CRC-ACE The Professional CPA Review School

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REGULATORY FRAMEWORK
FOR
BUSINESS TRANSACTIONS

BOOKLET 3
ONLINE REVIEW

TOPICS:

RFBT 0506 – LECTURE - SALES

RFBT 0507 – QUIZZER - SALES
RFBT 0508 – LECTURE - PLEDGE & MORTGAGE
RFBT 0509 - QUIZZER - PLEDGE & MORTGAGE

ATTY. MARY ANN R. SAGANA

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LECTURE AID - SALES

SALE - A contract where one party obligates himself to transfer the ownership of
and to deliver a determinate thing, while the other party obligates himself to
pay for said thing a price certain in money or its equivalent.

Requisites:
a. Consent or meeting of minds - transfer the ownership of and to deliver on the
part of the seller, to pay on the part of the buyer
b. Object or subject matter – determinate or specific
c. Cause or consideration – price certain in money or its equivalent

Elements: Parties:
a. Essential: a. vendor/seller
1. Consent or meeting of minds b. vendee/buyer
2. Determinate subject matter
3. Price certain in money or its equivalent
b. Natural:
1. warranty against eviction
2. warranty against hidden defects
c. Accidental: stipulations of the parties

Kinds of Sale:
a. Absolute – the contract is not subject to any condition and title passes to the
buyer upon delivery of the thing
b. Conditional – the contract contemplates a contingency, usually payment of
the price

Essential Characteristics:
a. Consensual d. Commutative
b. Bilateral/reciprocal e. Principal
c. Onerous f. Nominate

SALE DACION EN PAGO

1. no pre-existing credit 1. there is a pre-existing credit
2. give rise to obligations 2. extinguishes obligations
3. the cause or consideration here is the 3. the cause or consideration here,
price, from the viewpoint of the seller; or from the viewpoint of the person

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the obtaining of the object, from the offering the dation in payment, is
view point of the buyer the extinguishment of his debt; from
the viewpoint of the creditor, it is the
acquisition of the object offered in
lieu of the original credit
4. there is greater freedom in the 4. there is less freedom in the
determination of the price determination of the price
5. the giving of the price may generally 5. the giving of the object in lieu of
end the obligation of the buyer the credit may extinguish
completely or partially the credit
(depending on the agreement)

RELATED CONCEPTS
1. Pactum Reservati Dominii (Contractual Reservation of Title) - A
stipulation stating that despite delivery, the ownership of the thing shall
remain with the seller until the buyer has fully paid the price.
2. Assignment of Credit - a contract by virtue of which one person
transfers to another his rights and actions against a third person in
consideration of a price certain in money or its equivalent.
3. Barter - One of the parties binds himself to give one thing in
consideration of the other's promise to give another thing.
RULES If the consideration is partly in money and partly in another thing:
a. The manifest intention of the parties;
b. If the intention is unclear, it shall be a barter if the value
of the consideration exceeds the amount of the money;
otherwise, it is a sale.

4. Policitacion – An unaccepted unilateral promise to buy or to sell a thing.

5. Option Contract – An accepted unilateral promise to buy or to sell which
is not binding upon the promissory unless supported by a
consideration separate and distinct from the purchase price

EARNEST MONEY OPTION MONEY

1. partial payment of the purchase price 1. not part of the purchase price
2. considered as proof of the perfection of the 2.proof of the perfection of the
sale option contract
3. deductible on the purchase price in case the 3. not deductible
contract of sale is consummated
4. Injured party may file action for specific 4. Specific performance only
performance or rescission

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6. Auction sale (perfection) – When the auctioneer announces end of
bidding by the fall of the hammer, or in any other customary manner.
7. By-bidding or Puffing - persons who have no intention to buy but are
employed by the seller in auction sale to raise the price by fictitious bids.
8. Sale or return – property is sold, but the buyer, who becomes the
owner of the property upon delivery, has the option to return the same to
the seller instead of paying the price
9. Sale on trial, satisfaction or approval – there is delivery to the buyer
but he has an option to purchase if the goods prove satisfactory
therefore ownership shall be reserved to the seller until acceptance by
the buyer
10. Contract for a Piece of Work (Massachusetts Rule) – If the thing is
particularly made/manufactured for a specific person only.

PERSONS INCAPACITATED TO ENTER IN A CONTRACT OF SALE:

a. Minors and other incapacitated persons
b. Husband and wife, except:
1. When separation of property was agreed upon in the marriage
settlement
2. When there has been judicial separation of property
c. Persons who’s position and relation with the owner is fiduciary in nature
1. guardians
2. agents
3. executors and administrators
4. public officers and employees
5. judicial officers and employees
6. lawyers
d. the seller in an auction sale cannot bid unless there has been
reservation of the right
e. unpaid seller cannot buy the goods sold by him in case of resale

REQUISITES BEFORE A THING COULD BE A VALID OBJECT:

a. the thing must be existing or have a future or contingent existence
emptio rei sperati/speratae – sale of future things
emptio spei – sale of hope or expectancy
b. must be licit/legal
c. must be determinate
d. there is a right on the part of the vendor to transfer ownership at the
time of delivery

CERTAINTY AS TO THE PRICE

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a. both the seller and the buyer fixed or agreed upon a definite amount
b. fixed with reference to another thing certain
c. the determination of the price is left to the judgment of a specified third
person
d. if the third person will act in bad faith or by mistake, the court will fix the
price

NOTE: If the price is simulated, the contract is void, unless it can be shown that it is
really a donation or some other contract

OBLIGATIONS OF THE VENDOR:

1. Deliver thing sold (including fruits and accessories)
2. Transfer ownership
3. Warranties
4. Exercise diligence pending delivery
5. Pay for the expenses of the contract, unless there is a stipulation to the
contrary

KINDS OF DELIVERY (traditio)

a. Actual or real – physical transfers of control and possession of the thing
b. Constructive
1. Legal formalities or execution of public instrument
2. Quasi-traditio
3. Traditio simbolica
4. Traditio longa manu
5. Traditio brevi manu
6. Constitutum possesorium

LOSS OF THE OBJECT:

1. Before perfection - seller bear the loss. (res perit domino)
2. At the time of perfection - contract is void or inexistent. Seller bears
the loss.
3. After the perfection but before delivery - buyer bears the loss
(exception to the rule of res perit domino)
4. After delivery - buyer bears the loss.

OBLIGATIONS OF THE VENDEE:

1. Payment of the price
2. Accept the delivery
3. Pay the expenses of the contract (if stipulated)

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GENERAL RULE: In case of sale by a person who is not the owner, the buyer
acquires no title even if in good faith and for value. "Nemo dat qui
non habet" (you cannot give what you do not have).

EXCEPTIONS:
In the following cases the buyer acquires a valid title:
a. The owner is estopped by his conduct
b. Under recording laws
c. Sales sanctioned by judicial or statutory authority
d. Purchases in a merchant's store, fairs or markets.
e. Title of the seller was merely voidable/defective at the time of sale

REMEDIES OF AN UNPAID SELLER:

a. General Remedies:
1. Action for specific performance with damages
2. Action for rescission with damages
b. Special Remedies:
1. Sale of personal property in installment basis [RECTO LAW]
a. Specific performance in case the buyer fails to pay.
b. Rescission of the sale in case of default of 2 or more
installments.
c. Foreclose the chattel mortgage on the thing sold in case of
default of 2 or more installments. In this case, the seller shall have
no further action for deficiency judgment.
NOTE:
• Aside from the above remedies, the seller can also retain the
installments paid provided that the forfeiture was part of the
stipulations of the parties and the same is not unconscionable.
• The remedies are alternative and not cumulative.
• Art. 1484 does not apply in:
1. Sale of real property
2. Mortgage of real property
3. Sale of a personal property on straight terms

