BUSINESS LAW-RFBT Exercise 3

1. A issued a Bill of exchange in favor of B or order for P100, 000. B endorsed it to C and C
endorsed it to D. D endorsed it to E. E endorsed it to F. F then endorsed it to G. G then
endorsed it to H the holder. When H presented it to the drawee, he dishonored the
instrument, hence protest was sent to all endorsers. Z, a third party person and a friend
of F, then offered to pay H but surprisingly H refused. As a result of such refusal, which of
the following is correct?
a. The note is discharged
b. H has lost his right to collect for all endorsers except A, the maker
c. F and G are discharged
d. H has lost his right to collect from B, C, D and E

2. One of the following statements is false.

a. Limited partner cannot be an industrial partner
b. A managing partner is always a general partner.
c. Persons not allowed to donate to each other cannot from General Partnerships.
d. As a liability to creditors of the partnership an industrial partner is considered a
general partner.

3. Manuel bought the Nokia 7650 of Jess for P15, 000 by giving 50% earnest money
although delivery of the cell phone would be after 3 days later. Before delivery however
the cell phone was lost due to flood brought by storm.
a. Manuel can recover the P7, 500 he paid to Jess
b. Manuel may ask for another cell phone at no additional cost because Jess is
liable.
c. Obligation of Jess to deliver is extinguished by the force majeure event and
Manuel cannot recover the amount paid.
d. The contract of sale should be rescinded.

4. One of the following is not a ground for the suspension or revocation of the Certificate of
Inc. by the SEC under Involuntary dissolution:
a. Refusal to obey lawful SEC orders
b. Failure to adopt by laws.
c. Continuous in-operation or inactivity for 5 yrs after it has organized and
commenced business transactions for one year.
d. Failure to organize and commence business operation with in 2 yrs. from
incorporation.

5. In one of the following cases, appraisal right is not available

a. In case of merger or consolidation
b. In case of increase or decrease of corporate term
c. Corporate acts changing the rights of stockholders.
d. Investment of corporate funds to another corporation within its primary purpose

6. One is mode of dissolving partnership that requires decree of court

a. Death of partner
b. When a specific thing promised by a partner is lost before delivery
c. Business can only be carried on at a loss
d. Accomplishment of the purpose

7. P negotiates a P10, 000 negotiable promissory note to A. a changes the amount from
P10, 000 to P100, 000 and transfer it to B. The alteration is poorly done because the
changes made were obvious. In this case B can collect from the maker
a. P100, 000 because that is the tenor of the instrument
b. P10, 000 that is the original tenor
c. P90, 000 the difference between the P100, 000 and P10, 000
d. Nothing even if he is a holder for value

8. X, Y and Z formed a general partnership decided to contribute P200, 000 each. The
partnership has started its operations although X was able to contribute only P140, 000.
They also agreed that X and Y be exempted from losses. Upon dissolution there was an
outstanding obligation to Mr. A in the amount of P720, 000.A exhausted the capital of
P540, 000, leaving a P180, 000 balance. Which statement based on the foregoing is
true?
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.
c. Z will have to absorb the whole P180, 000 per agreement minus X’s share of
P60, 000
d. X is liable for P60, 000 to the partnership and P40, 000 to Mr. A
9. In the preceding question, if X is a limited partner in their partnership named Z and Co.,
which is correct?
a. X has no share in the balance being a limited partner
b. X will only have to pay his unpaid contribution of P60, 000
c. Z will have to absorb the whole P180, 000 per agreement minus X’s share of
P60, 000
d. X is liable for P60, 000 to the partnership and P40, 000 to Mr. A

10. Which is the most defective contract among the following?

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 instrument
c. A contract of sale wherein one party sold to the other his hereditary rights under
the pain of being raped.
d. A compromise between Senator Lacson and Pres. P-Noy to hide the evidence
against Jose Pidal to achieve peace and reconciliation for the country

