PROFESSIONAL REVIEW AND TRAINING CENTER INC.

2044 C. M. Recto Avenue, Manila

Tele/Fax No. 733-9344

CPA REVIEW

FINAL PRE-BOARD April 29, 2006

Business Law 9:45 am- 12:45 pm

GENERAL DIRECTIONS: Select the best answer for each of the following questions: Mark only
one answer for each item by writing a vertical line on the letter of your choice on the answer
sheet provided. STRICTLY NO ERASURES ALLOWED. Use PENCIL NO. 2

1
. G is a golfer who before driving his golf ball into the fairway shouted the traditional warning
of FORE. Unfortunately, C, a caddy was hit in the head by the ball and suffered damages
in the amount of P150,000
a. G can be sued criminally for physical injuries;
b. G can only be sued civilly for the damages of P150,000;
c. G can be sued both civilly and criminally;
d. G is not liable for the damages of P150,000 nor can he be criminally liable because he is
not guilty of negligence having shouted the warning FORE.
d
2
. A customer in a restaurant orders food from the owner among which is a large plate of
oysters. Said oysters were delivered to the customer but before he could pay for them two
quality pearls were discovered embedded among the oysters. Who will be entitled to the
pearls?
a. The restaurant owner because the customer has not paid for oysters yet.
b. The restaurant owner provided the customer has not yet seen the pearls.
c. The customer provided he has already paid for the bill.
d. The customer even before payment of the bill upon the delivery of the oyster to him.
d
3
. A director of a corporation enters into a contract with the corporation in which he is a
director. Such contract is generally-
a. Valid
b. Voidable
c. Rescissible
d. Void
a
4
. To which of these modes of special payment is the law of sales applicable?
a. Dacion en pago
b. Cession en pago
c. Tender of payment and consignation
d. Application of payment
a
5
. 1st Statement- In all cases of extra-judicial foreclosure, the right of legal redemption can be
exercised by the mortgagor within one year from and after the registration of the sale.

2nd Statement- In judicial foreclosure, the mortgager may still exercise his equity of
redemption after the confirmation of the sale by the court (CPA, Oct. 1997)
a. Both statements are wrong
b. 1st statement correct, 2nd statement wrong
c. Both statements are correct
d. 1st statement wrong, 2nd statement correct
b
6
. When the preferred shares are issued by a corporation with a fixed annual interest in the
face thereof, the effect is- (CPA, Oct. 1992)
a. The contract of subscription between the corporation and stockholders subsists.
b. The stockholder becomes a creditor of the corporation.
c. The shares of stock become negotiable instruments
d. The stockholder is a plain investors who may benefit or suffer with the financial success
or failure of the corporation.
b
7
. A thing is not deemed lost when it (CPA, May 1998)
a. Perishes;
b. Disappears in such a way its existence is unknown or it cannot be recovered
c. Goes out of commerce;
d. Deteriorates.
d
8
. The following are instances of pledge created by operation of law, except: (CPA, May 1998)
a. Hotel keeper retains the things brought into the hotel by the guest who cannot pay his
hotel bills.
b. An agent retains in pledge the thing which is the object of the agency.
c. A mechanic retains the car he repaired until he is paid.
d. A depositary retains in pledge the thing until full payment of what is due him.
b
9
. A makes a note payable to B or order. The following are the indorsers of the note in the
order of their indorsements: B, C, D. E, F (holder) and G (subsequent holder). The note is
dishonored in the handle of F who notifies B, C, D and E. Which is not correct? (CPA, Oct.
1997)
a. The notice given by F to B operates to the benefit of C, D, E & G.
b. The notice to C insures to the benefit of D, E and G.
c. The notice to C insures to the benefit of B.
d. The notice to D insures to the benefit of E and G.
c
10
. Which of the following is not a real defense? (CPA, Oct. 1996)
a. Fraud in factum
b. Incomplete and undelivered instrument
c. Insertion of wrong date
d. Forgery of a signature
c
11
. D borrowed from C P5,000,000. On maturity date when D was not able to pay, C filed a
complaint for collection against the former who formally answered the same: While the case
was pending, C assigned the credit against D in favor of T for P3,000,000 on December 15,
2005. The judicial costs amount to P80,000. If D on April 15, 2006 would like to extinguish
his obligation to T he should pay
a. P5,000,000
b. P5,000,000 plus P80,000 plus interest from December 15, 2005
c. P3,000,000
d. P3,000,000 plus P80,000 plus interest from December 15, 2005
d
12
. Statement 1- S sold to B a car valued at P600,000 in consideration of P200,000 cash and a
diamond ring worth P400,000. The transaction between S and B is barter.

