Regulatory Framework in Business Transactions

LAW on PLEDGE, LAW on CHATTEL MORTGAGE, LAW on REAL ESTATE

MORTGAGE, RECTO LAW, MACEDA LAW, PD 957 and ASSIGNMENT OF CREDIT
1. Which of the following is not an accessory contract that secures the fulfilment of the
principal contract of loan?
a) Contract of pledge
b) Contract of mortgage
c) Contract of sale
d) Contract of antichresis

2. Which of the following is not a common essential element in the accessory contract
of pledge and contract of mortgage?
a) It is constituted to secure the fulfilment of a principal obligation like a contract of
loan.
b) The pledgor or mortgagor is the absolute owner of the thing pledged or
mortgaged at the time of constitution or perfection of the contract of pledge or
mortgage.
c) The pledgor or mortgagor has free disposal of the property pledged or
mortgaged, and in the absence thereof, that he be legally authorized for the
purpose.
d) When the principal obligation becomes due and the debtor defaulted, the
pledged or mortgaged thing may be foreclosed or sold for the satisfaction of the
secured loan.
e) The property pledged or mortgaged must be delivered to the creditor.

3. Which of the following principal obligations may not be secured by the accessory
contract of pledge, mortgage or antichresis?
a) Natural obligation
b) Unenforceable obligation
c) Void obligation
d) All of the above

4. Who may pledge or mortgage his property to secure a principal contract of loan?
a) The principal debtor of the loan
b) Third person interested to the fulfilment of the loan
c) Third person who does not have interest to the fulfilment of the loan
d) Any of the above

5. What is the nature of the accessory contract of pledge, mortgage or antichresis?

a) It is a divisible contract when the secured principal contract of loan is joint.
b) It is an indivisible contract when the secured principal contract of loan is
solidary.
c) It is a divisible contract whether the secured principal contract of loan is joint or
solidary.
d) It is an indivisible contract whether the secured principal contract of loan is joint
or solidary.

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6. D borrowed P5,000 cash from C. In order to secure the loan, D pledged delivered a
specific watch P3,000 and a specific ring worth P2,000 to C. D and C agreed that
the said watch will only secure P3,000 of the loan while the said ring will secure the
balance of the loan. On the maturity date of the secured loan, D only paid P3,000 of
the loan which C accepted. Which pledged property may D legally ask from C after
such payment?
a) Specific watch
b) Specific ring
c) Both a and b
d) Neither a nor b

7. A and B jointly borrowed P10,000 cash from C. In order to secure the loan, A
pledged and delivered a specific laptop and a specific cellphone. On the maturity
date of the secured loan, A paid his share in the loan of P5,000. Which of the
following statements is correct after such payment by A?
a) A may legally ask from C the return of his laptop.
b) B may legally ask from C the return of his cellphone.
c) Both A and B may legally ask from C the return of the laptop and cellphone.
d) Neither A nor B may legally ask from C the return of the laptop and cellphone.

8. It is a a stipulation in a contract of pledge or contract of mortgage whereby the thing

pledged or mortgaged shall automatically become the property of the creditor in the
event of non-payment of the secured debt within the term fixed.
a) Pactum intentionada
b) Pactum consciente
c) Pactum commissorium
d) Pactum redhibitoria

9. D borrowed P4,000 cash from C. In order to secure the his loan, D pledged and
delivered his specific watch to C. The contract of pledge provides that D has the
option to dacion en pago the said watch to C in full satisfaction of the loan in case
the former defaulted in the payment of the loan. At the maturity date of the loan, D
suffered financial difficulty and defaulted in the payment of his loan to C. This
prompted D dacion en pago his pledged watch to C in full satisfaction of the loan. C
accepted the offer made by D. Which of the following statements is correct?
a) The advanced agreement of option to dacion en pago the pledged watch is void
because it is intended to circumvent the prohibition against pactum
commissorium.
b) The contract of pledge is void because of the pactum commissorium but the
contract of loan remains to be valid.
c) C becomes the owner of the said watch by virtue of dacion en pago.
d) C must still foreclose and sale the pledged watch in public auction before he
can appropriate it in case it is not sold in at least two public auctions.

