I. MATCHING TYPE (1 Point Each) - Indicate Your Answers by Writing The Letter Representing The

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I. MATCHING TYPE (1 point each).

Indicate your answers by writing the letter representing the


statement or phrase that best describes, defines or explains the numbered items.
TERMS
1. Pledge 11. Indivisibility
2. Real estate mortgage 12. Antichresis
3. Chattel mortgage 13. Affidavit of good faith
4. Pactum commissorium 14. Pledgor
5. Foreclosure 15. Mortgagor
6. Legal pledge 16. Equitable mortgage
7. Conventional pledge 17. Upset price
8. Equity of redemption 18. Free disposal
9. Right of redemption 19. Pledgee
10. Inseparability 20. Mortgagee
STATEMENTS
A. The party who delivers a movable property to another to secure his debt or
that of another person.
B. The property being given in pledge or mortgage must not be subject to any
claims or encumbrances.
C. The price stipulated by the parties in a mortgage below which the property
shall not be sold in the event of foreclosure.
D. The party who receives a movable property from another to secure the
latter’s debt or that of another.
E. The object of a chattel mortgage.
F. The right of the mortgagor to repurchase with a certain period the property
that was mortgaged after it was sold for the payment of the mortgage debt.
G. The character of a contract of mortgage whereby the property upon which
the mortgage is imposed is subjected to the fulfillment of the obligation for
whose security it was constituted, whoever the possessor of the property
may be.
H. One lacking the formalities of a mortgage but nevertheless shows the
intention of the parties that a certain property shall secure an obligation.
I. A pledge created by the agreement of the parties.

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J. A sworn statement attesting to the fact that the mortgage is made for the
purpose of securing the obligation specified in the conditions thereof, and
for no other purpose, and that the obligation is a just and valid obligation,
and one not entered into for the purpose of fraud.
K. A mortgage constituted upon an immovable to secure an obligation.
L. The stipulation in a contract of pledge or mortgage whereby the creditor
automatically becomes the owner of the property pledged or mortgaged
upon default of the debtor, which stipulation is void.
M. The remedy given to the mortgage by which he subjects the mortgaged
property to the satisfaction of the obligation through the sale of the
mortgaged property at public auction and the application of the proceeds of
the sale to the payment of his claim.
N. A mortgage constituted upon a movable property to secure an obligation.
O. on the property pledged or mortgaged, which lien continues until the
obligation it secures has been fully paid.
P. The party who constitutes a security upon a movable or immovable property
but without delivering the property.
Q. Movable property is delivered by the debtor to the creditor or a third person
by common agreement to secure a principal obligation.
R. The right of the mortgagor to redeem the mortgaged property after his
default in the performance of his obligation but before the property is sold.
S. A pledge created by operation of law.
T. A contract whereby the fruits an immovable belonging to the debtor or a
third person are to be applied to the interest of, and thereafter to, the
principal obligation.
U. The party in whose favor a security is constituted upon a movable or
immovable property but without the delivery of the property to him.
V. None of the foregoing.

II. TRUE OR FALSE (1 point each). Write TRUE if the statement is correct otherwise write FALSE.
1. The thing pledged or mortgaged cannot be sold or alienated before the due date of the obligation it
secures unless the debtor fails to fulfill certain conditions.

2. By indivisibility, it means that a real estate mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be.

3. In pledges, the creditor may not appropriate the thing pledged should the obligation remain unpaid at
maturity date unlike in mortgages where the creditor may lawfully appropriate the thing mortgaged for
non-payment of the obligation by the debtor.

4. A mortagee may appropriate the movable property mortgaged if the same is not sold at two public
auctions in case of foreclosure.

5. A third person who mortagages his property to secure another person’s debt shall be liable as a rule for
the deficiency in case the proceeds of the foreclosure sale are lower than the amount of the debtor’s
obligation.

6. The debtor exercises the right of preemption after the sale of the property.

7. A promise to constitute a pledge or mortgage which is accepted creates a pledge or mortgage between
the promissor and the promissee.

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8. The thing pledged may be delivered to a third person by the agreement of the debtor and the creditor.

9. A co-owner of an immovable property may compel the buyer to accept partial redemption as to his
share therein if the co-owners sold the immovable owned in common jointly to one and the same person
under one and the same contract.

10. Any stipulation in a contract of pledge authorizing the pledge to sell the thing pledged if the debtor
cannot pay is void.

