Regulatory Framework for Business Transactions (RFBT)

Problem 1
Notice of dishonor is not required to be given to the drawer in the following cases, except:

A. Where the drawer and acceptor are the same person

B. When the drawee is a fictitious person or a person not having capacity to contract
C. When the drawer is the person to whom the instrument is presented for payment
D. Where the drawer has no right to expect or require that the drawee or acceptor will
honor the instrument

Answer: A
Under Section 114 of the Negotiable Instruments Law, Notice of dishonor is not required to be
given to the drawer in the following cases:

a. Where the drawer and drawee are the same person;

b. When the drawee is a fictitious person or a person not having capacity to contract;
c. When the drawer is the person to whom the instrument is presented for payment;
d. Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument;
e. Where the drawer has countermanded payment

Problem 2
Which of the following stipulations or features of a promissory note (PN) do not affect its
negotiability, assuming that the PN is otherwise negotiable?

I. The date of the PN is ―February 30, 2002.

II. The PN bears interest payable on the last day of each calendar quarter at a rate
equal to five percent (5%) above the then prevailing 91-day Treasury Bill rate as
published at the beginning of such calendar quarter.
III. The PN gives the maker the option to make payment either in money or in quantity
of palay or equivalent value.
IV. The PN gives the holder the option either to require payment in money or to require
the maker to serve as the bodyguard or escort of the holder for 30 days.

A. I, II, III
B. I, II, IV
C. I, II, III, IV
D. I, III, IV

Answer: B

I. Negotiability is ―NOT AFFECTED. The date is not one of the requirements for
negotiability.
II. Negotiability is ―NOT AFFECTED. The interest is to be computed at a particular time and
is determinable. It does not make the sum uncertain or the promise conditional.
 III. Negotiability is ―AFFECTED. Giving the maker the option renders the promise
conditional.
IV. Negotiability is ―NOT AFFECTED. Giving the option to the holder does not make the
promise conditional.

Problem 3
Which of the following instruments are negotiable?

I. Postal Money Order

II. A certificate of time deposit which states ―This is to certify that bearer has
deposited in this bank the sum of FOUR THOUSAND PESOS (P4,000.00) only,
repayable to the depositor 200 days after date.
III. Letters of credit
IV. Warehouse receipts
V. Treasury warrants payable from a specific fund

A. II, V
B. I, II, III
C. I, II, IV
D. None

Answer: D

I. Postal Money Order – Non-Negotiable as it is governed by postal rules and regulation

which may be inconsistent with the NIL and it can only be negotiated once.
II. A certificate of time deposit which states ―This is to certify that bearer has deposited
in this bank the sum of FOUR THOUSAND PESOS (P4,000.00) only, repayable to the
depositor 200 days after date.– Non-Negotiable as it does not comply with the
requisites of Sec. 1 of NIL
III. Letters of credit - Non-Negotiable
IV. Warehouse receipts - Non-Negotiable for the same as Bill of Lading it merely represents
good, not money.
V. Treasury warrants payable from a specific fund - Non-Negotiable being payable out
of a particular fund.

Problem 4
Which of the following is/are implied warranty in a contract of sale:

I. Right to sell the thing at the time of perfection of the contract

II. Reasonably fit for the purpose they are sold
III. Merchantable Quantity
IV. Free for charges or encumbrances not declared or known to the buyer

A. II, III and IV only

B. II and III only
 C. IV only
D. I only

Answer: C

Article 1547 of the Civil Code enumerates the warranties deemed included in all contracts of
sale by operation of law, as follows:

1. The seller has a right to sell the property at the time when the ownership is to pass, while the
buyer shall from that time have and enjoy the legal and peaceful possession of the
property
2. The property shall be free from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer; and
3. Warranty against eviction, where the buyer would be deprived of the whole or part of the
property purchased upon a final judgment based on a right prior to the sale or an act
imputable to the seller

Problem 5
Joyce, Faith and Ren bought a parcel of land and became co-owners thereof. Subsequently,
Joyce sold his share to Marionem. Neither Faith nor Ren redeemed the share sold by Joyce. Later
Faith sold his share to Homer. May Marionem redeem the share sold by Faith to Homer?

A. No, because he was a third person who has no right to redeem a share sold by one of
the to a third person
B. No, because only the original co-owners have the right to redeem a share sold by one
of them to a third person
C. Yes, because Marionem has become a co-owner of Ren
D. Yes, but Ren has preference in case both Ren and Marionem desire to redeem

Answer: C
Article 1620 of the Civil Code provides that “A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-owners or any of them, are sold to a third person.
If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable
one.

Problem 6
Tokyo undertook to deliver to Denver specified dining room furniture made of narra for a stated
price in the contract. The contract provided for the payment of penalty of P100,000.00 for violation
thereof. The furniture delivered was not made of narra but of interior wood. Denver is claiming
damages other than penalty for the breach. Decide.

A. Tokyo is liable to pay damages and penalty agreed because Denver sustained
damages he was able to prove.
B. Tokyo is not liable for damages because the penalty shall substitute the indemnity for
damages and interest.
C. Tokyo is liable to pay damages other than penalty even if Denver fails to prove bad
faith in the performance of Tokyo’s obligation.
D. Tokyo is not liable to pay damages other than penalty even if bad faith or fraud is
proven on the part of Tokyo
Answer: B
General rule is that, if the obligation is one with a penal clause, the penalty stipulated takes the
place of the damages and interest in case of non-compliance.

Problem 7
Nicko is obliged to give April a Toyota Car with engine no. 12345, body no. 78901 and a plate
no. CPA 2022. The parties agreed that Nicko may give a specific ring as a substitute. Which of
the following statements is/are true?

I. If the car is lost through fortuitous event before substitution, the obligation is extinguished
II. If the ring is lost through the debtor’s fault before substitution, Nicko shall pay damages
III. If the car is lost through the debtor’s fault after substitution, Nicko shall pay damages
IV. If the ring is lost through fortuitous event after substitution, the obligation is extinguished

Answer: I and IV only

Article 1206 provides that “When only one prestation has been agreed upon, but the obligor
may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the
obligor, does not render him liable. But once the substitution has been made, the obligor is liable
for the loss of the substitute on account of his delay, negligence or fraud.”

