RFBT.3603 Sales and Credit Transactions

Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
RFBT.3603 VILLEGAS/APRADO/MAGUMUN/CELIZ
Sales and Credit Transactions (RA 386) May 2024
LECTURE NOTES
Sale Exceptions:
Sale is a contract where one party (seller or vendor) 1. If the law requires a document or other special form,
obligates himself to transfer the ownership of and to deliver the contracting parties may compel each other to
a determinate thing, while the other party (buyer or observe that form (NCC, Art. 1357).
vendee) obligates himself to pay for said thing a price 2. Under Statute of Frauds, the following contracts must
certain in money or its equivalent (Art. 1458). be in writing; otherwise, they shall be unenforceable:
a. Sale of personal property at a price not less than
ELEMENTS OF A CONTRACT OF SALE P500;
b. Sale of a real property or an interest therein;
1. Essential elements – for validity: c. Sale of property not to be performed within a
a. Consent – meeting of the minds to transfer year from the date thereof; or
ownership in exchange for the price; d. When an applicable statute requires that the
b. Determinate subject matter – determinate thing contract of sale be in a certain form [NCC, Art.
which is the object of the contract; and 1403(2)].
c. Consideration – price certain in money or its 3. Sale of large cattle which requires that the same be
equivalent. recorded with the city/municipal treasurer and that a
2. Natural elements – those which are inherent in the certificate of transfer be issued. Otherwise, the sale is
contract, and which in the absence of any contrary not valid.
provision, are deemed to exist in the contract.
3. Accidental elements – dependent on parties’ Absolute sale v. Conditional sale
stipulations.
ABSOLUTE SALE CONDITIONAL SALE
CHARACTERISTICS OF A CONTRACT OF SALE The title to the property is The seller is granted the
1. Consensual – A sale is perfected by mere consent, not reserved to the seller right to unilaterally
manifested by the meeting of the minds as to the offer and or the seller is not granted rescind the contract
acceptance on the subject matter, price and terms of the right to rescind the predicated on the
payment. contract based on the fulfillment or non-
2. Bilateral – The seller will deliver and transfer a fulfillment or non- fulfillment, as the case
determinate thing to the buyer and the latter will pay an fulfillment, as the case may may be, of the
ascertained price (or its equivalent). be, of the prescribed prescribed condition.
3. Commutative – The thing sold is considered the condition.
equivalent of the price paid and the price paid is the
equivalent of the thing sold. DISTINCTIONS OF THE CONTRACT OF SALE WITH
4. Principal – Its existence does not depend upon the OTHER CONTRACTS
existence and validity of another contract. 1. Sale v. Barter
5. Onerous – The thing sold is conveyed in consideration of
the purchase price, and vice versa.
SALE BARTER
6. Nominate – It has a specific name given by law.
Nature A thing is A thing is
STAGES OF A CONTRACT OF SALE given in given in
1. Negotiation – begins from the time the prospective exchange of a exchange of
contracting parties manifest their interest in the price certain another
contract and ends at the moment of agreement of the in money or thing.
parties; its
2. Perfection– takes place when the parties agree upon equivalent.
the essential elements of the contract; and
Consideration The transaction is
3. Consummation – occurs when the parties fulfill or
perform the terms agreed upon in the contract is partly in characterized by the manifest
culminating in the extinguishment thereof. money and intention of the parties.
partly in If intention is If intention is
NATURE AND FORM OF CONTRACT another thing not clear, and not clear, and
The contract of sale is perfected at the moment there is a the value of the value of
meeting of minds upon the thing which is the object of the thing is equal thing is more
contract and upon the price. From that moment, parties or less than
may reciprocally demand performance, subject to the than amount
amount of
provisions of the law governing the forms of contracts. money = Sale of money =
Formal requirement for the validity of a contract of Barter
sale
General Rule: A contract of sale may be made in writing,
or by word of mouth, or partly in writing and partly by word
of mouth, or may be inferred from the conduct of the parties
(NCC, Art. 1483). Contracts shall be obligatory, in whatever
form they have been entered into, provided all the essential
requisites for their validity are present.
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2. Sale v. Lease SPECIAL DISQUALIFICATIONS

SALE LEASE
1. Aliens who are disqualified to purchase private
Obligation to Use of thing is for
agricultural lands (Art. XII Secs. 3&7, 1987
absolutely transfer specified period only Constitution).
ownership of thing with obligation to
2. Unpaid seller having a right of lien or having stopped
return. the goods in transit is prohibited from buying the goods
Consideration is the Consideration is either directly or indirectly in the resale of the same at
price. the rental. public/private sale which he may make [NCC, Art.
1533(5); Art. 1476(4)].
Seller needs to Lessor need not
3. The officer holding the execution or deputy cannot
be the owner of be owner
become a purchaser or be interested directly or
thing to transfer
indirectly on any purchase at an execution (Sec. 21 Rule
ownership.
39, Rules of Court).
3. Sale v. Contract for Piece-of-work 4. In sale by auction, seller cannot bid unless notice has
been given that such sale is subject to a right to bid in
SALE Contract for behalf of the seller (NCC, Art. 1476).
piece-of-work
SUBJECT MATTER
Existence Manufacturing in Manufacturing
1. THINGS
the ordinary upon special
a. Determinate or determinable
course of order of
business. a customer.
b. Lawful or licit
c. Should not be impossible (within the commerce of
To whom For the general For the general men)
Made market market 2. RIGHTS - must be transmissible.
e.g. right of redemption, right of usufruct, sale of credit,
right to inheritance already assigned, etc.
4. Contract of Sale v. Contract to Sell
KINDS OF OBJECT OF SALE
Contract of Contract to Sell
1. Existing Goods - Owned or possessed by seller at the
Sale
time of perfection.
Transfer of Ownership is Ownership is 2. Future Goods - Goods to be manufactured, raised,
Ownership transferred to transferred acquired by seller after perfection of the contract or
the buyer upon upon full payment whose acquisition by seller depends upon a
delivery of the of the purchase contingency (NCC, Art. 1462).
object to him. price.
Contracts There is only There are two Emptio rei speratae Emptio Spei
Involved one contract contracts: Sale of thing having Sale of mere hope or
Executed between 1. Contract to sell; potential existence. expectancy.
the seller and the 2. Deed of Uncertainty is w/ regard to Uncertainty is w/ regard
buyer absolute sale quantity & quality to existence of thing.
Payment Non-payment Full payment
Contract deals w/ future Contract deals w/ present
as a of the price is a of the price is thing thing –hope or expectancy
Condition resolutory a positive
Sale is valid only if the Sale is valid even though
condition. suspensive expected thing will exist. expected thing does not come
condition. into existence as long as the
hope itself
CAPACITY OF PARTIES validly existed e.g. lotto
All persons, whether natural or juridical, who can bind
themselves, have legal capacity to buy and sell [NCC, Art.
1489(1)]. PRICE
Exceptions: The sum stipulated as the equivalent of the thing sold and
1.Minors, insane and demented persons and deaf- also every incident taken into consideration for the fixing of
mutes who do not know how to write; the price put to the debit of the buyer and agreed to by him.
2.Persons under a state of drunkenness or during It must be:
hypnotic spell; 1. Real, not fictitious;
3.Sale by and between spouses; 2. Paid in money or its equivalent;
4.Sale between guardians and wards; 3. For valuable consideration;
5.Sale between agents and principals [Art. 1491 (2) 4. Certain or ascertainable at the time of the perfection of
of NCC]; the contract; and
6.Sale between executors and administrators of 5. In some cases, must not be grossly inferior to the value
estate of the deceased [NCC, Art. 1491 (3)]; of the thing sold.
7.Sale involving property of the government [NCC,
Art. 1491(4)]; Earnest Money
8. Sale of property in litigation [NCC, Art. 1491(5)] It is the payment made to a seller by the buyer to show his
9.Sale by Public Officers and Employees; Court good faith. It will constitute as part of the purchase price, if
Officers and Employees, and Others specially the sale is finally consummated. If the sale is not concluded,
disqualified by law (NCC, Art. 1491). the earnest money should be returned to the would-be-
buyer unless there is a stipulation to the contrary.

Option Contract a. Placing titles of ownership in the hands of the

It is a continuing offer or preparatory contract by which the buyer; and
owner stipulates with another that the latter shall have the b. Allowing buyer to make use of rights.
right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and 4. TRADITION BY OPERATION OF LAW – Execution of
conditions, or which gives to the owner of the property the a public instrument is equivalent to delivery. But to be
right to sell or demand a sale. effective, it is necessary that the seller have such
control over the thing sold that, at the moment of sale,
OBLIGATIONS OF THE BUYER its material delivery could have been made.
1. Payment of the price
2. Accept delivery of thing sold EFFECTS OF THE CONTRACT WHEN THE THING
3. Bear expenses for the execution and registration of SOLD HAS BEEN LOST
the sale and putting the goods in a deliverable state, It is understood that the thing is lost when it:
if such is the stipulation. 1. Perishes;
2. Goes out of commerce; or
OBLIGATIONS OF THE SELLER 3. Disappears in such a way that its existence is
1. Deliver the thing sold (NCC, Arts.1458&1459); unknown or cannot be recovered [NCC, Art. 1189(2)]
2. Deliver fruits & accessions/accessories accruing from
perfection of sale; Exception: In an obligation to deliver a generic thing, the
3. Transfer the ownership; loss or destruction of anything of the same kind does not
4. Warranties; extinguish the obligation (NCC, Art. 1263)
5. Take care of the thing, pending delivery, with proper
diligence; Effect when the loss occurred before perfection
6. Pay for the expenses of the deed of sale unless there The thing perishes with the owner – Res perit domino (NCC,
is a stipulation to the contrary. Art. 1504).
DELIVERY Effect when the loss occurred at the time of

perfection of the contract of sale
The thing shall be understood as delivered when it is General Rule: Contract is considered void or inexistent
placed in the control and possession of the vendee. because the object did not exist at the time of the
Effect of Delivery transaction.
General Rule: Title /ownership is transferred Exception: In case of partial loss, the buyer may choose
XPN: When the contrary is stipulated as in the case of: between withdrawing from the contract and demanding the
1. Pactum reservatii in domini – Agreement that remaining part. If he chooses the latter, he shall pay the
ownership will remain with seller until full remaining part’s corresponding price in proportion to the
payment of price (contract to sell); total sum agreed upon (NCC, Art. 1493).
2. Sale on acceptance/approval;
3. Sale on return; or Effect when the loss occurred after perfection but
4. There is implied reservation of ownership before delivery
Who bears the risk of loss is governed by the stipulations in
Kinds of Delivery the contract.
1. ACTUAL or REAL – Thing sold is placed under the
control and possession of buyer/agent; First View: Article 1262 of the Civil Code, if the thing is lost
2. CONSTRUCTIVE or LEGAL – Does not confer physical or destroyed without the fault of the seller, the obligation to
possession of the thing, but by construction of law, is deliver is extinguished but the obligation to pay subsists.
equivalent to acts of real delivery. Second View: Under this view, the rule on loss under Article
Requisites: 1189 of the Civil Code points that the loss would be for the
a. The seller must have control over the thing; account of the seller.
b. The buyer must be put under control;
c. There must be intention to deliver the thing for Effect when loss occurred after delivery
purposes of ownership. General Rule: Res perit domino applies – the buyer is now
the owner, hence, the buyer bears the risk of loss (NCC, Art.
i. Tradicion Symbolica – delivery of certain symbols 1504).
representing the thing;
ii. Tradicion Instrumental – delivery of the instrument Exception: Where actual delivery has been delayed through
of conveyance; the fault of either the buyer or seller, the goods are at the
iii. Traditio Longa Manu – Delivery of thing by mere risk of the party at fault [NCC, Art. 1504 (1) (2)].
agreement; when seller points to the property DOUBLE SALE
without need of actually delivering; There is double sale when the same object of the sale is sold
iv. Tradicion Brevi Manu – the buyer, being already in to different vendees (NCC, Art. 1544).
possession of the thing sold due to some other
cause, merely remains in possession after the sale Requisites:
is effected, but now in concept of owner. e.g. From 1. 2 or more sales transactions must constitute valid
lessee to becoming an owner; sales transactions;
v. Constitutum Possessorium– the seller remains in 2. 2 or more sales transactions must pertain to exactly
possession of the property in a different capacity. the same subject matter;
e.g. From owner to lessee 3. 2 or more buyers at odds over the rightful ownership
of the subject matter must each represent conflicting
3. QUASI-TRADITION – delivery of rights, credits or interests;
incorporeal property, made by:

4. 2 or more buyers at odds over the rightful ownership Coverage: Residential Real Estate; residential
of the subject matter must have bought from the condominium apartments except:
very same seller a. Industrial lots;
b. Commercial buildings
Rules on preference (NCC, Art. 1544) c. Sale to tenants under agrarian laws; and
1. MOVABLE – Owner who is first to possess in good d. Sale of lands payable in straight terms
faith;
2. IMMOVABLE – Important features of Maceda Law:
a. First to register in good faith a. After having paid installments for at least two years,
b. No registration – first to possess in good faith the buyer is entitled to a mandatory grace period of
c. No registration & no possession in good faith – one month for every year of installment payments
person who presents oldest title in good faith made, to pay the unpaid installments without interest.
Purchaser in good faith If the contract is cancelled, the seller shall refund to the
1.Buys the property without notice that some other buyer the cash surrender value equivalent to fifty
person has a right to, or interest in such property; and percent (50%) of the total payments made, and after
2.Pays a full and fair price for the same at the time of five years of installments, an additional five percent
such purchase, or before he has notice of the claim or (5%) every year but not to exceed ninety percent
interest of some other person in the property (90%) of the total payments made.
Principle of prius tempore, potior jure - first in time, b.In case the installments paid were less than 2 years, the
stronger in right seller shall give the buyer a grace period of not less than
Knowledge by the first buyer of the second sale cannot 60 days. If the buyer fails to pay the installments due
defeat the first buyer’s rights except when the second buyer at the expiration of the grace period, the seller may
first registers in good faith the second sale. Conversely, cancel the contract after 30 days from receipt by the
knowledge gained by the second buyer of the first sale buyer of the notice of cancellation or demand for
defeats his rights even if he is first to register, since such rescission by notarial act.
knowledge taints his registration with bad faith to merit the
protection of Art. 1544 (2nd par.) of NCC, the second realty Unpaid Seller
buyer must act in good faith in registering his deed of sale. One is considered as unpaid seller when:
1. The whole of the price has not been paid or tendered;
INSTALLMENT SALES LAW or “RECTO LAW” or
This law covers contracts of sale of personal property by 2. A bill of exchange or other negotiable instrument has
installment (Act No. 4122). It is also applied to contracts been received as conditional payment, and the
purporting to be leases of personal property with option to condition on which it was received has been broken by
buy, when the lessor has deprived the lessee of the reason of the dishonor of the instrument, the
possession or enjoyment of the thing. insolvency of the buyer or otherwise (Art. 1525).
Requisites of Recto Law: Remedies:

1. Valid contract of sale; 1. Action for price;
2. Subject matter is personal property; 2. Action for damages;
3. Payable in installments; and 3. Possessory lien – seller is not bound to deliver the
4. In the case of the second and third remedies, that object of the contract of sale if buyer has not paid him
there has been a failure to pay two or more the price. This presupposes that the sale is on credit.
installments (NCC, Art. 1484). 4. Right of stoppage in transitu (Art. 1530)
5. Right to resell the goods
Alternative remedies in case of sale of personal
property in installments PERFORMANCE OF CONTRACT
1. Specific Performance: Exact fulfillment should the Rule when the seller delivers goods lesser than what
buyer fail to pay he has contracted to sell
2. Rescission: Cancel the sale if buyer fails to pay 2 or 1. The buyer may reject the goods delivered and he shall
more installments. have no liability;
3. Foreclosure: Foreclose on chattel mortgage if buyer 2. The buyer may accept the goods delivered, but he will
fails to pay 2 or more installments. He shall have no pay the contract rate, if he has knowledge that the
further action against the purchaser to recover any seller is not going to deliver all the goods contracted
unpaid balance of the price. Any agreement to the for;
contrary shall be void. Of the three remedies, only 3. If, however, the buyer has used or disposed of the
this third remedy bars the recovery of unpaid goods delivered before he knows that the seller is not
balance. going to perform his contract in full, the buyer shall not
be liable for more than the fair value to him of the
REALTY INSTALLMENT BUYER ACT or goods so received (NCC, Art. 1522).
“MACEDA LAW”
It is embodied in R.A. 6552 which provides for certain Rule when the seller delivers goods greater than what
protection to particular buyers of real estate payable on he has contracted to sell
installments. The law declares as "public policy to protect 1. The buyer may accept only the goods which were
buyers of real estate on installment payments against included in the contract and reject the excess; or
onerous and oppressive conditions.” 2. The buyer may accept the entire goods delivered and
he shall pay for them at the contract rate (NCC, Art.
Transactions/sale covered by the Maceda Law 1522)

Rule when the seller delivers goods which are mixed c. Warranty against non-apparent burden or
with other goods of different description not included servitude (NCC, Art. 1560)
in the contract
1. The buyer may accept the goods which are in d. Warranty against Hidden Defects (NCC, Art.1561)
accordance with the contract and reject the rest (NCC, i. Defect is important or Serious;
Art. 1522); or a. The thing sold is unfit for the use which it is
2. The buyer may also accept them all if he so desires, but intended; and
he must pay for them all. b. Diminishes its fitness for such use or to such
an extent that the buyer would not have
Rule if the subject matter is indivisible acquired it had he been aware thereof.
The buyer may reject the whole of the goods (NCC, Art. ii. Defect is Hidden;
1522). iii. Defect Exists at the time of the sale;
iv. Buyer gives Notice of the defect to the seller
Duty of the seller with regard to accessions and within reasonable time;
accessories v. Action for rescission or reduction of the price is
The seller has the duty to preserve the thing and its brought within the proper period;
accessions and accessories from the time of the a. 6 months – from delivery of the thing sold
perfection of the contract of sale (NCC, Art. 1537). (NCC, Art. 1571); and
b. Within 40 days – from the delivery in case
Rule when the sale of immovable is by unit of of redhibitory action on the sale of defective
measure or number animals. (NCC, Art. 1577).
General Rule: The seller must deliver all that may have been vi. There must be no waiver of warranty on the part
stated in the contract. of the buyer.
Exception: If impossible to deliver all, the buyer may choose
between: Specific implied warranties in sale of goods
a. Proportional reduction of the price; or 1. Warranty of fitness for the purpose – that the goods
b. Rescission of the contract provided the deficiency is are suitable for the special purpose of the buyer which
not less than 1/10 of the area stated in the contract will not be satisfied by mere fitness for general
(NCC, Art. 1539). purposes.
2. Warranty of merchantability- that goods are
Prescription period for the action of rescission of contract: 6 reasonably fit for the general purpose for which they
months from the day of delivery. are sold.
WARRANTIES CONDITION
A statement or representation made by the seller of goods, An uncertain event or contingency upon the happening of
as part of the contract of sale, having reference to the which the obligation or right of the contract depends. In
character, quality, or title, of the goods, and by which he such case, the obligation of the contract does not attach
promises or undertakes to insure that certain facts are or until the condition is performed.
shall be as he then represents.
Effect of non-fulfillment of a condition
Kinds of warranties The other party may:
1. Express warranties. Any affirmation of fact or any 1. Refuse to proceed with the contract; or
promise by the seller relating to the thing if the natural 2. Proceed w/ contract, waiving the performance of the
tendency of such affirmation or promise is to induce condition.
the buyer to purchase the same, and if the buyer Condition v. Warranty
purchases the thing relying thereon (Art. 1546). CONDITION WARRANTY
Prescriptive period: Purports to the existence Purports to the
1. That specified in the contract or of performance of obligation.
2. 4 years, if no stipulation obligation.
Must be stipulated to Need not be stipulated;
2. Implied Warranties. Warranties deemed included in form part of the may form part of
all contracts of sale by operation of law (NCC, Art. obligation. obligation by provision of
1547). law
a. Warranty that seller has right to sell – refers to May attach itself to Relates to the subject
consummation stage. Not applicable to sheriff, obligation of seller to matter itself or to
auctioneer, mortgagee, pledgee (NCC, Art. 1547); deliver possession and obligation of the seller as
and transfer. to the subject matter of
the
b. Warranty against dation (Art. 1548) sale.
i. Final Judgment;
ii. Buyer is Evicted in whole or in part from EXTINGUISHMENT OF SALE
the subject matter of sale; A contract of sale is extinguished by:
iii. Basis of eviction is a right Prior to sale or 1.Same causes as how an obligation is extinguished,
act imputable to seller; namely:
iv. Seller has been Summoned in the suit for a. Payment or performance;
eviction at the instance of buyer; or made b.Loss of the thing due;
3rd party defendant through 3rd party c. Condonation or remission of the debt;
complaint brought by buyer; and d.Confusion or merger of the rights of creditor and
v. No waiver on the part of the buyer. debtor;
e. Compensation;