11. A pledge to be binding against third persons must be registered in the Registry of Property.

12. Pledge shall extend to the fruits of the thing pledged unless there is a contrary stipulation.

13. The pledgee may use the thing pledged even without obtaining the consent of the pledgor if the use of
the thing is necessary for its preservation.
14. In legal pledge, the pledgee may recover the deficiency if the proceeds of sale are lower than the
amount of the debtor’s obligation.

15. If the thing given in pledge is in danger of destruction or impairment without the fault of the pledgee,
the pledgee may sell the property in a public sale with the proceeds becoming the new security in place of
the thing originally pledged.

16. A written renunciation by the pledgee of the pledge extinguishes the pledge although the thing
remains in the possession of the pledgee.

17. Third persons who are not parties to the principal obligation cannot give as security in pledge their
property to answer the principal obligation.

18. Third persons who have no knowledge of the existence of a real mortgage are bound if the same is
recorded in the Registry of Property.

19. As a rule, the mortgage in a chattel mortgage may recover the deficiency from the debtor in case the
proceeds of the foreclosure sale are lower than the amount of the debtor’s obligation.

20. The amount of the principal and the interest must be in writing for a contract of antichresis to be
valid.

21. The antichresis creditor may exempt himself from the payment of the taxes and charges upon the
immovable and the expenses for its preservation and repair by compelling the debtor to enter upon the
enjoyment of the property.

22. If the debtor fails to pay his debt in a contract of antichresis, the creditor acquires ownership of the
immovable.

23. In antichresis, the actual market value of the fruits at the time they are applied to the interest and
principal obligation shall be the measure of such application.

24. A stipulation forbidding the mortgagor of an immovable to alienate the same is valid.

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III. MULTIPLE CHOICE (2 points each). Write the letter corresponding to your chosen answer.
1. Real estate mortgage:
A. Has for its object movables as well as immovables.
B. Is perfected the moment the contract is registered with the Registry of Property.
C. Is inseparable because the mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was
constituted.
D. Entitles the mortgagee to the fruits of the thing mortgaged.

2. A thing pledged:
A. Even if stipulated, cannot be appropriated if debt is not paid.
B. Is indivisible even among successors in interest.
C. May guarantee the debts of another person.
D. May secure all kinds of obligation, be they pure or subject to a suspensive or resolutory condition.
3. The following is required in order that a chattel mortgage will bind third persons:
A. The chattel mortgage must be accompanied by an affidavit of good faith and recorded in the Chattel
Mortgage Register.
B. The chattel mortgage must be in a public instrument showing a description of the thing mortgaged and
the date of the chattel mortgage.
C. It is sufficient that the chattel mortgage be in writing, public or private.
D. The thing mortgaged must be delivered to the creditor.

4. The following is required in order that a real mortgage will bind third persons:
A. The real mortgage must be accompanied by an affidavit of good faith and recorded with the Register of
Deeds.
B. The real mortgage must be in a public instrument showing a description of the thing mortgaged and the
date of the real mortgage.
C. It is sufficient that the real mortgage be in writing, public or private.
D. The real mortgage must be recorded in the Registry of Property.

5. Statement No. 1: In real mortgages, deficiency is recoverable, while in pledge, deficiency cannot be
recovered. Statement No. 2 : Chattel mortgages are constituted upon immovables while pledges are
constituted upon movables.
A. Both statements are true.
B. Both statements are false.
C. Only Statement 1 is true.
D. Only Statement 2 is true.

6 Statement No. 1: If the thing pledged is returned to the pledgor, the principal obligation is
extinguished. Statement No. 2: A pledge shall not take effect against third persons if the description of
the thing pledged and the date of the pledge do not appear in a public instrument.
A. Both statements are true.
B. Both statements are false.
C. Only Statement 1 is true.
D. Only Statement 2 is true.

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7. D borrowed P 50,000 from C. The obligation bears interest of 10% per annum. To secure the debt, D
agreed with C that the fruits from the agricultural lot of D shall answer for the interest and the principal
obligation. Assuming the form required by law was complied with, the contract entered into between D
and C for the application of the fruits of the lot to the interest and principal obligation is known as:
A. Antichresis.
B. Pledge.
C. Real estate mortgage.
D. Chattel mortgage.

8. Statement 1: If the thing pledged is alienated by the pledgor, consented by the pledge the ownership
and possession is transmitted to the vendee after alienation.
Statement 2: In sale public auction, the pledgor or owner may bid and shall have a better right if he
should offer the same terms as the highest bidder.
A. Both are true.
B. Both are false.
C. No. 1 is true, No. 2 is false.
D. No. 1 is false, No. 2 is true.

