer pay the Kinds of Subrogation
P10,000 obligation.
A. A’s obligation is revived. C. A must answer for ½ of the obligation. Consent of all Parties Required in Conventional Subrogation
B. A’s obligation is not revived. D. B cannot collect at all.
Cases of Legal Subrogation
Effect of New Debtor’s Insolvency or Non-fulfillment of the Obligation in Delegacion
15. On October 4, 1997, A is indebted to B for P50,000 for a 20-day period. A proposed to B that Effect of Total Subrogation
X will pay A’s debt, and that A will be free from all liabilities. B and X agreed to the proposal.
On October 25, 1997, when B tries to collect from X, he finds that X is insolvent. At the time of Effect of Partial Subrogation
delegation, X was already insolvent but this was not known to A. The insolvency is not of
public knowledge. So B sues A on the ground that it was A who made the proposal and that A Comprehensive
really guaranteed X’s solvency. Decide. 5. Which of the following is not a special mode of payment?
A. A is liable because he is pressured to have guaranteed X’s solvency A. Tender of payment C. Dacion en pago
B. A is not liable, because A does not know the insolvency of X at the time of delegation and B. Cession D. None of the above
neither was the insolvency of public knowledge.
7. Which does not result in the extinguishment of obligations? actual damages suffered by him on account of the non-performance of the obligation by the
A. Rescission. C. Arrival of resolutory period. debtor.
B. Happening of suspensive condition. D. Compromise. A. B. C. D.
Statement 1 True False True False
9. Which statement is correct about extinguishment of obligation? Statement 2 True False False True
A. Condonation is generally gratuitous.
B. Prescription is a primary mode of extinguishing an obligation. 26. 1st Statement: The creditor may be compelled to accept payment in checks as long as the
C. Agency wherein novation is effected must be in writing and thru a Special Power of check is negotiable
Attorney. 2nd Statement: An obligation payable “should the client die of diabetes” is an
D. Confusion or merger rights may occur in the person of a guarantor. obligation subject to a period
A. B. C. D.
5. On January 15, 2002, D purchased on credit construction materials worth P50,000.00 from the
1st Statement True False True False
lumber and hardware store owned by C. At maturity date on March 5, 2002, D could not pay
despite repeated demand coming from C. X, D’s brother and a good friend of C’s, voluntarily
offered to assume his brother’s obligation to the latter as soon as his (X’s) application for a
loan is approved by a bank and asked that he be given until April 5, 2002. C accepted the 24. 1st Statement: In case of extra-ordinary inflation, the basis of payment is the value of the
offer of X and agreed to the period. At maturity date, X did not pay C as his application loan obligation at the time it was constituted
was disapproved. Given this scenario, which statement is correct? 2nd Statement: After substitution, the loss of the principal object through the fault or
A. D’s obligation to C was extinguished by novation thru expromission, and thus, there can negligence of the debtor shall render him liable for damages.
be no revival when X did not pay. A. B. C. D.
B. D’s obligation subsists because the creation of the new obligation of X to C by 1st Statement True False True False
expromission is subject to a suspensive condition that did not happen. 2nd Statement True False False True
C. X is liable to C as the new debtor because the former’s assumption of D’s laiability was
accepted and consented to by C. 17. 1st Statement: Payment made by a third person who does not intend to be reimbursed by the
D. D’s obligation was extinguished by a valid delegacion to X. D’’s obligation cannot be debtor is desired to be a donation, which requires the debtor’s consent. If the debtor’s consent
revived because there was no showing that X was insolvent and it was of public is not given the obligation is not extinguished
knowledge. 2nd Statement: If the debtor’s consent or permission is not given, but the third person
paid the creditor his right is to proceed against the creditor for reimbursement and not
17. Statement 1: "I promise to pay within 2 years" is an obligation with a period, the creditor having against the debtor
a right to demand payment within 2 years from the date of the instrument. A. B. C. D.
Statement 2: Ten sacks of corn cannot be compensated (legal compensation) by ten sacks of 1st Statement True False True False
rice. 2nd Statement True False False True
A. B. C. D.
Statement 1 True False True False 4. 1st Example – D promised to give C a specific car valued P100,000 after C has killed X. Later
Statement 2 True False False True after the killing the contract was novated instead of giving C a specific car he will just give a
specific land to be delivered on February 28, 1998. Meantime, both parties died. In here, the
13. Statement 1: Payment by cession does not totally extinguish the whole obligation. heirs of C may compel the execution of the second contract, that is, the delivery of the specific
Statement 2: In obligation with penal clauses, it is necessary for the creditor to show proof of land.
2nd Example – S sold to B a specific residential house situated in Bulacan for P1M, D. Payment of the debtor’s obligation maybe made by a third person even without the
unknown to both parties one (1) hour before the sale, the property was totally gutted knowledge and consent of the debtor
by fire caused by electrical defect. In here, B can be required to pay the price of the
sale, because the subject is determinate S’s obligation to deliver is extinguished, 10. D owes C P10,000. X wrote C a letter stating that he would be the one to take care of D’s debt
while B’s obligation remain to subsist. as soon as X had made a shipment of logs to Indonesia. X did not pay C. In this example,
A. B. C. D. which statement is incorrect?
1st Example True False True False A. Yes, X is liable because there is personal novation of obligation by way of expromission.
2nd Example True False False True B. X is not liable because there was no novation as C never consented to the offer of X.
C. The offer made by X is subject to a suspensive condition which was not fulfilled, the
9. Statement 1: Just before the obligation became due and demandable, the debtor proposed to liability never became effective.
the creditor that he would give him a specific car instead of paying P150, 000.00, and which D. None of the above.
proposal was accepted by the creditor. Here, there is extinguishment of an obligation by way
of dacion en pago. 1. 1st Statement: The loss or deterioration of the intended substitute, prior to substitution, through
Statement 2: After substitution in facultative obligations, the loss of the principal through the the negligence of the obligor, shall render him liable for damages.
fault or negligence of the debtor shall render him liable for damages in favor of the creditor. 2nd Statement: In alternative obligations, all objects are due.
A. B. C. D. A. B. C. D.
Statement 1 True False True False Statement No. 1 True False True False
Statement 2 True False False True Statement No. 2 True False False True
Comprehensive 20. Statement 1: The creditor may be compelled to accept payment in checks as long as the
1. S and M agreed in print that S, debtor for P3,000, will work as a servant of M without pay until check is negotiable.
she could find money with which to pay her debt. Meantime, S absconded her obligation and Statement 2: An obligation payable "should the client die of diabetes" is an obligation subject
failed to comply with her promise. Under this promise, which of the following statements is to a period.
correct? A. B. C. D.
A. The agreement to work as a servant is void because it is immoral Statement 1 True False True False
B. To act as a servant without pay is unconstitutional because this is equivalent to involuntary Statement 2 True False False True
servitude.
C. The obligation to pay is enforceable because this is in accordance with law 23. 1st Statement: “I promise to pay within 2 years” is not obligation with a period, the creditor
D. All of the above having a right to demand payment within 2 years from the date of the instrument
2nd Statement: Ten sacks of corn cannot be compensated (legal compensation) by ten
71. Which is not correct? shacks of rice.
A. A check, even if good when offered, maybe refused by a creditor in satisfaction of his A. B. C. D.
demand because it does not meet the requirements of legal tender 1st Statement True False True False
B. The Phil. Peso bills when attempted to be exported, as when carried in excess of that 2nd Statement True False False True
allowed by the Central Bank maybe deemed to have been taken out of domestic
circulation as legal tender and thus maybe treated as commodity 12. 1st Statement: An obligation subject to potestative resolutory condition based on the debtor’
C. If the obligation of a debtor is to pay in dollars it shall be discharged in Phil. Currency will is void.
measured at the prevailing rate of exchange at the time the obligation is incurred
2nd Statement: Political agreement wherein FPJ promised not to prosecute CHAVIT’s A. A stipulation that the mortgagor cannot enter into a second mortgage without the consent
liability for graft and corruption if FPJ becomes a president, one day is an of the first mortgagee and such violation will make the obligation due and demandable
unenforceable contract. B. A stipulation in chattel mortgage on installment sale where the object sold is mortgaged
A. B. C. D. back to the seller to answer for the unpaid installments or upon failure to pay any
st
1 Statement True False True False installment due, all installment shall become due and payable, the mortgagee is given the
2nd Statement True False False True right to foreclose and sell the property at public auction to recover the unpaid balance.
C. A stipulation in a mortgage or real property authorizing the mortgagee to have the
1. 1st Statement: An obligation subject to potestative suspensive condition based on the debtor’s mortgaged property sold without the necessity of an action in court.
will is void. D. None of the above.
2nd Statement: Political agreement wherein Dolphy promised not to prosecute FVR’s liability for
graft and corruption if Dolphy becomes a president, one day is an unenforceable contract. Classification (1307)
A. B. C. D. Classification of Contracts According to its Name or Designation; Kinds of Innominate Contract;
Reasons for Innominate Contracts; Rules Governing Innominate Contracts
1st Statement True True False False
2nd Statement True False True False
Contract Binds Both Contracting Parties (1308)
11. 1st Statement: The defense that a contract is unenforceable is subject to 4 year prescriptive Determination of Performance by a Third Person (1309)
period.
2nd Statement: In a joint divisible obligation, a joint debtor can be compelled to answer for the Effect where Determination is Inequitable (1310)
obligation of the other debtor.
A. B. C. D. Persons Affected by a Contract (1311)
1st Statement True True False False Cases when Strangers or Third Persons Affected by a Contract; Meaning of Stipulation Pour Autrui;
2nd Statement True False True False Classes of Stipulations Pour Autrui; Requisites of Stipulation Pour Autrui
Third Persons are Bound by Contracts; Creating Real Rights (1312)

zzz
CONTRACT Right of Creditor to Impugn Contracts Intended to Defraud Them (1313)
General Provisions
Contract Defined (1305) Liability of Third Person for Breach of Contract (1314)
Meaning of Contract; Contract and Obligation Distinguished; Contract and Agreement
Distinguished Perfection of Contract (1315-1316)
Classification of Contracts According to Perfection; Stages in the Life of a Contract; How Contracts
Criteria (1306) are Perfected; Effect of Perfection of the Contract;
Freedom of Contract Guaranteed; Limitations on Contractual Stipulations: Contract must not be
Contrary to Law, Contract must not be Contrary to Morals; Contrary must not be Contrary to Good Unauthorized Contract
Customs; Contract must not be Contrary to Public Order; Contract must not be Contrary to Public Unauthorized Contracts are Unenforceable; Unauthorized Contracts Can be Cured Only by
Policy Ratification; When a Person is Bound by the Contract of Another (1317)
8. Which of the following is not a valid stipulation?

Essential Requisites of Contracts Effect of Drunkenness and Hypnotic Spell (1328)

Classes of Elements of a Contract (1318)
13. Neither an essential nor accidental element of a contract Incapacity Declared in Art. 1327 Subject to Modifications; Other Special Disqualifications May be
A. Cause or consideration C. Warranty against eviction Provided by Law (1329)
B. Consent D. Penal cause in a contract
Characteristics of Consent; Vices of Consent; Causes Vitiating Consent and Causes of Incapacity
12. Neither an essential nor natural element of a contract Distinguished (1330)
A. Cause or consideration C. Warranty against eviction
B. Consent D. Penal cause in a contract Meaning of Mistake or Error; nature of Mistake; Mistake of Fact to which Law Refers; Mistake of
Fact Which Does Not Vitiate Consent; Effect of Simple Mistake of Account (1331)
Consent (1319)
Meaning of Consent; Meaning of Offer; Offer Must be Certain; Meaning of Acceptance; Acceptance Burden of Proof in Case of Mistake or Fraud (1332)
of Offer Must be Absolute
4. “Contracts must bind both parties and their efficacy or validity cannot be left to the sole will of Effect of Knowledge of Risk (1333)
any one of them.”
A. Freedom or liberty of contracts C. Relativity of Contracts Meaning of Mistake of Law; Effect of Mistake of Law; When Mistake of Law Vitiates Consent;
B. Consensual nature of contracts D. Mutuality of Contracts Requisites for the Application of Art. 1334
Form of Acceptance of Offer (1320) Nature of Violence or Force (1335)

