PART I

1. This special form of payment is the conveyance of the ownership of a thing as accepted equivalent for the performance of an obligation to pay money.

a) dation in payment or dacion en pago c) tender of payment and consignationb) assignment of property or cession en pago d) application of payment As a condition for the granting of the loan amounting to P100,000.00, the creditor required

G and H to guarantee the debtor’s obligation. G was also required to mortgage his car to the creditor as security for the guaranty. G and H agreed and the contract of loan with mortgage on the guaranty was signed by the creditor, debtor and G. (items 2 – 5)2. If the debtor is already insolvent on the maturity date of the loan, but G cannot pay upon demand by the creditor, can the mortgaged car of G be foreclosed?

a) Yes because he signed the contract of loan with mortgage on his guaranty b) No, because the mortgage on his guaranty is more onerous than the principal obligation c) Yes, because the contract is the law between the partiesd) No, because H has no security on his guaranty

3. In connection with No. 2 above, Can G and H invoke their right to the benefit of excussion?a) No, because, the guaranty of G is secured by a mortgageb) Yes, because the said benefit is always available to the guarantor or guarantorsc) No, because the benefit of exhaustion is extinguished when the debtor becomes insolvent d) Yes, pursuant to the benefit of division

4. If G will be convicted of estafa, can the creditor require the debtor to replace G by another guarantor?a) Yes, because G no longer possesses the qualifications required of a guarantorb) No, because there is still another guarantor, who is Hc) Yes, because that is a right granted by law to the creditord) No, because the creditor designated G to be the guarantor

5. If the creditor demanded payment from H, can H be compelled to pay?a) Yes, for the full amount of the loanb) Yes, for the amount proportional to his obligation as a joint guarantorc) No, because the mortgage of G’s car makes the guaranty voidd) No because the guaranty is not enforceable against him

6. When may the lessee in lease of rural land demand for a reduction of the rent?a) When there is no harvest due to the sterility of the landb) When there is loss of at least one half of the fruits due to fortuitous eventc) In case of loss of more than one half of the fruits due to extraordinary fortuitous eventd) In case of loss of at least one half of the fruits due to the lessor’s fault or negligence

7. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the objects of the obligation have been lost or compliance of the obligation has become impossible. The indemnity shall be fixed taking as basis:

a) the value of the least expensive thingb) the value of the most expensive thingc) the value of the last thing which disappearedd) the value of the first thing which disappeared

8. Which of the following is not a characteristic of voluntary deposit?a) Generally, the depositary cannot use the thing depositedb) Generally, it is an onerous contract c) Its principal purpose is safekeepingd) Only movable things can be the subject matter of the contract

9. In the following cases, the bailee is liable for the loss of the thing loaned even if it should be lostthrough a fortuitous event, except:

a) if he devotes the thing for a different purposeb) if he is already in delay in returning itc) if he lends or leases the thing to any other persond) if being able to save either the thing borrowed or his own, he preferred his own interest

10. M saved the car of N from imminent destruction when the building where the car was parked caught fire. M pushed the car of N and deposited it in his garage. What principle of law governs the relations between M and N?

a) voluntary deposit b) solution indebiti c) negotiorum gestio d) commodatum11. 1st - A person can never be held liable for the negligent act of another. 2nd - Whenever damage is suffered by a person due to the act of another, the injured person

is entitled to damages.a) Only 1st is true b. Only 2nd is true c) Both are true d) Both are false

12. S was on his way to deliver a truckload of various fruits ordered by his customer, B when his truck was hit by a speeding passenger bus driven by Y resulting to the destruction of the fruits and damage to the truck. S filed action for damages against Y. B also demanded damages from Y representing the profit that he could have earned from the sale of those fruits ordered by him. However, B could not prove the amount of monetary loss suffered by him. Can the court award damages to B?

a) No, because the amount of actual damages must be proven by the plaintiff

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b) Yes, because of the principle of res ipsa loquitorc) No, because there shall be no basis for the amount of damages to be awardedd) Yes, because no proof of damages is necessary in case or moderate damages

13. X and Y are solidary debtors of A, B, C and D, joint creditors to the amount of P8,000.00. How much can A collect from X?

a) A could recover P4,000.00 from X. A in turn has to give to B, C and D P1,000.00 each b) A could recover P2,000.00 only from Xc) A could recover P1,000.00 only from Xd) A could recover P8,000.00 from X. A in turn has to give to B, C and D P2,000.00 each

14. Mr. D owes Mr. C P150,000.00 due on August 31, 2010. Mr. D executed a mortgage in favor of Mr. C on Mr. D’s building to guarantee the obligation. On August 10, 2010, the mortgaged building was totally lost due to a strong typhoon. On August 12, 2010, Mr. C demanded payment from Mr. D. Is Mr. C’s demand valid?

a) No, the obligation is one with a definite period, thus the creditor cannot demand fulfillment of the obligation as such would be prejudicial to the rights of the debtor. b) No, the obligation is extinguished because the guaranty is lost through a fortuitous eventc) Yes, the debt becomes due at once because the guaranty was lost even through a fortuitous event, unless the debtor can mortgage another property that is equally satisfactory d) Yes, the debt becomes due at once because, from the tenor of the obligation, the benefit is

given solely to the creditor thereby giving the creditor the right to demand performance even before the maturity date.

O allowed L to reside in his vacant apartment at an agreed compensation of P2,000.00 per month without a written contract. The stipulated term of their oral contract is five (5) years. (Items 15 -18)15. If L will die five months after the contract, can O validly demand the immediate members of his family to vacate the house?

a) No, because the right under a lease contract is transmissible to the heirsb) Yes, because lease is a personal contract which is extinguished by the death of either party c) Yes, they are not parties to the contract of leased) No, because they are extension of L’s personality

16. If O will ask L to vacate the house two years after the contract, can L invoke his right to use it for a stipulated period of five years?

a) Yes, because their contract is the law between themb) Yes, because the obligation under a perfected contract must be complied with in good faithc) No, because O is the owner of the house, who has the right to enjoy the same d) No, because the contract is unenforceable being orally agreed upon

17. If L will assign the lease to his married son, is the assignment valid?a) Yes, because his son is a member of his familyb) No, because assignment is not allowed without the lessor’s permissionc) Yes, because in assignment, the original lessor is still a party to the lease contract d) No, because L will unduly benefit at the expense of O

18. If L introduced necessary improvements on the apartment, what right is available to O regarding those improvements after the expiration of the lease contract?

a) He may pay one half of their value at the time of the expiration of the leaseb) He may ask the lessee to remove those improvementsc) Only the right under letter b)d) Either of the rights under letters a) and b)

19. O is obliged to give R his Mitsubishi, 4-door sedan lancer with plate number NBA 123 on September 30, 2010. On October 10, 2010, O has not yet delivered the car which was totally destroyed by an earthquake on such date. Is O still liable?.

a) No, the obligation is extinguished. The specific thing was lost due to fortuitous event and no demand was made by Rb) Yes, O is in legal delay. R can claim damagesc) No, even O is already in default, he can plead impossibility of performance d) Yes, R can instead demand for another car of equivalent value from O

20. A obliges himself to pay X P100,000.00 in 30 days plus a penalty of P20,000.00 if A fails to pay the obligation in due time. A failed to pay the obligation in 30 days. X can demand from A:

a) the principal of P100,000.00 plus P20,000.00 penaltyb) the principal of P100,000.00 plus P20,000.00 penalty, plus legal interest c) the principal of P100,000.00 plus legal interestd) the principal of P100,000.00 plus P20,000.00 penalty, plus legal interest, plus damages

21. When the period is “on or before the date”, the debtor has the benefit of the period. This benefit is lost and the obligation becomes demandable when:

a) the debtor attempts to abscondb) after contracting the obligation, the creditor suspects the debtor to becoming insolvent

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c) the guaranty given by the debtor is not acceptable to the creditord) it is already beyond the maturity date

22. The depositary can validly refuse to return the thing deposited upon demand by the depositor in the following cases. Which is the exception?

a) When there is notice by a third person of the opposition to return the thingb) When the depositor has an unpaid obligation to the depositary c) When the thing deposited is stolen and depositary knows who the owner isd) When the depositor fails to pay the deposit fee

23. Bertulfo and Claudio promise to deliver a particular car valued at P100,000.00 to Manuela on or before September 15, 2010. September 15, 2010 came and upon demand by Manuela for a delivery from Bertulfo and Claudio, Bertulfo was willing to deliver but Claudio refused to deliver. In the case at bar:

a) an action for specific performance will lie against Claudio onlyb) both Bertulfo and Claudio shall be liable for P50,000.00 each with damagesc) Bertulfo shall be liable for P50,000.00 without damages and Claudio shall be liable for P50,000.00 and damagesd) an action for specific performance will lie against Bertulfo only

24. Mr. Debtor owes Mr. Creditor, who has two legitimate emancipated children, P30,000.00 payable on December 31, 2009.

a) If Mr. Debtor died before December 31, 2009, Mr. Creditor cannot collect from the heirs of Mr. Debtorb) If Mr. Debtor died before December 31, 2009, Mr. Creditor can collect from the heirs of Mr. Debtorc) If Mr. Creditor died, his two legitimate emancipated children cannot recover from Mr. Debtor his obligation d) If both Mr. Debtor and Mr. Creditor died, the heirs of Mr. Creditor cannot collect from the

heirs of Mr. Debtor25. Which of the following is not correct about commodatum?

a) Generally, it is personal in character b) Generally, it is a gratuitous contractc) Generally, only consumable goods may be the object of the contractd) Generally, the bailee cannot lend nor lease the object of the contract

26. On September 5, 2009, Jose Dizon of Angeles City is obliged to give Ruben Samia, Jose Dizon’s only red crew cab. There was no delivery until September 26, 2009 when the garage of the red crew cab collapsed due to typhoon Ondoy and the red crew cab was totally destroyed. After the crew cab was destroyed and lost, is Jose Dizon still liable?

a) No, even if Jose Dizon was already in default, he could plead impossibility of performance b) Yes, the obligation to deliver the crew cab is changed to pay the equivalent value because Jose Dizon is in legal delayc) No, because there was no demand by Ruben Samia to deliver the crew cab and the specific object was lost due to fortuitous event. d) Yes, because the contract is perfected

27. A condition, which if imposed on an obligation will be disregarded and will therefore make the obligation immediately demandable:

a) If Juan will commit suicide c) If Juan will kidnap and kill Pedrob) If Juan will pass the bar examination d) If Juan will not rise from the dead

28. X, a minor sold to Y his parcel of land for P100,000.00. From the proceeds of the sale, X deposited P30,000.00 in the bank, spent for food, clothing and other personal expenses P20,000.00, joined a tour abroad costing P20,000.00, lost in gambling P20,000.00 and loaned P10,000.00 to Z who became insolvent. Upon reaching the age of 21 years, X files an action for annulment, which the court granted. Y was required to return the land to X and X was made to return to Y the amount of:

a) P30,000.00 b) P40,000.00 c) P80,000.00 d) P70,000.0029. When A voluntarily takes charge of the neglected business of B without the latter’s authority where reimbursement must be made for necessary and useful expenses, there is a:

a) quasi-delict b) quasi-contract c) negotiorum gestio d) solutio indebiti30. A offered to sell his lot to B for P100,000.00. In his offer to sell it was stated that B is given 60 days to prepare the P100,000.00 and as soon as B is ready with the money, A will execute a deed of sale. Before the end of 60 days, A informed B that the price of the lot was increased to P120,000.00. May B compel A to accept P100,000.00 offered previously by A and make him execute the deed of sale?

a) Yes, because A already signed his offerb) No, because B never signified his acceptance of the A’s offerc) Yes, because there was actual meeting of minds between the partiesd) No, because the offerer has the right to fix the terms of the contract

31. Mr. Santos offered to sell his land to Mr. Calma for P100,000.00. Mr. Calma accepted the offer and paid Mr. Santos P100,000.00 and Mr. Santos delivered the owner’s duplicate of the Transfer Certificate of Title of the land, Mr. Calma wishes to register the land in his name but the Register of Deeds asked Mr. Calma for the Deed of Sale. What can Mr. Calma do?

