BUSINESS LAW

1.

Lennie bought a business class ticket from Alta Airlines. As she checked in, the manager downgraded her to
economy on the ground that a Congressman had to be accommodated in the business class. Lennie suffered
the discomfort and embarrassment of the downgrade. She sued the airlines for quasi-delict but Alta Airlines
countered that, since her travel was governed by a contract between them, no quasi-delict could arise. Is the
airline correct?
a. No, the breach of contract may in fact be tortious as when it is tainted as in this case with arbitrariness,
gross bad faith, and malice.
b. No, denying Lennie the comfort and amenities of the business class as provided in the ticket is a tortious
act.
c. Yes, since the facts show a breach of contract, not a quasi-delict.
d. Yes, since quasi-delict presupposes the absence of a pre-existing contractual relation between the
parties.

2.

X bought a land from Y, paying him cash. Since they were friends, they did not execute any document of sale.
After 7 years, the heirs of X asked Y to execute a deed of absolute sale to formalize the verbal sale to their
father. Unwilling to do so, Xs heirs filed an action for specific performance against Y. Will their action
prosper?
a. No, after more than 6 years, the action to enforce the verbal agreement has already elapsed.
b. No, since the sale cannot under the Statute of Frauds be enforced.
c. Yes, since X bought the land and paid Y for it.
d. Yes, after full payment, the action became imprescriptible.

3.

Asiong borrowed P1 million from a bank, secured by a mortgage on his land. Without his consent, his friend
Boyong paid the whole loan. Since Asiong benefited from the payment, can Boyong compel the bank to
subrogate him in its right as mortgagee of Asiong's land?
a. No, but the bank can foreclose and pay Boyong back.
b. No, since Boyong paid for Asiongs loan without his approval.
c. Yes, since a change of creditor took place by novation with the banks consent.
d. Yes, since it is but right that Boyong be able to get back his money and, if not, to foreclose the mortgage
in the manner of the bank.

4.

X borrowed money from a bank, secured by a mortgage on the land of Y, his close friend. When the loan
matured, Y offered to pay the bank but it refused since Y was not the borrower. Is the banks action correct?
a. Yes, since X, the true borrower, did not give his consent to Ys offer to pay.
b. No, since anybody can discharge Xs obligation to his benefit.
c. No, since Y, the owner of the collateral, has an interest in the payment of the obligation.
d. Yes, since it was X who has an obligation to the bank.

5.

Allan bought Billys property through Carlos, an agent empowered with a special power of attorney (SPA) to
sell the same. When Allan was ready to pay as scheduled, Billy called, directing Allan to pay directly to him.
On learning of this, Carlos, Billy's agent, told Allan to pay through him as his SPA provided and to protect his
commission. Faced with two claimants, Allan consigned the payment in court. Billy protested, contending that
the consignation is ineffective since no tender of payment was made to him. Is he correct?
a. No, since consignation without tender of payment is allowed in the face of the conflicting claims on the
plaintiff.
b. Yes, as owner of the property sold, Billy can demand payment directly to himself.
c. Yes, since Allan made no announcement of the tender.
d. Yes, a tender of payment is required for a valid consignation.

6.

Upon the proposal of a third person, a new debtor substituted the original debtor without the latters
consent. The creditor accepted the substitution. Later, however, the new debtor became insolvent and
defaulted in his obligation. What is the effect of the new debtors default upon the original debtor?
a. The original debtor is freed of liability since novation took place and this relieved him of his obligation.
b. The original debtor shall pay or perform the obligation with recourse to the new debtor.
c. The original debtor remains liable since he gave no consent to the substitution.
d. The original debtor shall pay or perform 50% of the obligation to avoid unjust enrichment on his part.

7.