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10. It is an accessory contract by virtue of which the debtor or third person delivers to
the creditor or to a third person a movable, or instrument evidencing incorporeal
rights for the purpose of securing the fulfillment of a principal obligation with the
understanding that when the obligation is fulfilled, the thing delivered shall be
returned with all its fruits and accessions to the pledgor.
a) Contract of pledge
b) Contract of chattel mortgage
c) Contract of real estate mortgage
d) Contract of antichresis

11. Which of the following is not a characteristic of a contract of pledge?

a) Unilateral contract
b) Subsidiary contract
c) Consensual contract
d) Nominate contract

12. Which of the following properties may not be used as collaterals in accessory
contract of pledge?
a) Personal property
b) Movable property
c) Incorporeal right
d) Real property

13. How is an agreement to constitute a pledge of personal property perfected?

a) Consensual contract
b) Real contract
c) Solemn contract
d) None of the above

14. Which of the following is not a right of a pledgor in a contract of pledge?

a) To alienate even without the consent of the pledgee the thing pledged
b) To continue to be the owner of the thing pledged unless it is expropriated or
sold in public auction after default by the principal debtor
c) To ask for the return of the thing pledged after the payment of the debt and its
interest, with expenses in a proper case
d) In case of a pledge of animals, to become the owner of the offspring of the
animals pledged, all the offspring shall also subject to the pledge, if there is no
stipulation to the contrary

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15. If there are reasonable grounds to fear the destruction or impairment of the thing
pledged without the fault of the pledgee, what is the right available to the pledgor?
a) To ask that the thing pledged be judicially or extra-judicially deposited
b) To require that the thing be deposited with a third person
c) To demand the return of the thing pledged, upon offering another thing in
pledge, provided the latter is of the same kind and quality
d) None of the above

16. Which of the following is not an obligation of a principal debtor-pledgor?

a) To pay the debt and its interest, with expenses, in a property case, when they
are due
b) To pay damages that the pledgee may suffer by reason of the flaws of the thing
pledged, if he was aware of such flaws but did not advise the pledgee of the
same
c) To pay for the expenses which are necessary for the preservation of the thing
pledged
d) To pay to the pledgee the value of the offspring of the animal pledged that
arises during the pendency of the contract of pledge

17. Which of the following is not a right of a creditor-pledgee?

a) To retain in his possession the thing pledged until the debt is paid
b) To demand reimbursement of the expenses made for the preservation of the
thing pledged
c) To bring actions which pertain to the owner of the thing pledged in order to
recover it from, or defend it against third person
d) To use the thing pledged even if he is not authorized to do so and even when its
use is not necessary of the preservation of the thing

18. Which of the following is not a right of a creditor-pledgee?

a) To select or choose the thing to be sold in public auction in case there are two
or more things pledged in the absence of contrary agreement
b) To collect and receive the amount due if the thing pledged is a credit which
becomes due before it is redeemed, and to apply the same to the payment of
his claim
c) To automatically appropriate the thing pledged in case of first default by the
debtor in the payment of secured loan
d) To sell the thing pledged upon default of the debtor in the payment of secured
loan

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19. Which of the following is not an obligation of a creditor-pledgee?
a) To take care of the thing pledged with the diligence of a good father of a family
b) To be liable for the loss or deterioration of the thing pledged even it is due to a
fortuitous event
c) To be responsible for the acts of his agents or employees with respect to the
thing pledged
d) To deliver to the debtor the surplus after paying his claim from what he has
collected on a credit that was pledged and which has become due before it is
redeemed

20. Which of the following is not an essential formality required for the foreclosure of the
thing pledged in case of default by the debtor in the payment of the loan?
a) It must be by public auction.
b) It must be through a notary public.
c) There must be a notice to the debtor and the owner of the thing pledged, stating
the amount for which the public sale is to be held.
d) There must be a court judgment or court order authorizing the public auction of
the thing pledged.