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a) Mr. Calma may compel Mr. Santos to return the payment because the contract is enforceableb) Mr. Calma may sue Mr. Santos to return the price under the legal maxim “no one may enrich himself at the expense of another” c) Mr. Calma may compel Mr. Santos to execute the Deed of Sale because the contract is validd) Mr. Calma may occupy and use the land as a buyer in good faith

32. Mrs. Gomez sold and delivered her diamond ring to Mrs. Pangan. It was agreed upon that after 10 days, Mrs. Pangan will name and fix the price. On the tenth (10 th) day, Mrs. Pangan called up by telephone Mrs. Gomez and stated the price at P10,000.00. Mrs. Gomez agreed. Is the sale perfected?

a) Yes, the price stated and named by one of the contracting parties was accepted by the other b) No, at the time of the sale, the price was not fixedc) No, the price was left to the discretion of one of the parties d) No, at the time of the sale, the price is not known

33. Which of the following is not a necessary deposit?a) Those made to a neighbor because of emergencyb) Those made in compliance of a legal obligation c) Those which take place on occasion of any calamityd) Those made with common carriers

34. Mr. Guzman sold his owner-type jeep to Mr. Montano for P100,000.00. There was no date fixed for the performance of the obligation of Mr. Guzman and Mr. Montano. The obligation of Mr. Guzman is:

a) to deliver the jeep immediately as there is a perfected contractb) to wait for Mr. Montano to pay P100,000.00 and deliver the jeepc) to rescind the contract because no time or date is fixed for the performance of their respective obligationsd) to deliver the jeep after Mr. Montano demands for the delivery of the jeep

35. Mr. Reyes and Mr. Vitug are good friends. Mr. Reyes sold and delivered his car to Mr. Vitug. It was agreed and understood that on Sunday, Mr. Reyes will name and fixed the price of the car. Sunday came and Mr. Reyes called Mr. Vitug by telephone and stated and fixed the price at P150,000.00. Is the sale perfected?

a) Yes, the price was stated and fixed on the date agreed uponb) No, the price was left to the discretion of the sellerc) No, at the time of the sale, the price is not fixedd) No, the price fixed by the seller was not accepted by the buyer

36. XYZ Partnership composed of three (3) capitalist partners and one industrial partner suffered business losses. Its remaining assets amounted to P100,000. The partnership is indebted to its supplier, Mr.Cruz, in the amount of P160,000. How can Mr. Cruz recover the P60,000?

a) Mr. Cruz can recover from the partnership P100,000 and the balance of P60,000 from the three capitalist partners only.b) Mr. Cruz can recover from the partnership P100,000 and the balance of P60,000 from any of the partners solidarily.c) Mr. Cruz can recover from the partnership P100,000 and the balance of P60,000 from the four partners jointly including the industrial partner.d) Mr. Cruz can recover from the partnership P100,000 only and suffer as his loss the balance of P60,000.

37. Three of the following are option money. Which is the earnest money? a) Given when the contract of sale is perfectedb) Given when there is no contract of salec) Given to bid the offer in a unilateral promise to sell or to buyd) Given as a separate consideration from purchase price

38. The following are not considered fraud or fraudulent. Which is the exception?a) Failure to disclose facts when there is a duty to reveal themb) The usual exaggeration in trade when the other party had the opportunity to know the factsc) Misrepresentation made not in bad faithd) “Caveat emptor” or let the buyer beware

39. The proper remedy is annulment of contract and not reformation when:a) mistake, fraud, inequitable conduct or accident prevented the meeting of the minds of the parties b) a mutual mistake of the parties causes the failure of the instrument to disclose their real agreementc) one of the parties was mistaken and the other knew or believed that the instrument did not state their real agreement, but conceal the fact from the formerd) a deed of sale was executed for a contract of donation

40. The action to annul a voidable contract, such as a contract where one of the parties is incapable of giving consent to the contract is extinguished by:

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a) novation c) rescissionb) ratification d) answer not given

41. X borrowed the jeepney of Y for the purpose of transferring his personal belongings to his new residence. While X was on his way to his new residence, the vehicle was hit by a lightning causing damage to the same in the amount of P11,500.00. Is liable for the damages to Y?

a) No, because the damages was due to fortuitous eventb) Yes, because equity demands that as borrower, he should shoulder the damagec) No, because it is just an ordinary expense incident to the use of the thingd) Yes, but only up to P5,750.00

42. Which of the following contracts is valid?a) Sale of a motor vehicle for the price of P25,000.00b) Oral authority given to an agent for the sale of a parcel of landc) Sale by the guardian of the ward’s property with a lesion of more than 1/4 d) Sale of books, notebooks and pencils to a 12-year old boy

43. Mr. Gamboa owes Mr. Evangelista P100,000.00. Gamboa knows that on maturity date, he will not be able to pay Evangelista, and in order to prevent attachment of his property by Evangelista, Gamboa, before maturity of his debt, executes a contract pretending to sell to Mr. Sandiego his property. Which of the following statements is not correct?

a) The contract is not valid for lack of consideration b) The contract is binding between Gamboa and Sandiego

c) The contract being simulated and executed to defraud Evangelista is voidd) Evangelista can seek nullification of the fictitious contract

44. In a sale, this is actual delivery:a) Execution and signing of the sale document.b) When the goods sold are placed in the control and possession of the buyer.c) Delivery by the seller to the buyer of the key where the goods sold are kept.d) The buyer is already in actual possession of the goods.

45. On July 30, 2010, Arrieta wrote Bascon a letter offering a contract of sale. On August 26, 2010 Bascon wrote a letter of complete acceptance of the contract which was received by Arrieta on August 31, 2010. But on August 10, 2010, Arrieta already had written a letter of withdrawal to Bascon, which the latter received on September 1,2010. Is there a perfected contract between Arrieta and Bascon?

1st Answer – There is a perfected contract between Arrieta and Bascon because the acceptance was made before the withdrawal.

2nd Answer – There is a perfected contract because Arrieta came to know of the acceptance before Bascon came to know of the withdrawal

a) Both answers are correct c) 1st answer correct, 2nd answer wrongb) Both answer are wrong d) 1st answer wrong, 2nd answer correct

46. Which of the following is common requisite for pledge, chattel mortgage and antichrises?a) The amount of the principal and interest must be in writing.b) The property must be in the possession of the creditor.c) To bind third persons, they must be duly recorded in the office of the Register of Deeds.d) It is constituted to secure the fulfillment of a principal obligation.

47. Mr. Ong leased to Mr. Santos a 5 KVA generator for two (2) years at a lease rental fee of P2,000.00 per month and signed an option in favor of Mr. Santos to buy the generator at the end of the term of the lease at P60,000.00. After 12 months, Mr. Santos was able to pay the rental fees for 9 months and was in arrear for the 3 month rental fees. Mr. Ong terminated the lease contract and repossessed the generator. The consequence of the transaction is:

a) Mr. Ong can collect the rental fees for three months which are in arrears.b) Mr. Ong can collect the rental fees for the unexpired 12 months of the lease contract.c) When Mr. Ong took possession of the generator, he has no further action against Mr. Santos.d) Mr. Ong is terminating the lease and repossessing the generator is obliged to refund the 9 month rental fees paid by Mr. Santos.

48. Which of the following may not be the object of a contract of sale? a) Things having potential existence c) Transmissible rightsb) Valid services d) Indeterminate things

49. D obtained a loan from C payable on December 31, 2010. Because of urgent need due to the hospitalization of her daughter, C asked D to pay the loan on September 30, 2010, but D refused to pay. Is the demand of C from D valid?

a) Yes, because C is entitled to the immediate payment of the loan in case of urgent needb) No, because simple loan or mutuum is always gratuitous c) No, because the object of mutuum may not be returned until the end of the termd) Yes, because being the owner of the thing loaned, he can demand payment anytime

50. Sale is distinguished from dation in payment in that in sale:a) there is pre-existing obligation or credit.

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b) the cause of the contract is the price.c) it is a mode of extinguishing an obligation in the form of payment. d) the parties are the creditor and debtor

51. A Seller sold to a Buyer a piece of jewelry at a price of P20,000. The contract provides that the Buyer will pay the Seller P5,000 in cash and a micro wave oven worth P15,000. What is the nature of the contract?

a) Sale c) Barterb) Partly sale and partly barter d) Commodatum

52. Ownership of the thing sold is transferred/acquired/ retained:a) Retained by the seller in “sale or return” b) Transferred to the buyer upon constructive or actual delivery of the thing soldc) Acquired by the buyer in “sale on trial, satisfaction or approval” d) Transferred to the buyer upon acceptance of the price

53. If redemption is made, which of the following will not be paid by the seller to the buyer? a) Price paid by the buyerb) Expenses in the execution of the sales contract paid by the buyerc) All necessary expenses on the thing sold and to be redeemed d) Interest on the price paid by the buyer

54. A appoints B to sell his land. Example 1 - If the authority of B is oral and B sells the land in writing, the

sale is valid . Example 2 - If the authority of B is in writing and B sells the land orally, the sale is valid. Which of the following is correct?a) Both examples are true. c) First example is true but second example is false.b) Both examples are false. d) First example is false but second example is true.

55. Lucy is a lessee of a store in a shopping mall. She orally sells/assigns her right to Salome. She then allows Salome to occupy the stall. The deliver here is called:

a) quasi-traditio c) traditio longa manub) actual delivery d) traditio brevi manu

56. Quasi-contract is a source of civil obligation which aims to prevent:a) palpable mistake b) undue advantage c) fraudulent transaction d) unjust enrichment

57. Which of the following statements is incorrect?a) In a contract to sell, the full payment of the price is in the nature of suspensive condition that the seller is obligated to transfer the ownership of the thing sold.b) The seller need not be the owner of the thing sold at the perfection of the sale.c) The object of sale may be indeterminate provided it can be made determinate

without the need for further agreement between the parties d) In a contract of sale, the buyer becomes the owner of the thing upon full payment of the purchase price.

58. When a person was confronted with a danger that is imminent and real, threatening his very own existence that he has no more opportunity for rational thinking , but only to heed the very powerful instinct of self-preservation, he is not negligent. This principle is known as:

a) Doctrine of last clear chance c) Contributory negligenceb) Emergency rule d) Res ipsa loquitor

59. Pacto de retro sale as distinguished from mortgage:a) There is redemption when the principal debt is paid.

b) There is no transfer of possession of the thing sold.c) There is no foreclosure unless it is declared as an equitable mortgage.d) There is no transfer of ownership of the thing sold.

60. It is a contract wherein a person binds himself to render some service or to do something in representation or on behalf of another with the consent or authority of the latter.

a) Agency c) Contract for a piece of workb) Contract of services d) Contract of lease

61. In 2005 S sold his house and lot to B with a right to repurchase. Until when can S exercise his right to repurchase the property sold?

a) 2009 b. 2010 c. 2013 d. 2015 62. This is a not a mode for the extinguishment of an agency:

a) Death of the principal or the agentb) Partial accomplishment of the business of agencyc) Expiration of the term for which the agency was constitutedd) Filing by the agent of a case against his principal

63. M, N and O are co-owners of a parcel of land pro-indiviso. M sold his 1/3 share in the land to N in an absolute deed of sale. Which is correct?

a) The deed of sale between M and N is void because it was not made in favor of a third party.

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b) O may exercise his right of redemption on the interest sold by M to N.c) O may redeem only ½ of the interest sold by M to N.d) O cannot exercise the right of redemption because the sale was made in favor of a co-owner.