2. Sale of goods
Unpaid seller of goods – 1. one who has not been paid or tendered the
whole price
2. one who has received a bill of exchange or
other negotiable instrument as conditional payment
and the condition on which it was received has
been broken by reason of the dishonor of the
instrument.
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a. Lien on goods while in his possession
Requisites:
1. the seller is unpaid
2. the buyer is insolvent
3. the goods are in the possession of the seller
4. the goods have been sold
a. without stipulation as to credit
b. with a stipulation as to credit but the term has expired
NOTE: Possessory lien will be lost:
1. when the goods are delivered to the common carrier or
other bailee without reservation of ownership;
2. when the buyer or his agent lawfully obtains possession
of the goods
3. when there is waiver on the part of the seller
b. Stoppage in transitu (Goods are in transit from the time
they are delivered to the carrier for the purpose of delivery to
the buyer or his agent)
Requisites:
1. the seller is unpaid
2. buyer is insolvent
3. the goods are in transit
4. seller will bear the expenses of delivery of the goods after
the exercise of the right
c. Resale of thing
Requisites:
1. the seller is unpaid
2. the buyer is in default in the payment of the price
3. the goods are perishable in nature
4. the right is expressly reserved
5. the seller can either exercise possessory lien or
stoppage in transitu
d. Rescission of the contract
Requisites:
1. the seller is unpaid
2. the right is expressly reserved
3. the buyer has been in default in the payment of the price for an
unreasonable time
4. the seller can exercise right of lien or stoppage in transit
3. Sale of real estate in installment (R.A. 6552) [MACEDA LAW]
a. Right of specific performance - the seller must observe the
grace period granted to the buyer to pay, without additional
interest, the unpaid installment.
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b. Right of rescission - cancellation can only take place after 30
days from receipt of the notice of cancellation or demand for
rescission by a notarial act.
c. Right on installments - seller can retain not more than 50% of
the installments paid. But if the installments paid were less
than 2 years, the seller can have absolute forfeiture over the
installments paid.

RULES IN CASE OF DOUBLE SALE:

1. Personal Property - to the first possessor in good faith:
2. Real Property - the person who first recorded the sale in the Registry of
Property (Register of Deeds) in good faith.
• if not recorded, to the first possessor in good faith;
• if none of the above, to the person with the oldest title, in
good faith.

Rules in case area/number is greater/lesser than that stated in the contract

1. If area was stated at the rate of a certain price for a unit or number
a. In case of excess the buyer may choose to:
1. pay for the agreed area and refuse the rest
2. accept everything but will pay for the excess
b. In case of deficiency the buyer may choose:
1. proportional reduction of the price
2. cancellation of the contract if deficiency is at least 10% of
that stated
2. If the sale was made for a lump sum: no decrease or increase in the
price

WARRANTY
- A statement or representation made by the seller of goods,
contemporaneously and as a part of the contract of sale, having reference to
the character, 1 quality or title of the goods, and by which he promises or
undertakes to insure that certain facts are or shall be as he then represents.
Kinds of warranty:
1. Express
2. Implied

Kinds of Implied Warranties:

1. Warranty against eviction
Elements:
a. Vendee is deprived of the thing purchased;
b. The deprivation is by virtue of a final judgment;
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c. The judgment is base on a prior right to the sale or an act
imputable to the vendor;
d. The vendor was summoned in the suit for eviction at the instance
of the vendee;
e. No waiver of warranty by the vendee.

Remedies of the Vendee:

1. Total eviction - the vendee can demand the following:
a. Value of the thing at the time of eviction;
b. Income or fruits if he has been ordered to deliver them to the
party who won the suit;
c. Costs of the suit;
d. Expenses of the contract;
e. Damages and interest if the sale was in bad faith.

2. Partial eviction
a. The vendee can rescind the contract;
b. The vendee can demand the following;
1. Value of the thing at the time of eviction;
2. Income or fruits if he has been ordered to deliver them to
the party who won the suit;
3. Costs of the suit;
4. Expenses of the contract;
5. Damages and interest if the sale was in bad faith.
Waiver of eviction:
1. Consciente - waiver without knowledge of the risk of eviction
2. Intencionada - waiver with knowledge of the risks of eviction coupled
with an assumption of its consequences

2. Warranty against hidden defects

Elements:
a. defect must be serious or important;
b. it must be hidden;
c. it must exist at the time of the sale;
d. vendee must give notice of the defect to the vendor within a
reasonable time;
e. no prescription yet (6 months from delivery of thing or 40 days in case
of animals)
f. no waiver of warranty

Remedies of the Vendee:

a. Accion redhibitoria (rescission)
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b. Accion quanti minoris (reduction of the price)

Redhibition: the avoidance of a sale on account of some vice or defect in the

thing sold

3. Warranty as to Fitness or Merchantability

- goods are reasonably fit for the purpose for which they are sold.

EXTINGUISHMENT OF SALE
1. Same causes as all other obligations
2. Conventional Redemption - The vendor reserved the right to reacquire
the property sold.

When to exercise the right of redemption:

1. if there is no agreement to redeem --- there is no right to
redeem (sale is absolute)
2. if there is an agreement to redeem ---
a. but no express stipulation as to time ---- 4 years form date
of contract
b. period was fixed or intended --- not to exceed 10 years
NOTE: period of redemption may be extended ONLY
before its expiration but the extension plus the original term
should not exceed 10 years
HOWEVER, the vendor may still exercise the right to repurchase
within 30 days from the time the final judgment was rendered in a
civil action on the basis that the contract was a true sale with right of
repurchase.

3. Legal Redemption - the right to be subrogated, upon the same terms

and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or donation in payment, or by any
other transaction whereby ownership is transferred by onerous title.

Conventional redemption is considered to be an equitable mortgage in any of

the following:
1. Price of sale is unusually inadequate;
2. Vendor remains in possession;
3. Period of redemption is extended after expiration;
4. Purchaser retains part of the purchase price;
5. Vendor binds himself to pay the taxes of the thing sold;

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6. Other cases where the parties really intended that the transaction shall
secure the payment of a debt or the performance of any obligation.

Vendor should pay the following in case of redemption:

1. Price of the sale
2. Expenses of the contract
3. necessary and useful expenses made upon the thing sold

INSTANCES OF REDEMPTION:
1. Under the Civil Code (legal redemption)
a. Sale of co-owner by his share to a stranger
b. When a credit or other incorporeal right in litigation is sold
c. Sale of an heir of his hereditary rights to a stranger
d. Sale of adjacent rural lands not exceeding 1 hectare
e. Sale of small urban lands bought merely for speculation.
2. Under special laws
a. An equity of redemption in case of judicial foreclosures;
b. A right of redemption in cases of extra-judicial foreclosures.

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QUIZZER – LAW ON SALES

For numbers 1 to 15, determine if:

A. valid C. unenforceable
B. voidable D. void or inexistent

1. An oral contract of sale involving an immovable property -

2. Sale of young of animal not yet born at the time of perfection –
3. Sale of hope or expectancy -
4. Sale of a land written in Ilocano dialect -
5. An oral contract of sale involving a study table sold for Php500 -
6. Sale of illegal drugs in a public instrument -
7. Sale of a land in a public instrument by an agent who was authorized
by the real owner orally. -
8. Sale of hope -
9. Sale of future goods –
10. Sale of a piece of bread to a minor -
11. Sale between two insane persons -
12. Sale of credit -
13. Sale of future inheritance -
14. Sale of a fake lottery ticket -
15. Sale between husband and wife -

For numbers 16 to 38, determine if:

A. Both statements are false.
B. First statement is true, second statement is false.
C. First statement is false, second statement is true.
D. Both statements are true.