Also, according to Article 1174 of the Civil Code of the Philippines, no person shall be responsible
for those events which could not be foreseen, or which, though foreseen, were inevitable,
except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk.

Problem 8
Kim orally sold its land to Mark with a selling price of PhP 6,000,000.00 and a book value of PhP
10,000,000.00. Both parties agreed that the delivery shall be made after three years. Mark has
already paid a down payment of PhP 500,000.00 at the perfection of the contract.

The status of the contract is __________.

Answer: Valid/Perfectly Valid

According to Article 1403 of the Civil Code of the Philippines, the following contracts are
unenforceable, unless they are ratified:

Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
 a) An agreement that by its terms is not to be performed within a year
from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of
another;
c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
e) An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
f) A representation as to the credit of a third person.

Article 1405 also provides that contracts infringing the Statute of Frauds are ratified by the failure
to object to the presentation of oral evidence to prove the same, or by the acceptance of
benefit under them.

Problem 9
Which of the following obligations arise from Law?

I. Obligation of income earning persons to pay taxes

II. Duty of husband and wife to support family
III. Liability of guardians for damages caused by the minors or incapacitated persons who
are under their authority
IV. Obligation of the employers to pay all their employees a 13th-Month Pay
V. Obligation of the employer to pay all their employees a 14th-Month Pay

Answer: I II and IV only

• Article 1158 of the Civil Code of the Philippines provides that obligations derived from law
are not presumed. Only those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law which establishes them;
and as to what has not been foreseen, by the provisions of this Book. (1090)

• Obligation of income earning persons to pay taxes arises from the National Internal
Revenue Code of 1997, as amended.

• Duty of husband and wife to support family arises from the Executive Order (EO) No. 209,
as amended, The Family Code of the Philippines.

According to Article 70 of the Family Code of the Philippines, the spouses are jointly
responsible for the support of the family.

• Obligation of the employers to pay all their employees a 13th-Month Pay arises from
 Presidential Decree (PD) No. 851, Requiring all employers to pay their employees a 13th-
Month Pay.

Kindly note that PD No. 851 does not cover 14th-Month Pay.

• Liability of guardians for damages caused by the minors or incapacitated persons who
are under their authority is an example of an obligation arising from Quasi-Delict.

Pursuant to Article 2176 of the Civil Code of the Philippines, whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict.

The foregoing provision provides as follows:

“Art. 2180. The obligation imposed by Article 2176 is demandable

not only for one's own acts or omissions, but also for those of persons
for whom one is responsible.

Guardians are liable for damages caused by the minors or

incapacitated persons who are under their authority and live in their
company.

Problem 10
Which of the following is/are valid obligations?

I. D promised to give C PhP 50,000.00 if C will swim across the Pacific Ocean.
II. D promised to give C PhP 50,000.00 if D goes to North Korea.
III. D promised to give C PhP 50,000.00 if C can fly to the moon.
IV. D promised to give C PhP 50,000.00 if C gives him 5 grams of shabu.

Answer: None of the above

• Article 1182 of the Civil Code of the Philippines provides that when the fulfillment of the
condition depends upon the sole will of the debtor, the conditional obligation shall be
void.

• According to Article 1183, impossible conditions, those contrary to good customs or

public policy and those prohibited by law shall annul the obligation which depends upon
them. If the obligation is divisible, that part thereof which is not affected by the
impossible or unlawful condition shall be valid.

Problem 11
I. Resident alien individuals may organize a primary cooperative.

II. A prospective member of a primary cooperative must have completed a Pre-Membership

Education Seminar (PMES)

In your evaluation of the said statements:

 a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

Answer: B

Art. 10 of RA No. 6938, as amended, states: Fifteen (15) or more natural persons who are Filipino
citizens, of legal age, having a common bond of interest and are actually residing or working in
the intended area of operation, may organize a primary cooperative under this Code: Provided,
That a prospective member of a primary cooperative must have completed a Pre-Membership
Education Seminar (PMES).

Problem 12
Which type of cooperative generates a common pool of funds in order to provide financial
assistance to its members for productive and provident purposes?

a. Producers Cooperative
b. Financial Service Cooperative
c. Insurance Cooperative
d. Credit Cooperative

Answer: D

Credit Cooperative is one that promotes and undertakes savings and lending services among its
members. It generates a common pool of funds in order to provide financial assistance to its
members for productive and provident purposes. [Art. 23 (a) of RA No. 6938, as amended]

Problem 13
In which of the following cases information on Philippine currency bank deposits, as well as
investment in government securities may be disclosed, examined or looked into without violating
the law?

a. Upon order of the court in cases where the money deposited or invested is the
subject matter of the litigation.
b. Upon inquiry of the BIR into bank deposits if there is an offer of compromise of tax
liability on account of the depositor’s financial incapacity to verify such
representation.
c. Under the Unclaimed Balances law in which the bank may disclose to the National
Treasurer information concerning dormant deposits for the purpose of initiating
escheat proceedings.
d. All of the above.

Answer: D

Information on Philippine currency bank deposits, as well as investment in government securities

may be disclosed, examined or looked into without violating the law in the following cases:
 1. Written permission or consent in writing by the depositor;
2. In cases of impeachment;
3. Upon order of the court in (a) cases of bribery or dereliction of duty of public officials;
(b) cases where the subject matter of litigation is the money deposited; (c)
prosecution for unexplained wealth; (d) prosecution for violation of the anti-graft and
corrupt practices act; (e) in cases where there is a probable cause of violation of the
anti-money laundering law; or (f) garnishment of bank deposits.
4. The BIR may also inquire into bank deposits if there is an offer of compromise of tax
liability on account of the depositor’s financial incapacity to verify such
representation.
5. Under the Unclaimed Balances law, the bank may disclose to the National Treasurer
information concerning dormant deposits for the purpose of initiating escheat
proceedings.
6. The BSP may also conduct examination of bank accounts to ensure compliance with
the Anti-Money Laundering law, and to investigate unsafe and unsound banking
practices.
7. In case the law is repealed, superseded, or modified by any law to the contrary.