64. In quasi-delict, there is a need to prove the negligence of the defendant so that the plaintiff may be able to recover damages. Which of the following is considered as a exemption to this rule?a)Proximate cause b) Res ipsa loquitor c) Contributory negligence d) attractive nuisance 65. B purchased goods from SM Centerpoint and a receipt was issued to her where the total amount of P5,327.75 was reflected as the cost of the goods. After paying the said amount, she discovered after computing the cost per item, that the total cost of the goods amounts only to P4,655.60. B is therefore, entitled to recover the amount of P672.15 from the department store based on:a) quasi-delict b) negotiorum gestio c) solutio indebiti d) pactum commissorium 66. Mr. Capistrano, before going to Spain, appointed Mr. Julio Castillo as his agent to administecr his properties in the Philippines. Afterwards, Castillo wrote Capistrano that he (Castillo) was withdrawing from the agency because of failing health. Castillo, in the same letter, said that he appointed Castor Despejo as his substitute and that Capistrano should extend a new appointment to Despejo. Castor Despejo took over the duties of Castillo but Capistrano did not bother to appoint Despejo to act as his agent until Capistrano’s death. Now Capistrano’s heirs brought an action against Despejo for accounting. Despejo raised the defense that he was not validly constituted as an agent of Capistrano. In the case at bar, defense is not tenable because there is:

a) an actual agency c) a general agencyb) an implied agency d) a special agency

67. Mr. Principe constituted Mr. Ajente as his authorized agent to sell the former’s Lancer car for P300,000 and to pay him a 5% commission on the selling price. Mr. Ajente sold the car for P320,000. Mr. Ajente shall remit to Mr. Principe:

a) P300,000 c) P300,000 less 5%b) P320,000 d) P320,000 less 5%

68. The defense of due diligence of a good father of a family in the selection and supervision of employees is proper only in an action for damages based on: a) culpa aquiliana b) culpa contractual c) culpa criminal d) torts69. 1st - If the principal sends a letter by mail appointing a certain person as his agent and the latter remains silent about it, such silence cannot be interpreted as acceptance of

the appointment. 2nd - If the principal sends a letter by mail appointing a certain person as his agent in connection with the business in which the latter is habitually engaged and the latter remains silent about it, an implied agency is created.

a) First statement is true but the second statement is false.b) Both statements are false.c) First statement is false but second statement is true.d) Both statements are true.

70. In one of the following cases, the principal is liable for the expenses incurred by the agent:a) When it was stipulated that the agent would only be allowed a certain sum.b) When the agent has complied with his obligations by acting according to the principal’s instructions. c) When the agent incurred them with the knowledge that an unfavorable result would ensue if

the principal was not aware of it.d) When the expenses were incurred du to the fault of the agent.

71. X, Y and Z were appointed by R as his agents to administer his building which were rented by various tenants, while R was abroad for three years. In the course of the management, X caused, through his fault, damage to the building which was assessed at P30,000. R can claim:

a) P10,000 from each of X, Y and Z c) P30,000 from Y and Zb) P30,000 from X d) P30,000 from either X, Y or Z

72. P appointed A to be his agent to administer his farm while P was in a world tour but A died leaving S, his son of legal age to take care of the farm until P arrived. The relation between P and S is an example of an agency created by:

a) ratification c) operation of lawb) estoppel d) consent of the principal

73. B-1, B-2 and B-3 are equal partners in 3-Brothers Partnership. The partnership is indebted to PC for P150,000.00. Partner B-1 is indebted to SC for P20,000.00. PC attached and took all the assets of the partnership amounting to P90,000.00. B-2 and B-3 are solvent, while B-1 is insolvent and all what he owns is a land valued at P15,000.00

a) SC has priority to the land of B-1 as a separate creditorb) PC has priority to the land of B-1 to cover B-1’s share in the P60,000.00 remaining liability of the partnership c) B-2 and B-3 have priority to the land of B-1 if they paid PC the P60,000.00 remaining liability of the partnership

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d) PC and SC shall both have priority to the land of B-1 in proportion to their claims of P60,000.00 and P20,000.00, respectively

74. This is the order of preference in the liquidation of partnership:a) Outside creditors; partners’ capital; partners’ profits; partners aside from capital and profit b) Partners’ capital; partners’ profits; partners aside from capital and profits outside creditors c) Outside creditors; partners aside from capital and profits; partners’ capital partners’ profits d) Partners aside from capital and profits; outside creditors; partners’ capital partners’ profits

75. Three of the following are rights of a partner. Which one is not?a) Right to associate another person in his shareb) Right to admit another partnerc) Right to inspect and copy partnership bookd) Right to ask dissolution of the firm at the proper time

76. X delivers 10 sets of television to A for the latter to sell them for P10,000 each. A 10% commission is agreed upon by the parties. One day, A sells one TV set to a customer on credit but for a price of P12,000. Suppose that X does consent to the sale on credit:

a) X may demand P10,800 from A c) X may consider the contract as unenforceableb) X may demand P10,000 from A d) X may demand P9,000 from AX, a casual employee of Sunrise Company, was about to cross the street on his way to his

workplace when he was sideswept by a wayward jeepney recklessly driven by its driver, D. X was hospitalized for one month for which he spent P47,802.75. X filed an action for damages against D and his operator and he demanded for the following damages: P47,802.75 for his hospital and medical expenses; P50,000.00 for his physical sufferings, mental anguish, fright and sleepless nights; and P9,000 as unearned income for one month. (Items 77-79)77. X’s demand for P47,802.00 is called:a) moral damages b) actual damages c) exemplary damages d) liquidated damages78. His claim for P50,000.00 is referred to as:a)moral damages b) moderate damages c) nominal damages d)actual damages79. P9,000.00 as unrealized income is called:a)actual damages b) liquidated damages c) lucro cesante d) dano emergente 80. In the contract of agency, which of the following is not true and incorrect?

a) A the agent of P is expressly prohibited from appointing a substitute. A violates this prohibition by appointing C in his stead. P can refuse to recognize the acts of C but A is not liable for damages to P.

b) A and P appoint C as their agent for a common transaction. A can revoke the agency even without the consent of P.

c) P sells his dry goods to Q provided P shall be made the manager thereof. Q cannot revoke the agency of P at will.

d) If A, an agent with the power to appoint a substitute who is not named, appoints P, who is a well known “ESTAFADOR” in the community, then A must answer for the acts of P.

81. W, X, Y and Z formed a partnership. W, X and Y are general partners, who contributed P50,000.00 each, while Z, an industrial partner, his services only. All the partners signed an agreement stipulating that the liability of W is limited to his contribution. After all the assets of the partnership were been exhausted, there remains an unpaid liability of P40,000.00. The creditors of the partnership can compel:

a) X and Y to pay the P40,000.00b) X, Y and Z to pay the P40,000.00c) W, X, Y and Z to pay P10,000.00 each and W and Z can demand reimbursement from X and Y d) X and Y to pay P40,000.00

82. A, B and C are capitalist partners engaged in a retail business. Their contribution is P20,000 each. D is admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the partnership has an outstanding obligation to E in the amount of P80,000.00. In this case:

a) D is not liable to E for this obligationb) D is liable to E for this obligation so that the amount of P68,000.00 will be exhausted leaving a balance of P12,000.00 and only A, B and C shall be liable jointly or pro-rata, out of their separate property. c) D is liable to E for this obligation so that after the assets of the partnership will be exhausted, leaving a balance of P12,000.00, all the partners shall be liable jointly or pro-rata, out of their separate property.d) Answer not given.

83. In sale of the thing pledged at public auction, which of the following is not true and incorrect?a) The sale of the thing pledge extinguished the obligation.b) The pledgor or owner has a better right if he should offer the same terms as the highest bidder. c) If the price of the sale is less, the pledgee is entitled to recover the deficiency.d) If the price of the sale is more than the principal, interest and expenses, the pledgor is not entitled to the excess.

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84. In real mortgage, the following rules are valid, except one:a) A stipulation in the mortgage contract prohibiting the owner from alienating the immovable

mortgaged is valid. b) The mortgagee may alienate the mortgage credit or assign it to a third person in whole or in

part.c) Any stipulation allowing the mortgage creditor to appropriate the property mortgaged is null

and void.d) If alienation of mortgage credit is not registered, it is still valid between the parties.

85. Which of the following statements regarding the contract of pledge isnot correct?

a) A pledge cannot be constituted unless the thing pledge be placed in the possession of the creditor.

b) Pledge is a real contract because it is perfected by delivery of the thing pledged.c) Pledge is an accessory contract because it needs a principal obligation to exist.d) A pledge cannot be constituted to secure the performance of a voidable or unenforceable or even a natural obligation.

86. When the debt secured by a mortgage is due and remains unpaid, can the mortgagee appropriate the mortgaged property? 1st Answer: No, the right of the creditor-mortgagee is to demand specific

performance or foreclose the mortgage. 2nd Answer: Yes, if there is a stipulation in the mortgage contract allowing the creditor-mortgagee to appropriate the mortgaged property.a) 1st answer correct, 2nd answer wrongb) 1st answer wrong, 2nd answer correct c) Both answers are wrongd) Both answers are correct.

87. Chattel mortgage as distinguished from pledge:a) The excess of the amount due, after foreclosure, goes to the debtor.b) The sale of the object in an auction extinguishes the obligation.c) The delivery of personal property is necessary.d) The registration of the personal property in the Registry of Property is not necessary.

88. The following are essential requisites common to the contracts of pledge and mortgage, except:

a) That they are constituted to secure the fulfillment of a principal obligation.b) That the pledgor or mortgagor is the absolute owner of the thing pledged or mortgaged.c) That the contract is registered with the Register of Deeds.d) That the person constituting the contract has free disposal of his property or that he is authorized legally for the purpose.

89. A, B and C are partners. A contributed his services only. B, P20,000; and C, P10,000. The partnership was liquidated. After payment of the partnership obligation, only 9,000 worth of assets remained. The share of A will be equal to:

a) P3,000 c) Equal to the share of Cb) Equal to the share of B d) Nothing

90. A and B entered into a universal partnership of all present property. The common property of the partnership shall be:

a) All the properties which belonged to each of the partners at the time of the constitution of the partnership

b) All the properties which shall belong to each of the partners after the constitution of the partnershipc) All the properties which belonged to each of the partners at the time of the constitution of the

partnership as well as the profits which they may acquire therewithd) All the properties which belonged to each of the partners at the time of the constitution of the partnership as well as the properties which each may acquire thereafter

91. D pledged his Singer Sewing Machine to C for P8,000. D was unable to pay the obligation 60 days after it was due. C sold the machine at public auction for P6,000.

a) C cannot recover the deficiency of P2,000 even if there is stipulation that he canb) C can recover the deficiency of P2,000 even without stipulationc) C cannot recover the deficiency of P2,000d) C can recover the deficiency of P2,000

92. A limited partner who takes active part in the management of the firm becomes:a) a managing partnerb) liable as a general partnerc) a general partnerd) a general and a limited partner at the same time

93. The distinction between a chattel mortgage and a pledge is that in chattel mortgage:a) The delivery of the personal property is necessary

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b) The registration of the property in the Registry of Property is not necessaryc) The excess over the amount due, after foreclosure, goes to the debtord) The object of the contract is a personal property capable of possession

94. Which of the following statements is true and correct?a) Unless otherwise agreed upon by the parties, the sale of the mortgaged property extinguishes in full the obligation of the mortgagor to the mortgagee. b) Pledge and mortgage are considered principal contracts.c) When the obligation is secured by a pledge or mortgage and it is not paid when due, the pledgee or mortgagee may dispose of the collateral even if there is no agreement to that effect between the parties. d) In both pledge and mortgage the creditor is entitled to deficiency judgment.

95. M and O are partners of M & O partnership. M is the managing partner. N owes M P10,000.00 and M & O partnership P30,000.00. The obligations of N are both due. M collected from N the debt of N to M in the amount of P10,000.00 and issued a receipt in the name of M. To which obligation will the P10,000.00 be applied?

a) The whole of the P10,000.00 shall be applied to the debt of N to Mb) The P10,000.00 shall be applied to the debt of N to the partnershipc) P5,000.00 each to the debts of N to M and to the partnershipd) P2,500 to the debt of N to M and P7,500.00 to the debt of N to the partnership

96. A mortgaged his residential land to B as guarantee for the payment of P400,000 obligation of A. They agreed that A shall not sell the land wile the obligation exists. Before the maturity of the mortgage, C offered to buy the land from A.

a) A cannot sell the land to C because of the agreement not to sellb) A can sell the land to C only if B consents in writingc) A can sell the land to C despite the agreement not to selld) A cannot sell the land to C unless A pays the obligation

97. A capitalist partner engaged for his own account in an operation which is of the kind of business in which the partnership is engaged. Said partner can be:

a) Compelled to sell his interest in the partnership to the other capitalist partners b) Compelled to dissolve or discontinue the operation of his businessc) Compelled to bring to the common fund of the partnership any profits accruing to him from

his transactionsd) Denied his share in the profits of the partnership

98. X, Y and Z are equal partners of XYZ Partnership. A owes the XYZ Partnership for P9,000. Z, a partner collected from A P3,000 before X and Y received anything. Z issued a receipt on the P3,000 as his share of what A owes. When X and Y collected from A, A was insolvent.

a) Partner Z shall share partners X and Y with the P3,000b) Z cannot be required to share X and Y with the P3,000c) X and Y should first exhaust all remedies to collect from Ad) X and Y can automatically deduct from the capital contribution of Z in the partnership their respective share in the P3,000

99. In a partnership of A. B and C, A was appointed in the Articles of Co-partnership as managing partner. As such manager:

a) His power is revocable even without causeb) His power can be revocable at anytime even without just causec) He may execute all acts of administration despite the opposition of B and Cd) He can be removed for valid cause even without the vote of the partners owning the controlling interestc) D is liable to E for this obligation so that after the assets of the partnership will be exhausted, leaving a balance of P12,000.00, all the partners shall be liable jointly or pro-rata, out of their separate property.d) Answer not given.