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16. 1st - Where the goods are delivered to the buyer "on sale or return", the
buyer becomes the owner of the goods.
2nd - Generally possession in good faith of an immovable property is
equivalent to ownership.
ANSWER –

17. 1st - Sales through letters or telegrams are deemed perfected only
when acceptance by the buyer has been received by the seller.
2nd - If the price is uncertain, the sale is unenforceable
ANSWER –

18. 1st- If the consideration of the contract consists partly in money and
partly in another thing, it shall be considered a barter if the value of the
thing given as a part of the consideration exceeds the amount of the
money or its equivalent
2nd - Agents cannot acquire by purchase, even at a public auction,
either in person or thru the mediation of another, the property whose
administration or sale may have been entrusted to them, although the
consent of the principal has been given
ANSWER -

19. 1st - Whenever option money is given in a contract of sale, it shall be

considered as part of the price and as proof of perfection of the
contract.
2nd - Assignment of credit is governed by the law on sales.
ANSWER -

20. 1st - Sale of future inheritance is valid as future things may be the
object of the contract.
2nd - A contract to sell, even if accepted by the buyer is not an absolute
sale.
ANSWER -

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21. 1st - The fixing of the price in a sale is at the option of the seller.
2nd - In case of double sale of movable property, the ownership shall
belong to the person acquiring it who in good faith first recorded it in
the Registry of Property
ANSWER -

22. 1st - Sale, as a general rule, is an aleatory contract

2nd - Gross inadequacy in the price renders a sale void
ANSWER -

23. 1st - In a contract for a piece of work, the goods are manufactured for a
specific person
2nd - Warranty against eviction and hidden defects are stipulations in
the contract of sale.
ANSWER -

24. 1st - Sale is a bilateral, onerous and preparatory contract.

2nd - The assignment of credit includes all accessory rights such as a
guaranty, mortgage, pledge or preference.
ANSWER -

25. 1st - The buyer is not obligated to accept partial delivery of the thing
sold, unless there is a stipulation to the contrary.
2nd - The seller having voidable title to the thing sold can validly transfer
title to his buyer, provided his title has not been avoided at the time of
the sale.
ANSWER -

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26. 1st - In the consummation of the contract of sale, the earnest money
given by the buyer to the seller will be deducted from the purchase
price.
2nd - The vendor need not be the owner of the thing sold at the time the
sale is perfected.
ANSWER -

27. 1st - The parties can stipulate that ownership in the thing shall not pass
to the purchaser until he has fully paid the price.
2nd–As a rule, ownership is transferred to the buyer upon delivery
ANSWER -

28. 1st - The vendor is bound to deliver the thing sold excluding all
accessions and accessories.
2nd - Like option money, an earnest money is evidence of a perfected
contract of sale.
ANSWER -

29. 1st - All rights not made intransmissible by law or stipulation may be the
object of sale.
2nd - Things to be a valid object of a contract of sale must always be in
existence at the time of conception of a contract.
ANSWER -

30. 1st - A stipulation exempting the seller from the obligation to answer for
eviction is valid.
2nd - The expenses for the execution of the sale shall be borne by the
vendor unless there is an agreement to the contrary.
ANSWER –

31. 1st - Things subject to a resolutory condition may not be the object of a
contract of sale.

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2nd - The vendor is liable for hidden defects although nothing has been
said in the contract.
ANSWER -

32. 1st - A contract of sale is perfected from the moment of meeting of the
minds.
2nd - As a general rule in a contract to sell, ownership passes to the
buyer upon actual or constructive delivery.
ANSWER -

33. 1st - Dation enpago is governed by the law on sales.

2nd - The vendor must be the owner of the thing sold or authorized by
the real owner at the time of perfection of the contract of sale.
ANSWER -

34. 1st- If the thing subject matter of the contract of sale is not specific at
the time of the perfection of the contract, the same shall be void unless
the thing can be made specific at the time of delivery without the need
for any other agreement between the parties.
2nd - In a contract of sale on trial, approval or satisfaction, ownership
shall not pass to the buyer despite delivery of the goods.
ANSWER -

35. 1st - Ownership shall not pass to the purchaser until he has fully paid
the price
2nd - In order that a contract of sale may be valid, the same should
always be in writing.
ANSWER -

36. 1st - A stipulation that even when the object is delivered to the buyer,
ownership will not pass until the price is fully paid is void.

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2nd - A sale is perfected upon delivery of the thing and the payment of
the purchase price.
ANSWER -

37. 1st - A guardian cannot purchase the property of the ward unless
consent of ward is given
2nd– The husband can never sell his property to his wife.
ANSWER -

38. 1st–Persons who are guilty of the same offense cannot sell property to
each other.
2nd - Actual delivery of the thing or payment of the price is not required
for the perfection of the sale.
ANSWER -

MULITPLE CHOICE

39. Under this rule if the cost of materials is more valuable than the cost of
labor in creating the object of the contract; the contract is sale:
A. New York rule C. English rule
B. Massachusetts rule D. London rule

40. The sale of an expected thing.

A. emptio rei sperati C. mora accipiendi
B. caveat emptor D. emptiospei

41. Under this rule if the object of the contract is specially made for a
specific person; the contract is for a piece of work:
A. New York rule C. English rule
B. Massachusetts rule D. London rule

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42. The party entitled to the fruits of the thing sold from the perfection of
the contract:
A. Obligor C. Vendee
B. Bailor D. Seller

43. Under this rule if the object of the contract did not exist at the time of
perfection, although it is generally offered to the general market; the
contract is for a piece of work:
A. New York rule C. English rule
B. Massachusetts rule D. London rule

44. A contract or receipt for the transport of goods and their delivery to the
person named therein to order or to bearer
A. letter of credit C. dock warrant
B. warehouse receipt D. bill of lading

45. Voluntary renunciation made by the buyer of his right to warranty

against eviction, where in case the buyer is evicted, the seller is liable
to the value of the thing at the time of eviction:
A. waiver intencionada C. accionredhibitoria
B. waiver consciente D. accionquantiminoris

46. The action of the vendee against the vendor seeking corresponding
reduction of the price by reason of some vices in the thing sold.
A. waiver intencionada C. accionredhibitoria
B. waiver consciente D. accionquantiminoris

47. Constructive delivery by mere pointing the things sold

A. traditio longa manu C. traditiosimbolica
B. tradition thru legal formalities D. traditiobrevimanu

48. The process of taking away private property for public purposes upon
payment of just compensation:
A. Power of taxation C. Expropriation
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B. Police power D. Power of eminent domain

49. Constructive delivery by execution of public instrument:

A. traditio longa manu C. traditiosimbolica
B. tradition thru legal formalities D. traditiobrevimanu

50. The state's right to take away private property for public purposes upon
payment of just compensation, which is governed by special law:
A. Power of taxation C. Expropriation
B. Police power D. Power of eminent domain

51. Effected when the object of sale is already in the possession of the
vendee at the same time of sale so that delivery need no longer be
made:
A. traditio longa manu C. traditiosimbolica
B. tradition thru legal formalities D. traditiobrevimanu

52. The principle which states that the thing perishes with its owner
A. respondeat superior C. res perit domino
B. caveat emptor D. accionquantiminoris

53. Money given by the buyer to the seller in order to bind the bargain and
forms part of the purchase price.
A. option money C. interest
B. earnest money D. penalty clause

54. The redhibitory action based on the faults or defects of animals must
be brought within
A. 7 days from delivery to the vendee
B. 40 days from delivery to the vendee
C. 45 days from delivery to the vendee
D. 6 months from delivery to the vendee

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55. When goods are delivered to the buyer on "sale or return" for a period
of 7 days, ownership of the good passes to the buyer upon:
A. delivery of the goods
B. expiration of seven days
C. acceptance by the buyer of the offer of the seller
D. perfection of the contract
56. Also known as barter
A. do ut des C. faciout facias
B. faciout des D. do ut facias

57. After the death of Patrick, his son Erick, sold his inheritance though its
amount has not yet been determined to Taylor for a consideration of
P5,000,000. Which is correct?
A. The contract is valid if the value of the inheritance is equal to
P5,000,000
B. The contract is valid even though nothing remains of the inheritance
to be turned over to Taylor.
C. The contract is void as future inheritance cannot be the object of
sale.
D. The contract is unenforceable.

58. Goods are deemed in transit

A. From the time they are delivered by the seller to a common
carrier or other bailee for transmission to the buyer, up to the time
that the buyer or his agent takes delivery of the goods from the
carrier or bailee.
B. When the buyer intercepts and lawfully takes possession of the
goods at any point before destination
C. When the buyer accepts delivery of the goods upon arrival at
destination
D. When the carrier or bailee, upon arrival of the goods at
destination, acknowledges to the buyer or his agent that he is
holding the goods as bailee for the latter.