f. Novation; 4. Sale of adjacent rural lands not exceeding 1 hectare

g.Annulment; (NCC, Art. 1621);
h.Rescission; 5. Sale of adjacent small urban lands bought merely for
i. Fulfillment of resolutory condition; or speculation (NCC, Art. 1622).
j. Prescription
2.Conventional Redemption EQUITABLE MORTGAGE
3.Legal redemption One which lacks the proper formalities, form or words or
other requisites prescribed by law for a mortgage, but
REDEMPTION shows the intention of the parties to make the property
It is a mode of extinguishment wherein the seller has the subject of the contract as security for a debt and contains
right to redeem or repurchase the thing sold upon return of nothing impossible or contrary to law
the price paid.
Essential requisites of equitable mortgage
A. Conventional Redemption 1. Parties entered into a contract of sale;
Seller reserves the right to repurchase thing sold coupled 2. Their intention was to secure an existing debt by
with obligation to return the purchase price of the sale, way of a mortgage.
expenses incurred under the contract, other legitimate
payments and, necessary & useful expenses made on the Presumption of Equitable Mortgage
thing sold (Art. 1601 in relation to Art. 1616 of the Civil A sale with conventional redemption is deemed to be an
Code). equitable mortgage in any of the following cases (NCC, Art.
1602)
Other person can exercise the right to repurchase 1. Price of the sale with right to repurchase is unusually
The right to repurchase may be exercised by any person to Inadequate;
whom the right of repurchase may be transferred, or in case 2. Seller Remains in possession as lessee or otherwise;
of legal redemption, by the person so entitled by law. 3. Upon or after the expiration of the right to
repurchase another instrument extending the period
Period of Redemption of redemption or granting a new period is executed;
1. No period agreed upon – 4 years from date of 4. Purchaser Retains for himself a part of the purchase
contract; price;
2. When there is agreement – should not exceed 10 5. Seller binds himself to pay the Taxes on the thing
years; but if it exceeded, valid only for the first 10 sold;
years (NCC, Art. 1606); 6. In any other case where the real intention of the
3. When period to redeem has expired & there has parties is that the transaction shall Secure the
been a previous suit on the nature of the contract – payment of a debt or the performance of any other
seller still has 30 days from final judgment on the obligation; or
basis that contract was a sale with pacto de retro; 7. Art. 1602 shall also apply to a contract purporting to
4. When period has expired & seller allowed the period be an Absolute sale (Art. 1604)
of redemption to expire – seller is at fault for not
having exercised his rights so should not be granted Pactum Commissorium
a new period. A stipulation for automatic vesting of title over the security
in the creditor in case of debtor’s default. The creditor
Obligations of the vendor a retro if he desires to redeem cannot appropriate the things given by way of pledge or
The vendor a retro must pay or reimburse the vendee a mortgage or dispose of them, otherwise that would result in
retro the following: pactum commissorium. The proper remedy is foreclosure of
1. Price of the sale; the mortgage. If there is no foreclosure, the debtors retain
2. Expenses of the contract; the ownership.
3. Other legitimate expenses; and
4. Necessary and useful expenses. ASSIGNMENT OF CREDITS
Assignment is the process of transferring gratuitously or
Written notice mandatory for the right of redemption to onerously the right of the assignor to the assignee, who
commence would then be allowed to proceed against the debtor.
Written notice is mandatory for the right of redemption to
commence and the notice must be in writing stating the The assignment involves no transfer of ownership but
execution of the sale and its particulars. It may be made in merely effects the transfer of rights which the assignor has
a private or public document. at the time to the assignee.
B. Legal Redemption
It is the right to be subrogated upon the same terms and Effects of Assignment
conditions stipulated in the contract, in the place of one who 1. Transfers the right to collect the full value of the
acquires the thing by purchase or by dation en pago or by credit, even if he paid a price less than such value;
other transaction whereby ownership is transmitted by 2. Transfers all accessory rights;
onerous title (NCC, Art. 1619). 3. Debtor can set up against the assignee all the
defenses he could have set up against the assignor.
Instances of legal redemption
1. Sale of a co-owner of his share to a stranger (NCC, Effectivity against Third Persons
Art. 1620) If personal property is involved — a public instrument is
2. When a credit or other incorporeal right in litigation needed to make the assignment effective against third
is sold (NCC, Art. 1634); persons.
3. Sale of an heir of his hereditary rights to a stranger If real property is involved –– registration in the Registry of
(NCC, Art. 1088); Property would be needed.

2. Accessory Contract – it has no independent

The assignee merely steps into the shoes of the assignor, existence of its own; cannot exist without a valid
the former acquiring the credit subject to defenses (e.g. contract;
fraud, prescription, etc.) available to the debtor against the 3. Unilateral Contract – The obligation is solely on the
assignor. The assignee is deemed subrogated to the rights part of the creditor to return the thing pledged upon
as well as to the obligations of the seller. He cannot acquire fulfillment of obligation;
greater rights than those pertaining to the assignor. 4. Subsidiary Contract – The obligation incurred does
not arise until the fulfillment of the principal
Credit Transactions obligation.
Credit Requisites of a contract of pledge
It is a person’s ability to borrow money by virtue of 1. Constituted to secure the fulfillment of a principal
confidence or trust reposed in him by the lender that he will obligation (NCC, Art. 2085);
pay what he may promise. 2. Pledgor is the absolute owner of the thing pledged;
(NCC, Art. 2085);
Credit transaction 3. Persons constituting the pledge have the free
It refers to an agreement based on trust or belief of disposal of their property, and in the absence
someone on the ability of another person to comply with his thereof, that they be legally authorized for the
obligations. purpose (NCC, Art. 2085); and
4. That the thing pledged be placed in the possession of
It includes all transactions involving the purchase or loan of the creditor, or of a third person by common
goods, service, or money in the present with a promise to agreement (NCC, Art. 2093).
pay or deliver in the future. 5. Pledge must be embodied in a public instrument to
affect third persons
SIMILARITIES OF PLEDGE AND MORTGAGE The following must appear in the public instrument
in order to affect third persons:
1. Both are constituted to secure a principal a. A description of the thing pledged; and
obligation; they are only accessory contracts (NCC, b. Statement of date when the pledge was
Arts. 2086, 2052); executed (NCC, Art. 2096).
2. Both pledgor and mortgagor must be the absolute
owner of the property (NCC, Arts. 2085, par. 2); However, failure to make the pledge in a public instrument
3. Both pledgor and mortgagor must have the free will not affect its validity. It is still valid between the parties,
disposal of their property or be authorized to do so; but it will not bind third person if the said provision is not
and complied with.
4. In both, the thing proffered as security may be sold
at public auction, when the principal obligation In connection with Item 2, the thing pledged may be
becomes due and no payment is made by the debtor. alienated by the pledger or owner, subject to the pledge. The
ownership of the thing pledged is transmitted to the vendee
Indivisibility of pledge, mortgage and antichresis or transferee as soon as the pledgee consents the alienation,
As a rule, a pledge, mortgage or antichresis is indivisible. The but the latter shall continue in possession.
mortgage is indivisible even if the obligation of the debtor is
joint and not solidary. Objects of Pledge
Obligations that can be secured by pledge, mortgage 1. All movables which are within commerce may be
and antichresis pledged, provided they are susceptible of possession.
1. Valid obligations; 2. Incorporeal rights evidenced by proper document
2. Voidable obligations; can be pledged. It is, however, required that the
3. Unenforceable obligations; actual instrument be delivered to the pledgee. More,
4. Natural obligations; and if the instrument is a negotiable document, it must
5. Conditional obligations be endorsed (NCC, Art. 2095).
PLEDGE When two or more things are pledged
It is a real contract which is not perfected until delivery of When two or more things are pledged, the pledgee may
the object of the obligation (NCC, Art. 1316). choose which he will cause to be sold, unless there is a
stipulation to the contrary (NCC, first sentence, Art. 2119).
A promise to constitute a pledge or mortgage, if accepted,
gives rise only to a personal right binding upon the parties The restriction on the right of the pledgee under the 1st
and creates no real right in the property (NCC, Art. 2092). sentence of Art. 2119 is that he may only demand the sale
What exists is only a right of action to compel the fulfillment of only as many of the things as are necessary for the
of the promise but there is no pledge yet. payment of the debt (NCC, second sentence, Art. 2119)
Prohibition on double pledge

Characteristics:
A property already pledged cannot be pledged again while
1. Real Contract – It is perfected by delivery of the first pledge is still subsisting.
the thing pledged;
Obligations of the PLEDGEE

Foreclosure of the thing pledged

1. Take care of the thing pledged with the diligence of
a good father of a family (NCC, Art. 2099); If the debtor failed to pay on maturity date, the thing pledged
2. The pledgee cannot deposit the thing pledged to a or mortgaged may be sold at public auction as provided by
third person unless there is stipulation to the contract law so that the proceeds may be used for payment of the
(NCC, Art. 2100). obligation.
3. Apply the fruits, income, dividends, or interests
produced or earned by the property, to interests or Options of an unpaid creditor
expenses first, then to the principal (NCC, Art 210
2); 1. Foreclose the thing pledged; or
4. Pledgee cannot use the thing pledged without 2. Abandon the pledge and file a claim for collection
authority (NCC, Art. 2104); (NCC, Art. 2087).
XPNs:
a. If the pledgor had given him authority or Procedure for the public sale of a thing pledged
permission to use it; or
b. If the use of the thing is necessary for its 1. The obligation must be due and unpaid;
preservation but only for that purpose 2. The sale of the thing pledged must be at public
5. Return the thing pledged upon payment of debt auction;
3. There must be notice to the pledgor and owner,
Return of the pledge, when demandable stating the amount for which the sale is to be held;
4. The sale must be conducted by Notary Public
If there are reasonable grounds to fear the destruction or
impairment of the thing pledged, without the fault of the Who can bid in a public auction
pledgee, the pledgor may demand the return of the thing,
upon offering another thing in pledge, provided the latter is 1. The public;
of the same kind as the former and not of inferior quality, 2. Pledgor/owner/debtor – They shall be preferred if
and without prejudice to the right of the pledgee under the same terms as the highest bidder is offered; and
provisions of the following article. The pledgee is bound to 3. Pledgee/creditor – He must not be the only bidder,
advise the pledgor, without delay, of any danger to the thing otherwise, his bid is invalid and void
pledged (NCC, Art. 2107).
Effect of sale of the thing pledged
Return of the thing pledged
It extinguishes the principal obligation;
The return of the thing pledged to the pledgor by the pledgee 1. If the price of the sale is more than the amount of
shall extinguish the pledge. Any stipulation to the contrary the debt, the excess will go the pledgee;
shall be void (NCC, Art. 2110). 2. If the price of the sale is less than the amount of the
debt, the pledgee is not entitled to recover the
Presumption of return to the pledgor/owner by the deficiency in all cases even if there is a stipulation to
pledgee that effect (NCC, Art. 2115).
There is a prima facie presumption that the thing pledged has Effect when the thing pledged was not sold at the first
been returned by the pledgee to the pledgor or owner, in any public auction
of the following circumstances:
1. If the thing is found in the possession of the pledgor When the property was not sold at the first auction, there will
or owner after the pledge had been perfected; or be another setting for the second auction following the same
2. If the thing is found in the possession of a third formalities.
person who received it from the pledgor or owner
after the perfection of the pledge [NCC, Art. If no sale was effected in the second public auction, the
2110(2)]. pledge is allowed to appropriate the thing pledged.
Renunciation of the pledge by the pledgee REAL ESTATE MORTGAGE
The renunciation or abandonment of the pledge by the Real estate mortgage (REM) is a contract whereby the debtor
pledgee requires a statement in writing to that effect (NCC, secures to the creditor the fulfillment of the principal
first sentence, Art. 2111). Acceptance or return of the thing obligation, specially subjecting to such security immovable
is not necessary for the validity of the renunciation. property or real rights over immovable property in case the
principal obligation is not fulfilled at the time stipulated.
Obligations of PLEDGOR
1. To advise the pledge of the flaws of the thing (NCC, Characteristics of real estate mortgage
Arts. 2101 and 1951);
2. Not to demand the return of the thing until after full 1. It is a real right;
payment of the debt, including interest due thereon 2. It is an accessory contract;
and expenses incurred for its preservation (NCC, Art. 3. It is indivisible;
2105). 4. It is inseparable;
5. It is real property;
NOTE: Pledgor may be allowed to substitute the thing 6. It is subsidiary;
pledged which is in danger of destruction or impairment with 7. It is a limitation on ownership;
another thing of the same kind and quality, subject to 8. It can secure all kinds of obligations;
provisions of NCC, Art. 2107. 9. The property cannot be appropriated; and
10. The mortgage is a lien.