100. F, G H and I are partners. They contributed capital as follows: F – P50,000.00; G – P30,000.00; H – P20,000.00 and I, as an industrial partner, his services. The partnership obligation to outsiders exceeds the total net assets by P18,000.00. Who and by how much will the partners be liable for the payment of P18,000.00?

a) F – P9,000.00; G – P5,400.00; H – P3,600.00; I - Nothingb) F – P4,500.00; G – P4,500.00; H – P4,500.00; I – P4,500.00c) F – P6,000.00; G – P6,000.00; H – P6,000.00; I - Nothingd) F – P4,500.00; G – P2,700.00; H – P1,800.00; I – P9,000.00

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PART IISUPPORT YOUR ANSWERS WITH LEGAL JUSTIFICATIONS

1. D obtained a loan from C in 2001 amounting to P100,000.00 to be used as D’s additional capital for his junk shop business. They agreed that the loan will be paid once D’s business earned annual profit of at least 20%. Despite diligent efforts on the part of D, his business failed to earn annual profits exceeding 5%. In 2006, C demanded payment of the loan from D, but D refused to pay on the ground that their stipulation for the payment of the loan was not yet fulfilled. In 2009, the shop of D was burned without his fault, resulting into the loss of his business.

A. Is C’s demand for the payment of the loan in 2006 valid?B. Is the obligation of D to C extinguished when his junk shop was burned?C. What proper action must be instituted by C against D to recover the amount of

P100,000.00?2. P issued a special power of attorney to A, authorizing the latter to sell his house and lot with a stipulated commission of 5% based on the purchase price. A week later, P received an information from a reliable source that SM will construct another department store about five hundred meters from the subdivision where his house and lot was located, so he told A to sell his property for not less than P1M. A month later, A sold the house and lot to a buyer for P950.000.00.

A. Is the sale of P’s house and lot by A valid?B. What rights are available to P in this case?

3. Due to G’s failure to settle his obligation for his hotel accommodation amounting to P10,000.00, the hotel management retained his personal belongings on the condition that the same shall be returned upon payment of G’s obligation. A day later, the hotel management formalized its claim by sending a demand letter to G. When G failed to pay his obligation after two weeks from receipt of the demand letter, his personal belongings were sold by the hotel management at public auction for the total sum of P17,000.00.

A. Can G validly demand the excess amount of P7,000.00?B. Based on the above facts, what contractual relation exists between G and the hotel management? D. Assuming that the hotel management failed to sell the personal belongings of G after

one month from its demand, can G validly demand for the return of his personal belongings?

4. D owes C the amount of P100,000.00 payable on September 30, 2010 with an agreed penalty of 10% if not paid on the maturity date. X guaranteed the loan of D in writing with the consent of C, but without the knowledge of D. At 4:00 p.m. on September 30, 2010, C informed G that D failed to pay his loan, so X paid C P100,000.00.

A. Is the contract of guaranty between G and C valid and enforceable?B. Can X validly demand reimbursement from D?C. If D, upon demand by X is willing to pay, how much shall be his liability to X?

5. B was requested by their Barangay Chairman to deliver three letters to X, Y and Z, who are residents of Jacinto, Apacible and Del Pilar Streets, respectively. On his way to Jacinto St., he saw the bicycle of Lon the side of the street, so he took and used it in going to the residence of X. L, who was then playing “tong its” saw B when the bicycle was taken, but L did not bother to prevent L from using it. After delivering the letter to X, and while L was on his way to deliver the letter to Y, L called him and demanded for the return of his bicycle. B refused to return it because there are still two letters to deliver.

A. Is the refusal of B to return the bicycle to L valid?B. What contractual relation exists between B and L in this case?

6. C an industrial partner of ABC Company was on his way to deliver goods to their customer when a ten-wheeler truck suddenly swerve towards his direction. Fearing for his life, C turned the steering wheel of his vehicle to the right. Due to the timely action of C, only the rear portion of his vehicle was hit by the truck, but his vehicle bumped the gate of the house of O causing damage thereto in the amount of P20,000.00.

A. If C will file action against the truck driver, what action shall be instituted by C? B. Can C be held liable for damages for the destruction of O’s gate?C. Can the truck driver, in an action filed by C for damages, validly invoke the defense that the incident was due to fortuitous event since the steering wheel of his truck malfunctioned?

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PART I

1. This is the effect of the issuance of no-par value shares to the stockholders:a) The holder of such shares shall continue to be liable to the corporation or its creditors in respect theretob) The holder of such shares shall not be liable to the corporation or its creditors in respect theretoc) The holder of such shares shall not be entitled to stock or cash dividendsd) The issuance affords greater protection to creditors

2. The following are the requirements for the issuance of a Certificate of Public Convenience. Which is the exception?

a) The applicant must prove that there is a public necessityb) The applicant must prove that the operation of the proposed public service and the authorization to do business will promote the public interest in a proper and suitable mannerc) The applicant must be a Filipino citizen or if it is a corporation, partnership or

association organized under the laws of the Philippines, it must be wholly owned by Filipino citizens

d) The applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident in its operations

A subscribed to 100 shares of Corporation X with par value of P100.00 each, paying P4,000.00 on his subscription. The subscription contract provides that the balance shall be payable to the corporation in two equal annual installments, the first to be paid not later than December 31, 2010. (Items 3 -5)3. If A will fail to pay the required amount on December 31, 2010, then:

a) 60 of the shares subscribed by him shall become delinquent b) He has thirty days from December 31, 2010 to pay P3,000 plus interestc) All the 100 shares subscribed by him shall become delinquentd) He has thirty days from December 31, 2010 to pay P6,000.00 plus interest

4. If the shares shall be declared delinquent, which of the following may be done by the corporation to collect the balance payable by A?

a) The corporation may sell 60 shares at public auctionb) The corporation may sell 100 shares at public auctionc) He may be sued by the corporation to pay the balance plus interest d) The corporation may exercise either option b) or c)

5. The amount due to the corporation is P6,750.00 and the delinquent shares are offered for sale at the public auction. M offered P6,700.00 for 95 shares; N offered P6,750.00 for 94 shares; O offered P6,500.00 for 80 shares; and P offered P6,750.00 for 90 shares. Who is considered the highest bidder?

a) M b) N c) O d) P 6. This shall constitute a quorum for the transaction of corporate business:

a) Majority of the members c) Majority of the stockholdersb) Majority of directors d) All of them

7. When a negotiable instrument is so ambiguous that there is doubt whether it is a bill of exchange or a promissory note, how should the holder treat the instrument?

a) As a promissory note c) Either as bill of exchange or promissory noteb) As a bill of exchange d) As non-negotiableA signed a blank check which he inadvertently left in his desk. B later stole the

same, who filled in the amount of P30,000.00 and a fictitious name as payee. B then endorsed the check in the payee’s name and passed the check to C; thereafter C negotiated it to D; then D to E; and E to F. (Items 8 – 10)8. Can F enforce the instrument against A?

a) Yes, on the presumption that F is a holder in due courseb) No, because an incomplete and undelivered instrument is a real defense which can be used against any holderc) Yes, because F acquired the instrument from a holder in due coursed) No, because a complete but undelivered instrument is a real defense available against any holder

9. Suppose F is a holder in due course, will the answer be the same as in number 8?a) Yes, because incomplete and undelivered instrument is a proper defense even against a holder in due course

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b) No, because an incomplete undelivered instrument is a personal defense that can be used only against a holder who is not in due course

c) Yes, because as a holder in due course, he has the right to enforce the instrument against any party liable thereon

d) No, because as a holder in due course, personal defenses cannot be used against him10. Can F enforce the instrument against E?

a) No, because a forged instrument cannot be enforced against any party except the forgerb) No, because F acquired no right to enforce the instrument because it had been forgedc) Yes, because of E’s guarantee the that the instrument is genuine and what it purports

to bed) Yes, because F is a holder in due course

11. Which of the following is not a requisite to consider a person an accommodation party?a) He signed the instrument as a maker, drawer, acceptor or indorserb) He must not receive value thereforc) He must sign for the purpose of lending his name or creditd) He is not liable to a holder who knows that he received no value therefor

12. M makes a promissory for P2,000.00 payable to the order of P. P negotiates the note to A, who with the consent of P raises the amount to P20,000.00 and thereafter indorses it to B; then B to C and C to D, who is not a holder in due course. In this case:

a) D can recover P2,000.00 as against M b) P and A are liable to D for P20,000.00c) B and C are not liable to Dd) D can only enforce the instrument against A and P

13. Which of the following acts or omission does not constitute an offense punishable under the Trust Receipt Law?

a) Failure of the entrustee to turn over to the bank the proceeds of the sale of the goods covered by the trust receiptb)Failure to insure the goods for their total value against loss from fire, theft, pilferage or other casualtiesc) Failure of the entrustee to return the goods to the bank if they were not sold/disposed d) None of the above

14. “I promise to pay bearer, Juan dela Cruz the sum of P20,000.00.” (Signed: Jose Paz). The promissory note is:

a) Negotiable promissory note payable on demand b) Negotiable promissory note payable to order c) Negotiable promissory note payable to bearerd) Non-negotiable

15. It is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed, to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer.

a) Bill of exchange c. Promissory noteb) Bank Draft d) Certified check

16. Rights which the existing stockholders of a corporation cannot be deprived without their consent to subscribe or to purchase new stock issued by the corporation; or unissued original stock, in proportion to their holdings before it can be offered to the others.

a) Right of redemption c) Right to purchaseb) Pre-emptive right d) Appraisal right

17. A, stockholder of X Corporation, sold his shares and delivered his certificate of stock to B for P100,000.00. A few days later, A died and his heirs adjudicated his share of stock to his son, C in the Deed of Extrajudicial Partition. X Corporation declared cash dividend and sent the notice to A’s address, A being the registered owner of the shares of stock in the book of the corporation. C received the notice and by virtue of the aforestated deed of partition, claimed payment of the dividend. B, likewise, claimed payment by virtue of the assignment made by A. Who has the better right to the dividend?

a) A b) C c) A and C, equally d) None of them 18. A private corporation organized under the corporation law commences to have corporate existence and juridical personality and is deemed incorporated from:

a) The date when the articles of incorporation is signed by the incorporatorsb) When the articles and incorporation and by laws are presented and received by the Securities and Exchange Commission and the filing fee is paid

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c) From the date the SEC issues a certificate of incorporation under its official seal d) When the articles of incorporation is notarized by a Notary Public

19. The following are the qualifications of incorporators. Choose the exception:a) Majority of whom must be Filipinosb) All must be subscribers of sharesc) All are of legal age or legally capacitatedd) all must be natural persons, not less than five but not more than fifteen

20. In the amendment of the Articles of Incorporation of a stock corporation, the following is necessary:

a) Amendment by the majority vote of the Board of Directors plus a vote or written assent of the stockholders representing at least 2/3 of the outstanding capital stockb) Amendment by a vote of 2/3 of the stockholdersc) Amendment by a majority vote of the Board of Directorsd) Amendment by a majority vote of the Board of Directorsplus the written consent of the stockholders representing majority of the outstanding capital stock