9. 1st item: The creditor, by himself and before the debt becomes due and demandable, may sell the thing
pledged. 2nd item: D borrowed P 10,000 from C, and as a security he pledge his diamond ring. In the
public instrument executed for the purpose, there is no description of the ring, and no date of pledge
appearing. If D will sell the ring to B, B has a better right to the ring over C.
a. Both items are true.
b. Both items are false.
c. 1st item is true while 2nd item is false.
d. 1st item is false while 2nd item is true.

10. 1st statement: The mortgagor of a real property can sell the land despite the agreement with the
mortgagee not sell the same until the principal obligation is completely and fully satisfied.
2nd statement: In pledge, if the sale of the pledged property resulted into an excess, the pledge may not
keep the excess unless there is a stipulation to the contrary.
a. Both statements are true.
b. Both statements are false.
c. Only 1st statement is true.
d. Only 2nd statement is frue.

11. Which of the following statements is true and correct?


a. Pledge and mortgage are accessory contracts because they can not exist by themselves.
b. In both pledge and mortgage the creditor is entitled to deficiency judgment.
c. Where an obligation is secured by a pledge or mortgage and it is not paid when due the pledge or
mortgagee may appropriate the thing pledged or mortgaged if there is an agreement to that effect between
the parties.
d. Unless otherwise agreed upon by the parties, the sale of the mortgaged property extinguished in full
the obligation of the mortgagor to the mortgagee.

12. D pledged his diamond ring and gold watch to C to secure a debt of P 10,000.
a. If D defaults and the ring and watch are sold at public auction, C may recover any deficiency if the
proceeds of sale amount to less than P 10,000.
b. If D defaults, C may automatically appropriate for himself the ring and the watch.
c. If D pays c P 5,000, D may demand either the return of the ring or the watch.
d. If C renounces the pledge in writing, the pledge is extinguished although C continues to possess the
ring and the watch.

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13. Pledge and real mortgage are similar in what respect?


a. The object of the contract.
b. Binding effect against third persons.
c. Recovery of deficiency.
d. The fact that third persons may pledge or mortgage their property to secure another person’s debt.

14. Recording in the Registry of Property in the appropriate book is required for the validity of the
contract of:
a. Chatterl mortgage.
b. Real mortgage.
c. Conventional pledge.
d. Antichresis.

15. This is a stipulation in pledge or mortgage providing that the ownership of the thing given as security
will pass to the pledge or mortgagee upon default of the debtor:
a. Constitutum possessorium
b. Pactum commissorium
c. Legal subrogation
d. Redemption

16. In the sale of the thing pledged at public auction, which of the following statements is incorrect?
a. The sale extinguishes the principal obligation regardless of the amount of the proceeds of sale.
b. The pledgee can appropriate the thing pledged if it is not sold at the first public auction.
c. The creditor has no right to recover deficiency.
d. The debtor is not entitled to the excess of proceeds unless there is an agreement.

17. D contracted the services of T, a tailor, to sew D’s pair of pants with D providing the cloth for the
purpose. The parties agreed that T’s labor shall be P 500. The security that T holds for the payment of the
labor agreed upon is in the nature of:
a. Chattel mortgage.
b. Legal pledge.
c. Conventional pledge.
d. Antichresis.

18. Statement 1: D borrowed P 100,000 from C, and as a security, he pledged his diamond ring. In the
public instrument executed, there is no description of the ring and no date of pledge appearing but the ring
is delivered to C. If D will sell the ring to X, will X have a better title than C?
Yes, because to him (X), the pledge is not valid and effective.
Statement 2: Any stipulation in a contract of pledge, that if the debt is not paid at maturity, the thing
pledge will be acquired by the creditor at the current market price is valid.
a. Both are true.
b. Both are false.
c. No. 1 is true, No. 2 is false.
d. No. 1 is false, No. 2 is true.

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19. S, minor of 16 years, sold her bracelet to B for P 8,000. Later on, B, needing money to pay her
daughter’s tuition fee at ARTS plus some allowance for books and personal needs, borrowed P 15,000
from C, and as a security, pledged the bracelet to the latter. B failed to pay C resulting into the auction
sale of the bracelet in favor of P for P 10,000 only. Which of the following statements is correct?
a. The title of B over the bracelet is not valid, hence the pledge, as well as the sale of said bracelet is
likewise defective. The pledgor must be the owner of the thing pledged.
b. The deficiency of P 5,000 may still be recovered by C from B if there is a stipulation to this effect.
c. C can no longer recover the deficiency of P 5,000 from B. The pledge, together with the sale is valid.
The voidable title of B is valid because it is not yet annulled.
d. If P was a purchaser in bad faith as he knew of the defective title of B over the bracelet from S,
ownership will not pass to him (P).