b. Deficiency – The mortgagee is entitled to recover

Kinds of real mortgages the deficiency.
1. Voluntary or Conventional mortgage – It is PLEDGE v. REAL ESTATE MORTGAGE

constituted voluntarily by the contracting parties;
2. Legal mortgage – It is required by law to be Basis Pledge REM
executed in favor of certain persons (NCC, Arts. Contract Real contract Consensual
2125, par. 2; 2082 and 2083); contract
3. Equitable mortgage – The intention of the parties Kind of Subject matter is Subject matter
is to make the immovable as a security for the Property personal property is personal
performance of the obligation but the formalities of a property
real mortgage are not complied with. Delivery Property delivered to Not necessary
pledgee or by consent
Requisites for a valid constitution of a real estate to a third person.
mortgage Possession Possession of the Possession of
thing pledged is the thing
1. That they be constituted to secure the fulfillment of vested in the creditor mortgaged
a principal obligation; remains with the
2. That the mortgagor be the absolute owner of the debtor.
thing mortgaged; Fruits Pledgee has the right Mortgagee does
3. That the person constituting the mortgage have the to receive the fruits of not possess such
free disposal of their property, and in the absence the thing pledged, right.
thereof, that they be legally authorized for the with the obligation of
purpose; applying the same to
4. It must appear in a public instrument (NCC, Art. the interest of the
2125); debt, if owing, and
5. Recording in the Registry of Property is necessary to the balance, if any, to
bind third persons. the principal.
Authority Pledgor can sell the Mortgagor can
A stipulation forbidding the owner from alienating the to Sell thing pledged only sell the property
immovable mortgaged shall be void. with the consent of mortgaged even
the pledgee. without the
Rights of mortgagor consent of the
mortgagee.
To alienate the mortgaged property but the mortgage shall
remain attached to the property (NCC, Art. 2130) CHATTEL MORTGAGE
Extent of Mortgage By a chattel mortgage, personal property is recorded in the
Chattel Mortgage Register as a security for the performance
1. Natural accessions; of an obligation. If the movable, instead of being recorded, is
2. Improvements; delivered to the creditor or a third person, the contract is a
3. Growing fruits; pledge ant not a chattel mortgage.
4. Rents or income not yet received when the obligation
becomes due; and A chattel mortgage can only cover obligations existing at the
5. Amount of indemnity granted or owing to the time the mortgage is constituted and not to obligations
proprietor from: subsequent to the execution of the mortgage.
a. Insurance proceeds; or
b. Expropriation price (NCC, Art. 2127).
Characteristics of chattel mortgage
XPNS:
1. Express stipulation excluding them; or 1. It is a real right;
2. Evidence sufficiently overthrowing the presumption that 2. It is an accessory contract;
the mortgagor owns the mortgaged property 3. It is indivisible;
4. It is unilateral;
Causes of Action of Mortgagee-Creditor 5. It does not convey dominion but is only a security.
Mortgage-creditor has a single cause of action against the Requisites for a valid constitution of a chattel
mortgage-debtor, which is to recover the debt, but he has mortgage
the option to either:
1. File a personal action for collection of sum of 1. That they be constituted to secure the fulfillment of
money; or a principal obligation;
2. 2. Institute a real action to foreclose on the 2. That the mortgagor be the absolute owner of the
mortgaged property. thing mortgaged;
3. That the person constituting the mortgage have the
NOTE: The remedies are alternative, not cumulative. free disposal of their property, and in the absence
thereof, that they be legally authorized for the
Foreclosure of Mortgage purpose;
4. It must be recorded in the chattel mortgage registry.
a. Excess – The mortgagor is entitled to excess
PLEDGE v. CHATTEL MORTGAGE

7. Indivisible in nature (NCC, Art. 2090)

Basis Pledge Chattel
Mortgage Form of a contract of antichresis and its contents
Delivery Delivery is necessary. Delivery is not
necessary 1. Covers only the fruits of real property but not the
Governing NCC, Art. 2112 Procedure for immovable itself;
Law the sale of the 2. Delivery of the immovable is necessary for the
thing given as creditor to receive the fruits and not that the contract
security is shall be binding;
governed by Act 3. Amount of principal and interest must be specified in
No. 1508, Sec. writing (NCC, Art. 2134);
14. 4. Express agreement that debtor will give possession
Excess If the property is sold, If the property is to the creditor and that the creditor will apply the
the debtor is not foreclosed, the fruits to the interest and then to the principal (NCC,
entitled to the excess excess goes to Art. 2134).
unless otherwise the debtor.
agreed. ANTICHRESIS v. PLEDGE
Recovery of The creditor is not The creditor is
Deficiency entitled to recover the entitled to Basis Antichresis Plegde
deficiency recover the Kind of Real property Personal
notwithstanding any deficiency from Property property
stipulation to the the debtor Perfected By mere By delivery
contrary except if the consent (Real)
chattel (Consensual)
mortgage is a Necessity Principal and interest Need not be in
security for the of Putting must be specified in writing, oral
purchase of into writing, otherwise evidence may be
property in Writing contract is void. allowed to prove
installments. the same.
Possession Possession remains Possession is Effect in Debtor loses control of the subject matter
with the creditor. vested in the the of the contract.
debtor. Debtor’s
Contract Real contract Real contract Control
Registration Must be in a public Must be
instrument containing recorded in a
description of the public ANTICHRESIS v. REAL ESTATE MORTGAGE
thing pledged and the instrument to
date thereof to bind bind third Basis Antichresis REM
third persons. persons. Delivery Property is delivered Debtor usually
Validity Not valid unless a Not valid against to creditor. retains
against 3rd description of the third persons possession of
persons thing and the date of unless the property
pledge appear in a registered Right to Creditor acquires only Creditor has no
public instrument. (although fruits the right to receive right to receive
binding between the fruits of the fruits, but
the parties). property; does not mortgage
produce a real right creates real right
unless registered in against the
the Registry Property property
ANTICHRESIS Obligation Creditor obliged to Creditor has no
to pay pay the taxes and such obligation
It is a contract whereby the creditor acquires the right to taxes charges upon the
receive the fruits of an immovable of the debtor, with the estate unless
obligation to apply them to the payment of interest, if owing, stipulated otherwise.
and thereafter to the principal of his credit (NCC, Art. 2132). Obligation There is an express There is no such
to apply stipulation that the obligation on the
Characteristics of antichresis fruits to creditor shall apply part of the
the the fruits to the mortgagee.
1. Accessory contract; interest payment of the
2. Formal contract – the amount of the principal and interest, if owing, and
of the interest must both be in writing (NCC, Art. thereafter to the
2134); principal of the debt.
3. It deals only with immovable property; Subject Real property
4. It is a real right; matter
5. The creditor has the right to receive the fruits of the
immovable;
6. It can guarantee all kinds of valid obligations (NCC,
Arts. 2091 & 2139); and

SALES MC QUESTIONS
1. Statement No. 1 - In a contract of sale, after delivery c. waiver consciente

has been made, the seller has lost ownership and d. caveat emptor
cannot recover it unless the contract is resolved or e. caveat venditor
rescinded.
Statement No. 2 – In a contract to sell, title over the 5. When an earnest money has been paid by the buyer to
property generally passes to the buyer upon delivery. the seller, then:
a. Statement No. 1 is true; Statement No. 2 is false. a. there is necessarily a valid contract of sale
b. Statement No. 1 is false; Statement No. 2 is true. b. it forms part of the purchase price
c. Both are true c. the Statute of Frauds cannot possibly apply
d. Both are false d. all of the above
e. None of the above e. none of the above
2. B, in good faith, bought a diamond ring from a public 6. Which of the following obligations of the vendor cannot
auction. Later, M identified the ring as the one she had be waived:
lost about a year ago in a theft incident. There is no a. to allow the buyer to examine the goods sold
question that M is the true owner. In this case – b. to transfer ownership to the buyer
a. B should return the ring but is not entitled to c. to pay the expenses of the deed of sale
reimbursement. d. to warrant the thing sold
b. B should return the ring but is entitled to e. correct answer not given
reimbursement.
c. B should not return the ring even if there is 7. S sold to B a parcel of land for a lump sum of P50,000.
reimbursement. The contract states that the area is 500 square meters.
d. B should not return the ring but should pay the Subsequently, it was ascertained that the area included
owner thereof. within the boundaries is really 550 square meters.
e. None of the above. a. S is bound to deliver 500 square meters and B to
pay P50,000
3. The period of prescription for redhibitory defect based b. S is bound to deliver 500 square meters and B to
on frauds or defects of animals. pay P55,000
a. ten years from the violation of the obligation. c. S or B can rescind the sale because there is no
b. six months from the delivery of the object. meeting of the minds
c. 40 days from date of delivery to the buyer. d. None of the above
d. 4 years from the perfection of the contract
8. In the preceding question, if the land contains 445
4. The thing perishes with the owner. square meters, which of the following is correct?
a. genus nun quam peruit a. S is bound to deliver 500 square meters and B to
b. res perit domino pay P50,000

b. S is bound to deliver 445 square meters and B to a. Yes, the agreement between the seller and the
pay P44,500 buyer is the law between the parties.
c. B may rescind the sale because the lack in area is b. Yes, in chattel mortgage, the seller is allowed to
more than 1/10 of the total area recover the deficiency but not in pledge.
d. None of the above c. Yes, otherwise the buyer will be liable for damages
for breach of contract
9. It is the waiver made voluntarily by the vendee without d. No, the seller has already opted to foreclose, hence,
knowledge and assumption of the risks of eviction. he is no longer entitled.
a. consciente d. reivindicatoria e. No, there being no previous notice to the buyer of
b. intentionada e. accion pauliana the foreclosure.
c. publiciana f. a, b and c
g. d and e
10. It is the warranty that the goods are reasonably fit for h. Answer not given
the general purpose for which they are sold.
a. Merchantability c. surety 17. Greg and Brad entered into an agreement wherein Greg
b. fitness d. answer not given will deliver a particular BMW car to Brad for the price of
P3M. Upon the execution of the contract, Brad advanced
11. It is the right to be subrogated, upon the same terms the entire P3M to Greg. It was, however, stipulated that
and conditions stipulated in the contract, in the place of the car shall be delivered to Brad on March 28, 2005.
one who acquires a thing by purchase or dation in Unfortunately, before the arrival of that date, the BMW
payment or by any other transaction where ownership was completely destroyed without any fault of Greg.
is transmitted by onerous title. Can Brad recover the P3M he had already advanced to
a. legal title c. equitable mortgage Greg?
b. legal pre-emption d. legal redemption a. Yes, the loss is imputable to the vendor, Greg
12. It is a contract by which one person transfers his rights b. Yes, the ownership of car belongs to Greg when the
and actions against a third person in consideration of a car was completely destroyed.
price certain in money or its equivalent. c. No, the car was lost without any fault of Greg.
a. dation in payment c. payment by cession d. No, the ownership of the car belongs to Brad when
b. assignment of credit d. barter the car was completely destroyed.
e. Answer not given
13. The period of prescription wherein the debtor may
exercise his right or redemption. 18. Junjun offered to sell for P2M his house and lot to
a. 40 days Tonton who was interested in buying the same. In his
b. 30 days d. 2 years letter to Tonton, Junjun stated that he was giving
c. six months e. 10 years Tonton a period of one month within which to raise the
amount and that as soon as Tonton is ready, they will
14. S1 – One who sells an inheritance without enumerating sign a deed of sale. One week before the expiration of
the things of which it is composed, shall only be the one-month period, Junjun went to Tonton and told
answerable for his character as an heir. him that he is no longer willing to sell his property
S2 - The interest in mutuum must be in writing to be unless the price is increased to P3M.
enforceable. a. Tonton can compel Junjun to sell the property for
a. Both are true c. S1 is true, S2 is false P2M because the one-month period has not yet
b. Both are false d. S1 is false, S2 is true elapsed.
b. Tonton can compel Junjun to sell the property at
15. FPJ Appliance Store is selling Starstruck vacuum P2M if he already signified his acceptance before the
cleaners on a two-week trial. Ping asked the store to expiration of the one-month period.
deliver to him one vacuum cleaner. Which of the c. Tonton cannot compel Junjun to sell the property at
following is correct. P2M because he never signified his acceptance of
a. Ping becomes the owner of the vacuum cleaner Junjun’s offer.
upon delivery. d. Tonton cannot compel to sell the property at P2M
b. The sale shall be absolute if Ping will not return the even if he signified his acceptance to Junjun’s offer
vacuum cleaner after two weeks. because that is not binding on the latter, being
c. Ping can return the vacuum cleaner to the store merely an accepted unilateral promise.
even if he finds nothing wrong with the quality of e. Both b and c
the said cleaner. f. Both a and b
d. Ping has to pay the price of the vacuum cleaner if g. Both c and d
the vacuum cleaner is destroyed by a fortuitous h. Answer not given
event.
e. Answer not given 19. Mendrez shoe store, Inc. entered into separate
contracts with two movie stars, Troy and Aubrey. With
16. Britney bought a Toyota Vios car on installment plan, Troy, the agreement was that the store shall deliver, at
and as a security, she executed a chattel mortgage on a specified date and for a price of P3,000.00, a pair of
it. She failed to pay three installments. The seller was Mendrez shoes which the store had been manufacturing
able to foreclose (sold in pubic auction) the mortgaged for the general public, but at the time of the contract,
car, but the sum he obtained was less than what Britney had already been sold out. With Aubrey, the agreement
still owed him. It had been previously agreed in the was that the store shall deliver, at a specified date for a
deed of sale that Britney would be liable for any price of P4,000.00, a pair of shoes made specially for
deficiency in this matter. May the seller still recover the her, in accordance with a design submitted by her.
deficiency? a. both are contracts of sale
b. both are not contracts of sale

