REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and
MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES
ALLOWED. Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK!

1. To cancel a contract and restore the parties to their 8. I. The law does not allow waiver of an action for future
original positions before the contract, the parties fraud.
should execute a II. Damages arising form fraud can not be mitigated or
a. Novation c. Rescission reduced by the courts unlike damages arising from
b. Release d. Revocation negligence especially if there is contributory
negligence.
2. This is an exception to legal compensation- a. Both statements are true
a. Where one of the debts arises from commodatum b. Both statements are false
b. Where one of the debts arises from depositum c. Statement I is true but statement II is false
c. Where one of the debts arises from gratuitous title d. Statement I is false but statement II is true
d. Where one of the debts arises form a civil liability
based on crime 9. A wife is about to give birth to a child. Her parents’ in-
e. All of the above law called the doctor. Who should pay the doctor?
a. Husband
3. Arnold mortgaged his Truck to Benito to secure his b. Parents in-law
loan amounting to P400,000.00. Due to the negligence c. Both husband and parents in law jointly
of the typist, the document signed by Arnold and d. Both husband and parents in law joint and
Benito shows that the truck of Arnold was sold to severally
Benito for P350,000.00. Which of the following
statements is correct? 10. A and B are joint debtors of C for P2,000,000. A’s
a. The contract of sale between Arnold and Benito is consent was obtained by C thru fraud.
voidable because of mistake. a. C can collect the entire P2,000,000 from B
b. The contract of sale between Arnold and Benito is b. C can collect the entire P2,000,000 from B but the
relatively simulated. latter can recover from A P1,000,000.
c. The contract of sale between Arnold and Benito is c. A is liable only to C for P1,000,000 because he can
rescissible because of the damage suffered by interpose his defense of fraud.
Arnold d. B is liable to C for his share of P1,000,000.
d. The contract of sale between Arnold and Benito
may be reformed 11. In which of these cases will the Statute of Frauds not
apply?
4. Under Central Bank Circular 357 series of 2006 a. An oral mutual promise to marry, not to compel
(Dated: July 18, 2006), which of the following is not marriage but only to recover damages
legal tender: b. O orally conveys to L a piece of land for the
a. P10,000 in the denomination of P20 bills benefits or services already rendered
b. P900 in the denomination of P5 coins c. An oral contract of lease of real property for twelve
c. P750 in the denomination of P1 coins months
d. P120 in the denomination of P0.25 coins d. An oral contract of lease involving a car for 5 years
e. All of the above
5. Dolly borrowed from Cristy P600,000 payable after
three (3) years. On the maturity of the obligation, the 12. The mere liberality of the benefactor is the cause in:
value of P600,000 dropped to P400,000 because of a. Onerous contract
inflation. Dolly is obliged to pay: b. Contract of pure beneficence
a. P600,000 c. P900,000 c. Remunetory contract
b. P400,000 d. P500,000 d. None of the above

6. A seventeen-year old second year accountancy student 13. When the creditor pays another creditor who is
entered into a contract of lease with his professor preferred, even without the debtor’s knowledge, there
involving accounting book for a period of one is:
semester. The contract between them is: a. real novation c. delegacion
a. Valid c. void b. expromission d. legal subrogation
b. Voidable d. unenforceable
14. The statute of frauds
7. B bought a gold necklace with a heart-shaped pendant a. Prevents the use of oral evidence to contradict the
from S for the price of P20,000.00. After payment of terms of a written contract
the price, he requested S to put it in a small box and b. Applies to all contracts having consideration valued
wrap it with a birthday wrapper because he will give it at P500 or more.
as a birthday gift to his girlfriend. After the birthday of c. Requires the independent promise to pay the debt
his girlfriend, she happily showed the gold necklace of another to be in writing.
and expressed her gratitude to B, who discovered that d. Applies to all real estate leases.
the necklace has a square-shaped pendant and of very
low quality, which is different from the one he 15. Which of these contracts is not subject to ratification?
purchased from S. What remedy is available to B a. Rescissible contract
against S in this case? b. Void contract
a. File action for the annulment of the contract of sale c. Voidable contract
b. File action for rescission of the contract of sale d. Unenforceable contract
c. Demand for the return of the purchase price
d. Demand for the payment of damages

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16. Three of the following statements are true. Which one
is false?
a. Not only the parties, but their heirs and assigns
are bound by their contract.
b. Obligations arising from contracts have the force of
law between the contracting parties and must be
complied with in good faith.
c. Fraud committed in the performance of an
obligation gives the injured party the right to annul
the contract.
d. Generally, the debtor is not liable for the non-
performance of his obligation due to fortuitous
event.