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59. Mark purchased from Anthony a parcel of land worth P600,000;

P200,000 to be paid in cash and for the difference, he will convey his
car worth P400,000. What kind of contract is this?
A. Lease contract C. Contract to sell
B. Contract of sale D. Barter

60. There is dacionenpago when:

A. the object is always existing and specific
B. there is a greater degree of freedom in fixing the price
C. there is no pre-existing obligation
D. the cause is the price

61. There is a contract of sale:

A. When the goods are delivered to a distributor on consignment
B. When the goods are delivered to a person on charge account.
C. When goods are delivered to an agent to be sold by him and the
agent is not liable to the manufacturer of the goods.
D. When the manufacturer delivers the goods to an agent where the
former retains the ownership and dictates the term of the sale.

62. Shares of stock sold may be delivered by:

A. actual traditio C. traditiobrevimanu
B. traditio longa manu D. quasi-traditio

63. Which of the following obligations of the vendor cannot be waived?

A. To warrant the right thing sold.
B. To transfer ownership to the buyer.
C. To allow the buyer to examine the goods sold.
D. To pay the expenses of the deed of sale.

64. On October 10, 2022 Bobbie orally sold to Teddie a specific gold ring
for P50,000. The parties agreed that Bobbie shall deliver the gold ring

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to Teddie on October 15, 2022 while Teddie will pay the price on
October 19, 2022.
A. The contract is perfected on October 15, 2022 when the ring is
delivered by Bobbie and Teddie.
B. The contract is perfected on October 10, 2022 when the parties
had a meeting of minds on the object and the price.
C. The contract is perfected on October 19, 2022 when the price is
paid, since both partied would by then have performed their
obligations in the contract.
D. There is no perfected contract because the sale was made orally.

65. Rebreb orally offered to sell a certain diamond ring to Antonniette for
P80,000.00. Antonniette accepted the offer and toll prove that she was
in earnest, she gave RebrebP10,000.00. the parties agreed that the
delivery of the ring and the payment of the price would be made 30
days later. On due date:
A. Rebreb may collect from AntonnietteP80,000.00.
B. Rebreb may collect from AntonnietteP70,000.00.
C. Rebreb cannot enforce payment because the contract was not
reduced in writing.
D. Rebreb cannot enforce payment because there was no contract
of sale yet.

66. On August 01, 2022, Pia sold and delivered to Johnny a smart tv for P
30,000.00 “on sale or return” giving Johnny up to August 16,2022
within which to return the television set. On August 10, 2022, the smart
tv was burned through no fault of Johnny. based on the foregoing,
which of the following statements is incorrect?
A. Johnny must pay the price of the smart tv.
B. Pia must bear the loss since the time for the return of the smart tv
had not yet expired.
C. The ownership of the television set was transferred to Johnny
upon delivery to him.

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D. Johnny must bear the loss of the smart tv.

67. Where the seller of goods has a voidable title thereto, but his title has
not been avoided at the time of the sale, the buyer acquires title to the
goods. Such acquisition of title has the following requisites, except:
A. The buyer must have bought the goods in good faith.
B. The buyer must have bought them for value.
C. The buyer bought them without notice of the seller’s defect of
title.
D. The party from whom the seller obtained the goods must ratify the
sale.

68. An unpaid seller has the following rights, except:

A. A lien on the goods or the right to retain them for the price while
he is possession of them.
B. In case of insolvency of the buyer, a right of stopping the goods in
transit after he has parted with the possession of them.
C. A right to repurchase.
D. A right to rescind.

69. Bruno bought a piece of land from Pedro for a lump sum of P12M.
Aside from mentioning the boundaries in the contract which is required
in the sale of real estate, the contract also states that the piece of land
consists of 1 hectare. Before delivery, Pedro discovered that the piece
of land actually contains 1.2 hectare.
A. Pedro must deliver all the 1.2 hectare; Bruno must pay P12M plus
an additional amount for the excess of 0.2 hectare.
B. Pedro is required to deliver only 1 hectare; Bruno must pay the
contract price of P12M.
C. Pedro must deliver all the 1.2 hectare.
D. Neither party is required to perform the obligation because of
mistake.

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70. Philip sold a registered piece of land to Hanz on September 6, 2020 in
a public instrument. On September 17,2020 ,Philip sold in a private
instrument the same piece of land to Naveen, who took physical
possession of the land. Neither buyer was aware of the sale made to
the other.
A. The land belongs to Hanz.
B. The land belongs to Naveen.
C. The land still belongs to Philip, because both sales are void.
D. The land should be divided equally between Hanz and Naveen to
give effect to both sales.

71. Refer to number 70, Assume that on May 5, 2022, Philip sold the land
in a public instrument to Eugene who was not aware of the two
previous sales. Eugene then registered the sale with the Register of
Deeds.
A. The land belongs to Hanz.
B. The land belongs to Naveen.
C. The land belongs to Eugene.
D. The land will be equally divided among the three buyers.

72. This refers to an encumbrance imposed upon an immovable for the

benefit of another immovable belonging to a different owner.
A. Easement or servitude
B. Real estate mortgage
C. Pledge
D. Chattel mortgage

73. Three of the following are the requisites in order that the buyer may
enforce the seller’s liability for hidden defects. Which one is not?
A. The defects of the thing sold must not be patent or visible.
B. The defects render the thing unfit for the use for which it is
intended, or which diminish its fitness for such use to such an

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extent that had the buyer been aware thereof, he would not have
bought it.
C. The defects must be existing at the time of sale.
D. The defects must be capable of determination by an expert.

74. Bell promised to sell her car to Aurora for P568,000.00 giving Aurora
30 days to decide. Aurora accepted the promise of Bell and informed
Bell that she (Aurora) would make known her decision before the lapse
of 30 days. She also gave BellP15,000.00 as consideration so that Bell
would hold on to her promise. The contract entered into between Bell
and Aurora and the consideration given by Aurora to Bell are known
as:
A. Option contract and option money, respectively.
B. Contract of sale and earnest money, respectively.
C. Contract of sale and down payment, respectively.
D. Contract of sell and reservation money, respectively.

75. Refer to no. 74. In this case:

A. Bell may withdraw her offer to sell before the lapse of 30 days by
informing Aurora.
B. Bell may not withdraw her offer before the lapse of 30 days.
C. Bell may withdraw the offer by returning the amount of
P15,000.00 that was paid to her by Aurora.
D. Bell may withdraw her offer even before the lapse of 30 days if a
favorable price i.e, more than P568,000.00, is offered to her by
another prospective buyer.

76. Phineas, who was in Thailand, made an overseas call to Baljeet, his
friend, to sell Phineas’s lot in Tagaytay City immediately as Phineas
needed cash. Accordingly, Phineas sold the lot to Baljeet. The deed of
sale was in a public document. The sale of Phineas’s lot is:
A. Valid.

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B. Rescissible.
C. Unenforceable.
D. Void.

77. One of the distinctions between a contract of sale and a contract for a
piece work is that a contract for a piece of work:
A. Is not governed by the Statute of Frauds.
B. Refers to a contract for the delivery goods which are
manufactured on the ordinary course of business although the
same are not available.
C. Has for its parties the vendor and the vendee.
D. Has for its consideration the price of the thing.

78. Heinz wants to buy the trampoline of Ferb for P45,000.00 and to show
that he is in earnest, he pays FerbP5,000.00 which Ferb accepts.
There was no written instrument signed by Ferb and Heinz to
incorporate their agreement. Based on the foregoing, which of the
following statements does not pertain to the contract?
A. Heinz, thereafter, needs to pay P40,000.00.
B. The giving of earnest money binds Ferb and Heinz to a contract
of sale.
C. Heinz, thereafter, must still pay P45,000.00because the earnest
money he paid is not part of the purchase price.
D. The contract between Ferb and Heinz is enforceable although
there was no written agreement between Ferb and Heinz.

79. When the buyer is justified in refusing to accept the goods being
delivered to him and has relayed such refusal to the seller, such refusal
produces the following effects, except:
A. Buyer has no duty to return the goods unless stipulated.
B. Title to the goods does not pass to the buyer.
C. Buyer is not obliged to pay the price.

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D. Buyer automatically becomes a depositary of the goods.