c. Troy’s contract is sale, Aubrey’s contract is a piece II. A negotiable document of title if marked “non-
of work negotiable” can still be further negotiated.
d. Troy’ contract is piece of work, Aubrey’s contract is III. The general rule is that the vendor should not
sale deliver the thing sold if the vendee has not paid the
e. Troy’s contract is barter, Aubrey’s contract is a piece price.
of work a. All are true. e. II/III are true; I is false
b. All are false. f. II/III are false; I is true
20. X sold to Y his vehicle for P500,000.00. Upon receipt of c. I/II are true; III is false g. I/III are true; II is false
the payment, X gave the car keys to Y. However, before
d. I/II are false; III is true h. I/III are false; II is true
reaching the car, it was bumped by a speeding truck
destroying it totally.
a. Under the situation, Y shall bear the loss since there 26. A bought a piece of land on a rate of a certain price for
is already a delivery of the vehicle. a unit of measure basis. The contract stated a certain
b. X shall suffer the loss for Y has yet to have control number of square meters but the land included in the
of the vehicle. boundaries happen to be less. What are the
c. Y can insist on the rescission of the contract of sale options/rights of A?
for the loss of the vehicle. a. The additional square meters must be given to A.
d. Both parties shall equitable suffer the loss. b. A has no further action since rescission is not a
e. Y is not liable to pay the price, the object of the remedy following the principle of caveat emptor.
contract is already lost. c. A has no further action since the law is explicit that
there shall be no other further action by the buyer
21. X, a minor, bought a car for P1M from Y. Several days against the seller.
after, Y went to X and insisted that the sale is not valid d. A may pay only a proportionate reduction of the
considering that at the time of the execution of the price.
contract of sale, X, was a minor, and that real value of e. A may rescind the contract, provided that the lack
the car is only P500,000.00. of area be not less than one-tenth of that stated.
a. Under the situation, the contract between X and Y f. Both a, d and e.
is deemed void by reason of the minority of X. g. Both b and c
b. The contract between X and Y is merely rescissible h. None of the above
there being damage to the seller.
c. The contract between X and Y is merely voidable by 27. I. The contract of sale is a real contract.
reason of the minority of X. II. The contract of sale is a preparatory contract.
d. The contract is valid for the same involves III. The contract of commodatum is perfected from time
necessaries and X can recover the excess of the of the delivery of the object of the contract.
consideration given. a. All are true. e. II/III are true; I is false
e. The contract is unenforceable, it not being in writing b. All are false. f. II/III are false; I is true
c. I/II are true; III is false g. I/III are true; II is false
22. Suppose what was sold to the minor were necessaries d. I/II are false; III is true h. I/III are false; II is true
such as clothing and medical attendance.
a. Under the situation, the contract between X and Y
28. I. Possession of an immovable, in case of double sale
is deemed void by reason of the minority of X.
of real property, is superior than registration of the sale
b. The contract between X and Y is merely rescissible
of real property.
there being damage to the seller.
II. In case of personal property, the buyer who took
c. The contract between X and Y is merely voidable by
possession thereof in good faith is the owner of the
reason of the minority of X.
thing.
d. The contract is valid but the minor must pay a
III. The vendee need not appeal the decision in order
reasonable price therefor.
that the vendor may become liable for eviction.
e. The contract is unenforceable, it not being in writing
a. All are true.
b. All are false.
23. As a general rule, if the price is simulated, the sale is –
c. I/II are true; III is false
a. a. Valid d. Rescissible
d. I/II are false; III is true
b. b. Voidable e. Unenforceable
e. II/III are true; I is false
c. Void
f. II/III are false; I is true
g. I/III are true; II is false
24. Which of the following circumstances would sufficiently
h. I/III are false; II is true
raise the presumption of an equitable mortgage instead
of a contract of sale?
29. It is a remedy in case of a hidden defect where
a. Sandy sold her house to Carol but remained in
withdrawal or rescission of the contract with damages
possession as lessee.
is allowed.
b. Francis who sold his land to Steven with a right of
a. Accion redhibitoria d. Accion quanti minoris
repurchase for P25,000.00 when its market value is
b. Accion subragatoria e. Accion consciente
P250,000.00 at the time of the sale.
c. Accion pauliana
c. Celine, who retained P25,000.00 of the P35,000.00
purchase price of the computer set he sold to
30. F4 Company granted Jerry the exclusive right to sell in
Charles.
Mindanao a certain number of F4 T-Shirts, which the
d. All of the above
company was manufacturing at the invoice price in
e. Only a and b
Manila, with a discount of P20 percent, the price to be
paid at the end of 60 days whether or not the T-shirts
25. I. A bearer negotiable document of title can be
are sold. The contract between Jerry and F4 company is
negotiated by mere delivery.
a:

a. Contract of agency to sell d. Emptio rei speretae 37. Connie transferred to Violeta a parcel of land for the
b. Contract of sale e. Emptio spei price of P100,000; P30,000 to be paid in cash and for
c. Contract to sell the difference, she will convey her car worth P70,000.
What kind of contract is this?
31. Which of the following is not an implied warranty in a a. Lease contract c. Obligation to sell
contract of sale? b. Contract to sell d. Barter
a. Warranty against eviction
b. Warranty against hidden defect 38. Lucy is a lessee of a store in a shopping mall. She orally
c. Warranty as to fitness sells/assigns his right to Salome. She then allows
d. Warranty as to merchantability Salome to occupy the stall. The delivery here is called:
e. All of the above a. Quasi-traditio d. Traditio brevi manu
f. None of the above b. Actual delivery e. Answer not given
c. Traditio longa manu
32. The unpaid seller of goods has the right to retain
possession of the goods until payment in the following 39. Pacto de Retro sale as distinguished from mortgage:
cases. Which is the exception? a. There is redemption when the principal debt is paid
a. Where the goods have been sold without any b. There is no transfer of possession of the thing sold
stipulation c. There is no foreclosure unless it is declared as an
b. Where the goods have been sold on credit but the equitable mortgage
term of credit has expired d. There is no transfer of ownership of the thing sold
c. Where the buyer becomes insolvent
d. When the buyer or his agent lawfully obtains 40. Which of the following statements is not correct?
possession of the goods a. Actual delivery of the thing or payment of the price
e. None of the above is not required for the perfection of the sale
b. A stipulation that even when the object is delivered
33. Pedro sold his land to Petra. Later on Pedro sold the to the buyer, ownership will not pass until the price
same to Carlo. Petra in turn sold the same land to is fully paid is not valid
Dennis, who took possession of the land in good faith. c. A sale is consummated upon delivery of the thing
Carlo, a purchaser in good faith registered the sale of and the payment of the purchase price
the land in his favor. Who is the owner of the land? d. Sale through letter or telegrams are perfected only
a. Carlo because he is the first registrant when acceptance by the buyer has been received by
b. Ownership of the land shall not be transferred as the seller
there is double sale
c. Pedro shall be liable only for damages to Petra 41. A case where the contract of sale must not necessarily
d. Dennis as his predecessor in interest was the first be in writing.
buyer a. Sale of 100 piculs of sugar at P400 per picul when
e. None of the above there is partial delivery
b. Sale where by the terms thereof cannot be
34. Antonio sold a piece of land to Renato binding himself performed within one year
not to sell the same to another person. On the following c. Sale of land
day, Antonio sold the land to Carlos who immediately
took possession in good faith. In the case at bar, the 42. A sold and delivered her diamond ring to B. It was
proper remedy of Renato is to: agreed that within ten days B will state and fix the price.
a. institute an action for the annulment of the sale to On the 10th day, B called up by telephone A and stated
Carlos; the price at P20,000 which A agreed. Is the sale
b. institute an action for the recovery of the land; perfected?
c. institute an action for damages against Antonio; a. No, at the time of the sale the price was not fixed
d. answer not given b. Yes, at the time of the sale the price was already
known
35. Seller sold to a buyer a piece of jewelry at a price of c. Yes, the price stated and fixed by the buyer was
P20,000. The contract provides that the buyer will pay accepted by the seller
the seller cash of P15,000 and for the balance, the buyer d. No, the price was left to the discretion of one of the
will give the seller a microwave oven worth P5,000. parties
What is the nature of the contract?
a. Sale 43. When does the buyer of a thing have the right to the
b. Partly sale and partly barter fruits of the thing bought?
c. Barter a. From the time the fruits are delivered
d. Commodatum b. From the time the obligation to deliver the thing
bought arises
36. Ownership of the thing is transferred/acquired/ c. From the time the sale is perfected
retained: d. From the time thing bought is delivered
a. Retained by the seller in “sale or return”
b. Transferred to the buyer upon constructive or actual 44. The seller warrants that he is the owner at the time of
delivery of the thing sold the sale.
c. Acquired by the buyer upon perfection of the The seller is liable for breach of warranties only if was
contract in bad faith.
d. Transferred to the buyer upon acceptance of the a. Both statements are true.
price b. Both are false.
c. First is true, second is false.
d. First is false, second is true.