X and Y were to marry in 3 months. Meantime, to express his affection, X donated a house and lot to Y, which
donation X wrote in a letter to Y. Y wrote back, accepting the donation and took possession of the property.
Before the wedding, however, Y suddenly died of heart attack. Can Ys heirs get the property?
a. No, since the marriage did not take place.
b. Yes, since all the requisites of a donation of an immovable are present.
c. No, since the donation and its acceptance are not in a public instrument.
d. Yes, since X freely donated the property to Y who became its owner.

8.

Contracts take effect only between the parties or their assigns and heirs, except where the rights and
obligations arising from the contract are not transmissible by their nature, by stipulation, or by provision of
law. In the latter case, the assigns or the heirs are not bound by the contracts. This is known as the principle
of
a. Relativity of contracts
b. Mutuality of contracts
c. Freedom to stipulate
d. Obligatory force of contracts

9.

As security for a loan, Sonia mortgaged his house and lot to Belinda. Both parties intended to enter a
mortgage contract but the instrument as written states that the house and lot is sold by Sonia to Belinda with
right of repurchase. In this case, the proper remedy is:
a. Annulment
c. Reformation
b. Rescission
d. Reconstitution

10. Which is the correct order of application of the rules in connection with solution of problems involving
innominate contracts?
a. The provisions of the Civil Code; then stipulation of the parties; then provisions of the most analogous
nominate contract and lastly custom or usage of the place.
b. Custom or usage of the place; then stipulation of the parties; then the provisions of Civil Code and lastly
provision of the most analogous nominate contract.
c. The stipulation of the parties; then the provisions of the Civil Code; then the provisions of the most
analogous nominate contract and lastly the custom or usage of the place.
d. The provisions of the most analogous nominate contract; then the stipulation of the parties; then the
provisions of the Civil Code and lastly the custom or usage of the place.
11. Alexis and Bote entered into a universal partnership of all present property. No stipulation was made
regarding other properties. Subsequently, Alexis received a parcel of land by inheritance from his father; and
another parcel of land from The Best Ito University as remuneration for Alexis work as professor therein.
a. The two parcel of land and their fruits are to be enjoyed by the partnership because the contract entered
is a universal partnership of all present property.
b. The two parcel of land and their fruits will not be enjoyed by the partnership because there is no
stipulation regarding future properties or their fruits.
c. The partnership is entitled only to the fruits but not to the two parcel of land.
d. The partnership is entitled to use the two parcel of land as usufructuary and also entitled to the fruits
produced by the property.
12. Which of the following right cannot be exercise by an assignee of interest:
A. To get whatever profits the assignor partner would have obtained
B. To avail himself of the usual remedies in case of fraud in the management.
C. To demand information, accounting and inspection of the partnership books
D. The right to participate in the management
a. All of the above
c. B, C and D
b. Only C
d. C and D
13. A and B are partners in buying and selling automobiles. A, by the partners agreement, was authorized to buy
automobiles on a cash basis, never on the installment plan. One day A bought on credit or on installment plan
a car from X, a client. X did not know of As lack of authority. As purchase was made on behalf and in the
name of the partnership. Is the partnership bound?
a. No because A was not really authorized to bought on installment plan.
b. No because acquisition of automobiles requires the consent of all partners.
c. Yes because although A was not really authorized, still for apparently carrying on in the usual way the
business of the partnership A is implicitly authorized and X did not know of As lack of authority.

d.

Yes because all transaction made by any partners with third person is valid provided the latter acted in
good faith.