Problem 14
Which is supreme in the matter of management of the corporation?

a. Stockholders
b. Board of Directors
c. President
d. Chairman of the Board of Directors

Answer: B

The board of directors or trustees shall exercise the corporate powers, conduct all business, and
control all properties of the corporation. (Section 6 of RA No. 11232)

Problem 15
A consensual contract has the following essential elements:

a. Consent of the contracting parties, object certain and cause or consideration

b. Consent of the contracting parties, object certain, cause or consideration and
delivery of the object
c. Consent of the contracting parties, object certain, cause or consideration and
formalities required by the law
d. Consent of the contracting parties, object certain, delivery of the object and
formalities required by the law

Answer: A

Art. 1318. There is no contract unless the following requisites concur:

1. Consent of the contracting parties
2. Object certain which is the subject matter of the contract
3. Causes of the obligation which is established
Problem 1
To accommodate Carmen, maker of a promissory note, Jorge signed as indorser thereon, and
the instrument was negotiated to Raffy, a holder for value. At the time Raffy took the instrument,
he knew Jorge to be an accomodation party only. When the promissory note was not paid, and
Raffy discovered that Carmen had no funds, he sued Jorge. Jorge pleads in defense the fact that
he had endorsed the instrument without receiving value therefor, and the further fact that Raffy
knew that at the time he took the instrument Jorge had not received any value or consideration
of any kind for his indorsement. Is Jorge liable?

A. Yes, because an accommodation party is liable on the instrument even though the
holder is not a holder for value.
B. Yes, because an accommodation party is liable on the instrument to a holder for value,
notwithstanding the holder at the time of taking said instrument knew him to be only
an accommodation party.
C. No, Carmen is the one liable as the maker of the promissory note since Jorge had not
received any value or consideration of any kind for his indorsement
D. No, since Raffy is not a holder for value, and knew that Jorge at the time of taking said
instrument is only an accommodation party.

Answer: B

Yes. Jorge is liable. Sec 29 of the Negotiable Instruments Law (NIL) provides that an
accommodation party is liable on the instrument to a holder for value, notwithstanding the holder
at the time of taking said instrument knew him to be only an accommodation party. This is the
nature or the essence of accommodation.

Problem 2
The Law on Secrecy of Bank Deposits provides that all deposits of whatever nature with banks or
banking institutions are absolutely confidential in nature and may not be examined, inquired or
looked into by any person, government official, bureau or office. However, the law provides
exceptions in certain instances. Which of the following may not be among the exceptions:

I. In cases of impeachment
II. In cases involving bribery
III. In cases involving BIR inquiry
IV. In cases of anti-graft and corrupt practices
V. In cases where the money involved is the subject of litigation

A. I, III, V
B. III, IV, V
C. I, II, V
D. I, III

Answer: C
Under Section 6(F) of the National Internal Revenue Code, the Commissioner of Internal Revenue
can inquire into the deposits of a decedent for the purpose of determining the gross estate of
such decedent. Apart from this case, a BIR inquiry into bank deposits cannot be made. Thus, Item
3 may not always be applicable.

Turning to Item 4, an inquiry into bank deposits is possible only in prosecutions for unexplained
wealth under the Anti-Graft and Corrupt Practices Act, according to the Supreme Court in the
cases of Philippine National Bank v. Gancayco, 15 SCRA 91 (1965) and Banco Filipino Savings and
Mortgage Bank However, v. Purisima, all other 161 SCRA cases of 576 anti-graft (1988) and corrupt
practices will not warrant an inquiry into bank deposits. Thus, Item 4 may not always be applicable.
Like any other exception, it must be interpreted strictly.

Items 1, 2 and 5, on the other hand, are provided expressly in the Law on Secrecy of Bank
Depositors. They are available to depositors at all times.

Problem 3
Arnold has in his name 1,000 shares of the capital stock of ABC Co as evidenced by a stock
certificate. Arnold delivered the stock certificate to Steven who now claims to be the real owner
of the shares, having paid for Arnold‘s subscription. ABC refused to recognize and register Steven‘s
ownership. Is the refusal justified?

A. No, Steven is now the owner of the shares since the shares are already duly endorsed
by Arnold at the time it was delivered.
B. Yes, although the certificate was delivered by Arnold to Steven, the facts do not
indicate that the certificate was duly endorsed by Arnold at the time it was delivered
to Steven.
C. No, Steven is now the owner of the shares since the delivery of Arnold constitutes
effective transfer of shares of stock.
D. Yes, because Arnold is still the owner of the shares even though the certificate was duly
endorsed by Arnold at the time it was delivered to Steven.

Answer: B

ABC‘s refusal to recognize and register Steven‘s ownership is justified. The facts indicate that the
stock certificate for the 1,000 shares in question is in the name of Arnold. Although the certificate
was delivered by Arnold to Steven, the facts do not indicate that the certificate was duly
endorsed by Arnold at the time it was delivered to Steven or that the procedure for the effective
transfer of shares of stock set out in the by-laws of ABC Co, if any, was observed. Since the
certificate was not endorsed in favor of Steven (or anybody else for that matter), the only
conclusion could be no other than that the shares in question still belong to Arnold. (Razon v IAC
GR 74306 Mar 16,92 207s234)

Problem 4
Which of the following instruments is/are not negotiable?

I. “Good to Renz or order, P20, 000” (Sgd. Leo)

II. “I promise to pay Renz or order P20, 000 in four installments.” (Sgd. Leo)
III. “I promise to pay Renz or order P20, 000, 30 days before the death of his father”.
(Sgd. Leo)
IV. “I promise to pay Renz P20, 000. (Sgd. Leo)
V. “I promise to pay Renz or order P20, 000 if he will pass the CPA board exam on
Oct. 2019. (Sgd. Leo)
VI. “I hereby authorize you to pay Renz or order 20,000” (Sgd. Leo)
VII. “I promise to pay Renz or order P20, 000 worth in sugar”. (Sgd. Leo)
VIII. “I promise to pay Renz or order P20, 000 on May 25. (Sgd. Leo)

a. II, III, IV, V, VII, VIII only c. I, II, III, V, VII, VIII only
b. I, II, III, IV, VI only d. II, III, IV, V, VI, VII, VIII only

Answer: D

Negotiable Instruments Law: Section 1. Form of negotiable instruments. - An instrument to be

negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

Instrument III and V are not negotiable since those are not compliant to (b) above being both
conditional.

Instrument VI and VIII are not negotiable since those are not compliant to (c) being both are not
payable on a determinate future time.