21. Which of the following is an indirect mode of extinguishing the accessory contract of
pledge?
a) Payment of the secured principal contract of loan
b) Return by the pledgee of the thing pledged to pledgor
c) Public sale of the thing pledged regardless of the price
d) Renunciation in writing by the pledgee of the contract of pledge

22. Which of the following direct modes of extinguishment of contract of pledge also
extinguishes the secured principal contract of loan?
I. Return by the pledgee of the thing pledged to the pledgor or owner
II. Renunciation or abandonment in writing by the pledgee of the contract of pledge
III. Public sale of the thing pledged regardless of the price
IV.Appropriation of the thing pledged by the pledgee if the thing pledged is not sold
in at least two public auctions
a) I and II
b) III and IV
c) I, II and III
d) II, III and IV

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23. Which of the following is a valid stipulation in a contract of pledge?
a) A stipulation which provides that the pledge is not extinguished by the return of
the thing pledged
b) A stipulation allowing the automatic appropriation by the pledgee of the thing
pledged in case of default of the debtor
c) A stipulation for the recovery of deficiency in case the proceeds from the sale of
the thing pledged is less than the amount of the obligation
d) None of the above

24. In the public sale of thing pledged in a contract of sale, which of the following
statements is correct?
a) The pledgee can never recover the deficiency despite stipulation for recovery
because any stipulation for recovery of deficiency is null and void.
b) The pledgee is generally entitled to the excess in the absence of stipulation to
the contrary.
c) Both a and b
d) Neither a nor b

25. It is a type of pledge created by operation of law whereby a person has a right to
retain a thing belonging to another until he receives payment of his claim.
a) Contract of pledge
b) Legal pledge
c) Conventional pledge
d) Agreed pledge

26. In the public sale of thing retained in a legal pledge, which of the following
statements is correct?
a) The creditor may recover the deficiency even if not stipulated.
b) The owner of the property is entitled to the excess even if not stipulated.
c) Both a and b
d) Neither a nor b

27. It is an accessory contract whereby the debtor or third person secures to the
creditor the fulfilment of a principal obligation by subjecting as security or a
collateral an immovable property or a real right over immovable property in case the
principal obligation is not complied with at the time stipulated.
a) Contract of pledge
b) Contract of chattel mortgage
c) Contract of real estate mortgage
d) Contract of antichresis

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28. Which of the following is not a characteristic of a contract of real estate mortgage?
a) Solemn contract
b) Inseparable contract
c) Contract creating real right
d) Indivisible contract

29. Which of the following mortgage is a mortgage created by the express requirement
of a provision of law?
a) Conventional mortgage
b) Legal mortgage
c) Equitable mortgage
d) None of the above

30. Which of the following properties may not be used as collaterals in accessory
contract of pledge?
a) Real property
b) Immovable property
c) Real right
d) Personal property

31. It refers to the remedy available to the mortgagee by which he subjects the property
mortgaged to sale for the satisfaction of the obligation secured when the principal
obligation is not paid when due or when there is any violation of any condition,
stipulation or warranty by the mortgagor.
a) Attachment
b) Garnishment
c) Execution
d) Foreclosure

32. It is type of foreclosure made through the filling of a petition in court under Rule 68
of Rules of Court and availed of when the deed of real estate mortgage does not
contain a special power of attorney (SPA) authorizing the mortgagee-creditor to
foreclosure it extrajudicially.
a) Judicial Foreclosure
b) Extrajudicial Foreclosure
c) Legal Foreclosure
d) Conventional Foreclosure

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33. It is a type of foreclosure made in compliance with Act No. 3135 (Real Estate
Mortgage Law) and available when there is a stipulation in the mortgage contract
that the mortgage may be foreclosed extrajudicially or when such foreclosure sale is
made under a special power of attorney inserted in the contract of mortgage.
a) Judicial Foreclosure
b) Extrajudicial Foreclosure
c) Legal Foreclosure
d) Conventional Foreclosure

34. It refers to the right of mortgagor to pay the secured principal contract of loan in
order to prevent the foreclosure of the real property mortgaged.
a) Equity of redemption
b) Right of redemption
c) Equity of pre-emption
d) Right of pre-emption

35. It refers to the right of mortgagor to repurchase from the highest bidder the real
property foreclosed.
a) Equity of redemption
b) Right of redemption
c) Equity of pre-emption
d) Right of pre-emption

36. In the foreclosure of the real property mortgaged in a contract of real estate
mortgage, which of the following statements is correct?
a) The mortgagee may recover the deficiency in the absence of stipulation to the
contrary.
b) The mortgagor is entitled to the excess in the absence of stipulation to the
contrary.
c) Both a and b
d) Neither a nor b

37. Which of the following is a valid stipulation in a contract of real estate mortgage?
a) A stipulation which provides for tipo or upset price or maximum limit of price in
the foreclosure sale of mortgaged real property.
b) A stipulation allowing the automatic appropriation by the mortgagee of the real
property mortgaged in case of default of the debtor.
c) A stipulation prohibiting the mortgagor from disposing or selling his real property
mortgaged.
d) A stipulation prohibiting second mortgage on a real property registered under
Torrens System or with Certificate of Title.