14. X Corp. operates a call center that received orders for pizzas on behalf of Y Corp. which operates a chain of
pizza restaurants. The two companies have the same set of corporate officers. After 2 years, X Corp.
dismissed its call agents for no apparent reason. The agents filed a collective suit for illegal dismissal against
both X Corp. and Y Corp. based on the doctrine of piercing the veil of corporate fiction. The latter set up the
defense that the agents are in the employ of X Corp. which is a separate juridical entity. Is this defense
appropriate?
a. No, since the doctrine would apply, the two companies having the same set of corporate officers.
b. No, the real employer is Y Corp., the pizza company, with X Corp. serving as an arm for receiving its
outside orders for pizzas.
c. Yes, it is not shown that one company completely dominates the finances, policies, and business
practices of the other.
d. Yes, since the two companies perform two distinct businesses.
15. X is a director in T Corp. who was elected to a 1-year term on Feb. 1, 2010. On April 11, 2010, X resigned and
was replaced by R, who assumed as director on May 17, 2010. On Nov. 21, 2010, R died. S was then elected in
his place. Until which time should S serve as director?
a. April 11, 2011
c. May 17, 2011
b. Feb. 1, 2011
d. Nov. 21, 2011
16. The Articles of Incorporation must be accompanied by a Treasurer's Affidavit certifying under oath, among
others, that the total subscription paid is:
a. not less than P25,000.00.
b. not more than P5,000.00.
c. not less than P5,000.00.
d. not more than P25,000.00.
17. The rule is that no stock dividend shall be issued without the approval of stockholders representing at least
2/3 of the outstanding capital stock at a regular or special meeting called for the purpose. As to other forms
of dividends:
a. a mere majority of the entire Board of Directors applies.
b. a mere majority of the quorum of the Board of Directors applies.
c. a mere majority of the votes of stockholders representing the outstanding capital stock applies.
d. the same rule of 2/3 votes applies.
18. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for fraudulent
or illegal purpose or to escape the faithful compliance of an obligation:
a. Trust fund doctrine
b. Doctrine of piercing the veil of corporate entity
c. Doctrine of corporate opportunity
d. Doctrine of limited capacity
19. In 2006, Corporation "A" passed a board resolution removing "X" from his position as manager of said
corporation. The by-laws of "A" corporation provides that the officers are the president, general-manager,
treasurer and secretary. Upon complaint filed with the SEC, it held that the general manager could be
removed by mere resolution of the board of director
On motion for reconsideration, "X" alleged that he could only be removed by the affirmative vote of the
stockholders representing 2/3 of the outstanding capital stock. Is "X's" contention legally tenable.
a. No, the vote required is majority of the board and 2/3 OCS consenting
b. Yes, the voting requirement is only 2/3 of the outstanding capital stock.
c. No, the required vote is MBD consented by MOCS.
d. No, the voting requirement is only majority of the Board of Directors.
20. The Corporation Code sanctions a contract between two or more corporations which have interlocking
directors, provided there is no fraud that attends it and it is fair and reasonable under the circumstances. The
interest of an interlocking director in one corporation may be either substantial or nominal. It is nominal if his
interest:

a.
b.
c.
d.

does not exceed 25% of the outstanding capital stock.

exceeds 25% of the outstanding capital stock.
exceeds 20% of the outstanding capital stock.
does not exceed 20% of the outstanding capital stock.