Nature of Intimidation or Threat; Factors to Determine Degree of Intimidation; Threat to Enforce
Matters that May be Fixed by the Offerer (1321) Just or Legal Claim
Communication of Acceptance to Agent (1322) Violence or Intimidation by a Third Person (1336)
When Offer Becomes Ineffective; Other Ground Which Render Offer Ineffective (1323) Meaning of Undue Influence; Circumstances to be Considered (1337)
Meaning of Contract of Option; Option Period; Option Money; Withdrawal of Offer Where Period Meaning of Causal Fraud; How Causal Fraud Committed; Requisites of Causal Fraud (1338)
Stipulated for Acceptance; Articles 1324 & 1479 Compared (1324)
Fraud by Concealment (1339)
Business Advertisements Generally Not Definite Offers (1325)
Usual Exaggerations in Trade (1340)
Advertisements for Bidders Generally Not Definite Offers (1326)
Expression of Opinion (1342)
Capacity to Given Consent Presumed; Persons Who Cannot Given Consent; Reason for Fraud by a Third Person (1342)
Disqualification (1327)
Effect of Misrepresentation Made in Good Faith (1343)
Contracts Entered into During a Lucid Interval (1328)
Two Kinds of Fraud in the Making of Contract; Causal Fraud Must be Serious and Unilateral.
(1344)
Meaning of Lesion; Effect of Lesion or Inadequacy of Cause (1355)
Meaning of Simulation of a Contract; Kinds of Simulation (1345 – 1346)
Comprehensive Form of Contracts
27. 1st Statement: A threat to enforce one’s claim through competent authority, if the claim is just Form of Contracts Defined (1356)
or legal, does not vitiate consent Meaning of Form of Contracts; When Contract Considered in Written Form; Classification of
2nd Statement: Contracts entered into during a lucid interval are valid. Contracts Contracts According to Form; Rules Regarding Form of Contracts; Form for Validity of Contract;
agree to in a state of drunkenness or during a hypnotic spell are binding Form for Enforceability of Contract
A. B. C. D. 11. Which of the following contracts is enforceable even if not reduced in writing.
1st Statement True False True False A. Representation as to the credit of a third person
2nd Statement True False False True B. Agreement for the sale of immovable property
C. Contract executed by one of the parties in a contract
D. Lease of immovable for a period longer than one year
Objects of Contracts (1347 – 1348)
Concept of Object of a Contract; Kinds of Object of Contract; Requisites of Things as Object of Form for the Convenience of the Parties (1357)
Contract; Requisites of Services as Object of Contract; Rights as Object of Contract(1347 – 1348)
Definition of Future Inheritance; Validity of Contracts upon Future Inheritance; Kinds of Contracts Which Must Appear in a Public Document (1358)
Impossibility
Reformation of Instruments
Quantity of Object of Contract Need not be Determinate Meaning of Reformation; Reason for Reformation; Requisites of Reformation; Reformation
Distinguished from Annulment (1359)
Cause of Contracts
Meaning of Cause; Cause Distinguished from Object; Classification of Contracts Accounting to Principles of the General Law on Reformation (1360)
Cause (1350)
Mutual Mistake as Basis for Reformation (1361)
Meaning of Motive; Cause Distinguished from Motive (1351)
Mistake on One Side, Fraud or Inequitable Conduct on the Other (1362)
Requisites of Cause; Effect of Absence of Cause; Effect of Failure of Cause; Effect of Illegality of
Cause; Effect of Falsity of Cause (1352 – 1353) Concealment of Mistake by the Other Party (1363)
Cause Presumed to Exist and Lawful (1354) Ignorance, etc. on the Part of Third Person (1364)
28. In a contract, as written, D promises to pay C P10,000 on September 15, 1997. The
consideration received by D is not stated in the contract. Mortgage or Pledge Stated as a Sale (1365)
A. The contract is valid because the cause is always presumed to exist
B. The contract is valid so long as it is in writing Cases when Reformation Not Allowed (1366 – 1367)
C. The contract is valid because cause is not essential to a contract
D. The contract is void because cause is not stated Party Entitled to Reformation (1368)

Procedure for Reformation (1369) A. The ability to restore what he has received by virtue of the contract.
B. The property must have passed to the hands of a third person who bought the same in
Interpretation of Contracts good faith and for value.
Interpretation of Contracts (1370) C. Bought within the proper prescriptive period.
Meaning of Interpretation of Contracts; Literal Meaning Controls when Language Clear; Evident D. None of the above.
Intention of Parties Prevails over Terms of Contract
Payments Made in a State of Insolvency (1382)
Contemporaneous and Subsequent Acts Relevant in the Determination of Intention (1371)
Nature of Action for Rescission (1383)
Special Intent Prevails over a General Intent (1372)
Extent of Rescission (1384)
Interpretation of Stipulation with Several Meanings (1373)
Rescission Creates Obligation of Mutual Restitution; Obligation of Third Person to Restore; When
Interpretation of Various Stipulations of a Contract (1374) Rescission Not Allowed (1385)
Interpretation of Words with Different Significations (1375) Contracts Approved by the Courts (1386)
Resort to usage or Custom as Aid in Interpretation (1376) When Alienation Presumed in Fraud of Creditors; Circumstances Denominated as Badges of Fraud
(1387)
Interpretation of Obscure Words (1377)
Liability of Purchases in Bad Faith (1388)
Rules in Case Doubts Impossible to Settle (1378)
Period for Filing Action for Rescission; Persons Entitled to Bring Action (1389)
Principles of Interpretation in the Rules of Court Applicable (1379)
Voidable Contracts
Comprehensive (1370 – 1379) Voidable Contracts Defined (1390)
Meaning of Voidable Contracts; Binding Force of Voidable Contracts; Meaning of Annulment
Rescissible Contracts
Rescissible Contracts Defined (1380) Period for Filing Action for Annulment (1391)
Meaning of Rescissible Contracts; Binding Force of Rescissible Contracts; Meaning of Rescission;
Requisites of Rescission Meaning and Effect of Ratification (1392)
Cases of Rescissible Contracts (1381) 8. In three of the following defective contracts, ratification cleanses the defects. Which is not
12. D is indebted to C in the sum of P10,000. For the purpose of avoiding the claims of C, D susceptible of ratification?
donated all his properties worth the same amount to X. A. Both parties are incapable of giving consent
A. The contract is absolutely simulated C. The contract is merely voidable B. Sale of land thru an agent where the authority is orally given
B. The contract is rescissible D. The contract is void C. Sale of immovable or any interest therein orally entered into
D. Contracts entered into by a person who has been given no authority
12. In which case is the right of rescission not available?
Kinds of Ratification; Requisites of Ratification (1393) Meaning of Void Contracts; Meaning of Inexistent Contracts; Characteristics of a Void or Inexistent
Contract; Instances of Void or Inexistent Contracts
Who May Ratify? (1394) 13. One is a void and inexistent contract.
A. Those which are absolutely simulated or fictitious.
Conformity of Guilty Party to Ratification Not Required (1395) B. Those which are outside the commerce of man.
C. Those contrary to law.
Effect of Ratification Retroactive (1396) D. Those which contemplate an impossible service.
Partly Entitled to Bring an Action to Annul; Right of Strangers to Bring Action; Guilty Party Without 14. The following, except one, are void or inexistent contracts.
Right to Bring Action (1397) A. Those which are absolutely simulated for fictitious.
B. Those which are outside the commerce of man.
Duty of Mutual Restitution Upon Annulment (1398) C. Those whose cause or object did not exist at the time of transaction.
D. Those which contemplate a very difficult service.
Restitution by an Incapacitated Person (1399)
13. The following, except one, are void or inexistent contracts. Which is it?
Effect of Loss of Thing to be Returned (1400) A. Those which are absolutely simulated or fictitious.
B. Those which are outside the commerce of man.
Extinguishment of Action for Annulment (1401) C. Those whose cause or object did not exist at the time of transaction.
D. Those which contemplate a possible service.
Effect Where a Party Cannot Restore What He is Bound to Return (1402)
11. A, a person of legal age and an agent of X, sold 10 grams of shabu to B who is a minor of 16
Unenforceable Contracts years. The shabu was sold for P600 which is actually less than its actual market value of
Unenforceable Contracts Defined (1403) P1,000 thereby incurring a loss of P400 on the part of X. Worse, the contract of sale was not
Meaning of Unenforceable Contracts; Binding Force of Unenforceable Contracts; Kinds of reduced into writing. What is the status of the contract?
Unenforceable Contracts; Meaning of Unauthorized Contracts; Statute of Frauds; Agreements A. The contract of sale is voidable because one party is a minor.
Within the Scope of the Statute of Frauds) B. The contract is rescissible because of lesion.
C. The contract is unenforceable considering it was orally done.
Modes of Ratification Under the Statute (1404 – 1405) D. The contract is void.
Right of a Party Where Contract Enforceable (1406) 9. The following are void contracts. Which is the exception?
A. an agreement that will compel x to work for Y without compensation until the latter’s debt
When Unenforceable Contract Becomes a Voidable Contract; When Unenforceable Contract is fully paid;
Becomes a Valid Contract (1407) B. an agreement where married man X would have carnal knowledge with the single and
beautiful Y for a consideration of P5,000;
Right of Third Persons to Assail an Unenforceable Contract (1408) C. a provision in the lease agreement that will enable the lessor to sue for ejectment against
the lessee in case of nonpayment of rentals;
Void or Inexistent Contracts D. an amicable settlement whereby the heirs of A will not prosecute B for having killed A in
Void or Inexistent Contracts Defined (1409) consideration of P1 Million
Action or Defense is Imprescriptible (1410) Delivery by Minor of Money or Fungible Thing in Fulfillment of Obligation (1427)
Rules Where Contract is Illegal and the Act Constitutes a Criminal Offense (1411) Performance After Action to Enforce Civil Obligation has Failed (1428)
Rules Where Contract is Illegal But the Act Does Not Constitute a Criminal Offense (1412) Payment by Heir of Debt Exceeding Value of Property Inherited (1429)
Recovery of Usurious Interest (1413) Payment of Legacy After Will Has Been Declared Void (1430)
Recovery Where Contract Entered into for Illegal Purpose (1414) Comprehensive
9. “Mutual promise to marry” between would-be husband and wife, orally entered into is
Recovery by an Incapacitated Person (1415) A. A validable contract C. Unenforceable contract
B. A void contract D. None of the above
Recovery Where Contract Not Illegal per se (1416)
5. Which of the following is the most defective contract among the following?
Recovery of Amount Paid in Excess of Ceiling Price (1417) A. A and B both minor entered into a contract of sale involving chocolate worth P400.
B. Contract of sale wherein a car worth P1M is contributed but not reduced in a public
Recovery of Additional Compensation for Service Rendered Beyond Time Limit (1418) instrument.
C. A contract of sale wherein one party sold to the other his hereditary rights under the pain
Recovery of Amount of Wage Less Than Minimum Fixed (1419) of being raped.
D. A compromised agreement between two government officials to settle an ANTI-GRAFT
Effect of Illegality Where Contract Indivisible/Divisible; Divisible Contract Distinguished from CASE
Divisible Obligation (1420)
5. Which is the most defective contract among the following?
Persons Entitled to Raise Defense of Illegality or Nullity (1421) a. A & B, both minors entered into a contract of sale involving chocolate worth P400.
b. Contract of partnership wherein a car worth P1M is contributed but not reduced in a public
Void Contract Cannot be Novated (1422) instrument.
c. A contract of sale wherein one party sold to the other his hereditary rights under the pain
Natural Obligations of being raped.
Natural Obligations (1423) d. A compromise between Senator Lacson and Pre. GMA to hide the evidence against Jose
Concept of Natural Obligations; Civil and Natural Obligations Distinguished; Enumeration Not Pidal, to achieve peace and reconciliation for the country.
Exclusive
7. S agreed to sell B 100 cases of napkins with the name of B’s restaurant on the napkins. In the
Performance After Civil Obligation Has Prescribed (1424) enforceable contract, it was specified that delivery will take place on April 15, 2000 which is
one (1) month after S and B signed the contract. B wanted the napkins by April 15 because
Reimbursement of Third Person for Debt that has Prescribed (1425) the grand opening of the restaurant was scheduled for April 17. On April 11, S tells B that the
has too many orders and will not be able to deliver the napkins. What options does B have?
Restitution by Minor After Annulment of Contract (1426) I. Treat it as a present breach of contract and cancel the contract
II. Wait for a reasonable time to see if S will deliver court where both lawyers are practicing for P700,000 but with a FMV of P1,000,000. The
III. Ask a third person to perform the obligation at the expense of S but no damages contracts are:
A. I only C. Either I or II A. B. C. D.
B. II only D. Either I or II or III st
1 Statement Valid Rescissible Void Voidable
2nd Statement Valid Void Void Valid
6. Which of the following contracts is enforceable even if not executed in writing?
A. Sale of immovables 4. 1st Statement: A contract whose cause or object did not exist at the time of the transaction is a
B. Lease of real property for a period of more than one year detective contract which cannot be remedied by providing a cause or object as the case may
C. Lease of personal property for a period of two years be in the contract.
D. Donations made in consideration of marriage 2nd Statement: The nullity of the accessory obligation of the penal clause does not
carry with it the nullity of the principal obligation which remains in force and
7. Which of the following statements is legally correct? demandable. Determine whether
A. An action for rescission of the contract shall prescribe in four years from the discovery of A. B. C. D.
lesion
B. An action to declare a contract void or inexistent does not prescribe
C. An action to enforce a natural obligation judicially prescribes in four years from maturity of
the obligation
D. An action to annul a contract does not prescribe
30. 1st Example: The husband by intimidation, was able to obtain the consent of his wife, with PARTNERSHIP
regards to the sale of a piece of land belonging to the wife for P1M. The contract is voidable Introduction to partnership
because there was intimidation Particular partnership
2nd Example: In the above example, the right of the wife is to go to court and file a 14. Which of the following is not a particular partnership
motion for annulment within four (4) years from the time intimidation ceased A. A partnership formed by two lawyer for the practice of law profession
B. A partnership formed for the purpose of constructing a building
A. B. C. D.
C. A partnership formed for the acquisition of immovable property and reselling it for profit
1st Example True False True False D. None of the above.
2nd Example True False False True
Choosing the form of business organization
15. 1st Statement: The defense that a contract is unenforceable is subject to prescription. Brief history of partnership
2nd Statement: In solution indebiti the contract violated is the premature payment of the Meaning of partnership – delectus personas
obligation. Characteristics of partnerships as a business organization and as a contract
A. B. C. D. Partnerships distinguished from co-ownership
1st Statement True False True False Partnership distinguished from corporation
2nd Statement True False False True Form of partnership contract
Juridical personality
14. 1st Statement: The guardian sold to a minor his car for P200,000 although its FMV is Articles of partnership
P400,000 or ½ lesion. Universal partnership
2nd Statement: A lawyer purchased the property of his friend’s client pending litigation in the 7. Alma, Booba and Carla formed a Universal Partnership of profits. The partners are the owners
of the following: a) Alma, a passenger jeepney; b) Booba, a Tamaraw FX Taxi; and c) Carla, A A. General partnership
Corolla Taxi. The parties agreed that the use and fruits of the objects contributed shall pertain B. Limited partnership
to the partnership. Which of the following statements is False? C. No partnership organization is available
A. The partnership, upon delivery, shall become the owner of the objects contributed; D. Limited partnership, but C must be a general and limited partners at the same time
B. Upon dissolution, the objects shall be converted into cash and the proceeds shall be
divided equally among the partners including the fruits; 6. Statement No. 1: The sharing in the net returns is a prima facie evidence of the existence of a
C. During the term of the partnership, the contributing partner remains to be the naked owner partnership.
of the object contributed by him, but upon dissolution all objects contributed are to be Statement No. 2: In a universal partnership of all present properties, the
converted into cash and the proceed shall be divided equally among the three partners partnership is dissolved when a specific thing contributed by a partner is lost
D. All of the above after delivery to the partnership.
A. B. C. D.
Comprehensive
Statement No. 1 True False True False
6. The following are effects of unlawful partnership, except:
Statement No. 2 True False False True
A. The profits shall be confiscated in favor of the government
B. The instruments or tools and proceeds of the crime shall be forfeited in favor of the
Formalities required
government
C. The contribution of the partners shall be confiscated in favor of the government 15. Every contract of partnership having a capital of P3,000 or more in money or property shall
appear in a public instrument which must be recorded in the Securities and Exchange
D. The contract is void ab initio and the partnership never existed in the eyes of the law.
Commission. Failure to comply with said requirements
A. Will not affect the liability of a partnership and the members thereof to third persons
Elements & Kinds
Essential Elements B. Will render the partnership void
C. Will not give the partnership a legal personality
General Partnership
Limited Partnership D. Will give the partnership a de facto existence
Silent Partner
Secret Partner 24. A, B, and C formed a Limited Partnership, each contributing P10,000. However, the articles of
partnership was not recorded or registered with the SEC. Which of the following is an incorrect
Dormant Partner
13. A partner who does not participate in the management of the affairs of the partnership and statement.
A. Not valid as a limited partnership
whose connection with it is not made known to the public is called:
A. Silent-secret partner C. Dormant partner B. It is considered as a general partnership
C. The partnership still possessed of juridical personality distinct and separate from the
B. Nominal partner D. Silent-ostensible partner
partner
Partners Contributing Usufructuary Rights
Liquidating Partner
31. Statement 1: For failure to register the Certificate of Limited Partnership with the Securities
Comprehensive
8. A, B, and C wish to go into the business together to bottle mineral water. Each contributed and Exchange Commission (SEC), any and all contracts entered into by such partnership with
third persons shall be considered void. There was, absolutely, no partnership at all to speak of.
P50,000, but C wanted to limit his liability to the extent of his contribution, and his name to
appear in the partnership name. Which form of partnership as business organization should Statement 2: When an unlawful partnership is dissolved by a judicial decree, all the
contribution as well as the profits shall be confiscated by the State
they choose?
A. B. C. D. how should the said loss of P10,000, how should the said loss of P10,000 be shared by the
Statement 1 True False True False partners?
Statement 2 True False False True A. A, P6,000; B, P4,000 C, nothing C. A, 3,500; B, 3,500 C, 3,000
B. A, 3,000; B, 2,000 C, P5,000 D. A, 3,500; B, 2,500 C, 4,000
Management of a partnership
Relations established in a partnership 23. K is an industrial partner. Besides his services, he also contributed capital to the partnership.
11. The duty to deliver the fruits of the promised contribution of things or money to the partnership There is no agreement or stipulation as to the profits or losses. The share of K in the profit is
common fund: A. The remaining partners will determine his share in profits
A. Arises from the perfection of the contract of partnership without need of demand; B. Combination of C and D below.
B. Arises when the duty to deliver the promised contribution arises upon demand; C. Such share as may be just and equitable under circumstances
C. Arises from the perfection of the contract of partnership upon demand D. Pro-rata to his contributions.
D. Arises when the duty to deliver the promised contribution arises without need of demand;
14. The partnership suffered heavy losses in the first year of its operation and is on the brink of
Obligations of partners to the partnership bankruptcy. X, a capitalist partner, cannot contribute further because he became insolvent,
34. A, B and C are partners where C as a capitalist partner is engaged in the same business in while Y and Z are willing, able and ready to give additional contribution to save the business of
which the partnership is engaged in. In this situation, the partnership. Can he be obliged to sell his interest to the other partners by reason of such
A. the partnership may oust C from the partnership and at the same time avail of C’s profit in refusal to give additional contribution?
her separate business A. Yes, provided he is paid the value of his interest
B. the partnership may oust C from the partnership B. Yes, because his refusal to give additional contribution speaks of his lack of interest in the
C. the partnership may avail of C’s profits in her separate business continuance of the partnership.
D. the partnership has nothing to do with C since it is her right to engage in any business C. No, because his refusal is justified.
D. Answer not given.
Profit and loss sharing
31. K is an industrial partner. Besides his services, he also contributed capital to the partnership. Appointment of a managing partner
There is no agreement or stipulation as to the profits or losses. The share of K in the profit is Stipulations on exercises of management power
A. the remaining partners will determine his share in profits
B. combination of C and D below Rights and liabilities of partners
C. such share as may be just and equitable under circumstances Right of partner to associate with another
D. Pro-rata to his contributions 10. A, B, and C formed a general partnership. Later, C shared his interest with X in the
partnership. In here, X is considered:
14. A, B and C formed a partnership, with A and B as general partners and C as limited partner. A. An associate of a partner C. Sub-partner
The firm’s name is A & B Partnership. After one (1) year of operation, the partnership incurred B. Stranger to the partnership D. all of the above
a loss of P12,000. X is the creditor. X can collect:
A. P6,000 from A C. Nothing from C Other rights – property, rights
B. P12,000 from A or B D. P12,000 from A, B, and C 7. One or more but less than all the partners have no authority to perform the following, EXCEPT:
A. Renounce a partnership claim
19. A, B and C partners. Their contributions are as follows: A, P60,000; B, P40,000; C, services. B. Submit a partnership claim or liability to arbitration
The partners did not agree on how to divide profits and losses. If there is a loss of P10,000, C. Convey partnership property in the ordinary course of partnership business
D. Do any act, which would make it impossible to carry on the ordinary business of the D. A, and C who benefited in the P60,000 credit shall be liable to X
partnership
13. A and B formed a general partnership and contributed P500,000 each. C, a brother-in-law of
Effects of assignments or attachment of partner’s interests A, allowed his name to be included in the partnership firm name. The partnership became
11. C, a partner in “C” partnership, assigns his interest in “Y” partnership to X, who is not made a insolvent and there remains unpaid partnership obligation to X to the tune of P60,000. X can
partner. After assignment, X asserts the right to compel:
1. Participate in the management of “Y” partnership A. Either A or B to pay the P60,000 liability
2. C’s share in the surplus profit B. Any of A, B and C to pay the P60,000 liability
3. May compel the other partners that he (X) becomes a partner C. A and B to pay P30,000 each
A. 1 and 3 C. 2 only D. A, B and C to pay P20,000 each
B. 3 only D. 2 and 3
5. Carlos and Conrado established a partnership each contributing P100,000. Pepito, a third
Admission or representation of partners party, allowed his name to be included in the firm name of the partnership. The partnership
was insolvent and, after exhausting all the remaining assets, there remained a P30,000 liability
Notice to partners in favor of Hermeneglido, a partnership creditor. Hermeneglido can compel:
Solidary liability of partners A. Pepito to pay the remaining P30,000 liability;
16. Which of the following statements is (are) usually correct regarding general partner’s liability B. Carlos, Conrado and Pepito to pay P10,000 each;
I. All general partners are jointly and severally liable for partnership torts. C. Carlos and Conrado to pay P15,000 each;
II. All general partners are liable only for those partnership obligations they actually D. Carlos and Conrado to pay the remaining liability, jointly and severally
authorized.
A. I only C. Both I and II Liability of incoming partner
B. II only D. Neither I or II 12. A and B are the general partners and C the limited partner of X & Co. partnership. After one
year, D was admitted as a new limited partner. If the partnership suffered a loss of P12,000,
9. Which of the following statements is correct concerning liability when a partner in a general who are liable?
partnership commits a tort while engaged in partnership business? A. A and B C. A, B and D
A. The partner committing the tort is the only party liable. B. A, B and C D. All of them
B. The partnership is the only party liable.
C. The partnership and each partner are jointly and severally liable. Preference as creditors
D. Each partner is liable to pay an equal of any judgment. 18. A, B, and C, capitalist partners, contributing P30,000, P20,000 and P10,000 respectively, and
D, the industrial partner contributed his services. Suppose X, a customer, is the creditor of the
Partnership by estoppel firm to the amount of P180,000. How can X recover the P180,000?
25. A, B and C are partners in ABC Company. D introduced himself as a partner in ABC Company A. X must sue the firm and get P60,000. X can still recover the balance of P120,000 from the
to X, who in the belief of such introduction extended a P60,000 credit to ABC Company. These four partners jointly, that is, P40,000 each.
facts are known by A who did not oppose. Who shall be held liable to X? B. X can recover from the firm P60,000. X can still recover the balance of P120,000 from the
A. Since X extended the credit to ABC Company, a partnership liability exists, thus, partner capitalist partners only
A, B and C and D are liable C. X can recover from the firm P60,000. X can still recover the balance of P120,000 from any
B. Only A, who knows the transaction and D are partners by estoppel are liable pro-rata to X. of the partners solidarily
C. D who represented himself as partner in ABC Company is liable D. X can recover from the firm P60,000 and can no longer recover the balance of P120,000.
b. Equal sharing, 50% shall go to Bova and 50% to the partnership.