11. Unless otherwise provided in a general partnership, which of the following is correct when
a partner dies?
Deceased partner’s
administration would His estate would be free The partnership is
automatically become from any liabilities automatically dissolved
partner
a. Yes Yes Yes
b. Yes No No
c. No Yes No
d. No No Yes

12. One of the following is negotiable:

a. Pay to the order of A P100T. (Sgd. C)
b. Pay to A or bearer on December 30, 2005 (To: X; Sgd: Y)
c. I promised to pay A or possessor P100T out of my salary from CPAR. (Sgd. B)
d. Pay to order of A P100T for legal services rendered. (To: B; Sgd. C)

13. Which is correct about BOD member?

a. He is entitled to compensation as a matter of right
b. He must be a citizen of the Philippines
c. He is disqualified to be one if convicted of the crime of rape before
d. He can be removed by votes representing 2/3 of the outstanding capital stocks in
all cases

14. “A issued a promissory note payable to “B” or bearer. “A” delivered note to “B”. “B”
indorsed the note to “C”. “C” placed the note in his drawer, which was stolen by the
janitor “X”. “X” indorsed the note to “D” by forging “C’s’ signature. “D” indorsed the note to
“E” who in turn delivered the note to “F”, a holder in due course, without endorsement.
Which of the following statement is false?
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 indorse he warrants that the instrument is genuine.
c. C cannot set up forgery because the instrument is payable to bearer negotiable
only by delivery, the forged signature of “X” is not necessary
d. Forgery here is a real defense for A, B & C

15. There are 15 members of the board two died and one resigned. By laws did not provide
the quorum. At least how many votes are required to declare cash dividends?
a. 9 c. 5
b. 7 d. 3

16. First Statement: A stock corporation cannot be converted into a non-stock corporation
without dissolving the former
Second Statement: A limited partnership can be concerted to a general partnership by
amending its Certificate or Articles of Partnership.
a. True; True c. True; False
b. False; False d. False; True

17. Which statement is correct?

a. Principle on quasi contracts do not apply in negotiable instrument
b. Warranty against encumbrance is an accidental element
c. Minority is a real defense
d. Sale or return, is a sale subject to suspensive condition
18. In the following cases, even non voting shares can vote except:
a. a. In Increase of Capital Stock c. Elections of BOD’S
b. Amendment of by laws d. merger of consolidation

19. The following cannot be acted upon by the Executive Committee except one:
a. Increase of capital stocks
b. Approval of an act requiring BOD’S approval
c. Declaration of cash or stock dividends
d. Amendments of Articles of Incorporation

20. All of the following corporation cannot be close corporations except:

a. Trading companies
b. Banks
c. Insurance Companies
d. Educational institutions

21. The following are correct about non-stock corporations except:

a. No cumulative voting as rule
b. No dividend distribution to its members
c. No transferability of shares in all cases
d. If for ecclesiastical purposes, they are normally tax exempt

22. One of them is incorrect about obligations

a. In facultative obligation only one presentation is due
b. In alternative obligation all presentations are due
c. In obligation with a penal clause, damages can no longer be imposed in all
conditions
d. There is no delay in negative obligation.

23. A, B and C jointly and severally borrowed P15, 000 from X. To secure its payment, A
pledge his ring, B his TV set, and C his refrigerator. Based on this information, which of
the following statements is correct:
a. The debtors are solidarily bound and the pledge on the three things is indivisible
b. The debtors are jointly bound, but the pledge on the three things are solidarily
c. The debtors are jointly bound and the pledge on the three things in indivisible
d. The debtors are liable individually and the character of the three things pledge is
indivisible

24. All are incorrect about contracts except one

a. Voidable contracts are also called validable contracts
b. Stipulation pour autrui is an exception to mutuality of contracts
c. Fraud in inducement is a ground to nullify a contract
d. Void contracts are unenforceable but not vice versa