17. A and B were partners. A mortgaged his right in a
certain specific partnership property. Later the firm
creditor wanted to get said property. Who should
prevail, the firm creditor or the mortgagee?
a. The firm creditors, for the mortgaged in specific
partnership property is void, B not having assigned
his right.
b. The mortgagee because the mortgaged is perfectly
valid
c. The firm creditor is entitled to the property
provided the mortgagee waive his right in the
mortgaged property
d. The mortgagee because the right to specific
partnership property is assignable.
18. A profit or loss must be distributed based on capital
contribution and not based on agreement between the
partners under the following except:
a. If the designation of the profit and loss was
intrusted to one of the partners.
b. A stipulation which excludes one of the capitalist
partner from any share in the profits.
c. A stipulation which excludes one of the industrial
partner from any share in the profits.
d. If the designation of the profit and loss was
intrusted to third person by agreement between
the partners.
19. The following right can be exercise by partner assignee
of interest?
a. To inspect partnership book
b. To demand true and full information of partnership
affairs.
c. To participate in the management
d. To share in the profit in accordance with his
contract to which the assigning partner would
otherwise be entitled.
20. A, B and C are partners in ABC Partnership with an
original capital contribution of P400,000, P600,000 and
P1,000,000 respectively. The partnership has an
existing partnership obligation to X amounting to
P2,600,000 at the time D was admitted as partner with
a capital contribution of P500,000. Assuming, the
remaining asset of the partnership is only P1,600,000,
to whom X may recover his claim of P2,600,000?
a. X must exhaust the partnership assets amounting
to P1,600,000. The balance of P1,000,000 will be
divided between A, B, C and D for P250,000 each.
b. X must exhaust the partnership assets amounting
to P1,600,000. The balance of P1,000,000 will be
divided between A, B and C for P333,333.33 each.
c. X may demand directly to A, B, C, D or ABC
Partnership for the entire amount of P2,600,000.
d. X must exhaust the partnership assets amounting
to P1,600,000. The balance of P1,000,000 will be
divided between A, B and C for P200,000,
P300,000 and P500,000 respectively.
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21. A and B were partners. A, being the managing
partner, invited C to associate with him in his share in
the partnership. What are the rights of the partners?
a. A may have C as an associate in his share even
without B’s consent.
b. A may not have C as an associate because he is
already B’s partner.
c. C may become a partner upon invitation of A, the
managing partner.
d. B may refuse to accept C as A’s associate due to
conflict of interest.
22. When does a partnership begin it legal personality?
a. Upon filing of the article of partnership before the
Securities and Exchange Commission (SEC).
b. Upon Execution of the public instrument
c. Upon execution of the contract
d. Upon delivery of the contributed property.
23. Rey, Rico and Rommel are partners in 3R Partnership
who are engage in Appliance business where Rey
watch over the store. Rico is the Accountant and
Rommel is the driver of the delivery van which
distributes the products to the various areas in Metro
Manila. Due to the criminal negligence of Rommel in
driving the delivery van, he ran over Toti who was
physically injured in the amount of P300,000. In this
case –
a. Toti can sue partner Rommel for P300,000 because
he is the only one who is at fault;
b. Toti can hold solidarilly liable Rey or Rico or
Rommel or 3R partnership for the entire amount of
P300,000;
c. Toti can hold liable Rey, Rico and Rommel jointly
for P100,000 each;
d. Correct answer not given
24. Which of the following contract of partnership is valid?
a. A universal partnership of all present property
between husband and wife.
b. A universal partnership of profits between a
common law husband and wife.
c. A universal partnership of all present property
between a private individual and a public officer.
d. A particular partnership between husband and
wife.
25. The following are the property of a partner, except:
a. Rights in specific partnership property
b. Right to inspect partnership book
c. Interest in the partnership
d. Right to participate in the management
26. A and B were partners. A, being the managing
partner, invited C to associate with him in his share in
the partnership. What are the rights of the partners?
a. A may have C as an associate in his share even
without B’s consent.
b. A may not have C as an associate because he is
already B’s partner.
c. C may become a partner upon invitation of A, the
managing partner.
d. B may refuse to accept C as A’s associate due to
conflict of interest.