38. A, B and C capitalist partners, contributed P10,000 each and D, the industrial partner c. P5,000 should go to Bova and P15,000 should be for the partnership.
contributed his services. Suppose X, is the creditor of the firm to the amount of P90,000 after d. P6,666,666 should go to Bova and the balance to the partnership.
getting the P30,000 assets of the partnership
A. X can recover P20,000 each from A, B and C only Comprehensive
B. X can recover P60,000 from either A, B and C only 32. 1st Statement: A person admitted as a partner into an existing partnership is liable for all the
C. X can recover P15,000 each from A, B, C and D obligations of the partnership before his admission as though he had been a partner when
D. X can recover P15,000 each from A, B and C but D is exempt because he is an industrial incurred and that such liability will extend to his own individual property.
partner 2nd Statement: In the absence of stipulation, the share of each partner in the profits
and losses shall be equal to each other.
39. A, B and C formed a limited partnership with A, as general partner, B as limited partner and C A. B. C. D.
as industrial partner. A and B contributed P50,000 each. The partnership failed and after 1st Statement True False True False
disposing all its assets to pay partnership debts there still remains a note payable in the sum of 2nd Statement True False False True
P30,000. Against whom can the creditor demand payment of the note of P30,000?
A. Only A is liable to pay the P30,000 indebtedness 17. 1st Statement: A person admitted as a partner into an existing partnership is not liable for
B. A and C are liable to pay P15,000 each obligations of the partnership contracted before his admission.
C. A and B are liable to pay P15,000 each 2nd Statement: On dissolution the partnership is not terminated, but continues until
D. A, B and C are liable to pay P10,000 each winding up of partnership affairs is completed.
A. B. C. D.
30. A, B and C are partners of A and Company. They agreed that in case of loss, the share of A is
50%, B 30% and C 20%. After three years total assets of A and Company is P100,000 as
against total liability of P112,000. If D is the only creditor, D can collect from A
A. P6,000 D. P4,000
B. P12,000 E. P8,000 Dissolution of partnership
C. None of the above Meaning of dissolution
Causes – judicial and extra-judicial
40. A, B and C are partners of A and Company. They agreed that in case of loss, the share of A is 15. Which of the following is a ground for the court to dissolve a general partnership?
50%, B 30% and C is 20%. After three years, total assets of A and Company is P100,000 as A. Death of a partner
against total liability of P112,000. If D is the only creditor, D can collect from A B. Termination of the term
A. P6,000 D. P4,000 C. Business cannot be carried except at a loss
B. P12,000 E. P8,000 D. Civil interdiction of a partner
C. None of the above E. All of the above
7. Emong, Jack and Bova are partners with Bova as managing partner. Carla is indebted to Bova 8. One is a mode of dissolving partnership that requires decree of court:
in the amount of P50,000 and P150,000 to the partnership. Both debts are due and A. Death of partner
demandable. Carla paid Bova P20,000 and he issued his own receipt. B. When a specific thing promised by a partner is lost before delivery
a. The whole P20,000 should be applied to indebtedness of Carla to Bova as he issue his C. Business can only be carried on at a loss
receipt. D. Accomplishment of the purpose of partnership