Instrument II and VII are not negotiable since those are not compliant to (b) above being both
are payable in sum certain in money.

Instrument IV is not negotiable since this is not compliant to (d) above lacking that is should be
payable to order or bearer.
The only instrument which is negotiable is the one falling under I. Mere use of the word Good
doesn’t
make it non-negotiable under Section 10 of the same law which is amplified below.

Section 10 of the Negotiable Instruments Law. Terms, When Sufficient — The instrument need not
follow the language of this Act but any terms are
sufficient which clearly indicate an intention to conform to the requirements hereof

Problem 5
Cen, the owner of a Xerox Machine, lease it to LJ, at a rental of P4,000 a month for a period of
one year with option to buy the said machine at the end of the year for P80,000, to be paid by
applying the rentals, so that LJ needs only to pay P32,000. LJ failed to pay rentals for the 4 th, 5th
and 6th months so that Cen terminated the lease and repossessed the machine, then sued LJ for
the unpaid rentals of three months or for the amount of P12,000. Up to what amount is LJ liable?

a. P12,000 c. P80,000
b. P44,000 d. P0

Answer: D
Article 1494 of the Civil Code provides that “In a contract of sale of personal property the price
of which is payable in installments, the vendor may exercise any of the following remedies:

1. Exact fulfillment of the obligation, should the vendee fail to pay;

2. Cancel the sale, should the vendee’s failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement
to the contrary shall be void. (1454-A-a)

Article 1485 of the Civil Code provides that “The preceding article shall be applied to contracts
purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing. (1454-A-a)”

Because of the application of Article 1485 on the case at hand, the same shall therefore be
subjected to the provisions of the preceding article 1484 (3). Since LJ, in this case the purchases,
was deprived of the possession or enjoyment of the thing leased, the vendor shall have no further
action against purchaser to recover any unpaid balance of the price. Thus, it can be assumed
that LJ is no longer liable to any unpaid balance, making his liability PhP 0.

Problem 6
On March 1, 2016, Ted sold to Barney a specific car which Ted acquired from Robin last January
2, 2016. On May 2, 2016, the car was totally destroyed which was traced to a crack in the
engine block already existing on January 2, 2016. Ted was not aware of the defect. Is Ted liable
to Barney?

A. No. because Ted was innocent and a seller in good faith.

 B. No. because Barney has all the opportunity to examine the car before buying it,
applying caveat emptor policy.
C. Yes, Ted is liable to return the price and expenses incurred by Barney.
D. Yes, Ted is liable to return the price, expenses and to pay interest and damages to
Barney.

Answer: B
Caveat emptor policy- let the buyer beware. It is a principle in contract law that places the
responsibility on the buyer to perform due diligence before making a purchase

Problem 7
Form is one of the requisites of a valid obligation. However, this requisite is only applicable to:

A. Those arising from law

B. Those arising from quasi-contracts
C. Those arising from solemn contracts
D. Those arising from quasi-delicts

Answer: C

• Article 1356 of the Civil Code of the Philippines provides that contracts shall be
obligatory, in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract be proved in
a certain way, that requirement is absolute and indispensable. In such cases, the right of
the parties stated in the following article cannot be exercised.

• Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein a
governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.

Problem 8
Which of the following may not be the object of the contact of sale?

I. Things having potential existence

II. Vain hope or expectancy
III. Future goods
IV. Goods whose acquisition by the seller depends upon a contingency
V. Things subject to a resolutory condition
Answer: II only

• Article 1461 of the Civil Code of the Philippines states that “Things having a potential
existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence.

The sale of a vain hope or expectancy is void. (n)”

• Moreover, pursuant to Article 1462 of the Civil Code of the Philippines that the goods
which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, or called future goods.

Also, the same section provides that there may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency which may or may not happen.
(n)

Article 1465 provides that things subject to a resolutory condition may be the object of the
contract of sale.

Problem 9
Sale is valid between spouses

I. When there is agreement of separation of property between the spouses

II. When the spouses’ property regime is covered by conjugal partnership of gains
III.When the spouses’ property regime is covered by absolute community of property
IV. In case the property subject of sale is of small value
V. When the spouses have sufficient assets to cover their liabilities and the surplus is the
object of sale
VI. When there has been a judicial separation or property

Answer: I and VI only

Article 1490 of the Civil Code of the Philippines provides that “The husband and the wife cannot
sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191. (1458a)

Problem 10
Aldrin borrowed PhP 20,000.00 from Tracy to secure the fulfilment of the loan. Aldrin mortgaged
a land owned by Hector, his ailing father. The contract of mortgage is ______________.

Answer: Void
 • Article 2085 of the Civil Code enumerates the following requisites that are essential to the
contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a

principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have
the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose.

Problem 11
Which type of corporation is allowed to issue no-par value common shares?

a. Public utility
b. Insurance company
c. Educational institution
d. Banks

Answer: C

Banks, trust, insurance, and preneed companies, public utilities, building and loan associations,
and other corporations authorized to obtain or access funds from the public, whether publicly
listed or not, shall not be permitted to issue no-par value shares of stock. (Section 6 of RA No.
11232)

Problem 12
What is the order of payment of liabilities of a dissolved general partnership using the code
number representing each liability?

I. Those owing to partners other than for capital or for profits

II. Those owing to creditors other than partners
III. Those owing to partners in respect of profit
IV. Those owing to partners in respect of capital

a. I, II, III, IV
b. II, I, IV, III
c. II, I, III, IV
d. I, II, IV, III

Answer: B

Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:

(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
 (d) Those owing to partners in respect of profits.

