Law on Business Transactions

Sources of obligations and their concepts - Assessment

The obligation of the employer to pay death benefits and funeral expenses for his employer’s death
while in the course of employment as sanctioned by the Workmen’s Compensation Act is one that arises
from: (Phil CPA, 91-1)

Ans A - Law

Y sold his horse to Z for P50,000. No payment has yet been made and the sales document does not
provide the date of delivery. Before delivery and payment, the horse gave birth to a baby horse. (Phil
CPA, 88-1)

Ans A - Z is entitled to the baby horse which was born after the perfection of the contract

When A voluntarily takes charge of the neglected business of B without the latter’s authority where
reimbursement must be made for necessary and useful expenses, there is a: (Phil CPA, 97-2)

Ans C - Negotiorum gestio

Unless the law or the stipulation of the parties required another standard of care, the obligation to give
a thing carries with it the obligation to take care of it with: (Phil CPA, 91-1)

Ans C - Diligence of a good father of a family

The buyer of a thing has the right to the fruits of the thing: (Phil CPA, 89-2)

Ans C - From the time the obligation to deliver the thing bought arises.

Kinds of obligations in general under the Civil Code – Assessment

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: (Phil CPA, 90-2)

Ans A - The debtor attempts to abscond

X and Y are solidary debtors of A, B, C and D joint creditors to the amount of P8,000. How much can A
collect from X? (Phil CPA, 88-1)

Ans B - A could recover P2,000 only from X

This is the promissory note: We promise to pay A, B and C the sum of ONE HUNDRED EIGHTY
THOUSAND (P180,000) PESOS within 60 days. Signed X, Y and Z”: (Phil CPA, 89-2)

Ans A - X is obliged to pay A P20,000

O gets a loan of P100,000 from P, which becomes due on November 23, 1993 and mortgaged his house
as security for the debt.  On September 22, 1993, the mortgaged house was completely destroyed by
fire.  A week after, P demanded payment from O on September 29, 1993.  Is P’s demand valid? (Phil CPA,
93-2)

Ans D - Yes, the debt becomes demandable because the collateral was lost through  a fortuitous event

When the debtor binds himself to pay when his means permit him to do, the obligation is considered as
one: (Phil CPA, 91-1)

Ans B - With a period.

A, B and C solidarily owe X and Y P30,000.  X remitted the entire obligation in favor of A.  The effect is:
(Phil CPA, 97-2)

Ans C - A cannot recover from B and C because remission in his favor extend to the benefit of B and C

It refers to joint obligation: (Phil CPA, 93-1)

Ans D - One in which each of the debtors is liable only for a proportionate part of the debt and each
creditor is entitled only for a proportionate part of the credit
Carlo and Cleo are solidary debtors of Cxc z0orina, Luis, Edward, and Abelito, Joint creditors in the
amount of P20,000. How much can Corina collect from Carlo? (Phil CPA, 92-1)

Ans C - Corrina could collect P5,000 from Carlo

A-1 and A2 are solidary debtors of B-1, B-2 and B3, joint creditors in the amount of P90,000. How much
can B-3 collect from A-2? (Phil CPA, 90-2)

Ans A - B-3 could collect P30,000 from A-2

Which of the following statements is not correct? (Phil CPA, 96-2)

Ans B - A stipulation that even when the object is delivered to the buyer, ownership will not pass until
the price is fully paid is not valid

A solidary obligation is one in which each of the debtor is liable for the entire obligation or debt and
each of the creditors is entitled to the entire credit. Obligations shall also be considered solidary under
the following three exceptions. Which does not belong to the exception? (Phil CPA, 87-1)

Ans B - When the prestation is indivisible and there are two or more debtors and creditors

In a joint obligation, A, B and C are debtors of joint creditors, D, E and F in the amount of P180,000.00. 
A’s obligation is: (Phil CPA, 92-2)

Ans D - Pay D P20,000.00

When the debtor binds himself to pay when means permit him to do so, the obligation is: (Phil CPA, 97-
2)

Ans D - With a period

In a Joint obligation, A,B, and C are debtors of joint creditors D, E, and F, in the amount of P180,000. A’s
obligation is: (Phil CPA, 96-1)

Ans D - Pay D P20,000.00

A obliges himself to pay X P100,000 in 30 days plus a penalty of P20,000 if A fails to pay the obligation in
due time. A failed to pay the obligation in 30 days. X can demand from A: (Phil CPA, 90-2)

Ans A - The principal of P100,000 plus P20,000 penalty

Payment of the obligation by a solidary debtor shall not entitle him to reimbursement from his co-
debtors: (Phil CPA, 87-1)

Ans B - If such payment was made after the obligation has prescribed or become illegal

The obligation is demandable on the date of the obligation and shall continue to be in force up to the
arrival of the day certain: (Phil CPA, 95-1)

Ans B - Suspensive period

An obligation where only the presentation has been agreed upon but the debtor may render another in
substitution is: (Phil CPA, 98-1)

Ans B - facultative obligation 

This is a promissory note: “We promise to pay Dulce, Carina and Corina the sum of P180,000.00” (sgd) 
Jovy, Bimbo and Garry. (Phil CPA, 96-1)

Ans B - Garry is obliged to pay Corina P2,000.00

A, B and C borrowed P24,000 from Y and Z signed a promissory note dated January 15, 1987 and due
within six (6) months. How much can Y collect from A? (Phil CPA, 88-2)

Ans B - P4,000

When the thing deteriorates pending the fulfillment of the suspensive condition without the fault of the
debtor, the impairment is: (Phil CPA, 98-1)

Ans D - to be borne by the creditor

In this case, advance payment by the debtor is recoverable: (Phil CPA, 90-1)
Ans D - If the debtor was unaware of the period

Carlito, Alfredo and Francis owed in solidum P15,000 to Ricardo as evidenced by a promissory note due
on September 30, 1981. The note prescribed on September 30, 1991. On October 10, 1991, Carlito paid
Ricardo. In this case, Carlito is: (Phil CPA, 91-2)

Ans B - Not entitled to reimbursement from his co-debtors for the shares of the latter

A, B and C are solidary debtors of X in the amount of P12,000. X then made a demand from A but was
able to collect P8,000 only because X was remitting A’s share of P4,000. How much can A collect each
from B and C? (Phil CPA, 87-2 modified)

Ans D - P4,000

A and B are joint creditors mancomunados of X and Y, joint debtors for a total sum of P9,000. A owns
1/3 of the credit; B owns 2/3 of it. But X owns 2/5 of the debts; Y owes 3/5 of the debt. In this case: (Phil
CPA, 87-2)

Ans C - A can only collect from X, P3,600 and from Y, P5,400

In an obligation where only one  (1) prestation has been agreed upon, but to extinguish the obligation
the debtor is allowed and does render another substitute, the obligation is:

Ans A - Facultative Obligation 

A, B and C secured a load from D. The promissory note which evidence the obligation states: “I promise
to pay D or order P10,000 payable on demand” (Sgd) A B C. The obligation is: (Phil CPA, 95-1)

Ans A - Solidary

A, B, C and D are joint creditors of E and F, solidary debtors in the amount of P40,000. How much can A,
B and C collect from E? (Phil CPA, 90-1)

Ans C - A, B, C and D could collect all the P40,000 from E

A promissory note signed by Martiniano and dated March 15, 1991 is worded as follows: “I promise to
pay Juanita the sum of Fifty Thousand Pesos (P50,000) provided that if she should fail in the October,
1991 CPA Examination, she shall return to me said amount.” The above note gives rse to an obligation
with: (Phil CPA, 91-2)

Ans C - Resolutory condition

A, B and C secured a loan from X. The promissory note which evidences the obligation stated. “I promise
to pay” and signed by A, B and C. The obligation is: (Phil CPA, 87-1)

Ans B - Solidary

The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the
things which are alternatively the object of the obligation have been lost or compliance of the obligation
has become impossible. The indemnity shall be fixed as a basis: (Phil CPA, 87-1)

Ans C - The value of the last thing which disappeared

X and Y and Z solidarily owe A, B, C, D, joint creditors P30,000.  How much can A collect from X? (Phil
CPA, 96-2)

Ans A - P7,500 only

OE is obliged to give OR his 1982 Mitsubishi, 4 door sedan Lancer with plate number NBA 123 on
September 30, 1989. On October 10, 1989, OE is not yet deliver the car which was totally destroyed by
an earthquake on such date. Is OE still liable? (Phil CPA, 89-2)

Ans A - No. The obligation is extinguished. The specific thing was lost due to fortuitous event and no
demand or deliver was made by OR

A, B and C borrowed P36,000 from X and Y. The three (3) debtors signed a promissory note January 10,
1988 promising to pay the creditors on or before July 10, 1988. How much can X collect from C? (Phil
CPA, 89-1)

Ans B - P6,000 
In three (3) of the following cases advanced payment by the debtor is not recoverable. Which is the
exception? (Phil CPA, 89-2)

Ans D - The debtor was not aware of the period

Mr. Santos secured and Mr. Dizon granted a loan of P100,000 due for payment on December 31,1988.
Mr. Santos executed a first mortgage of his residential house in favor of Mr. Dizon to guaranty the
P100,000 loan. On October 19, 1988 the residential house was totally destroyed by typhoon Unsang. On
October 31, 1988 Mr. Dizon demanded payment of the loan from Mr. Santos. Is the demand of Mr.
Dizon for payment valid. (Phil CPA, 89-1)

Ans C - Yes. The obligation became due at once because the guaranty was lost through a fortuitous
event

X and Y are solidary debtors of A, B and C, joint creditors to the amount of P30,000. How much can B
collect from X? (Phil CPA, 95-1)

Ans B - B can collect P10,000 from X

This is a promissory note: “We promise to pay Dalsa, Cristina and Catherine the sum of P18,000”
(Signed) Jeng, Bambi and Gail: (Phil CPA, 92-1)

Ans B - Gail is obliged to pay Catherine P2,000

A, B, and C solidarily bound themselves to deliver to X a Honda Motorcycle.  The obligation was not
fulfilled through the fault of A.  Thereupon, X filed an action in court against C and the court awarded
P36,000 to X.  Which of the following situations is valid? (Phil CPA, 96-2)

Ans A - If C pays X the P36,000,  C  can  collect  from  A and B P12,000 each representing their
proportionate share in the value of the prestation

XYZ are solidarily liable to A for P30,000 which mature on July 1 1993.  On May 1, 1993, X paid A for the
whole amount of the debt.  If on December 1, 1993, X will be reimbursed by Y, the latter will be liable
for: (Phil CPA, 98-1)

Ans A - P10,000 with interest from July 1, 1993 to December 1, 1993

X obliged himself to pay Y the amount of P30,000 30 days after May 31, 1993 plus a penalty of P3,000 if
he fails to pay the obligation on due date and after demand for payment by Y, offered to pay on July 30,
1993. Y can demand from X: (Phil CPA, 94-2)

Ans A - P30,000 plus P3,000 plus legal interest

Mr. Cruz executed a first mortgage of his house in favor of Mr. Dizon on May 15, 1986 to guaranty a
mortgage loan of P200,000 due for payment on May 15, 1987. On September 16, 1986 the house was
completely destroyed by a typhoon. On September 18, 1986 Mr. Dizon demanded payment from Mr.
Cruz of the loan. Is Mr. Dizon’s demand for payment valid? (Phil CPA, 88-2)

Ans D - Yes. The obligation becomes due at once because the guaranty was lost even through fortuitous
event, unless the debtor can mortgage another property that is equally satisfactory

Mr. AB owes Mr. CD P150,000 due on August 31, 1987. Mr. AB executed a mortgage in favor of Mr. CD
on Mr. AB’s building to guaranty the obligation. On August 10, 1987 the mortgaged building was totally
lost due to a strong typhoon. On August 12, 1987, Mr. CD demanded payment from Mr. AB. Is Mr. CD’s
demand valid? (Phil CPA, 88-1)

Ans D - Yes. The debt becomes due at once because the guaranty was lost even through a fortuitous
event unless the debtor can mortgage another property that is equally satisfactory

Bertulfo and Claudio promise to deliver a particular car valued at P100,000 to Manuela on or before
September 15, 1991. September 15, 1991 came and upon demand by Manuela for delivery from
Bertulfo and Claudio. Bertulfo was willing to deliver but Claudio refused to deliver. In the case at bar:
(Phil CPA, 91-2)

Ans C - Bertulfo shall be liable for P50,000 without damages and Claudio shall be liable for P50,000 and
damages
A and B are solidary debtors of X, Y and Z, joint creditors to the amount of P15,000. How much can Z
collect from B? (Phil CPA, 88-2)

Ans B - Z could recover P5,000 from B

Specific circumstances affecting obligations in general – Assessment

This person is liable for the loss of the subject matter by fortuitous event: (Phil CPA, 85-2; 88-1; 89-1)

Choices:

a) Creditor
b) Debtor
c) Both a and b

Ans D - None of them

A condition with, if imposed on an obligation will be disregarded and will therefore make the obligation
immediately demandable: (Phil CPA, 94-1)

Ans D - If Juan will not rise from the dead

A to sell B his lot and house in the city if A decides to transfer and live, in the countryside” is an example
of: (Phil CPA, 94-1)

Ans B - Potestative condition 

It is not a source of liability which will entitle the injured party to damages: (Phil CPA, 93-2)

Ans A - Culpa Aquiliana or negligence committed in the performance of a spontaneous act

Whenever in an obligation a period is designated, it is presumed to have been established for the
benefit of: (Phil CPA, 98-1)

Ans A - both the creditor and the debtor

X is under obligation to deliver his Toyota car to Y.  However, before delivery Z destroys the car.  Which
one of the following is not correct? (Phil CPA, 98-1)

Ans A - X’s obligation to give his car to Y is extinguished

If the obligor binds himself to perform his obligation as soon as “he shall have obtained a loan from a
certain bank, this obligation is: (Phil CPA, 93-1)

Ans D - void

On July 1, 1989 A signs a promissory note and binds himself to pay X P100,000 plus 15% per annum
interest on June 30, 1991: (Phil CPA, 90-2)

Ans D - Because the period is for the benefit of the debtor and creditor, X can refuse any tendered
payment before June 30, 1991

A borrower who uses the thing for a purpose different from that intended, delays its return, receives the
thing under appraisal, lends it to a third person, or saves his property instead of the thing borrowed shall
be liable even in case of fortuitous event, because: (Phil CPA, 91-1)

Ans C - The law so expressly provides

Mr. Montecillo entered into a contract with Mr. Villarojo by which Mr. Montecillo promised to deliver
1,000 cases of glassware of the class and at the price stipulated in the contract. Such delivery was to be
made during the months of February and March, 1991. In this case, no further demand or notice by Mr.
Villarojo on Mr. Montecillo was necessary because: (Phil CPA, 91-1)

Choices:

a) Time is the essence of the contract

b) The obligation expressly so provides
 c) The demand would be useless

Ans D - Answer not given

When the characters of creditors and debtor are merged on the same person, the mode of extinguishing
an obligation is called: (Phil CPA, 86-2)

Ans A - Confusion or merger

Mr. ABC is obliged to give Mr. XYZ his only car on July 15, 1987. Mr. ABC did not deliver the car on July
15, 1987. On July 20, 1987 an earthquake destroyed the building where the car was in garage and the
car was destroyed. Is Mr. ABC still liable? (Phil CPA, 88-1)

Ans A - No. Considering that no demand to deliver was made by Mr. XYZ and the specific thing was lost
due to fortuitous event, the obligation is extinguished

These statements concerning delay are presented to you:

I.         There is no delay in obligations not to do.

II.       As a rule, the debtor will be in default if he does not perform his obligation on due date.

In your evaluation of the foregoing statements:

Ans C - Only Statement I is true.

Extinguishment of obligation – Assessment

This mode of extinguishment of obligations is when two (2) persons, in their own rights, are creditors
and debtors of each other. (Phil CPA, 90-1)

Ans C - Compensation

The P1,000 bills issued by the central bank and in circulation are considered: (Phil CPA, 93-1)

Ans C - Legal tender

On June 5, 1991, Jose Dizon of Angeles City is obliged to give Ruben Samia, Jose Dizon’s red crew cab. 
There was no delivery until June 15, 1991 when the garage of the red crew cab collapsed due to heavy 
ash and sand spewed by Mt.  Pinatubo and the red crew cab was totally destroyed.  After the crew cab
was destroyed and lost, is Jose Dizon still liable? (Phil CPA, 92-2)

Ans C - No. Because there was no demand by Ruben Samia to deliver the crew cab and the specific
object was lost due to fortuitous event.  The obligation is extinguished

It presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing
his obligation. (Phil CPA, 93-1)

Ans B - Tender of payment

When the characters of the creditor and the debtor are merged in one and the same person, there is
extinguishment of the obligation by: (Phil CPA, 96-2)

Ans B - Merger of rights

This special form of payment is the conveyance of the ownership of a thing as accepted equivalent of
performance. (Phil CPA, 85-2)

Ans A - Dation in payment or dacion en pago

On October 4, 1987, A is indebted to B for P50,000 for a 20 day period. A proposed to B that X will pay
A’s debt and that A will be free from all liabilities. B and X agree to the proposal. On October 25, 1987, X
became insolvent. At the time of 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 proposal that A
guaranteed X’s solvency. Decide: (Phil CPA, 87-2)

Ans B - A is not liable, because A does not know the insolvency of X at the time of delegacion and neither
was the insolvency of public knowledge
It is a mode of extinguishing an obligation when two persons in their own right are creditors of each
other: (Phil CPA, 86-2; 94-1; 94-2)

Ans C - Compensation

When the debtor abandons or transfers all his properties to the creditors so that the creditors may sell
the properties and out of the net proceeds the creditors recover their claims this is called: (Phil CPA, 90-
2)

Ans C - Payment of cession

When two person in their own rights are reciprocally creditors and debtors of each other and
extinguishes both debts to the concurrent amount, what takes place is known as: (Phil CPA, 91-1)

Ans A - Compensation

When the debtor abandons and assigns all his properties in favor of his creditors for the latter to sell to
satisfy his credits, this is: (Phil CPA, 90-1)

Ans B - Payment by cession

Takes place when two persons in their own right, are creditor and debtor of each other: (Phil CPA, 98-1)

Ans D - Compensation

Compensation shall take place when: (Phil CPA, 91-1)

Ans C - Two persons, in their own right are creditors and debtors of each other

A owes B P10,000.  With consent of both, C pays B P5,000.  Now B and C are the creditors of A to the
amount of P5,000 each.  Suppose A has only P5,000.  Which is correct? (Phil CPA, 98-1)

Ans D - B should be preferred

An act of liberality whereby a creditor condones the obligation of the debtor: (Phil CPA, 98-1)

Ans C - Remission

When two (2) persons are reciprocally debtors and creditors, there is: (Phil CPA, 88-2, 89-1)

Ans C - Compensation

A thing is not deemed lost when it: (Phil CPA, 98-1)

Ans D - deteriorates

Jesus owes Maria P1,000.00 on June 30, 1993.

Maria owes Jesus P600.00 due on June 20, 1993.

Maria owes Jesus P400.00 due on June 30, 1993.

Maria owes Jose P1,000.00 due on June 30, 1993.

On June 25, 1993, Maria cannot pay Jose P1,000.00 so she assigns to Jose her credit card of P1,000.00
against Jesus without the knowledge of Jesus.  On July 2, 1993, Jose tries to collect from Jesus the
P1,000.00.  How much can Jose compel to pay? (Phil CPA, 93-2)

Ans A - Zero

X, a minor sold to Y his parcel of land for P100,000. From the proceeds of the sale, X deposited P30,000
in the bank spent for food, clothing and other personal expenses P20,000, joined a tour abroad costing
P20,000, lost in gambling P20,000 and loaned P10,000 to Z who became insolvent. Upon reaching the
age of 21 years, X files an action for annulment which the court granted. Y was required to return the
land to X and X was made to return to Y the amount of: (Phil CPA, 94-1)

Ans D - P70,000
Consignation is a mode of payment which extinguishes an obligation. Which of the following is not a
requisite for consignation? (Phil CPA, 87-1)

Ans B - Prior notice has not been made

Which of the following is not an element of Compensation: (Phil CPA, 95-1)

Ans B - There is controversy or adverse claim over any debts to be compensated

If the creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by: (Phil CPA, 91-1)

Ans B - Consignation of the thing or sum due

Which of the examples given below can compensation take place? (Phil CPA, 95-1)

Ans A - A owes B P1,000 due on June 30, 1993. B owes A P1,000 due on June 30, 1993 but C has filed an
adverse claim against A

The leviable properties of the debtor are transferred to the creditors to be sold and from the proceeds,
the creditors are paid: (Phil CPA, 94-2)

Ans B - Cession

The following shall produce the effect of payment of debts: (Phil CPA, 91-1)

Ans B - Tender of Central Bank Notes

The distinction between conventional subrogation and assignment is that in conventional subrogation:
(Phil CPA, 91-1)

Ans B - An obligation is extinguish and another appears

A obliged himself to give B a car if B places among the top ten in the CPA Board Exam. Subsequently,
they agreed that A will give B the car if B merely passes the CPA Board. This is an example of: (Phil CPA,
94-2)

Ans B - Real novation

A executes  promissory note in favor of B and that promissory note is negotiated by B and subsequently
indorsed in favor of A. The obligation to pay the said promissory note is thereby extinguished because
there is: (Phil CPA, 91-1)

Ans A - Confusion or merger

C is the creditor of D in the amount of P50,000. C is the guarantor of D paid C partially with P20,000. A
not knowing the partial payment of D and against the will of D paid C the amount of P50,000. What is
the effect of this payment in the obligation: (Phil CPA, 89-2)

Ans D - The obligation is extinguished. A can demand P30,000 from D, but if D cannot pay, A cannot
ordinarily proceed against guarantor C because A is not entitled to subrogation

A owes X P50,000 payable on or before June 30, 1990. S who is not a party to the contract and without
the consent and against the will of A paid 1990 when the prevailing rate of interest was 12% per annum.
(Phil CPA, 90-2)

Ans B - S can ask reimbursement from A in the amount of P50,000

One is not a requisites needed in order that obligation shall be extinguished by loss or destruction of the
thing due: (Phil CPA, 94-2)

Ans B - When the thing lost is generic

When an obligation is extinguished because of the passage of time, this is: (Phil CPA, 90-2)

Ans C - Prescription

Mr. Debtor owes Mr. Creditor who has two (2) legitimate emancipated children, P50,000.00 payable on
December 31, 1991. (Phil CPA, 92-2)
Ans D - If both Mr. Debtor and Mr. Creditor die, the heirs of Mr. Creditor can collect from the heirs of
Mr. Debtor

Dacion en pago as distinguished from sale: (Phil CPA, 98-1)

Ans A - the object is always existing and specific

Sale is distinguished from dation in payment in that in sale: (Phil CPA, 91-2)

Ans B - The cause is the price

One of the following statement is not true: (Phil CPA, 93-1)

Ans D - The purchasing power of value of money or currency depends upon, can come into being can be
created or brought about by a law enacted by the legislative department of the Government

Concepts and classification - Assessment

This is a real contract:

Choices:

a) Deposit
b) Pledge
c) Mutuum

Ans D - All of them

The mere liberality of the benefactor is the cause in:

Ans C - Contract of pure beneficence

DO UT FACIAS:

Ans B - I give that you make

These are the basic principles or characteristics of a contract. Which is the exception? (Phil CPA, 90-1)

Ans C - Binding on third parties.

Strictly speaking, which of those should not anymore be considered an innominate contract?

Ans A - Do ut des or I give that you give;

An innominate contract which means “I give that you may do”

Ans B - Do ut facias

This is not always an essential element of a contract

Ans A - Form;

It takes place when the parties do not intend to be bound at all by their agreement: (Phil CPA, 93-1; 96-
1; 97-1)

Ans B - Absolutely simulated contract

Essential Requisites of a contract:

Choices:

a) Consent
b) Cause
c) Object

Ans D - all of them

Elements and stages - Assessment

S offers to sell his car to B for P125,000 cash.  B accepts the offer but is willing to pay only P120,000.
Ans D - The contract was not perfected because the acceptance by B was qualified and it constituted a
counter-offer.

The stage of “conception” of a contract is:

Ans C - When the negotiations are in progress.

A contract is in the stage of conception when: (Phil CPA, 92-1)

Ans B - Negotiations are in progress.

This is not always an essential element of contract:

Ans D - Terms and conditions imposed by the parties

Which of these is proof of the perfection of a contract of sale?