12. Unless otherwise provided in a general partnership, which of the following is correct 27. A, B, and C formed a general partnership with a gross capital of P90.000. They agree that the
when a partner dies? profit and loss sharing is: A – 50%; B – 25%; C – 25%. Upon dissolution and after exhausting
Deceased partner’s administrator His estate would be free The partnership is the partnership capital, X has still a collectible amount of P30.000 from the firm. How much
would automatically become partner from any liabilities automatically dissolved can X collect from C alone.
A. Yes Yes Yes A. P 7,500 C. P30.000
B. Yes No No B. P15,000 D. P10,000
C. No Yes No
D. No No Yes 10. X, Y and Z formed a general partnership decided to contribute P200,000 each. The
partnership and has started its operations although X was able to contribute only P140,000.
9. Unless otherwise provided in a general partnership, which of the following is correct when a They also agreed the X & Y be exempted from losses. Upon dissolution there was an
partner dies? outstanding obligation to Mr. A in the amount of P720,000. A exhausted the capital of
His Administrator Automatically Extinguishment of all Dissolution of the P540,000, leaving a P180,000 balance. Which statement based on the foregoing is true?
becomes a partner his Liabilities Partnership A. The share of X is nothing based on the agreement.
B. The share of X is 1/3 of P180,000 or P60,000 being a general partner.
A. Yes Yes Yes C. Z will have to absorb the whole P180,000 per agreement minus X’s share of P60,000.
B. Yes No No D. X is liable for P60,000 to the partnership and P40,000 to Mr. A.
C. No Yes No
D. No No Yes 9. X, Y and Z formed a general partnership decided to contribute P200,000 each. The
partnership and has started its operations although X was able to contribute only P140,000.
They also agreed the X & Y be exempted from losses. Upon dissolution there was an
Effects of dissolution outstanding obligation to Mr. A in the amount of P720,000. A exhausted the capital of
13. A, B, C and D partners with A and B as the capitalist partners and C and D as the industrial P540,000, leaving a P180,000 balance, if X is a limited partner in their partnership named Z
partners. In due course of business, the firm incurs a contractual debt in favor of X. After X and Co. which is correct?
has exhausted the assets of the firm a balance of P10,000 remains unpaid. X files an action a. X has no share in the balance being a limited partner
against C and D because A and B are already out of the country b. X will only have to pay his unpaid contribution of P60,000
A. C and D are not liable because they are the industrial partners c. Z will have to absorb the whole P180 per agreement minus X’s share of P60,000
B. C and D may be held liable for P10,000 because they are solidary debtors d. X is liable for P60,000 to the partnership and P40,000 to Mr. A
C. C and D are liable for P5,000 each because A and B are out of the country
D. C and D are liable for P2,500 each because they are joint debtors 10. A, B, C and D are partners. Their contributions are as follows: A – P50,000; B – P30,0000; C –
P20,000; D services. The partnership incurred obligations to third persons which the firm was
28. A, B, and C formed a general partnership with a gross capital of P90.000. They agree that the unable to pay. After exhausting all the assets of the partnership, there still is an unpaid balance
profit and loss sharing is: A – 50%; B – 25%; C – 25%. Upon dissolution and after exhausting of P10,000? How much should each partner be liable for?
the partnership capital, X has still a collectible amount of P30.000 from the firm. Suppose A. A - P5,000; B - P3,000; C - P2,000; D - none
there is no profit and loss sharing and A contributed P24.000; B – P21,000; C – P15,000. How B. A - P2,500; B - P2,500; C - P2,500; D - P2,500
much is the obligation of C to X? C. A - P4,000; B - P3,000; C - P2,000; D - P1,000
A. P30,000 C. P 7,500 D. A - P4,000; B - P4,000; C - P4,000; D - none
B. P 15,000 D. P10,000
9. Jay, Jane, James and Joy formed the “Four Js Partnership” with Jay, Jane and James as
capitalist partners, and Joy as an industrial partner. The partnership suffered heavy losses 1st Statement False True True False
and its remaining assets amounted to only P100,000 and the partnership is still indebted to 2nd Statement False True False True
one of its suppliers, Mr. Red, P130,000. After getting P100,000 from the partnership, how
would Mr. Red recover the balance of P30,000? 21. A, B and C are partners in X Partnership. The partnership is dissolved by A’s death. B,
A. Mr. Red suffers as his loss the balance of P30,000; thereafter transacts business with D, a third person.
B. Mr. Red can recover from all the three (3) capitalist partners, jointly 1st Statement: If the transaction is designed to complete transactions began but unfinished at
C. Mr. Red can recover the balance of P30,000 from all the four (4) partners, jointly, including the time of dissolution, the partnership is bound.
the industrial partner; 2nd Statement: If D had extended credit prior to the dissolution and had no knowledge
D. Mr. Red can recover the balance of P30,000 from all the four (4) partners, jointly and or notice of dissolution, the partnership is bound.
severally, including the industrial partner A. B. C. D.
Rights of partners among themselves 2nd Statement True False False True
Relation of partner to third persons for contract after dissolution
Liability of partners
Liquidating partners
Liquidation of partnership
Rights of partner
Methods of liquidation
Comprehensive
Rights of creditors after dissolution
35. A, B and C formed partnership engaged in appliance business. A and B were general partners
Rights of accounting
while C was a limited partner. Later, B and C got married, and afterwards A sold his interest to
Requisites of limited partnership
B. Based on the facts presented, is the partnership dissolved?
Distinctions between limited and general partners
A. No, the marriage of B and C will not dissolve the partnership unless there is judicial
Powers of general partners
approval
B. The selling of A’s interest to B will not dissolve the partnership because the spouses can
Limited partnership
enter into a particular partnership
Rights of limited parties to share for profits, return of contribution
C. No, the marriage of B and C and the selling of A’s interest to B converts the partnership
25. A substituted limited partner is
into a universal partnership
A. A buyer of right of the deceased partner
D. Yes, when B acquired the interest of A it became a sole proprietorship therefore the
B. A person admitted as a limited partners by the other partners
partnership is dissolve
C. An assignee admitted to all the rights of the assignor
D. A legal representative of a limited partner
20. 1st statement: The arrival of the term of a partnership with a fixed term or period shall not
dissolve the partnership but such partnership may be terminated anytime dependent in the will
26. Which of the following is not correct? In a limited partnership composed of A, B and C, the
of the continuing partners.
contribution may be as follows:
2nd statement: The general rule is that the loss of the specific thing contributed to the
A. A property (limited partner); B – services (general partner); C cash (general partner)
partnership dissolves the partnership when only the use of the thing is contributed by
B. A cash (limited partner); B – property (general partner); C services (general partner)
the partner and such thing after its transfer to the partnership which used the same
C. A services (limited partner); B - cash (general partner); C services (general partner)
form sometime was subsequently lost, the partnership is not dissolve. Which is
D. A cash (limited partner); B – cash (general partner); C services (general partner)
correct?
A. B. C. D. 15. As regards a limited partner, which statement is correct?
A. He cannot be allowed to transact business directly with the partnership of which he is a partner.
member as this would result into conflict of interest;
B. He is automatically the agent of the partnership with general authority to bind the 9. In partnership which of the following is incorrect?
partnership to contracts with third persons; A. Stipulation exempting any kind of partner in a partnership from profit and loss sharing is
C. He can only contribute money and property but not services; void as to third person
D. He has no liability to partnership creditors even if he takes part in the management of the B. Unlawful partnership is dissolved by court decree, the capital contribution of the partners
partnership. shall be confiscated in favor of the state.
C. In case of tie in a joint management in a partnership, the matter will be decided by the
Liability controlling interest.
Death of limited partner D. All of the above
Settlement of accounts after dissolution
Amendment and cancellation of certificate 7. One of the following statements is false:
Comprehensive A. Limited partner cannot be an industrial partner
8. Conrado, Pedro and Carlos formed a limited partnership with Conrado as managing partner; B. A managing partner is always a general partner
Pedro as industrial partner; and Carlos as limited partner. Conrado contributed P100.000 C. Persons not allowed to donate to each other cannot form Universal Partnerships
while Carlos contributed P150,000. The partnership became a failure. After all its assets have D. As to liability to creditors of the partnership an industrial partner is considered a general
been disposed to pay partnership debts, there still remains a note, executed by Conrado in his partner.
capacity and authority as managing partner, payable to the order of Guillermo, a partnership
creditor, in the sum of P60,000. Against whom can Guillermo enforce his claim of P60,000? 12. 1st Statement: A newly admitted partner shall be liable for all obligations which the partnership
A. Against Conrado and Carlos, the capitalist partners, jointly incurred prior to the time of his admission, but the same shall only be satisfied out of his
B. Against Carlos only or any of his legal representative personal and separate property.
C. Against Conrado and Pedro only, jointly 2nd Statement: Article of Universal Partnership entered into without specification as to its
D. Against Conrado only nature is presumed to constitute only universal partnership of profits.
A. B. C. D.
Comprehensive Statement No. 1 True False True False
27. Which of the following statements is correct? Statement No. 2 True False False True
A. A partnership contract is not covered by statute of fraud
B. A limited partnership is one having at least one general partner or one limited partner and 10. Statement No. 1: A partner’s right to use specific partnership properties may be assigned to
the limited partner shall not be liable for the obligations of the partnership third person-creditor.
C. A limited partner who contribute industry to the firm becomes liable as a general partner Statement No. 2: The death, retirement, insolvency or civil interdiction of a limited partner
D. The contract of partnership is void is it contains a stipulation which exclude a partner from dissolves the limited partnership.
sharing in the profits of the firm A. B. C. D.
Statement No. 1 True False True False
12. All are correct except:
Statement No. 2 True False False True
a. Limited partner cannot be an industrial partner too.
b. A managing partner is always a general partner.
c. Persons not allowed to donate to each other cannot form Universal Partnership.
d. As to liability to creditors of the partnership an industrial partner is considered a general CORPORATION
Introduction to the Corporation Law
Private corporation – definition C. Eleven Filipinos who are residents of San Francisco, California
42. Which of the following is a disadvantage of forming a corporation? D. Seven American residing in the Philippines and two Filipinos residents of Hawaii
A. The existence of the entity is not affected by the personal vicissitudes or of the individual
stockholder 32. A corporation cannot be an incorporator, because only natural persons may become
B. Free and ready transferability or ownership of shares incorporators, except
C. Subservience of minority stockholders to the wishes of the majority subject only to A. Cooperative as incorporator of Rural Bank
equitable restraints B. Eleemosynary corporations
D. The shareholders are not liable for the debts of the business C. Charitable organizations incorporated under the Philippines Laws
D. Corporation sole
12. Which of the following is the disadvantage of forming a corporation?
A. The free and ready transferability of ownership 19. A, B and C are Filipinos who are residents of the Philippines. D, E and F are Filipinos who are
B. The shareholders are not liable for the debts of the business. on-residents, G and H are Japanese nationals residing in the Philippines. I and J are
C. Because of the power of succession, the existence of the entity is not affected by the Japanese who are nonresidents.
personal vicissitudes of the individual stockholders. A. A, B, D, E and F may form a corporation in the Philippines
D. The subservience of minority stockholders to the wishes of the majority subject only to B. D, J, I, A and H may form a corporation in the Philippines
equitable restraints. C. A, G, H, E and J may form a corporation in the Philippines
D. none of the above
Theory of corporate entity; piercing the veil of corporate fiction
23. Plaintiffs filed a collection action against “X” Corporation. Upon execution of the court’s 18. The Articles of incorporation requires that the names, nationalities and residences of
decision, “X” Corporation was found to be without assets. Thereafter plaintiffs filed an action incorporators be stated to enable the State, through the Securities and Exchange Commission
against its present and past stockholder including “Y” Corporation which owned substantially (SEC) to determine whether:
all of the stock of “X” Corporation. The two corporation have the same board of directors and A. Majority of the incorporators are citizens of the Philippines
“Y” Corporation financed the operations of “X” Corporation. May “Y” Corporation be held liable B. 2/3 of the incorporators are citizens of the Philippines
because there was delay. C. 2/3 of the incorporators are residents of the Philippines
A. Yes, under the principle of “Corporate Opportunity” of Interlocking Director D. Majority of the incorporators are residents of the Philippines, even if all of them are
B. Yes, under the principle of “Trust Fund Doctrine” foreigners
C. No, under the doctrine of “Separate Entity”
D. Yes, under the principle of “Piercing the veil of corporate entity” Classification of shares – brief definition
34. Shares deposited by the seller or his agent with a bank or third party to be delivered to the
Rights of a Corporation buyer or subscriber only upon the fulfillment of the stipulated suspensive condition
Distinction from partnership A. Promotion shares C. Redeemable shares
Classes of corporations B. Founders shares D. Escrow shares
Corporations created by special laws
Corporators; incorporators; members; stockholders Cases when non-voting shares can vote
31. This group of persons may not form a corporation and be incorporators in a corporation in the Definition of terms – capital stock, share of stock and certificate of stock
Philippines Treasury shares; founders’ shares; redeemable shares
A. Fifteen Spanish citizens who are residents of Manila
B. Ten resident aliens and four aliens in Singapore Incorporation of a business
Number and qualification of incorporators Subscibers