Statement 2- S conveyed to B the ownership of a car in consideration of P300,000 in cash

and a diamond ring valued at P380,000. The transaction between S and B is a sale.
a. Both statements are true.
b. Both statements are false.
c. Statement 1 is true but statement 2 is false.
d. Statement 1 is false, but statement 2 is true.
d
13
. This kind of agent merely makes the principal and the third person meet and when they
arrive at an agreement or contract become entitled to his commission.
a. Broker
b. Factor
c. Commission agent
d. Attorney at law
a
14
. P appointed A his agent for the purpose of selling his car for P600,000 with a 10%
commission. A was able to sell the car to T for P800,000. How much should A deliver to P?
a. P600,000
b. P540,000 or minus the 10% commission
c. P800,000
d. P720,000 or minus the 10% commission
c
15
. X, Y, and Z are partners in a business with a total capital contribution of P3,000,000. In the
course of business, the partnership became indebted to C in the amount of P4,500,000.
Subsequently, W was admitted as a new partner with a contribution of P1,000,000. Much
later, the partnership became indebted to T in the amount of P4,000,000. The partnership is
 insolvent and the only asset is the original capital of P3,000,000 and the newly contributed
capital of P1,000,000 by W.
a. W is not liable for the obligation of P4,500,000 in favor of C since he was not yet a
partner when it was incurred.
b. W is liable for the obligation of P4,500,000 although contracted before he became a
partner but only up to the extent of his contribution.
c. W is liable for the obligation of P4,500,000 although contracted before he became a
partner up to the extent of his personal property.
d. W is liable for the obligation of P4,500,000 although contracted before he became a
partner but only up to the extent of the contribution of P1,000,000 in so far as C is
concerned. W, however, will be liable to T up to the extent of his personal properties.
d
16
. P orally appoints A his agent for the purpose of selling a house and lot. Accordingly, A sold
the house and lot to T in a public document. The contract of A with T in so far as P is
concerned is
a. Valid
b. Voidable
c. Unenforceable
d. Void
d
17
. P in writing appoints A his agent for the purpose of selling a piece of land. Pursuant thereto,
A orally agreed to sell the land to T. The contract of A and T with respect to P is
a. Valid
b. Voidable
c. Unenforceable
d. Void
c
18
. In which of these cases are the partners including industrial ones liable to third persons
jointly only for the payment of partnership obligations after exhausting all assets and
properties of the partnership?
a. Where the partnership obligations arose out of contract.
b. Where the partnership obligations arose out of quasi-contract.
c. Where the partnership obligations arose out of delict.
d. Where the partnership obligations arose out of quasi-delict.
e. Both a and b
e
19
. S and B agreed on the sale of refrigerator for P60,000 payable on a down payment of
P20,000 and P1,000 monthly installments. B has already paid 10 installments but was not
able to pay the 11th installment. The remedy or remedies of S as an unpaid seller is or are
a. To exact fulfillment only.
b. To cancel the sale only.
c. To foreclose in the chattel mortgage if any was constituted.
d. To choose from among exacting fulfillment, cancellation of the sale or foreclosure of the
chattel mortgage.
a
20
. Which is not a requisite common to both pledge and mortgage?
a. That the pledge or mortgage be constituted to secure the fulfillment of a principal
obligation.
b. That the pledgor or mortgagor be the principal debtor.
c. That the pledgor or mortgagor has the free disposal of their properties.
d. That the things in which the pledge or mortgage consists may be alienated for the
payment of the debt or debts.
e. None of the above.
b
21
. 1st statement- No dividends can be declared out of appraisal surplus as this could amount
to declaration of dividend out of capital.