Ans C - Earnest money

Freedom from contract and limitation - Assessment

The characteristic of a contract to the effect that a contract binds not only the contracting parties, but
also the heirs or assigns is called:

Ans D - Relativity of contracts

The contract must bind both contracting parties, its validity or compliance cannot be left to the will of
one of them, and this is

Ans A - Mutuality of contract

The principle that the contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy.

Ans A - Principle of liberty of contract.

Contracting parties are free to enter into all kinds of pacts, terms or stipulations provided they are not
contrary to law, morals, good customs, public policy or public order. The above is a description of the
characteristic of a contract known as:

Ans B - autonomy of contracts

Persons bound - Assessment

These persons are bound by contracts.

Choices:

a) Contracting parties
b) Assigns
c) Heirs

Ans D - All of them

These persons are bound by contracts except:

Ans C - Third persons

Contracts are effective and binding only between the parties, their assigns and their heirs. Three of the
following enumerations are exceptions as provided by law. Which does not belong to the exception?
(Phil CPA, 87-1)

Ans D - Where the obligations arising from contract are not transmissible by stipulation or by provision
of law.

These persons are bound by contracts. (Phil CPA, 85-2; 88-2)

Choices:
 a) Contracting parties
b) Heirs
c) Assigns

Ans D - All of them

The person called to the succession either by the provision of the will or by operation of the law. (Phil
CPA, 94-2)

Ans C - Heir

Eianne signed a promissory note in favor of Flor promising to pay P10,000 30 days after sight. Who can
sue on this note and enforce the obligation? (Phil CPA, 93-1)

Ans C - Only Flor

Consent – Assessment di to perfect

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. Which of the following constitutes an offer: (Phil CPA, 91-1)

Ans A - An offer made through an agent

Mr. Reyes and Mr. Vitug are good friends. Mr. Reyes sold and delivered his car to Mr. Vitug. It was
agreed and understood that on Sunday Mr. Reyes will name and fix the price of the car. Sunday came.
Mr. Reyes called Mr. Vitug by telephone and stated and fixed the price at P150,000. Is the sale
perfected? (Phil CPA, 89-1)

Ans D - No. The price fixed by the seller was not accepted by the buyer

Mr. Santos offered to sell his land to Mr. Calma for P100,000. Mr. Calma accepted the offer and paid Mr.
Santos P100,000and Mr. Santos delivered the owner’s duplicate of the Transfer Certificate of Title of the
land. Mr. Calma wishes to register the land in his name but the Register of Deeds asked Mr. Calma for
the Deed of Sale. What can Mr. Calma do? (Phil CPA, 88-2)

Ans C - Mr. Calma may compel Mr. Santos to execute the Deed of Sale because the contract is valid.

Three of the following are option money. Which is the earnest money? (Phil CPA, 89-2)

Ans A - Given when contract of sale is perfected.

Mrs. Gomez sold and delivered her diamond ring to Mrs. Pangan. It was agreed upon that after ten (10)
days Mrs. Pangan will name and fix the price. On the tenth (10th) day, Mrs. Pangan called up by
telephone Mrs. Gomez and stated the price at P10,000. Mrs. Gomez agreed. Is the sale perfected? (Phil
CPA, 88-2)

Ans A - Yes. The price stated and named by one of the contracting parties was accepted by the other.

When there is concurrence of offer and acceptance, there is:

Ans C - Consent

S offered to sell his house and lot to B for P5,000,000 giving to him an option of 60 days within which to
decide whether or not to buy. After only 15 days, S met T who offered to buy the same house and lot for
P8,000,000. S then notified B of the withdrawal of the option and proceeded to sell to T. B files an action
for damages against S.

Ans C - B can recover damages from S if B gave S option money which will result in a perfected contract
of sale. Or B

On June 1, 2012, S offered to sell his only car to B for P100,000.  B accepted the offer by mailing his
letter of acceptance of June 10, 2012.  On June 12, 2012, B revoked his letter of acceptance and mailed
his letter of revocation on the same date.  S received the letter of acceptance on June 14, 2012 and the
letter of revocation on June 15, 2012.

Ans B - The contract was not perfected because at the time the acceptance was received, the parties
were no longer of one mind.
S in Manila offered to sell to B in Cebu his house and lot for P10,000,000 giving the latter 60 days within
which to decide. B accepted the offer of S by a letter. While the letter was on its way to Manila, B
changed his mind and sent to S another letter withdrawing his acceptance 2 days after his first letter.

Ans NO CORRECT ANSWER

Mr. A. Santos signed a letter addressed and delivered to Mr. S. Aguas.  The terms of the letter are:

1.  An offer to sell a 500 sq. m. lot for P300,000.00.

2.  An option time up to October 31, 1991 for Mr. S. Aguas to raise the P300,000.00.

3.  Upon payment of the P300,000.00, Mr. A. Santos will execute and sign a Deed of Sale.

On October 31, 1991, Mr. A. Santos sent a letter to Mr. S. Aguas asking for a new price of P350,000.00
for the 500 sq. m. lot.  Can Mr. S. Aguas compel Mr. A. Santos to accept the P300,000.00 and make him
sign and execute a Deed of sale? (Phil CPA, 92-2; 96-1 (name modified))

Ans A - No.  Mr. S. Aguas did not accept the offer of Mr. S.  Santos

A wrote a letter to B wherein A offered to sell a piece of land to B for P200,000. B signified his desire to
buy the land. In A’s letter, B was given a period of two (2) months within which to produce the P200,000.
After 45 days, A told B that price of the land is now P250,000. Can B compel A to accept the P200,000
first offered by A and execute the deed of sale? (Phil CPA, 88-1)

Ans B - No, for B did not signify his acceptance of A’s offer.

Mr. AB offered in writing to sell his house and lot for P750,000 to Mr. CD on July 1, 1989. Mr. CD
requested Mr. AB to give him 60 days within which to raise the P750,000. On August 15, 1989 Mr. AB
informed Mr. CD that the price is raised and now at P1,000,000. Can Mr. CD compel Mr. AB to sell his
house and lot at P750,000 which was offered in writing by Mr. AB? (Phil CPA, 90-1)

Ans C - No, because Mr. CD has not accepted the offer of Mr. AB. Or D

S offered to B the sale of his house and lot for 10,000,000 by means of a letter. At the same time, B
offered to buy from S the same house and lot by way of telegram for P10,000,000 also. B has received
the offer of S and S has also received the telegram of B. Is there a perfected contract of sale between S
and B?

Ans A - No, because what occurred was not a concurrence of offer and acceptance but a crisscrossing of
offers.

Objects of contracts - Assessment

Requisites of a valid cause: 

Choices:

a) It must be lawful
b) It must be real
c) It must be true

Ans D - All of them

Requisites of a valid object or subject matter:

Choices:

a) Must be determinate or definite as to its kind

b) Must be possible

Ans C - Both a and b

Three (3) of the following may be valid objects of a contract, except: (Phil CPA, 89-2)

Ans C - Impossible things or services

Mr. Gambino owes Mr. Eglesia P100,000. Gambino knows that on maturity date, he will not be able to
pay Eglesia, and in order to prevent attachment of his property by Eglesia, Gambino, before maturity of
his debt, executes a contract pretending to sell to Mr. Santos his property. Which of the following
statements is not correct? (Phil CPA 95-2)

Ans B - The contract is binding between Gambino and Santos

A has a daughter B; X has a son Y. A, B, X and Y agree together that Y will marry B. The agreement is oral.
If B latter on refuses to marry Y who has spent for the necessary wedding preparations and X and Y bring
an action against A and B, will the action prosper? Decide: (Phil CPA, 87-2)

Ans D - The action of X and Y against A and B will prosper because the agreement is based on the
consideration of marriage other than mutual promise to marry.

Valentina orally promised to many Pedro as consequence of which the latter contracted the Manila
Cathedral as the venue of the marriage, the whole of the Fiesta Pavilion of the Manila Hotel the bridal
gown to be made by Pitoy Moreno, spending all in all about P1,000,000. On the date of the marriage,
Valentina did not appear:

Ans C - While Pedro cannot compel Valentina to marry him, he can collect from Valentina damages.

Considerations of contracts

P.A.U sold to R.D.E the former’s car on April 1, 1992 for P300,000. P.A.U. promised to deliver the car on
April 15, 1992 but A.D.E. did not make any promise as to when to pay. (Phil CPA, 92-1)

Ans B - R.D.E. will be obliged to pay only at or after delivery.

Three of the following are void contracts. Which is the exception?

Ans C - contracts with valid consideration but with unlawful motives.

Mr. Guzman sold his owner type jeep to Mr. Montano for P100,000. There was no date fixed for the
performance of the obligation of Mr. Guzman and Mr. Montano. The obligation of Mr. Guzman is: (Phil
CPA, 89-1)

Ans B - To wait for Mr. Montano to pay P100,000 and deliver the jeep.

O agreed to transfer to I, verbally, a residential lot in consideration of a service or benefit already

rendered by the latter in favor of the former. Which of these is correct?

Ans B - The verbal agreement is enforceable because it is not covered by the Statute of Fraud.

X sold his car to Y for P50,000. No date was fixed for the performance of the obligations of the seller and
the buyer. The obligation of X is: (Phil CPA, 86-2)

Ans C - To deliver the car after Y pays X the P50,000.

X, after the death of his father, sold his inheritance though its amount has not yet been determined to B,
for a consideration of P50,000.

Ans B - The contract is void if nothing remains of the inheritance to be turned over to B.

Mr. Santos sold his car to Mr. Garcia for P150,000. No date is fixed by the parties for the performance of
their respective obligations. The obligation of Mr. Santos is: (Phil CPA, 88-1)

Ans B - To deliver the car upon the payment by Mr. Garcia of P150,000.

Mr. Gamboa sold his car for P200,000 to Mr. Ramos. There was no fixed date for the performance of the
obligations of both parties.  The obligation of Mr. Gamboa as vendor is: (Phil CPA, 97-2)

Ans A - To wait for Mr. Ramos to pay P200,000 and deliver the car.

Formalities of contracts – Assessment

Three of the following contracts must be in writing to be valid. Which is the exception?
Ans B - Contract where the amount involved exceeds five hundred pesos.

Which of these is a formal contract?

Choices:

a) Donation of real property

b) A partnership where there is contributed real property

Ans C - Both of (a) and (b)

A loan for P800 was orally contracted. May the lender recover the sum lent?

Ans B - Yes, because the contract is enforceable.

X alleged that Y promised to give X one hectare of land. This is in consideration of X’s meritorious service
to Y. Y pleads in defense that since the promise was not in writing, it is unenforceable under the Statute
of Frauds. Decide. (Phil CPA, 87-2)

Ans C - To deliver the car after Y pays X the P50,000.

These novations take place automatically or by operation of law. Choose the exception:

Choices:

a) Where a creditor pays another creditor who is preferred.

b) Where a third person who has no interest in the obligation makes payment with the consent of
the debtor.
c) Where a third person who has an interest in the obligation makes payment to the creditor.

Ans D - None of the above.

Mr. Burgos sold a parcel of land to Mr. Javier for P200,000. Mr. Burgos delivered the transfer Certificate
of Title of the land to Mr. Javier. Later, Mr. Javier wanted to registers the land to his name and he
needed a Deed of Sale. What can Mr. Javier do? (Phil CPA, 89-1)

Ans A - Mr. Javier can compel Mr. Burgos to execute Deed of Sale

In a written contract of sale between S and B the true intention of the parties was not incorporated due
to the mistake of S but where B is innocent. Assume that there was a meeting of the minds between S
and B. Who can bring the action for reformation?

Choices:

a) B only 
b) S only 

Ans C - Both B and S

X enter into a contract with Y whereby X sold his land orally to Y. The land has been delivered and the
money has been paid. Is the oral sale of the land valid? (Phil CPA, 87-2)

Ans D - The contract is valid because the contract is already perfected and executed.

A sold a residential land to B. B paid the consideration. When B wanted to register the sale at the
Register of Deeds, the latter refused to register it and required the presentation of the certificate of
capital gains tax payments. What can B do? (Phil CPA, 92-1; 96-1)

Ans D - B may compel A to pay capital gains tax and secure the Certificate of Capital Gains Tax payment.

Statement 1: S orally sold to B a piece of land P1,000,000 where the latter made a down payment of
P500,000 to the former, B can compel S to execute a public document containing the sale.

Statement 2:  In reformation of contracts, where the mistake, fraud or accident prevented a meeting of
the minds, the remedy remains to be reformation and not annulment.

Ans C - Statement 1 is true, but statement 2 is false.

Interpretation and reformation of contract - Assessment

Which of the following instrument is not subject to reformation?

Choices:

a) Simple donation inter vivos wherein no condition is imposed

b) Wills
c) When the real agreement is void

Ans D - All of the above

Which of the following is not a rule in the interpretation of contracts? (Phil CPA, 87-1)

Ans D - Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary.

Which of the following contracts may be cured by reformation?

Ans C - A Contract of Mortgage fraudulently made as a Contract of Sale

There shall be no reformation of contract in the following cases, except: (Phil CPA, 96-2)

Ans D - A contract of sale fraudulently made as a contract of lease or C

Which of these is not subject to reformation?

Choices:

a) Simple donations inter vivos where no conditions are imposed.

b) Last wills and testaments
c) Contract where the real agreement is void.

Ans D - All of the above or C - Contract where the real agreement is void.

Cecilio had Ricardo kidnapped and tortured Eduardo for refusing to sell his (Eduardo’s) laid to Cecilio.
Eduardo who could no longer bear the physical pains inflicted upon him signed a document of sale in
favor of Cecilio. This sale is: (Phil CPA, 91-2)

Ans B - Voidable

Defective contracts – Assessment di to perfect

Factor vitiating consent

Ans C - Dolo causante

S offered to sell to B his house and lot for P10,000,000. In order to pressure B into buying said house and
lot, T, a very good friend of S, threatened B with death as a result of which B accepted the offer of S. It
turns out now that the market value of the house and lot is P15,000,000. Is the contract of S and B valid?

Ans B - The contract is voidable because the consent given by B is anyway vitiated even if the
intimidation was employed by a third person.

Which of the following contracts cannot be ratified? (Phil CPA, 87-1)

Ans A - Those whose cause or object did not exist at the time of the transaction.

An oral contract of guaranty:

Ans C - Unenforceable

To defraud his creditors, A contracted B by selling a land to B. B now seeks to register the land with the
Register of Deeds. X a creditor of A seeks to prevent the registration on the ground that the contract is
rescindable. Despite X’s objection may the land be registered based on the contract in B’s name. (Phil
CPA, 87-2)

Ans C - The land can be registered based on the contract because the contract is not yet rescinded.
A and B who are both unemancipated minors entered into a contract. The contract entered into by and
between them is: (Phil CPA, 87-1)

Ans B - Unenforceable

Which of these constitutes fraud?

Ans B - An expression of opinion which did not turn out to be true if made by an expert and the other
party relied on it.

Three (3) of the following contracts are void.  Which is not? (Phil CPA, 92-2)

Ans D - Oral partnership agreement when capital is more than P3,000.00

A deaf-mute who knows how to write enters into a contract with an insolvent person after his discharge,
the contract is:

Ans A - Valid

A guardian of B sold B’s house and lot worth P480,000 for P240,000. (Phil CPA, 87-2)

Ans A - The contract can be rescinded because of inadequacy of price.

In order that fraud may make a contract voidable: (Phil CPA, 94-2)

Ans D - It should be serious and should have not have been employed by both contracting parties.

A voidable contract:

Choices:

a) Contract agreed to in state of drunkenness

b) Contract agreed to during hypnotic spell
c) Contract where consent is given through undue influence

Ans D - All of the above

The following is considered fraud or fraudulent: (Phil CPA, 90-1)

Ans A - Failure to disclose facts when there is duty to reveal them.

The action to annul a voidable contract, such as a contract where one of the parties is incapable of giving
consent to the contract is extinguished by: (Phil CPA, 91-1)

Ans C - Ratification

In a written contract the true intention of the parties was not reflected therein through the fraud
committed by one of them, which fraud prevented a meeting of the minds. The applicable remedy
would be 

Ans C - Annulment of the contract

M, minor, owns a house and lot valued at P1,000,000 and G is his guardian , M sold said house and lot to
B, a capacitated person, for P600,000 in a private writing. The contract between M and B is:

Ans C - Voidable

Which of the following contracts is not void ab initio? (Phil CPA, 97-2)

Ans D - That which is undertaken is fraud of creditors.

Mr. Esguerra, a former government employee, suffered from severe paranola and was confined in the
mental hospital in 1981. After his release he was placed under the guardianship of his wife to enable
him to get retirement pay. In 1984 he became a mining prospector and sold some mining claims. In 1987
he sued to annul the sale claiming that he was not mentally capacitated at the time of sale. The sale in
question was: (Phil CPA, 93-1; 97-1)

Ans D – Valid

Contracts entered into during lucid interval are: (Phil CPA, 89-2)

Choices:
 a) Unenforceable
b) Voidable
c) Void

Ans D - Answer not given

Andy is the representative of Babes, an absentee sells a house and lot valued at P100,000 for only
P60,000. The contract is: (Phil CPA, 97-1)

Ans B - Rescissble

Contracts entered into a state of drunkenness or during a hypnotic spell are: (Phil CPA, 93-1; 97-1)

Ans C - Voidable

This results in the ratification of a contract violative of the Statute of Fraud:

Choices:

a) Receipt of benefits under the agreement.

b) Failure to object to the presentation of evidence proving the oral agreement.

Ans C - Both (a) and (b)

S and B agreed on the sale of a certain amount of opium for the total price of P1,000,000. Which of
these statements is correct?

Ans C - The opium and the consideration of P1,000,000 shall be confiscated by the government.

Which of the following contracts is not void ab initio?

Ans C - The contract which is relatively simulated or fictitious.

A intimidated B to marry A’s daughter.  After a year, B would like to file action for annulment but could
not do so because A was around to intimidate him.  The marriage contract is: (Phil CPA, 93-2)

Ans C - Void

When one of the parties to a contract is compelled to give his consent by a reasonable and well
grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, there is: (Phil CPA, 91-1)

Ans B - Intimidation

On September 1, 1987, A entered into a contract with B, whereby A sells to B 5,000 sacks of sugar to be
delivered on the 15th and to be paid in full on the 30th. There was no agreement for rescission based on
non-payment. A did not deliver on the 15th but on the 30th he was willing and offering to deliver. But B
did not make payment on said date and so A did not like and refused to make the delivery. Decide. (Phil
CPA, 87-2)

Ans D - A can rescind the contract for nonpayment of the price.

The following agreements are covered by the Statute of Fraud. Choose the exception.

Ans D - An oral contract of partnership where the contribution in money or personal property amounts
to P3,000 or more

The process of intentionally deceiving others by producing the appearance of a contract which is
different from the true agreement is: (Phil CPA, 96-2)

Ans A - Relative simulation of a contract

The following, except one, are the characteristics of void or inexistent contract.  Which is the exception?
(Phil CPA, 93-2)

Ans A - The defense of illegality of the contract is available to third persons whose interest is not directly
affected.

In order that fraud may make a contract voidable: (Phil CPA, 87-1)

Ans C - It should be serious and should not have been employed by both contracting parties.
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 the contract.

Statement 2: The nullity of the accessory obligation or of the penal clause does carries with it the nullity
of the principal obligation which remains in force and demandable. Determine whether: (Phil CPA, 94-1)

Ans A - Statement I is true but statement II is false.

Contracts which cannot be sued upon unless ratified, thus it is as if they have no effect yet, are: (Phil
CPA, 97-2)

Ans D - unenforceable

Nature, forms and requisites – Assessment

The following are the characteristics of a contract of sale, except:

Ans B - Real, which requires the delivery of the object of the contract of sale for its perfection

What is an option contract?

Choices:

a) An agreement granting a privilege to buy or sell with an agreed time period and a determined
price
b) It is a separate contract from that which the parties may enter into upon the consummation of
the option
c) It is and must be supported by consideration

Ans D - All of the above

Option money is explained by the statements below except

Ans A - Part of the purchase price

Alabang Shoe Store Incorporated (ASSI) entered into separate contracts with 2 movie stars, Kimi and
Honesto. With Kimi, the agreement was that the shoe store shall deliver at a specified date for a price of
P2,000 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 Honesto, the
arrangement was that the shoe store shall deliver at a specified date for a price of P3,000 a pair of shoes
to be made specifically for him, in accordance with a design submitted by him.

What is the nature of the contract between Kimi and ASSI?

Ans C - Contract of sale

Alabang Shoe Store Incorporated (ASSI) entered into separate contracts with 2 movie stars, Kimi and
Honesto. With Kimi, the agreement was that the shoe store shall deliver at a specified date for a price of
P2,000 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 Honesto, the
arrangement was that the shoe store shall deliver at a specified date for a price of P3,000 a pair of shoes
to be made specifically for him, in accordance with a design submitted by him.

What is the nature of the contract between Honesto and ASSI?

Ans B - Contract for a piece of work

The contract of sale must always have

a) Consent
b) Consideration
c) Subject matter

Ans D - All of the above

Quezon Bed Company (QBC) granted to Happy Sleep Incorporated (HSI) the exclusive right to sell in
North Luzon a certain number of beds which the company was manufacturing at the invoice price of the
beds in Manila, with a discount of 20%, the price to be paid at the end of 60 days. What contract is
perfect here?

Ans C - Contract of Agency

Mrs.  Lim agrees to sell his watch to Mr.  Lomotan for P10, 000 in cash, and places the timepiece inside
the car of Mr.  Lomotan, while he goes to an ATM to withdraw money. Before Mr. Lomotan returns,  Mr.
Co  arrives  and  claims  ownership  of  the  watch  presenting a document  signed by  Mr.  Lomotan
selling the time piece to him.  Mrs. Lim discards the claim asserting that she is still the owner. In this
situation, who is the rightful owner of the watch?

Ans B - Mrs. Lim, because Mr. Lomotan has not yet paid the agreed price

A contract whereby one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent is a
contract of:

Ans B - Sale.

A contract of sale is except

a) Nominate
b) Onerous
c) Reciprocal

Ans D - None of the above

One of the following is not a requisite of the object of a contract of sale. Which is it?

Ans D - Vendor must have the right to transfer the ownership of the thing at the time of sale.

Under the Statute of Frauds, the following contracts must be in writing, otherwise they cannot be
enforced in court litigation except

Ans A - Sale of personal property at a price not less than P300.00

A thing can be considered determinate when

b) Physically segregated from all others of the same class

c) Is specific and is identified by its individuality

Ans D - B and C are correct

A contract of agency to sell can be considered when

Ans B - Only accounts for the proceeds of the sale  he/she may make on the principal’s behalf

As to the presence or absence of conditions, a sale may be

Ans B - Conditional

A thing can be considered determinate when of contract is this?

Ans A - Contract of barter

Pedro has a land under litigation and agrees to sell it to Renel for 500,000 if he wins the case and
recovers said property.  When the verdict was given, Pedro’s case lost and was not able to recover his
property. Is Pedro required to provide a replacement property to be sold to Renel?

Ans C- No,  because their agreement is on the condition  that he will only sell  if he wins his the case

The following are examples of illicit things “by chance”n except

Ans B - Expired medicine

Effect of price fixed by third person can be considered void excepts

Ans A - Third person adhere to the instructions laid down by parties involve

A contract of sale is
Ans C - Where title passes to the vendee upon delivery of the thing sold

When is the price in a contract of sale can be considered certain?

a) All parties agreed on a specific amount

b) Capable of being determined in money or its equal
c) When there is no specific amount  specified, price is left to the judgement of a specified person
or persons

Ans D - All of the above

One has the right to transfer ownership if he/ she with the exception of

Ans C - Paid half of the total price

Goods which form the subject of a contract of sale may be except

Ans C - Illicit goods

The following are characteristics of a contract of sale aside from

Ans A – Unilateral

Ronald  transferred  to  Vincent  a  parcel  of  land  for  the  price  of  P15,000,000.  It was stipulated in
the contract that Vincent will pay P5, 000,000 in cash and for the balance, we will give a boat, valued at
approximately P10, 000,000. What kind of contract is this?

Ans A - Contract of barter

Earnest money as distinguished from option money - Assessment

It refers to the money paid by the offeree to the offerer to bind the latter in case the offerer grants the
offeree the privilege to accept an offer within a certain period of time.

Ans B - Option money

Option money is explained by the statements below except

Ans A - Part of the purchase price

Bo decided to buy a condominium in Bonifacio Global City and pays a reservation fee of P100,000. Is the
reservation fee earnest money or option money?