14. Who among the following comply with the minimum requirement of law and, in the process, A – 100 shares and paid P8,000 D – 50 shares and paid P5,000
form a stock corporation in the Philippines? B – 160 shares and paid P 100 E – 200 shares and paid P 600
Name Nationality Residence C – 250 shares and paid P4,000
Ramon Recto Filipino Philippines Which will qualify the pre-incorporation subscription requirement?
Poncito Enrile Filipino Canada A. Combination of A and E C. Combination A and B
Lee, Chin Chih Taiwanese Philippines B. Combination of C and D D. All of the above
Luis Cordero Spanish Philippines
Renato Mabuhay Filipino USA 16. Suppose SPAGHETTI Corporation has an authorized capital stock of P100, 000 divided into
John Pratts American Philippines 1,000 shares of stocks with a par value of P100 each.
Honorato Reyes Filipino Hongkong A – 100 shares and paid P8,000 D – 50 shares and paid P5,000
A. Recto, Enrile, Cordero, Reyes, Mabuhay B – 160 shares and paid P 100 E – 200 shares and paid P600
B. Recto, Enrile, Mabuhay, Pratts, Reyes C – 250 shares and paid P4,000
C. Recto, Lee, Cordero, Pratts, Reyes Which will not qualify as pre-incorporation subscription requirement?
D. Recto, Enrile, Mabuhay, Lee, Reyes a. Combination of A and E c. Combination of A and B
b. Combination of C and D d. Combination of B and D
Steps for incorporation
12. What need not be submitted outrightly to the SEC during incorporation stage. 45. Which of the following conditions will allow corporate formation and allow Securities and
A. Articles of incorporation C. Treasurer’s Affidavit Exchange Registration?
B. By-laws D. Bank Certification Authorized capital Subscribed capital Paid-in capital
A. P200,000 P50,000 P12,500
Corporate term B. 50,000 12,500 3125
Minimum capital stock C. 100,000 25,000 6,250
15. The required minimum authorized capital stock for stock corporation is D. 60,000 15,000 6,250
a. Not less than P5,000
b. 25% must be subscribed and 25% must be paid 21. Which of the following situations complies with the requirement of the law for corporate
c. At least 25% must be subscribed and at least 25% must be paid but not less than P5,000 formation and registration?
d. None as a rule provided the paid up capital is not below P5,000. Authorized Capital Subscribed Capital Paid-up Capital
A. P 50,000.00 P12,000.00 P 5,000.00
13. The required minimum authorized capital stock for stock corporation is:
B. P 60,000.00 P15,000.00 P 10,000.00
A. Not less than P5,000
C. P100,000.00 P25,000.00 P 7,000.00
B. 25% must be subscribed and 25% must be paid
D. All of the above
C. At least 25% must be subscribed and at least 25% must be paid but not less than P5,000
D. Correct answer not given
19. Choose the minimum requirement of the corporation to corporate formation:
Pre-incorporation subscription and paid-up capital Authorized Capital Subscribed Capital Paid-up Capital
14. Suppose SPAGHETTI Corporation has an authorized capital stock of A. P160,000.00 P 50,000.00 P 12,500.00
P100,000 divided into 1000 shares of stock with par value of P100 each. B. P400,000.00 P150,000.00 P 38,000.00
C. P100,000.00 P 25,000.00 P 6,250.00 C. Corporation has commenced its operation and subsequently become continuously
D. All of the above inoperative for 2 years.
D. Corporation has failed to commence and start to operate due to causes beyond its control.
15. Which of these conditions comply with the minimum requirement of law to form a stock
corporation? Revocation of certificate
A. B. C. D. 14. One of the following is a ground for the suspension or revocation of the certificate of
Authorized Capital P400,000 P200,000 P100,000 P 64,000 Incorporation by the SEC.
Subscribed Capital 20,000 50,000 25,000 16,000 a. Failure to organize and commence business operation with in 2 years from incorporation.
Paid-up Capital 20,000 10,000 12,500 4,000 b. Continuous in-operation or inactivity for 5 years after it has organized and commenced
business transactions for one year.
By-laws c. Corporation has commenced its operation and subsequently become continuously
20. They provide and regulate the internal governance and internal matter of the corporation, such inoperative for 2 years.
as the calling of the Board of Directors’ and Stockholders’ meeting: d. Corporation has failed to commence and start to operate due to causes beyond its control.
A. The Articles of Incorporation
B. The Board of Directors in the exercise of its corporate powers Corporate name
C. The By-laws Commencement of corporate existence
D. The majority of the Outstanding Capital Stockholders
Operations of a corporation
15. Is a by-law provision of “X” Corporation “rendering ineligible or if elected, subject of removal, a De facto corporation; de jure corporation; corporation by estoppel
director if he is also a director in a corporation whose business is in competition with or is 32. A, B, C, D and E organized a corporation. An article of incorporation was prepared, signed and
antagonist to said corporation” valid and legal acknowledge before a notary public and filet with the SEC. The corresponding certificate of
A. Yes, under the principle of “corporate opportunity” incorporation was issued. It turned out, however, that A, B, and C are not residing in the
B. No, under the principle of “separate entity” Philippines. What is the status of the corporation?
C. Yes, provided it is approved by 2/3 of the outstanding capital stock A. De jure corporation D. Corporation by prescription
D. Yes, under the principle, “of vested interest” B. De facto corporation E. None of the above
C. Corporation by estoppel
Articles of incorporation – form, contents, disapproval
18. Which of the following must be obtained in a Corporation’s Articles of Incorporation? 13. A, B , C , D and E prepared and drafted their Article of Incorporation as well as the set of By-
A. Names of stockholders laws for the creation of Five Kings Corporation but were not able to file the same with the
B. Name of the temporary treasurer Securities and Exchange Commission. A was temporarily appointed as Treasurer. They
C. Provisions for issuance of par and no par value shares deposited P1 Million to the bank for which a bank certificate was issued to them. They began
D. Quorum voting requirement transacting business and held themselves out as directors and stockholders of Five Kings
Corporation. In this case, there is:
16. One of the following is a ground for the suspension or revocation of the Article of Incorporation A. a corporation by prescription C. a de facto corporation
by the SEC. B. a de jure corporation D. a corporation by estoppel
A. Failure to organize and commence business operation with in 2 years from incorporation.
B. Continuous inoperation or inactivity for 5 years after it has organized and commenced Effect of non-use and disqualification
business transactions for one year. Board of Directors & Officers
17. Which is correct about a B.O.D. member? B. Majority of the trustees must be resident of the Philippines
a. He is entitled to compensation as a matter of right. C. Trustees of non-stock corporation may be more than 15 members
b. He must be a citizen of the Philippines D. All of the above.
c. He is disqualified to be one if convicted of the crime of murder before
d. He can be removed by votes representing 2/3 of the outstanding capital stocks in all Method of voting
cases Quorum
Removal – vacancy
49. “ A” was one of the directors of “X” Corporation. “B” obtained a judgment against “A” and had Liability and disloyalty of directors
all of “A’s “ shares of stock in “X” Corporation. A meeting was held and both “A” and “B” 30. A corporation officer or director cannot take advantage for their personal benefit a business
appeared in said meeting, each claiming the right to participate in the deliberation of the board. opportunity which the corporation is financially able to undertake
“A” contended that he had the right to continue as director until the stockholders could elect his A. Doctrine of corporate fiction C. Doctrine of corporate opportunity
successor. B. Trust fund doctrine D. Doctrine of limited capacity
“B” on the other hand, contended that having purchased all of “A’s” share he had the right to
take the latter’s place in the board. Under the rule of directorship, which of the following is 17. Where a director, by virtue of his office, acquired for himself a business opportunity which
false? belongs to the corporation, thereby obtaining profits to the prejudice of such corporation, he
A. Both A and B are disqualified to sit as directors in the Board of Directors must account to the latter for all such profits by refunding the same to the corporation. This
B. A cannot qualify as he disposed all his shares. The requirement is that a director must pertains to what duty of a director or a corporation?
continuously have at least one share in the corporation A. Duty of diligence C. Duty of loyalty
C. B can qualify because a corporation as well as the heirs of stockholders of same B. Duty of obedience D. Duty of honest
corporation has got a right of succession
D. B cannot also qualify if he claims succession to A. He must have to be elected by the 35. Directors or trustees who willfully and knowingly vote for or assent to patently unlawfully act of
stockholders. The position is personal and does not allow substitution. the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty shall be
50. In no case shall the total yearly compensation of directors, exceed liable
A. 5% of the net income before income tax during the preceding year A. As a trustee for the corporation
B. 10% of the net income before income tax during the preceding year B. Criminally for violation of the corporation code
C. 10% of the net income after income during the preceding year C. Jointly and severally liable for the damages suffered by the corporation
D. 10% of the net income before income tax during the current year D. None of the above.
22. Which of the following statement is correct regarding corporate officers of a stock corporation? Contracts with interlocking directors
A. An officer may not simultaneously may or not be a stockholder of the same corporation Powers of a corporation (expressed; implied; incidental)
B. Corporate Secretary may or not be a stockholder of the same corporation Extension of corporate term
C. Stockholders always have the right to elect a corporation officers Increase or decrease capital stock
D. An officer of a corporation is required to own at least one share of the corporation’s stock Deny pre-emptive right
Sale or disposition of assets
Board of Trustees 29. The assets of the corporation as represented by its capital stock are to be maintained
33. Qualification of trustee of non-stock corporation: unimpaired that there can be no distribution of such assets among the stockholders without
A. Trustees must be member of the corporation provision being first made for the payment of corporate debts
A. Doctrine of corporate fiction C. Trust fund doctrine 2nd Question – If there is a plan for a definite corporate expansion is it true that the BOD
B. Doctrine of corporate opportunity D. Doctrine of limited capacity cannot be compelled to declare dividends even if the profit exceed 100% of the paid up
capital.
Acquisition of own shares A. B. C. D.
Investment in another business st
1 Statement Yes No No Yes
16. Cool Lang Corporation, acting through its Board of Directors, wanted to invest corporate funds 2nd Statement Yes No Yes No
in Sobra-Sobra Corp., and her corporation the primary purpose of which is similar or related to
the primary purpose of the former. What should be the voting requirement? Management contracts – ultra vires
A. Majority vote of the Board and assented to by 2/3 vote of the OCS 48. To enter into management contracts, as a rule
B. Majority vote of the Board and assented to by majority vote of the OCS A. Majority X of the board and majority of the outstanding capital stock or of the members of
C. Majority vote of the Board of Directors only both the managing and managed corporations
D. None of the above B. Majority of the quorum of the board and 2/3 of the outstanding capital stock or of the
members
Declaration of dividends C. Majority vote of the board and majority of the outstanding capital stock or of the members
18. Cash dividends as distinguished form stock dividend D. 2/3 of the outstanding capital stock or of the members.
A. Corporate capital is increased
B. Concurrence of the stockholders is required Adoption of by laws procedures
C. Involves disbursement to the stockholders of accumulated earnings Contents
D. Being part of corporate property, maybe reached by corporate creditors. Validity
Amendment
40. The following are the requisites, except one, for valid declaration and/or issuance of stock
dividend Meetings and Stocks
A. Existence of original and unissued shares Kinds, place and time
B. Dividend declaration is made by the Board of Directors and approved by 2/3 of the 35. Place of meetings of stockholders and members. Which one is incorrect?
outstanding capital stock A. Stockholders: City or municipality where the principal office of the corporation is located
C. It is issued to increase the authorized capital B. Members: Any place even outside the principal office of the corporation if stated in the by-
D. Existence of unrestricted retained earnings laws by must be within the Philippines and stated in the notice of meeting.
C. Members: Any place even outside the principal office of business if stated in the by-laws
23. A distribution by a corporation, to its existing shareholders, of shares of stock held by it in but must be within the Philippines even if not stated in the notice of meeting.
another corporation is considered as: D. Stockholders: Meeting held outside the principal place of business is valid except if all
A. Stock dividend C. Sale of treasury shares stockholders are present or represented.
B. Property dividend D. Sale of capital assets
37. Which statement is correct?
22. For past four years of its commercial operation, MY TRUST CO. an insurance company has A. The Board of Directors may hold its meeting outside the municipality or city where its
been earning tremendously in excess of 100% of the corporation’s paid in capital. All of the principal place of business is located and the directors may attend by proxy, while the
stockholders want that they share in the profits of the corporation by way of dividends but the stockholders' meeting must by held in the city or municipality where the principal place of
Board of Directors remained unmoved. business of the corporation is located and the stockholders may attend personally or by
1st Question – Can the stockholders compel the Board of Directors to declare dividends. proxy.
B. The Board of Directors may hold its meeting outside the municipality or city where its Prior to the company’s declaration of insolvency, its board of directors, by resolution, released
principal place of business is located and the directors must attend personally and not by “W” (another subscriber) from the payment of his “W” remaining unpaid subscription. The
proxy; while the stockholders meeting must by held in the city or municipality where the assignee brought action to recover from “X” the amount representing his unpaid subscription
principal place of business of the corporation is located and the stockholders may attend and against W, the recall of the release order. Which of the following statements is incorrect?
personally or by proxy. A. Insolvency of the corporation makes all unpaid subscription immediately demandable
C. The Board of Directors must hold its meeting only within the municipality or city where its B. The release of W of his unpaid subscription is void under the Trust Fund Doctrine
principal place of business is located and the directors must attend personally and not by C. X is considered released by invoking that W, another subscriber has been released by the
proxy; while the stockholders' meeting may be held within or even outside the city or board.
municipality where the principal place of business of the corporation is located and the D. The payment of unpaid subscription is immediately demandable whether or not a “call
stockholders may attend personally or by proxy. order” has been made by the board of directors
D. The Board of Directors may hold its meeting outside the municipality or city where its
principal place of business is located and the directors may attend by proxy; while the Procedures of sale
stockholders' meeting must held in the city or municipality where the principal place of Highest bidder
business of the corporation is located and the stockholders must be in attendance Lost or destroyed certificate
personally.
Stockholders’ Rights, Powers & Obligations
Quorum Stockholders’ rights
Right to vote – proxies, voting trust agreement 15. The right given to a stockholder to dissent and demand payment of the fair value of his shares
Subscription contract in all of the following except:
Pre-incorporation subscription A. In case of merger or dissolution
Consideration for stock B. Sale of all corporate assets
53. Which of the following is (are) valid consideration for the purchase of stocks of a corporation? C. Shorten corporate term only.
I. Real estate D. Divert corporate funds to another purpose
II. A negotiable promissory note in money
III. Monetary consideration for services to be performed Pre-emptive Right
A. I only C. Both I and III 41. A shareholders’ option to subscribe to allotment of shares in proportion to his holdings of
B. II only D. Both II and III outstanding shares, before new shares are offered to others
A. Voting right C. Ultra vires act
Transfer of stock B. Pre-emptive right D. Appraisal right
Issuance of certificate
Stock rights – property, management Appraisal right
Watered stock; ancilliary rights 46. Any stockholder of a corporation shall have the right to dissent and demand payment of the
Liability – unpaid subscription fair value of his share/s in three of the following corporate acts. Which is the exception?
57. The “Manila Cigar Company” was organized with a capital stock of P50,000 divided into 500 A. In case of any amendment to the articles of incorporation which has the effect of changing
shares of P100 a share. “X” subscribed for 20 shares and paid P500 upon his subscription or restricting the rights of any stockholder or class of shares
leaving unpaid account thereof the sum of P1,500. Five years later, the company was B. In case of merger or consolidation
declared insolvent and “A” was duly appointed assignee who upon assuming his position, C. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
found that “X” has an unpaid subscription in the amount of P1,500. substantially all of the corporate assets and property of the corporation
D. In case of incurring, creating, or increasing bonded indebtedness corporation or business for a purpose similar to its primary purpose?
A. majority vote of its Board of Directors
47. In which of the following can a dissenting stockholder exercise the right of appraisal? B. majority of its Board of Directors and ratified by a majority of its outstanding capital stock
A. Amendment of the articles to increase authorized capital stock C. majority vote of its Board of Directors and ratified by 2/3 vote of its outstanding capital
B. Amendment of the articles to change corporate name stock
C. Amendment of the articles to transfer location of the principal office D. majority of its Board of Directors and ratified by 2/3 of its stockholders
D. In case of merger
Majority of the Stockholders
22. In one of the following cases, appraisal right is not available. 20. Any director of a corporation may be removed from office by a vote of
A. In case of merger or consolidation. A. Majority of the members of the board
B. In case of increase or decrease of corporate term. B. Majority of the stockholders present
C. In case of increase or decrease of capital stock. C. 2/3 of the stockholder present
D. Diversion of Corporate funds for another purpose other than its primary or secondary D. 2/3 of the outstanding capital stock
purposes.
54. To adopt by-laws
23. In one of the following cases, appraisal right is not available. A. Majority of the outstanding capital stock or of the members
a. In case of merger or consolidation. B. Majority vote of the board and of the outstanding capital stock or of the members
b. In case of increase or decrease of capital stock. C. 2/3 of the outstanding capital stock or of the members
c. In case of increase or decrease of corporate term. D. Majority vote of the board and 2/3 of the outstanding capital stock or of the members
d. Diversion of Corporate funds for another purpose other its primary or secondary purposes.
44. To revoke the power granted to the board to make by-laws.
Remedies A. Majority vote of the board and of the outstanding capital stock of the members
B. 2/3 of the outstanding capital stock or of the members
Voting Requirements C. Majority of the quorum of the board and 2/3 of the outstanding capital stock or of the
Majority of the Board members
25. In 1999, Corporation “A” passed a board resolution removing “X” from his position as manager D. Majority of the outstanding capital stock or of the members
of said corporation. The by-laws of “A” corporation provides that the officers are the president,
general-manager, treasurer and secretary. Upon complaint filed with the SEC, it held that the Two-thirds of the Stockholders
general manager could be removed by mere resolution of the board of directors. On motion 56. To delegate to the board of directors or trustees the power to amend or repeal the by-laws or
for reconsideration, “X” alleged that he could only be removed by the affirmative vote of the adopt new by-laws
stockholders representing 2/3 of the outstanding capital stock. Is “X’s” contention legally A. Majority of the outstanding capital stock or of the members
tenable? B. Majority vote of the board and of the outstanding capital stock or of the members
A. No, the vote required is majority of the board and 2/3 OCS consenting C. 2/3 of the outstanding capital stock or of the members
B. Yes, the voting requirements is only 2/3 of the outstanding capital stock D. Majority vote of the quorum of the board and 2/3 of the outstanding capital stock or of the
C. No, the required vote is MBD consented by MOCS members
D. No, the voting requirement is only majority of the Board of Directors
Majority of the Board & Two-thirds of the Stockholders
21. What is the voting proportion required enabling the corporation to invest, its funds in another 18. One of the following corporate acts requires a majority vote of the Board plus 2/3 of
Outstanding Capital Stocks. corporation?