51. Lester entered into a contract granting him a privilege,

45. X sold a parcel of land to Y with the agreement that for which he has paid a consideration, and which gives
payment is to be made on February 14, 205. It was him the right to buy certain merchandise or specified
stipulated that failure to pay on said date, the sale property, from another person, at anytime within the
would automatically be rescinded. Y failed to pay and agreed period, at a fixed price. What contract is being
asked for extension of time to pay. Decide: referred to?
a. Y may still pay and the sale is not rescinded if there a. Option Contract c. Contract to sell
was no demand for rescission. b. Contract of Sale d. Lease
b. The sale is rescinded as per agreement.
c. The sale is rescinded only after demand for payment 52. Which of the following contracts is void?
by the seller. a. An oral sale of a parcel of land.
d. Y may still pay despite rescission of the sale. b. A sale of land by an agent in a public instrument
where his authority from the principal is oral.
46. A, B, and C as brothers purchased from their parents c. A donation of a wrist watch worth P 4,500.00.
specific portions of a parcel of land as evidenced by d. A relatively simulated contract.
three separate deeds of sale, each deed referring to a
particular lot in meters and bounds. A sold his parcel of 53. Sarah ordered 3,000 potatoes from Becky at P10 per
land to X and B and C want to redeem the same. Decide: potato. Becky delivered 5,000 potatoes. What are the
a. Both B and C may exercise the right of redemption in rights and obligations of Sarah?
a pacto de retro sale. a. Sarah can accept all 5,000 potatoes and pay Becky
b. Either of B and C may exercise the right of at P10 per potato.
redemption given to them by X. b. Sarah can accept all 5,000 potatoes and pay a
c. B and C have the right of legal redemption lesser price for the 2,000 excess potatoes.
d. B and C have no right of legal redemption. c. Sarah can keep the 5,000 potatoes without paying
for the 2,000 excess since Becky delivered them
47. P is engaged in the printing business while S is his anyway.
supplier for printing paper. P has contract with R for the d. Sarah can cancel the whole transaction since Becky
printing of the latter’s school paper. For failure of P to violated the terms of their agreement.
pay for the deliveries of S, the latter stopped its
deliveries and as result P was not able to print the school 54. A warranty inherent in a contract of sale, whether or not
paper of R. R sued P for breach of contract and the latter mentioned in it, is known as the:
is suing S for damages due to its failure to make a. warranty on quality.
deliveries which affected P’s contract with R. Decide: b. warranty against eviction.
a. S is not liable for damages for because it has the c. warranty against hidden defects.
right of possessory lien as unpaid seller. d. warranty in merchantability.
b. S is liable for damages because of its failure to make
deliveries under its contract with P who 55. Super Mega Corporation produced sardines in cans
consequently failed to honor its contract with R. known as "Sardees." Sharon bought a can of Sardees
c. P is liable to R for damages but may recover from S from a store, ate it, and suffered from poisoning caused
for breach of contract. by a noxious substance found in the sardines. Sharon
d. R may claim damages from both S and P because it filed a case for damages against Super Mega
was damaged due to the fault of both. Corporation. Which of the following defenses will hold?
a. The expiry date of the "Sardees" was clearly printed
48. The following are the characteristics of a contract of on its can, still the store sold and Sharon bought it.
sale except: b. Sharon must have detected the noxious substance
a. Consensual c. Principal in the sardines by smell, yet she still ate it.
b. Onerous d. Innominate c. Super Mega Corporation had no transaction with
Sharon; she bought the "Sardees" from a store, not
49. Which phrase most accurately completes the statement directly from Super Mega Corporation.
– If at the time the contract of sale is perfected, the d. Super Mega Corporation enjoys the presumption of
thing which is the object of the contract has been safeness of its canning procedure and Sharon has
entirely lost: not overcome such presumption.
a. the buyer bears the risk of loss.
b. the seller bears the risk of loss. 56. Lucas Santos, without the authority of Julius Ang, owner
c. the contract shall be without any effect of a car, sold the same car in the name of Julius Ang to
d. the buyer may withdraw from the contract Winkie Aranza. The contract between Winkie and Julius
is ---
50. Can future inheritance be the subject of a contract of a. void because of the absence of consent from the
sale? owner, Julius Ang.
a. No, since it will put the predecessor at the risk of b. valid because all of the essential requisites of a
harm from a tempted buyer, contrary to public contract are present.
policy. c. unenforceable because Lucas Santos had no
b. Yes, since the death of the decedent is certain to authority but he sold the car in the name of Julius
occur. Ang, the owner.
c. No, since the seller owns no inheritance while his d. rescissible because the contract caused lesion to
predecessor lives. Winkie Aranza.
d. Yes, but on the condition that the amount of the
inheritance can only be ascertained after the 57. Gilbert entered into a contract to sell with Angelica,
obligations of the estate have been paid. undertaking to convey to the latter one of the five lots
he owns, without specifying which lot it was, for the

price of P1 Million. Later, the parties could not agree agreed period, at a fixed price. What contract is being
which of five lots he owned Lino undertook to sell to referred to?
Angelica. What is the standing of the contract? a. Option Contract
a. Unenforceable. c. Voidable b. Contract of Sale
b. Rescissible. d. Void c. Contract to Sell
d. Lease
58. I. If the thing is specially done at the order of another,
this is a contract of sale. 63. If movable property should have been sold to
II. If the thing is manufactured or procured for the different vendees, ownership shall belong to the
general market in the sale in ordinary course of one’s person:
business, it is a contract for a piece of work. a. Who have first taken possession in good
a. Both statements are correct. faith.
b. Both statements are incorrect. b. Who have paid in good the purchase price
c. Statement I is correct while statement II is in full.
incorrect. c. Who in good faith first recorded it in the
d. Statement I is incorrect while statement II is Registry of Property.
correct. d. Who presents the oldest title in good faith.
59. Which of the following contracts of sale is void? 64. If the price is uncertain,
a. Sale of EGM’s car by KRP, EGM’s agent, whose a. The buyer must pay a reasonable price.
authority is not reduced into writing. b. The sale is unenforceable.
b. Sale of EGM’s piece of land by KRP, EGM’s agent, c. The price is to be fixed by the court.
whose authority is not reduced into writing. d. The transaction is void.
c. Sale of EGM’s car by KRP, a person stranger to
EGM, without EGM’s consent or authority. 65. Where the seller of goods has a voidable title
d. Sale of EGM’s piece of land by KRP, a person thereto, but his title has not been avoided at the
stranger to EGM, without EGM’s consent or authority. time of sale, the buyer acquires title to the goods.
Such acquisition of title has the requisites, except:
60. Knowing that the car had a hidden crack in the engine, a. The buyer must have bought the goods in
X sold it to Y without informing the latter about it. In good faith.
any event, the deed of sale expressly stipulated that X b. The buyer must have bought them for value.
was not liable for hidden defects. Does Y have the right c. The buyer bought them without notice of the
to demand from X a reimbursement of what he spent to seller’s defect of title.
repair the engine plus damages? d. The party from whom the seller obtained the
a. Yes. X is liable whether or not he was aware of goods must ratify the sale.
the hidden defect.
b. Yes, since the defect was not hidden; X knew of 66. The Recto Law is applicable:
it but he acted in bad faith in not disclosing the a. Sale of car on straight term.
fact to Y. b. Sale of house on installment.
c. No, because Y is in estoppel, having changed c. Sale of car on installment where the buyer
engine without prior demand. constituted a mortgage on his vehicle.
d. No, because Y waived the warranty against d. In the foreclosure sale, should the vendee's
hidden defects. failure to pay cover two or more
installments.
61. Super Mega Corporation produced sardines in cans
known as "Sardees." Sharon bought a can of Sardees 67. Which of the following statements is not correct?
from a store, ate it, and suffered from poisoning caused a. The unpaid seller can exercise stoppage in
by a noxious substance found in the sardines. Sharon transitu if the buyer is insolvent and the such
filed a case for damages against Super Mega unpaid seller has not yet parted with the
Corporation. Which of the following defenses will hold? thing sold.
a. The expiry date of the "Sardees" was clearly b. In a contract of sale, warranty against
printed on its can, still the store sold and Sharon hidden defect is a natural element.
bought it. c. Retention of the bill of lading prevails over
b. Sharon must have detected the noxious buyer’s possession of goods as such
substance in the sardines by smell, yet she still retention is equal to the retention of a lien by
ate it. seller after the property has passed to the
c. Super Mega Corporation had no transaction buyer
with Sharon; she bought the "Sardees" from a d. The sale of a determinate thing (like land)
store, not directly from Super Mega includes all its accessions (like house
Corporation. thereon) and accessories even though they
d. Super Mega Corporation enjoys the may not have been mentioned.
presumption of safeness of its canning
procedure and Sharon has not overcome such 68. One of the following is not a remedy granted to an
presumption. unpaid seller:
a. Right of stoppage of goods in transit
62. Lester entered into a contract granting him a privilege, b. Right of lien over the goods
for which he has paid a consideration, and which gives c. Right to demand a security for payment of
him the right to buy certain merchandise or specified price
property, from another person, at anytime within the d. Right of resale

69. Which of the following is not a requisite of double c. 6 months

sale? d. 1 year
a. Two (or more) valid contracts of sale e. 4 years
b. Two (or more) sales transactions must
pertain to exactly the same subject matter CREDIT TRANSACTIONS MC QUESTIONS
c. Two (or more) buyers with the same
interest at odds over the rightful ownership 1. Which of the following statements regarding contract of
of the subject matter pledge is not correct?
d. The two (or more) buyers at odds over the a. A pledge cannot be constituted unless the thing
rightful ownership of the subject matter pledged be placed in the possession of the creditor.
must each have bought from the very same b. Pledge is a real contract because it is perfected by
seller delivery of the thing pledged.
c. Pledge is an accessory contract because it needs a
70. When the goods are delivered to the buyer, the principal obligation to exist.
ownership passes to the buyer in: d. A pledge cannot be constituted to secure the
a. Sale on approval performance of a voidable or unenforceable or even
b. Sale on satisfaction a natural obligation.
c. Sale or return
2. The following are requisites of Pledge except:
d. Contract to sell
a. The disposal of the property by the pledge.
b. Absolute ownership of the property pledged.
71. Which of the following obligations of the vendor cannot
c. The thing pledged may be placed in the possession
be waived? of a third person.
a. To allow the buyer to examine the goods sold d. To bind a third person, it must be recorded in the
b. To pay the expenses of the deed of sale office of the Register of Deeds.
c. To warrant the thing sold
d. To transfer ownership to the buyer 3. Pledge and mortgage are accessory contracts. Which of
the following statements is false?
72. Which of the following statements is not correct: a. They are meant to secure the fulfillment of a principal
a. Actual delivery of the thing or payment of the obligation.
price is not required for the perfection of the b. They cannot exist if the principal obligation is void.
sale. c. They can exist by themselves.
b. A stipulation that even when the object is d. They can secure fulfillment of rescissible obligation
delivered to the buyer, ownership will not pass
4. A stipulation whereby the pledgee or mortgagee
until the price is fully paid is not valid.
automatically becomes the owner of the thing pledge or
c. A sale is consummated upon delivery of the mortgaged:
thing and the payment of the purchase price. a. Pactum commisorium.
d. Sales through letters or telegrams are deemed b. Conventional redemption.
perfected only when acceptance by the buyer is c. Consolidation of ownership.
known to the seller. d. Consignation.
73. Statement 1: The sale of an immovable for a price less 5. A owes B the sum of P800. A pledge his solid Seiko gold
than P500 shall be enforceable even if not in writing. watch as security. Later, A borrowed an additional sum
of P200. from B. A paid B the P800 and demands the
Statement 2: The right of pre-emption may be return of the solid Seiko gold watch which was the
exercised by a co-owner property pledged. B refused. (Art. 2098 New Civil Code)
a. B should return the solid Seiko gold watch as the
a. True, False original loan was already paid.
b. True, True b. B should retain the watch until the P200 is paid.
c. False, True c. B should deposit the solid Seiko gold watch with the
d. False, False court.
d. B should sell the watch at public auction to the
74. Period to give notice in Pre-emption and redemption of highest bidder to insure the collection of P200.
urban land.
a. 10 days 6. Ben pledged his watch to V.Y. Domingo Agencia for
b. 20 days P5,000. On due date, Ben failed to redeem his watch.
c. 30 days The pawnshop sold the watch at a public auction to the
d. 40 days highest bidder at P4,000. (Art. 2115)
a. The pawnshop can recover the deficiency of P1,000
75. Period to file redhibitory defect for animals. from Ben.
a. 20 days b. The pawnshop cannot recover the deficiency of
b. 30 days P1,000 unless there is a stipulation.
c. 40 days c. The pawnshop cannot recover the deficiency of
d. 50 days P1,000 even if there is a stipulation.
e. 60 days d. The pawnshop can recover the deficiency of P1,000
even without stipulation
76. Period to file non-visible burden or servitude.
a. 30 days 7. Three of the following are essential requisites of a
b. 60 days contract of mortgage. Which is not?