25. First Statement: In real estate mortgage, registration in the registry of property is
necessary for validity of the contract
Second Statement: Pledge is a real contract whereas Chattel mortgage is a consensual
contract.
a. True; True c. True; False
b. False; False d. False; True

26. When an instrument is endorsed “pay to John Doe” and signed “M”, which of the
following statement is (are) correct?
a. The instrument is not negotiable because the payee is non- existing person
b. The instrument can be further negotiated
c. The instrument becomes payable to order
d. The instrument is considered discharged

27. First Statement: Corporate officers are elected by the majority of the members of the
BOD’s in a quorom.
Second Statement: A wholly executory ultra vires act can be enforced if consented by all
stockholders
a. True; True c. True; False
b. False; False d. False; True

28. A person is entitled to adequate compensation only for such pecuniary loss suffered by
him as he duly proved, except as provided by law or by stipulation. Such payment is
referred to as:
a. Nominal damages c. Liquidates damages
b. Compensatory damages d. Monetary damages
29. Statement 1: A contract whose cause or object did not exist at the time of the transaction
is a defective contract, which cannot be remedied by providing a cause or object as the
case may be in contract.
Statement 2: 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 demandable.
Determine whether
a. b. c. d.
Statement 1 True False False True
Statement 2 False False True True

30. Mr. Ong issues a check drawn against BPI- Recto to the order of Mr. Ocampo. Without
Ong and Ocampo’s negligence. A stole the check and forged the signature of Ocampo
and deposited it in his name in Metrobank- España. The check was cleared after
Metrobank endorsed it to BPI.
a. Ong shall bear the loss
b. Ocampo shall bear the loss
c. Metrobank shall bear the loss as the collecting bank which accepted and
endorsed the forged check
d. BPI- Recto shall bear the loss as the drawee

31. One of the following corporate acts requires a majority of the Board and the vote or
written assent of the stockholders representing at least 2/3 of the Outstanding Capital
Stock.
a. Declaration of the stock dividend
b. Amendment of the Articles of Incorporation
c. The power to extend corporate life
d. The power to sell corporate property

32. Which of the following is true?

a. If check is not dated it is not negotiable
b. A bill of exchange is considered promissory note of the drawee after accepting if
the drawer and payee are the same person.
c. One receiving negotiable promissory note payable to order by delivery is called
an assignee.
d. Instrument is payable to John Doe (Juan Dela Cruz) or order is an instrument
payable to order.

33. B bought from S a specific car for P500, 000 payable in 5 equal monthly installments.
There was a chattel mortgage executed between S and B. First and second installments
were paid but the third and fourth month installment he failed to pay. S foreclosed the
mortgage property and was sold at public auction at the price of P200, 000 leaving a
balance of P100, 000. Which of the following statement is correct?
a. S may recover from B the balance of P100, 000
b. The foreclosure proceeding is void
c. S cannot recover from B the balance anymore because he estopped by the
provision of Recto Law.
d. The only right of S is to cancel the sale

34. All of the following are incorrect about endorsement except:

a. A maker cannot be holder in due course, when the instrument is endorsed to him
b. A qualified endorser is absolutely not liable to pay even if the instrument is
dishonored.
c. A negotiable instrument may be endorsed back to a prior party but it will
discharge the instrument
d. When the holder strikes out an endorsement, all prior parties including the
person whose signature was struck out are discharged.