21. ABC Corp. increased its capital stocks from Php10 Million to Php15 Million and, in the process, issued 1,000
new shares divided into Common Shares B and Common Shares C. T, a stockholder owning 500 shares,
insists on buying the newly issued shares through a right of pre-emption. The company claims, however, that
its By-laws deny T any right of pre-emption. Is the corporation correct?
a. No, since the By-Laws cannot deny a shareholder his right of pre-emption.
b. Yes, but the denial of his pre-emptive right extends only to 500 shares.
c. Yes, since the denial of the right under the By-laws is binding on T.
d. No, since pre-emptive rights are governed by the articles of incorporation.
22. In case of disagreement between the corporation and a withdrawing stockholder who exercises his appraisal
right regarding the fair value of his shares, a three-member group shall by majority vote resolve the issue with
finality. May the wife of the withdrawing stockholder be named to the three member group?
a. No, the wife of the withdrawing shareholder is not a disinterested person.
b. Yes, since she could best protect her husband's shareholdings.
c. Yes, since the rules do not discriminate against wives.
d. No, since the stockholder himself should sit in the three-member group.
23. In elections for the Board of Trustees of non-stock corporations, members may cast as many votes as there
are trustees to be elected but may not cast more than one vote for one candidate. This is true
a. unless set aside by the members in plenary session.
b. in every case even if the Board of Trustees resolves otherwise.
c. unless otherwise provided in the Articles of Incorporation or in the By-laws.
d. in every case even if the majority of the members decide otherwise during the
24. Can future inheritance be the subject of a contract of sale?
a. No, since it will put the predecessor at the risk of harm from a tempted buyer, contrary to public policy.
b. Yes, since the death of the decedent is certain to occur.
c. No, since the seller owns no inheritance while his predecessor lives.
d. Yes, but on the condition that the amount of the inheritance can only be ascertained after the obligations
of the estate have been paid.
25. X sold Y 100 sacks of rice that Y was to pick up from Xs rice mill on a particular date. Y did not, however,
appear on the agreed date to take delivery of the rice. After one week, X automatically rescinded the sale
without notarial notice to Y. Is the rescission valid?
a. Yes, automatic rescission is allowed since, having the character of movables and consumables, rice can
easily deteriorate.
b. No, the buyer is entitled to a customary 30-day extension of his obligation to take delivery of the goods.
c. No, since there was no express agreement regarding automatic rescission.
d. No, the seller should first determine that Y was not justified in failing to appear.
26. A buyer ordered 5,000 apples from the seller at P20 per apple. The seller delivered 6,000 apples. What are
the rights and obligations of the buyer?
a. He can accept all 6,000 apples and pay the seller at P20 per apple.
b. He can accept all 6,000 apples and pay a lesser price for the 1,000 excess apples.
c. He can keep the 6,000 apples without paying for the 1,000 excess since the seller delivered them anyway.
d. He can cancel the whole transaction since the seller violated the terms of their agreement.
27. X, who was abroad, phoned his brother, Y, authorizing him to sell Xs parcel of land in Pasay. X sent the title to
Y by courier service. Acting for his brother, Y executed a notarized deed of absolute sale of the land to Z after
receiving payment. What is the status of the sale?
a. Valid, since a notarized deed of absolute sale covered the transaction and full payment was made.
b. Void, since X should have authorized agent Y in writing to sell the land.
c. Valid, since Y was truly his brother Xs agent and entrusted with the title needed to effect the sale.
d. Valid, since the buyer could file an action to compel X to execute a deed of sale.

28. An agent, authorized by a special power of attorney to sell a land belonging to the principal succeeded in
selling the same to a buyer according to the instructions given the agent. The agent executed the deed of
absolute sale on behalf of his principal two days after the principal died, an event that neither the agent nor
the buyer knew at the time of the sale. What is the standing of the sale?
a. Voidable
c. Void
b. Valid
d. Unenforceable.
29. X, at Ys request, executed a Real Estate Mortgage (REM) on his (Xs) land to secure Y's loan from Z. Z
successfully foreclosed the REM when Y defaulted on the loan but half of Y's obligation remained unpaid. May
Z sue X to enforce his right to the deficiency?
a. Yes, but solidarily with Y.
b. Yes, since Xs is deemed to warrant that his land would cover the whole obligation.
c. No, since it is the buyer at the auction sale who should answer for the deficiency.
d. No, because X is not Zs debtor.
30. X issued a check in favor of his creditor, Y. It reads: Pay to Y the amount of Seven Thousand Hundred Pesos
(Php700,000.00). Signed, X. What amount should be construed as true in such a case?
a. Php700,000.00.
b. Php700.00.
c. Php7,000.00.
d. Php700,100.00.
31. If the drawer and the drawee are the same person, the holder may present the instrument for payment
without need of a previous presentment for acceptance. In such a case, the holder treats it as a
a. non-negotiable instrument.
b. promissory note.
c. letter of credit.
d. check.
32. A promissory note states, on its face: I, X, promise to pay Y the amount of Php 5,000.00 five days after
completion of the on-going construction of my house. Signed, X. Is the note negotiable?
a. Yes, since it is payable at a fixed period after the occurrence of a specified event.
b. No, since it is payable at a fixed period after the occurrence of an event which may not happen.
c. Yes, since it is payable at a fixed period or determinable future time.
d. No, since it should be payable at a fixed period before the occurrence of a specified event.
33. Which of the following indorsers expressly warrants in negotiating an instrument that 1) it is genuine and
true; 2) he has a good title to it; 3) all prior parties have capacity to negotiate; and 4) it is valid and subsisting
at the time of his indorsement?
a. The irregular indorser.
b. The regular indorser.
c. The general indorser.
d. The qualified indorser.
34. X executed a promissory note in favor of Y by way of accommodation. It says: Pay to Y or order the amount
of Php50,000.00. Signed, X. Y then indorsed the note to Z, and Z to T. When T sought collection from Y, the
latter countered as indorser that there should have been a presentment first to the maker who dishonors it.
Is Y correct?
a. No, since Y is the real debtor and thus, there is no need for presentment for payment and dishonor by
the maker.
b. Yes, since as an indorser who is secondarily liable, there must first be presentment for payment and
dishonor by the maker.
c. No, since the absolute rule is that there is no need for presentment for payment and dishonor to hold an
indorser liable.
d. Yes, since the secondary liability of Y and Z would only arise after presentment for payment and dishonor
by the maker.
35. Notice of dishonor is not required to be made in all cases. One instance where such notice is not necessary is
when the indorser is the one to whom the instrument is suppose to be presented for payment. The rationale
here is that the indorser