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38. It is a conditional sale of personal property as security for the payment of a debt, or
the performance of some other obligation specified therein, the condition being that
the sale shall be void upon the seller paying to the purchaser a sum of money or
doing some other act named. If the condition is performed according to its terms the
mortgage and sale immediately become void, and the mortgagee is thereby
divested of his title.
a) Contract of pledge
b) Contract of chattel mortgage
c) Contract of real estate mortgage
d) Contract of antichresis

39. Which of the following is not a characteristic of contract of chattel mortgage?

a) Accessory contract
b) Real contract
c) Nominate contract
d) Indivisible contract

40. Which of the following properties may not be used as collaterals in accessory
contract of pledge?
a) Incorporeal right
b) Personal property
c) Movable property
d) Real property

41. It is an affidavit attached to a deed of chattel mortgage which states that the parties
swear that the mortgage is made for the purpose of securing the obligations
specified in the conditions thereof, and for no other purposes, and that the same is
a just and valid obligation and not one entered into for purposes of fraud.
a) Affidavit of loss
b) Affidavit of good faith
c) Affidavit of desistance
d) Affidavit of acceptance

42. Where shall the deed of chattel mortgage involving car be registered?
a) Chattel mortgage registry of the province where the mortgagor resides
b) Land Transportation Office where the car is registered
c) Both a and b
d) Neither a nor b

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43. Where shall the deed of chattel mortgage involving shares of stocks be registered?
a) Chattel mortgage registry of the province where the mortgagor resides
b) Chattel mortgage registry of the province where the principal office of
corporation is located
c) Both a and b
d) Neither a nor b

44. What is the grace period granted by Chattel Mortgage Law to mortgagor from the
date of debtor’s default to pay the secured obligation to prevent the sale of the
personal property mortgaged by paying the defaulted loan?
a) 30 days
b) 60 days
c) 90 days
d) 120 days

45. In the foreclosure of the personal property mortgaged in a contract of chattel

mortgage, which of the following statements is correct?
a) The mortgagee may recover the deficiency in the absence of stipulation to the
contrary.
b) The mortgagor is entitled to the excess in the absence of stipulation to the
contrary.
c) Both a and b
d) Neither a nor b

46. In which type of accessory contract is foreclosure of collateral allowed to be done in

private sale?
a) Contract of pledge
b) Contract of mortgage
c) Both a and b
d) Neither a nor b

47. It is a contract whereby the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the
interest, if owing, and thereafter to the principal of his credit. It is a formal contract
perfected by the execution of the written instrument containing the antichretic
agreement together with the amount of the principal and interest of the loan.
a) Contract of pledge
b) Contract of chattel mortgage
c) Contract of real estate mortgage
d) Contract of antichresis

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48. Which of the following is not a characteristic of a contract of antichresis?
a) Accessory contract
b) Indivisible contract
c) Inseparable contract
d) Consensual contract

49. Which of the following may become the subject matter of contract of antichresis?
a) Patent
b) Farm lot
c) Car
d) Shares of stocks

50. What is the basis for application of the fruits collected from the collateral in a
contract of antichresis to the interest and principal of the secured loan?
a) Actual market value of the fruits at the time of application
b) Actual market value of the fruits at the time of harvest
c) Actual market value of the fruits at the end of the year
d) Average actual market value for the year

51. In the absence of stipulation to the contrary, who shall be liable to pay the real
property taxes and expenses necessary for the repair and preservation of the real
property used as collateral in contract of antichresis?
a) Antichretic debtor
b) Antichretic creditor
c) Both a and b
d) Neither a nor b

52. Which of the following contracts is covered by Recto Law?

a) Instalment sales of personal property
b) Contracts purporting to be leases of personal property with option to buy, when
the lessor has deprived the lessee of the possession or enjoyment of the thing
a.k.a. finance lease with bargain purchase option
c) Both a and b
d) Neither a nor b