80. Candace lost her cellphone while inside a Ferris wheel. It was found by
Perry who diligently searched for the owner but to no avail. Later, the
cellphone was purchased by Stacy, a buyer in good faith.
Subsequently Candace traced her cellphone while being used by
Stacy. In this case:
A. Stacy acquires ownership over the cellphone
B. Candace can recover the cellphone from Stacy upon
reimbursement of the purchase price
C. Stacy should return the cellphone to Candace if Perry will return
the purchase price
D. Perry’s title is void; hence Stacy did not acquire a valid title over
the cellphone

81. Tomsold to Jerry 500 boxes of cheese at P55.00 per box from the
stock then stored in the warehouse of Tom. Unknown to the parties,
the warehouse contains only 360boxes of cheese. What is the status of
the contract between Tom and Jerry?
A. The sale is void since the quantity available is less than the
quantity sold.
B. The sale is valid up to 360boxes of cheese but void as to the
deficiency of 140boxes of cheese.
C. The entire sale is valid up to 500 boxes of cheese. Jerry becomes
the owner of the whole stock available and Tom must deliver the
deficiency of 140boxes of cheese.
D. The sale is valid up to 360boxes of cheese but rescissible as to
the deficiency of 140boxes of cheese by reason of damage
suffered by Jerry.

82. Homer sells to Harry at P45 per gallon, 600 gallons of gasoline stored
in his truck’s tank which, unknown to the parties, contains 750 gallons

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gasoline. What is the status of the contract of sale between Homer and
Harry?
A. The sale is void because the quantity available is more than the
quantity sold.
B. The sale is valid up 750 gallons of gasoline. Harry must pay for
the additional 150 gallons of gasoline.
C. The sale is valid up to 600 gallons of gasoline. Harry becomes
the owner of 4/5 of the whole stock, while Homer becomes the
owner of 1/5 thereof.
D. The sale is rescissible because Homer will suffer lesion of more
than ¼ of the value of the whole stock.

83. Which of the following contracts of sale is void?

a. Oral sale of a piece of land made through an agent whose
authority is in a public instrument.
b. Sale of a piece of land in a public instrument made through an
agent whose authority was given orally by the principal.
c. Sale of a piece of land in a private instrument made through an
agent whose authority is in a public instrument.
d. Sale of a piece of land in a public instrument made through an
agent whose authority is in a private instrument.

84. On January 29, 2022, Kim sold for P3M her house and lot to Tianna. It
was agreed that delivery of the house and lot and the payment
therefore would be made on February 19, 2022. Unfortunately, Alice, a
stranger committed arson set the neighboring house on fire on
February 17, 2022, completely destroying the houses including the
house of Kim. Which is correct?
A. Tianna is not required to pay the P1M since the contract had no
subject matter.
B. Kim must still deliver the lot but is excused from delivering the
house while Tianna must still pay the P1M.
C. Kim must still deliver the lot while Tianna should pay only the
amount equivalent to the value of the lot.

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D. Kim need not deliver the lot while Tianna need not pay the P1M.

85. Cyril offered for sale to Lorichelle 500 sacks of coal and fixed the price
per sack at P30.00 over the price of per sack at stall #31 at Balintawak
Market on August 1, 2021. The price is
A. Not certain because the price at Balintawak Market is not stated
B. Certain because it has got reference to another thing which is
certain
C. Certain because there is a price ceiling for the price of rice
D. Not certain so the court may fix the price

86. Errol placed an order for 1500 pieces white collared shirts ranging in
size from small to extra-large from Sarmiento Enterprises. The
specified sizes, although not then available, are manufactured by the
said corporation and consigned to its sales outlets regularly. Their
contract is:
A. Contract for a piece of work C. Contract to sell
B. Contract of sale D. Contract of agency to sell

87. Three of the following are elements of the vendor's right of stoppage in
transitu. Which is the exception?
A. The buyer must be insolvent.
B. The goods must be in transit.
C. The seller must be unpaid.
D. The seller must be in possession of the goods.

88. Rein sold to Nina orally 1,000 pieces of the latest Apple iPad for
P25,000,000.00. Delivery was made. The payment of the price was to
be made three (3) months later. At the end of the 3 month period
A. Nina may refuse to pay claiming in his defense the statute of
frauds
B. Nina may return the iPad to Rein

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C. Rein can collect from Nina because the contract has already been
executed
D. Nina may refuse to pay on the ground that there is no written
contract to support the sale

89. If immovable property should have been sold to different vendees, the
ownership shall be transferred to the person
A. Who have first taken possession in good faith
B. Who presents the oldest title in good faith
C. Who in good faith first recorded it in the registry of property
D. Who have paid in good faith the purchase price in full

90. Quasi-traditio is equivalent to

A. Traditio longa-manu C.Traditioconstitutumpossessorium
B. Traditiobrevi-manu D. Execution of a public instrument

91. Judges cannot buy properties:

A. in litigation under their jurisdiction
B. owned by another lawyer
C. located within the city or municipally where he resides
D. of all kinds

92. Kiziah took the diamond ring of Angelo without the latter's consent.
Kiziah subsequently sold the same to Madel’s jewelry store. The store
owner had no knowledge about the circumstances that happened
between Kiziah and Angelo. Madel’s thereafter, sold the same ring to
Jose. Angelo proceeded against Jose to recover the ring. Jose
contended that he was in good faith when he bought the ring from
Madel’s. Who has the better right over the ring?
A. Madel’s C. Jose
B. Kiziah D. Angelo

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93. Aimee stole a cellphone from Maeze and sold it to an “Electronic
store”, which paid for it in good faith, not knowing it was stolen. The
store then sold it to Ruby, which is correct?
A. Ruby cannot be considered as the owner because the original
seller (Aimee) is not the real owner.
B. Maeze may recover the cellphone from Ruby without
reimbursement because she is the legal owner.
C. Ruby is considered the owner because she purchased the pen in
a merchant store.
D. When the cellphone was sold to the store in good faith,
ownership was transferred therefore it can also transfer the
ownership to Ruby.

94. Raquel sold a movable property to Alicia binding herself not to sell the
same to another person. On the following day, Raquel sold the same
property to Suarez who immediately took possession in good faith. In
the case at bar, the proper remedy of Alicia is to:
A. Institute an action for the annulment of the sale against Suarez.
B. Institute an action for the recovery of the property.
C. Institute an action for damages against Raquel.
D. Institute an action for recovery of the property plus damages
against Suarez.

95. Peter sold to Lucas his airplane and promised to deliver 100 days later.
The next day, after the sale to Lucas, Peter sold the same plane to
Emily and immediately effected delivery. On the day agreed upon,
Lucas did not deliver the plane to Peter. Which is correct?
A. Lucas can cancel the contract between Peter and Emily,
because the contract between Peter and Lucas was perfected
ahead of the contract between Peter and Emily
B. Lucas should make a demand to make Peter in default
C. Peter is liable to Lucas for the value of the plane plus damages
after Lucas makes a demand

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D. Peter is liable to Lucas for damages and is in default without
need of any demand

96. Ana needs a size 7 of Nike shoes available to the public for her mother
Nicole, but the same is not available so she placed an order for one.
On the other hand, Nicole placed an order for size 9 of a purple
dancing shoes for Ana which is not ordinarily manufactured by the
company. Which is correct?
A. Both are contracts of sale
B. Both are contracts for a piece of work
C. First is a contract of sale, second is a contract for a piece of work
D. First is a contract for a piece of work, second is a contract of sale

97. Darwin sold to Larry a parcel of land for P5M. The sale was evidenced
by an agreement of sale written in Ilocano dialect. One week later,
Darwin sold the same parcel of land to Richard for P15M which was
evidenced by a formal deed of sale. Richard who was aware of the
previous sale immediately took possession and registered the sale in
his favor. Who is the rightful owner?
A. Richard because registration is higher in rank in law than
possession or title
B. Larry because he has the older title
C. Richard because he took possession ahead of Larry
D. Darwin under the principle of res perit domino

98. In a contract of sale of real property by lump sum, when there is a

difference between the area and the boundary:
A. boundary prevails C. there must be another survey
B. area prevails D. contract is void

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99. A contract of sale with a right to repurchase and other contracts
including a contract purporting to be an absolute sale shall be
presumed to be an equitable mortgage in the following cases, except:
A. When the vendee binds himself to pay the taxes due.
B. When the period to repurchase the property is extended.
C. When the vendor remains in possession of the thing sold.
D. When the price of sale with right to repurchase to repurchase is
unusually inadequate.