Problem 13
D is obliged to repair the car of C. D failed to repair the car despite the demands made by C.
Which of the following remedies are available to C:

I. Compel D to repair the car

II. Have the car repaired by another person at D's expense
III. Demand payment of damages from D

a. I and II
b. II and III
c. I only
d. II only

Answer: B

If the debtor fails to perform the obligation or performs it but contravenes the tenor thereof, the
remedies of the creditor are as follows:

1. Creditor may have the obligation executed at the expense of the debtor. (Art. 1167)
2. He may also demand damages from the debtor. (Art. 1170)

Problem 14
D owes C the amount of P 2,800 payable on June 30, 2012. On June 8, 2012, C purchased some
grocery item from the store of D on credit, payable on June 30, 2012. On the maturity date, their
respective obligations are extinguished by:

a. Dation in payment
b. Novation
c. Compensation
d. Confusion or merger of rights

Answer: C

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. (1195)

Problem 15
To accommodate Carmen, maker of a promissory note, Jorge signed as indorser thereon, and
the instrument was negotiated to Raffy, a holder for value. At the time Raffy took the instrument,
he knew Jorge to be an accomodation party only. When the promissory note was not paid, and
Raffy discovered that Carmen had no funds, he sued Jorge. Jorge pleads in defense the fact
that he had endorsed the instrument without receiving value therefor, and the further fact that
Raffy knew that at the time he took the instrument Jorge had not received any value or
consideration of any kind for his indorsement. Is Jorge liable?
 a. Yes, because an accommodation party is liable on the instrument even though the
holder is not a holder for value.
b. Yes, because an accommodation party is liable on the instrument to a holder for
value, notwithstanding the holder at the time of taking said instrument knew him to
be only an accommodation party.
c. No, Carmen is the one liable as the maker of the promissory note since Jorge had not
received any value or consideration of any kind for his indorsement
d. No, since Raffy is not a holder for value, and knew that Jorge at the time of taking
said instrument is only an accommodation party.

Answer: B

Yes. Jorge is liable. Sec 29 of the Negotiable Instruments Law (NIL) provides that an
accommodation party is liable on the instrument to a holder for value, notwithstanding the
holder at the time of taking said instrument knew him to be only an accommodation party. This is
the nature or the essence of accommodation.

Problem 1
AX, a businessman, was preparing for a business trip abroad. As he usually did in the past, he
signed several checks in blank and entrusted them to his secretary with instruction to safeguard
them and fill them out only when required to pay accounts during his absence. OB, his secretary,
filled out one of the checks by placing her name as the payee. She filled out the amount,
endorsed and delivered the check to KC, who accepted it in good faith for payment of gems
that KC sold to OB. Later, OB told AX of what she did with regrets. AX timely directed the bank to
dishonor the check. Could AX be held liable to KC?

A. No, because even though KC is a holder in due course, she cannot enforce payment
of the check since it was not delivered by AX to KC.
B. Yes, because even though KC is not a holder in due course, she can still enforce
payment of the check as if it had been filled up strictly in accordance with the
authority given by AX to OB and within a reasonable time.
C. No, since KC is not a holder in due course, and thus cannot enforce payment of the
check.
D. Yes, since KC as a holder in due course, can enforce payment of the check as if it had
been filled up strictly in accordance with the authority given by AX to OB and within a
reasonable time.
Answer: D

Yes. AX could be held liable to KC. This is a case of an incomplete check, which has been
delivered. Under Section 14 of the Negotiable Instruments Law, KC, as a holder in due course, can
enforce payment of the check as if it had been filled up strictly in accordance with the authority
given by AX to OB and within a reasonable time.

Problem 2
Mr. Cruz filed a collection action against X Corporation. Upon execution of the court‘s decision, X
Corporation was found to be without assets. Thereafter Mr. Cruz filed an action against its present
and past stockholder Y Corporation which owned substantially all of the stocks of X Corporation.
The two corporations have the same board of directors and Y Corporation financed the
operations of X Corporation. May Y Corporation be held liable for the debts of X Corporation?

A. No, the doctrine of piercing the veil of corporation fiction is not applicable to this case
since the facts do not indicate that X corporation is a mere alter ego of Y Corporation.
B. No, X Corporation is still the one liable to Mr. Cruz even if the doctrine of piercing the
veil of corporation fiction is applicable to this case.
C. Yes, Y Corporation may be held liable for the debts of X Corporation because the
doctrine of piercing the veil of corporation fiction applies to this case.
D. Yes. The doctrine of piercing the veil of corporation fiction is not applicable to this case
but Y Corporation may be held liable for the debts of X Corporation.

Answer: C

Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the
veil of corporation fiction applies to this case. The two corporations have the same board of
directors and Y Corporation owned substantially all of the stocks of X Corporation, which facts
justify the conclusion that the latter is merely an extension of the personality of the former, and
that the former controls the policies of the latter. Added to this is the fact that Y Corporation
controls the finances of X Corporation which is merely an adjunct, business conduit or alter ego
of Y Corporation. (CIR v Norton & Harrison Co 11 S 714 (1964).

Problem 3
YKS Trading filed a complaint for specific performance with damages against LWC Corporation
for failure to deliver cement ordered by plaintiff. In its answer, LWC denied liability on the ground,
inter alia, that YKS has no personality to sue, not being incorporated, and that the President of
LWC was not authorized to enter into a contract with plaintiff by the LWC Board of Directors, hence
the contract is ultra vires. YKS Trading replied that it is a sole proprietorship owned by YKS, and that
the President of LWC had made it appear in several letters presented in evidence that he had
authority to sign contracts on behalf of the Board of Directors of LWC. Will the suit prosper?

A. Yes, even though YKS has no personality to sue, not being incorporated, LWC is
estopped from asserting that its President had no authority to enter into the contract,
considering that, in several of LWC's letters, it had clothed its President with apparent
authority to deal with YKS Trading.
 B. No, since only corporations incorporated under the Corporation Code has the power
and capacity to sue and YKS Trading is not yet incorporated.
C. Yes, as a sole proprietorship, the proprietor of YKS Trading has the capacity to act and
the personality to sue LWC.
D. No, since even though the President of LWC had made it appear in several letters that
he had authority to sign contracts on behalf of the Board of Directors of LWC, YKS
Trading is responsible in confirming the former’s authority to enter into contracts.

Answer: C

Yes, the suit will prosper. As a sole proprietorship, the proprietor of YKS Trading has the capacity to
act and the personality to sue LWC. It is not necessary for YKS Trading to be incorporated before
it can sue. On the other hand, LWC is estopped from asserting that its President had no authority
to enter into the contract, considering that, in several of LWC's letters, it had clothed its President
with apparent authority to deal with YKS Trading.