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. Which of the following is correct?
(CPA Oct. 1994)
a. 1st statement is false but 2nd statement is true.
b. Both statements are false.
c. 1st statement is true, but 2nd statement is false.
d. Both statements are true.
c
22
. The following are functions of a negotiable instrument. Choose the exception (CPA, Oct.
1994)
 a. It increases purchasing power in circulation.
b. As a legal tender.
c. As substitute for money.
d. It increases credit circulation.
b
23
. The following are all modes of discharging negotiable instrumentschoose the exception
a. Payment in due course by or on behalf of the principal debtor.
b. Payment by or on behalf of the accommodation party at or after maturity.
c. By the intentional cancellation of the instrument.
d. By any act which discharges a simple contract for the payment of money.
e. None of the above.
b
24
. Which of these is not a defense against the imposition of a surtax on unreasonable
accumulation of retained earnings of a corporation?
a. That the unreasonable accumulation is due to an unexpected windfall in profits.
b. That the retained earnings are to answer for expansion projects already approved in
Board of Directors resolutions.
c. That the corporation has an agreement with financial institutions to which it owes money
that dividends will not be declared without their consent.
d. That the retained earnings are intended to answer for certain contingencies.
a
25
. D is indebted to C in the amount of P10,000,000 payable on December 15, 2008. C makes
an assignment of credit in favor of T. In this assignment of credit, C warrants to T
a. The legality of the credit
b. The existence of the credit
c. The solvency of D
d. Both a and b
e. All of a, b and c
d
26
. This type of bonds has detachable portions usually representing payment for interest
a. Mortgage bond
b. Coupon bond
c. Guaranteed bond
d. Debenture bond
b
27
. In a situation where the warranty in case eviction applies, the evicted buyer is entitled to
recover the following as damageschoose the exception.
a. Return of the price of the sale
b. Income or fruits if the buyer was made to pay
c. Cost of the litigation
d. Expenses of the contract if it was the buyer who paid for the same
e. Damages if any
a
28
. P appointed A his commission agent for the purpose of selling textbooks for P200 per book.
A sold to T 1,000 textbooks for P250 per book but on installment. Which is a correct
statement?
a. P is bound to agree to the sale on credit or installment.
b. P can regard the sale as one for cash and require A to pay P250 per textbook.
c. P can regard the sale as one for cash but should be entitled only to P200 per textbook.
d. Correct answer not indicated.
c
29
. S sold to B a 1,000 sq. meter real property for the unit price of P10,000 per sq. meter. On a
resurvey, it was found out that the property contains only 950 sq. meters. What is remedy
provided by law for B?
a. B can only ask for the rescission of the contract known as accion redhibitoria.
b. B can only ask for proportionate reduction of the price known in law as accion quanti
minoris.
c. B can choose to file either an accion redhibitoria or an accion quanti minoris.
d. Since the contract is null and void, B can ask the court to declare the contract of sale a
nullity
b
30
.S and B agreed in writing for the sale of a house and lot for P10,000, with a right to
repurchase but without specifying the period of repurchase. Under the law, S can
repurchase the house and lot
a. Within one year
b. Within two years
c. Within four years
d. Within ten years
c
31
. S sold his house and lot to B on January 5, 2001, but the latter did not register nor possess
the same. On February 14, 2001, S sold the same house and lot to B1, who took
possession but did not register the transaction with the Register of Deeds. Then S sold
again the house and lot to B2 in April 28, 2001 who recorded the sale in good faith with the
Register of Deeds on the same date without knowing of the previous sales to B and B1.
Who among B, B1 and B2 would have a better right to the house and lot?
a. B would have the best right to the house and lot because he has the earliest contract.
b. B1 would have the best right because he took possession when it was sold to him on
February 14, 2001.
c. B2 would have the best right to the house and lot because he bought it in good faith
without knowledge of the previous sales to B and B1 and then recorded his transaction
with the Register of Deeds.
d. To avoid legal trouble, S can cancel all the three contracts of sale and just be liable for
damages to B, B1 and B2.
c
32
. D borrowed from C P200,000 and to secure its payment delivered to the latter a diamond
ring. On the failure of D to pay, C brought the matter to a Notary Public for the sale by
auction of the diamond ring. Which is a correct statement?
a. If the diamond ring is sold for P250,000 the excess of P50,000 naturally goes to D.
b. D, the pledgor-debtor is not allowed by law to participate in the auction sale.
c. If the diamond ring is sold for P180,000 only, the deficiency judgment of P20,000 can be
recovered by C from D.
d. If the diamond is sold for P180,000 only, the deficiency judgment of P20,000 cannot be
recovered by C from D even if there is a stipulation to that effect.
d
33
. In which of these cases is the right of legal redemption not applicable.
a. Where a 90 hectares of land is owned in an undivided manner by A,B, and C and A sells
his 1/3 interest to T.
b. Where rural property one hectare or less owned by A and is bounded by adjoining
owners B, C and D and the same is sold by A to T who has no other land.
c. Where urban property is so small and so situated that it cannot be devoted to any
practical purpose and the property is sold to T who is buying it for some speculative
purpose.
d. Where a 120 hectares of land is owned in common by A, B, C and then B donated his
1/3 interest to T.
d
34
. P appointed A his agent with a generally worded authority stating that he withholds no power
from A and that he has allowed him absolute and unlimited powers. Accordingly, A sold Ps
house and lot to X for P5,000,000; leased to T an apartment unit for 2 years also leased to
W, Ps car for 5 years.
a. All the contracts of A with X, T and W are perfectly valid.
b. All the contracts of A with X, T and W are unenforceable in so far as P is concerned.
c. The contracts with X and T are unenforceable but the contract with W is valid.
d. The contract with W is unenforceable but the contracts with X and T are valid.
c
35
. S delivers to B on sale or return 60 days a TV set for the price of P40,000. Which of these
statements is correct?
a. Because the price of P40,000 has not yet been paid, ownership of the TV set is still with
S.
b. If the TV set is lost while in the possession of B, S shall shoulder the loss in application
of the ruleres perit domino.
c. If the TV set is lost while in the possessions of B, the loss shall be for his account.
d. If the TV set is lost within the 60 day period, the loss shall be for the account of S.

c
ANSWERS
1
.D
2
.D
3
.D
4
.D
5
.D
6
.D
7
.D
8
.D
9
.D
10
.D
11
.D
12
.D
13
.D
14
.D
15
.D
16
.D
17
.D
18
.D
19
.D
20
.D
21
.D
22
.D
23
.D
24
.D
25
.D
26
.D
27
.D
28
.D
29
.D
30
.D
31
.D
32
.D
33
.D
34
.D
35
.D