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53. What is the remedy available to vendor or lessor when the vendee or lessee fails to
pay a single instalment or single periodic rental in an instalment sale or finance
lease of personal property assuming a chattel mortgaged is constituted on the
personal property sold or leased?
a) Exact fulfilment of the obligation with right to recovery for deficiency
b) Cancel the instalment sale or finance lease resulting to mutual restitution
c) Foreclose the chattel mortgage on the personal property sold or leased
d) Any of the above

54. What is the remedy available to vendor or lessor when the vendee or lessee fails to
pay a two or more instalments or two or more periodic rentals in an instalment sale
or finance lease of personal property assuming a chattel mortgaged is constituted
on the personal property sold or leased?
a) Exact fulfilment of the obligation with right to recovery for deficiency
b) Cancel the instalment sale or finance lease resulting to mutual restitution
c) Foreclose the chattel mortgage on the personal property sold or leased
d) Any of the above

55. S sold a specific laptop to B at an instalment price of P100,000 payable in ten equal
monthly instalments. In order to secure the payment of the instalment price, B
chattel mortgaged the said laptop S with stipulation that in case of deficiency from
the foreclosure of the chattel mortgage, S may recover the deficiency from B. It was
also stipulated that in case of cancellation of the sale, all instalments received by S
from B will be forfeited in favor of S. After religious payment of six monthly
instalments, B defaulted in the remaining instalments, which is correct?
a) S cannot file an action for exact fulfilment of obligation against B because that
remedy is available only if the buyer defaulted in one instalment.
b) If S cancels the sale, he cannot go after the buyer for the balance of the
instalment price of the laptop.
c) If S forecloses the chattel mortgage on the laptop, S may recovery any
deficiency from the foreclosure sale because of the principle of autonomy of
contract.
d) If S cancels the sale, he may ask for the return of laptop from B and he may
forfeit all the six monthly instalments he collected from B even if such
agreement is unconscionable because of the principle of autonomy of contract.

56. Which of the following instalment sale of real property is protected by Maceda Law?
a) Instalment sale of residential real property
b) Instalment sale of industrial real property
c) Instalment sale of commercial real property
d) Instalment sale of agricultural real property

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57. Which of the following deeds involving the instalment sale of residential real
property is covered by Maceda Law?
a) Deed of absolute sale
b) Deed of contract to sell
c) Deed of conditional sale
d) All of the above

58. Which of the following rights is not available to a buyer of residential real property in
instalment when he has only paid less than two years of instalments?
a) Right to a grace period
b) Right to assign his interest or right to another person
c) Right to cash surrender value in case of cancellation by seller
d) None of the above

59. What is the minimum grace period allowed by law to pay a defaulted instalment
without additional interest to a buyer of residential real property in instalment when
he has only paid less than two years of instalments?
a) 30 days
b) 60 days
c) 90 days
d) 120 days

60. What is the minimum grace period allowed by law to pay a defaulted instalment
without additional interest to a buyer of residential real property in instalment when
he has paid at least two years of instalments?
a) 30 days per year of instalment paid
b) One month per year of instalment paid
c) 60 days per year of instalment paid
d) Two months per year of instalment paid

61. What is the frequency for the exercise of right to grace period to pay a defaulted
instalment without additional interest to a buyer of residential real property in
instalment?
a) Once every two years
b) Once every three years
c) Once every five years
d) Once every ten years

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62. After the initial grace period without additional interest, what is the additional grace
period with interest given by law to a buyer of residential real property in instalment
to pay his defaulted instalment before the seller can cancel the instalment sale?
a) 30 days
b) 60 days
c) 90 days
d) 120 days

63. What is the amount of cash surrender value to be given by the seller to the buyer of
residential real property in instalment when he has only paid less than two years of
instalments?
a) 50%
b) 35%
c) 40%
d) None

64. When the buyer has paid at least two years of instalments in sale of residential real
property in instalments but the seller cancel the sale because of the buyer’s default
in the payment of instalment, which cash surrender value matching to years of
instalment paid is incorrect?
a) 2 – 5 years of instalment = 50%
b) 10 years of instalment = 75%
c) 7 years of instalment = 60%
d) 14 years of instalment = 95%