27. W, X, Y and Z are the general partners, who
contributed P500,000.00, P300,000.00, P100,000.00
and services to the common fund, respectively. After
dissolution the partnership suffered losses amounting
to P600,000.00. How much shall be the share of Z in
the losses?
a. Equal with the capitalist partners
b. According to agreement, if there is any
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c. Just and reasonable
d. None
28. A, B and C all are capitalist partners form a partnership
and agree to have a total contributed capital of
P30,000. However, the partners failed to agree as to
the extent of their respective share in the capital
contribution. In this case, which of the following
statement is not correct:
a. A, B and C must contribute P10,000 each to the
partnership.
b. If A, B and C failed to stipulate on how to
distribute profit and loss, the profit and loss will be
distributed equally between them.
c. The partnership contract is void because there is
no agreement as to the capital contribution of each
partner.
d. If A, B and C mutually agreed that partner A will
be excluded from the share in the losses, such
agreement is void.
29. Which of these partners is not entitled to direct access
to books and records of the partnership to ask for
formal accounting or for dissolution, etc.
a. General partner
b. Assigned limited partner
c. Substituted limited partner
d. All of the above
30. These corporation are prohibited from issuing no par
shares, except:
a. Banks c. Stock exchanges
b. Trust corporations d. Insurance companies
31. In three of the following corporate proposals, a
dissenting stockholder has the right to surrender his
shares of stock to the corporation and demand for the
payment of their fair market value. Which is the
exception?
a. Sale, mortgage or disposition of all or substantially
all of the corporate assets
b. Shortening or extending the corporate term
c. Investment of corporate funds in another
corporation or business
d. Entering into management contract with another
corporation
32. The corporation has a twelve-member board. Two of
the members of the Board have sold their shares while
two others are abroad. To have a quorum, this
number is required:
a. Seven c. Three
b. Five d. Four
33. Subscriber X has a total 1,000 delinquent shares at
P10 par value, to be sold at public auction sale. Total
amount recoverable includes: Total amount of the
delinquent shares, P10,000 and total expenses of the
sale, P5,000. Who will be declared the highest bidder
among the following bidders in the public sale?
a. N who is willing to pay the P15,000 for 970 shares.
b. P who is willing to pay the P15,000 for 900 shares.
c. O who is willing to pay the P15,000 for 920 shares.
d. M who is willing to pay the P15,000 for 950 shares.
34. The Morlan Realty Development Corporation has a
capital stock of P1,000,000 divided into 10,000 shares
with par value of P100.00 each. 5,000 shares are
common stock and 5,000 shares are 10% preferred
stock. In 2013 there was no declared dividends but in
2014 dividends in the amount of P200,000 were
declared. The holders of the preferred stock are
entitled to receive:
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a. P50,000 if cumulative, non-participating
b. P125,000 if non-cumulative, participating
c. P125,000 if cumulative, participating
d. P100,000 if non-cumulative, non participating
35. A person is allowed by law to have two or more
concurrent positions in the corporation, except –
a. President and treasurer
b. President and corporate secretary
c. Corporate secretary and treasurer
d. Vice-president and secretary
e. Both a and b
36. Which of the following instance wherein non-voting
shares is not allowed to vote:
a. Issuance of additional Capital Stock
b. Payment of Bonded indebtedness.
c. Mortgaging substantially all of the corporate
property.
d. Investment of corporate fund in another
corporation not for primary purpose of the
corporation.
37. Generally, a corporation’s article of incorporation must
include all of the following except the
a. Name of the corporation
b. Number of authorized shares
c. Name of each incorporators
d. Quorum requirements
38. This suit or court action is one filed by a stockholder or
stockholders for and in behalf of the corporation
against a third person or the corporation itself where
the board of directors has refused to take action –
a. Derivative suit c. Class suit
b. Individual suit d. Representative suit
39. Which of these tests for determining the nationality of
a corporation is applicable under our corporation Code?
a. Incorporation test
b. Control test
c. Business domicile test
d. (a) for general rule and (b) as exception
40. X owns 99% of the capital stock of SSS Corporation. X
also owns 99% of TTT Corporation. SSS Corporation
obtained a loan from VW Bank. On due date, SSS
Corporation defaulted. TTT Corporation is financially
healthy. Which statement is most accurate?
a. X being a controlling owner of SSS Corporation can
automatically be held personally liable for the loan
of SSS Corporation.
b. TTT Corporation, owned 99% by X, can
automatically be held liable.
c. SSS Corporation and TTT Corporation, although
both are owned by X, are two (2) distinct
corporations with separate juridical personalities
hence, the TTT Corporation cannot automatically
be held liable for the loan of SSS Corporation.
d. The principle of piercing the veil of corporate
fiction can be applied in this case.