20. In the preceding number, assuming what was executed by B in favor of C was a valid chattel
mortgage which was eventually foreclosed and the bracelet was sold to P at thepublic auction for the same
amount, which statement is correct?
a. The title of B over the bracelet is not valid, hence the chattel mortgage, as well as the sale of said
bracelet is likewise defective. The mortgagor must be the owner of the thing pledged.
b. The deficiency of P 5,000 may still be recovered by C from B.
c. C can no longer recover the deficiency of P 5,000 from B as the mortgage, together with the
foreclosure sale, was valid. The title of B was still valid.
d. If P was a purchaser in bad faith as he knew of the defective title of B over the bracelet, ownership will
not pass to him (P).

IV. ENUMERATION (2 points each).


The Civil Code of the Philippines is the governing law on agency. Article 1868 of the Civil Code states
that by the contract of agency, a person (agent) binds himself to render some service or to do something in
representation or on behalf of another (principal), with the consent or authority of the latter.

Consequently, the agent must act and is bound according to the instructions of the principal. If there are
goods involved, the principal remains the owner of the goods and retains the right to control the handling
or disposition thereof.

Relative thereto, what then are the eight (8) principal obligations of the agent under the Civil Code?

- End of Examination -

Prepared:

ACCT. JONATHAN B. DE VEYRA, MBA


Dean

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REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS


KEY ANSWERS - MIDTERM EXAMINATION (100 points)
2nd Semester, AY 2019-2020

INSTRUCTIONS: Use a separate yellow pad for all your answers and use ballpoint pen with black or
blue ink only. FRIXION PEN IS NOT ALLOWED. STRICTLY NO ERASURES AND ALTERATIONS.

I. MATCHING TYPE (1 point each). Indicate your answers by writing the letter representing the
statement or phrase that best describes, defines or explains the numbered items.
1. Q
2. K
3. N
4. L
5. M
6. S
7. I
8. R
9. F
10. G
11. O
12. T
13. J
14. A
15. P
16. H
17. C
18. B
19. D
20. U

II. TRUE OR FALSE (1 point each). Write TRUE if the statement is correct otherwise write FALSE.
1. TRUE
2. FALSE
3. FALSE
4. FALSE
5. TRUE
6. TRUE
7. FALSE
8. TRUE
9. FALSE
10. FALSE
11. FALSE
12. TRUE
13. TRUE
14. TRUE
15. TRUE
16. TRUE
17. FALSE
18. TRUE
19. TRUE
20. TRUE
21. TRUE
22. FALSE
23. TRUE
24. FALSE

III. MULTIPLE CHOICE (2 points each). Write the letter corresponding to your chosen answer.
1. C
2. B
3. A
4. D
5. C
6. A
7. A
8. D
9. D
10. C
11. A
12. D
13. D
14. B
15. B
16. B
17. B
18. A
19. C
20. B

IV. ENUMERATION (2 points each).


The Civil Code of the Philippines is the governing law on agency. Article 1868 of the Civil Code states
that by the contract of agency, a person (agent) binds himself to render some service or to do something
in representation or on behalf of another (principal), with the consent or authority of the latter.
Consequently, the agent must act and is bound according to the instructions of the principal. If there are
goods involved, the principal remains the owner of the goods and retains the right to control the
handling or disposition thereof. Relative thereto, what then are the eight (8) principal obligations of the
agent under the Civil Code?

Principal obligations of the agent under the Civil Code:

1. To carry out the agency in accordance with its terms [Article 1884, Civil Code];

2. To answer for the damages which through his non-performance the principal may suffer
[Article 1884, Civil Code];

3. To act in accordance with the instructions of the principal [Article 1887, Civil Code];

4. Not to carry out the agency if its execution would manifestly result in loss or damage to the
principal [Article 1888, Civil Code];

5. To answer for damages should he prefer, in case of conflict, his own interests to those of the
principal [Article 1889, Civil Code];

6. To render an account of his transactions and to deliver to the principal whatever he may have
received by virtue of the agency [Article 1891, Civil Code];

7. To be responsible for the goods received by him, to sell on credit only with the consent of the
principal and to collect with due diligence the credits of the principal [Articles 1903-1908, Civil
Code]; and

8. To answer for his fraud or negligence. [Article 1909, Civil Code]

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