a. Declaration of Property Dividends. c. Election of Corporate Officers. A. majority vote of its Board of Directors
b. Declaration of Stock Dividends d. Filling up of Board Vacancy. B. majority vote of its Board of Directors and ratified by a majority of its outstanding capital
stock
18. One of the following corporate acts require a majority of the Board and the vote or written C. majority vote of its Board of Directors and ratified by 2/3 vote of its outstanding capital
assent of the stockholders representing at least 2/3 of the Outstanding Capital Stock. stock
A. Declaration of the stock dividend D. majority vote of its Board of Directors and ratified by 2/3 of its stockholders
B. Amendment of the Articles of Incorporation
C. The power to extend corporate life 21. In the matter of managing the business of the corporation, the exercise of corporate power and
D. The power to sell corporate property handling of corporate properties, this is supreme:
A. 2/3 approval of the stockholders of the corporation
42. “By the Board of Directors” and approval of not less than 2/3 of all stocks, outstanding and B. majority vote of the outstanding capital stockholders of the corporation
entitled to vote are the prescribed vote in three of the following, which is the exemption? C. majority vote of the Board of Directors
A. adoption of new by-laws D. the President of the corporation
B. declaration of stock dividends
C. to incur, create or increase bonded indebtedness 24. In which of the following corporate acts/powers, as exercised by the Board of Directors, is the
D. to amend the articles of incorporation consent of, ratification or approval by the outstanding capital stockholders (OCS) of the
corporation necessary?
20. Under the Corporation Code, a majority vote of the Board of Directors and assented to by 2/3 A. The power to invest corporate funds in another corporation where the primary purpose of
vote of the outstanding capital stockholders, as a rule, is necessary before an act can be the two (both) corporations are similar or related to each other.
considered a corporate act. Which among the following does not belong to this category? B. The power to declare cash dividends only
A. If the corporation would like to merge or consolidate itself with another corporation; C. The power to change the par value of shares of the corporation
B. If the corporation would invest corporate funds in another corporation the primary purpose D. The power to re-acquire the corporation’s own shares
of which is similar or related to the primary purpose of the investing corporation;
C. If the corporation would enter into a management contract with another corporation where
there exists interlocking directorates between the two corporation; Other Topics
D. If there is a need to declare cash and stock dividends to existing stockholders of the Corporate Mergers and Consolidations
corporation How exercised
Cost of appraisal
Majority of the Board & Majority of the Stockholders Non-stock corporation
55. To amend or repeal the by-laws or adopt new by-laws 28. Any profit which it may earn shall be used for the furtherance of the purpose for which the
A. Majority vote of the outstanding capital stock or of the members corporation was organized as such profit is not distributable to its members
B. Majority vote of the board and majority of the outstanding capital stock of the members A. Close corporation C. Private educational corporation
C. 2/3 of the outstanding capital stock or of the members B. Stock corporation D. Non-stock corporation
D. Majority vote of the board and 2/3 of the outstanding capital stock or of the members
Close corporations and religious corporations
19. What is the voting proportion required to enable the corporation to enter into a management 45. A corporation where vacancies in the Board of Directors are filled only by the remaining
contract with another corporation if there is no “interlocking directorate” between the two members of the board is:
A. Open corporation C. eleemosynary corporation A. Are organized under laws of countries other than the Philippines
B. Corporation sole D. close corporation B. Are not permitted to transact business in the Philippines until after they have obtained a
license for the purpose from SEC
11. Three of the following may not incorporate as close corporations. Which is the exception? C. If found to be engaged in business without any license, they are not permitted to sue in
A. Insurance companies C. Telecommunication companies any court or administrative agency of the Philippines but may be used
B. Homeowner’s association D. Schools or universities D. Are bound by all laws, rules and regulation applicable to domestic corporation of the same
class but governed by laws of the country of incorporation as to creation, formation,
17. Three of the following of institutions, using strict compliance with the provisions of the organization, dissolution or such as fix the relations, liabilities, or duties of stockholders,
Corporation Code, cannot incorporate as close corporations. Which is an exception? members or officers of corporation to each other or to the corporation
A. A corporation to engage in the business of providing electricity to the public; E. All of the above
B. A corporation to engage in the business of producing, bottling, selling and distributing
beers and softdrinks; Promotion
C. A corporation to engage in the business of gold mining; 17. Not a legal but business term, usefully summing up in a single word a number of business
D. A corporation to engage in the business of secondary and tertiary level education operation familiar to the commercial world by which a company is generally brought into
existence
46. Features of transfer restriction of shares in close corporation A. Incorporation C. Commencement of business transaction
A. For the restriction on the right to transfer, the same shall be stated in the Articles of B. Organization D. Promotion
Incorporation, By-Laws and Certificate of Stock
B. The restriction shall not be more onerous than granting the existing stockholders of the
corporation the option to purchase the shares of the transferring stock with such Comprehensive
reasonable terms, conditions or period stated therein 19. Only one of the following statements is correct.
C. The transfer therefore, shall only be made to the close corporation or to the stockholders A. Stockholder can inspect corporate books anytime he wants.
of the close corporation or to the stockholders of the close corporation B. The rule that no dividends can be declared w/o unrestricted retained earnings is not
D. All of the above absolute.
C. Pre-emptive right may not denied by the corporation
Dissolution D. A stockholder declared delinquent losses absolutely all his rights.
18. There of the following, except one, are involuntary grounds for dissolution of corporations.
Which is the exception? 38. Which of the following statements is false?
A. Failure to organize and commence business transaction within two years from the grant of A. Stock dividend cannot be issued to a person who is not a stockholder in payment of the
certificate of incorporation; services rendered
B. Expiration of the terms for which it was lawfully organized; B. A stipulation that no stockholder shall transfer any share to any other person without
C. The shortening o the corporate terms as approved by the Board, assented to by the CCS notifying the corporate secretary in writing is void
and approved by the SEC. C. An ultra vires act of a corporation can be ratified with the consent of the majority of all
D. By the repeal of the law which created the corporation stockholders when the rights of the state or of the creditors are not involved
D. A stipulation that the corporation shall have the right to acquire for itself, under the same
Causes; methods condition, the shares intended to be transferred is valid under the "doctrine of first refusal"
Foreign corporations
43. Foreign corporation 24. 1st Statement: The corporate secretary may be a director of the same corporation.
2nd Statement: Corporate director can vote by proxy in stockholders meeting.

A. B. C. D. 22. Statement No. 1: A corporation can be held liable for personal indebtedness of its
1st Statement True False True False stockholders, especially if he is the Chairman of the Board.
2nd Statement True False False True Statement No. 2: Under all circumstances, directors serve at the pleasure of the stockholders
of the corporation, and thus, may be removed with or without just cause.
38. 1st Statement: Stocks issued by a corporation in excess of the amount prescribed or limited by A. B. C. D.
its Articles of Incorporation are void except in the hands of a bona fide purchaser for value. Statement No. 1 True False True False
2nd Statement: Treasury shares are part of the outstanding capital stock of a Statement No. 2 True False False True
corporation.
A. B. C. D. 21. Statement No. 1: Delinquent stockholders are entitled to dividend distribution minus the
st
1 Statement True False True False unpaid subscription.
2nd Statement True False False True Statement No. 2: Treasury shares are not part of the outstanding capital stock of the
corporation.
23. Corporation Law: A. B. C. D.
1st Statement: Stockholders in a corporation by estoppel are liable even to the extent of their Statement No. 1 True False True False
separate property, as if they were partners in a general partnership Statement No. 2 True False False True
2nd Statement: Subscribers for stock shall be liable to the corporation for interest from the date
of subscription even if not stated in the by-law. 39. 1st statement: No cash dividends can be declared out of principal surplus as this could amount
A. B. C. D. to declaration of dividend out of capital.
1st Statement True False True False 2nd statement: If the surplus profits of the stock corporation exceeded the level equal
2nd Statement True False False True to its paid-up capital, the SEC may compel the corporation to declare dividends
otherwise it will be liable for a surtax on improperly accumulated profits. Which of
22. 1st Statement: A stock corporation cannot be converted into a non-stock corporation without the following is correct?
dissolving the former. A. B. C. D.
2nd Statement: A limited partnership can be converted to a general partnership by amending its 1st Statement False True False True
Certificate or Articles of Partnership 2nd Statement True True False False
A. B. C. D.
1st Statement True True False False 24. 1st Statement: Under the Corporation Code, an executive committee if composed by at least 3
2nd Statement True False True False BOD members has the power to fill up vacancy in the Board of Directors.
2nd Statement:: If an instrument payable to order 30 days after sight, but undated, was
48. 1st Statement: All the issued stocks, exclusive of treasury stocks, of a close corporation shall delivered without endorsement, the transferee may require endorsement from the transferor,
be held of record by not more than 20 stockholders. and if endorsed, only then is the holder considered as a holder in due course.
2nd Statement: Foreign corporations transacting business in the Philippines without A. B. C. D.
license may not sue but may be sued in our courts. 1st Statement True False True False
A. B. C. D. 2nd Statement True False False True
st
2nd Statement True False False True 17. Statement No.1: The preemptive right of stockholders in close corporations shall extend to all
shares to be issued, including re-issuance of treasury shares, unless the Articles of

Incorporation so provide. Form and Interpretation
Statement No.2: Non-voting shares like preferred shares have no right to vote in the Formal requirements of negotiability in general
amendment of by laws if provided in the Articles of Incorporation. Negotiable instrument defined
A. Both statements are true Formal requirements explained
B. Both statements are false Non-negotiable instrument defined
C. Statement No. 1 is true while statement No. 2 is false Promissory note defined
D. Statement No. 1 is false while statement No. 2 is true Original parties to a promissory note
Bill of exchange defined
36. 1st Statement: Membership in a non-stock corporation, and all rights arising therefrom cannot Original parties to a bill of exchange
be transferred even if provided in the articles of incorporation or by laws, because membership Theory of a bill of exchange
and the rights arising therefrom are personal and non-transferable. Certainty of sum payable
2nd statement: Treasury stock sold for less than their par or issued value are Sum to be paid with interest
considered “watered stock” and as such as prohibited by law. Which is correct? 50. B received an instrument from A on March 31, 2000. How much can B collect on April 30,
A. B. C. D. 2000. “Pay to order amount only five thousand pesos (P5,000) with 12% interest.”
st
1 Statement True False True False A. P5,000 plus 30 – day interest
2nd Statement True False False True B. B cannot collect because the instrument is defective
C. P5,000 only
47. 1st Statement: Management of a corporation may be delegated to an executive committee, D. P5,000 plus interest
composed of not less than 3 members of the board to be appointed by the board provided the
creation of such executive committee is provided in the by-laws. Sum to be paid by stated installments
2nd Statement: Stockholders’ or members meetings shall be held in the city or Sum to be paid by stated installments with acceleration clause
municipality where the principal office of the corporation is located and if Sum to be paid with exchange
practicable, in the principal office of the corporation. Exchange applicable only to foreign bills
A. B. C. D. Sum to be paid with costs of collection or an attorney’s fee
When promissory note contains a promise to pay
When bill of exchange contains an order to pay
Indication of a particular fund out of which reimbursements is to be made
49. 1st Statement: An order or promise to pay is unconditional though coupled with an indication of
particular fund out of which reimbursement is to be made, or particular account to be debited
with the amount.
zzz 2nd Statement: An order or promise to pay out a particular fund is not unconditional.
NEGOTIABLE INSTRUMENTS
A. B. C. D.
Introduction
Applicability of the Negotiable Instruments Law 1st Statement True False True False
Function and importance of negotiable instruments 2nd Statement True False False True
Characteristics or Features of negotiable instruments
Common forms of negotiable instruments Indication of a particular account to be debited with the amount
Instruments with limited negotiability Statement of transaction which gives rise to instrument
Certainty of time of payment When agent may escape personal liability