41. A bill of exchange for the amount of P10,000.00
payable to the order of P ten (10) days after sight was
issued by D to P. The bill was specially indorsed from
P to A, A to B, B to C, C to D and D to H, the holder.
When H presented it to X, the drawee, it was
dishonored by non-acceptance. H sent notice of
dishonor to the drawer and all indorsers. Which of the
following statements is incorrect:
a. The notice of dishonor to B inures to the benefit of
C and D
b. X, the drawee, cannot be held liable on the bill
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c. H cannot demand payment from the persons d. the check becomes non negotiable
secondarily liable before the tenth day after
presentment for acceptance 49. A stranger to the instrument makes a material
d. X may subsequently accept the bill after he has alteration changing the amount thereof from P100,000
dishonored it. to P400,000 – this act is known as
a. Forgery c. Spoliation
42. The bill was accepted as follows: “Accepted payable to b. Material Alteration d. All of the above
PNB Manila (Sgd) X”. The acceptance is?
a. General acceptance c. Qualified conditional 50. In this instrument a protest made by a notary public is
b. Qualified local d. Qualified acceptance needed instead of a simple notice of dishonor –
a. Inland bill of exchange c. Traveler’s check
43. The three most common forms of negotiable b. Foreign bill of exchange d. Promissory note
instruments are promissory notes, bill of exchange and
check. Which of the following characteristics applies 51. Which of these defenses is a real defense?
only to a check? a. Fraud in esse contractus
a. The one who signs the instrument is primarily b. Minority
liable c. Forgery
b. It is an unconditional order to pay a sum certain in d. Incomplete undelivered instrument
money e. All of them
c. It is always drawn against a bank
d. It must be payable on demand or at a fixed or 52. Batas Pambansa Blg. 22 (Bouncing Check Law)
determinable future time to order or to bearer. punishes the act as an offense against:
a. Property c. Person
44. D drawn a bill of exchange in favor of X or order for b. Good custom d. Public order
P10,000. The bill was address to D. The bill was
negotiated by X to Y. Which of the following statement 53. A grants B the right to sell the former’s appliances in
is not correct? the provinces. A is to furnish B with the appliances
a. The liability of D is primary which the latter may order. The price agreed upon is
b. Y the holder may treat the instrument as a the invoice price of the appliances in Manila with a
promissory note. discount of 25%. Payment is to be made at the end of
c. Presentment for payment is necessary to charge 30 days. This contract is:
the Drawer. a. An agency to sell
d. Notice of dishonor is not necessary to charge the b. A contract for a piece of work
Drawer. c. A contract of sale
d. A contract for services
45. D drawn a bill of exchange in favor of X or order for
P10,000. The bill was address to D. The bill was 54.The purpose of this action is to ask for a proportionate
negotiated by X to Y. Which of the following statement reduction of the price
is not correct? a. Quanti minoris c. Replevin
a. The liability of D is primary b. Redhibitory action d. Accion vindicatoria
b. Y the holder may treat the instrument as a
promissory note. 55. Which of the following is not an obligation of the
c. Presentment for payment is necessary to charge vendor?
the Drawer. a. Transfer the ownership of the thing sold
d. Notice of dishonor is not necessary to charge the b. To deliver the thing sold
Drawer. c. To warrant the object sold
d. To registered the property in the name of the
46. D drawn a bill of exchange in favor of X or order for vendee.
P10,000. The bill was address to D. The bill was
negotiated by X to Y. Which of the following statement 56. Which of the following statements is not correct?
is not correct? a. Actual delivery of the thing or payment of the price
a. The liability of D is primary is not required for the perfection of the sale.
b. Y the holder may treat the instrument as a b. A stipulation that even when the object is delivered
promissory note. to the buyer, ownership will not pass until the price
c. Presentment for payment is necessary to charge is fully paid is not valid
the Drawer. c. A sale is consummated upon delivery of the thing
d. Notice of dishonor is not necessary to charge the and the payment of the purchase price.
Drawer. d. Sales through letters or telegrams are deemed
perfected only when acceptance by the buyer has
47. Which of the following constitute a promise to pay? been received by the seller.
a. “I.O.U” c. “I agree to pay”
b. “Due to X” d. “For value received” 57. Which of the following causes extinguished contract of
sale?