21. A presented a bill to B, the drawee. B destroyed the bill. What can A do?a) A may sue for the destruction of his propertyb) A may go after the drawer of the billc) A may no longer collect since the bill was destroyedd) A may consider the bill as constructively accepted by B

22. This instrument is negotiable: a) “I promise to pay James Sy P20,000.00 (Signed: Jose Santos)b) “Pay to Pedro Torres or order P20,000.00 if he marries Maria Cunanan (Signed: Jose Santos)c) “Good to Mario Cruz or order P20,000.00 (Signed: Jose Santos)d) “I promise to pay Oscar Bamba or order 20 cavans of IR rice (Signed: Jose Santos)

23. A bill of exchange may be treated and considered a promissory note in the following instances. Which is the exception?

a) When the drawer and the drawee are the same person b) When the drawee is fictitiousc) When the instrument is ambiguousd) When it is payable to the order of a fictitious person

24. It is an instrument issued by a bank that guarantees its client’s ability to pay for imported goods or services, authorizing an individual or a firm to draw draft on the bank or its correspondent for the bank’s account under certain conditions of the credit.

a) Trust Receipt b) Bill of lading c) Letter of credit d) Bank draft25. Which of the following instruments contain a promise or order that is conditional, hence non-negotiable:

a) “I promise to pay B or order P20,000.00.” (Sgd. X) b) “Pay to B or order P20,000.00.” (Addressed to Z; signed by Y)c) “Pay to B or order P20,000.00 and reimburse yourself out of my money in your possession.” (Addressed to Z; signed by Y) d) “Pay to B or order P20,000.00 out of my money in your possession.” (Addressed to Z; signed by Y)

26. Corporations governed by special laws, aside from the requirements specified under the corporation law, in order that their articles of incorporation may be approved or accepted, must present before the SEC:

a) A favorable recommendation from the Ministry of Financeb) A copy of the previous income tax return and a statement of assets and liabilities net worth c) A favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with lawd) An undertaking to change the name of the corporation if found that there is already registered with the SEC a name similar to the name of another corporation

27. The following are some of the requisites of a de facto corporation. Choose the exception.

a) Valid law under which it is incorporated c) Assumption of corporate powerb) Attempt to incorporate d) None of the above

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28. In a letter of credit, the contract between the bank and its client is perfected from the moment:

a) the letter of credit has been issued by the bankb) the client signed the contract with thebankc) the bank pays the person in whose favor the letter of credit has been openedd) the bank receives notice of the arrival of the goods and their delivery to its client

29. Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in three of the following corporate acts. Which is the exception?

a) In case of any amendment to the articles of incorporation which has the effect of changing or restricting the rights of any stockholder or class of sharesb) In case of merger or consolidationc) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the assets and property of the corporation d) In case of incurring, creating or increasing bonded indebtedness

30. The authorized capital stock of a proposed corporation is P100,000.00 divided into 1,000 shares with a par value of P100.00 each. The minimum amount of subscription that must be paid up is:

a) P8,750 or 87.5 shares c) P5,000 or 50 shares b) P6,250 or 62.5 shares d) P7,500 or 75 shares

31. Watered stocks are shares of stock issued by a corporation for a consideration less than their par or issued value or for a consideration in form other than cash in excess of their fair value. In this regard:

a) The issue itself is voidb) The agreement to pay less than the par value cannot be enforcedc) The subscriber or purchaser shall not be liable for the full par value of the sharesd) The agreement has no force and effect being contrary to the corporation Code

32. The following are the requisites, except one, for the valid declaration and/or issuance of stock dividend:

a) Existence of original and unissued sharesb) Dividend declaration is made by the Board of Directors and approved by 2/3 of the outstanding capital stock c) It is issued to increase the authorized capital stockd) Existence of unrestricted retained earnings

33. 1st Statement: The declaration of cash dividends is a power vested only on the Board of Directors and it requires no consent from the stockholders.

2nd Statement: If the surplus profits of the stock corporation reaches the level equal to its paid up capital, the SEC may compel the corporation to declare dividends otherwise, it will be liable for a surtax on improperly accumulated surplus.

a) 1st statement is false but 2nd statement is trueb) Both statements are truec) Both statements are falsed) 1st statement is true but 2nd statement is false

34. Under this test, the corporation is a national of the country pursuant to whose laws it is incorporated:

a) Nationality test c) Control testb) Capitalization test d) Incorporation test

35. Which of the following statements is not correct?a) A stockholder is entitled to cast such number of votes as the number of shares outstanding entitled to vote in his name times the total number of directors to be elected shall equal.b) Outstanding shares although with voting rights but have not been fully paid cannot be voted.a) All the rights of a dissenting stockholder who opted to exercise his appraisal right are

suspended except the right to receive the payment for his shares b) Directors cannot attend and vote in the meetings of the board through their appointed

proxies36. The corporation has a nine-member board. Two of the members of the board have sold their shares while the two others are abroad. To have a quorum, this number is required:

a) seven c) threeb) five d) four

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37. Which one of the following instruments is negotiable?a) “I promise to pay C or order P20,000.00 if he will pass the CPA examination in October, 1990.” (Signed: D)b) “I promise to pay C or order P20,000.00 in four installments.” (Signed: D)c) “I promise to pay C or order P20,000.00 60 days after the death of his father.” (Signed: D)d) “I promise to pay C P20,000.00.” (Signed: D)

38. An instrument is rendered not negotiable if:a) There is an indication of a particular fund out of which reimbursement is to be madeb) There is an indication of a particular account to be debited with the amountc) The instrument is payable out of a particular fundd) The drawer has no funds in the hands of the drawee

39. A promissory note is signed in behalf of the principal by an agent as follows:Juan dela Cruz

Per Procuration: Manuel S. Canete This operates as notice that the agent has:

a) Unlimited authority to sign for and in behalf of the principalb) A limited authority to sign, and the principal is bound only in case the agent so signing acted within the actual limits of his authority c) A limited authority to sign, but the principal is bound even in case the agent so signing acted outside the actual limits of his authority d) Answer not given

40. This a written acknowledgment of an interest of a stockholder in the corporation.a) Proxy c) Certificate of stockb) Share of stock d) Capital stock

41. a person lawfully engaged in the business of storing goods for profit is called:a) depositary b) bailee c) trustee d) warehouseman

42. Choose the minimum requirement of the Corporation Law to corporate formation: Authorized capital Subscribed capital Paid-up capitala) P100,000.00 P20,000.00 P5,000.00b) 100,000.00 20,000.00 4,000.00c) 100,000.00 25,000.00 5,000.00 d) 100,000.00 25,000.00 6,250.00

43. They provide and regulate the internal matters of the corporation.. a) Board of Directors c) By-lawsb) Majority of Stockholders d) Articles of Incorporation

44. An instrument is payable on demand:a) When payable to order b) When the last indorsement is in blankc) When no time for payment is expressedd) When payable within a period of time

45. Which of the following is not necessary in order to make a promissory note negotiable? a) It must be in writing and signed by the makerb) It must contain an unconditional promise or order to pay a sum certain in moneyc) It must be payable on demand or at a fixed future time d) It must be addressed to a drawee, who is indicated with reasonable certainty

46. Which of the following instruments is negotiable?a) “Good to Jose dela Paz or order P20,000.00.” (signed: Pedro Cura)b) “I hereby authorize you to pay Jose dela Paz or order P20,000.00 or deliver a Nokia cell phone.” (Signed: Pedro Cura)c) “I promise to pay Jose dela Paz or order P20,000.00 worth of sugar.” (Signed: Pedro Cura)d) “I promise to pay Jose dela Paz or order P20,000.00 on May 25.” (Signed: Pedro Cura)

47. A promissory note as distinguished from a bill of exchange: a) It contains an unconditional order to payb) The one who issues it is primarily liablec) It requires presentment for acceptanced) There are three parties, the drawer, the payee and the drawee

48. One of the following is a ground for the suspension or revocation of the certificate of

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incorporation by the SEC:a) If the corporation has commenced its business transactions and afterwards ceased operation continuously for a period of at least five years b) If the corporation fails to commence and start to operate and the failure is due to causes beyond the control of the corporation c) If the corporation does not formally commence its business transactions within a period of two years d) If the corporation does not formally commence its business transactions within a period of five years

49. Corporations organized by private persons performing public functions and for profit to private parties are:

a) Public corporations c) Quasi-public corporationsb) Government controlled corporations d) Private corporations

50. One of the following is not true regarding the financial statements of a corporation.a) Within ten days from the receipt of a written request of any stockholder, the corporation shall furnish to him the most recent financial statementb) At the regular stockholders meeting, the board of directors shall present to such stockholders an audited financial statement c) At the regular stockholders meeting, upon request of the stockholders and within ten days from such meeting the board of directors will submit to the stockholders the audited financial statement d) If the paid-up capital of the corporation is P50,000,00 or more, the financial statement may be certified under oath by the corporate treasurer

51. A written acknowledgment of the receipt of goods and agreement to transport and deliver them to a specified place to a person named therein or his order is called:

a) bill of lading b) trust receipt c) letter of credit d) dock warrant 52. A corporation created in strict or substantial conformity with the statutory requirements for incorporation and whose right to exist as a corporation cannot be successfully attacked even in a direct proceeding for that purpose by the State is known as:

a) De jure corporation c) Corporation by estoppelb) De facto corporation d) Answer not given

53. The following are the instances when a drawee bank may refuse to pay checks drawn against it, except one:

a) If there is a “stop payment” issued by the drawer.b) When the bank receives notice of the drawer’s death.c) If the drawer’s deposit is insufficient.d) If the drawer is insolvent.

54. The following are functions of a negotiable instrument. Choose the exception.a) It increases purchasing power in circulation.b) It is a legal tenderc) It is a substitute for moneyd) It increases credit circulation.

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

a) C acquires the right to have the endorsement of B.b) The bill is merely assigned and not negotiated.c) C becomes a holder of the bill delivered to him d) The transfer vests in C such title as B had thereon.

56. D obtained a loan from C amounting to P100,000.00. As security for his loan, D delivered to C the warehouse receipt issued by W for 1000 bags of cement, which D deposited in W’s warehouse. Prior to the maturity date of D’s loan, the warehouse of W was destroyed by fortuitous event and the bags of cement were totally lost. Who should bear the loss of the cement?

a) D b) C c) W d) All of them57. A issued a promissory note to the order of B for P10,000 payable on September 30, 2010 in payment of a TV set sold by B to him. B failed to deliver the TV set to A and instead transferred the note to C for value but without indorsement. Which of the effects of the transactions listed below is valid?

a) C is deemed a holder in due course when B transferred the note to him.b) C acquires the instrument in his own right free from personal defenses

c) C has no right to compel B to make the proper indorsement to him.

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d) C cannot collect from A because of A’s defense of lack of consideration. 58. A warehouse receipt was issue by W which states that the goods described therein are deliverable to D or order. On the left hand margin of the receipt, the words “NOT NEGOTIABLE” are clearly written. D indorsed and deliver it to X. Is X the holder of the receipt?

a) No, because the receipt is clearly not negotiableb) Yes, because a warehouse receipt is always negotiablec) No, because D can only assign but not negotiate thereceiptd) Yes, because the words “NOT NEGOTIABLE” is void

59. Manuel makes a promissory note for P3,000 payable to the order of Pedro. Pedro negotiates the note to Antonio who with the consent of Pedro raises the amount to P30,000 and thereafter endorses it to Boy, Boy to Cris, and Cris to Doy, who is a holder in due course. In this case:

a) Doy can recover P30,000 as against Manuel.b) Doy can recover P3,000 from Manuel.c) Pedro and Antonio are liable to Doy for P3,000.d) Boy and Cris are not liable to Doy.

60. “I promise to pay to the order of X P10,000 30 days after date” (Sgd.) Y, (the note has no date)

“Pay to the order of X P10,000 30 days after sight” to Y (Sgd.) Z, (the bill is dated 10/08/10)

1st Rule: The maturity date of the above promissory note will be counted 30 days from the date of the instrument.