Ans B - Option money

A sum of money paid or a thing deliverd upon the making of a contract for thesale of goods to bind the
bargain the delivery and acceptance of which makes the final assent of both parties to the contract

Ans B - Earnest money

Bo decided to buy a condominium in Bonifacio Global City and pays a reservation fee of P100,000. If Bo
is suddenly in a financial bind, is she still bound to pay the balance of her condominium after her
reservation?

Ans B - No, because a reservation can  be considered an option money for the reason that it may not be
refundable but it can be forfeited

Earnest money means

Choices:

a) Bind between seller and buyer

b) Partial payment of the buyer to the seller
c) Proof of the perfection of the contract

Ans D - All of the above

Rights / obligations of vendor and vendee – Assessment

Contracts of sale or return can be considered when

Choices:

a) Subject to a resolutory condition

b) Depends on the mind of the vendee
c) The risk of loss is with the vendee

Ans D - All of the above

In Art 1490, a husband and wife, during marriage cannot sell property to each other except

Ans A - When separation of property was agreed upon in the marriage settlements

This mode of delivery Is the opposite of traditio brevi manu. This takes place when the vendor 
continues  in  possession  of  the  property  sold  not  as  owner  but  in  some  other capacity.

Ans B - Traditio constitutum possessorium

In Art 1491, the following cannot acquire by purchase even   at a public auction, either in person or
through the mediation of another, except

Ans B - Agents who was given consent by the principal

An unpaid seller’s right to resell the goods is available in the following cases, except:

Ans D - When the seller has lost his lien on the goods.

What situations can be the buyer is exempted and in turn still acquire the object and claim ownership?

Choices:

a) Where  the  true  owner  is  estopped  by  his  conduct  from  denying  the  vendor’s authority to
sell
b) Where the sale is made by the registered owner in accordance with registration laws
c) Where  the purchase  is  made  in  a  merchant’s  store  of  markets,  in  accordance with the
code of commerce and special laws

Ans D - All of the above

In Art 1490, a husband and wife, during marriage cannot

I.         Donate property to each other

II.       Sell property to each other

III.     Borrow proper from each other

Ans A - I and II are correct

In Art. 1493, if at the time the contra ct of sale is already perfected but the thing sold was entirely lost?
What are the options of the vendee?

Ans B - Vendee has no option available because the contract shall be without any effect

It is a contract by which property is sold but the buyer, who becomes the owner of the property on
delivery, has the option to return the same to the seller instead of paying the price.

Choices:

a) Sale on trial
b) Sale on satisfaction
c) Sale on approval

Ans D - None of the above

Which of the following statement is false

Ans B - Stoppage in transitu can be exercised by the unpaid seller if the buyer is insolvent and the
vendor has not yet parted with the thing sold
What title is acquired by the buyer if the object which he bought was sold by someone who is not the
owner thereof and who was not authorized to sell it?

Ans A - The buyer in such a case acquires no better title to the object the vendor had

When goods are delivered to the vendee on ________________ to give him/her an option to return
goods instead of paying, the ownership passes to the buyer on delivery, but he/she may revest, the
ownership in the vendor by tendering the goods within the time fixed in the contract.

Ans B - Sale on satisfaction

The principal obligations of the vendor are

Choices:

a) Deliver the unit sold

b) Transfer the ownership of the unit sold
c) To maintain with proper diligence the unit sold pending delivery

Ans D - All of the above

This mode of legal delivery happens when the vendee has already the possession of the thing sold by
virtue of another title as when the lessor sells the thing leased to the lessee

Ans A - Traditio brevi manu

The ownership of the thing sold shall be transferred from the vendor to the vendee upon delivery which
may be done by

a) Legal delivery
b) Actual delivery
c) Proof of agreement that possession is already transferred to the vendee

Ans D - All of the above

Gelo sold his Honda Civic to Jules, who immediately paid the price. Because the vehicle was at the repair
shop at the time, the contract was perfected but no delivery was made. Before delivery could be made,
Anton, a creditor of Gelo, who has filed a suit against him, attached the car.

What right has Jules over the Honda Civic?

Ans B - Jules’s acquired a personal right over the car. However, such right has become useless because
of the attachment of the vehicle by Anton, a creditor of Gelo

In Art. 1493, if at the time the contra ct of sale is already perfected but the thing sold was partially lost,
what options does the vendee have over the vendor?

Ans C - Vendee may withdraw from the contract with the vendor

Legal delivery is _________ when, to effect the delivery, the parties use a token to represent the thing
delivered

Ans C - Symbolic

Gelo sold his Honda Civic to Jules, who immediately paid the price. Because the vehicle was at the repair
shop at the time, the contract was perfected but no delivery was made. Before delivery could be made,
Anton, a creditor of Gelo, who has filed a suit against him, attached the car.

Between Gelo, Jules & Anton, who is the rightful owner of the Honda Civic, during the time of lawsuit?

Ans A - Jules, because he had already paid for the car

The principal obligations of the vendee are except

Ans A - To maintain the unit pending delivery

Warranties (in relation to consumer laws) - Assessment

What are the implied warranties of the person who negotiates a document of title by delivery?

Choices:

a) Document is authentic or genuine

b) Has the legal right to transfer
c) Has the legal to negotiate 

Ans D - All of the above

This is not an essential element of a contract of sale

Ans A - Warranty against eviction

These are common forms of document of title except

Ans B - Promissory memo

This refers to the implied warranty on the part of the seller that he has the right to sell the thing at the
time when ownership is to pass, and that the buyer from that time shall have and enjoy legal and
peaceful possession of the thing.

Ans B - Warranty against eviction.

Installment sales - Assessment

In a contract of sale of personal property the price of which in payable in instalments, what are the
possible remedies available to the vendor in case of breach?

Choices:

a) Demand completion of the of the obligation should the vendee fail to pay
b) Cancel the sale if vendee fails to pay more the 2 months instalment
c) Foreclose chattel mortgage on the thing sold

Ans D - All of the above

One of the following is not an alternative remedy available to a seller of personal property on
installment if buyer defaults

Ans D - To take possession of the property and forfeit the amount paid by the buyer

At a mortgage foreclosure, a sale was carried out as a result of a judicial proceeding. Tessa,  an  attorney 
for  the  mortgage  creditor,  bought  the  mortgaged  property.

If Tessa bought the property for her client, did she violate the absolute terms of Art.1491 of the NCC?

Ans B - No, because she would be merely acting as agent of her client

Paul sold a second hand car to Trish for P150, 000. The deal between Paul and Trish was the 50% of the
purchase price, of P75,000, shall be paid upon delivery of the car to  Trish  and  the  balance  of  P75,000 
shall  be  paid  in  3  equal  monthly  instalments  of P25,000 each. The car was delivered to Trish, and
she paid the amount of P75, 000 to Paul. Two weeks after, the car was stolen from Trish’s garage with
no fault on Trish’s part and was never recovered. Is  Trish  legally  bound  to  pay  the  unpaid  balance  of
P75,000 to Paul?

Ans B - Yes, because ownership was already acquired by Trish the moment the car was delivered to her

The Recto Law applies to which of the following examples of sale?

Ans D - Sale of a piano on installments where the buyer constituted a chattel mortgage on the piano.
At a mortgage foreclosure, a sale was carried out as a result of a judicial proceeding. Tessa,  an  attorney 
for  the  mortgage  creditor,  bought  the  mortgaged  property.  If she bought it for herself, is the sale
void or voidable?

Ans A - Yes, because is it prohibited by the law

Mike sold a motorcycle to Powee for P50,000 to be paid as follows: P30,000 upon delivery of the
motorcycle to Powee, and the balance at the rate of P5,000 per month until paid in full. The motorcycle,
however, was burned in the possession of Powee without his fault, before the balance was paid in full. Is
Powee obliged to pay the balance?

Ans A - Yes, given that the ownership was already transmitted to him upon delivery

Law on Credit Transactions

Nature and requisites – Assessment

In commodatum, the bailee acquires:

Ans A - jus utendi or right to use;

A similarity between pledge and chattel mortgage:

Ans B - constitute a lien on the property;

A characteristic of a real mortgage:

Ans B - principal;

Real property mortgaged---

a) Generally, is not possessed by the creditor.

b) Cannot be acquired by the creditor, even if he is in possession for 30 years by prescription.
c) Mortgagee cannot appropriate the property for himself even if stipulated.

Ans D - All of the above.

A thing pledged—

a) Even if stipulated, cannot be appropriated if debts is not paid.

b) Is indivisible even among successors in interests.
c) May guarantee the debts of another person.

Ans D - All of the above.

Pledges created by operation of law refers to:

Ans B - right of retention;

A contract where the collateral must be placed in the possession of the creditor or third person:

Ans B - pledge;

It is a form of commodatum where the bailor may demand the thing at will:

Ans A - precarium;

If the principal obligation is voidable, unenforceable or merely natural, the pledge or mortgage is:

Ans A - valid;

A contract where one of the parties delivers to another, either something not consumable so that the
latter may use the same for a certain time and return it:

Ans B - commodatum or loan for temporary possession;

A pledge created by operation of law;

Ans C - legal;
It is one where a person who receives a loan of money or any fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality:

Ans A - mutuum;

A common requisite to the contracts of pledge and mortgage:

Ans C - that the persons constituting the contract have the free disposal of their property or legally
authorized for the purpose;

It is the delivery of property by one person to another in trust for a specific purpose upon a contract to
perform the trust and carry out such object, and thereupon either to return or account for the property
when the special purpose is accomplished or to keep it until the giver reclaims it:

Ans C - bailment;

Statement 1 - Pledges and mortgages are accessory contracts.

     Statement 2 - Their consideration is the same as the consideration of the principal obligation.

Ans C - Statement 1 and 2 are correct;

Requirements to bind the parties and third persons - Assessment

To bind the parties in a contract of:

a.     Pledge. – The contract may be oral or written, provided the property is delivered to the pledgee.

b.     Chattel Mortgage. – The contract must be written in a public document and registered at the
Chattel Mortgage Register.

c.     Real Mortgage. – The contract must be in writing, whether it be public or private instrument.

      Which of the above statements is correct?

Ans D - All statements

A pledge to be binding on third persons must be registered in the Registry of Property.

The pledge may be in any form as in fact the mere delivery of the object is sufficient to bind the parties.

Ans D - False, True

A pledge may take effect only against third persons if the following formalities are followed:

Ans B - it must be in a public instrument containing the description of the thing pledged and the date of
the pledge;

The following are requisites of pledge except

Ans D - To bind a third person, it must be recorded in the office of the Register of Deeds.

Obligations and rights of pledgor and pledge – Assessment

All movables which are within commerce may be pledged, provided they are susceptible of possession,
which of the following cannot be pledged?

a) negotiable instruments and documents;

b) bonds and shares of stock;
c) warehouse receipts and bills of lading;

Ans D - none of the above.

Julia borrowed P10,000 from Alex secured by the pledge of laptop worth P7,500 and watch worth
P2,500. Subsequently, Julia paid half of the obligation, what is her right?

Ans D - she cannot demand the cancellation of the pledge until the loan is fully paid;

Which of the following cannot be secured by a pledge or mortgage?

 a) pure obligation;
b) conditional obligation;
c) alternative obligation;

Ans D - none of the above.

An obligation of the pledgee:

Ans B - to answer for the loss of the thing pledged in case of negligence;

The creditor is not entitled to recover any deficiency in case the price of sale of the thing pledged is less
than the amount due, what is the reason?

Ans C - to compel creditor to hold an honest public sale;

Mr. Borrowie pledged his SMC bond with a face value of P100,000.00 to secure his loan from Mr. Lendy
in the amount of P50,000.00. The bond was due on January 30, 2013 while the loan is due on February
3, 2013. In this case the bond becomes due before it is redeemed, which of the following statements is
correct?

Ans B - Mr. Lendy may collect and receive the amount due from the bond and apply the same to the
payment of his claim and deliver the surplus to Mr. Borrowie;

An obligation of the pledgor:

Ans A - to reimburse the pledgee for expenses made for its preservation;

What is the obligation of the pledgee when the pledge earns or produces fruits, income, dividends, or
interests?

Ans C - to compensate them with those which owing to him, or insofar as the amount mayexceed that
which is due, he shall apply it to the principal;

Effect of sale on the thing pledged if it is less than the principal obligation.

Ans C - Creditor cannot recover the deficiency even if there is stipulation.

A borrowed from B P50, 000. An offered his specific ring by way of pledge. It was expressly stipulated
that upon non-payment of the debt on time, the ring would be belong to B. This forfeiture clause, which
has ring would traditionally not been allowed is called a

Ans C - Pacto commisorium

If there is danger of destruction, impairment, or diminution in value of the thing pledged, what is the
duty of the pledgee without fault?

Ans A - he may cause the same to be sold at a public sale;

Obligations and rights of mortgagor and mortgagee – Assessment

It is the right of the mortgagor to redeem the mortgaged property after his default but before the
auction sale:

Ans D - equity of redemption.

An affidavit of good faith refers to an oath in a contract of chattel mortgage wherein the parties
severally swear that:

Ans A - the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof and for no other purpose, and that same is valid obligation and one not entered into for fraud;

Which of the following is not a principal obligation of the mortgagor?

Ans D - to continue in the ownership and possession of the mortgaged property;

Nora mortgaged his farmland to Vilma. The farmland has a fair market value of P50,000 while the loan is
only P10,000. Thereafter, Nora sold the farmland to Boyet. What is the legal effect of the sale to Boyet.

Ans B - the sale is valid but it does not affect the mortgage;
Mr. Gor borrowed P2 Million from Mr. Gee. The parties agreed that Mr. Gor would execute a mortgage
on his land to secure the obligation. However, Mr. Gor failed to execute a mortgage. Which of the
following is the remedy of Mr. Gee?

Ans B - demand the constitution of the mortgage;

The following are the kinds of real estate mortgage, except;

Ans C - contracts of sale with right of repurchase;

Which of the following is not a principal right of the mortgagee?

Ans B - to free the property from the encumbrance once the obligation is fulfilled;

 X borrowed money from Y and gave a piece of land as security by way of mortgage.  It was agreed
between the parties that upon nonpayment of the loan, the land would already belong to Y.  If X failed
to pay the debt, would Y now become the owner of the land?

Ans B - Y would not become the owner because the agreement is against the law.

It is a remedy available to mortgagee where he subjects the mortgaged property to the satisfaction of
the obligation through the sale of the property at public auction and the application of the proceeds
thereof to the payment of his claims:

Ans A - foreclosure;

The contract of mortgage extends to and includes the following except:

Ans D - proceeds of insurance received from insurance of the property;

Effect of pactum commissorium - Assessment

Pactum commissorium or pacto comisorio refers to:

Ans C - a stipulation in a contract where the mortgaged property shall become the property of the
mortgagee upon failure to pay the debt;

Statement A: The mortgage credit may be alienated or assigned by the mortgagee to a third person.

Statement B: The alienation of the thing mortgaged is a matter of right on the part of the mortgagor.

Ans C - both are true;

Negotiability of instrument – Assessment

A issues a bill payable to the order of B. Later B without endorsing the bill transfers for a consideration
said bill to C. The following except one, are the valid effects of the transfer.

Ans C - C becomes a holder.

The following instruments are negotiable, exceptThe following instruments are negotiable, except

Ans B - Pay to A or order P1,000 or deliver a cow at the option of the holder.

a.To B                       Sgd.C gd.C

Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.  This requirement is applicable to?

Ans D - Bills of exchange but not promissory notes

This is not a negotiation of a negotiable instrument;

Ans A - Assignment

Which of the following instruments is negotiable?

Ans A - “Good to B or order, P20,000” (Sgd.A)

The promise is conditional rendering the instrument non-negotiable

Ans D - An order or promise to pay out of a particular fund

Which of the following does not apply to a non-negotiable instrument?

Ans B - The transfer of the instrument does not give the transferee the right to collect

Payable to the order of the drawee.

Ans B - Pay to yourself or order P8,000

An instrument is payable at a determinable future time, which is expressed to be payable, except:

Ans D - Upon a contingency and the contingency actually happens.

Which one of the following instruments is negotiable?

Ans C - “I promise to pay B or order P20,000, 30 days after the death of his father”. (Sgd. A)

The following are negotiable instrument, except:

Ans D - Pay to the order of A P1,000 subject to the terms and conditions of the sales contract between
him and the undersigned.

To B                       Sgd.C

The instrument is payable to order when

Ans C - Drawn payable to the order of a specified person or to him or his order

The negotiable character of an instrument otherwise negotiable is affected by this provision which:

Ans C - Gives the maker an election to require something to be done in lieu of payment of money

A bill of lading is beyond the scope of the negotiable instruments law because:

Ans A - It is without an unconditional promise or order to pay a sum certain in money

Which of the following is not a feature of a negotiable instrument?

Ans D - Represents title to goods

A certificate of stock is not a negotiable instrument under the “Negotiable Instruments Law” because it
lacks the requirements of

Ans D - It must contain an unconditional promise or order to pay a sum certain in money.

A letter of credit lacks negotiability becauseA letter of credit lacks negotiability because

Ans B - It is in favor of a specified person and not to order

Which is not negotiable?

Ans D - Pay to B or order P1,000 within 10 days if he marries D on June 12, 2009. Sgd. A to C

A promissory note as distinguished from a bill of exchange.

Ans B - The one who issues it is primarily liable

Negotiation – Assessment

An indorsement “Pay to A if he tops the CPA board exams”. Sgd. B is a

Ans A - Conditional indorsement

Maker makes a note payable to the order of payee.  It is indorsed successively as follows:

1.       Pay to A Sgd. Payee

2.       Pay to B Sgd.A

3.       Pay to C Sgd. B

4.       Pay to D Sgd. C
5.       Pay to B Sgd.D

6.       Pay to E Sgd. B

 Which of the following is not correct?

Ans C - The re-issue and further negotiation to E is not allowed because there is confusion when the
instrument was negotiated back to B

Three of the following are warranties of a qualified indorser; which is not?

Ans B - Instrument is valid and subsisting

One who has signed the instrument as maker, drawer, acceptor, or indorser without receiving value
thereof, and for the purpose of lending his name to some other person is a (an)

Ans B - Accommodation party

 On Feb.28, Year 2, A issues a bill payable to the order of B.  On March 7, Year 2, B without indorsing the
bill transfers for a consideration said bill to C.  On March 15, Year 2, B indorses the bill to C.

When did C become a holder?

Ans B - March 7, Year 2 but the law will determine on March 15, Year 2 whether or not he is a holder in
due course

One of the following is not a restrictive indorsement

Ans D - Payable to the indorsee where the indorser is not liable

A separate paper where indorsements may be made 

Ans D - Allonge

A made a promissory note payable to the order of B.  Subsequent indorsements are as follows:  B to C; C
to D; D to E; and E to F, F decided to strike out the indorsement of D and later negotiated the instrument
to G, a holder in due course.  Which is correct?

Ans D - G can only go after A, B, C and F

An indorsement “Pay to A for collection only” Sgd.B is a

Ans B - Restrictive indorsement

A issued a negotiable promissory note to B with the amount in blank, but with authority
given to B to fill up the blank for P100,000.  B filled it up for P400,000 and negotiated it
to
C.   If C is a holder in due course, he:

Ans A - Restrictive indorsement

A made a promissory note payable to the order of B.  A delivered it to B who negotiated it to C.  C
indorsed the note to D who is 16 years old.  D indorsed it to E who later indorsed it to F, the holder. F
presented the note to A who dishonored the instrument.  Which is correct?

Ans D - F can hold all indorsers liable except D

A real defense

Ans D - Minority

An indorsement “Pay to A in trust for B”.Sgd. C is a

Ans B - Restrictive indorsement

Which of the following is not correct in so far as the rights of a holder not in due course are concerned?

Ans C - He cannot recover on the instrument

The indorsement “Pay to C, Sgd. B is a 

Ans B - Special indorsement

A makes a note payable to the order of B.  The note is indorsed successively by B to C, C to D, D to E, and
E to F, the present holder.  Suppose the note is dishonored in the hands of F, which of the following is
correct?

Ans C - If F gives notice to E, E may notify B, C and D

In case of a qualified indorsement, which is not correct?

Ans D - At the time of his indorsement, the instrument is valid and subsisting

An indorsement payable to the order of A is indorsed by A by merely affixing his signature without
specifying the indorsee is a:

Ans C - Blank indorsement

I.  If an authorized agent signs for and on behalf of his principal, the latter will be liable, as a rule

II.  A person who signs a trade or assumed name will be liable to the same extent as if he had signed in
his own name

Ans A - True; True

One of the following indorsement is a valid negotiation

Ans D - Pay to A and B P10,000

An indorsement “Pay to A at his own risk” Sgd. B is a

Ans C - Qualified indorsement

A real defense may be used against

a) Holder in due course

b) Holder for value

Ans C - Both A and B

A makes a note payable to bearer and delivers it to B.  In turn, B negotiated it by mere delivery to C, who
indorses it specially to D. D negotiates it by special indorsement to E, who negotiates it to F by mere
delivery.  A did not pay.  One is not correct?

Ans D - F can hold B and C liable because they are parties prior to F

An instrument payable to the order of A bears the following indorsement at the back thereof: A,
B, C and D.  The present holder is E.  Which is correct?

Ans D - E may recover payment from any of said indorsers

An indorsement “Pay to A, notice of dishonor waived” Sgd. B is a

Ans NO CORRECT ANSWER

A personal defense may be used against

Ans B - Holder for value

A issues a bill payable to the order of B.  Later B, without indorsing the bill transfers for a consideration
said bill to C.  As a result, one of the following is not correct.

Ans D - C is an assignee with the rights of a holder in due course

An indorsement “Pay to A without recourse”.  Sgd. B is a

Ans C - Qualified indorsement

A personal defense

Ans A - Want of delivery of an incomplete instrument

An instrument which is originally negotiable ceases to be negotiable when

Ans A - Restrictively indorsed

One is not a condition to be a holder in due course

Ans C - That at the time it was negotiated to him it has no infirmity or defect in the title of the person
negotiating it

Abnormal negotiable Instruments – Asssessment

A forged signature may transfer title if 

Ans C - Unnecessary to one’s title as when a bearer instrument contains a forged indorsement.

A promissory note reads:“ I promise to pay to the order of B P10,000, 30 days after date”.  Sgd. A A
issued the promissory note to B who 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 and E to F, the holder.

Questions:

Q1: Can F collect from C?

 Q2: Against whom can F collect?

Sol.

Q1 - No, because C’s signature or indorsement was forged therefore it is wholly

inoperative

     Q2 - F can collect from either D or E because their signatures are genuine and the
instrument becomes operative against them.
Ans A - Both answers are correct

A delivers to B a promissory note payable to the order of B without specifying the amount but A
authorized B to place the amount of P500 in the promissory note which was signed by A.  B, in violation
of the instruction of A placed P5,000 as the amount payable.  Later B indorsed the note to C. The holder
C

Ans C - Cannot recover from A but can recover from B if he knows the defect

A issued a negotiable promissory note to B with the amount in blank, but with authority given to B to fill
up the blank for P100,000.  B filled it up for P400,000 and negotiated it to

C.   If C is a holder in due course, he:

Ans C - Can collect P400,000 from A or P400,000 from B

A executes a check drawn against XYZ bank and payable to the order of B.  Later C, stole the check and
forged the endorsement of B.  C deposited the check in ABC bank by way of savings deposits.  When the
check was cleared, C withdrew the money from ABC bank.  Who shall bear the loss?

Ans B - XYZ, because the indorsement of the payee was forged

The following rules of construction apply where the language of the instrument is ambiguous or there
are omissions therein, except:

Ans D - Where the sum payable is expressed in words and also in figures and there is discrepancy
between the two, the sum denoted by the figures is the sum payable; but if the figures are ambiguous or
uncertain, reference may be had to the words to fix the amount.

An indorsement “Pay to A only” Sgd. B is a

Ans A - Restrictive indorsement

Consideration of a Negotiable Instrument - Assessment

A promissory note is indorsed to C who has knowledge of the illegal consideration between A,
maker and B, payee.  Later C negotiates the note to D under circumstances which would make D
a holder in due course.  D in turn indorses it to E and E back to C.  Which is correct?

Ans B - C cannot be considered a holder in due course

1.       I. A buys a diamond for P50,000 for which A issued a check. The diamond turned out to be an
ordinary glass.

II. B obtained the signature of C for autograph purpose.  B wrote a promissory note above the signature,
then indorsed the note to E, a holder in due course

Ans C - Personal defense, real defense

A issued a negotiable promissory note to B.   There was a total failure of consideration.  B indorsed the
note to C, a holder in due course.  C indorsed the note to D who knew of the failure of consideration. 
Which is correct?