65. Under PD 957 also known as Subdivision and Condominium Buyer’s Protective
Decree, who shall pay the real property tax on the subdivision unit or condominium
unit being constructed by developer before transfer of title to buyer?
a) Developer but subject to reimbursement from the buyer
b) Buyer but subject to reimbursement from the developer
c) Developer without right of recourse from the buyer
d) Buyer without right of recourse from the developer

66. What fee may be collected by the developer of condominium or subdivision project
from the buyer of subdivision unit or condominium unit?
a) Value added tax on the sale of unit
b) Other percentage tax on the sale of unit
c) Local tax on transfer of real property for the sale of unit
d) Fees for registration of the sale of unit

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67. In case of noncompliance by the developer of condominium or subdivision project
with the plan approved by HLURB, what right is available to buyer of subdivision
unit or condominium unit?
a) The buyer may suspend payment of the price.
b) The buyer may ask for the cancellation of contract with corresponding demand
for the return of the total amount he has paid including amortization of interest
but exclusive of delinquency interest.
c) Both a and b
d) Neither a nor b

68. It is a contract whereby a person transfers his credit, right or action against a third
person to another person for a consideration which is certain in money or its
equivalent.
a) Assignment of credit
b) Negotiation of negotiable instrument
c) Sale of incorporeal right
d) Conveyance of intangible asset

69. How is a contract of assignment of credit perfected?

a) By mere consent
b) By delivery of document evidencing the credit by the assignor to assignee
c) By execution of notarized deed of assignment of credit
d) By registration of notarized deed of assignment of credit

70. Which of the following is not an implied warranty of assignor of credit who acted in
good faith?
a) Existence of the credit at the time of assignment
b) Existence of the credit at the time of assignment
c) Solvency of debtor/maker of credit at the time of assignment
d) None of the above

71. As an exception to the general rule, when may the assignor of credit become liable
for the insolvency of debtor/maker of credit?
a) When the assignor of credit expressly warrants the solvency of the
debtor/maker of the credit
b) When the assignor acted in bad faith because the insolvency of the debtor of
the credit is of public knowledge when he assigned the credit
c) Both a and b
d) Neither a nor b

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72. M issued a promissory note to P which states “I promise to pay P P10,000.” The
promissory note was issued in exchange for a bag of marijuana. P subsequently
indorsed and delivered the said promissory note to A. Which of the following
statements is correct?
a) A can validly collect from M if A acquired the promissory note in good faith and
for value.
b) A can only go after P if M will dishonor the note and only if a corresponding
notice of dishonor will be given to P.
c) A cannot validly collect from M if A has knowledge of the infirmity in the
instrument thus making A a holder not in due course.
d) A can validly collect from P because the latter violated his warranty.

73. M issued a promissory note to P which states “I promise to pay P or order P10,000.”
The promissory note was issued in exchange for a bag of marijuana. P
subsequently indorsed and delivered the said promissory note to A. Which of the
following statements is correct?
a) A can validly collect from M if A is a holder in due course.
b) A can only go after P if M will dishonor the note and only if a corresponding
notice of dishonor will be given to P.
c) A can validly collect from M if A has knowledge of the infirmity in the instrument
because the promissory note is negotiable.
d) A cannot validly collect from P because the latter did not violate his warranty.

74. M issued a promissory note to P which states “I promise to pay P P10,000.” The
promissory note was issued in exchange for a specific laptop. P subsequently
indorsed and delivered the said promissory note to A. If M becomes insolvent at the
maturity date of the note, which of the following is correct?
a) A can validly collect from P provided a corresponding notice of dishonor is given
to P.
b) A cannot go after from P in the absence of express warranty of solvency of M.
c) A cannot go after from P even if the insolvency of M is already existing and
public knowledge at the time P assigned the note to A.
d) A can validly collect from P because the latter violated his warranty.

75. M issued a promissory note to P which states “I promise to pay P or order P10,000.”
The promissory note was issued in exchange for a specific laptop. P subsequently
indorsed and delivered the said promissory note to A. If M becomes insolvent at the
maturity date of the note, which of the following is correct?
a) A can validly collect from P provided a corresponding notice of dishonor is given
to P.
b) A cannot go after from P in the absence of express warranty of solvency of M.
c) A cannot go after from P even if the insolvency of M is already existing and
public knowledge at the time P assigned the note to A.
d) A cannot validly collect from P because the latter did not violate his warranty.
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