100. This refers to the right of an adjoining owner of an urban land to be

given preference to the purchase of a small piece of urban land which
is held for speculation before it is offered for sale to others.
A. Right of subrogation.
B. Right of redemption.
C. Right of pre-emption.
D. Right of repurchase.

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LECTURE AID IN PLEDGE AND MORTGAGE

RELATED LAWS AND CONCEPTS

LOAN - By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be
paid, in which case the contract is simply called a loan or mutuum.

Commodatum
a. essentially gratuitous, otherwise it will be another contract
b. bailor/lender retains the ownership of the thing loaned
c. perfected upon delivery of the thing
d. consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as
when it is merely for exhibition
e. movable or immovable property may be the object of commodatum
f. the bailor in commodatum need not be the owner of the thing
loaned
g. commodatum is purely personal in character. Consequently:
(1) The death of either the bailor or the bailee extinguishes the
contract;
(2) The bailee can neither lend nor lease the object of the contract
to a third person. However, the members of the bailee's
household may make use of the thing loaned, unless there is a
stipulation to the contrary, or unless the nature of the thing
forbids such use.

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h. a stipulation that the bailee may make use of the fruits of the thing
loaned is valid
i. the bailor may demand the thing at will, and the contractual relation
is called a precarium, in the following cases:
(1) If neither the duration of the contract nor the use to which the
thing loaned should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner
j. when there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily

Mutuum
a. Simple loan may be gratuitous or with a stipulation to pay interest.
b. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.

Guaranty - a person, called the guarantor, binds himself to the creditor to

fulfill the obligation of the principal debtor in case the latter
should fail to do so.
a. If a person binds himself solidarily with the principal debtor, the
contract is called a suretyship.
b. The guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor, and has resorted
to all the legal remedies against the debtor.

Deposit - A deposit is constituted from the moment a person receives a

thing belonging to another, with the obligation of safely keeping it and of
returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other contract.
a. An agreement to constitute a deposit is binding, but the deposit
itself is not perfected until the delivery of the thing.
b. A deposit is a gratuitous contract, except when there is an
agreement to the contrary, or unless the depositary is engaged in
the business of storing goods.
c. Only movable things may be the object of a deposit.

Antichresis - the creditor acquires the right to receive the fruits of an

immovable of his debtor, with the obligation to apply them to the
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payment of the interest, if owing, and thereafter to the principal of his
credit.
a. The actual market value of the fruits at the time of the
application thereof to the interest and principal shall be the
measure of such application.
b. The amount of the principal and of the interest shall be
specified in writing; otherwise, the contract of antichresis shall
be void.
c. The creditor, unless there is a stipulation to the contrary, is
obliged to pay the taxes and charges upon the estate. `
d. The creditor is also bound to bear the expenses necessary for
its preservation and repair and shall be deducted from the
fruits.

PLEDGE - a contract by virtue of which the debtor or a third person delivers

to the creditor or to a third person a movable or document evidencing
incorporeal rights for the purpose of securing the fulfillment of a
principal obligation with the understanding that when the obligation is
fulfilled the thing delivered shall be returned with all the fruits and
accessions.
• Characteristics: Kinds:
a. accessory a. voluntary or conventional
b. real b. legal
c. unilateral

PLEDGE REAL MORTGAGE CHATTEL

MORTGAGE
1. accessory contract
2. pledgor/mortgagor must be absolute owner of property
pledged/mortgaged
3. pledgor/mortgagor must have free disposal or be authorized
4. thing pledged/mortgaged may be alienated when principal obligation
becomes due for payment
5. 3rd persons NOT parties may be the pledgor/mortgagor
6. can secure pure, conditional, natural obligations, voidable and
unenforceable contracts
7. indivisible
1. Real contract 1. Consensual contract 1. Consensual
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contract
2. Constituted on 2. Constituted on 2. Constituted on
movables immovables movables
3. property is 3. delivery is not 3. Delivery is not
delivered to necessary necessary
pledgee/3rd
person
4. not valid against 4. not valid against 3 4. Registration in
3rd persons persons if not Chattel Mortgage
unless a registered Register is
description of necessary for
the thing validity
pledged and the
date of the
pledge appear
in public
instrument
5. Debtor not 5. If property is foreclosed, 5. If property is
entitled to the excess over the foreclosed, the
excess unless amount due goes to the excess over the
otherwise debtor amount due goes
agreed or to the debtor
except in case
of legal pledge
6. Creditor not 6. If property is foreclosed 6. If property is
entitled to and there is deficiency, foreclosed and
deficiency creditor is entitled to there is
notwithstanding recover the deficiency deficiency,
stipulation to from the debtor creditor is
the contrary entitled to
recover the
deficiency from
the debtor

Related Rules on Indivisibility:

1. The debtor's heir who has paid a part of the debt cannot ask for
the proportionate extinguishment of the pledge or mortgage as
long as the debt is not completely satisfied.
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2. The creditor's heir who received his share of the debt cannot
return the pledge or cancel the mortgage, to the prejudice of the
other heirs who have not been paid.
3. In case there are several things given in mortgage or pledge,
each one of them guarantees only a determinate portion of the
credit.
4. The indivisibility of a pledge or mortgage is not affected by the
fact that the debtors are not solidarily liable.

Pactum commissorium - a stipulation whereby the thing pledged or

mortgaged or under antichresis shall automatically become the property
of the creditor (appropriation of the thing) in the event of non-payment of
the debt within the term fixed. Such stipulation is null and void.
Note: Dacion en pago is not pactum commissorium

Rules:
1. The thing pledged cannot be deposited with a third person
without the consent of the pledgor
2. Pledgor retains ownership of the thing pledged.
3. Pledgor transmits possession not ownership
4. Debtor cannot demand the return of the thing pledged until the
debt secured by it is paid
5. The pledgee who is in possession of the thing pledged has no
right to make use of it without permission from the owner.
6. Pledge shall extend to offsprings of the animals pledged, unless
otherwise stipulated.
7. The pledgee shall apply the fruits and earnings pledged in
payment of the expenses incurred, interest if any, and the
principal obligation.

RIGHTS OF THE PLEDGOR:

1. To continue to be the owner of the thing pledged, until its sale,
unless it is expropriated
2. To demand the deposit of the thing pledged should the creditor
use it without authority, or misuse it in any other way
3. To substitute the thing pledged if it is endangered without fault of
the pledgee without prejudice to pledgee's right to have the thing
sold at public sale
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4. To bid and have preference at the foreclosure sale if he should
offer the same terms as the bidder
5. To demand the return of the thing pledged upon the extinction of
the principal obligation

RIGHTS OF THE PLEDGEE:

1. To retain the thing in his possession or in that of a third person
to whom it has been delivered, until the debt is paid
2. To be reimbursed for expenses incurred in its preservation
3. To compensate (set-off) the fruits, income, dividends, or
interests earned or produced by the thing pledged and received
with those which are due to him
4. To bring the actions which pertain to the owner of the thing
pledged in order to recover it from, or defend it against a third
person
5. To sell the thing pledged at public auction, if without his fault,
there is danger of destruction, impairment or diminution in the
value of the thing
6. To claim a substitute or demand immediate payment, if he is
deceived in the substance or quality of the thing pledged
7. To sell the thing pledged at public auction if the obligation
secured is not paid
8. To bid at the public sale
9. To collect the amount that becomes due on a credit pledged
before such credit is redeemed
10. To choose which one of several things pledged shall be sold

OBLIGATIONS OF THE PLEDGOR:

1. To notify the pledgee of any flaw or defect of the thing pledged
known to him; otherwise, he answers for damages suffered by
the pledgee
2. To reimburse the pledgee for expenses made for its preservation
3. To fulfill his principal obligation.