Ans A - D may collect from A

Payment of Negotiable Instrument - Assessment

The note reads as follows:

I promise to pay B or order P200,000, 30 days after date.  Sgd. A.  The above promissory note was issued
by A to B on Feb. 8, Year 2 for the Lancer car sold by B to A.  A few days later, Feb.15, Year 2, A was
deprived of the car because it turned out to be a stolen car and the true owner was able to recover it
from A.  On Feb. 25, Year 2, B negotiated the promissory note to C.  Terms – 50% payable on Feb.25,
Year 2 and the balance of P100,000 payable on Feb.28, Year 2, C paid the P100,000 on Feb. 25, Year 2 as
agreed upon.  On Feb.27, Year 2, C learned of the unlawful consideration between A and B.  Despite
such knowledge, C paid the P100,000 balance on Feb. 28, Year 2.  On maturity of the instrument:

Ans D - C can collect only the first P100,000 to A

A negotiable promissory note is given by A to B; B indorsed it to C; C to D and D to E.  E negotiated back

the note to A.  A re-negotiate the note to F.  As a result:

Ans B - If A later on pays the instrument, he cannot go after B, D, C, E and F

A is induced through simple fraud (fraud in inducement) committed by B to issue a promissory note in
favor of B.  B indorsed the note to C.  C has notice of fraud but did not take part in it.  C indorsed the
note to D, a holder in due course.  D indorsed the note to E who knows how the note was obtained but
without being a party to the fraud.  Which is correct?

Ans B - E is a holder in due course having derived his title from D, a holder in due course

A promissory note reads:

“I promise to pay B P100,000.  Sgd. A”  B assigned the note to C, later Y stole the note from C.  Which of
the following statements is correct?

Ans A - If A pays Y in good faith, A’s obligation is extinguished

 A negotiable promissory note is given by A to B; B indorsed it to C; C to D and D to E.  E negotiated back

the note to A.  A re-negotiate the note to F.  As a result:

Ans B - If A later on pays the instrument, he cannot go after B, D, C, E and F

Liabilities of Parties in a Negotiable Instrument - Assessment

When the person not otherwise a party to the instrument places thereon his signature in blank before
delivery he is liable as indorser, and
If he signs for accommodation of the payee

Ans C - He is liable to all parties subsequent to the payee

A executed a bill of exchange in favor of B or order for P10,000 and writes the name of A as drawer. 
Later B negotiates the bill to C who presented the bill to D, the drawee who accepted the bill. Thereafter
the bill was negotiated by C to E.  Which is correct?

Ans D - The drawee by accepting the bill is liable according to the tenor of his acceptance

When the person not otherwise a party to the instrument places thereon his signature in blank before
delivery he is liable as indorser, and

A issues a promissory note payable to the order of B.  B indorsed it to C, then by C to D, By D to E, and by
E to F.  In the hands of F, the note was dishonored by A.  Which is not correct?

Ans D - F should notify only D, the latter may notify B, C or E

Not primarily liable on the instrument

Ans C - Drawer of a bill

When the person not otherwise a party to the instrument places thereon his signature in blank before
delivery he is liable as indorser, and

If the instrument is payable to the order of the maker or drawer, or its payable to bearer

Ans B - He is liable to all parties subsequent to the maker or drawer

Statement I. If a bill of exchange is accepted at the instance of the holder, the drawers and indorsers are
discharged.

Statement II. If a check is accepted at the instance of the holder, the drawers and indorsers are
discharged.

Ans A - True; True

Which is not correct?  The acceptor by accepting the instrument:

Ans B - Admits the existence of the indorsers, the genuineness of his signature and his capacity and
authority to indorse the instrument

When the person not otherwise a party to the instrument places thereon his signature in blank before
delivery he is liable as indorser, and 

If the instrument is payable to the order of a third person,

Ans A - He is liable to the payee and to all subsequent parties

Alteration of Instuments - Assessment

A makes a note payable to the order of B. B indorses it to C.  X obtains possession of the note
fraudulently and indorses it to D and D to E.  Which of the following is not correct?

Ans D - E cannot enforce the note against D who derived his title through the forged signature of C
which is wholly inoperative

A delivers a promissory note to B for P3,000.  B increases the amount to P8,000 and indorses the note to
C and by C to D.  D took the note for value and satisfied the requirements of the holder in due course. 
Which is correct?

Ans B - D can recover P3,000 from A and P5,000 from C

 Upon request of A, B makes a note to accommodate A.  Then A indorses the note to C, when C
presented the note to B, the latter dishonor it.  Which is correct?

Ans C - As an accommodation party, A will be liable even if notice of dishonor is not given to him.

When a negotiable instrument which has been materially altered is in the hands of a holder in due
course who is not a party to the alteration
Ans C - He may enforce payment thereof according to its original tenor

Bill of Exchange - Assessment

A bill which is, or on its face purports to be both drawn and payable within the Philippines is a (an)

Ans C - Inland bill

A bill drawn by A against B with C, D, E, and F as successive indorsers is presented by the holder G for
acceptance to B who dishonor it and G has the bill protested for non-acceptance.  If the bill is accepted
by X with the consent of G for the honor of E, X will not

Ans C - Be liable to A, C, D and E 

Where in a bill the drawer and the drawee are the same person or where the drawee is a fictitious
person, or a person not having capacity to contract, the holder at his option may treat the instrument as

Ans C - Promissory note 

Check as distinguished from bill of exchange

Ans B - Need not be presented for acceptance

Where the drawee to whom a bill is derived for acceptance destroys the same, or refuses within 24
hours after such delivery, or within such other period as the holder may allow, to return the bill
accepted or not accepted to the holder, he will be deemed to have

Ans D - Accepted the bill

There is a need of presentment for acceptance, if the bill is 

Ans D - Payable elsewhere than at the residence or place of business of the drawee

An acceptance which reads- Accepted, payable at the Philippine National Bank is a

Ans B - Qualified acceptance

Which is not the effect of certification of a check?

Ans B - It discharges person secondarily liable regardless of who procured the certification

Maturity of an undated negotiable instrument issued payable 60 days after sight is computed from

Ans D - Date of first presentation for acceptance

Where an acceptance for honor does not expressly state for whose honor it is made,  it is deemed to be
an acceptance for the honor of the 

Ans B- Drawer

Statement I. Instruments falling due or becoming payable on Saturday are to be presented for payment,
at the option of the holder, on the next succeeding business day or before 12:00 noon on Saturday when
the entire day is not a holiday

Statement II. A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable
instruments is deemed to be a waiver only of a formal protest and not  of presentment and notice of
dishonor.

Ans D - False; False

When a bill of exchange is payable on demand, presentment must be made

Ans D - Within a reasonable time after the last indorsement thereof

Accepted, if Dave tops the CPA board examination is

Ans C - Qualified acceptance 

A issued a negotiable promissory note to B or order P100,000.  B altered it to P400,000 and indorsed it
to C.  If C is a holder in due course, he:

Ans C - Can collect P100,000 from A and P300,000 from B

When the instrument is not payable on demand, presentment must be made:

Ans A - On the day it falls due

The party named by the drawer in his bill or by an indorser in his indorsement against whom the holder
may collect in case the bill is dishonored by non-acceptance or non-payment is 

Ans D - Referee in case of need

An acceptance which reads- Accepted, payable at the Philippine National Bank is a

Ans D - 2 drawees as C or D

Statement No. 1: Where to show displeasure over a bill of exchange addressed to him, the drawee
destroys the same, under the law he is deemed to have accepted it.

Statement No. 2: Where the drawer and drawee are the same person, the bill of exchange can be
regarded as a promissory note.

Ans A - Both statements are true

After presentment, the drawee should decide whether or not he will accept the bill within

Ans B - 24 hours

 A draws a bill payable to B or order with C as the drawee and D, E, F and G as successive indorsers and H
as holder. C did not pay and H has duly protested for non-payment and X offers to pay supra protest for
the honor of F while Y for D.

If H refuses to receive payment supra protest from Y for the honor of D, H loses his right or recourse
against, except:

Ans A - D

Which of the following is not a characteristic of a bill of exchange?

Ans C - Drawer is primarily liable

After presentment, the drawee should decide whether or not he will accept the bill, if acceptance is
given, the instrument is deemed accepted:

Ans D - Upon presentation

This is not allowed

Ans C - Pay to the order of A and B P10,000 To C or D            Sgd. E

The holder of the bill presenting the same for acceptance may require that the acceptance be written on
the bill and if such request is refused may treat the bill as:

Ans D - Dishonored

A bill reads:

Pay to the order of B P200,000, 30 days after sight.        

To:X                       Sgd. A

Subsequent indorsements:  B to C; C to D; D to E and E to F who made the first presentment for

acceptance on Feb.28, 2005, X refused to accept so that a notice of dishonor by non-acceptance to A, B,
C, D and E were given.  Before the maturity however, at  the request of the drawer, F made a second
presentment for acceptance to X on March 5, 2005 and this time X accepted the bill.  On maturity date,
the drawee acceptor refused to pay.  Which is correct?

Ans D - F must give a notice of dishonor by non-payment to all the parties secondarily liable to make
them liable
Payment for honor as distinguished from acceptance for honor

Ans A - The protest is for dishonor by non-payment

Which of the following is not negotiable under the negotiable instruments law?

Ans C - Pay to P or order P20,000 (Sgd. J) To: C – Accepted if P tops the CPA board exams

who shall be given preference

Ans C - Y as his payment will discharge most parties

Which of the following is not allowed

Ans D - 2 drawees as C or D

Law on Business Associations

Nature and as distinguished from corporation - Assessment

The following except one, are common characteristics of partnership and corporation. Which is the
exception?

Ans A - The individuals composing both organizations have little voice in the conduct of the business.

Which of the following is not a requisite prescribed by law in order that the partnership may be held
liable to a third party for the acts of one of the partners.

Ans B - The partner must have the authority to bind the partnership.

Elements and kinds

The following are instances, except one, when a partnership is unlawful. Which is the exception?

Ans D - A partnership formed for the purpose of buying lands.

The following are disqualified to form a universal partnership, except one:

Ans A - Brother and sister

Partner who is both a secret and silent partner

Ans D - Dormant

Partner whose connection with the firm is known to the public

Ans A - Ostensible

Partner who is liable only to the extent of his contribution

Ans A - Limited

May be required to make additional contribution in case of imminent loss:

Ans A - Capitalist partner

Partner who is liable beyond the extent of his contribution

Ans A - General

May contributed money, property or industry to the common fund

Ans B - General partner

May contribute money, property or industry to a common fund.

Ans B - General partner

Partner who does not participate in the management though he shares in the profits or losses

Ans D - Silent

Partner who winds up the affairs of the firm after it has been dissolved

Ans A - Liquidating

Partner who manage actively the firm’s affairs

Ans C - Managing

May contribute money, property or industry to the common fund 

Ans B - General partner

A partner in a partnership who is not really a partner not being a party to the partnership agreement but
is made liable as a partner for the protection of innocent third persons is known as:

Ans D - Partner by estoppel

Partner whose connection with the firm is concealed or kept a secret 

Ans B - Secret

Partner who is not really a partner but who may become liable as such insofar as third persons are
concerned 

Ans B - Ostensible

1st Statement - A corporation cannot enter into a partnership contract with natural person but with a
juridical person it can.

2nd Statement - A general partner is always the capitalist in a limited partnership.

Ans A - Both statements are false

1st Statement - F was a bookkeeper in a partnership named “GH”, with a yearly salary amounting to 5%
of the net profits for the year. F, however had no vote at all in the management of the business. He is a
partner in GH.

2nd Statement - Unless there is a stipulation to the contrary, the partners shall contribute equal shares
to the capital of the partnership.

Ans D - only statement 2 is true

Partner who contributes both capital and industry

Ans D - Capitalist-industrial

Formalities required – Assessment

1st Statement - The receipt by a person of a share of the profits of a business is conclusive evidence that
he is a partner in the business

2nd Statement - A partnership of all present property is where the partner contribute all the property
which actually belong to them to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith.

Ans D - only the second is true

1st Statement -If a person receives a share in the profits of a business, he is a prima facie presumed to
be a partner in business.

2nd Statement -In partnership there is agency, co-ownership and co-possession of partnership property.

Ans D - First is true, second is false

A partnership which comprises all that the partners may acquire by their work or industry during the
existence of the partnership is:

Ans D - Universal partnership of profits

Spouses A and B formed a limited partnership to engage in real estate business and A contributed P1M
only. Is the partnership between the spouses valid?

Ans D - The partnership is valid because spouses are prohibited to enter into a universal partnership
only.

B and Y orally agreed to form a partnership. Each contributed cash and properties worth P10, 000 to
common fund. But they did not register the partnership with the Securities and Exchange Commission.

Ans C - The partnership is still valid

The common property of a universal partnership shall be

Ans B - All the properties which belongs to each of the partners at the time of the constitution of the
partnership as well as the profits which they may accrue.

1st Statement -A person who represents himself as a partner, when in fact he is not, shall be liable as a
partner by estoppel even if third person has knowledge that he is not.

2nd Statement -A partnership is always created by agreement of the parties

Ans D - First is false, second is true

1st Statement - In a universal partnership of all present property, the property which belong to each of
the partners at the time of constitution of the partnership becomes a common fund of all partners and
all profits which they may acquired therewith. A stipulation for the common enjoyment of any profits
may also be made. But properties which they may acquired through inheritance, legacy, or donation
cannot be included in such stipulation, except the fruits thereof.

2nd Statement -The universal partnership of profits comprises all that the partners may acquire by
industry or work during the existence of the partnership. Movable or immovable property which each
may possess at the time of the celebration of the contract shall continue to pertain exclusively to each,
only the usufruct passing to the partnership.

Ans A - both statement are true

1st Statement - Every partner may associate another person with him in his share, but the associated
shall not be admitted in the partnership without the consent of all the other partners, even if the
partner having an associate should be a manager.

2nd Statement - Articles of universal partnership, entered into without specification of its nature, only
constitute universal partnership of profits.

Ans A - both statement are true

1st Statement -A universal partnership entered into without designation is considered one of profits.

2nd Statement -A limited partner’s surname cannot appear in the partnership name if it is also the
surname of a general partner to prevent misrepresentation to third persons.

Ans B - First is true, second is false

A and B orally entered into a partnership with each of them contributing P3, 000.00 each and some
personal properties in the amount of P1, 000.00 each. The partnership contract is:

Ans C - Valid

Which of the following persons are not disqualified to form a universal partnership?

Ans C - Brother and sister

Which of the following is not correct?

Ans C - A- service (Ltd.); B – cash (Gen.);

C – service (Gen)
A and B orally agreed to form a partnership two years from today, each one to contribute P10, 000.00.
At the arrival of the said date, if one refuses to go ahead with the agreement, can the other enforce the
agreement?

Ans D - No, because the agreement was merely oral.

Which of the following statements is not correct?

Ans A - A partnership contract is not covered by the Statute of Frauds

1st Statement -If a person shares in the gross returns by the use of a property he is deemed to be a
partner.

2nd Statement -If co-owners shared in the profits derived from the use of the property  owned in
common, there is partnership.

Ans D - Both are false

A, B and C are general partners in ABC partnership. G is debtor to the partnership in  the amount of P15,
000. A received from the debtor G the sum of P5, 000 and issued a receipt identifying the amount
collected as P5, 000.

Ans D - A cannot be compelled to share the P5, 000 with B and C.

1st Statement - Co-ownership or co-possession does not in itself establish a partnership, except when
such co-owners or co-possession share in the profits made by the use of the property.

2nd Statement - The sharing of gross returns does not of itself established a partnership, except when
the persons sharing them have a joint or common right or interest in any property from which the
returns are derived.

Ans B - both statement are false

A partnership which must be in public instrument to be valid is:

Ans A - Contribution immovables or real rights therein regardless of the value thereof.

Rules of management - Assessment

W, X, Y and Z organized a general partnership with W and X as industrial partners and Y and Z as
capitalist partners. Y contributed P.5 M and Z contributed P.2 M to the common fund. By a vote of the
partners, W and X were appointed managing partners, without specification of their duties and powers.
A applied as secretary and B applied as accountant of the partnership. Suppose the hiring of B was
decided upon by W and Z, but was opposed by X and Y, whose decision shall prevail?

Ans B - The decision of X and Y because in case of tie in the decision of managing partners, that of the
controlling interest shall prevail.

A is the managing partner of A and B company. X is indebted to A for P20, 000 and the partnership for
P60, 000. When both debts mature, X pays A P20, 000 and the latter issues a receipt for his personal
credit. The payment for P20, 000 shall be applied:

Ans B - ¼ in favor  of A and ¾ in favor of partnership.

A is a capitalist partner and B the industrial one. B engages in business on his own account but different
from that of the partnership.

Ans D - B may be excluded from the partnership with damages.

A is a capitalist partner and B the industrial one. A engaged personally in the same kind of business as
that of the partnership:

Ans C - If there are profits, A shall give them to the partnership.

W, X, Y and Z organized a general partnership with W and X as industrial partners and Y and Z as
capitalist partners. Y contributed P.5 M and Z contributed P.2 M to the common fund. By a vote of the
partners, W and X were appointed managing partners, without specification of their duties and powers.
A applied as secretary and B applied as accountant of the partnership. The hiring of A was decided upon
by W and X but was opposed by Y and Z. Whose decision shall prevail?

Ans A - The decision of W and X shall prevail because the hiring is an act of management and as
managers they can do so.

Distribution of profits and losses - Assessment

C and P are capitalist partners while I is industrial partner, who in addition to his services also
contributed capital to the partnership. There is no agreement as to the profits and losses. The
partnership realized profit in the amount of P21, 000.00. The share of I in the profits shall be:

Ans C - Pro rata to his contributed capital.

A, B and C are partners contributed the following: A - P6, 000.00; B – P4, 000.00; and C – service. They
agreed that the profits and losses shall be distributed as follows to wit: A – 35%; B- 25% and C – 40%.
How shall the loss of P10, 000.00 be distributed?

Ans C - A – P3, 500.00; B – P2, 500.00; C – P4, 000.00

C and P are capitalist partners while I is industrial partner. There is no agreement as to the profits and
losses. The partnership realized profit in the amount of P21, 000.00.

How much is the share in profit of I?

Ans A - Just and equitable under the circumstances.

A, B and C are partners in partnership “DA KING RAYMOND” to engage in buy and sell of carabao milk. A
and B contributed P10, 000.00 each while C contributed his service. After payment of the partnership
liabilities to creditors, only P6, 000.00 remains. In the absence of stipulation to the contrary the share of
C shall be:

Ans D - Nothing

A, B and C are partners contributed the following: A - P6, 000.00; B – P4, 000.00; and C – service. No
agreement was made as to the sharing of profits and losses. How shall the profit of P10, 000.00 be
distributed?

Ans B - A – P6, 000.00; B – P4, 0000.00; C – just

A, B and C are partners contributed the following: A - P6, 000.00; B – P4, 000.00; and C – service. No
agreement was made as to the sharing of profits and losses. How shall the loss of P10, 000.00 be
distributed?

Ans B - A – P6, 000.00; B – P4, 000.00; C – none

X and Y are capitalist partners while Z is industrial partner. There is no agreement as to the profits and
losses. The partnership realized a loss of P21,000.00.

How much is the share in the loss of Z?

Ans C - None, he being an industrial partner.

A, B and C are partners contributed the following: A - P6, 000.00; B – P4, 000.00; and C – service. They
agreed that the profits and losses shall be distributed as follows to wit: A – 35%; B- 25% and C – 40%.
How shall the profit of P10, 000.00 be distributed?

Ans D - A – P3, 500.00; B – P2, 500.00; C – P4, 000.00

Suppose instead of profit, the partnership suffered loss in the same amount of P21,000.00 the share of
the capitalist partners in the loss shall be:

Ans C - In proportion to their capital contribution.

Sharing of losses and liabilities – Assessment

A, B and C formed the partnership with A as general partner, B as limited partner and C as industrial
partner. A and B contributed P50, 000 each. The partnership failed and after disposing all its assets to
pay partnership debts there still remains a note payable in the sum of P 30, 000.00

Ans C - Only A is liable to pay P30, 000 indebtedness.

A and B are capitalist partners while C is an industrial partner. Both A and B equally contributed P15,
000.00 to each to the capital. A contractual liability in favor of X was incurred in the amount of P40,
000.00.

Suppose A, B and C agreed that one of them shall not be liable to the creditors, is the agreement valid?

Ans C - It shall be void insofar as the creditors are concerned.

A, B and C are partners engaged in retail business. Their contribution is P20, 000 each. D is admitted as
new partner with a contribution of P8, 000. At the time of his admission, the partnership has an
outstanding obligation to E in the amount of P80, 000. In this case:

Ans A - D is liable to E for this obligation so that after the assets of the partnership amounting to P68,
000 will be exhausted leaving a balance of P12, 000, only A, B and C shall be liable jointly or pro rata, out
of their separate property.

A and B are capitalist partners with C as industrial partner. A and B contributed P20, 000 each to the
capital of the partnership.  A contractual liability of P50, 000 was incurred by the partnership in favour of
REX. The assets of the partnership has been exhausted still leaving an unpaid liability of P12, 000. What
are the rights and obligation of the partner if any?

Ans C - A, B and C are liable to REX and C after giving his share may ask reimbursement from A and B,
unless otherwise stipulated.

A, B and Raymundu are equal partners in X partnership. On April 29, 2010, After incurring unexpected
heavy losses like several mountains that fall on the little and tiny partnership, partner Raymundu died
after walking and crying not only a river but an ocean on the lonely road of broken dreams. Not knowing
that Raymundu died, on May 1, 2010 A feeling alone contracted a liability to D who also does not know
of the death of Raymundu, the liability is P90, 000. After D exhausted the net assets of X partnership in
the amount of P60, 000, he can collect:

Ans A - P10, 000 from estate of Raymundu; P10, 000 from A; P10, 000 from B

With still the same facts, as industrial partner, the share of I in the loss shall be:

Ans C - None, he being an industrial partner.

Suppose instead of profit, the partnership suffered loss in the same amount of P21, 000.00 the share of
the capitalist partners in the loss shall be: 

Ans C - In proportion to their capital contribution.

A and B are capitalist partners while C is an industrial partner. Both A and B equally contributed P15,
000.00 to each to the capital. A contractual liability in favor of X was incurred in the amount of P40,
000.00. After the exhausting partnership assets there is a balance recoverable from:

Ans C - A, B and C and C can get reimbursement from A and B.

XYZ partnership composed of three (3) capitalist partners and one industrial partner suffered business
losses. Its remaining assets amounting to P100,000. The partnership is indebted to its supplier C in the
amount of P160,000. How can C recover the 160,000?

Ans C - C can recover from the partnership P100,000 and the balance of P60,000 from the four (4)
partners jointly including the industrial partner.

X, Y and Z are partners and contributed to the partnership P40, 000. P30, 000and services, respectively.
The partnership was later liquidated and after payment of the partnership indebtedness, only P20, 000
worth of assets remained. How much is the share of Z?

Ans A – Zero
A, B and C are partners who contributed equally to the capital. D without the knowledge of the death of
C contracted with A who also was unaware of the death of C. The liability of A is P90,000.00. How much
can D collect after exhausting partnership assets in the amount of P60,000.00.

Ans C - P10, 000.00 from each of A and B and P10, 000.00 from C’s estate.

A partnership is dissolved, except:

Ans C - Partnership business can only be carried on at a loss.

F, G, H and I are partners. They contributed capital as follows: F – P5, 000; G – P30, 000; H – P20,000;
and I as the industrial partner, his services. The partnership obligation to outsiders exceeds the total net
assets by P18, 000.Who and by how much will the partners be liable for the payment of the P18,000?

Ans D - F – P4,500; G – P 4,500; H – P4, 500; I P4, 500

Partnership assets and liabilities are as follows:

                                  12/31/20Y2                    12/31/20Y1

Assets                     P 200, 000                      P 50,000

Liabilities                100, 000                          200, 000

Capital                                                              

A                                P50, 000                          P50, 000

B                                100, 000                          150, 000

A and B, general partners, have fully paid their capital contributions. What is the remedy of creditor C?

Ans D - Collect partnership liability from A and B capital contributions (including personal assets)

A and B are partners engaging in the humble business of merchandising. On January 15, Year 5 when the
total obligation of the partnership totals P80, 000, Raymond was admitted as new smiling face partner
with or without reason who secretly promised to himself that the partnership will maximize profit up to
nine digits. At the time of Raymond’s admission, the partnership creditors were M for P50, 0000 and N
for P30, 000. After January 15, Year 5, the partnership borrowed from O, P20, 000 and P40,000 from P.
On June 15, Year 5, the partnership becomes terribly insolvent despite the presence of the promising
new partner whose promises were made to be broken leaving an obligation totaling to P140,000 and
the partnership assets amounting to P30, 000. The creditors are going after the separate properties of
the partners to satisfy their remaining claims. How are the creditors’ claims satisfied?