a.
b.
c.
d.

already knows of the dishonor and it makes no sense to notify him of it.
is bound to make the acceptance in all cases.
has no reason to expect the dishonor of the instrument.
must be made to account for all his actions.

36. Check shall produce the effect of payment:

I. When the check has been encashed
II. When through the fault of the creditor the check has been impaired.
III. When a check has been cleared and credited to creditors account.
IV. When the creditor accepts the check as payment.
a.
I, II and III
c. I and II
b.
I, II and IV
d. All of them
c.
37. S sold his Toyota car with Plate No. ABC 321 to B for P300,000.00. When the car was delivered to B, he found
out that the stereo and air-conditioning unit of the car were no longer there. Did S have the right to remove
the cars stereo and air-conditioning unit?
a. Yes, because those things are not included in the sale.
b. No, because when the thing to be delivered is a generic thing, accessions and accessories are included
even though not mentioned.
c. Yes, because S is the seller.
d. No, because when what is to be delivered is a specific thing, accessions and accessories are deemed
included even though not mentioned.
38. Which of the following contracts is not void ab initio?
a. The contract where the object is beyond the commerce of man.
b. The contract whose cause, object or consideration is against the law, morals, good customs or public
order.
c. The contract which is relatively simulated or fictitious.
d. The contract where the intention of the relative to the object thereof cannot be ascertained.
39. Which of the following cannot be a valid object of a contract?
a. Transmissible rights
c. Possible services
b. Future inheritance
d. Future things
40. M issued a promissory note to payable to the order of P. P indorsed it specially to A. Without the knowledge
of A, X took the note and forged As signature and then delivered it to B, who specially indorsed it to C, C to D,
D to E, and E to H, a holder in due course. Against whom can H demand payment of the note?
a.
M and P because their signatures are genuine and had not been forged
b.
A because he is negligent in keeping the promissory note
c.
Against all parties because H is a holder in due course
d.
B, C, D and E because their signatures appear after the forgery
41. The following are common to pledge, chattel mortgage and real mortgage, except:
a.
These contracts are constituted to secure the performance of a principal obligation
b.
These contracts must be in writing and registered in order to be binding against third persons
c.
The pledgor/mortgagor must be the absolute owner of the thing pledged or mortgaged
d.
There can be no valid pledge, chattel, or real mortgage without a valid obligation
42. To call a meeting for the purpose of removing a director of a corporation the required votes of the
stockholders is:
a. majority of the stockholders present voting and non-voting
b. of the outstanding capital stock-voting
c. 2/3 of the outstanding capital stock-voting
d. majority of the outstanding capital stock-voting
43. In sale of a land with a non-apparent servitude, a hidden defect, the buyer can rescind the sale within period
of time?
a. 6 months from the date of delivery
b. 40 days from the date of delivery
c. 3 days from the discovery of the hidden defect
d. 1 year from the execution of the contract of sale