OBLIGATIONS OF THE PLEDGEE:

1. To take care of the thing pledged with the diligence of a good
father of a family
2. To answer for its loss or deterioration in the proper case
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3. Not to deposit the thing pledged with a third person unless
authorized
4. To be responsible for the acts of his agents or employees with
respect to the thing pledged
5. Not to use the thing pledged unless authorized or its
preservation so requires
6. To advise the pledgor or owner in case of sale at public auction
of the result thereof
7. To return the thing pledged when the principal obligation is paid.

EXTINGUISHMENT OF PLEDGE:
1. return of the thing pledged to the pledgor
2. statement in writing by the pledgee that pledge is renounced or
abandoned
3. public sale of the thing when credit was not satisfied in due time

Rules:
a. the pledgee has the right to sell the thing pledged in an
auction sale done through a notarial act
b. the pledgor/owner may bid at public auction
c. the pledgor will be preferred over other highest bidders
offering the same terms
d. the pledgee can bid but if he is the only bidder the bid is
not valid
exception: failure to sell the thing after 2 auction sales
effect: the thing will be appropriated in favor of the
pledge

IMPORTANT: after the foreclosure sale the obligation is

extinguished whether or not the proceeds of the sale
is sufficient to cover the debt secured. Contrary
stipulation is always VOID.
4. destruction or loss of the thing pledged
5. extinction of the principal obligation by payment
6. other causes of extinguishment of ordinary obligations

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MORTGAGE - a contract whereby the debtor secures to the creditor the
fulfillment of a principal obligation, especially subjecting to such
security immovable property or real rights over immovable property in
case the principal obligation is not complied with at the time
stipulated.

Characteristics: Object of mortgage:

1. real right 1. immovables
2. accessory contract 2. alienable real rights upon
immovables
3. indivisible 3. movables – chattel mortgage
4. inseparable
5. real property
6. limitation on ownership
7. can secure all kinds of obligations
8. property cannot be appropriated
9. lien

Kinds of Real Mortgage:

1. Voluntary or Conventional - created by the parties
2. Legal - one required by law to guarantee performance
3. Equitable - one which reveals an intent to make the property a
security, even if the contract lacks the proper
formalities of a real estate mortgage.
NOTE:
• Future property cannot be the object of a contract of mortgage
• Contract of mortgage must appear in a public document duly
recorded in the Registry of Property in order to bind third persons
• Registration is not a requirement for the validity of the contract or
alienation or assignment of the mortgage
• Stipulation forbidding the owner from alienating the immovable
mortgaged shall be void

EXTENT OF MORTGAGE: natural accessions, improvements,

growing fruits and rents or income not yet received when the
obligation becomes due.

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FORECLOSURE - remedy available to the mortgagee by which he subjects
the mortgaged property to the satisfaction of the obligation to secure
which the mortgage was given through the sale of the property at
public auction and the application of the proceeds thereof to the
payment of his claims.

Stipulation of upset price (TIPO) - minimum price at which the property

shall be sold is null and void.
REDEMPTION - a transaction by which the mortgagor reacquires or buys
back the property which may have passed under the mortgage or divests the
property of the lien which the mortgage may have created.
Redemption is allowed:
1. Foreclosure in favor of banking or credit institutions
2. Extra-judicial foreclosures

Kinds of Redemption:
1. Equity of Redemption - right of the mortgagor to redeem the
mortgaged property after his default in the performance of the
conditions of the mortgage but before the sale of the mortgaged
property or confirmation of the sale.
2. Right of Redemption - right of mortgagor to redeem the
mortgaged property within a certain period after it was sold for
the satisfaction of the mortgage debt (exercised within 1 year
from registration of the sale).

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QUIZZER IN PLEDGE AND MORTGAGE

For numbers 1 – 20
A. True; True C. True; False
B. False; False D. False; True

1. 1st statement - In mutuum or simple loan, one of the parties delivers to

another something not consumable so that the latter may use the same
for a certain time and return it.
2nd statement -Mutuum is essentially gratuitous. ANSWER -

2. 1st statement - The bailee in commodatum acquires the use of the

thing loaned and its fruits.
2nd statement – Precarium is a kind of mutuum where the bailor may
demand the thing loaned at will. ANSWER -

3. 1st statement - A contract of deposit is perfected from the moment

there is meeting of minds.
2nd statement -A contract of deposit may be legal or conventional
ANSWER -

4. 1st statement - The registration in the Registry of property is necessary

for the validity of a contract of real estate mortgage.
2nd statement - The creditor cannot appropriate the things given by
way of pledge or mortgage, without any express stipulation. ANSWER
-

5. 1st statement - Pledge is a real contract.

2nd statement -If after the auction sale, the thing pledged is not sold,
the pledgee can appropriate the thing pledged. ANSWER -

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6. 1st statement – A stipulation forbidding the owner from alienating the
immovable property subject of the mortgaged shall be valid
nd
2 statement - The creditor can automatically become the owner of the
thing mortgage upon failure on the part of the debtor to pay the
principal debt on maturity and after demand. ANSWER -

7. 1st statement - When the principal obligation becomes due, the things
in which the pledge or mortgage consists may be alienated for the
payment to the creditor.
2nd statement - The creditor can appropriate the things given by way of
pledge or mortgage, without any express stipulation. ANSWER -

8. 1st statement- The creditor has right to retain the thing pledged even if
the debtor will demand its return.
2nd statement - In case of pledge of animals, their offspring shall pertain
to the pledgor or owner of the animals pledged, but shall be subject to
the pledge, if there is no stipulation to the contrary.
ANSWER –

9. 1st statement - Commodatum and mutuum may be gratuitous or with a

stipulation to pay interest.
nd
2 statement - When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. ANSWER -

10. 1st statement - Pledge cannot be constituted to secure the performance

of a voidable or unenforceable contract.
nd
2 statement - All contracts of pledge are voluntary and conventional.
ANSWER -

11. 1st statement - Third persons will not be bound by the contract of
pledge or real mortgage in the absence of public instruments as
evidence of the existence of the contracts.

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2nd statement - Only the parties to the principal obligation may secure
the fulfillment of the obligation by pledging or mortgaging their property,
consistent with the relative characteristics of contracts.
ANSWER -

12. 1st statement - If the thing pledged is returned by the pledgee to the
pledgor or owner, the pledge is extinguished, unless there is a
stipulation to the contrary
2nd statement -If a movable property, instead of being recorded, is
delivered to a third person or to the creditor, the contract is pledge and
not chattel mortgage.
ANSWER –

13. 1st statement - The pledgee is always entitled to claim from the pledgor
any deficiency between the amount of the debt or obligation and the
proceeds after the sale of the thing pledged.
2nd statement - Like pledge, a chattel mortgage is constituted only over
movable properties. ANSWER -

14. 1st statement - The indivisibility of a pledge or mortgage is not affected

by the fact that the debtors are not solidarily liable.
2nd statement - Incorporeal rights, evidenced by negotiable
instruments, bills of lading, shares of stock, bonds, warehouse receipts
and similar documents may also be pledged. ANSWER -

15. 1st statement – In real estate mortgage, the mortgagor can sell the
property mortgage even without the consent of the mortgagee.
2nd statement - In chattel mortgage like pledge, the possession of the
thing mortgaged is vested in the creditor. ANSWER –

16. 1st statement - If subsequent to the perfection of the pledge, the thing is
in the possession of the pledgor or owner, there is a conclusive
presumption that the same has been returned by the pledgee.

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2nd statement - The sale of the thing pledged or mortgaged shall
extinguish the principal obligation, whether or not the proceeds of the
sale are equal to the amount of the principal obligation, interest and
expenses in a proper case. ANSWER -

17. 1st statement - With the consent of the pledgee, the thing pledged may
be alienated by the pledgor or owner, subject to the pledge.
2nd statement - The creditor can use the thing pledged. ANSWER -

18. 1st statement - The validity of the contract of pledge will be affected by
the absence of a public instrument evidencing the date of the contract
and the description of the thing pledged.
2nd statement - If the debtors are not solidarity liable, the pledge or
mortgage will not be indivisible. ANSWER -

19. 1st statement - The promise to constitute a pledge or a mortgage is

enforceable against the whole world.
2nd statement - During the auction sale of the thing pledged, the
pledgee may also bid but his offer shall not be valid if he is the only
bidder. ANSWER -

20. 1st statement - Only immovable properties and alienable rights in

accordance with the laws imposed upon immovables, may be the
object of a real mortgage.
2nd statement - Pledge and mortgage are accessory and consensual
contracts.
ANSWER –

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MULTIPLE CHOICE
21. The distinction between a chattel mortgage and a pledge is that in
chattel mortgage:
A. The entire amount of the proceeds goes to the creditor.
B. The delivery of the personal property is necessary.
C. The excess over the amount due after foreclosure goes to the
debtor.
D. The registration of the property in the Registry of property is not
necessary.