a. The person instituting the mortgage has the free a. Interest in business.
disposal of his property. b. Growing fruits.
b. The contract must be in writing. c. Vessels.
c. The mortgagor is the absolute owner of the thing d. Shares of stocks.
mortgaged. e. Building of strong materials in which a rice cleaning
d. The mortgage is constituted to secure the fulfillment machinery was installed.
of a principal obligation
14. The distinction between a chattel mortgage and a pledge
8. Cuenca mortgaged his lot and house to Bascon as is that in chattel mortgage
collateral for the payment of his loan obligation. The a. The delivery of the personal property is necessary.
mortgage contract stipulates that Cuenca cannot sell the b. The registration of the property in the Registry of
property while the obligation exists. Before the maturity Property is not necessary.
of the mortgage, Diaz offered to buy the property from c. The excess over the amount due after foreclosure
Cuenca. goes to the debtor.
a. Cuenca cannot sell the property to Diaz unless he d. Answer not given.
pays the loan obligation.
b. Cuenca can sell the property only if Bascon consent 15. A bought a refrigerator on installments from B. To secure
to it. his indebtedness, A executed a chattel mortgage on the
c. Cuenca cannot sell the property to Diaz because of refrigerator in favor of B. Upon default by A on his
the agreement not to sell while the mortgage exists. payments, the refrigerator was foreclosed and sold for
d. Cuenca can sell the property to Diaz despite the P800 which was less than the balance of P1,000 due from
stipulation in the mortgage contract not to sell. A. How much can B still collect from A?
a. P200. c. P1,000.
9. O gets a loan of P100,000 from P which becomes due on b. P800. d. Nothing.
November 23, 2021 and mortgaged his house as security
for the debt. On September 22, 2021 the mortgaged 16. Three of the following are essential requisites of a
house was completely destroyed by fire. A week after, P contract of mortgage. Which is not?
demanded payment from O on September 29, 2021. Is a. The person constituting the mortgage has the free
P’s demand valid? disposal of his property
a. No, because the obligation is one with a definite b. The contract must be in writing
period and the demand would be prejudicial to the c. The mortgagor is the absolute owner of the thing
rights of the debtor. mortgaged
b. No, the obligation is extinguished because the object d. The mortgage is constituted to secure the fulfillment
of the obligation is lost through a fortuitous event. of the principal obligation
c. Yes, the debts become demandable because the
period established is for the benefit of the creditor. 17. A stipulation where the pledge or mortgagee
d. Yes, the debt becomes demandable because the automatically becomes the owner of the thing pledged
collateral was lost through a fortuitous event. or mortgaged.
a. Pactum commissorium
10. If redemption is made, which of the following will not be b. Precarium
paid by the seller to the buyer? c. Conventional redemption
a. Price paid by the buyer. d. Assignment of credit
b. Expenses in the execution of the sales contract paid
by the buyer. 18. Effect of a contract of antichresis if not the principal and
c. All necessary expenses on the thing sold and to be interest is not in writing –
redeemed. a. Valid c. Voidable
d. Interest of the price paid by the buyer. b. Unenforceable d. Void
11. A creditor, through a contractual arrangement verbally 19. It is the right of the mortgagor to redeem the
made within Mr. Benitez, is to receive the rentals of the mortgaged property after his default in the performance
Benitez apartment buildings in Quezon City with the of the conditions of the mortgage but before the sale of
obligation to apply them to the payment of the interest the mortgaged property.
and thereafter to the principal of his credit. This contract a. equity of redemption
is a valid. b. right of redemption
a. Pledge c. Guaranty c. right of pre-emption
b. Mortgage d. Antichresis d. judicial redemption
12. Which of the following is common requisite for Pledge, 20. The requirement in a contract of pledge so that it will be
Chattel, Mortgage and antichresis? binding to third persons.
a. The amount of principal and interest must be in a. Writing c. delivery
writing. b. public instrument d. registered
b. The property must be in the possession of the
creditor. 21. The following are real contracts, except:
c. To bind third person they must be duly recorded in a. deposit
the office of the Register of Deeds. b. pledge
d. It is constituted to secure the fulfillment of a principal c. commodatum
obligation. d. antichresis
13. Which of the following is not the subject matter of a 22. A kind of commodatum wherein the bailor may demand
chattel mortgage? the thing at will –

a. at will c. precarium 30. Deposits of money in banks and similar institutions,

b. pure d. irregular such as saving deposits and current account deposits
are classified as:
23. The purpose of the contract of deposit. a. Commodatum
a. Use c. Payment b. Mutuum
b. Consumption d. Safekeeping c. Deposit
d. Assignment of credit
24. D pledged his ring to C for P20,000.00. D failed to pay
his obligation on time despite repeated demands. C sold 31. A and B entered into a contract of loan without providing
it at a public auction for P18,000.00. that it shall earn interest. When the obligation became
a. C can recover the deficiency even without due and demandable, can A, the creditor, demand the
stipulation payment of interest.
b. C can recover the deficiency only if there is a a. Yes, it earns legal interest
stipulation b. Yes, interest is the accessory and it follows the
c. C can recover the deficiency provided there is principal
reimbursement c. No, since there is no stipulation
d. C cannot recover the deficiency even if there is a d. No, it is usurious interest
stipulation
e. C cannot recover the deficiency unless the contrary 32. The following are necessary deposit, except:
is provided a. Gratuitous deposit
b. In compliance with a legal obligation
25. A borrowed from B P30,000.00. A offered his specific c. On the occasion of any calamity
ring by way of pledge. It was expressly stipulated that d. By travelers in hotels or inns
upon non-payment of the debt on time, the ring would e. By travellers with common carriers
belong to B. This forfeiture clause, which traditionally is
not allowed is called: 33. It takes place when an attachment or seizure of
a. dacion en pago e. pacto reiratorio property in litigation is ordered.
b. pacto de retro f. pactum commissorium a. Foreclosure
c. pacto de non alienado g. both c & d b. Attachment of credit
d. pacto comisorio h. both d & f c. Judicial deposit
d. Pacto de retro
26. D1, D2 and D3 borrowed from C P30,000.00. As a e. Legal redemption
security, they mortgaged their undivided agricultural
land to C. Subsequently, D1 paid C P10,000.00. Is the 34. A guaranty can secure the following obligations, except:
mortgaged on D1’s share extinguished? a. Voidable d. Unenforceable
a. Yes, payment by one of the debtors extinguished b. Future e. Void
the obligation. c. Conditional
b. Yes, because the obligation is joint and they are
liable proportionately. 35. The following are the qualifications of the guarantor,
c. Yes, because of the benefit of division should extend except:
to all the debtors. a. Possesses integrity
d. No, because the obligation is solidary. Payment in b. Capacity to bind himself
part shall not extinguish the obligation. c. Has sufficient property
e. No, because a mortgage is considered indivisible. d. Must be competent
Payment in part shall not extinguish the obligation.
f. No, because there was no consent of the other 36. S1 – In commodatum, the loss is suffered by the bailor
debtors. since he is the owner.
g. Answer not given S2 – In mutuum, the borrower need to pay the same
amount of the same kind and quality
27. The term credit comes from the Latin term “credere” S3 – In judicial deposit, the purpose of the deposit is
which means: to preserve the status quo of the case.
a. Trust and confidence a. All are true. e. II/III are true; I is false
b. Delivery b. All are false. f. II/III are false; I is true
c. Trust c. I/II are true; III is false g. I/III are true; II is false
d. Acceptance d. I/II are false; III is true h. I/III are false; II is true
28. The following are real contracts, except:

a. Commodatum 37. To affect or be binding on third persons, a mortgage
b. Mutuum contract:
c. Deposit a. Written and duly notarized to be in public instrument.
d. Sale b. Need not be written since it is already binding on the
parties.
29. It is one whereby the bailor may demand the thing c. Must be in public instrument and registered.
loaned at will. d. May be in private instrument but must be registered.
a. Precarium
b. Irregular deposit 38. D borrowed a sum of money from C with G as guarantor.
c. Consumable The loan is in writing but the guaranty is oral. D failed
d. Non-consumable to pay C, who now is demanding payment from G. Can
G be compelled to pay?