Acts in addition to payment of money Use of descriptive words without disclosure of principal
Effect of omission of date Meaning of procuration; Effect of signature by procuration
Effect of omission of value Effect of endorsement by a minor; Effect of endorsement by a corporation
Effect of omission of place Forgery explained Application of Section 23; Cases of forgery in general; Extent of the effect of
Effect of presence of seal forgery; Exceptions to the general rule; Persons precluded from setting up the defense of forgery;
Effect of particular kind of current money payable Rights of parties in cases of forged endorsements
When instrument payable on demand Non-negotiable Instruments
When instrument payable to order Examples of Negotiable Instruments
Effect where payee not named or described 26. B bought a used cellphone from S. S preferred cash but B is a friend so S accepted B’s
When instrument payable to bearer promissory note for P10,000.00. S thought of converting the note into cash by indorsing it to
Substance criterion of negotiability his brother X. The promissory note is a piece of paper with the following hand-printed
Presumption as to date notation: “B WILL PAY S OR HOLDER TEN THOUSAND PESOS IN PAYMENT FOR HIS
Date on instruments payable at a fixed future date CELLPHONE 1 WEEK FROM TODAY”. Below this notation is B’s signature with “8/1/00” next
Date in instruments payable on demand to it, indicating the date of the promissory note. When S presented B’s note to X, the latter
Meaning of ante-dating and post-dating said it was not a negotiable instrument under the law and so could not be a valid substitute for
Effect of ante-dating and post-dating cash. Which of the following statements is correct?
When date may be inserted A. The instrument is non-negotiable because it is not sign by the maker.
Effect of insertion of wrong date B. The instrument is non-negotiable because the cause or consideration paid is not stated in
Steps in issuance of negotiable instrument the instrument.
Application of Section 14, 15 and 16 C. The instrument is negotiable because the requisites of negotiability are present.
Rules where instrument incomplete but delivered D. The instrument is non-negotiable because it is not payable to order or bearer
Rules where instrument incomplete and undelivered
Rules where instrument mechanically compute by undelivered Examples of Non-negotiable Instruments
Rules of construction in case of ambiguity or omission 45. Item No1: "To X: Pay to P on demand the amount of P5.000.00 and reimburse yourself from
Persons liable on an instrument; Signing in a trade or assumed name the proceeds of the sale of my car which is still in your possession. "Sgd.: Drawer"
Signature by an authorized agent Item No. 2: "I promise to pay X the amount of P5.000.00 on demand." Sgd.: M.
27. A promissory note is signed in behalf of the principal by an agent as follows: A. B. C. D.
Juan dela Cruz Item No. 1 Negotiable Non-negotiable Non-negotiable Negotiable
Per Procuration: Manuel S. Canet Item No. 2 Negotiable Non-negotiable Negotiable Non-negotiable
This operates as notice that the agent has:
A. Unlimited authority to sign for and in behalf of the principal 46. Which of the following examples is not negotiable?
B. A limited authority to sign, and the principal is bound only in case the agent in so signing A. “To X: PLEASE pay to the order of Y P5,000.00 on demand. “Sgd.: D
noted within the actual limits of his authority B. “To X: Pay to the order of yourself the amount of P50,000 in two EQUAL MONTHLY
C. A limited authority to sign, but the principal is bound even in case the agent in so signing INSTALLMENTS beginning May 31, 2002. “ Sgd.: D
acted outside the actual limits of his authority C. Pay to P or bearer the amount of P50,000 on June 25, 2002 or deliver to him ten (10) pigs
D. Answer not given AT HIS ELECTION.” Sgd.: D
D. “I promise to pay X or order P5,000 AS SOON AS I HAVE MONEY.” Sgd.: M
Endorsement must be of entire instrument

51. “I promise to pay to the order of Pedro San Pedro only the sum of $10,000.” (Sgd.) M. The Endorsement to two or more indorsees severally
words “Pedro San Pedro only” are written in the handwriting of M. The instrument is When partial endorsement is allowed
A. Negotiable, convert dollars into legal tender Special endorsement and Blank endorsement
B. Non-negotiable, because the instrument is payable in dollars Conversion of blank endorsement to special endorsement
C. Non-negotiable, indorsement is restrictive Restrictive endorsement, Effect of absence of words of negotiability
D. Non-negotiable, payable only to a specified person. Rights of indorsee in restrictive endorsement
Qualified endorsement and its effect
52. 1st Statement: “I promise to pay B the sum of P20,000, three (3) days from date,” Sgd. A (The Conditional and absolute endorsements; Different combinations of endorsements
instrument is not dated) 30. M, maker, P payee. Instrument is indorsed to “pay A, if he passes the CPA exams”. Which of
2nd Statement: “I promise to pay to the order of B or C the sum of P50,000. Sgd. A. the following is incorrect?
A. Both are negotiable A. The conditional indorsement will not affect the negotiability of the instrument
B. Both are not-negotiable B. Before the release of the result of the exams M may pay the holder
C. First is not negotiable while second is negotiable C. Before the result of the exams, M may refuse to pay the holder because the condition is
D. First is negotiable while second is not not yet fulfilled
Consideration 53. Identify the following indorsement

Meaning of consideration in general; Presumption of consideration “Pay to A, without recourse” Sgd. P
Adequacy of consideration; Antecedent or pre-existing debt A. Qualified C. Special Qualified indorsement
What constitutes holder of value B. Blank D. Qualified restrictive
Where a holder has lien on instrument
Meaning of absence or want of consideration; Meaning of failure of consideration 54. Identify the following indorsement.
Liability of accommodation party “Pay to A if he completes work today, without recourse,” Signed P.
Meaning of “without receiving value therefore” A. Qualified indorsement
Kinds of accommodation party B. Special and qualified indorsement
Accommodation party and regular party distinguished C. Restrictive and qualified
D. Special, conditional and qualified endorsement
Negotiation
Meaning of negotiation 55. 1st Statement: Where a negotiable instrument is indorsed conditionally, the person liable on the
Methods of negotiation instrument may disregard the condition and legally pay the same.
Payment of instrument by drawee not negotiation; 2nd Statement: An instrument which is negotiable in origin continues to be negotiable
Meaning of assignment unless restrictively indorsed or discharged by payment.
Negotiation and assignment distinguished A. B. C. D.
Can there be a negotiation to a payee? st
Endorsements
Meaning and nature of endorsement; Form of endorsement; Place of endorsement 28. This instrument was written on the negotiable instrument itself: “Pay to Juan San Juan, or
order, provided he passes the CPA examination 2003. Sgd. Pedro San Pedro.” This kind of successive indorsements. P to A, A to B, B to C, C to D. On the due date M is paying D, but D
indorsement is called extends the payment up to December 25, 1998. Which of the following is incorrect.
A. Conditional indorsement C. Special indorsement A. If M become insolvent on December 25, 1998, P, A, B, C are discharged of their obligation
B. Restrictively indorsement D. Combination of A and C B. “If the indorsers consented to the extension of time, and M become insolvent the indorsers
are still liable
Effect of special endorsement where instrument originally payable to bearer; Application of Sec. 40 C. If before the extension date, D cancels the signature of P as indorser, P, A, B, C and the
Endorsement where instrument payable to two or more payees or indorsees; When joint instrument are discharged
endorsement by all payees or indorsees not required D. None of the above
63. One of the following indorsement is a valid negotiation
A. Pay to A P6,000 (amount of the instrument is P10,000) 64. C issues a bill payable to the order of R. Later R without endorsing the bill transferred for a
B. Pay to A P7,000 and to B, the balance (amount of the note is P10,000) consideration said bill to M. The following except one is the valid effects of the transfer
C. Pay to A P8,000 out of the amount of P10,000 of this note A. M becomes a holder
D. Pay to A and B P10,000 B. M acquires the right to have the endorsement of R
C. The transfer vest in M such title as R had thereon
Endorsement where instrument drawn or indorsed to a person as cashier D. The bill is merely assigned and not negotiated
Endorsement where name misspelled, etc.
Endorsement in representation capacity 47. One of the following indorsements is a valid negotiation
Presumption as to time of endorsement A. Pay to A P6.000 (amount of the instrument is P10,000)
Presumption as to place of endorsement B. Pay to A P7.000 and to B, the balance (amount of the note is P10,000)
Continuation of negotiable character of originally negotiable instrument C. Pay to A P8.000 out of the amount of P10,000 of this note
When holder may strike out endorsement D. Pay to A and B P10,000
Effect of transfer without endorsement; Effect of endorsement after transfer
51. C issues a bill payable to the order of R. Later R without endorsing the bill transfer for a 48. Under the Negotiable Instrument Law, which of the following statements best describes the
consideration said bill to M. The following, except one, are the valid effects of the transfer effect of a person endorsing a check "without recourse"?
A. M becomes a holder A. The person has no liability to prior endorsers
B. M acquires the right to have the endorsement of R B. The person makes no promise or guarantee of payment on dishonor
C. The transfer vests in M such title as R had thereon C. The person gives no warranty protection to later transferees
D. The bill is merely assigned and not negotiated. D. The person converts the check into order paper.
Right of prior party to negotiate; Limitations on negotiation 31. Three of the following are requisites before a person is considered irregular or anomalous
Comprehensive indorser. Which of the following is the exception?
29. Negotiable instruments; effects of indorsement A. Not a party to the instrument C. Signed the instrument in blank
1. Pay to A P6,000 and B P4,000 B. Person principally liable D. Signed the instrument before delivery
2. Pay to A and B P10,000
A. Both indorsement are valid C. Both are invalid 71. A issued a negotiable promissory note to the order of B for P10,000 payable after 30days after
B. No. 1 is valid; No. 2 is invalid D. No. 1 is invalid; No. 2 is valid date. Later B indorsed it to C. Then X stole the note from C, forged the signature of C and
negotiated it to D, and D to E, E to F, the holder. On maturity of the note, which of the
58. M makes a negotiable note in favor of P payable on December 25, 1997, with the following following statements is not correct and invalid?
A. F cannot collect from C because it was C’s signature which was forged A. As security for an obligation to the extent of the obligation
B. F cannot collect from A because A cannot put up forgery as his defense B. As payment for an antecedent debt
C. F can collect from either D or E, because their signatures are genuine and the note is C. In exchange for another negotiable instrument
operative against them D. In exchange for a promise to perform services in the future
D. F cannot collect from B because B is a party prior to the forgery
61. Under the Negotiable Instrument Law which of the following requirements must be met for a
35. “A” issued a promissory note payable to “B” or bearer. “A” delivered the note to “B”. “B” person to be a holder in due course of a promissory note?
indorsed the note to “C”. “C” placed the note in his drawer, which was stolen by the janitor “X”. A. The note must be payable to bearer
“X” indorsed the note to “D” by forging “C’s” signature. “D” indorse the note to “E” who in turn B. All prior holders must have been holders in due course
delivered the note to “F”, a holder in due course, without indorsement. Which of the following C. The holder must be the payee of the note
statements is false. D. None of the above
A. A is liable to F despite the forgery committed because F is a holder in due course
B. B is liable to F because as an indorser he warrants that the instrument is genuine 53. M issued and delivered to P or order a blank promissory note with a specific instruction that
C. C cannot set up forgery because the instrument is payable to bearer negotiable only by the latter must fill it up for a maximum of P10,000. Upon receipt thereof, P completed the
delivery, the forged signature of “X” is not necessary. instrument by putting P100,000 as the sum payable and properly indorsed it to A who qualifies
D. C can set up the defense of forgery because his signature is forged by X. as a holder in due course. At maturity, which statement is correct?
A. A can get from M P10,000 only as this was the instruction or authority given by M to P.
B. A can get the entire P100,000.00 as this was the amount originally appearing on the face
Rights of the Holder of the instrument
Rights of holder in general; Right of transferee of unindorsed instrument C. The instrument is invalidated in the hands of A as the same was not completed in
What constitutes a holder in due course; Payee as holder in due course; Drawee as holder in due accordance with the strict authority of M
course; Instrument complete and regular upon its face; Holder without notice of dishonor; Holder in D. A gets nothing
good faith; Holder for value; Holder without notice of infirmity of instrument or defect of title
65. When is a person holder in due course? (Which is false) Holder in due course in instrument payable on demand
A. Complete and regular upon its face Effect of notice before full payment
B. He became holder of it after it is overdue When title of a person defective
C. He acquired it in good faith and for value What constitutes notice of infirmity or defect
D. If no notice of defect and infirmity Rights of a holder in due course; Real defenses available against a holder in due course
Comprehensive
66. Under the Negotiable Instrument Law, which of the following requirements must be met for a 59. Holder H altered the amount of a negotiable note from P10,000 to P110,000 then negotiated to
transferee of order paper to become a holder? note to P.
I. Transferee in possession of the note A. If P is a holder in due course, he can require the maker to pay P110,000
II. Indorsement of transferor and delivery to the transferee B. If P is not a holder in due course, he can require the maker to pay only the original sum of
A. I only C. Both I and II P10,000
B. II only D. Neither I and II C. P cannot require the maker to pay because of forgery whether or not he is a holder in due
course
67. The value requirement in determining whether a person is a holder in due course with respect D. P can require the maker to pay P10,000 if P is a holder in due course
to a check will not be satisfied by the taking of the check
70. M issued and delivered to P or order a promissory note which was complete in all its details and authority to draw the instrument
and the amount was for P10,000.00 which the payee P altered to P100,000.00. What will be
the correct statement? When person deemed an indorser; When a person liable as guarantor or surety
A. A, at maturity, can get from M P10,000 only as this was the original tenor of the instrument When a person an irregular or anomalous indorser; Rules as to liability of irregular or anomalous
B. A can get the entire P100,000 as this was the amount originally appearing on the face of indorser; Warranties of irregular indorser
the instrument
C. The instrument is validated in the hands of A as the same was not completed in Negotiation by delivery/qualified endorsement; Liability of one negotiating by delivery and of
accordance with the strict authority of M qualified indorser; Sale of public or corporate securities
D. A gets nothing 57. In case of qualified indorsement, which is not correct?
A. Constitutes the indorser a mere assignor of the title to the instrument
62. 1st Statement: A holder for value is an endorsee who has both the legal title and the beneficial B. It does not impair the negotiable character of the instrument
interest to the instrument and is subject to both real and personal defenses available against C. The qualified indorser is not liable if the marker is insolvent
him. D. At the time of his indorsement, the instrument is valid and subsisting
2nd Statement: A holder in due course is one who possesses both the legal and
beneficial interest to the instrument but is subject to personal defenses. 56. Every person negotiating an instrument by delivery or by qualified indorsement warrants the
A. B. C. D. following. Which does not belong to the warranties?
st
1 Statement False False True True A. That at the time of his indorsement the instrument is valid and subsisting
2nd Statement False True True False B. That the instrument is genuine and in all respect what it purports to be
C. That he has good title to it and that all prior parties and capacity to contract
D. That he has no knowledge of any fact which would impair the validity or the instrument or
Defense in general render it valueless.
Fraud in factum and fraud in inducement distinguished
Rights of holder not in due course Liability of general or unqualified indorser; Conditions precedent to make indorser liable; Indorser
Rights of purchaser from a holder in due course and drawer distinguished; General indorser and irregular indorser distinguished
When holder presumed a holder in due course Liability of indorser or bearer instrument
Order of liability among indorsers; Liability of joint payees or joint indorsees who indorse
Liabilities of Parties Liability of an agent or broker
Classification of parties according to liability Comprehensive
Primary party and secondary party distinguished 66. A person whose signature does not appear on an instrument is not liable thereon, except.
Liability of maker A. Where a duly authorized agent signed for him
Liability of drawer; Drawer distinguished from maker B. Where he forges the signature of another person
Liability of acceptor; Liability depends on tenor of acceptance; Warranties of the acceptor C. Where he signs in an assumed or trade name
64. Which is not correct? The acceptor by accepting the instrument. D. All of the above
A. Admits the existence of the drawer, the genuineness of signature and his capacity and
authority to draw the instrument 69. A executed a bill of exchange in favor of B for P10,000. B, altered the amount to P100,000 and
B. Admits the existence of the payee and his capacity to indorse presented the bill to C, the drawee who accepted the bill. Thereafter the bill was negotiated by
C. Engages that he will pay it according to the tenor of his acceptance B to C. Which is correct?
D. Admits the existence of the indorser, the genuineness of his signature and his capacity A. The acceptor is liable up to P10,000 only
B. The acceptor is not liable because of alteration Person to be given notice