Statement 1 – M and N can go after the separate properties of A and B but Raymond’s separate
properties are not answerable to their claims.

Statement 2 – O and P can go after the separate properties of A, B and Raymond.

Ans B - Both answers are correct.

Modes and retirement requirements - Assessment

One of the following incidents as a cause for involuntary dissolution of the partnership,

Ans B - Insolvency of a partner.

1st Statement -After dissolution, the partners can still enter into new business transactions in the name
of the dissolved  partnership although not for the purpose of winding up partnership affairs.

2nd Statement - Insanity of either general or limited partner in a limited partnership shall dissolve the
partnership. 

Ans A - Both statements are false

Limited partnership - Assessment

A limited partner shall be liable as general partner unless:

Ans D - He renounces his share in the profits after knowledge of the error that he was made a general
partner.

Partner who is liable only to the extent of his contribution

Ans A - Limited

Obligations of the Partners - Assessment

A and B are partners with A as the managing partner. C owes A P10,000.00 and the partnership
P30,000.00 which are now both due. A issued a receipt for the payment of C in the amount of P10,
000.00 in his own name. The payment shall be applied to:

Ans D - The payments shall be applied proportionately to both credits.

A and B are partners in a real estate business. The partnership owns a parcel of land which C desires to
buy. C contacted A and informed him of his intention to buy the said land. A did not tell B such intention
of C. A bought B out of the partnership and afterwards sold the land to C at a profit.

Ans D - A is liable to B for his share in the profits.

A and B are partners of X partnership. A is the managing partner. E owes A P10, 000 and X partnership
P30, 000. The obligations of E are both due. A collected from E the debt of E to A in the amount of P10,
000 and issued a receipt in the name of A.

Ans C - P2, 500 to debt of E to A and P7, 500 to debt of E to the partnership.

A limited partner shall be liable as general partner unless:

Ans D - He renounces his share in the profits after knowledge of the error that he was made a general
partner.

A is the managing partner of A and B company. X is indebted to A for P20,000 and the partnership for
P60,000. When both debts mature, X pays A P20,000 and the latter issues a receipt for his personal
credit. The payment for P20,000 shall be applied:

Ans B - ¼ in favor  of A and ¾ in favor of partnership.

1st Statement - The partnership shall be bound in the contract entered into by the partner who has no
authority provided the third person is in good faith although the act of the partner is not in usual way of
business.

2nd Statement - The partner’s acts although not in the usual way of conducting the business shall bind
the partnership provided he was authorized by his co-partners.

Ans D - First is false, second is true

1st Statement - The partners are liable to third persons jointly or equally for torts or quasi-delict
committed by any partner in the conduct of the business or with authority of the partners.

2nd Statement - For contractual liability, their liability shall be solidary and all partners are liable.

Ans A - Both are false statements

X, Y and Z are partners who contributed equally to the capital of the partnership. A owes the partnership
P9, 000.00. Z collected from A P3, 000.00 before X and Y could receive anything from A, who later
became insolvent and therefore, they could not collect their shares.

Ans A - Partner Z shall share the P3, 000.00 with his co-partners X and Y.

Property Rights of the Partners - Assessment

Three of the following are property rights of a partner. Which is not?

Ans C - Right to demand formal accounting of partnership affairs.

A, B, and C are general partners in the merchandising firm. Having contributed equal amounts to the
capital, they also agreed on equal distribution of whatever profit is realized per fiscal period. After two
years of operation however, C conveys her whole interest in the partnership to D, without knowledge
and consent of A and B.

Based on the preceding facts:

Ans A - If A and B want to dissolve the partnership, C as a partner need not consent thereto because he
had assigned his interest to D.

1st Statement -A partner’s interest in the partnership is not assignable unless the other partners
consent.

2nd Statement - An act of strict dominion may be performed by a partner without the consent of his co-
partners if it is advantageous to the partnership.

Ans A - Both statements are false

A, B, and C are general partners in the merchandising firm. Having contributed equal amounts
to the capital, they also agreed on equal distribution of whatever profit is realized per fiscal
period. After two years of operation however, C conveys her whole interest in the partnership to
D, without knowledge and consent of A and B. Is the partnership dissolved?
Ans C - A capitalist partner may engage in the same line of business as that of the partnership.

A, B, and C are general partners in the merchandising firm. Having contributed equal amounts to the
capital, they also agreed on equal distribution of whatever profit is realized per fiscal period. After two
years of operation however, C conveys her whole interest in the partnership to D, without knowledge
and consent of A and B. Is the partnership dissolved?

Ans A - The partnership is not dissolved because the conveyance of a partner’s interest in the
partnership does not of itself dissolve the partnership.

A, B, and C are general partners in the merchandising firm. Having contributed equal amounts to the
capital, they also agreed on equal distribution of whatever profit is realized per fiscal period. After two
years of operation however, C conveys her whole interest in the partnership to D, without knowledge
and consent of A and B.

Based on the preceding facts:

Ans B - D cannot inspect the books nor copy them for any information on the partnership affairs as a
partner can.

Which of the following is incorrect?

Ans C - A capitalist partner may engage in the same line of business as that of the partnership.

Liability of Partners to Third Persons - Assessment

A, B and C are partners in “RAY MOON” Company to engage in the sale of beer under the full moon on
summer days even in cases of conflagration and very very hot coffee on rainy days even in case of
inundation. D represented himself as a partner in the partnership to E who, on the belief of such
representation, extended credit of P50, 000.00 to the partnership. Assuming only B and C consented to
such representation, who shall be liable to E?
Ans A - All of A, B, C, and D are liable because of partnership liability for the credit extended to the
partnership by E.

1st Statement -A partnership contract begins from the moment of the execution of the contract unless it
is otherwise stipulated

2nd Statement -Even if a third person is in good faith, the partnership is not bound in the contract
entered into by a partner after the dissolution of the partnership if the business of the partnership has
become unlawful.

Ans D - Both are true

X, Y and Z are partners in Ace & Co. W represented himself as a partner in the said partnership to A, who
on the faith of such representation, granted P1M loan to the partnership. Assuming only X and Y
consented to such representation, who shall be liable to A?

Ans C - Since the loan was extended to the partnership, all the partners and W are liable.

Dissolution of Partnership – Assessment

1st Statement -The death, insanity, retirement, insolvency or civil interdiction of a limited partner does
not dissolve the partnership.

2nd Statement -In a general partnership, the fact that the business can only be carried on at a loss does
not result in the dissolution of the partnership.

Ans C - Both are true

Which of the following liabilities of the partnership shall rank 1st in the order of payment?

Ans A - Those owing to creditors other than partners.

This is the order of priority in general partnership liabilities:

Ans A - Outside creditors, creditor partner, partner’s capital, partner’s profit.

If a partner is insolvent, the first in the order of preference in the distribution of his assets is:

Ans C - Separate creditors of the debtor

Which of the following incidents may be a cause for involuntary dissolution of a partnership?

Ans B - Insolvency of any partner

A limited partnership formed in 2004 by Raymondo as general partner and Zeus and Sharryl as limited
partners. In 2005, Raymondo and Sharryl got married. Did the marriage dissolve or change the form of
the partnership?

1st answer – yes, partnership is dissolved by the marriage because there is a change in equity and status
among the partners.

2nd answer – no, because spouses can enter into a universal partnership.

Ans C - Both answers are wrong

1st Statement - After dissolution, the partners can still enter into new business transactions in the name
of the dissolved partnership although not for the purpose of winding up partnership affairs.

2nd Statement - Insanity of either general or limited partner in a limited partnership shall dissolve the
partnership.

Ans A - Both statements are false

If a partner is insolvent, the first in the order of preference is:

Ans C - Separate creditors of the partner.

A, B and C are partners in a joint venture engaged in real estate and land development. A without the
knowledge of B and C offered to sell to D all the remaining unsold lots at a price very much higher than
the prevailing market prices. Later, A bought out B and C from the partnership and thereafter finally sold
the lots at a very high profit.

1st conclusion – When A bought out B and C from the partnership, the partnership was dissolved so B
and C have no more share in the profit of the sale.

2nd conclusion – The sale of the lots between A and D is void because it was without the knowledge and
consent of B and C.

Ans B - Both conclusions are wrong

This is the order of preference in the liquidation of a general partnership.

Ans A - Outside creditors; partner’s creditors; partner’s capital; partner’s profit

1st Statement -A general partnership is dissolved by the insanity of a partner.

2nd Statement -A limited partnership is dissolved by the insanity of a limited partner

Ans A - Both statements are false

1st Statement -A universal partnership of present property shall include the profits which the partners
may acquire therewith such as properties to be acquired through legacy, donation or inheritance.

2nd Statement -After dissolution, the partners may still enter into contracts in the name of the dissolved
partnership if it is for the purposes of  winding up.

Ans A - First statement is false, second is true

A, B and C are partners in a partnership engaged in retail with each contributing P20,000.00 each. D is
admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the
partnership has a pre-existing obligation to E in the amount of P80, 000.00.

Ans C - D is liable up to his capital contribution.

Which of the following incidents may be a cause for involuntary dissolution of a partnership?

Ans B - Insolvency of any partner

Nature and classes of corporation – Assessment

Under this theory, the nationality of the corporation is that of the country whose law it was formed

Ans B - Incorporation test

Private corporations have the following attributes, except:

Ans C - Its may be formed, organized and existing under a special law or charter.

A corporation created in strict compliance with all the legal requirements and whose right to exist as a
corporation cannot be successfully attacked in a direct proceeding for that purpose by the State is?

Ans A - De jure corporation

When a corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime
or made as a shield to confuse the legitimate issues or where a corporation is a mere alter ego or
business conduit of a person, this doctrine applies

Ans D - Doctrine of piercing the veil of corporate fiction

One organized for a purpose other than for religion

Ans B - Lay corporation

Corporators in a stock corporation

Ans B - Stockholders

A corporation, the sole purpose of which is to invest its capital in a specific property and afterwards
consume that property or extract its value at a profit is called:
Ans C - Wasting asset corporation

The right of a corporation to exist as juridical person during its term as stated in the articles of
incorporation despite the death of any of its stockholders is?

Ans D - Right of redemption.

Persons who have agreed to take and pay for original unissued shares of a corporation formed or to be
formed

Ans B - Subscibers

A corporation in fact and in law

Ans C - De jure corporation

The right of this corporation to exist as such is not subject to collateral attack by private individuals but
subject to direct attack by the State –

Ans B - De facto corporation

One which is so related to another corporation that the majority of its directors can be elected by such
other corporation

Ans A - Subsidiary corporation

All of this corporation’s issued stock of all classes exclusively of treasury shares shall be held of record by
not more than twenty (20) persons

Ans C - private educational corporation

A religious corporation which consists of one member only or his successors

Ans C - Corporation sole

A corporate doctrine which the stockholders are not personally liable for corporate debts?

Ans B - Separate legal entity

Statement 1 - The declaration of dividends out of the capital and not surplus profits is violation
of the doctrine of piercing the veil of corporate fiction.

Statement 2 - When the corporation is used as an alter ego or conduit to avoid the performance
of an obligation is violation of the trust fund doctrine.

Ans A - Both statements are false.

One established for charitable purposes

Ans C - Corporation sole

Which of the following is the disadvantage of forming a corporation?

Ans C - The shareholders are not liable for the debts of the business;

The following are corporate acts in which a stockholder of a corporation shall have the right to dissent
and demand payment of the fair value of his shares of stock, except one?

Ans A - In case of an amendment of the articles of incorporation which has the effect of changing or
restricting the rights of any stockholder;

One which is limited to selected persons or members of a family

Ans B - Close corporation

A corporation existing in fact but not in law

Ans C - De facto corporation

A corporation

a) May not enter into a contract of guaranty or suretyship not in furtherance of its business
b) Has no implied power to become a partner with an individual or another corporation
 c) May issue or sell stocks to subscribers

Ans D - All of the above 

One incorporated under the laws of the Philippines

Ans A - Domestic corporation

Incorporation and organization of Private Corporation – Assessment

One of the following  is a ground for the suspension or revocation of the certificate of incorporation by
the S.E.C.

Ans B - If the corporation has commenced its business transaction and afterwards ceased operations
continuously for a period of at least 5 years; or A

The assets of the corporation as represented by its capital stock are to be maintained unimpaired that
there can be no distribution of such assets among the stockholders without provision being first made
for the payment of corporate debts

Ans B - Trust fund doctrine

Which of the following will qualify as an incorporator in a corporation?

Ans D - Foreigner.

Which of these conditions comply with the minimum requirements of law to corporate formation?

(1) Authorized Capital

(2) Subscribed Capital

(3) Paid-up Capital

Ans B - (1) 100,000;     (2) 25,000;     (3) 12,500

Based on the provisions of the Corporation Code of the Philippines, the following will qualify to
corporate formation and registration with the Securities and Exchange Commission.

(1) Authorized Capital

(2) Subscribed Capital

(3) Paid in Capital

Ans D - (1) P200,000;     (2) P100,000;     (3) P50,000

Shares without par value may not be issued for a consideration

Ans B - Less than P5 per share

The following cannot be an incorporator of a corporation?

Ans A - A corporation organized under the Philippine laws

 Which of the following conditions will allow corporate formation and S.E.C. registration?

(1) Authorized Capital

(2) Subscribed Capital

(3) Paid-up Capital

Ans D - (1) P60,000.00;     (2) P15,000.00;     (3) P6,000.00

The following defect will preclude the creation of even a de facto corporation?

Ans B - Lack of certificate of incorporation from the SEC;

The Corporation Code requires that;

Ans A - At least a majority of the directors are residents of the Philippines;

Jessa Jane Corp. has a total 1,000 delinquent shares at P10 par value, to be sold at public auction sale. 
Total amount recoverable includes:  total amount of the delinquent shares P10, 000 and total expenses
of the sale P5, 000.  Who will be declared the highest bidder among the following bidders in the public
sale?

Ans D - G, who is willing to pay the P15,000 at 900 shares;

Which of the following statement is not correct?

Ans B - Payment of unpaid subscription may not be enforced by applying cash dividends to delinquent
stockholders;

Watered stock is share of stock issued by a corporation for a consideration less than its par or issued
value or for a consideration in any form other than cash, valued in excess of its par value.  In this regard?

Ans A - The agreement that it shall be paid for less than its par value is illegal and void and cannot be
enforced;

If the corporation has commenced the transaction of its business, the corporate franchise or certificate
of incorporation may be suspended or revoked, if it subsequently becomes continuously inoperative for
a period of at least

Ans D - 5 years

The authorized capital stock of a proposed corporation is P1,000,000 divided into 10,000 shares with a
par value of P100 each.  The minimum amount of subscription that must be paid is?

Ans B - P50,000 or 500 shares

Each of the incorporator of a stock corporation must own or be a subscriber to at least

Ans A - One share of the capital stock of the corporation

Corporate dissolution may take place by voluntary inaction which will result in the cessation of its
corporate powers and the corporation shall be deemed dissolved.  Such voluntary inaction may result
from?

Ans A - Inaction of the corporation through its failure to formally organized and commence with the
transaction or its business or the construction of its work within two (2) years from the date of its
incorporation;

If the authorized capital stock is P60,000, divided into 600 shares with par value of P100 per share and
P40,000 has been subscribed, the minimum paid-up should be

Ans C - P10,000

Amount equal to the aggregate par value or issued value of the outstanding capital stock

Ans A - Legal Capital

Unless sooner dissolved or extended, the life of a corporation may be for a period not exceeding

Ans C - Fifty years

Persons who bring about or cause to bring about the formation and organization of a corporation by
bringing together the persons interested in the enterprise

Ans B – Promoters

The corporation shall be deemed dissolved and its corporate powers cease, if from the date of its
incorporation, it does not formally organize and commence the transaction of its business or the
construction of its works within

Ans C - 2 years

Incorporators of a corporation:

a) Not less than five but not more than fifteen

b) Majority is required to be resident of the Philippines
 c) Must own or must subscribe to at least one (1) share of the capital stock of the corporation

Ans D - All of the above

The following are the qualifications of incorporators. Choose the exception:

Ans A - Majority of whom must be Filipinos.

A private corporation organized under the corporation law commences to have corporate existence and
juridical personality and its deemed incorporated from:

Ans C - From the date the SEC issues a certificate of incorporation under its official seal.

If the authorized capital stock is P60,000, divided into 600 shares with par value of P100 per share. If
P15,000 has been subscribed, the minimum paid-up should be

Ans C - P5,000

Issued to those who in some way interested to the company, for incorporating the company, for services
rendered in launching the welfare of the company

Ans C - Promotion stock

The following are ways of enforcing payment of unpaid subscription, which is the exception?

Ans D - Subscribers

One who has agreed to take stock from the corporation on the original issue of such stock is called

Ans A - If the corporation fails to commence and start to operate and the failure is due to a cause
beyond its control;

Majority of the following must be residents of the Philippines, except:

Ans D - Officers

One who has agreed to take stock from the corporation on the original issue of such stock is called

Ans D – Subscribers

Powers of a corporation - Assessment

Ultra vires acts:

Choices:

a) Acts which are beyond the powers expressly or impliedly conferred upon the corporation
b) Unenforceable
c) May be ratified by the stockholders

Ans D - All of the above

(1) A foreign corporation doing business in the Philippines without a license may be sued but it cannot
sue.

(2) A written demand for payment of the fair value of the shares made in the exercise of the appraisal
right will suspend the stockholder’s rights.

Ans D - Both are true.

A corporation has only such powers as are expressly granted and those that are necessarily implied from
those expressly granted or those which are incidental to its existence

Ans D - Doctrine of limited capacity

The following are not only express powers of the corporation but also inherent powers, EXCEPT:

Choices:

a) Power of succession
 b) Power to make by-laws
c) Power to sue and be sued

Ans D - None of the above

When a corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime
or made as a shield to confuse the legitimate issues or where a corporation is a mere alter ego or
business conduit of a person, this doctrine applies

Ans D - Doctrine of piercing the veil of corporate fiction

A written promise to pay the money loaned, but ordinarily-it has no specific fund or property as security
for the payment is called

Ans D - Debenture bond

Board of Directors / Corporate Officers – Assessment

The board of directors of a corporation consists of nine (9) members, where two (2) were removed and
two (2) have resigned, who fills up the vacancy?

First answer – the remaining members of the Board

Second answer – the stockholders

Ans B - Both answers are false

Statement 1 - The doctrine of corporate opportunity rests on the unfairness of an officer or director of a
corporation taking advantage of an opportunity for his own personal benefit adverse to the corporation.

Statement 2 - The by-laws must be filed with the SEC for the corporation to acquire juridical personality.

Ans C - First is true, second is false.

The following are qualifications of corporate directors, except?

Ans A - Must own at least one share of stock;

Which of the following qualifications is necessary in order that one may be elected secretary of the
corporation?

Ans A - He must be a citizen and a resident of the Philippines.

In a corporation, two or more positions may be held concurrently by the same person, except that no
person shall act as?

Ans C - Secretary and treasurer;

Which of the following qualifications is necessary in order that one may be elected president of the
corporation?

Ans D - He must be a director of the corporation.

The board of directors of a corporation consists of nine (9) members, where two (2) were removed and
three (3) have resigned, who fills up the vacancy?

First answer – the remaining members of the Board

Second answer – the stockholders

Ans D - Only the second answer is true

For purposes of interlocking directors, the stockholdings shall be considered substantial if

Ans D - Exceeding 20% of the outstanding capital stock

At the annual meeting of CERTS Inc. (the creator of the first and leading online learning platform in the
Philippines) for the election of five directors, A, B, C, D, E, F and G were nominated. A, B, C, D and E
received the highest number of votes and proclaimed elected. F received ten votes less than E.
Subsequently, E sold all his share to F. The transfer of shares having been registered with the
corporation.

Who between E and F has the right to attend as director in the board meeting?

a) E is the director because his term is one year until successor is elected and qualified.
b) F is the director for he has acquired all the shares of E.
c) Either of them shall be director.

Ans D - Neither of them shall be director.

In no case shall the total yearly compensation of directors, as such directors, exceed

Ans NO CORRECT ANSWER

The executive committee cannot act on this matter except:

Ans C - Board resolution on depository bank of the corporation.

May rightfully question an ultra-vires act of a corporation, except

Ans C – Competitors

A corporate officer or director cannot, take advantage for their personal benefit a business opportunity
which the corporation is financially able to undertake.

Ans C - Doctrine of corporate opportunity

Majority of the following must residents of the Philippines, except:

Ans D - Officers

A shareholders’ option to subscribe to allotment of shares in proportion to his holding of outstanding

shares, before new shares are offered to others

Ans B - Pre-emptive right

A, B, C, D, E, F and G are the duly elected directors for Year 2 of CRAB Corporation whose article of
incorporation provide for 7 directors.  On August 1, Year 2, Directors A, B, C, D and E met to fill the two
vacancies in the board brought about by the valid removal of F for disloyalty to the corporation and the
death of G.  In the said meeting, the remaining directors voted for X to replace F, and Y, a son of G, to
replace his father.  Both X and Y are owners of at least one share of stock of the corporation.  The
election of X and Y by the remaining directors:

Ans D - Not valid with respect to X, valid with respect to Y

If the remaining directors constitute a quorum, they can fill up the vacancy

Ans D - In case of abandonment of a director

Classes of stocks – Assessment

One of the following does not have voting rights:

Ans C - Treasury shares

The following may be the consideration of the shares of stock of a corporation, except

Ans D - Services to be performed by a lawyer on the proposed increased in capital stock of the
corporation

Stock which has been issued by a corporation, has fully paid up when in fact it is not, because it has been
issued as bonus or otherwise, without any consideration at all, or for less than par, or for property, labor
or services at an overvaluation.

Ans A - Watered stock

Shares deposited by the seller or his agent with a bank or third party to be delivered to the buyer or
subscriber only upon the fulfillment of the stipulated suspensive condition

Ans D- Escrow shares

As regards treasury shares, which is not correct?

Ans B - They are considered as part of earned or surplus profits and therefore distributable as dividends

A certificate of stock is distinguished from a share of stock in that a share of stock

Ans C - Is one of the units into which the capital stock is divided

Which of the following issuance of stocks is not allowed under the Corporation Code of the Philippines
(BP 68):

Ans C - Metro Bank Corp. issued a no par value common shares for P5 per share.

Delinquent stocks are:

Ans C - Entitled to dividends

Watered stocks are shares of stock issued by a corporation for a consideration less than its par or issued
value or for a consideration in any form other than cash, valued in excess of its par value.  In this regard?

Ans A - The agreement that it shall be paid for less than its par value is illegal  and void and cannot be
enforced;

One of the characteristics of treasury shares is that?

Ans A - They may be reissued or sold again;

Powers, duties, rights and obligations of stockholders – Assessment

The voting proportion required to enable a corporation to invest its fund in any other corporation or
business or for any purpose other than its primary purpose?

Ans D - Majority vote of the board of directors and ratified by 2/3 of the stockholders.

A. It is illegal to issue watered stocks.  However, stock issues without any consideration at all is justified
if such issues are bonus shares.

B. A director is removed from office by a vote of the stockholders holding at least 2/3 of the outstanding
capital stock.  The vacancy occasioned by such removal can be filled by a vote of the majority of the
remaining directors if still constituting a quorum.

Ans A - Only letter A is correct;

In three of the following instances, shares with or without voting rights can be voted, except:

Ans C - Election of directors or trustees.

Mr. Tomtom, named after his beautiful mother and handsome father, subscribed to 100
shares of Mara Corporation, paying 25% of the amount thereof. The corporation refuses
to issue to the former a stock certificate for his subscription despite the demand of
Tomtom for a stock certificate corresponding to 25 shares which he claims have been
paid. Meanwhile, the corporation has become insolvent and Tomtom now refuses to
pay for his unpaid balance on his subscription.

Is the refusal of the corporation to issue the certificate valid?

Ans D - Corporate suit

Purely ultra vires acts of the officers of a corporation to invest corporate funds in another business or
corporation, i.e., acts not contrary to law, morals, public policy may be ratified by:

Ans C - Stockholders holding 2/3 of the voting power;

A corporate stockholder sold his share to another, but the sale has not been recorded in the books of
the corporation. The sale is:
Ans B - The sale is perfectly valid as between the buyer and the seller.