35. Only one of the following statement is false:

a. A derivative suit is always a minority SH’s suit
b. The rule that no dividends can be declared without unrestricted retained earnings
is not absolute
c. Pre-emptive right maybe denied by the corporation
d. A stockholder declared delinquent loses all his right except to receive FMV of his
shares

36. M issued to P, accommodated party, a negotiable promissory note for P10, 000. P
endorsed it to A, A to B, B to C. Which of the following is incorrect?
a. M can collect from P, if M will pay C
b. Between M and P, M is secondarily liable while P is principally liable
c. P may directly pay C
 d. P is not liable to C because he is only an accommodated party

37. Which of the following is (are) valid consideration for the purchase of stocks of a
corporation?
I. Real estate
II. A negotiable promissory note
III. Monetary consideration for services performed
a. I only c. Both I and III
b. I and II only d. Both II and III

38. V signed a blank check he inadvertently left in his desk at his office. P later stole the
same, filled in the amount of P50, 000 and a fictitious name as payee. P then endorsed
the check in the payee name and passed the check to A; thereafter, A passed to B; then
B to C, and C to D. What is the right of D?
a. D can enforce the instrument against any one of the prior parties except V.
b. D cannot enforce instrument against any one of the prior parties because the
instrument is not a valid instrument and therefore, not negotiable
c. D can enforce instrument against V even if D is not holder in due course because
the signature of V is genuine.
d. D can enforce the instrument against V only if D is a holder in due course

39. First Statement: Under the Corporation Code, an executive committee as a “little board”
has no power to fill up vacancy in the Board of Directors.
Second Statement: Cash dividends can be payable to holders of delinquent stock.
a. True; True c. True; False
b. False; False d. False; True

40. Identify the following endorsement:

“For deposit only without recourse: Signed by P
a. Restrictive endorsement
b. Qualified endorsement
c. Blank, Qualified, and Restrictive endorsement
d. Restrictive and Qualified endorsement

41. D1, D2 and D3 borrowed from C P300,000 as a security, he mortgaged their undivided
agricultural land to C, Subsequently, D1 paid C P100,000. Is the mortgage on D1’s share
of the land extinguished?
a. Yes, because the obligation of D1 on the debt is only P100,000
b. Yes, the obligation of the debtors is joint, D1 is answerable only for P100,000
c. No, because the obligation is solidary, payment in part shall not extinguish the
obligation secured by the mortgage.
d. No, because mortgages are considered indivisible, payment in part shall not
extinguish the obligation secured by the mortgage.

42. B telephoned S, his sister, to sell his parcel of land. The land was purchased by X, but S
did not forward the money to B. Now wants to recover the parcel of land.
a. B cannot recover because the sale is valid
b. B can recover because the sale between S and X is void, therefore there is no
sale
c. B can recover only if B can return the money paid by X to S
d. Answer not given

43. If P leads X to believe that A is his (P’s) agent, when as a matter of fact such is not true,
and A acts on such misrepresentation, there is
a. An implied agency
b. An agency by estoppel
c. An agency by necessity
d. An express agency by words spoken

44. An implied agency may be created by

a. Ratification
b. Lack of action by the principal
c. Silence of the principal
d. All of them

45. D pledged his ring to C for P10,000. D failed to pay his obligation on time. C sold it/at
public auction for P8,000.
a. C can recover die deficiency even without stipulation
b. C cannot recover the deficiency even if there is stipulation
c. C cannot recover the deficiency
d. C can recover the deficiency
 46. Without P’s authority, S sold P’s car to B in P’s behalf
a. The transaction entered by S is unauthorized therefore unenforceable
b. The right of B is only against S as a rule
c. The contract can be ratified, hence it is considered as a validable contract
d. All of the above

47. P wrote letter authorizing A to sell his parcel of land situated in Bulacan. The land was
purchased by X, but the agent (A) did not give the money to P the sale of A to X is;
a. Void because the authority of A is not in a public instrument
b. Unenforceable because the authority of A is in a public instrument
c. Inexistent became the authority of A is in private writing
d. Valid and enforceable

48. P appointed A as his agent to borrow P10,000 from C. A borrowed P10,000 acted in his
name but gave the money to his principal, who accepted them. Upon maturity, who is
liable to C?
a. A only
b. P only
c. Both A and P
d. Contract is void

49. A appoints B as his agent to sell his land , which of the following is valid?
a. The authority of B is in writing but B mortgage it also in writing
b. The authority of B from A is by way of letter and B sells the land to C in writing
c. The authority of B is oral and B sells the land to C for P50,000 in a written
conduct of sale
d. The authority of B is in writing but the sale of the land in writing was made
beyond the period expressly set forth by A.