C. The acceptor is liable only up to P10,000 except if D is a holder in due course in which Notice where party is dead
case A is liable up to P100,000 Notice to partners
D. The acceptor by accepting the bill is liable according to the tenor of his acceptance, that is Notice to joint parties
P100,000. Notice of bankruptcy
Time within which notice must be given
Presentment for Payment Notice where parties reside in same place
Meaning of presentment for payment; Presentment for payment to person primarily liable not Notice where parties reside in different places
necessary; Presentment for payment to persons secondarily liable necessary When sender deemed to have given due notice
Date of presentment of instrument When notice deemed to have been deposited
Requisites for a sufficient presentment for payment Time of notice to subsequent party
Place of presentment Place where notice must be given
Manner of presentment Waiver of notice of dishonor
Presentment where instrument payable at a bank Persons affected by waiver
Presentment where principal debtor is dead Effect of waiver of protest
Presentment to persons liable as partners When notice dispensed with
Presentment to joint debtors When delay in giving notice excused
When presentment not required to charge drawer When notice to drawer not required
When presentment not required to charge indorser When notice to indorser not required
When delay in making presentment excused Effect where notice of non-acceptance already given
When presentment may be dispensed Effect of omission to give notice of non-acceptance
When instrument dishonored by non-payment When protest required and not required; summary of rules s to notice of dishonor
Effect of dishonor by non-payment
Discharge of Negotiable Instrument
Time of maturity of instrument; Instrument falling due or becoming payable on Saturday Meaning and effect of discharge of instrument
Computation of time of maturity Methods for discharge of instrument
Rule where instrument payable at a bank 33. A makes a negotiable promissory note in favor of B payable on November 1, 2002. B
Requisites of payment in due course negotiates the note to C. The note is discharged if
A. B pays C on November 1, 2002 C. A pays C on November 10, 2002
Notice of Dishonor B. A pays C on October 25, 2002 D. Letter B or C
Meaning of notice of dishonor; Object of notice of dishonor; Effect of failure to give notice of
dishonor; When notice of dishonor not necessary Methods of discharge of secondary parties
By whom notice of dishonor given 34. M makes a negotiable note in favor of P payable on December 25, 2002, with the following
Authority to give notice not necessary successive indorsements. P to A, A to B, B to C, C to D. On the due date M is paying D, but D
Effect of notice given by holder extends the payment up to December 25, 2003. Which of the following is incorrect?
Effect of notice give by party entitled thereto A. If M becomes insolvent on December 25, 2003, P, A, B, C are discharged of their
When and to whom agent may give notice obligation
Form of notice; When notice sufficient B. If the indorsers consented to the extension of time, and M becoming insolvent the
indorsers are still liable

C. If before the extension date, D cancels the signature of P as indorser P, A, B, C and the
instrument are discharged. BILLS OF EXCHANGE
D. none of the above Form and Interpretation
Bill of exchange and promissory note distinguished
Effect of reacquisition by prior party When a promissory note like a bill of exchange;
Effect of renunciation When a bill of exchange like a promissory note
63. In the renunciation by the holder of his rights against any party to the instrument, which of the Other classes of bills of exchange
following statements is false? 57. A bill of exchange to which no document is attached when presentment for payment or
A. If the instrument, is delivered to the person primarily liable without collecting, it constitutes acceptance is made
oral renunciation A. Trade acceptance C. Clean bill of exchange
B. If renunciation is made in favor of any party secondarily liable, all parties subsequent to B. Bank acceptance D. Documentary bill of exchange
him are discharged from liability
C. Renunciation will not affect the rights of a holder in due course Status of drawee prior to acceptance of payment
D. If the renunciation is made in favor of the party primarily liable it must be made before, at Bill addressed to several drawees
or after maturity date. Inland and foreign bills of exchange explained; When foreign bill may be treated as inland bill
When bill may be treated as a note
When cancellation inoperative 68. Where in a bill the drawer and the drawee are the same person or where the drawee is a
Meaning of material alteration; Effect of alteration of instrument fictitious person, or a person not having capacity to contract, the holder, at his option, may
When alteration is material treat the instrument as
Comprehensive A. Dishonored
54. Discharge of promissory notes. Which is the exception? B. Bill of exchange
A. If the holder intentionally shredded and burned the instrument C. Promissory note
B. If the instrument is paid to the holder by the party accommodated D. Either a bill of exchange or a promissory note
C. If the instrument is paid to the holder by the accommodation maker
D. If the maker of the instrument became the holder thereof Referee in case of need
65. 1st Statement: The referee in case of need is liable on the instrument and if he refuses to pay
32. Which of the following instances does not discharge a negotiable instrument? he maybe sued in court.
A. Payment by the maker of a promissory note before maturity 2nd Statement: The avalista is liable on his written obligation and if he refuses to pay he maybe
B. Intentional cancellation of the instrument by the holder sued in court.
C. Payment by party primarily liable to the holder or his authorized representative A. B. C. D.
D. Voluntary surrender of the instrument by the holder to the maker without collecting 1st Statement True True False False
Comprehensive Comprehensive
44. Not a method of transferring commercial papers 67. Which of the following is not a characteristics of a Bill of Exchange
A. Assignment C. Indorsement and delivery A. Original parties are the drawer, drawee, and payee
B. Negotiation D. None of the above B. Acceptance is generally required
C. Drawer is primarily liable Protest for better security before maturity

D. Contains an unconditional order When protest dispensed with
Protest where bill is lost, etc.; Protest and notice of dishonor distinguished
Acceptance Acceptance for Honor

Meaning of acceptance Meaning of acceptance for honor; Purpose of acceptance for honor; Requisite of acceptance for
Object and effect of acceptance honor
Formal requisites of acceptance Formal requisites of acceptance for honor
How acceptance made When an acceptance for honor deemed for honor of drawer
Right of holder to acceptance on face of bill Rights and liability of acceptor for honor
Acceptance by separate instrument Agreement of acceptor for honor
when promise to accept equivalent to acceptance Maturity of bill payable after sight, accepted for honor
Time allowed drawee to accept Protest for non-payment of bill accepted for honor
Constructive acceptance when presentment for payment to acceptor for honor made
When acceptance may be made when delay in making presentment excused
Kinds of acceptance Protest for non-payment by acceptor for honor; Acceptance for honor and ordinary acceptance
Right of holder to general acceptance distinguished
Presentment for Acceptance Payment for Honor

Meaning of presentment for acceptance Meaning of payment for honor; who may make payment for honor; Purpose and function of
When presentment for acceptance necessary payment for honor
When presentment for acceptance not necessary Requisites of valid payment for honor
Necessity for presentment for acceptance or negotiation within a reasonable time Preference of parties offering to pay for honor
How presentment for acceptance made Effects where bill is paid for honor
Days when presentment for acceptance may be made Effect of holder’s refusal to receive payment
When time for presentment for acceptance insufficient Rights of payer for honor; Payment for honor and acceptance for honor distinguished
When presentment for acceptance excused
When bill dishonored by non-acceptance Bills in Set
Duty of holder in case of non-acceptance Bill in a set defined; Purpose of bills in set
Rights of holder where bill not accepted Rights of holders where different parts of a set are negotiated
Liability of indorser of different parts of a set
Protest Liability of acceptor of different parts of a set
Meaning of protest; Reasons for requiring protest in case of foreign bills Liability of acceptor who pays part of a set
Form and contents of certificate of protest; Purpose of certificate of protest Effect of discharging a part of a set
By whom protest made
When protest to be made Promissory Notes and Checks
Where protest to be made Note payable to maker’s order; Special types of promissory notes
Protest both for non-acceptance and non-payment Check defined; Check and ordinary bill of exchange distinguished; Special types of checks
When drawer of check discharged form liability; Discharge of drawer and indorser in case
presentment delayed
Effects of certification of checks; Purpose of certifying checks
Effect where holder procures certification of check; Effect where certification obtained not by holder
Right before acceptance or certification of check; When check operates as assignment of drawer’s
funds; Cases when bank may refuse payment; Relation between depositor and bank
Comprehensive
72. 1st Statement: A check must be presented for payment within a reasonable time after its last
negotiation.
2nd Statement: A Bill of Exchange must be presented for payment within a reasonable
time after its last negotiation.
A. B. C. D.
26. Which of the following is true?

A. If a check is not dates it is not negotiable
B. If a bill of exchange states that it is payable after its date and the date is left off, it is not
negotiable.
C. One receiving negotiable promissory note payable to order by delivery is called an
assignee.
D. Instrument is payable to John Doe or order is an instrument payable to bearer.
xxx
CONTRACT OF SALE
CREDIT TRANSACTIONS
AGENCY
PLEDGE & MORTGAGE

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BUSINESS LAW & TAXATION CPA Review School of the Philippines First Pre-board Examination

OBLIGATIONS Fruits (1164)

Characteristics of a Condition; Two Principal Kinds of Condition; Distinctions beween Suspensive

their respective obligation. The obligation of A is

When Debtor may Rescind Contract A. Divisible. C. Indivisible.

Obligations with a Penal Clause (1226-1230) Extinguishment of Obligation

Condonation or Remission of Debt (1270-1274) B. Partial D. Facultative

Confusion or Merger of Rights (1275-1277) Compensation Benefits Guarantor

Novation (1291-1299) Effect where the Old Obligation Void or Voidable

Third Persons are Bound by Contracts; Creating Real Rights (1312)

February 19, 2005 Page 15 of 48

Essential Requisites of Contracts Effect of Drunkenness and Hypnotic Spell (1328)

Form of Acceptance of Offer (1320) Nature of Violence or Force (1335)

Communication of Acceptance to Agent (1322) Violence or Intimidation by a Third Person (1336)

February 19, 2005 Page 17 of 48

b. Equal sharing, 50% shall go to Bova and 50% to the partnership.

February 19, 2005 Page 25 of 48

Number and qualification of incorporators Subscibers

Outstanding Capital Stocks. corporation?

2nd Statement: Corporate director can vote by proxy in stockholders meeting.

shares to be issued, including re-issuance of treasury shares, unless the Articles of

Certainty of time of payment When agent may escape personal liability

Endorsement must be of entire instrument

Consideration 53. Identify the following indorsement

B. The acceptor is not liable because of alteration Person to be given notice

indorsers are still liable

C. Drawer is primarily liable Protest for better security before maturity

Acceptance Acceptance for Honor

Presentment for Acceptance Payment for Honor

26. Which of the following is true?

PLEDGE & MORTGAGE

February 19, 2005 Page 48 of 48

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