Mr. Tomtom, named after his beautiful mother and handsome father, subscribed to 100 shares of Mara
Corporation, paying 25% of the amount thereof. The corporation refuses to issue to the former a stock
certificate for his subscription despite the demand of Tomtom for a stock certificate corresponding to 25
shares which he claims have been paid. Meanwhile, the corporation has become insolvent and Tomtom
now refuses to pay for his unpaid balance on his subscription.

Is Tomtom correct in refusing to pay for the remaining shares, the company being already insolvent?

Ans A - No, under the trust and fund doctrine upon the insolvency of the corporation to which he is still
liable for his unpaid subscription.

A written instrument signed by the proper officers of the corporation, stating or acknowledging that the
person named therein is the holder of a designated number of shares of its stock:

Ans A - Certificate of stock

Where a stockholder may bring suit in behalf of himself and all other stockholders who are similarly
situated when a wrong is committed against them

Ans B - Derivative suit or C

A stockholder who does not approve the action taken by the Board of Directors in proposing to amend
the articles of incorporation is not allowed to withdraw from the corporation in one of the following
instances?

Ans C - Investing of corporate funds in another corporation;

It is one brought by one or more of the stockholder or members in the name and on behalf of the
corporation to redress wrongs committed against it or to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold control of the
corporation.

Ans D - Derivative suit

A representative action where a stockholder brings an action in the name and in behalf of the
corporation and any relief obtained belongs to the corporation and not to the stockholders individually
or collectively

Ans C - Representative suit or B

Mr. Tomtom, named after his beautiful mother and handsome father, subscribed to 100 shares of Mara
Corporation, paying 25% of the amount thereof. The corporation refuses to issue to the former a stock
certificate for his subscription despite the demand of Tomtom for a stock certificate corresponding to 25
shares which he claims have been paid. Meanwhile, the corporation has become insolvent and Tomtom
now refuses to pay for his unpaid balance on his subscription.

Is the refusal of the corporation to issue the certificate valid?

Ans B - Valid because the stock certificate can only be issued after the full payment of the subscription.

Which of the following statements is not correct in terms of appraisal right?

Ans B - In case of incurring, creating or increasing bonded debts;

An action brought by a stockholder against the corporation for direct violation of his contractual rights

Ans D - Corporate suit or A

The right given to the stockholders to dissent and demand payment of the fair value of their shares is
called:

Ans B - Appraisal right

In case of a delinquent stockholder, the following rights are not given to him except:

Ans A - Right to receive dividends in accordance with the provisions of the law 
Appraisal right means that whenever the capital stock of a corporation is increased and new shares of
stock are issued, the new issue must first be offered to the stockholders in proportion to their existing
shareholdings before subscription are received from the general public.

(1)  Ultra vires acts are illegal and therefore void.

(2)  Certificate of incorporation is the document prepared by the persons establishing the corporation
and filed with the SEC containing the matter required by the Corporation Code.

Ans C - All are false;

Rayemoon, after a day of rest and after her plane landed in the Philippine jurisdiction following a
surgery she underwent  in Thailand and just after the ruling of the court rendering an order/judgment
that he is a she, subscribed to 10,000 shares of stock of NORTHERN Corporation located at the heart of
Baguio along the foot of Session road and head of Burnham Park. She paid 25% of the said subscription.
During the stockholders meeting, can Rayemoon vote all her subscribed shares?

Ans D - Yes, because unpaid shares not delinquent can be voted.

The right of pre-emption shall not apply

a) When such profit is denied to the Article of Incorporation

b) To share to be issued in compliance with the laws requiring stock offering or minimum stock
ownership by the public.
c) To share to be issued in good faith with the approval of the stockholders owning 2/3 of the
outstanding capital stock in exchange for property needed for corporate purpose of a previously
contracted debt

Ans D - All of the above

The right of dissenting stockholders to demand payment of the value of their share shall cease:

a) When the demand for payment is withdrawn with the consent of the corporation
b) When the proposed corporate action is abandoned or rescinded by the corporation
c) When the proposed corporate action is disapproved by the SEC where such approval is
necessary.

Ans D - All of the above

Majority and minority control - Assessment

The voting proportion required to enable a corporation to invest its fund in any other corporation or
business or for any purpose other than its primary purpose?

Ans C - Majority vote of the board of directors and ratified by 2/3 of the outstanding capital stock;

Requirement to effect the amendment of the by-laws of a corporation?

Ans D - Majority vote of the board of directors and majority vote of the outstanding capital stock.

By Laws - Assessment

What is the voting proportion required to enable a corporation to amend its by laws?

Ans B - Majority of the board of directors and 2/3 of the outstanding capital stock

Rules of action adopted by the corporation for its internal government and for the government of its
officers and of its stockholders or members

Ans D - By-laws

Which of the following cannot be included as a valid provision under the By laws:
Ans B - The time, place and manner of calling and conducting regular or special meetings of the
stockholders or members;

The by-laws of a corporation may create an executive committee, composed of not less than 3 members
of the board of directors to be appointed by the board. The executive committee may act, by majority
vote of all its members on such specific matters within the competence of the board, as may be
delegated to it in the bylaws or on majority vote of the board, EXCEPT:

a) Approval of any action for which shareholders' approval is also required.

b) Amendment or repeal of by laws or adoption of new by laws.
c) Filling of vacancies in the Board,

Ans D - All of the above

The articles of incorporation differ from the by-laws in that the articles of incorporation is:

Ans C - A condition precedent in the acquisition by a corporation of a juridical personality

Statement 1 - The by-laws may provide that the holders of a majority of the outstanding capital stock
may elect all the members of the board of directors.

Statement 2 - That it may also provide that no officer of the corporation shall be required to be a
stockholder.

Ans C - First is true, second is false.

Meetings – Assessment

The distinction between proxy and voting trust is that in a voting trust?

Ans D - The trustee may attend the stockholders’ meeting even in the presence of the stockholder-
trustor

Mercy subscribed 10,000 shares of Rosario Corporation and paid 25% of the total subscription. During
the stockholders’ meeting how many votes on subscribed shares does Mercy have?

Ans C - 10,000 shares

What is the voting proportion required to enable the corporation to invest its fund in any other
corporation on business or for purpose other than its primary purposes?

Ans D - Majority of the board of directors and ratified by 2/3 of the outstanding capital stock.

Unless the by-laws provide otherwise, written notice of regular meetings shall be sent to all stockholders
of record

Ans D - At least two (2) weeks prior to the meeting

In the meeting of the board of directors of NORTH Corporation, a construction company held on March
31, Year 10, directors, A, B, C, D and E were present among the 9 directors.  The meeting had for its
agenda the following:

               I.            The appointment of Y a new manager as allowed by the by-laws

             II.            The approval of the contract for the purchase of office supplies worth P130,000 from
CPA Supplies Co.  

When the voting took place, directors A, B, C and D voted for the election of Y as the new manager, and
directors A, B and C voted for the approval of the contract with CPA Supplies

Ans D - The election of Y as a new manager is not valid, the approval of the contract with CPA Supplies is
valid

One of the following does not require stockholder’s approval?

Ans A - Change of corporate name;

The holders of non-voting shares shall nevertheless be entitled to vote on the following matter, except:

Ans D - Dividend declaration.

Statement 1 - Stockholders’ meeting must be in the city or municipality where the principal office is
located while members meeting of non-stock corporation may be outside thereof.

Statement 2 - The secretary of the corporation must generally be a citizen and a resident of the
Philippines.

Ans A - Both are true.

Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws, or if
not fixed, on any date, as determined by the board of directors or trustees, in:

Ans B – April

Which of the following instance wherein non-voting shares is not allowed to vote:

Ans C - Mortgaging substantially all of the corporate property.

•Stockholders’ meeting must be in the city or municipality where the principal office is located while
members meeting of non-stock corporation may be outside thereof.

•The secretary of the corporation must generally be a citizen and a resident of the Philippines.

Ans A - Both are true.

The board of directors of a corporation consists of nine (9) members, where two (2) have died during
their term of office and one (1) is abroad, the quorum would be

Ans A - Five (5) members

Corporate reorganization

Dissenting stockholders are given appraisal right:

a) In case any amendments to the Articles of Incorporation has the effect of changing or restricting
the right of any stockholders or class of shares, or of authorizing preference in any respect
superior to those of outstanding shares of any class, or of extending or shortening the terms of
corporate existence
b) In case of sale, lease, exchange, transfer mortgage or other disposition of all or substantially all
of the corporate assets
c) In case of merger and consolidation

Ans D - All of the above

Non-stock corporation - Assessment

Any profit which it may earn shall be used for the furtherance of the purpose for which the corporation
was organized as such profit is not distributable to its members

Ans A - non stock corporation

A non stock corporation:

a) May not engage in business for profit

b) One where the capital is not divided into shares
c) No part of the income must be distributed as dividends

Ans D - All of the above

Modes of dissolution and liquidation – Assessment

Statement 1 - After dissolution but within the three-year period for liquidation a corporation’s term may
still be extended by amendment of its articles of incorporation.
Statement 2 - The dissolution of a corporation shall take place because it had been in continuous non-
operation for five-years.

Ans A - Both statements are false.

Voluntary dissolution of a corporation is caused by:

a) Voluntary dissolution where no creditors are affected

b) Voluntary dissolution where creditors are affected
c) Amendments of the Articles of Incorporation resulting in the shortening of corporate term

Ans D - All of the above

What is the voting proportion required for the voluntary dissolution of the corporation?

Ans A - Majority votes of the board of directors and 2/3 votes of the outstanding capital stock.

•After dissolution but within the three-year period for liquidation a corporation’s term may still be
extended by amendment of its articles of incorporation.

•The dissolution of a corporation shall take place because it had been in continuous non-operation for
five-years.

Ans A - Both statements are false.

The interest or right of the stockholder in the corporation’s profits or in the net assets of corporation on
dissolution is?

Ans C- Capital

Involuntary dissolution of the corporation is caused by:

Ans A - An expiration of the period for which it was lawfully formed

Which of the following is a ground for the suspension or revocation of the certificate of incorporation by
the SEC?

Ans B - If the corporation has ceased operations continuously for a period of at least five years;

Foreign corporations - Assessment

Foreign corporation

Choices:

a) Are organized under the laws of countries other than the Philippines.
b) Are not permitted to transact business in the Philippines until after they have obtained a license
for the purpose from SEC.
c) If found to be engaged in business without any license, they are not permitted to sue in any
court or administrative agency of the Philippines but may be sued.

Ans D - All of the above

(1)   A foreign corporation doing business in the Philippines without a license may be sued but it cannot
sue.

(2)  A written demand for payment of the fair value of the shares made in the exercise of the appraisal
right will suspend the stockholder’s rights.

Ans D - Both are true.

An individual or a domestic corporation designated in a written power of attorney, by a foreign

corporation authorized to transact business in the Philippines, on whom any summons and other legal
processes may be served in all actions or other legal proceeding against such corporation is called?

Ans B - Resident agent;

Securities Regulation Code - Assessment

The power to examine into the affairs of a corporation in order to supervise, direct, and control its
management is called

Ans A - Visitorial power of the state

These corporation are prohibited from issuing no par shares, except:

Ans C - Stock exchanges

Corporation is not entitled to this kind of damages?

Ans C - Moral damages

Close corporation - Assessment

A close corporation:

a) Shall not list shares in any stock exchange nor offer its shares to the public
b) All of its issued shares exclusive of treasury shares shall be held of record by not more than 20
stockholders
c) All shares are subject to one or more restriction on transfer of shares

Ans D - All of the above

The following industries may organize as a close corporation

I.                     Mining Companies

II.                   Oil Companies

Ans D - Neither I or II

Which of the following is not a requisite for a close corporation?

Ans B - That no close corporation is a stockholder thereof owning at least 2/3 of the voting stocks.

All of the close corporation's issued shares shall be held of record by not more than

Ans C - 20 persons

Stockholders of the close corporation

a) Are given absolute right of pre-emption in the issuance of all kinds of shares including the shares
of treasury shares
b) May enter into a written agreement making them partners among themselves
c) May, for any reason, withdraw from the corporation and compel it to purchase their shares at
their fair value, which shall not be less than their or issued value, provided the corporation has
sufficient assets to cover its debts and liabilities exclusive of capital stock

Ans D - All of the above

The business of this corporation can be managed by the stockholders:

Ans A - Close

Dividends - Assessment

Dividend which are actually distributions of the assets of the corporation upon dissolution or winding up

Ans D - Liquidating dividend

Dividend in the form of a promissory note and may be issued to bear interest

Ans D - Scrip dividend

Dividend which is partly in cash and partly in stocks

Ans B - Composite dividend

Rod Bake Corporation posted a P1M profit in its realty business and its real estate has appreciated in
value in the amount of P4M despite the El Nino phenomenon that struck the northern and southern
Philippines. The board then declared dividends to its stockholders computed on the basis of 5M
representing profits and appreciation in value of its real state. Is the dividend declaration valid?

Ans C - Not valid because dividends must only come from the unrestricted retained earnings.

Stock dividends differ from cash dividend in that stock dividends

Ans C - Require the approval of both the board of directors and the stockholders

Dividend which gives the stockholder an option to receive cash or stock dividend

Ans A - Optional dividend

The following are the requisites except one, for valid declaration and/or issuance of stock dividend.

Ans B - Existing unrestricted retained earnings;

Special corporation - Assessment

A corporation commences its existence from the issuance of the certificate of incorporation, which one
is the exception?

Ans C - Religious corporation

Organization and Registration of Cooperatives - Assessment

A cooperative may be organized and registered for any or all of the following purposes, except:

a) To encourage thrift and savings mobilization among the members;

b) To generate funds and extend credit to the members for productive and provident purposes;
c) To encourage among members systematic production and marketing;

Ans D - None of the choices

Every cooperative shall conduct its affairs in accordance with Filipino culture, good values and
experience and the universally accepted principles of cooperation which include, but are not limited to,
the following, except:

Ans D - Bureaucratic Member Control

Administration - Assessment

Statement 1: A regular meeting shall be held annually by the general assembly on a date fixed in the
bylaws, or if not so fixed, on any dated within ninety (90) days after the close of each fiscal year:
Provided, That notice of regular meetings shall be sent in writing, by posting or publication, or through
other electronic means to all members of record.

Statement 2: Whenever necessary, a special meeting of the general assembly may be called at any time
by a majority vote of the board of directors or as provided for in the bylaws: Provided, That a notice in
writing shall be sent one (1) week prior to the meeting to all members who are entitled to vote.

Ans C - Both statements are true

Statement 1: The general assembly shall be the highest policy-making body of the cooperative and shall
exercise such powers as are stated in the Cooperative Code, in the articles of cooperation and in the
bylaws of the cooperative.

Statement 2: The general assembly can delegate its power to determine and approve amendments to
the articles of cooperation and bylaws.

Ans A - Only Statement 1 is true

Responsibilities, Rights and Privileges of Cooperatives - Assessment

Cooperatives registered, notwithstanding the provisions of any law to the contrary, be also accorded the
following privileges, except:

Ans C - Cooperatives not rendering special types of services and facilities such as cold storage, ice plant,
electricity, transportation, and similar services and facilities shall secure a franchise therefore, and such
cooperatives shall open their membership to all persons qualified in their areas of operation;

Statement 1: The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance of the cooperative in accordance with generally accepted accounting practices. He shall
also be responsible for audit or inspection.

Statement 2: Every cooperative shall have an official postal address to which all notices and
communications shall be sent. Such address and every change thereof shall be registered with the
Cooperative Development Authority.

Ans B - Only Statement 2 is true

Capital, Property of Funds - Assessment

Statement 1: No member of primary cooperative other than cooperative itself shall own or hold more
than ten per centum (10%) of the share capital of the cooperative.

Statement 2: The bylaws of a cooperative may prescribe a fine on unpaid subscribed share capital.
Provided, that such fine is fair and reasonable under the circumstances.

Ans C - Both statements are true

Cooperatives registered under this Code may derive their capital from any or all of the following
sources, except:

Choices:

a) Member’s share capital;

b) Loans and barrowings including deposits;
c) Revolving capital which consists of the deferred payment of patronage refunds, or interest on
share capital;

Ans D - None of the choices

Audit, Inquiry and Members’ Right to Examine - Assessment

Statement 1: A member shall have the right to examine the records required to be kept by the
cooperative during reasonable hours on business days and he may demand, in writing, for a copy of
excerpts from said records without charge except the cost of production.

Statement 2: Every cooperative shall, at its principal office, keep and carefully preserve the records
required by this Code to be prepared and maintained. It shall take all necessary precaution to prevent its
loss, destruction or falsification.

Ans C - Both statements are true

Statement 1: The accountant shall submit to the board of directors and to the audit committee the
financial audit report which shall be in accordance with the generally accepted auditing standards for
cooperatives as jointly promulgated by the Philippine Institute of Certified Public Accountants (PICPA)
and the Cooperative Development Authority.

Statement 2: Performance and social audit reports which contain the findings and recommendations of
the auditor shall be submitted to the audit committee.

Ans D - Both statements are false

Allocation and Distribution of Funds - Assessment

The sum allocated for patronage refunds shall be made available at the same rate to all patrons of the
cooperative in proportion to their individual patronage, provided, that:

Choices:

a) In the case of a member patron with paid-up share capital contribution, his proportionate
amount of patronage refund shall be paid to him unless he agrees to credit the amount to his
account as additional share capital contribution;
b) In the case of a member patron with unpaid share capital contribution, his proportionate
amount of patronage refund shall be credited to his account until his account until his share
capital contribution has been fully paid;
c) In the case of a non-member patron, his proportionate amount of patronage refund shall be set
aside in a general fund for such patrons and shall be allocated to individual non-member
patrons only upon request and presentation of evidence of the amount of his patronage. 

Ans D - All of the choices

Statement 1: Notwithstanding the provisions of existing laws, the net surplus of cooperatives shall be
determined in accordance with its bylaws.

Statement 2: Every cooperative shall determine its net surplus at the close of every fiscal year and at
such other times as may be prescribed by the bylaws.

Ans C - Both statements are true

Types and Categories of Cooperatives - Assessment

It is one that undertakes joint production whether agricultural or industrial. It is formed and operated by
its members to undertake the production and processing of raw materials or goods produced by its
members into finished or processed products for sale by the cooperative to its members and non-
members.

Ans C - Producers Cooperative

It is one that promotes and undertakes savings and lending services among its members. It generates a
common pool of funds in order to provide financial assistance to its members for productive and
provident purposes.

Ans A - Credit Cooperative

Merger and Consolidation of Cooperatives - Assessment

Statement 1: Two (2) or more cooperatives may merge into a single cooperative, which shall be either
one of the constituent cooperatives or the consolidated cooperatives.

Statement 2: No merger or consolidation shall be valid unless approved by three-fourths (3/4) vote of all
members with voting rights, present and constituting a quorum of each of the constituent cooperatives
at separate general assembly meetings.

Ans C - Both statements are true

The following are the procedures to the Merger or Consolidation of cooperatives. Which is the first
procedure?

Ans C - Approval of the proposal to merge or consolidate by the General/Representative Assembly of

each constituent cooperatives;

Dissolution of Cooperatives - Assessment

The following procedure shall be observed in liquidation of cooperatives. Which is the first procedure?

Ans D - Inventory of Assets and Liabilities of the Cooperative.

The following are the coverage of liquidation, except:

Choices:

a) Cooperatives whose charter expires by its own limitation.

b) Cooperatives whose existence is terminated by voluntary dissolution.
c) Cooperatives whose existence is terminated by appropriate judicial proceedings.

Ans D - None of the choices

Law on Other Business Transactions

Insurable Deposits - Assessment

I. The PDIC upon payment to any depositors shall be subrogated to all rights of the depositor against the
closed bank to the extent of such payment.

II. All payment by the PDIC of insured deposits in closed banks partake of the nature of public funds.

Ans C - Both are true

I. The Philippine Deposit Insurance Corporation (PDIC) shall insure the deposits of all banks.
II. The PDIC shall promote and safeguard the interests of the depositing public by providing insurance
coverage on all insured deposits and helping maintain a sound and stable banking system.

Ans C - Both are true

I. The creditors shall have a period of nine (9) months from the date of publication of notice of the
approval by the court of the final asset distribution plan of the closed bank within which to claim
payment of the principal obligations and surplus dividends.

II. The individual stockholders of record of their duly-authorized representative or the court-appointed
stockholders’ representative shall have a period of nine (9) months form publication of notice of the
approval by the court of the final asset distribution plan of the closed bank within which to claim the
residual assets.

Ans B - Only II is true

This term means the net amount due to any depositor for deposits in an insured bank (after deducting
offsets) less any part thereof which is in excess of P10,000. Such net amount shall be determined
according to such regulations as the Board of Directors may prescribe and in determining the amount
due to any depositor there shall be added together all deposits in the bank maintained in the same
capacity and the same right for his benefit or in his own name or in the names of others.

Ans B - Insured Deposit

It occurs whenever a deposit account with an outstanding balance of more than the statutory maximum
amount of insured deposit maintained under the name of natural or juridical persons is broken down
and  transferred into 2 or more accounts in the name/s of natural or juridical persons or entities who
have no beneficial ownership on transferred deposits in their names within 120 days immediately
preceding or during a bank declared bank holiday, or immediately preceding a closure order issued by
the Monetary Board of the Bangko Sentral  ng Pilipinas for the purpose of availing of the maximum
deposit insurance coverage.

Ans C - Separation of deposits

The following are the qualifications of the board of directors of the PDIC, except:

Ans D - At least 45 years old

I. A joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be insured
separately from any individually-owned deposit account.
II. That the aggregate of the interest of each co-owner over several joint accounts, whether owned by
the same or different combinations of individuals, juridical persons or entities, shall likewise be subject
to the maximum insured deposit of P500, 000.
Ans A - Only I is true

I. Whenever a bank is ordered closed by the Monetary Board, the PDIC shall be designated as receiver
and it shall proceed with the takeover and liquidation of the closed bank
II. The receiver is authorized to adopt and implement, without need of consent of the stockholders,
board of directors, creditors or depositors of the closed bank, any or a combination of the modes of
liquidation

Ans C - Both are true

In the management and/ or conversion of the assets of the closed bank, the receiver shall have the
authority to:

 I. Conduct a physical or ocular inspection of the properties owned by, or mortgaged to, the closed bank,
to determine their existence and present condition.

II. Determine the disposal price of assets in accordance with generally accepted valuation principles,
standards and practices.

Ans C - Both are true

The following are the composition of the board of directors of the Philippine Deposit Insurance
Corporation (PDIC), except:

a) Secretary of Finance
b) Governor of the BSP
c) President of the PDIC, who shall be appointed by the President of the Philippines
d) Four (4) members from the private sector to be appointed by the President of the Philippines

Ans E - None of the above

I. The receiver shall have the authority to facilitate and implement the purchase of the assets of the
closed bank and the assumption of its liabilities by another insured bank, without need for approval of
the liquidation courts.

II. The assets gathered by the receiver shall be evaluated and verified as to their existence, ownership,
condition, and other factors to determine their realizable value.

Ans C - Both are true

I. Whenever upon examination by the PDIC into the condition of any insured bank, it shall be
disclosed than an insured bank or its directors or agents have committed, are committing or about to
commit unsafe or unsound practices in conducting the business of the bank, or have violated, are
violating or about to violate any provisions of any law or regulation to which the insured bank is subject,
the Board of Directors shall submit the report of the examination to the Monetary Board to secure
corrective action thereon.
II. Each insured bank shall keep and maintain a true and accurate record or statement of its daily deposit
transactions consistent with the standards set by the Bangko Sentral ng Pilipinas and the PDIC.

Ans B - Only II is true

The receiver is authorized to adopt and implement, without  need of consent of the stockholders, board
of directors, creditors or depositors of the closed bank, any or a combination of the following modes of
liquidation:

I. Conventional liquidation

II. Purchase of assets and/or assumption of liabilities.

Ans C - Both are true

Upon the designation of the PDIC as receiver of a closed bank, it shall serve a notice of closure to the
highest- ranking officer of the bank present in the bank premises or on its main entrance.

II. The receiver shall have authority to use reasonable force, including the authority to force open the
premises of the bank, and exercise such acts necessary to take actual physical possession and custody of
the bank and all its assets, records, documents, and take charge of its affairs upon the service of the
notice closure.
Ans C - Both are true

The possibility that failure of one bank to settle net transactions with other bank will trigger a chain
reaction, depriving other banks of funds lending to a general shutdown of normal clearing and
settlement activity.

Ans C - Universal Risk

It is the unpaid balance of money or its equivalent received by a bank in the usual course of business and
for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift
account or which is evidenced by its certificate of deposit, and trust funds held by such bank whether
retained or deposited in any department of such bank or deposited in another bank, together with such
other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be
deposit liabilities of the Bank.