48. The following are the effects of crossing a check I – Loss of the object
except: II – Novation of the principal condition of the contract
a. the check may not be encashed but only deposited III – Legal redemption
in the bank; IV – Condonation of the price by the seller.
b. the check may be negotiated only once-to one who a. I, II and IV c. I, III and IV
has an account with a bank; b. I, II and III d. All of the above
c. it serves as warning to the holder that the check
has been issued for a definite purpose so that he
must inquire if he has received the check pursuant
to that purpose

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58. The following are essential elements of a contract of
agency except:
a. Consent, express or implied
b. Object which is the execution of a juridical act in
relation to a third person.
c. Execution of public instrument
d. The agent acts as a representative and not for
himself
59. An agency couched in general terms comprises:
a. Act of administration
b. Act of strict dominion
c. Act of ownership
d. Act of management and dominion
60. A employed B as his agent. However, B exceeded the
scope of authority. In three of the following instances
A, as the principal, must nevertheless comply with the
obligations which B, his agent, may have contracted.
Which is the exception?
a. If A ratifies the acts of B.
b. If A allows B to act as though he had full powers.
c. If B’s limitations were contained in private
instructions from A.
d. If A refuses to accept the benefits of B’s
misrepresentation.
61.The agent, in excess of the authority given to him by
his principal, enters into a contract with a third person.
If the principal ratifies the contract, who will be liable
to the third person just in case?
a. Only the principal
b. Only the agent
c. Both principal and agent jointly
d. Both principal and agent solidarily.
62. The principal is not liable for the expenses incurred by
the agent in carrying on the business of agency,
except:
a. when it is stipulated that the agent shall shoulder
the expenses for the agency
b. when the business of agency is not successful
c. when the expenses were incurred due to the
agent’s fault
d. when the agent incurred those expenses with the
knowledge that an unfavorable result would ensue
if the principal was not aware thereof.
63. Which of the following is not a fundamental obligation
of the agent?
a. To subordinate his interest in favor of his principal
if there is a conflict of interest.
b. To borrow if he is authorized to lend.
c. To render an accounting of the transactions
d. Not to carry out the agency even if that is the
instruction if he knew it would result in a loss or
damage to his principal.
64. The principal is not liable for the expenses incurred by
the agent in carrying on the business of agency,
except:
a. the business of agency is not successful
b. when the agent violated the principal’s instructions
c. the expenses were incurred due to the agent’s
fault
d. there is stipulation that the agent shall shoulder
the expenses of agency
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65. Which is not an essential requisite of warranty in case
of eviction?
a. That the buyer must have been deprived of the
possession of ownership of the thing sold.
b. That the deprivation must be by reason of final
judgment of the court.
c. That the final judgment of court must be based on
a right prior to the sale or an act imputable to the
vendor.
d. That the vendor must have been summoned to the
suit at the instance of the vendee.
e. That the vendee must have appealed the judgment
of the lower court to a higher court
66. What is the effect if the proceeds in an extra-judicial
foreclosure sale is not sufficient to pay for the
obligation?
a. the mortgagee can claim for deficiency judgment
from the debtor.
b. the mortgagee can claim for deficiency judgment
from the mortgagor even though· it is a third party
mortgage.
c. the mortgagee has no more recourse or claim
against the debtor.
d. the mortgagee cannot claim for deficiency
judgment from the debtor because its an
extrajudicial foreclosure.
67. The parties to a pacto de retro sale can agree on any
period of repurchase provided it should not exceed –
a. 2 years d. 8 years
b. 4 years e.10 years
c. 6 years
68. D mortgaged his house and lot to C as security for the
loan amounting to P1M. Which of the following
statements is correct?
a. C may automatically be the owner of the
mortgaged house and lot upon non-payment of
the loan, if that is stipulated in their written
contract
b. If there is stipulation prohibiting D to sell his
house and lot while the loan remains unpaid, D
cannot sell the mortgaged property before the
maturity date of the loan.
c. If the mortgaged property is foreclosed but the
proceeds of the sale is less than the amount of the
loan, C has no more right to demand payment of
the balance from D
d. If the written contract of mortgage is not
registered at the Office of the Registry of Deeds,
the real mortgage is still valid between D and C
69. An agreement whereby the creditor acquires the right
to receive the fruits of an immovable belonging to his
debtor, with the obligation to apply them to the
payment of interest and thereafter to the principal is
called a contract of
a. Antichresis. c. Mutuum.
b. Deposit. d. Usufruct
70. If the thing or subject matter of the pledge is sold for
an amount in excess of the obligation, the pledgor
becomes, as a matter of right, entitled to the excess.
a. In case of voluntary pledge.
b. In case of legal pledge.
c. Both in cases of voluntary and legal pledge.
d. Neither in voluntary and legal pledge.
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