50. P appointed A as his agent with general powers on January 1. The next day, X
transacted business with A. On January 5, P revoked the agency and published it in a
newspaper of general circulation. However, X did not read the newspaper publication.
Mix 5 days, (January 10) X consummated another transaction with A. Is the additional of
A binding against P.
a. Yes, because X is in good faith
b. No, because the agency is considered revoked and its publication is a sufficient
warning
c. No, because the power is general, there must also be a special power
d. Yes, because there was no special notice send to X.

51. Today, P appointed A1 as his agent covered by general power to lease his car to X for 6
months. The next day, P appointed A2 with special power to lease the same car to X for
5 months. On the third day, P directly transacted business with X leasing the car for 2
months. What is the effect of agency between the parties?
a. The appointment of A1 is the one that is valid because it has got a prior date.
b. The appointment of A2 is the one that is valid because it is covered by a special
power.
c. The agency of A1 and A2 are considered revoked because the principal directly
transacted with X.
d. None of the above.

52.S sold to B a specific car for P20,000 payable in four equal instalments. S delivered the
car to B but required to mortgage it back to S to answer for the unpaid installments. B
paid the 1st instalment, but the last three he failed to pay. S foreclosed the mortgaged
property and sold it at public auction for P13,000.
a. S can recover from B the balance of P2,000.
b. S can recover from B & balance of P2,000 if there is stipulation to that effect.
c. S cannot recover the deficiency any more even if there is stipulation to that
effect.
d. None of the above.

53. The vendor

a. is liable to the vendee for hidden fault or defect of the thing sold even if he is not
aware thereof
b. is not liable to the vendee for hidden fault or defect of the thing sold if he is not
aware
thereof
c. is liable to the vendee for hidden fault or defect of the thing sold if he is not aware
thereof if stipulated
d. Answer not given.
54. B imports electric fans from China and specifically asks for 220 volts fans. The fans arrived
duly labelled 220 volts and sell them to the public as such. Later, it turned out that the fan has
been mislabelled by the manufacturer and were only good for 110 volts.
a. B is liable to the vendee for any hidden defects in the thing sold even though he
was not ware thereof.
b. B is not liable because he was in good faith, and this is shown by specifically
asking for 220 volts.
c. B is not liable under the principle of “lot the buyer beware”
d. B is liable because the vendee did not enjoy legal and peaceful possession of the
object of sale.

55. S sold to B a parcel of land for a lump sum of P50,000 the contract states that the area is 500
square meters. Subsequently, it was ascertained that the area included within the boundaries
is really 550 square meters.
a. S is bound to deliver 500 square meters and B to pay P50,000.
b. S is bound to deliver 500 square meters and B to pay P55,000.
c. S or B can rescind the We because there is no meeting of minds.
d. None of the above.

56. In the succeeding question, if the land contains 445 square meters, which of the following is
correct?
a. S is bound to deliver 500 square meters and B to pay P50,000.
b. S is bound to deliver 445 square meters and B to pay P44,500.
c. B may rescind the sale because the lack in area is more than 1/10 of the total
area.
d. None of the above.

57. S enter into a contract with B whereby S sold his land orally to B. The land has been
delivered and the money has been paid. Is the oral sale of the land valid?
a. The contract is not valid because it is not in writing as required by the Statue of
Frauds.
b. The contract is not valid because the contract is not made in public instrument.
c. The contract is unenforceable.
d. The contract is valid because the contract is already perfected and executed.