2nd Rule: The maturity of the above bill of exchange will be counted 30 days from the date the instrument is presented for acceptance.

a) Both rules are wrong c) 1st rule correct, 2nd rule wrong b) Both rules are correct d) 1st rule wrong, 2nd rule correct

61. The following, except one, are the requisites of acceptance for honor of a bill:a) The bill must be previously protested for dishonor by non-acceptance or protested for better security.b) The bill is overdue.c) The holder must give his consent.d) The acceptor for honor must be a stranger to the bill.

62. The duty of the common carrier to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them is an obligation which arises from:

a) law b) conract c) quasi-contract d) quasi-delict 63. Which of the following is not a real defense?

a) Fraud in factum c) Insertion of a wrong dateb) Incomplete and undelivered instrument d) Forgery of a signature

64. P appointed A as his agent to buy sugar. Thereafter, A drew a bill of exchange for the price of the sugar in favor of S, the seller. P accepted the bill. After the acceptance of P, S negotiated the bill to H, a holder in due course. When the sugar was delivered, P refused to pay the bill on the ground that the sugar was deteriorated. Is P liable?

a) Yes, because P has already accepted the bill and becomes primarily liable thereonb) No, there is an absence of considerationc) No, because there is failure of considerationd) Yes, even if the consideration failed, because H is a holder in due course.

65. Which of the following is not a party secondarily liable?a) Acceptor for honor c) Draweeb) Drawer d) Endorser

66. A commercial document whereby the bank releases the goods in the possession of the entrustee but retains ownership thereof, while the entrustee shall sell the goods and apply the proceeds for the full payment of his liability with the bank is called:

a) Bill of Lading b) Warehouse Receipt c) Letter of Credit d) Trust Receipt67. “I promise to pay to the order of B P10,000 30 days after date”. (Sgd.) A. Which of the following indorsements of the above promissory note is not valid?

a) “Pay to C and D”. (Sgd.) Bb) “Pay to C P5,000, balance of this note”. (Sgd.) B c) “Pay to C P5,000 and to D P5,000”. (Sgd.) Bd) “Pay to C and D, partners” (Sgd.) B

68. The holder is required to give notice of dishonor to the drawer to make him liable on the instrument in one of the following cases:

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a) Where the drawer is the person to whom the instrument is presented for payment.b) Where the drawer and the drawee are the same personsc) Where the drawer has countermanded paymentd) Where the instrument was made or accepted for his accommodation

69. Persons, corporations, partnerships or associations engaged in the business of carrying or transporting goods or passengers or both by land, air or water for a compensation, offering their services to the public are called:

a) public transport b) common carrier c) public convenience d) motor vehicles 70. When is a negotiable instrument not discharged?

a) When the holder thereof intentionally cancelled the instrument b) When the principal debtor becomes the holder of the instrument before, at or after maturity in his own rightc) When it is paid in due course by the principal debtord) When it is paid in due course by the accommodated party

71. A makes a promissory note to B as follows: “I promise to pay B or bearer P10,000 – on demand”. (Sgd.) A. After issue to B, B negotiates it to C by mere delivery, C to D by mere delivery, and D to E by special endorsement, E to F also by special endorsement, and F negotiates it to G by blank endorsement. G as holder strikes out the special endorsement of D, E and F. What are the effects of striking out the said endorsement?

Effect 1: D and E are discharged from liability because their endorsements were stricken out by G, holder, as not necessary to his title.

Effect 2: Subsequent endorser F is also discharged from liability because his right of recourse has been cut off by the discharged of D and E.

a) Effect 1 is wrong, effect 2 is correctb) Both effects are correctc) Both effects are wrongc) Effect 1 is correct, effect 2 is wrong

72. C filed an action for the collection of a sum money against D with a motion for the attachment of the goods deposited by D in the warehouse of W, for which a negotiable warehouse receipt had been issued by W. If the motion was granted by the court, can W be compelled to deliver the goods of D to the sheriff?

a) No, because he cannot surrender the receipt as he is not the holder thereofb) No, because he is not the depositor of the goodsc) No, because he cannot pay the warehouseman’s liend) No, because he cannot sign a receipt for the delivery of the goods

73. Which of the following is a negotiable bill of exchange?a) Pay to the order of Y the sum of P30,000. (Sgd. C) To A or in his absence, to Bb) Pay to the order of X the sum of P20,000. (Sgd. C) To A or Bc) Pay to the order of X or Y the sum of P40,000. (Sgd. C) To A or Bd) Pay to the order of Y the sum of P50,000. (Sgd. C) To A and B

74. One of the characteristics of treasury shares is that:a) They have the status of outstanding sharesb) They may not be re-issued or sold againc) They have neither voting rights or rights to dividendsd) They can be issued as stock dividends

75.. Which of the following will not qualify as incorporator or a corporation? a) A minor who is emancipated by voluntary concession or by marriageb) A married woman without the consent of her husband where the property involved in the act of incorporation is paraphernalc) A duly existing corporationd) A non-resident alien

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PART IISUPPORT YOUR ANSWERS WITH LEGAL JUSTIFICATIONS

1. In a stockholders’ meeting, the proposal to declare dividends was raised by Stockholder A. He asserted that based on the financial statements of the corporation, its has a net income of P2,000,000.00 while its paid-up capital is P2,100,000.00, hence the corporation must declare dividends in order to avoid improper accumulation of profits. Stockholder B moved to adopt a resolution declaring cash dividends amounting to P1,000,000.00 and stock dividends amounting to P1,000,000.00. Stockholder C seconded the motion of Stockholder B.

A. If you were the presiding officer in that meeting, how would you rule on the motion of Stockholder B?

B. Is the allegation of Stockholder A correct?2. M issued an order promissory note to P as payment for a cell phone, which P promised to deliver on October 3, 2010. The note is payable on demand. P failed to deliver the cell phone on October 3, 2010, although he had already indorsed the note specially to A. A indorsed it specially to B, who indorsed it in blank to C. As payment for the services of H, C delivered the note to H, who has been informed by his neighbor that the consideration for the issuance of the note did not materialize. A, B and C are holders in due course.

A. Is there valid negotiation of the note from C to H?B. Is H a holder in due course? C. Since there is failure of consideration in the issuance of the note, what must H prove so that he can validly enforce the note against M?

3.W issued a negotiable warehouse receipt for the goods deposited by D. D negotiated the receipt to X, then he filed an action in court alleging that the recipt was lost and he prayed that an order be issued ordering W to release the goods to him. After the hearing, the court issued an order requiring W to release the goods to D afte D had posted the required bond. When W has complied with the order of the court, X appeared with the negotiable receipt claiming the goods from W.

A. Is the obligation of W to X extinguished?B. What right, if any is available to W in this case?

4.D is driving the taxi which belongs to XYZ Transport Services under the boundary system. One day, the brake of the taxi malfunctioned and a pedestrian was injured. The pedestrian filed a case for damages against the XYZ Transport services, which invoked the defense that it cannot be held liable for damages because its taxi is being driven by D under the boundary system.

Is the defense of XYZ Transport Services tenable?5. N is driver owner of a delivery truck which is used for the delivery of his furniture products from Nueva Ecija to his customers in Manila. One day, after he had delivered his products in Manila, he agreed to transport the merchandise of his five townmates from Divisoria to San Jose Nueva Ecija on a discounted fare. On their way to Nueva Ecija, the left front tire of his truck was hit by a lightning causing damages to the truck and the merchandise loaded thereon. His townmates claimed damages from N based on the provisions on common carriers, but he refused to pay on the ground that he is not engaged in the business of transporting goods and passengers on a regular basis and hence, not a common carrier.

A. Is the contention of N valid and tenable?B. Can he be held liable for the damage suffered by the goods of his townmates?

6. As payment for one ton of sugar to be delivered by P, D issued to him a crossed check. P negotiated the crossed check to A, who has no knowledge as regards the purpose for which the crossed check was issued. When P failed to deliver the sugar, D countermanded payment of the check and the check deposited by A was not credited to his account prompting him to send notice of dishonor to D. D however refused to redeem the check because of P’s failure to deliver the sugar.

Is A a holder in due course who can properly invoke that absence or failure of consideration is not a valid defense against him?

7. The corporation awarded to its Director X the contract for the supply of raw materials to the corporation by virtue of a resolution approved by the Board of Directors. Stockholder E alleged that the contract is void and he requested the BOD to withdraw the said contract, but his request fell on deaf ears. Considering that the BOD failed to take action on a matter which Stockholder E honestly believed to be prejudicial to the corporation,

A. Can E validly file action against the BOD for the nullification of the said contract?B. If so, where should the case be filed?C. If you were Director X, what defenses would you invoke to protect your interest?D. Is the allegation of E correct regarding the nature of the said contract?

8. An ordinance was enacted by the Sangguniang Panglungsod of San Pablo City, banning provincial buses from entering the city proper. May a bus company with a Certificate of Public Convenience to provide transport services to passengers from San Pablo City to Manila, validly attack the legality of the said ordinance?

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PART I

1. When a negotiable instrument is so ambiguous that there is doubt whether it is a bill of exchange or a promissory note, how should the holder treat the instrument?

a) As a promissory note c) Either as bill of exchange or promissory noteb) As a bill of exchange d) As non-negotiableA signed a blank check which he inadvertently left in his desk at his Salcedo Village

Office. B later stole the same, who filled in the amount of P30,000.00 and a fictitious name as payee. B then endorsed the check in the payee’s name and passed the check to C; thereafter C negotiated it to D; then D to E; and E to F. (Items 2 – 4)2. Can F enforce the instrument against A?

a) Yes, on the presumption that F is a holder in due courseb) No, because an incomplete and undelivered instrument is a real defense which can be used against any holderc) Yes, because F acquired the instrument from a holder in due coursed) No, because a complete but undelivered instrument is a real defense available against any holder

3. Suppose F is a holder in due course, will the answer be the same as in number 8?a) Yes, because incomplete and undelivered instrument is a proper defense even against a holder in due course b)No, because an incomplete undelivered instrument is a personal defense that can be

used only against a holder who is not in due coursec) Yes, because as a holder in due course, he has the right to enforce the instrument

against any party liable thereon d) No, because as a holder in due course, personal defenses cannot be used against him

4. Can F enforce the instrument against C, D and E?a) No, because a forged instrument cannot be enforced against any party except the forgerb) No, because F acquired no right to enforce the instrument because it had been forgedc) Yes, because they guarantee the that the instrument is genuine and what it purports to bed) Yes, because F is a holder in due course

5. Which of the following instruments is not payable to bearer?a) “Pay to the order of Kamandag P1,000.00

To: X Sgd. “A” b) “Pay to bearer, P the sum of P1,000.00 To: X Sgd. “A”c) “Pay to B or bearer the sum of P1,000.00 To: X Sgd. “A”d) “Pay to cash the sum of P1,000.00 To: X Sgd. “A”

6. Which of the following is not a requisite to consider a person an accommodation party?a) He signed the instrument as a maker, drawer, acceptor or indorserb) He must not receive value thereforc) He must sign for the purpose of lending his name or creditd) He is not liable to a holder who knows that he received no value therefor

7. Which one of the following instruments is not negotiable for the reason that the instrument is not payable at a determinable future time?

a) “Ten days after date, I promise to pay to the order of B P1,000.00Sgd. “A”

b) “On or before October 30, 1986, I promise to pay B or his order P1,000.00Sgd. “A”

c) “Sixty days after sight, I promise to pay to the order of B P1,000.00Sgd. “A”

d) “Ten days before the death of X, I promise to pay B or his order P1,000.00Sgd. “A”

8. The following are the rights of a holder in due course. Which is the exception? a) He may enforce payment of the instrument for the full amount thereof against all parties liable thereonb) He may receive payment and if payment is in due course, the instrument is discharged

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c) He holds the instrument free from personal and real defenses d) He may sue on the instrument in his own name

9. A negotiable instrument is drawn in the following tenor:“Pay to cash P5,000.00To: X Sgd. “A”

At the back of the instrument, it is shown that it has been indorsed specially in the following order:

“Pay to C (Sgd.) B” 2. “Pay to D (Sgd.) C“D, as holder, can negotiate the instrument by :a) mere delivery c) indorsementb) indorsement plus delivery d) assignment

10. It is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed, to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer.

a) Bill of exchange c) Promissory noteb) Bank Draft d) Certified check

11. An instrument is considered payable on demand: a) When no time for payment is expressedb) When payable to orderc) When the last indorsement is in blankd) When the last indorsement is restricted