Ans A – Deposit

One of the following is not a function of the PDIC:

Ans C - Corporate rehabilitation

I. The receiver shall have no authority to invest funds received from the conversion of the assets of the
closed bank in government securities, other government-guaranteed marketable securities or
investment-grade debt instruments.

II. The proceeds of the sale of the bank and branch licenses shall be for the benefits of the creditors of
the closed bank which shall be distributed.

Ans C - Both are true

PDIC shall not pay deposit insurance for the following accounts or transactions.

Ans C - Deposit accounts or transactions constituting, and / or emanating from, unsafe and/ or unsound
banking practice /s.

I. Whenever an insured bank shall been closed by the Monetary Board, or upon expiration or revocation
of a bank’s corporate term, payment of the insured deposits on such closed bank shall be made by the
PDIC as soon as possible either (1) by cash or (2) by making available to each depositor a transferred
deposit in another insured bank in an amount equal to insured deposit of such depositor.

II. The PDIC, in its discretion, may require proof of claims to be filed before paying the insured deposits,
and that in any case where the PDIC is not satisfied as to the validity of a claim for an insured depositor,
it may require final determination of a court of competent jurisdiction before paying such claim.

Ans D - Both are false

I. If the account is held jointly by two or more natural persons, or by two or more juridical persons or
entities, the maximum insured deposit shall be divided into as many equal shares as there are
individuals, juridical persons or entities, unless a different sharing is stipulated in the document of
deposit.
II. If the account is held by a juridical person or entity jointly with one or more natural person, the
maximum insured deposit shall be presumed to belong entirely to such juridical person or entity.

Ans C - Both are true

Maximum Liability - Assessment

Statement 1: If the account is held jointly by two or more natural persons, or by two or more juridical
persons or entities, the maximum insured deposit shall be divided into as many equal shares as there
are individuals, juridical persons or entities, unless a different sharing is stipulated in the document of
deposit.

Statement 2: If the account is held by a juridical person or entity jointly with one or more natural
persons, the maximum insured deposit shall be presumed to belong entirely to such juridical person or
entity.

Ans C - Both statements are true

What is PDIC’s maximum deposit insurance coverage?

Ans A - 500,000

Requirements for Claims - Assessment

When should the depositor of a closed insured bank file his claim with PDIC?

Ans A - The depositor of the closed insured bank has 24 months from date of bank takeover to file his
deposit insurance claim.

What happens when the depositor of a closed bank fails to file his claim within the period prescribed by
PDIC?

A.      All rights of the depositor with respect to the insured deposit shall no longer be honored.

B.      The depositor may still make a claim against the assets of the closed bank.

Ans C - Both A and B

Bank secrecy law – Assessment

All deposits of whatever nature with banks or banking institutions in the Philippines may not be
examined, inquired of looked into by any person, government official, bureau or office except upon.

Choices:

a) Written permission of the depositor

b) In case of impeachment
c) Upon order of a competent court in cases of bribery or dereliction of duty of public officials.

Ans D - All of the above

X is unemployed; however, he is suspected to be a jueteng operator. X has never been charged or

convicted of any crime. He has several bank accounts and purchased several houses and lots from Y
Realty Corp. amounting to P50,000,000. After that, the Register of Deeds reported his purchased to the
Anti-Money Laundering Council (AMLC). Upon request of the AMLC, Z Bank disclosed to it X’s bank
deposits. Subsequently, X was charged in court for violation of the Anti-Money Laundering Law. Did Z
Bank violated the Secrecy of Bank Deposit Act in disclosing X’s bank account to the AMLC?

Ans B - No. Z bank did not violate the Secrecy of Bank Deposit Act. A bank is obliged to report to the
AMLC covered and suspicious transactions.

X, a newspaper columnist, while having a bank transaction, overheard a bank teller informing a co-
employee that Y, the municipal mayor, has just P10,000 in his bank account and that his next check
might probably bounce. X wrote this information in his newspaper column. Thus, Y filed a complaint
against X for violation of the Secrecy of Bank Deposits Act. Decide.

Ans A - X, who merely overhead the remark of the bank teller to a co-employee and writing the same in
his newspaper column is neither the inquiry nor disclosure contemplated by law.

I. It shall be unlawful for any official or employee of a banking institution to disclose to any person any
information concerning deposits.

II. The Secrecy of Bank Deposit Account does not prohibit attachment or garnishment of bank accounts,
which does not involve revealing specific information of deposits.

Ans C - Both are true

It is hereby declared to be the policy of the Government:

 I. To give encouragement to the people to deposit their money in banking institutions.

II. To discourage private hoarding.

Ans C - Both are true

Y is the creditor of X. Upon demand, X failed to pay Y; thus, the latter filed a case against the former. X
had a savings account with Z Bank.

Subsequently, the court ordered that X’s account be garnished the amount of P100,000 to satisfy the
judgement in favor of Y. X complained that the garnishment violated the Secrecy of Bank Deposit Act.
Decide.

Ans A - X is not correct because pesos deposits may garnished and Y bank can comply with the order of
garnishment without violating the Secrecy of Bank Deposit Act.

I. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature.

II. All deposits of whatever nature with banks or banking institutions in the Philippines may not be
examined, inquired or looked into by any person, government official, bureau or office.

Ans C - Both are true

Unclaimed balances law - Assessment

It includes credits or deposits of money, bullion, security, or other evidence of indebtedness of any kind,
and interest thereon with banks, building and loan associations, and trust corporations in favor of any
person known to be dead or who has not made further deposits or withdrawals during the preceding
ten years or more.

Ans B - Unclaimed balances

I. The unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the
Treasurer of the Philippines to the credit of the Government of the Republic of the Philippines.

II. All banks, building and loan associations, and trust corporations shall forward to the Treasurer of the
Philippines a statement, under oath, of their respective managing officers, of all credits and deposits
held by them in favor of persons known to be dead, or who have not made further deposits or
withdrawals during the preceding ten years or more.

Ans C - Both are true

It refers to the judicial process in which the State, by virtue of its sovereignty, steps in and claims
abandoned, left vacant, or unclaimed property, without there being an interested person having a legal
claim thereto.

Ans B - Escheat proceedings

I. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an
action or actions in the name of the People of the Republic of the Philippines in which shall be joined as
parties the bank, building and loan association or trust corporation and all such creditors or depositors.

II. Upon the trial, the court must hear all parties who have appeared therein, and if it  be determined
that such unclaimed balances in any defendant bank, building and loan association, or trust corporation
are  unclaimed balances have been escheated to the Government of the Republic of the Philippines and
commanding said bank, building and loan association or trust corporation to forthwith deposit the same
with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines.

Ans C - Both are true

Covered Institutions / Persons / Transactions - Assessment

It is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of
five hundred thousand pesos (Php500,000.00) within one (1) banking day.

Ans A - Covered transactions

Suspicious Transactions - Assessment

The following circumstance exists in suspicious transactions (choose the exception):

Ans A - there is underlying legal or trade obligation, purpose or economic justification;

Reporting Requirements - Assessment

Statement 1: The Covered Transaction Report (CTR) and the Suspicious Transaction Report (STR) shall be
in the forms prescribed by the Anti-Money Laundering Council (ALMC).

Statement 2: Covered transaction reports and suspicious transaction reports shall be submitted in a
secured manner to the Anti-Money Laundering Council (AMLC) in electronic form.

Ans C - Both statements are true

Covered institutions shall report to the Anti-Money Laundering Council (ALMC) all covered transactions
and suspicious transactions within ___ working days from occurrence thereof, unless the supervising
authority concerned prescribes a longer period not exceeding ___ working days.

Ans A - 5, 10

Law on Patents - Assessment

I. If two or more persons have made the invention separately and independently of each other, the right
to the patent shall belong to the person who filed an applications for such invention.

II. Where two or more applications are filed for the same invention, the right to a patent belongs to the
applicant who has the earliest filing date or, the earliest priority date.

Ans C - Both are true

I. An invention shall not be considered new if it forms part of a prior art.

II. An invention involves an inventive step if, having regard o prior art, it is not obvious to a person skilled
in the art at the time of the filing date or priority date of the application claiming the invention.

Ans C - Both are true

I. If the application meets the legal requirements, the Intellectual Property Office (IPO) shall grant the
patent.

II. A patent shall take effect on the date of the publication of the grant of the patent in the IPO Gazette.

Ans C - Both are true

If a person, who was deprived of the patent without his consent or through fraud is declared by final
court order or decision to be the true and actual inventor, the court shall order:

I. For his substitution as patentee.

II. At the option of the true inventor, cancel the patent, and award actual and other damages in his favor
if warranted by the circumstances.

Ans C - Both are true

A patent shall confer on its owner the following exclusive rights:

 I. Where the subject matter of a patent is a product: to restrain, prohibit and prevent any unauthorized
person or entity from making, using offering for sale, selling, or importing that product;

II. Where the subject matter of a patent is a process: to restrain, prevent or prohibit any unauthorized
person or entity from using the process, and from manufacturing, dealing in, using, selling or offering for
sale, or importing any product obtained directly or indirectly from such process.

Ans C - Both are true

I. The right to a patent belongs to the inventor only.

II. When two or more persons have jointly made an invention, the right to a patent shall belong to them
jointly.

Ans B - Only II is true

I. Any patentee, or anyone possessing any right, title or interest in and to the patented invention, whose
right have been infringed, may bring a civil action before a court competent jurisdiction, to recover from
the infringer such damages sustained thereby, plus attorney’s fees and other expenses of litigation, and
to secure an injunction for the protection of his rights.

II. Anyone who actively induces the infringement of a patent or provides the infringer with a component
of a patented product or of a product produced because of a patented process knowing it to be
especially adopted for infringing the patented invention and not suitable for substantial non-infringing
use be liable as a contributory infringer and shall be jointly liable with the infringer.

Ans A - Only I is true

I. The person who commissions the work shall own the patient, unless otherwise provided in the
contract.

II. An application for patent filed by any person who has previously applied for the same invention in
another country which by treaty, convention, or law affords similar privileges to Filipino citizens, shall be
considered as filed as of the date of filing the foreign application.

Ans C - Both are true

I. Any technical solution of a problem in any field of human activity which is new, involves an inventive
step and is industrially applicable shall be patentable.

II. Patentable invention may be, or may relate to, a product, or process, or an improvement of any of the
foregoing.

Ans C - Both are true

I. The application shall relate to one invention only or to a group of inventions forming a single general
inventive concept.

II. The fact that a patent has been granted on an application that did not comply with the requirement
of unity on investment shall not be ground to cancel the patent.

Ans C - both are true

In case the employee made the invention in the course of his employment contract, the patent shall
belong to:

I. The employee, if the inventive activity is part of his regular duties even if the employees uses the time,
facilities and materials of the employer.

II. The employer, if the invention is the result of the performance of his regularly-assigned duties, unless
there is an agreement, express or implied, to the contrary.

Ans B - Only II is true

I. No patent may be granted unless the application identifies the inventor.

II. An applicant who is not a resident of the Philippines must appoint and maintain a resident agent or
representative in the Philippines.

Ans C - Both are true

I. The term of a patent shall be 17 years from the filing date of the application.

II. To maintain the patent application or patent, an annual fee shall be paid upon the expiration of 4
years from the date the application was published.

Ans B - Only II is true

A Government agency or third person authorized by the Government may exploit the invention even
without agreement of the patent owner where:

 I. The public interest, in particular, national security, nutrition, health or the development of other
sectors, as determined by the appropriate agency of the government, so requires.

II. A judicial or administrative body has determined that the manner of exploitation, by the owner of the
patent or his licensee, is anti-competitive.

Ans C - Both are true

Statement 1: The right to a patent belongs to the inventor, his heirs, or assigns.

Statement 2: When two (2) or more persons have jointly made an invention, the right to a patent shall
belong to them solidarily.

Ans A - Only Statement 1 is true

Any interested person may petition to cancel the patent or any claim thereof, or parts of the claim, on
the following ground/s:

Choices:

a) That what is claimed as the invention is not new or patentable.

b) That the patent does not disclose the invention in a manner sufficiently clear and complete for it
to be carried out by any person skilled in the art.
c) That the patent is contrary to public order or morality.

Ans D - All of the above

I. After publication of a patent application, any interested party may inspect the application documents
filed with the Intellectual Property Office.

II. Following the publication of the patent application, any person may present observations in writing
concerning the patentability of the invention. Such observations shall be communicated to the applicant
who may comment on them.

Ans C - Both are true

Law on Trademark, Service Marks and Trade Names - Assessment

I. Infringement of trademark is the unauthorized use of a trademark.

II. Unfair competition is the passing off of one’s goods as those of another.

Ans C - Both are true

I. A certificate of registration of a mark may be issued to the assignee of the applicant.

II. A certificate of registration of a mark shall be prima facie evidence of the validity of the registration,
the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in
connection with the good or services and those that are related thereto specified in the certificate.

Ans C - Both are true

Any person who shall, without the consent of the owner of the registered mark reproduce, counterfeit,
copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction,
counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisement intended to be used in commerce upon or in connection with the sale, offering for sale,
distribution, or advertising of goods or services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive.

Ans A - Infringement of trademar

The following shall be deemed guilty of unfair competition:

Choices:
 a) Any person, who is selling his goods and gives them the general appearance of goods of another
manufacturer or dealer, either as to the goods themselves or  in the wrapping of the packages in
which they are contained, or the devices or words thereon, or in any other feature of their
appearance, which would likely influence purchasers to believe that the goods offered are those
of a manufacturer or dealer, other than the actual manufacturer or dealer.
b) Any person who by any artifice, or device, or who employs any other means calculated to induce
the false belief that such person is offering the services of another who has identified such
services in the mind of the public.
c) Any person who shall make any false statement in the course of trade or who shall commit any
other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another

Ans D - All of the above

A mark cannot be registered if it:

Choices:

a) Consists of immoral, deceptive or scandalous matter, or matter which may disparage or falsely
suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or
bring them into contempt or disrepute;
b) Consists of the flag or coat of arms or other insignia of the Philippines or any of its political
subdivisions, or of any foreign nation, or any simulation thereof;
c) Consists of a name, portrait or signature identifying a particular living individual except by his
written consent, or the name, signature, or portrait of a deceased President of the Philippines,
during the life of his widow, if any, except by written consent of the widow;

Ans D - all of the choices

I. A certificate of registration shall remain in force for 10 years.

II. A certificate of registration may be renewed for periods of 10 years at its expiration.

Ans C - Both are true

I. In infringement of trademark, fraudulent intent is unnecessary.

II. In unfair competition, fraudulent intent is essential.

Ans C - Both are true

I. A registered mark shall have no effect against any person who, in good faith, before the filing date or
the priority date, was using the mark for the purposes of his business or enterprise.

II. Where an infringing who is engaged solely in the business of printing the mark or other infringing
materials for others is an innocent infringer, the owner of the right infringed shall be entitled as against
such infringer only on to an injunction against future printing

Ans C - Both are true

I. The use of the mark in a form different from the  form in which it is registered, which does not alter its
distinctive character, shall not be a ground for cancellation or removal of the mark and shall not
diminish the protection granted to the mark.

II. The use of a mark by a company related with the registrant or applicant shall inure to the latter’s
benefit, and such use shall not affect the validity of such mark or of its registration.

Ans C - Both are true

I. The owner of a registered mark shall have the exclusive right to prevent all third parties not having the
owner’s consent from using in the course of trade identical or similar signs or containers for goods or
services which are identical or similar to those in respect of which the trademark is registered where
such use would result in a likelihood of confusion.

II. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be
presumed.

Ans C - Both are true

I. A certificate of registration of a mark shall be conclusive evidence of the validity of the registration,
the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same.

II. A certificate of registration shall remain in force for 15 years.

Ans D - Both are false

I. The nature of the goods to which the mark is applied will not constitute an obstacle to registration.

II. The Intellectual Property Office (IPO) may accept as prima facie evidence that the mark has become
distinctive, proof of substantially exclusive and continuous use thereof by the applicant in commerce in
the Philippine for 5 years before the date on which the claim of distinctiveness is made.

Ans C - Both are true

I. Any person who shall employ deception or any other means contrary to good faith by which he shall
pass off the goods manufactured by him or in which he deals, or his business, or services for those of the
one having established such goodwill, or who shall commit any acts calculated to produce said result,
shall be guilty of unfair competition.

II. A person who has identified in the mind of the public the goods he manufactures or deals in, his
business or services from those of others, whether or not a registered mark is employed, has a property
right in the goodwill of the said goods, business or services so identified, which will be protected in the
same manner as other property rights.

Ans C - Both are true

I. A petition to cancel a registration of a mark may be filed by any person who believes that he is or will
be damaged by the registration of a mark.

II. Non-use of a mark may be excused if caused by circumstances arising independently of the will of the
trademark owner. Lack of funds shall excuse non-use of a mark.

Ans A - Only I is true

I. The owner of a registered mark may recover damages from any person who infringes his rights.

II. The measure of the damages suffered shall be either the reasonable profit which the complaining
party would have made, had the defendant not infringed his rights, or the profit which the defendant
actually made out of the infringement.

Ans C - Both are true

It means any visible sign designated as such in the application for registration and capable of
distinguishing the origin or any other common characteristic.

Ans A - Collective mark

It refers to mark considered well-known by the competent authority of the country where protection for
the mark is sought.

Ans C - Well-known mark

I. An application for registration of a mark, or its registration, may be assigned or transferred with or
without the transfer of the business using the mark.

II. The assignment of the application for registration of a mark, or of its registration, shall be in writing
and require the signature of the contracting parties.

Ans C - Both are true

I. In infringement of trademark, the prior registration of the trademark is a prerequisite to the action.

II. In unfair competition, registration is not necessary.

Ans C - Both are true

Any person who shall, without the consent of the owner of the registered mark, use in commerce any
reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any
goods or services including other preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to
deceive.

Ans A - Infringement of trademark

I. In any action in which a violation of any right of the owner of the registered mark is established, the
court may order that goods found to be infringing be, without compensation of any sort, disposed of
outside the channels of commerce of destroyed.

II. In any suit for infringement, the owner of the registered mark shall not be entitled to recover profits
or damages unless the act have been committed with knowledge that such imitation is likely to cause
confusion, or to cause mistake, or to deceive.

Ans C - Both are true

It is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an
enterprise and shall include a stamped or marked container of goods.

Ans A - Mark

It means any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an
enterprise and shall include a stamped or marked container of goods.

Ans A – Mark

I. Any person who believes that he would be damaged by the registration of a mark file with the IPO an
opposition to the application.

 II. When the period for filing the opposition has expired, the IPO shall issue the certificate of
registration.

Ans C – Both are true

It is the name or designation identifying or distinguishing an enterprise.

Ans C - Tradename

I. The exclusive right of the owner of a well-known mark which registered in the Philippines, shall extend
to goods and services which are not similar to those in respect of which the mark is registered.

II. Registration of the mark shall not confer on the registered owner the right to preclude third parties
from using bona fide their names, addresses, pseudonyms, a geographical name, or exact indications
concerning the kind, quality, quantity, destination, value, place of origin, or time of production or of
supply, of their goods or services.

Ans C – Both are true

I. The dominancy test focuses on the focuses on the similarity of the prevalent features of the competing
trademarks that might cause confusion or deception.

II. The holistic test requires the court to consider the entirely of the marks as applied to the products,
including the labels and packaging, in determining confusing similarity.

Ans C - Both are true

Law on Copyright - Assessment

I. In case of works of joint authorship, the economic rights shall be protected during the life of the last
surviving author and for 50 years after his death.

II. In case of anonymous or pseudonymous works, the copyright shall be protected for 50 years from the
date on which the work was first lawfully published.

Ans C - Both are true

I. The fair use of a copyrighted work for criticism, comment, news reporting, teaching including multiple
copies for classroom use, scholarship, research, and similar purposes is not an infringement  of
copyright.

II. Decompilation, which is understood here to be the reproduction of the code and translation of the
forms computer program to achieve the inter-operability of an independently created computer
program with other programs may also constitute fair use.

Ans C - Both are true

It is any technology, device or component that in the normal course of its operation, restricts acts in
respect of a work, performance or sound recording which are not authorized by authors, performance
or producers of sound recording concerned or permitted by law.

Ans A - Technological measure

I. The Philippine Deposit Insurance Corporation (PDIC) shall insure the deposits of all banks.
II. The PDIC shall promote and safeguard the interests of the depositing public by providing
insurance coverage on all insured deposits and helping maintain a sound and stable banking
system.

Ans A - Broadcasting 

I. In respect of letters, the copyright shall belong to the writer.

II. The publisher shall be deemed to present the authors of articles and other writings published without
the names of the authors or under pseudonyms, unless the contrary appears, or the pseudonyms or
adopted name leaves no doubts as to the authors’ identity, or if the author of the anonymous works
discloses his identity.

Ans C - Both are true

The rights granted to performers and producers of sound recordings under this law shall expire:

I. For performances not incorporated in recording, 50 years from the end of the year in which the
performance took place.

II. For sound or image and sound recordings and for performances incorporated therein, 50 years from
the end of the year in which the recording took place.

Ans C - Both are true

Statement 1: in the case of original literary and artistic works, copyright shall belong to the author of the
work;

Statement 2: In the case of works of joint authorship, the co-authors shall be the original owners of the
copyright and in the absence of agreement, their rights shall be governed by the rules on co-ownership. 

Ans C - Both are true

Is a work that consists of a series of related images which impart the impression of motion, with or
without accompanying by sounds, susceptible of being made visible and, where accompanied by sounds,
susceptible of being made audible?

Ans D - Audio-visual work

I. In the case of a work-commissioned by a person other than an employer of the author and who pays
for it the work is made in pursuance of the commission, the person who so commissioned the work shall
have ownership of work, but the copyright thereto shall remain with the  creator, unless there is written
stipulation to the contrary.

II. In the case of audio-visual work, the copyright shall belong to the producer, the author of the
scenario, the composer of the music, the film director, and the author of the work so adapted.

Ans C - Both are true

Is the transfer of the possession of the original or a copy of a work or a sound recording for a limited
period of time for profit-making purposes?
Ans B - Rental

Is a work created by an officer or employee of the Philippine Government or any of its subdivisions and
instrumentalities, including government - owned or controlled corporations as part of his regularly
prescribed official duties?

Ans A - A work of the Government of the Philippine

Performers shall enjoy the following exclusive rights:

Choices:

a) The right of authorizing the direct or indirect reproduction of their performances fixed in sound
recordings, in any manner or form.
b) The right of authorizing the commercial rental to the public of the original and copies of their
performances fixed in sound recording, even after distribution of them by, or pursuant to the
authorization by the performer.
c) The right of authorizing the making available to the public of their performances fixed in sound
recordings, by wire or wireless means, in such a way that members of the public may access
them from a place and time individually chosen by them.

Ans D - All of the above

Are actors, singing, musicians, dancers, and other persons who act, sing declaim, play in, interpret, or
otherwise perform literary and artistic work?

Ans D - Performers

These are works, which, with the consent of the authors, are made available to the public by wire or
wireless means in such a way that members of the public may access these works from a place and time
individually chosen by them.

Ans A - Published works

It is making of a work available to the public by wire or wireless means in such a way that member of the
public may access these works from a place and time individually chosen by them.

Ans B - Communication to the public

Is the making of one more copies of a work or a sound recording in any manner or form?

Ans A - Reproduction

I. The natural person whose name is indicated on a work in the usual manner as the author shall, in the
absence or proof to the contrary, be presumed to be the author of the work.

II. The person or body, corporate whose name appears on an audio-visual work in the usual manner
shall, in the absence of proof to the contrary, be presumed to be the maker of said work.

Ans C - Both are true

Are original intellectual creations in the literary and artistic domain protected from the moment of their
creation?

Ans B - Works

It is information which identifies the work, sound recording, or performance; the author of the work,
producer of the sound recording, or performer of the performance; the owner of any in the work, sound
recording or performance; and any number or code that represent such information, when any of these
items is attached to a copy of the work, sound recording or fixation of performance or appears in
conjunction with the communication to the public of a work, sound recording or performance.

Ans c - Right management information

It is the transfer of possession of the original or a copy of a work or sound recording for a limited period,
for non-profit purposes, by an institution the services of which are available to the public, such as public
library or archive.

Ans D - Public lending

I. The copyright may be assigned in whole or in part.

II. The copyright is not deemed assigned inter vivos in whole or in part unless there is a written
indication of such intention.

Ans C - Both are true

It is embodiment of sounds, or of the representations thereof, from which they can be perceived,
reproduced, or communicated through a device.