22. In real mortgage, the following rules are valid, except one:
A. The mortgagee may alienate the mortgage credit or assign to a
third person in whole or in part.
B. If alienation of mortgage credit is not registered, it is still valid
between the parties.
C. A stipulation in the mortgage contract prohibiting the owner from
alienating the immovable mortgaged is valid.
D. Any stipulation allowing the mortgagee creditor to appropriate the
property mortgaged is null and void.

23. The following are essential to the contracts of pledge except one:
A. The principal obligation must be free from any defect.
B. The pledgor must be the absolute owner of the thing pledged.
C. The pledged was constituted to secure the fulfillment of a
principal obligation
D. Persons constituting the pledge must have the free disposal of
their property or legally authorized to pledge a thing in favor of a
principal.

24. The following are essential requisites common to the contract of pledge
and chattel mortgage, except one:

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

25. A contract of mortgage involving an immovable property extends to the

following except one:
A. Future properties of the mortgagee
B. Natural accessions of the property mortgaged
C. Improvements on the property mortgaged
D. Rents or income of the property mortgaged not yet received when
the obligation becomes due.

26. One of the following is not a characteristic common to pledge and

mortgage:
A. Real
B. Nominate
D. Onerous
C. Accessory

27. The liability of the surety is:

A. Joint
B. Solidary
C. Secondary
D. Subsidiary

28. Atoy uses a savings account with a bank. The contract between Atoy
and the bank is one of
A. Agency.
B. Deposit.

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C. Mutuum.
D. Commodatum.

29. A Guarantor is liable:

A. Jointly
B. Divisibly
C. Solidarily
D. Secondarily

30. The following are characteristics of a contract of real mortgage except

one:
A. it is a real right
B. it is indivisible
C. it is principal contract
D. it can secure all kinds of obligation

31. A void stipulation fixing the price at which the property will be sold at a
foreclosure sale.
A. auction price
B. upset price

C. option money
D. contract price

32. Johnrey pledged his bracelet to Cardo’s Pawnshop for P11,000. On

due date, Johnrey failed to redeem his bracelet. The pawnshop sold
the bracelet at a public auction to the highest bidder at P8,500.
A. The pawnshop can recover the deficiency of P 1,500 from
Johnrey
B. The pawnshop can recover the deficiency of P1,500 even without
the stipulation
C. The pawnshop cannot recover the deficiency of P1,500 unless
there is a stipulation

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D. The pawnshop cannot recover the deficiency of P1,500 even if
there is a stipulation

33. The following are instances of pledge created by law, except:

A. A mechanic retains the car he repaired until he is paid
B. A depository retains the thing in pledge until full payment of what
is due him
C. An agent retains in pledge the thing which is the object of the
agency
D. Hotel keeper retains the things brought into the hotel by the
guest who cannot pay his hotel bill

34. Lisa owes Marge the sum of P10,000. Lisa pledged her necklace as
security. After Lisa failed to pay the obligation upon maturity, Marge
sold the necklace in a public auction. Which of the following is not
correct?
A. Lisa my bid without reserving her right to bid
B. Lisa should be declared the winner as long as she will offer a valid
bid
C. Marge may bid but the same will not be valid if she will be the only
bidder
D. After two unsuccessful public auctions, Marge may appropriate the
necklace.

35. Which of the following is valid?

A. Oral Antichresis
B. Oral chattel mortgage
C. Unregistered chattel mortgage
D. Oral real mortgage of a house and lot

36. Lisa owes Marge the sum of P10,000. Lisa pledged her cow “Iska” as
security. Which of the following is not correct?
A. If “Iska” will give birth to a calf while subject of the pledge, the
calf shall belong to Marge

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B. If “Iska” will give birth to a calf while subject of the pledge, the
calf shall belong to Lisa
C. “Iska” must be placed in possession of Marge or of a third
person in favor of Marge
D. If before the due date of the obligation, “Iska” is lost through a
fortuitous event, without any fault on the part of Marge, Lisa may
be made liable to pay even before the maturity date.

37. If the proceeds of the sale of the thing pledged sold at public auction is
less than the principal obligation, can the creditor recover the
deficiency from the debtor?
1st ANSWER: Yes, the creditor is entitled to recover the deficiency
form the debtor.
2nd ANSWER: No, unless there is a stipulation to that effect in the
contract of pledge.
A. 1st answer correct, 2nd answer wrong
B. 1st answer wrong, 2nd answer correct
C. Both answers are wrong
D. Both answers are correct

38. Kyle borrowed from Karen a sum of money and offered her gold
bracelet by way of mortgage. Which of the following is not correct?
A. Kyle may offer her car as payment when the obligation falls due.
B. Kyle may stipulate in the contract that the gold bracelet would
then be Karen’s.
C. Kyle instead of paying in cash, can alienate her gold bracelet in
favor of Karen.
D. Kyle may stipulate in the contract the Karen can sell the gold
bracelet to pay for the debts of Kyle.

39. Possession of the thing pledged must be placed in the hands of

A. Pledgee C. Surety
B. Guarantor D. Pledgor

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40. Gwen, a creditor, through a contractual arrangement made within Mr.

Sarmiento, is to receive the rentals of the Sarmiento apartment
buildings in Makati City with the obligation to apply them to the
payment of the interest and thereafter to the principal of her credit.
This contract is:
A. Pledge. C. Antichresis.
B. Mortgage. D. Guaranty.

41. Marlin mortgaged his avocado farm to Dory as a guarantee for the
payment of P800,000.00 obligation of Marlin. They agreed that Marlin
shall not sell the land while the obligation exists. Before the maturity of
the mortgage, Darla offered to buy the land from Marlin.
A. Marlin cannot sell the land to Darla because of the agreement not
to sell.
B. Marlin can sell the land to Darla only if Dory consents in writing.
C. Marlin can sell the land to Darla despite the agreement not to sell.
D. Marlin cannot sell the land to Darla unless Marlin pays the
obligation.

42. Koda, Kenei and Mowgli are solidarily liable for P18,000 to Zazu,
payable in 10 month’s time with interest of 10% a month. Mowgli gave
in pledge a P7,000 diamond ring as security for the amount borrowed.
How much can Zazu collect from Koda?
A. P3,000 B. P18,000 C. P6,000 D. P1,000

43. Koda, Kenei and Mowgli are solidarily liable for P18,000 to Zazu,
payable in 10 month’s time with interest of 10% a month. Mowgli gave
in pledge a P7,000 diamond ring as security for the amount borrowed.
If Zazu will return the diamond ring to Mowgli:
A. The total principal obligation is extinguished.
B. Only P6,000 of the obligation is extinguished.
C. Only P3,000 of the obligation is extinguished.

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D. Principal obligation is not extinguished at all.

44. Ned borrowed from Bart P150,000. Ned offered his ferrari by way of
mortgage. It was expressly stipulated that upon non-payment of the
debt on time, the car would belong to Bart. This forfeiture clause,
which has traditionally not been allowed is called:
A. Caveat emptor. C. Pactum commissorium
B. Dacion en pago D. Pacto de retro.

45. Lisa owes Marge the sum of P10,000. Lisa pledged her necklace as
security. Later, Lisa borrowed an additional sum of P5,000. from
Marge. Lisa paid Marge the P10,000 and demands the return of the
necklace which was the property pledged. Marge refused.
A. Marge should deposit the necklace with the court.
B. Marge should retain the necklace until the P5,000 is paid.
C. Marge should return the necklace as the original loan was
already paid.
D. Marge should sell the necklace at public auction to the highest
bidder to insure the collection of P5,000.

/mrs

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