Problem 4
I promise to pay Kennah or order P200,000, 30 days after date. Sgd. Jessie. The above promissory
note was issued by Jessie to Kennah on Feb. 8, 2019 for the Lancer car sold by Kennah to Jessie.
A few days later, Feb. 15, 2019, Jessie was deprived of the car because it turned out to be a stolen
car and the true owner was able to recover it from Jessie. On Feb. 25, 2019, Kennah negotiated
the promissory note to CK. Terms- 50% payable on Feb. 25, 2019 and the balance of P100,000
payable on Feb. 28, 2019, CK paid the P100,000 on Feb. 25, 2019 as agreed upon. On Feb 27, 2019,
CK learned of the unlawful consideration between Jessie and Kennah. Despite such knowledge,
CK paid the P100,000 balance on Feb. 28, 2019. On maturity of the instrument, how much, if any,
can CK collect from Jessie?

a. P100,000 c. P200,000
b. P250,000 d. P0

Answer: A

CK can only collect PhP 100,000 from Jessie, because Jessie can setup a defense against CK,
which is the illegality of the consideration between her and Kennah, right after CK learned of the
infirmity on the instrument. CK as far as the law is concerned is no longer a holder in due course
to which personal defenses can be used. Thus, being not a holder in due course anymore, the
following rights below which are available to a holder in due course can’t be invoked by CK.

Section 57 of the Negotiable Instruments Law. Rights of Holder in Due Course – A holder in due
course holds the instrument free from any defect of title of prior parties and free from defenses
available to prior parties among themselves and may enforce payment of the instrument for the
full amount thereof against all parties liable thereon.

However, to the extent of PhP 100,000 which is paid by CK when he is still a holder in due course
not knowing any defect on the instrument, recovery of such may still commence against Jessie.
This is amplified by the provision below.

Section 54 of the Negotiable Instruments Law. Notice Before Full Amount Paid – Where the
transferee receives notice of any infirmity in the instrument or defect in the title of the person
negotiating the same before he has paid the full amount agreed to be paid therefore, he will be
deemed a holder in due course only to the extent of the amount theretofore paid by him.

Problem 5
Bobbie sold her specific car to Teddie for P200,000 payable in 5 equal installments. Bobbie
delivered the car to Teddie but a mortgage was constituted on the car to answer for the unpaid
installments. Teddie paid the first 2 installments but failed to pay the last 3 installments. Bobbie
foreclosed the mortgaged property and sold it at public auction for P100,000. Which of the
following is/are incorrect?

I. Bobbie can recover from Teddie the balance of P 20,000 even if there is no
stipulation
II. Bobbie can recover from Teddie the balance of P20,000 only if there is stipulation
III. Bobbie cannot recover the deficiency except if there is stipulation
IV. Bobbie cannot recover the deficiency even if there is stipulation

a. All are incorrect c. I, II and III only

b. All are correct d. I and IV only

Answer: C

If the mortgaged property was foreclosed and the proceeds are not sufficient enough to satisfy
the claims of the creditor, the creditor may institute a court action to recover the deficiency,
except in the foreclosure of a chattel mortgage constituted on personal property which is sold at
a price payable in installments.

Problem 6
Harry leased his house to Ron with the agreements that the telephone bills shall be shouldered by
Ron. Six months later, Ron left the premises leaving behind unpaid telephone bills. Harry refuses to
pay the unpaid bills on the ground that Ron had already substituted him as customer of the
telephone company. Decide.

A. Harry is correct to assert no liability to the telephone company due to novation of the
contract by way of substitution of debtor
B. Harry is not liable because the telephone company failed to exercise due diligence in
collection from Ron his unpaid bills.
C. Harry is liable to the telephone company subsidiarily, only after it fails to collect from
Ron.
D. Harry is liable for the unpaid bills of Ron because the contract was between Harry and
the telephone company and Harry cannot be substituted by Ron without the cones of
the company.

Answer: D

Substituting the person of the debtor always requires the consent of the creditor.
Problem 7
Which of the condition/s must concur in order that the obligee/creditor can avail the remedy of
accion pauliana?

I. There is a credit in favor of plaintiff prior to alienation.

II. The debtor has performed a subsequent contract conveying a patrimonial benefit to
third person(s).
III. The creditor has other legal remedy to satisfy his claim.
IV. The debtor’s acts are fraudulent to the prejudice of the creditor.
V. The third person who received the property is an accomplice in the fraud.

Answer: I, II, IV and V only

In Supreme Court (SC) Decision General Register (GR) No. 144169 dated March 28, 2001 [Khe
Hong Cheng vs Court of Appeals (CA)], the following requisites must concur for an accion
pauliana to accrue:

(1) That the plaintiff asking for rescission has a credit prior to, the alienation, although,
demandable later;
(2) That the debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;
(3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person;
(4) That the act being impugned is fraudulent;
(5) That the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.

Based on the foregoing, an accion pauliana accrues only when the creditor discovers that he
has no other legal remedy for the satisfaction of his claim against the debtor other than an
accion pauliana. The accion pauliana is an action of a last resort.

Problem 8
It has been defined as the failure or neglect, for an unreasonable and unexplained length of
time, to do that which by exercising due negligence could [or] should have been done earlier, it
is negligence or omission to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined to assert it.

Answer: Laches

• In SC Decision GR No. 134602 dated August 6, 1999 [Ramona T. Logronio vs Roberto

Taleseo)], laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due negligence could [or]
should have been done earlier, it is negligence or omission to assert a right within a
 reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.

• On the other hand, Article 1106 of the New Civil Code (NCC) provides that by
prescription, one acquires ownership and other real rights through the lapse of time in the
manner and under conditions laid down by the law.

Problem 9
Which of the following statement/s is/are correct in relation to the Republic Act (RA) No. 6552:
An Act To Provide Protection for Buyers of Real Estate on Installment Payments, also known as
the Maceda Law?

I. Maceda Law applies to industrial lots and commercial buildings.

II. Under the Maceda Law, if the buyer has paid at least 2 years installment, he may pay
the balance without interest within a grace period of one month for every year of
installment payment, but the buyer may only avail of it only once in every 5 years.
III. Under the Maceda Law, if the seller cancels the sale and the buyer paid at least 2 years
installment, the buyer is entitled to 50% of what he has paid, if after 5 years of
installments, 5% for every year, but not to exceed 80% of total payments made.
IV. Under Maceda Law, if the seller cancels the sale and buyer paid at least 2 years
installment, cancellation is effected 30 days from notice and upon payment of cash
surrender value.