Ans C - Fixation

Copyright or economic rights shall consist of the exclusive right to carry out, authorize, or prevent the
following acts, except:

Choices:

a) Reproduction of the work or substantial portion of the work

b) Dramatization, translation, adaptation, abridgment, arrangement, or other transformation of
the work
c) Public display of the original or a copy of the work

Ans D - None of the above

I. In case of audio-visual works including those produced by process analogous to photography or any
process for making audio-visual recordings, the term shall be 50 years from date of publication and, if
unpublished, from the date of making.

II. In case of works of applied art, the protection shall be for a period of 25 years from the date of
making.

Ans C - Both are true

The following derivative works shall also be protected by copyright:

I. Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary

or artistic works; and

II. Collections of literary, scholarly or artistic works, and compilations of data and other materials which
are original by reason of the selection or coordination or arrangement of their contents.

Ans C - Both are true

The following acts shall not constitute infringement of copyright:

Choices:

a) The recitation or performance of a work, once it has been lawfully made accessible to the public,
if done privately and free of charge or if made strictly for a charitable or religious institution or
society. 
b) The making of quotations from a published work if they are compatible with fair use and only to
the extent justified for the purpose, including quotations from newspaper articles and
periodicals in the form of press summaries: Provided, That the source and the name of the
authors, if appearing on the work, are mentioned.
c) The reproduction or communication to the public by mass media of articles on current political,
social, economic, scientific or religious topic, lectures, addresses and other works of the same
nature, which are delivered in public if such use is for information purposes and has not been
expressly reserved: Provided, That the source is clearly indicated

Ans D - All of the above

Statement 1:  No copyright shall subsist in any work of the Government of the Philippines.

Statement 2: The Government is not precluded from receiving and holding copyrights transferred to it
by assignment, bequest or otherwise; nor shall publication or republication by the Government in a
public document of any work in which copyright is subsisting be taken to cause any abridgment or
annulment of the copyright or to authorize any use or appropriation of such work without the consent
of the copyright owner 
Ans C - Both statements is true

An author may waive his moral rights by a written instrument, but no such waiver shall be valid where
its effects is to permit another:

I. To use the name of the author, or the title of his work, or otherwise to make use of his reputation with
respect to any version or adaptation of his work which, because of alterations therein, would
substantially trend to injure the literary or artistic reputation of another author

II. To use the name of the author with respect to a work he did not create.

Ans C - Both are true

Is an artistic creation with utilitarian function or incorporated in a useful article, whether made by hand
or produced on an industrial scale?

Ans C - Work of applied art

I. In the case of original literary and artistic works, copyright shall belong to the author of the work.

II. In the case of works of joint authorship, the co-authors shall be the original owners of the copyright
and in the absence of agreement, their rights shall be governed by the rules on partnership.

Ans A - Only I is true

Producers of sound recordings shall enjoy the following exclusive rights:

Choices:

a) The right to authorize the direct or indirect reproduction of their sound recordings, in any
manner or form; the placing of these reproductions in the market and the right of rental or
lending.
b) The right to authorize the first public distribution of the original and copies of their sound
recordings through sale or rental or other forms of transferring ownership.
c) The right to authorized the commercial rental to the public of the original and copies of their
sound recordings, even after distribution by them by or pursuant to authorization by the
producer.

Ans D - All of the above 

I. In case of works of applied art, the protection shall be for a period of 50 years from the date of
making.

II. In case of photographic works, the protection shall be for 50 years from publication of the work and, if
unpublished, 50 years from the making.

Ans B - Only II is true

It is the fixation of the sounds of a performance or of other sounds, or representation of sound, other
than in the form of a fixation incorporated in a cinematographic or other audio-visual work

Ans A - Sound recording

It is recitation, playing, dancing, acting or otherwise performing the work, either directly or by means of
any device or process in the case of a work other than an audio-visual work.

Ans B - Public performance

I. The submission of a literary, photographic, or artistic works to a newspaper, magazine or periodical for
publication shall constitute only a license to make a single publication unless a greater right is expressly
granted.

II. The copyright is distinct from the property in the material object subject to it. Consequently, the
transfer or assignment, or licensing of the copyright shall not itself constitute a transfer of the material
object. Nor shall a transfer or assignment or licensing of the sole copy or of one or several copies of the
work imply transfer or assignment of the copyright.

Ans C - Both are true

It is the natural person who has created a work.

Ans A - Author

I. An author cannot be compelled to perform his contract to create a work or for the publication of his
work already in existence. However, he may be held liable for damages for each of such contract.

II. When an author contributed to a collective work, his right to have his contribution attributed to him is
deemed waived unless he expressly reserves it

Ans C - Both are true

The author of a work shall have the right (Scope of Moral Rights):

Choices:

a) To require that the authorship of the works be attributed to him, in particular, the right that his
name, as far as practicable, be indicated in a prominent way on the copies, and in connection
with the public use of his work; 
b) To make any alterations of his work prior to, or to withhold it from publication;
c) To object to any distortion, mutilation or other modification of, or other derogatory action in
relation to, his work which would be prejudicial to his honor or reputation;

Ans D - All of the above

It is a work which has been created by two or more natural persons at the initiative and under the
direction of another with the understanding that it will be disclosed by the latter under his own name
and that contributing natural persons will not be identified.

Ans C - Collective work

In the case of work created by an author during and in the course of his employment, the copyright shall
belong to:

I. The employer, if the creation of the object of copyright is not a part of this regular duties even if the
employee uses the time, facilities, and materials of the employer.

II. The employee, if the work is the result of the performance of his regularly-assigned duties, unless
there is an agreement, express, or implied, to the contrary.

Ans D - Both are false

Processing and Security of Personal Information - Assessment

It refers to any information whether recorded in a material form or not, from which the identity of an
individual is apparent or can be reasonably and directly ascertained by the entity holding the
information, or when put together with other information would directly and certainly identity an
individual.

Ans A - Personal information

Data Privacy Act does not apply to:

I. Personal information processed for journalistic, artistic, literary or research purposes.

II. Personal information originally collected from residents of foreign jurisdictions in accordance with the
laws of those foreign jurisdictions, including any applicable data privacy laws, which is being processed
in the Philippines.

Ans C - Both are true

It refers to a system for generating, sending, receiving, storing or otherwise processing electronic data
messages or electronic documents and includes the computer system or other similar device by or
which data is recorded, transmitted or stored and any procedure related to the recording, transmission
or storage of electronic data, electronic message, or electronic documents.

Ans C - Information and Communication System

I. The penalty of imprisonment ranging from 1 year to 3 years and a fine of not less than P500,000 but
not more than P2,000,000 shall be imposed on persons who knowingly and unlawfully, or violating data
confidentially and security data systems, breaks in any way into any system where personal and
sensitive personal information is stored.

II. The penalty of imprisonment of 1 year and 6 months to 5 years and a fine of not less than P500,000
but not more than P1,000,000 shall be imposed on persons who, after having knowledge of a security
breach, intentionally or by omission conceals the fact of such security breach.

Ans C - Both are true

It refers to communication by whatever means of any advertising or marketing materials which is

directed to particular individuals.

Ans C - Direct marketing

I. The unauthorized processing of personal information shall be penalized by imprisonment ranging from
1 year to 3 years and a fine of not less than P500,000 but not more than P2,000,000 shall be imposed on
persons who process personal information without the consent of the data subject, or without being
authorized.

II. The unauthorized processing of personal sensitive information shall be penalized by imprisonment
ranging from 3 years to 6 years and a fine of not less than P500,000 but not more than P4,000,000 shall
be imposed on persons who process personal information without the consent of the data subject, or
without being authorized.

Ans C - Both are true

It refers to any freely given, specific, informed indication of will, whereby the data subject agrees to the
collection and processing of personal information about and/or relating to him or her.

Ans A - Consent of the data subject

It refers to any natural or juridical person qualified to act as such under the Data Privacy Act of 2012 to
whom a personal information controller may outsource the processing of personal data pertaining to a
data subject.

Ans B - Personal information processor

I. A personal information controller may not subcontract the processing of personal information.

II. Personal information controllers may not invoke the principles of privileged communication over
privileged information that they lawfully control or process.

Ans D - Both are false

I. The processing of personal information for unauthorized purposes shall be penalized by imprisonment
ranging from 1 year and 6 months to 5 years and a fine of not less than P500,000 but not more than
P1,000,000 shall be imposed on persons processing personal information for purposes not authorized by
the data subject, or otherwise authorized.

II. The processing of sensitive personal information for unauthorized purposes shall be penalized by
imprisonment ranging from 2 years to 7 years and a fine of not less than P500,000 but not more than
P2,000,000 shall be imposed on persons processing sensitive personal information for purposes nor
authorized by the data subject, or otherwise authorized.

Ans C - Both are true

Data Privacy Act applies to:

I. The processing of all types or personal information.

II. To any natural and juridical person involved in personal information processing including  those
personal  information controllers and processors who, although not found or established in the
Philippines, use equipment that are located in the Philippines, or those who maintain an office, branch
or agency in the Philippines.

Ans C - Both are true

The following are the rights of the data subject, except

Choices:

a) Be informed whether personal information pertaining to him or her shall be, are being or have
been processed.
b) Dispute the inaccuracy or error in the personal information and have the personal information
controller correct it immediately and accordingly, unless the request is vexatious or otherwise
unreasonable
c) Suspend, withdraw or order the blocking, removal or destruction of his or her personal
information from the personal information controller’s filing system upon discovery and
substantial proof that the personal information are incomplete, outdated, false, unlawfully
obtained, used for unauthorized purposes or are no longer necessary for the purposes for which
they were collected.

Ans D -None of the above.

Personal information must be:

I. Adequate and not excessive in relation to the purposes for which they are collected and processed.

II. Retained only for as long as necessary for the fulfillment of the purposes for which the data was
obtained or for the establishment, exercise or defense of legal claims, or for legitimate business
purposes, or as provided by law.

Ans C - Both are true

It refers to any operation or any set of operations performed upon personal information including but
not limited to, the collection, recording, organization, storage, updating or modification, retrieval,
consultation, use, consolidation, blocking erasure, or destruction of data.

Ans D - Processing

I. The employees, agents, or representatives of a personal information controller who are involved in the
processing of personal information shall operate and hold personal information under strict
confidentiality if the personal information are not intended for public disclosure.

II. The personal information controller must further ensure that third parties processing personal
information on its behalf shall implement the security measures.

Ans C - Both are true

I. The improper disposal of personal information shall be penalized by imprisonment ranging from 6
months to 2 years and a fine of not less than P100,000 but not more than P500,000 shall be imposed on
persons who knowing or negligently dispose, discard, or abandon the personal information of an
individual in an area accessible to the public or has otherwise placed the personal information of an
individual in its container for trash collection.

II. The improper disposal of sensitive personal information shall be penalized by imprisonment ranging
from 1 year and a fine of not less than P100,000 but not less than P1,000,000 shall be imposed on
person who knowingly or negligently dispose, discard, or abandon the personal information of an
individual in an are accessible to the public or has otherwise placed the personal information of an
individual in its container for trash collection.

Ans C - Both are true

It refers to any act of information relating to natural or juridical persons to the extent that, although the
information is not processed by equipment operating automatically in response to instructions given for
that purpose the set is structured, either by reference to individuals or by reference to criteria relating
to individual, in such a way that specific information relating to a particular person is readily accessible

Ans D - Filing system

It refers to a person or organization who controls the collection, holding, processing or use of personal
information, including a person or organization who instructs another person or organization to collect,
hold, process, use, transfer, or disclose personal information on his or her behalf.

Ans D - Personal information controller

Sensitive personal information refers to personal information:

I. About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or
political affiliations.

II. About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any
offense committed or alleged to have been committed by such person, the disposal of such proceedings,
or the sentence of any court in such proceedings.

Ans C - Both are true

I. No employee of the government shall have access to sensitive personal information on government
property or through online facilities unless the employee has received a security clearance from the
head of the source agency.

II. Sensitive personal information maintained by an agency may not be transported or accessed from a
location off government property unless a request for such transportation or access is submitted and
approved by the head of the agency.

Ans C - Both are true

The processing of sensitive  personal information and privileged  information shall be prohibited, except
in the following cases: 

Choices:

a) The data subject has given his or her consent, specific to the purpose prior to the processing, or
in the case or privileged information, all parties to the exchange have given their consent prior
to processing.
b) The processing is necessary to protect the life and health of the data subject or another person,
and the data subject is not legally or physically able to express his or her consent prior to the
processing.
c) The processing is necessary for purposes or medical treatment, is carried out by a medical
practitioner or a medical treatment institution, and an adequate level of protection of personal
information is ensured.

Ans D - All of the above.

The processing of personal information shall be permitted only if not otherwise prohibited by law, and
when at least one of the following conditions exists. Which is not one of the conditions?

Ans A - The data subject need not necessary give his or her consent.

I. Any personal information controller or personal information processor or any of its officials,
employees or agents, who disclosed to a third party the subject personal information without the
consent of the data subject, shall he subject to imprisonment ranging from 1 year to 3 years and a fine
of not less than P500,000 but not more than P1,000,000.

II. Any personal information controller or personal information processor or any of its official, employees
or agents, who disclosed to a third party sensitive personal information without the consent of the data
subject, shall be subject to imprisonment ranging from 3 years to 5 years and a fine of not less than
P500,000 but not more than P2,000,000.

Ans C - Both are true

I. The lawful heirs and assigns of the data subject may invoke the rights of the data subject for, which he
or she is an heir or assignee at any time after the death of the data subject or when the data subject is
incapacitated.

II. The data subject shall the right, where personal information is processed be electronic means and in
structured and commonly used format, to obtain from the personal information controller a copy of
data undergoing processing in an electronic or structured format, which is commonly used and allows
for further use by the data subject.

Ans C - Both are true

I. Accessing personal information due to negligence shall be penalized by imprisonment ranging from 1
year to 3 years and a fine of not less than P 500,000 but not  more than P2,000,000 shall be imposed on
persons who, due to negligence, provided access to personal information without being authorized.

II. Accessing sensitive personal information due to negligence shall be penalized by imprisonment
ranging from 3 years to 6 years and a fine of not less than P500,000 but not more than P4,000,000 shall
be imposed on persons who, due to negligence, provided access to personal information without being
authorized.

Ans C - Both are true

I. Each personal information controller is responsible for personal information under its control or
custody, including information that have been transferred to a third party for processing, whether
domestically or internationally, subject to cross-border arrangement and cooperation.

II. The personal information controller shall designate an individual or individuals who are accountable
for the organization’s compliance with the Data Privacy Act. The identity of the individual (s) so
designated shall be made known to any data subject upon request.

Ans C - Both are true

It refers to an individual whose personal information is processed.

Ans B - Data subject

I. All sensitive personal information maintained by the government, its agencies and instrumentalities
shall be secured, as far as practicable, with the use of the most appropriate standard recognized by the
information and communications technology industry.

II. The head of each government agency or instrumentality shall be responsible for complying with the
security requirements.

Ans C - Both are true

I. The personal information controller must implement reasonable and appropriate organizational,
physical and technical measures intended for the protection of personal information against any
accidental or unlawful destruction, alteration and disclosure, as well as against any other unlawful
processing.

II. The personal information controller shall implement reasonable and appropriate measures to protect
personal information against natural dangers such as accidental loss or destruction, and human dangers
such as unlawful access, fraudulent misuse, unlawful destruction, alteration and contamination.

Ans C - Both are true

Legal Recognition and Communications of electronic data messages and electronic documents -
Assessment

I. Information shall not be denied legal effect, validity, or enforceability solely on the grounds that it is
the data message purporting to give rise to such legal effect, or that it is merely referred to in that
electronic data message.

II. Electronic documents shall have the legal effect, validity or enforceability as any other document or
legal writing.

Ans C - Both are true

I. Except as otherwise agreed by the parties, an offer, the acceptance of an offer, and such other
elements required under existing laws for the formation of contracts may be expressed in,
demonstrated and proved by means of electronic data message or electronic documents and no
contract shall be denied validity or enforceability on the sole ground that it is in the form of an
electronic data message  or electronic document, or that any or all of the elements required under
existing laws for the formation or contracts is expressed, demonstrated and proved by means of
electronic  data messages or electronic documents.
II. Electronic transaction made through networking among banks, or linkages thereof with other entities
or networks, and vice versa, shall be deemed consummated upon the actual dispensing of cash or the
debit of one account and the corresponding credit to another, whether such transaction is initiated by
the depositor or by an authorized collecting party, provided, that the obligation of one bank, entity, or
person similarly situated to another arising therefrom shall be considered absolute and shall not be
subjected to the process of preference of credits.

Ans C - Both are true

As between the originator and the addressee, an electronic data message or electronic document is
deemed to be that of the originator if it was sent:

I. By a person who had the authority to act on behalf of the originator with respect to that electronic
data message or electronic document.

II. By an information system programmed by, or on behalf of the originator to operate automatically.

Ans C - Both are true

Unless otherwise agreed between the originator and the addressee, the time of receipt of an electronic
data message or electronic document is as follows:

I. If the addressee has designated an information system for the purpose of receiving electronic data
message or electronic document, receipt occurs at the time when the electronic data message or
electronic document enters the designated information system.

II. If the electronic data message or electronic documents is sent to an information system of the
addressee that is not the designated information system, receipt occurs at the time when the electronic
data message or electronic document is retrieved by the addressee.

III. If the addressee has not designated an information system, receipt occurs when the electronic data
message or electronic document enters an information system of the addressee.

Ans D - I, II, and III are true

I. Unless otherwise agreed between the originator and the addressee, the dispatch of an electronic data
message or electronic document occurs when it enters an information system outside the control of the
originator or of the person who sent the electronic data message or electronic documents on behalf of
the originator.

II. Unless otherwise agreed between the originator and the addressee, an electronic data message or
electronic document is deemed to be dispatched at the place where the originator has its place of
business and received at the place where the addressee has its place of business.

Ans C - Both are true

Service provider refers to a provider of:

I. On-line services or network access or the operator of facilities therefor, including entities offering the
transmission, routing, or providing of connections for online communications, digital or otherwise,
between or among points specified by a user, or electronic documents of the user’s choosing.

II. The necessary technical means by which electronic documents of an originator may be stored and
made accessible to designated or undesignated third party.

Ans C - Both are true

It refers to any distinctive mark, characteristics and / or sound in electronic form, representing the
identity of a person and attached to or logically associated with electronic data message or electronic
document or any methodology or procedures employed or adopted by a person and executed or
adopted by such person with the intention of authenticating or approving an electronic data message or
electronic document.

Ans C - Electronic Signature

It refers to a person who in behalf of another person and with respect to a particular electronic
document sends, receives, and/ or stores provides other services in respect of that electronic data
message or electronic document.
Ans A - Intermediary

I. The person seeking to introduce an electronic data message or electronic document in any legal
proceeding has the burden of proving its authentically by evidence capable of supporting a finding that
the electronic data message or electronic document is what the person claims it to be.

II. In assessing the evidential weight of an electronic data message or electronic document, the reliability
of the manner in which it was generated, stored or communicated, the reliability of the manner in which
its originator was identified, and other relevant factors shall be given due regard.

Ans C - Both are true

It refers to information generated, sent, received, or stored by electronic, optical or similar means.

Ans A - Electronic Data Message

I. Electronic Commerce Act aims to facilitate domestic and international dealings, transactions,
arrangement, agreements, contracts and exchanges, and storage of information through the utilization
of electronic, optical and similar medium, mode, instrumentality and technology to recognize the
authenticity and reliability of electronic documents related to such activities and to promote the
universal use of electronic transaction in the government and general public.

II. Electronic Commerce Act shall apply to any kind of data message and electronic document used in the
context of commercial and non-commercial activities to include domestic and international dealings,
transactions, arrangement, agreements, contracts and exchanges and storage of information.

Ans C - Both are true

It refers to a secret code which secures and defends sensitive information that cross over public
channels into a form decipherable only with a matching electronic key.

Ans B - Electronic Key

In a decision rendered by the disciplining authority, X was dismissed from the government service.
Thereafter, X filed an appeal but it was denied. Subsequently, X filed a motion for reconsideration which
was sent through facsimile transmission. Is a facsimile transmission considered an electronic evidence
under the Electronic Commerce Act?

Ans B - The terms “electronic data message” and electronic document,” as defined under the Electronic
Commerce Act of 2000, do not include a facsimile transmission. Accordingly, a facsimile transmission
cannot be considered as electronic evidence.

It refers to a person by whom, or on whose behalf, the electronic document purports to have been
created, generated and/ or sent.

Ans C - Originator

The requirement in any provision of law that certain documents be retained in their original form is
satisfied by retaining them in the form of an electronic data message or electronic document which:

Choices:

a) Remains accessible so as to be usable for subsequent reference.

b) Is retained in the format in which it was generated, sent or received, or in a format which can be
demonstrated to accurately represent the electronic data message or electronic document
generated, sent or received
c) Enables the identification of its originator and addressee, as well as the determination of the
date and the time it was sent or received

Ans D - All of the above.

It refers to a system intended for and capable of generating, sending, receiving storing, or otherwise
processing electronic data messages or electronic documents and includes the computer system or
other similar device by or in which data is recorded or stored and any procedures related to the
recording or storage of electronic data message or electronic document

Ans D - Information and Communications System

I. In assessing the evidential weight of an electronic data message or electronic document, the reliability
of the manner in which it was generated, stored or communicated the reliability of the manner in which
its originator was identified, and other relevant factors shall be given due regard.

II. As between the originator and the addresses of an electronic data message or electronic document, a
declaration of will or other statement shall not be denied legal effect, validity or enforceability solely on
the ground that it is in the form of an electronic data message.

Ans C - Both are true

In any legal proceedings, nothing in the application of the rules on evidence shall deny the admissibility
of an electronic data message or electronic document in evidence.

I. On the sole ground that it is electronic form.

Ans C - Both are true

It refers to any device or apparatus which, by electronic, electro–mechanical, or magnetic impulse, or by

other means, is capable of receiving, recording, transmitting, storing, processing, retrieving, or
producing information, data, figures, symbols, or other modes of written expression according to
mathematics and logical rules or of performing any one or more of these functions.

Ans C – Computer

I refers to information or the representation of information, data, figures, symbols or other modes or
written expression, described or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted,
stored, processed, retrieved, or produced electronically.

Ans A - Electronic Document

I. The electronic signature shall be authenticated by proof that a letter, character, number, or other
symbol in electronic form representing the persons named in and attached to or logically associated
with an electronic data message, electronic document, or that the appropriate methodology or security
procedures, when applicable, were employed or adopted by such person, with the intention of
authenticating or approving in an electronic data message or electronic document.

II. The electronic data message or electronic document shall be authenticated by proof that an
appropriate security procedure, when applicable was adopted and employed for the purpose of
verifying the  originator of an electronic data message for the purpose of verifying the originator of an
electronic data message and/or electronic document, or detecting error or alteration in the
communication, content, storage of an electronic document or electronic data message from a specific
point, which, using algorithm or codes, identifying words or numbers, encryptions, answer back or
acknowledgement procedures, or similar security devices.

Ans C - Both are true

Where the law requires information to be presented or retained in its original form, that requirements is
met by an electronic data message or electronic document if;

I. The integrity of the information from the time when it was first generated in its final form, as an
electronic data message or electronic document is shown by evidence aliunde or otherwise; and

II. Where it is required that information be presented, that the information is capable of being displayed
to the person to whom it is to be presented.

Ans C - Both are true

It refers to a person who is intended by the originator to receive the electronic data message or
electronic document.

Ans B - Addressee

In any proceedings involving an electronic signature, it shall be presumed that:

I. The electronic signature is the signature of the person to whom it correlates.

II. The electronic signature was affixed by that person with the intention of signing or approving the
electronic document unless the person relying on the electronically signed electronic document knows
or has noticed of defects in or unreliability of the signature or reliance on the electronic signature is not
reasonable under the circumstances.

Ans C - Both are true

I. An electronic data message or electronic document is that of the originator if it was sent by the
originator himself.

II. Where an electronic data message or electronic document is that of the originator or is deemed to be
that of the originator, or the addressee is entitled to act on that assumption, then, as between the
originator and the addressee, the addressee is entitled to regard the electronic data message or
electronic document as received as being what the originator intended to send, and to act on that
assumption.

Ans C - Both are true

From Modular Assessment

I. In an action for infringement, the defendant, in addition to other defense available to him, may show
the invalidity of the patent, or any claim thereof.

II. In an action for infringement, if the court shall find the patent or any claim to be invalid, it shall cancel
the same.

Ans C - Both are true