58. X Shoe Store, Inc. entered into a separate contracts with two movie stars, B1 and B2. With
B1, the agreement was that the Shoe Store shall deliver at a specified date or a price of
P1,000 a pair of shoes of a specified brand which the store had been manufacturing for the
general public but which at the time of the contract had already been sold out, and with B2,
the agreement was that the shoe store shall deliver at a specified date for a price of P2,000 a
pair of shoes to be made specially for him in accordance with a design submitted by him.
What is the nature of these two contracts?
a. Contract for piece of work c. Agency to sell
b. Sale d. Combination of A and B

59. A, B and C are co-owners of an undivided parcel of land. B sold his 1/3 interest to C
absolutely. Which is correct?
a. A may exercise his right of redemption on the interest sold by B to C.
b. A cannot exercise the right of redemption because the sale was made in favor of
a co-owner.
c. The sale made by B to C is void because it was not made in favor of a stranger.
d. A may redeem only ½ of the interest sold by B to C.

60. In No. 59 suppose, instead of selling his interest to C, B sold it to X. Who can exercise the
right of redemption?
a. Both A and C. c. C but not A
b. A but not C d. A, B, and C

61. Which of the statements is not true?

a. In sale or return ownership is transferred to the buyer upon delivery
b. Warranty against hidden defects is an accidental element of a contract of sale
c. In sale the obligation of the buyer is not only the payment of the price
d. In dacion en pago, an obligation is extinguished while in contract of sale,
obligation arise.

62. A borrowed from B P200,000. To secure payment of the loan, A mortgaged his house and lot
to B. The mortgage is duly recorded. Then, without the consent of B, A sold and delivered the
house and lot to C and C took possession of the house and lot.
a. The sale to C is void.
b. A cannot transfer ownership to C because B did not give his consent to the sale
 c. A is liable to B for damages
d. Ownership is transferred to C subject to the right of mortgagee B.

63. Delivery of movable may be made by the delivery of the keys of the place or depository
where the movables are dept or stored. This kind of delivery is called:
a. Traditio longa manu c. Traditio clavium
b. Traditio brevi manu d. Traditio constituturn possessorium

64. If immovable property should have been sold to different vendees, the ownership shall be
transferred to the person
a. Who have first taken possession in good faith.
b. Who presents the oldest title in good faith.
c. Who in good faith recorded it in the Registry of Property
d. Who have paid in good faith the purchase price in full

65. In the preceding question, if movable property, it shall belong to the person
a. Who have paid in good faith the purchase price in full
b. Who in good faith first recorded it in the Registry of Property
c. Who presents the oldest title in good faith.
d. Who have first taken possession in good faith

66. When the manner of management has not been agreed upon, who shall manage the affairs
of the partnership?
a. Capitalist partners
b. Industrial partners
c. Capitalist-industrialist partners
d. All of the partners
e. None of the above

67. As a general rule, a partner cannot ask for a formal accounting of the affairs of the
partnership during the existence and before it is dissolved, except:
a. When he is wrongfully excluded from the partnership business
b. When the right exists under the terms of any agreement
c. As provided by Article 1807
d. Whenever other circumstances render it just and reasonable
e. All of the above

68. Sometimes termed dormant partner:

a. Limited partner c. Secret partner
b. Capitalist partner d. Both Silent & Secret

69. Every contract of partnership having a capital P3,000 or more in money or property shall
appear in a public instrument which must be recorded in the Securities and Exchange
Commission. Failure to comply with said requirements.
a. Will not affect the liability of a partnership and the members thereof to third
persons.
b. Will render the partnership void.
c. Will not give the partnership a legal personality.
d. Will give the partnership a de facto existence.

70. A, B and C capitalist partners, contributed P10,000 each and D, the industrial partner
contributed his services. Suppose X, is the creditor of the firm to the amount of P90,000,
after getting the P30,000 assets of the partnership
a. X can recover P20,000 each from A, B and C only
b. X can recover P60,000 from either A, B or C
c. X can recover P15,000 each from A, B, C and D
d. X can recover P15,000 each from A, B and C but D is exempt because he is an
industrial.