Answer: II and IV only

Section 3 of RA No. 6552, also known as the Maceda Law, provides the following, as follows:
➢ Maceda Law applies to all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium apartments but
excluding industrial lots, commercial buildings, and sales to tenants under Agricultural
Reform Code (RA No. 3844)
➢ If the seller cancels the sale and the buyer paid at least 2 years installment, the buyer is
entitled to 50% of what he has paid, if after 5 years of installments, 5% for every year, but
not to exceed 90% of total payments made.

Problem 10
On application by or for a partner, the court shall decree a dissolution whenever (choose
statement/s that is/are correct)

I. A partner has been declared insane in any judicial proceeding or is shown to be of

unsound mind.
II. A partner has been innocent of such conduct as tends to affect prejudicially the
carrying on of the business.
III. A partner becomes in any other way capable of performing his part of the partnership
contract.
IV. A partner becomes insolvent.
V. A partner becomes civilly interdicted.

Answer: I only

• Article 1831 of the NCC provides that on the application by or for a partner, the court
 shall decree a dissolution whenever:
➢ A partner has been declared insane in any judicial proceeding or is shown to be
of unsound mind;
➢ A partner becomes in any other way incapable of performing his part of the
partnership contract;
➢ A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;

• Moreover, when the dissolution is caused by the insolvency of any partner or of the
partnership or by the civil interdiction of any partner, decree of court is not necessary to
dissolve a partnership, as these are caused by operation of law provided in the Article
1830 of the same code.

Problem 11
In a contract of pledge, can the pledgee deposit the thing pledged with a third person?

a. No, contract of pledge gives a right to the creditor to retain the thing in his possession
until the debt is paid.
b. Yes, the third person will become the new pledgee.
c. Yes, if there is a stipulation authorizing him to do so.
d. No, the pledgee shall take care of the thing pledged with the diligence of a good
father of a family.

Answer: C

Article 2100 of the Civil Code provides that the pledgee cannot deposit the thing pledged with
a third person, unless there is a stipulation authorizing him to do so.

Problem 12
D borrowed from C money to be paid within a certain period, under the agreement that, if D
fails to pay at the expiration of said period, the house and lot described in the contract would
be considered sold for the amount of the loan. D failed to pay as promised. C brought action for
the delivery of the house and lot. Are both contracts valid and, therefore, should be given
effect?

a. Both contracts are valid and should be given effect.

b. The promise of sale is void and should not be given effect.
c. Both contracts are void and should not be given effect.
d. Both contracts will be valid if made with the presence of a witness.

Answer: A

The fact that the parties have agreed at the same time, in such a manner that the fulfillment of
the promise of sale would depend upon the non-payment or return of the amount loaned has
not produced any change in the nature and legal conditions of either contract, or any essential
defect which would nullify them. As the amount loaned has not been paid and continues in
possession of the debtor, it is only just that the promise of sale be carried into effect, and the
necessary instruments be executed. That which is agreed to in a contract is law between the
parties, and must be enforced. (Alcantara vs. Alinea, 8 Phil. 111 [1907].)
Problem 13
A, B, C and D are partners in AB and Company, contributing Php 15,000, Php 10,000, Php 5,000
and industry respectively. Due to financial reverses, they decided to dissolve the partnership. At
the time of dissolution only Php 10,000 is left but the obligation to Y – Php 50,000; to partner B –
Php 30,00 and to partner C – Php 20,000 remain unpaid. Which of the following is correct if there
is no profit and loss sharing agreement?

e. The partnership, A, B, C and D will pay Y Php 10,000 each

f. Y can collect Php 12,500 each from partners A, B, C and D
g. D is exempt from loss, hence only A, B and C will bear the Php 40,000 loss in
proportion to their capital contribution
h. Only partner A will make additional contribution because partners B and C can claim
legal compensation

Answer: C

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (1689a)

Problem 14
Y, a fourteen-year old high school student sold his gold necklace to his teacher for P10,000 and
he spent P7,400 to buy his new jacket, denim pants and long sleeve polo shirt. He also spent
P800 for his food and P1,000 for his school materials. He lost the remaining P800 in gambling. The
father of Y filed an action for the annulment of the contract of sale, which was granted by the
court and Y's gold necklace was returned to him. How much should Y and his father return to the
teacher?

a. P10,000
b. P9,200
c. P8,400
d. P7,400

Answer: B

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him. (1304)

Problem 15
Pauline, Romela and Colleen are partners in PRC Enterprises. Not having established yet their
credit standing, the three partners requested Grace, a well known businesswoman, to help them
negotiate a loan from Carlos, a money lender. With the consent of Pauline, Romela and
Colleen, Grace represented herself as partner of PRC Enterprises. Thereafter, Carlos granted a
loan of P150,000 to PRC Enterprises. Assuming that PRC Enterprises was unable to pay the loan
on due date at which time the asset of the partnership amounted only to P120,000. From whom
may Carlos collect the payment?

a. Grace only for the whole amount of P150,000

b. Pauline, Romela and Colleen who are liable jointly for P50,000 each
c. PRC Enterprises for its assets of P120,000; thereafter Pauline, Romela and Colleen from
their separate property at P10,000 each
d. PRC Enterprises for its assets of P120,000; thereafter Pauline, Romela, Colleen and
Grace from their separate property at P7,500 each

Answer: D

Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or
consents to another representing him to anyone, as a partner in an existing partnership or with
one or more persons not actual partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of such representation, given credit to the
actual or apparent partnership, and if he has made such representation or consented to its
being made in a public manner he is liable to such person, whether the representation has or
has not been made or communicated to such person so giving credit by or with the knowledge
of the apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual member of the
partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so
consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one
or more persons not actual partners, he is an agent of the persons consenting to such
representation to bind them to the same extent and in the same manner as though he were a
partner in fact, with respect to persons who rely upon the representation. When all the members
of the existing partnership consent to the representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of the person acting and the persons
consenting to the representation. (n)

Problem 1
Kevin lent JR his car until JR finished his board exams. During the board exam month, JR lent the
car to his girlfriend, Kyra, who parked the car at the Mall of Asia’s open parking lot, with the
ignition key inside the car. Car thieves broke into and took the car.

Is JR liable to Kevin for the loss of the car due to Kyra’s negligence?