44. Which of the following is non-negotiable?

a. I promise to pay to the order of Mr. A the sum of P10,000 at the Banco De Oro Manila;
b. I promise to pay to the order of X the sum of P10,000 and to deliver one-fourth of the rice harvest in my
farm
c. I promise to pay Y or bearer in Manila the sum of P 10,000 in Philippine pesos or US dollars at the option
of the holder
d. I promise to pay Z or bearer in Manila the sum of P 10,000 on or before December 1, 2011.
45. Paolo contributed P50,000; Ronald contributed P75,000; and Paul contributed P25,000. Jay is the industrial
partner. There is no stipulation regarding profits and losses. The partnership suffered a P300,000 loss. The
loss shall be shared by the partners as follows:
a. P100,000; P100,000; P100,000; and P0
b. P75,000; P75,000; P75,000; and P75,000
c. P100,000; P150,000; P50,000; and P0
d. P100,000; P100,000; P100,000; and P100,000
46. Lets and Gets are partners. On March 1, 2010 when the total obligation of the partnership was P450,000, Go
was admitted as a new partner. At the time of Gos admission, the partnership was indebted to A for P50,000
and B for P400,000. After March 1, 2010, the partnership borrowed from X P200,000 and P40,000 from Y. On
December 1, 2010, the partnership became insolvent leaving an obligation totaling P690,000 and partnership
assets amounting in P300,000. The creditors are going after the separate properties of the partners to satisfy
their remaining claims. How are the creditors' claims satisfied?
ANSWER 1: A and B can go after the separate properties of Lets, Gets and Go.
ANSWER 2: X and Y can go after the separate properties of Lets and Gets.
Which of the following is correct?
a. Both answers are wrong.
b. Both answers are correct.
c. Answer #1 is wrong, but answer #2 is correct.
d. Answer #1 is correct, but answer #2 is wrong.
47. This bill of exchange has to be presented for payment only and not for acceptance
a. To Mr. X
Oct 8, 2011
123 Rizal Avenue, Manila
Sixty days after date, pay to Y or order P500,000.
Sgd. Z
b. To Mr. X
321 Rizal Avenue, Manila
Ninety days after sight, pay to Y order P200,000.
Sgd. Z
c. To Mr. X
213 Rizal Avenue, Manila
Pay to Y or order on or before October 8, 2011 at the lobby of the PNB Bldg., Roxas Boulevard, Pasay the
sum of P1,000,000.
Sgd. Z
d. Both b & c
48. In sale of a land with a non-apparent servitude, a hidden defect, the buyer can rescind the sale within period
of time?
a. 6 months from the date of delivery
b. 40 days from the date of delivery
c. 3 days from the discovery of the hidden defect
d. 1 year from the execution of the contract of sale
st

49. 1 Statement Bitoy can compel his creditor to accept a managers check as payment
nd
2 Statement Sale of property between husband and wife is unenforceable if orally constituted unless
there is a judicial separation of property.
st
nd
a. 1 statement is wrong, 2 statement is correct
st
nd
b. 1 statement is correct, 2 statement is wrong.
c. Both statements are correct
d. Both statements are wrong.
50. Mr. Principe constituted Mr. Ajente as his authorized agent to sell the formers Toyota Fortuner car for
P800,000 and to pay him a 10% commission based on the selling price. Mr. Ajente sold the car for P820,000.
Mr. Ajente shall remit to Mr. Felipe:
A. P800,000
C. P718,000
B. P720,000
D. P820,000