a. Yes, because he is the guarantor obliged to pay in hotel’s parking attendant got the key of his car and gave
case the debtor defaults. him a valet parking customer’s claim stub. What
b. No, because the guaranty is void having been orally contract, if any, was perfected between Luis and the
made. hotel when he surrendered the key of his car to the
c. No, because the guaranty is unenforceable against hotel’s parking attendant?
G, it being oral. a. Mutuum d. Pledge
d. Yes, because the guaranty is enforceable, writing b. Commodatum
not needed c. Necessary deposit
39. In a real estate mortgage, the mortgagor can sell the 46. Donnalyn pledged a set of diamond ring and earrings to
property mortgaged: Alex for P500,000.00 She was made to sign an
a. Only if agreed upon. agreement that if she cannot pay her debt within six
b. Only if with the written consent of mortgagee. months, Alex could immediately appropriate the jewelry
c. If not prohibited to sell for herself. Was the agreement between Donnalyn and
d. Even without the consent of the mortgagee. Alex valid?
a. Yes, because both parties have the capacity to
40. Elements of contracts of pledge and mortgage except; contract.
a. Pledgor or mortgagor must be the absolute owner b. Yes, because this is a way to satisfy Donnalyn’s debt
b. Pledger or mortgagor must have the free disposal to Alex.
of thing pledge. c. No, because Alex must first sell the jewelry in the
c. The thing pledge or mortgaged may be appropriated mall.
if the debtor cannot pay d. No, because, the agreement to appropriate the
d. Pledge and mortgage are accessory contracts. jewelry upon default is considered pactum
commissorium and it is considered void by law.
41. A obtained an interest free loan of P50,000 from B
evidenced by a promissory note payable six months 47. On Jay’s failure to pay his loan to DEX Bank, the latter
after date. At maturity A called B by phone to ask for an foreclosed the Real Estate Mortgage he executed in its
extension of one month and offer to pay 20% interest favor. The auction sale was set for Dec. 1, 2020 with
on the loan. Enticed by the 20% interest, B agreed to the notices of sale published as the law required. The
the extension of maturity. Which is correct? sale was, however, cancelled when Dec. 1, 2020 was
a. The interest is a demandable interest by virtue of declared a holiday and rescheduled to Jan. 10, 2021
an agreement without republication of notice. The auction sale then
b. The interest is unenforceable proceeded on the new date. Under the circumstance,
c. The loan is valid but the interest is void the auction sale is:
d. The loan and interest are both demandable a. Rescissible c. Unenforceable
b. Void d. Voidable
42. Which of the following is not correct?
a. A movable or immovable property maybe the object 48. A contract of antichresis is always:
of commodatum a. a written contract
b. The bailor in commodatum need not be the owner b. a contract with a stipulation that the debt will be
of the things loaned paid through receipt of the fruits of an immovable
c. A stipulation that the bailee may make use of the c. involves the payment of interests, if owing
fruits of the thing loaned is valid d. all of the above
d. The bailor obliged to pay for the ordinary expenses
for the use and preservation 49. A chattel mortgage can be constituted to secure:
a. Obligation both past and future
43. A borrowed a loan from XYZ Bank for an amount of 1 b. Obligation existing at the time the mortgage is
Million Pesos. A must pay interest to the lender: constituted
a. If there is an agreement in writing to the effect. c. Future obligations only
b. As a matter of course. d. Past obligations only
c. If the amount borrowed is very large.
d. If the lender so demands at the maturity date. 50. A chattel mortgage can cover:
a. Only property described in the deed without
44. Malakas granted a loan to Maganda in the amount of P exception
500,000.00. Such agreement was not reduced to b. Can also cover substituted property
writing. Malakas demanded interest which was paid by c. Properties described in the deed except in case of
Maganda in cash and checks. The total amount Maganda stock in trade being a substitute
paid accumulated to P 720,000.00. Upon advice of her d. After-acquired property.
lawyer, Maganda demanded for the return of the excess
amount of P120, 000.00 which was ignored by Malakas. 51. Mark constituted a chattel mortgage on a car valued at
Is the payment of interest valid? P1,000,000 to secure a P500,000 loan. For the
a. Yes, as they orally agreed to the interest. mortgage to be valid, Mark should have:
b. Yes, because there was demand made by Malakas. a. The right to mortgage the car to the extent of more
c. No, because interest cannot be due unless expressly than half of its value.
stipulated in writing. b. Ownership of the car.
d. No, because they did not compute for the interest c. Unqualified free disposal of his car.
properly. d. Registered the car in his name.
45. During a rainy night, Luis checked in at Fairmont Hotel.

As soon as he got off from his Honda Civic car, the

52. Franco secured his debt in XYZ Bank by a real estate or mortgagee may dispose the collateral even if
mortgage. If on the event that Franco defaults, the there is no agreement to that effect between the
remedy would be: parties.
a. to foreclose the real estate mortgage. d. In both pledge and mortgage the creditor is entitled
b. to file an action for collection and then foreclose if to deficiency judgment.
collection is not enough.
c. to foreclose the mortgage and demand collection for 60. During the bar exam month, Jose lent the car to his
any deficiency. girlfriend, Jolie, who parked the car at the Mall of Asia's
d. None of the above. open parking lot, with the ignition key inside the car.
Car thieves broke into and took the car. Is Jose liable to
53. The collateral will not be returned until the principal Cruz for the loss of the car due to Jolie's negligence?
obligation is fully paid. a. No, Jose is not liable to Cruz as the loss was not due
a. Integrity c. Identity to his fault or negligence.
b. Individuality d. Indivisibility b. No, Jose is not liable to Cruz. In the absence of any
prohibition, Jose could lend the car to Jolie. Since the
54. S1 – Foreclosure in pledge is extra-judicial. loss was due to force majeure, neither Jose nor Jolie is
S2 – Foreclosure in antichresis is judicial. liable.
S3 – Foreclosure in REM is as a general rule extra- c. Yes, Jose is liable to Cruz. Since Jose lent the car to
judicial. Jolie without Cruz's consent, Jose must bear the
a. All are true consequent loss of the car.
b. All are false d. Yes, Jose is liable to Cruz. The contract between them
c. Only S1 is false is personal in nature. Jose can neither lend nor lease
d. Only S2 is false the car to a third person.
e. Only S3 is false
61. Who enjoys the right of retention?
55. S1 – There is deficiency judgment in REM. a. Depositary until full payment of what may be due
S2 – There is deficiency judgment in pledge. him in deposit.
S3 – There is no deficiency judgment under the Recto b. Lessee if he advances the expenses for the repair of
Law. the leased premises.
a. All are true c. Bailee if bailor owes him something.
b. All are false d. Builder in bad faith for the recovery of necessary
c. Only S1 is false and useful expenses.
d. Only S2 is false
e. Only S3 is false 62. During a rainy night, Luis checked in at Fairmont Hotel.
As soon as he got off from his Honda Civic car, the
56. A legal writ authorizing a sheriff to take into custody hotel’s parking attendant got the key of his car and gave
property in litigation belonging to a defendant until he him a valet parking customer’s claim stub. What
complies with orders of the court (Art. 2005) contract, if any, was perfected between Luis and the
a. Foreclosure d. Garnishment hotel when he surrendered the key of his car to the
b. Counterclaim e. Sequestration hotel’s parking attendant?
c. Dacion en pago a. Mutuum
b. Commodatum
57. Who of the following does not enjoy the right of c. Necessary deposit
retention, i.e., statutory pledge or statutory lien? d. Pledge
a. A contractor in a contract for a piece of work upon
a movable. 63. This is the right of the mortgagor to redeem the
b. An agent, unless reimbursed by the principal for mortgaged property after it was sold.
necessary expenses and for damages in the a. Equity of redemption
execution of the agency. b. Right of redemption
c. A guarantor, in his exercise of the benefit of c. Right of pre-emption
excussion. d. Right of subrogation
d. The depositary, in case of voluntary deposit.
e. Hotel keepers, as security of credits extended 64. Which of the following statements is wrong?
a. Mutuum may be gratuitous or onerous.
58. The following are requisites of Pledge, except b. Only personal property could be the subject of
a. The free disposal of the property by the pledge. mutuum.
b. Absolute ownership of the property pledged. c. The subject matter of mutuum could be money
c. Thing pledged may be placed in possession of TP or any consumable.
d. Mutuum is a contract for use.
d. To bind a third person, it must be recorded in the
office of the Register of Deeds. 65. Which of the following statements is correct?
a. Extrajudicial deposit occurs whenever an
59. Which of the following statements is true and correct? attachment or seizure of property in litigation is
a. Unless otherwise agreed upon by the parties, the ordered.
sale of the mortgaged property extinguishes in full b. There is voluntary deposit if a deposit is made
the obligation of the mortgagor to the mortgagee. in compliance with a legal obligation.
b. Pledge and mortgage are considered principal c. In deposit, depositary must not be the owner of
contracts. property deposited.
c. When the obligation is secured by a pledge or
mortgage and it is not paid when due, the pledgee

d. Deposits made by travelers in hotels and inns,

or by travelers with the common carriers are in the
nature of voluntary deposit. 72. The following are real contracts, except:
a. Antichresis
66. In order for a creditor to recover interest, the b. Pledge
following requirements must be present, except: c. Deposit
a. The interest must be approved by the court. d. Loan
b. The payment must be expressly stipulated.
c. The agreement must be in writing. 73. Purpose of Guaranty
d. The interest must be lawful. a. consumption
b. use
67. A initially entered into a contract of c. common enjoyment
commodatum with B. After a while, A asked B for d. safekeeping
a compensation for the use of the loaned property. e. indemnify
Here, the commodatum has ceased and new
contract was created known as: 74. Which of the following has no judicial foreclosure?
a. Deposit a. Pledge
b. Lease b. Chattel mortgage
c. Mutuum c. Real estate mortgage
d. Sale d. Antichresis
68. D borrows P300,000 from C. To secure payment of 75. Which of the following has no extra-judicial foreclosure?
the obligation, C required D to deliver his car to him a. Pledge
(C), which D did. What is contract created between b. Chattel mortgage
D and C? c. Real estate mortgage
a. Chattel mortgage d. Antichresis
b. Pledge
c. Either a pledge or chattel mortgage depending 76. Which of the following has no deficiency judgment?
on the choice of C a. Chattel mortgage
d. Either a pledge or chattel mortgage according to b. Pledge
the choice of D c. Real Estate mortgage
d. Antichresis
69. The following characteristics apply to real estate
mortgage (REM), except: 77. Which allows deficiency judgment?
a. REM is an accessory contract. a. TP mortgagor
b. REM may not guarantee future debts. b. Pledge
c. The objects of REM are immovable properties. c. Recto Law
d. Delivery of the object of the contract is not d. Chattel mortgage
necessary.
78. S1 – Chattel mortgage allows the right of redemption.
70. If redemption is made, which of the following will S2 – Real estate mortgage allows the right of
not be paid by the seller to the buyer: redemption.
a. Expenses in the execution of the sales contract a. True, False
paid by the buyer. b. True, True
b. Interest on the price paid by the buyer. c. False, True
c. Price made by the buyer. d. False, False
d. All necessary expenses on the thing sold and to
be redeemed. DEDICATION
71. Statement 1: Consumable goods may be the subject of “A woodsman was once asked, ‘What would you do if you
commodatum. had just five minutes to chop down a tree?’ He answered,
‘I would spend the first two and a half minutes sharpening
Statement 2: The pledgor must be the absolute owner my axe.”
of the thing pledged when the principal obligation becomes
due and demandable. ― popularly attributed to Abraham Lincoln
a. True, False
b. True, True
c. False, True End of RFBT.3603
d. False, False
i
Desiderio P. Jurado, Civil Law Reviewer, 2019

RFBT.3603 Sales and Credit Transactions

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

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2. Sale v. Lease SPECIAL DISQUALIFICATIONS

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Option Contract a. Placing titles of ownership in the hands of the

DELIVERY Effect when the loss occurred at the time of

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Requisites of Recto Law: Remedies:

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f. Novation; 4. Sale of adjacent rural lands not exceeding 1 hectare

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2. Accessory Contract – it has no independent

Credit Requisites of a contract of pledge

PLEDGE When two or more things are pledged

Prohibition on double pledge

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Foreclosure of the thing pledged

Renunciation of the pledge by the pledgee REAL ESTATE MORTGAGE

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b. Deficiency – The mortgagee is entitled to recover

1. Voluntary or Conventional mortgage – It is PLEDGE v. REAL ESTATE MORTGAGE

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7. Indivisible in nature (NCC, Art. 2090)

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1. Statement No. 1 - In a contract of sale, after delivery c. waiver consciente

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51. Lester entered into a contract granting him a privilege,

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69. Which of the following is not a requisite of double c. 6 months

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a. at will c. precarium 30. Deposits of money in banks and similar institutions,

28. The following are real contracts, except:

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45. During a rainy night, Luis checked in at Fairmont Hotel.

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d. Deposits made by travelers in hotels and inns,

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