I. No, JR is not liable to Kevin as the loss was not due to his fault or negligence.
II. No, JR is not liable to Kevin. In the absence of any prohibition, JR could lend the car to
Kyra. Since the loss was due to force majeure, neither JR nor Kyra is liable.
 III. Yes, JR is liable to Kevin. Since JR lent the car to Kyra without Kevin’s consent, JR must
bear the consequent loss of the car.
IV. Yes, JR is liable to Kevin. The contract between them is personal in nature. JR can neither
lend nor lease the car to a third person.

Answer: IV

• Article 1939 of the NCC states that commodatum is purely personal in character,
consequently, the bailee can neither lend nor lease the object of the contract to a third
person.

• Moreover, Article 1942 of the NCC provides that the bailee is liable for the loss of the
thing, even if it should be through a fortuitous event, if he lends or leases the thing to a
third person, who is not a member of his household.

Problem 2
A delinquent shareholder shall not be entitled to any of the rights of a stockholder, but he shall
still be entitled to:

I. Receive dividends
II. Vote in meetings
III. Pre-emptive right
IV. Appraisal right

Answer: I

• Pursuant to Section 70 of RA No. 11232, also known as the “Revised Corporation Code of
the Philippines”, no delinquent stock shall be voted for, be entitled to vote, or be
represented at any stockholder’s meeting, nor shall the holder thereof be entitled to any
of the rights of a stockholder except the right to dividends in accordance with the
provisions of this Code, until and unless payment is made by the holder of such
delinquent stock for the amount due on the subscription with accrued interest, and the
costs and expenses of advertisement, if any.

Problem 3
Keith, Chesca, Princess and Denise are the solidary debtors of Daryl for PhP 80,000. Daryl
released Princess from the payment of her share of PhP 20,000. When the obligation became
due and demandable, Denise turned out to be insolvent.

Should the share of insolvent debtor, Denise, be divided only between the two other remaining
debtors, Keith and Chesca?

A. Yes. Remission of Princess’ share carries with it total extinguishment of his obligation to the
benefit of the solidary debtors.
B. Yes. The Civil Code recognizes remission as a mode of extinguishing an obligation. This
clearly applies to Princess.
C. No. The rule is that gratuitous acts should be restrictively construed, allowing only the
least transmission of rights.
 D. No, as the release of the share of one debtor would then increase the burden of the
other debtors without their consent.

Answer: C

• Article 1217 of the NCC provides that when one of the solidary debtors cannot, because
of his insolvency, reimburse his share to the debtor paying the obligation, such share
shall be borne by all his co-debtors, in proportion to the debt of each other.

• Moreover, Article 1378 of the NCC states that when it is absolutely impossible to settle
doubts by the rules established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least transmission of rights and
interests shall prevail.

• Thus, the share of insolvent debtor, Denise, shall be divided between Keith, Chesca and
Princess. Please note that it is explicitly stated that only the share of Princess amounting
to PhP 20,000 was condoned by creditor, Daryl.

Problem 4
Joyce, Faith and Ren bought a parcel of land and became co-owners thereof. Subsequently,
Joyce sold his share to Marionem. Neither Faith nor Ren redeemed the share sold by Joyce. Later
Faith sold his share to Homer. May Marionem redeem the share sold by Faith to Homer?

A. No, because he was a third person who has no right to redeem a share sold by one of
the to a third person
B. No, because only the original co-owners have the right to redeem a share sold by one
of them to a third person
C. Yes, because Marionem has become a co-owner of Ren
D. Yes, but Ren has preference in case both Ren and Marionem desire to redeem

Answer: C
Article 1620 of the Civil Code provides that “A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-owners or any of them, are sold to a third person.
If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable
one.

Problem 5
On November 4, 1967, an anticipated typhoon hit Central Luzon passing through NPC's Angat
Hydro-Electric Project and Dam at Ipo, Bulacan. Strong winds struck the project area and heavy
rains fell. Due to the heavy downpour, the water in the reservoir of the dam reached 212 meters
above sea level so NPC caused the opening of the spillway gates to prevent an overflow. As the
maintainers of the dam open the spillway, extraordinary large volume of water rushed out of the
gates and hit the installations and construction work of ECI at the Ipo site damaging & washed
away the latter's materials and facilities.

What is the ground for liability to that ECI may use in order to be awarded damages if the
contention is proper?
Answer: Negligence

The proximate cause of loss and damages was the negligent act of NPC's employees in opening
the spillway. (NLC vs CA, L-47379, May 16, 1988)

Problem 6
Which of the following stipulations is valid?

a. A stipulation excluding a capitalist partner from profits

b. A stipulation exempting a capitalist partner from losses
c. A stipulation exempting an industrial partner from losses
d. A stipulation excluding an industrial partner from profits

Answer: C

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (1689a)

Problem 7
The articles of universal partnership is entered into without specification as to its nature. What
shall be its construction or interpretation?

a. It is a particular partnership
b. It is a universal partnership of all present property
c. It is a universal partnership of profits
d. It is a general professional partnership

Answer: C

Art. 1781. Articles of universal partnership, entered into without specification of its nature, only
constitute a universal partnership of profits. (1676)

Problem 8
Which among the following contracts is void?

a. A contract of barter between S, insane, and B, 17 years old

b. A contract of sale where B, the buyer, twisted the arm of S, the seller, so that S would
sign the deed of sale
c. A contract of sale where B, the buyer, aimed a gun at the wife of S, so that S would
sign the deed of sale
d. A contract of sale where B, the buyer, is the guardian of S, a minor.
Answer: D

ART. 1409. The following contracts are inexistent and void from the beginning:

(7) Those expressly prohibited or declared void by law.

(c) Purchase of property by persons who are specially disqualified by law (like guardians,
agents, executors, administrators, public officers and employees, judges, lawyers, etc.)
because of their position or relation with the person or property under their care. (Art.
1491.)

Problem 9
This refers to payment by mistake of an obligation which was not due when paid. It creates the
obligation to return the payment.
A. Negotiorum gestio
B. Solutio indebiti
C. Quasi-delicts
D. Contract

Answer: B. Solutio Indebiti

Problem 10
A contract where two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves.
A. Voluntary association
B. Corporation
C. Partnership
D. Sole proprietorship

Answer: C. Partnership