12. A presented a bill to B, the drawee. B destroyed the bill. What can A do?a) A may sue for the destruction of his propertyb) A may go after the drawer of the billc) A may no longer collect since the bill was destroyedd) A may consider the bill as constructively accepted by B

13. This instrument is negotiable: a) “I promise to pay X P20,000.00 (Signed: Jose Santos)b) “Pay to Pedro Torres or order P20,000.00 if he marries Maria Cunanan (Signed: Jose Santos)c) “Good to Mario Cruz or order P20,000.00 (Signed: Jose Santos)d) “I promise to pay Oscar Bamba or order 20 cavans of IR rice (Signed: Jose Santos)

14. A bill of exchange may be treated and considered a promissory note in the following instances. Which is the exception?

a) When the drawer and the drawee are the same person b) When the drawee is fictitiousc) When the instrument is ambiguousd) When it is payable to the order of a fictitious person

15. Which of the following instruments is not negotiable?a) “I agree to pay to the order of A P30,000.00.” (Sgd. X)b) “Good to A or order P30,000.00 ten days after sight.” (Sgd. X)c) “I promise to pay to A or order P30,000.00 on June 30.” (Sgd. X)d) “I promise to pay to the order of Darna P5,000.00.” (Sgd. X)

16. Which of the following instruments contain a promise or order that is conditional, hence non-negotiable:

a) “I promise to pay B or order P20,000.00 on the death of his grandfather.” (Sgd. X) b) “Pay to B or order P20,000.00 plus 10% per annum.” (Addressed to Z; signed by Y)c) “Pay to B or order P20,000.00 and reimburse yourself out of my money in your possession.” (Addressed to Z; signed by Y) d) “Pay to B or order P20,000.00 out of my money in your possession.” (Addressed to Z; signed by Y)

17. A - A blank indorsement may be converted into a special indorsement. B. - A special indorsement cannot be converted into a blank indorsement.

a) Only A is false c) Both are trueb) Only B is false d) Both are false

18. Which of the following is not necessary in order to make a promissory note negotiable? a) It must be in writing and signed by the makerb) It must contain an unconditional promise or order to pay a sum certain in moneyc) It must be payable on demand or at a fixed future time d) It must be addressed to a drawee, who is indicated with reasonable certainty

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19. The following instrument is not negotiable: a) “Pay to C or order P20,000.00 with exchange at 2.5%.” (To: TP; signed; D)b) “Pay to the order of C within 6 months from date, the sum of P20,000.00 with interest at 12% per annum.” (To: TP; signed D)c) “Pay to C or bearer P20,000.00 6 months after date. If not paid on due date, I agree to pay collection and attorney’s fees.” (To: TP; signed D) d) “Pay to C or order P20,000.00 in four equal monthly installments.” (To: TP; signed D)

20. The party with primary liability:a) Maker c) Indorserb) Drawer d) Drawee

21. If an instrument conforms to the following: - It must be in writing and signed by the maker or drawer;- It must contain an unconditional promise or order to pay a sum certain in money;- It must be payable on demand or at a fixed or determinable future time;- It must be payable to order or to bearer

then the instrument is a:a) check c) bill of exchangeb) Promissory note d) draft

22. Which of the following instruments is negotiable?a) “Good to Jose dela Paz or order P20,000.00.” (signed: Pedro Cura)b) “I hereby authorize you to pay Jose dela Paz or order P20,000.00 or deliver a Nokia cell phone.” (Signed: Pedro Cura)c) “I promise to pay Jose dela Paz or order P20,000.00 worth of sugar.” (Signed: Pedro Cura)d) “I promise to pay Jose dela Paz or order P20,000.00 on May 25.” (Signed: Pedro Cura)

23. A promissory note as distinguished from a bill of exchange: a) It contains an unconditional order to payb) The one who issues it is primarily liablec) It requires presentment for acceptanced) There are three parties, the drawer, the payee and the drawee

24. Which one of the following instruments is negotiable?a) “I promise to pay C or order P20,000.00 if he will pass the CPA examination in October, 1990.” (Signed: D)b) “I promise to pay C or order P20,000.00 in four installments.” (Signed: D)c) “I promise to pay C or order P20,000.00 60 days after the death of his father.” (Signed: D)d) “I promise to pay C P20,000.00.” (Signed: D)

25. An indrosement where the indorser adds the phrase ”without recourse” is: a) Facultative indorsement c) Qualified indorsementb) Restrictive indorsement d) Conditional indorsement

26. A check upon which the holder’s signature must appear twice, one to be affixed by him at the time it is issued and the second, and the counter-signature, to be affixed by him before it is paid, otherwise it is incomplete is called:

a) Certified check c) Traveler’s checkb) Stale check d) Manager’s check

27. An instrument is rendered not negotiable if:a) There is an indication of a particular fund out of which reimbursement is to be madeb) There is an indication of a particular account to be debited with the amountc) The instrument is payable out of a particular fundd) The drawer has no funds in the hands of the drawee

28. A promissory note is signed in behalf of the principal by an agent as follows:Juan dela Cruz

Per Procuration: Manuel S. CaneteThis operates as notice that the agent has:a) Unlimited authority to sign for and in behalf of the principalb) A limited authority to sign, and the principal is bound only in case the agent so signing acted within the actual limits of his authority

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c) A limited authority to sign, but the principal is bound even in case the agent so signing acted outside the actual limits of his authority d) Answer not given

29. Marcelo makes a note payable to the order of Patricio, who indorses it to Alfonso. Fidel obtains possession of the note fraudulently, forges Alfonso’s signature and indorses it to Bartolome, who in turn indorses it to Catalino. In this case, Catalino can:

a) Enforce the instrument against Marcelo and Patriciob) Enforce the instrument against Alfonso c) Enforce the instrument against Bartolomed) Answer not given

30. M makes a promissory for P2,000.00 payable to the order of P. P negotiates the note to A, who with the consent of P raises the amount to P20,000.00 and thereafter indorses it to B; then B to C and C to D, who is not a holder in due course. In this case:

a) D can recover P2,000.00 as against M b) P and A are liable to D for P20,000.00c) B and C are not liable to Dd) D can only enforce the instrument against A and P

31. This is not negotiation of a negotiable instrument:a) Assignmentb) Delivery of a bearer instrumentc) Endorsement completed by delivery of an order instrument d) Delivery of an instrument to the payee

32. “I promise to pay bearer, Juan dela Cruz the sum of P20,000.00.” (Signed: Jose Paz). The promissory note is:

a) Negotiable promissory note payable on demand b) Negotiable promissory note payable to order c) Negotiable promissory note payable to bearerd) Non-negotiable

33. Which of the following does not discharge a negotiable instrument?a) Payment in due course by the accommodated party b) Payment in due course by the principal debtorc) Intentional cancellation of the instrument by the holderd) Payment in due course by the accommodation maker

34. Which of the following is an example of a real defense?a) Acquisition of the instrument by forceb) Acquisition of the instrument for illegal considerationc) Fraud in endorsementd) Fraud in factum

35. Which of the following instrument is not negotiable for the reason that the instrument is not payable at a determinable future time?

a) “One week after X passes the CPA Board Examination, I promise to pay to the order of Y P10,000”. (Sgd.) Zb) “Thirty days after demand, Drawer Z directs Drawee X to pay Y or order P10,000”. (Sgd.) Zc) “Ten days after the death of X, I promise to pay to the order of Y P10,000”. (Sgd.) Zd) “On or before October 31, 1993, I promise to pay Y or his order P10,000”. (Sgd.) Z

36. In the renunciation of holder of his rights against any party to the instrument, which of the following statements is false?

a) If the instrument is delivered to the person primarily liable without collecting, it constitutes oral renunciation.b) If renunciation is made in favor of any party secondarily liable, all parties subsequent to him are discharged from liability.c) Renunciation will not affect the rights of a holder in due course without notice. d) If the renunciation is made in favor of the party primarily liable, it must be made before, at or after maturity date.

37. The following are the instances when a drawee bank may refuse to pay checks drawn against it, except one:

a) If there is a “stop payment” issued by the drawer.b) When the bank receives notice of the drawer’s death.

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c) If the drawer’s deposit is insufficient.d) If the drawer is insolvent.

38. The following are functions of a negotiable instrument. Choose the exception.a) It increases purchasing power in circulation.b) It is a legal tenderc) It is a substitute for moneyd) It increases credit circulation.

39. A check drawn by the bank upon itself and payable to a third person: a) Certified check c) Traveller’s checkb) Manager’s check d) Crossed check

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

a) C acquires the right to have the endorsement of B.b) The bill is merely assigned and not negotiated.c) C becomes a holder of the bill delivered to him d) The transfer vests in C such title as B had thereon.

41. A issued a negotiable promissory note to the order of B for P10,000 payable 30 days after date. Later B endorsed it to C. Then X stole the note from C, forged the signature of C and negotiated it to D, and D to E, E to F, the holder. On maturity of the note, which of the following statements is not correct and invalid?

a) F can collect from either D or E, because their signatures are genuine and the note is operative against them.b) F can collect from A because A cannot put up forgery as his defense. c) F cannot collect from C because it was C’s signature which was forged.d) F cannot collect from B because B is a party prior to the forgery.

42. An instrument is indorsed as follows: “PAY TO A, FOR B” (Sgd.) C. Then A indorsed the instrument “PAY TO D” (Sgd.) A, in payment of A’s personal loan to D, the instrument was accepted by D as indorsed by A. Is D acting in good faith when he accepted the instrument as indorsed?

a) Yes, because D is a holder in due course.b) No because D knew by prior indorsement that A is merely a trustee for B and has no right to negotiate the instrument.c) Yes because D acquired the instrument for value.d) No, because D did not get the consent of B.

43. X obtains the signature of Y for autograph purpose. X writes a negotiable promissory note above Y’s signature. The note was validly negotiated to Z who is a holder in due course. What kind of defense can Y avail against Z?

a) Personal defense c) Equitable defenseb) Real defense d) Qualified defense

44. Which of the following is not a personal defense?a) Absence of considerationb) Forgery of a signaturec) Non-delivery of a complete instrumentd) Failure of consideration

45. A issued a promissory note to the order of B for P10,000 payable on September 30, 2010 in payment of a TV set sold by B to him. B failed to deliver the TV set to A and instead transferred the note to C for value but without indorsement. Which of the effects of the transactions listed below is valid?

a) C is deemed a holder in due course when B transferred the note to him.b) C acquired the promissory note through negotiationc) C has no right to compel B to make the proper indorsement to him.d) C cannot collect from A because of A’s defense of lack of consideration.

46. Manuel makes a promissory note for P3,000 payable to the order of Pedro. Pedro negotiates the note to Antonio who with the consent of Pedro raises the amount to P30,000 and thereafter endorses it to Boy, Boy to Cris, and Cris to Doy, who is a holder in due course. In this case:

a) Doy can recover P30,000 as against Manuel.b) Doy can recover P3,000 from Manuel.c) Pedro and Antonio are liable to Doy for P3,000.d) Boy and Cris are not liable to Doy.

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47. Atoy issued a bearer note to Boy. The note is negotiated by delivery by Boy to Cris, by Cris to Doc, by Doc to Ely, by Ely to Fe, the holder. When presented for payment, Atoy refused to pay. Fe can hold liable:

a) Cris b) Doc c) Ely d) All of them48. “I promise to pay to the order of X P10,000 30 days after date” (Sgd.) Y,

(The note is not dated) “Pay to the order of X P10,000 30 days after sight” to Y (Sgd.) Z,

(The bill is dated 10/08/10)1st Rule: The maturity date of the above promissory note will be counted

30 days from the date of the instrument.2nd Rule: The maturity of the above bill of exchange will be counted 30 days

from the date of the presentment for acceptance.a) Both rules are wrong c) 1st rule correct, 2nd rule wrong b) Both rules are correct d) 1st rule wrong, 2nd rule correct

49. The following, except one, are the requisites of acceptance for honor of a bill:a) The bill must be previously protested for dishonor by non-acceptance or protested for better security.b) The bill is overdue.c) The holder must give his consent.d) The acceptor for honor must be a stranger to the bill.

50. Which of the following is not a real defense?a) Fraud in factum c) Insertion of a wrong dateb) Incomplete and undelivered instrument d) Forgery of a signature

51. A makes a promissory note payable to B or order. B indorses the note to C, then C to D, D to E, and E to F, the holder in whose hands the note is dishonored. F notifies B, C D and E about the dishonor of the note and subsequently indorses it to G. Which is not correct?

a) The notice to C inures to the benefits of D, E and G.b) The notice given by F to B inures to the benefits of C, D, E and G. c) The notice to E inures to the benefit of D.d) The notice to D inures to the benefits of E and G.

52. P appointed A as his agent to buy sugar. Thereafter, A drew a bill of exchange for the price of the sugar in favor of S, the seller with P as the drawee. P accepted the bill. After the acceptance of P, A issued it to S, who negotiated the bill to H, a holder in due course. When the sugar was delivered, P refused to pay the bill on the ground that the sugar was deteriorated. Is P liable?

a) Yes, because by his acceptance, he becomes primarily liable thereon.b) No, there is an absence of consideration.c) No, because there is failure of consideration.d) Yes, even if the consideration failed, because H is a holder in due course.

53. Which of the following is not a secondary party?a) Acceptor for honor c) Draweeb) Drawer d) Endorser

54. “I promise to pay to the order of B P10,000 30 days after date”. (Sgd.) A. Which of the following indorsements of the above promissory note is not valid?

a) “Pay to C and D”. (Sgd.) Bb) “Pay to C P5,000, balance of this note”. (Sgd.) B c) “Pay to C P5,000 to D P5,000”. (Sgd.) Bd) “Pay to C and D, partners” (Sgd.) B

55. “PAY TO MARIA IN TRUST FOR JESUS” (Sgd.) Jose is an example of:a) Conditional endorsement c) Facultative endorsementb) Qualified endorsement d) Restrictive endorsement

56. The holder is required to give notice of dishonor to the drawer to make him liable on the instrument in one of the following cases:

a) Where the drawer is the person to whom the instrument is presented for payment.b) Where the drawer and the drawee are the same personsc) Where the drawer has countermanded paymentd) Where the instrument was made or accepted for his accommodation

57. When is a negotiable instrument not discharged?a) When the holder thereof intentionally cancelled the instrument b) When the principal debtor becomes the holder of the instrument before, at or

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after maturity in his own rightc) When it is paid in due course by the principal debtord) When it is paid in due course by the accommodated party

58. When an endorser waives presentment and notice of dishonor, he increases hisliability. His endorsement is:

a) Alternative endorsement c) Facultative endorsementb) Qualified endorsement d) Restrictive endorsement

59. A makes a promissory note to B as follows: “I promise to pay B or bearer P10,000 – on demand”. (Sgd.) A. After issue to B, B negotiates it to C by mere delivery, C to D by mere delivery, and D to E by special endorsement, E to F also by special endorsement, and F negotiates it to G by blank endorsement. G as holder strikes out the special endorsement of D, E and F. What are the effects of striking out the said endorsement?

Effect 1: D and E are discharged from liability because their endorsements were stricken out by G, holder, as not necessary to his title.

Effect 2: Subsequent endorser F is also discharged from liability because his right of recourse has been cut off by the discharged of D and E.

a) Effect 1 is wrong, effect 2 is correctb) Both effects are correctc) Both effects are wrongd) Effect 1 is correct, effect 2 is wrong

60. Azcona issued a note to Basco. There was a total failure of consideration. Basco indorsed the note for a consideration to Cruz, who is a holder in due course. Cruz indorsed the note to Diaz, who knew of the failure of consideration. Can Diaz successfully collect from Azcona?

a) No, because Diaz is not a holder in due course. b) No, although Diaz acquired the rights of Cruz, a holder in due course, and he was not a party to the illegality c) No, because Diaz knew of the failure of consideration.d) Yes, because Diaz acquired the note for a consideration from a holder in due course.

61. Which is not correct? The acceptor by accepting a negotiable instrument: a) admits the existence of the payee and his capacity to endorseb) admits the existence of the drawer, the genuineness of his signature and his capacity to draw the instrument c) admits the existence of the endorser, the genuineness of his signature and his authority to indorse the instrument d) admits that he will pay it according to the tenor of his acceptance..

62. 1st Statement: A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon.

2nd Statement: Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability.

a) Only 1st statement is true c) Both statements are not true b) Only 2nd statement is true d) Both statements are true

63. Which of the following is a negotiable bill of exchange?a) Pay to the order of Y the sum of P30,000. (Sgd. C) To A or in his absence, to Bb) Pay to the order of X the sum of P20,000. (Sgd. C) To A or Bc) Pay to the order of X or Y the sum of P40,000. (Sgd. C) To A or Bd) Pay to the order of Y the sum of P50,000. (Sgd. C) To A and BX drew a bill in set consisting of three parts with Y as the drawee. The bill is

payable on demand to the order of P. P received all the three parts and he negotiated parts 1, 2 and 3 to A, B and C, on September 29, 2010, October 3, 2010 and October 8, 2010, respectively. C presented part 3 to Y, who accepted and paid it. Subsequently A and B also presented parts 1and 2 for the acceptance of Y, but Y refused to accept them for he has already accepted and paid part 3 of the bill in set. (Items 64 & 65) 64. Is the refusal of Y to accept parts 1 and 2 valid?

a) No, because he is the drawee of the billb) Yes, because A and B have better rights than Cc) No, because that is his right as the draweed) Yes, because the bill in set constitutes but one bill

65. What are the rights available to A and B for the protection of their interests?a) They can sue Y for the payment of the instrumentb) They can demand payment from the drawee

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c) They can demand payment from the drawerd) They can demand payment from P

66. It is the transfer of a negotiable instrument from one person to another made in such a manner as to constitute the transferee the holder thereof.

a) Indorsement c) Negotiationb) Assignment d) Issue

67. P authorized A to negotiate the instrument to B. A indorsed it specially to B and he wrote below his signature the word “Agent”. When the instrument was dishonored, B notified A and demanded payment from him, but A refused to pay alleging that he is not liable therefor because he only acted as agent. Is the refusal of A to pay valid?

a) Yes, because he is just the agent of Pb) No, because the agent and the principal are considered as onec) No, because he did not disclose the name of his principald) Yes, because with the word “Agent”, B knows that A is acting only in a representative capacity

68. It is a certification issued by a notary public attesting to the fact that a particular instrument, after the observance of the necessary proceedings, was not accepted or paid as the case may be.

a) Notice of Dishonor c) Protest b) Protest for Better Security d) Acceptance Supra Protest

69. X - A holder in due course is always a holder for value. Y - A holder for value is also a holder in due course.

a) Only X is true c) Both are trueb) Only Y is true d) Both are false

70. Which of the following is not true about a conditional indorsement?a) the principal debtor may pay the instrument before the fulfillment of the conditionb) the holder holds the instrument or its proceeds subject to the conditionc) once the instrument is conditionally indorsed, it is no longer negotiable d) the principal debtor may pay only after the fulfillment of the condition

71. Notice of dishonor differs from protest in the sense that the notice of dishonor:a) is required only in case of foreign billsb) may be done orally or in writing c) must be made on the day of the dishonord) must be made at the place where it was dishonored

72. Which of the following requisites does apply to an acceptance for honor?a) It requires the holder’s consentb) This can be made only by a stranger to the billc) There can only be one acceptance for honord) It must be made before the bill is overdue

73. A - A bill of exchange drawn in the Philippines is always an inland bill. B - A bill of exchange drawn abroad is always a foreign bill.

a) A is true; B is false c) Both are falseb) A is false; B is true d) Both are true

74. When the drawee has accepted the bill, but he became insolvent before the maturity thereof, the holder may cause the preparation of :

a) Protest c) Acceptance Supra Protestb) Notice of Dishonor d) Protest for Better Security

75. Which of the following is not a similarity between acceptor of a bill and maker of a note?a) Both are parties to the instrumentb) Both are primarily liable on the instrumentc) Both engages to pay the instrument according to its tenord) Both admits the existence of the payee and his then capacity to endorse

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PART II

A.1. What conditions must concur in order to qualify a person as a holder in due course?

2. What are the requisites for the negotiability of an instrument? 3. When must a bill of exchange be presented for acceptance in order to charge the

drawer and indorsers?4 .Who are secondarily liable on a negotiable instrument?

B.1. On October 1, 2010, M issued a promissory note payable to the order of P ten days

after date. The note, however, has no date. P indorsed the note specially to A, who also indorsed it specially to B. When B purchased construction materials from C, he wrote September 27, 2010 as the date of the promissory note, before delivering it to C. On October 5, 2010, C delivered the note to H as payment for the services rendered by the latter. When H presented the note to M for payment on October 7, 2010, M refused to pay on the ground that his obligation to pay is not yet due.

a) When is the supposed maturity of the promissory note?b) Is the contention of M in his refusal to pay correct?c) Can H validly compel M to pay assuming that he has no knowledge of the insertion of

the wrong date?

2. A bill payable to the order of P ten days after sight bears the signature of D with X as thedrawee. After several negotiations, it reached the hand of H. H presented it for acceptance on October 2, 2010 and X accepted the bill. When X told D about the said bill on October 7, 2010, D informed X that he had not issued any bill to P and he is very sure that his signature thereon was forged. When H returned to X on October 12, 2010 for the payment of the bill, X refused to pay on the ground that D’s signature thereon had been forged. It turned out that W drew the said bill by forging D’s signature.

a) Against whom can H validly demand payment of the bill which was dishonored by non-payment?

b) Can H validly compel D to pay after sending notice of dishonor to him?c) Is the refusal of X to pay the instrument valid?

3. “I promise to pay P or order P10,000.00 on October 11, 2010 at BPI, Legarda Branch. (Sgd. M)”. This note is now in the possession of H as the holder.a) To whom should H present it for payment?b) When and at what time should H present it for payment?c) What will be the legal effect if H will fail to present it for payment, as required by

law, without justifiable reason?

4. A check amounting to P50,000.00 drawn against PNB, Cubao Branch bears the signature of D. H, the holder, deposited the check in his bank account at BPI, Quiapo Branch. When it was presented by BPI to PNB for clearing, PNB honored the check so BPI credited the amount to the account of X and BPI collected P50,000.00 from PNB. PNB, on the other hand, debited the amount from the account of D. Then X closed his account at BPI and disappeared. When the check was returned by PNB to D, D informed the drawee bank that his signature in the check had been forged and he demanded for the return of the amount deducted from his account. PNB demanded from BPI for the reimbursement of the amount collected by the latter.

a) Is the demand of D for the return of P50,000.00 to his bank account valid?b) Is the demand of PNB from BPI for the reimbursement of P50,000.00 valid?

5. P, together with H, requested M to sign a promissory note for the amount of P100,000.00 payable to the order of P sixty (60) after date. He told M that he will use the note for obtaining a loan of P100,000.00 from A. M agreed to sign the promissory note provided P will pay him 1% of its amount as a consideration for the use of his name. P paid M P1,000.00 and M signed the promissory note, which P issued to A. A negotiated it to B, who negotiated it to H.

a) Is M an accommodation maker in this case?b) Can H validly demand payment from M although he has knowledge of the nature of

the transaction between M and P?

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NUMBER OF ITEMS PER EXAMINATION

May, 1985 15 Multiple Choice and 2 Problems

November, 1985 15 Multiple Choice and 2 Problems

October, 1986 23 Multiple Choice

May, 1987 20 Multiple Choice and 15 True or False

October, 1987 15 Multiple Choice

May, 1988 25 Multiple Choice

October, 1988 25 Multiple choice

May, 1989 25 Multiple choice

October, 1989 25 Multiple choice

May, 1990 25 Multiple choice

October, 1990 25 Multiple choice

May, 1991 30 Multiple choice

October, 1991 25 Multiple choice

May, 1992 20 Multiple choice

October, 1992 20 Multiple Choice and 1 Problem

May, 1994 25 Multiple choice

October, 1994 25 Multiple Choice

May, 1995 28 Multiple Choice

October, 1995 25 Multiple Choice

October, 1996 24 Multiple choice

May, 1997 35 Multiple choice

October, 1997 33 Multiple choice

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