IRS CPA REVIEW

Iloilo City and Leganes, Iloilo

REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

LAW ON CONTRACTS

GENERAL PRINCIPLES, ESSENTIAL ELEMENTS,

FORMS, REFORMATION AND INTERPRETATION

MULTIPLE CHOICE QUESTIONS

1. Statement 1: Obligations and contracts are identical.

Statement 2: The object of a contract of sale is its subject matter.

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.

2. Statement 1: If a valid contract is novated to a void contract, both

contracts are considered void.
Statement 2: Without contract, a person cannot be liable to another.

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.

3. Statement 1: Consummation of a contract is manifested by. the offer

and acceptance.
Statement 2: The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful.

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.

4. Statement 1: An offer becomes effective even with the death of either

party after acceptance is conveyed.
Statement 2: X advertised his lot for sale in a newspaper of general
circulation. The advertisement states: “For sale: 500 sq. m. located at
No. 33 Landheights Subd., Villa, Iloilo City. Price: P500,000.00. Term
of payment: Cash only”. W accepted the offer by sending a letter to X
which the latter received. X can still back out from his offer because his
advertisement is merely an invitation to make an offer.

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.

5. Statement 1: Real contracts are perfected by mere consent.

Statement 2: Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place where
the offer was made.

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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6. Statement 1: When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration as something paid or promised.
Statement 2: Misrepresentation made in good faith is not fraudulent
but may constitute error.

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.

7. Statement 1: If the cause is not stated in the contract it is presumed

that it is unlawful.
Statement 2: Persons who are capable cannot allege the incapacity of
those with whom they contracted.

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.

8. Statement 1: Contracts shall be obligatory, in whatever form they may

have been entered into, provided all the essential requisites for their
validity are present.
Statement 2: When, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in reason of
mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument.

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. Contract that is made for a valuable consideration is:

a. Onerous
b. Gratuitous
c. Onerous and gratuitous
d. None of the them

10. Example 1: G, guardian of W, sold W’s house valued at P50,000 for

P37,500 or a lesion by one-fourth of the value.
Example 2: S sold his house valued at P50,000 for only P10,000
because S did not know the true value of the house.

a. Both contracts are rescissible

b. Only No. 1 is rescissible
c. No. 2 is voidable because there is an error or mistake
d. Both contracts are valid and enforceable.

11. The stage of “conception” of a contract is:

a. When the contract is fully executed.

b. When the parties come to an agreement.
c. When negotiations are in progress.
d. A appoints B to sell his land.

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12. Which of the following statements is wrong in relation to the rules on
interpretation of contracts?

a. The contemporaneous and subsequent acts of the parties shall

be principally considered in order to ascertain their intention.
b. If the terms of the contract are clear, the literal meaning of its
stipulations shall control.
c. Obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
d. Doubts in gratuitous contracts shall be settled in such a way that
the greatest transmission of rights and interests shall prevail.

13. The stipulation in a contract to the effect that the debtor should remain
as a servant in the house and in the service of her creditor so long as
she had not paid her debt is void because it is:

a. Contrary to good custom

b. Contrary to public policy
c. Contrary to law and morality
d. None of the these

14. X, after the death of his father, sold his inheritance though its amount
has not yet been determined to B, for a consideration of P50,000.

a. The contract is valid only if the inheritance values at least equal or

more than P50,000.
b. The contract is rescissible.
c. The contract is valid even though nothing remains of the
inheritance to be turned over to B.
d. Contract is void, future inheritance cannot be the object of sale.

15. One of the stipulations contained in the contract between M Company

and its employees is that the company shall pay a bonus to employees
of the company who shall continue its employment for at least 2
consecutive years, unless he quits or is discharged before the
expiration of the period of 2 years. X, an employee of the company
was discharged without just cause one week before the completion of
the two-year period.

a. X is not entitled to the bonus because his discharge was in

accordance with the contract.
b. X is not entitled to the bonus, because the employer’s right to
terminate is superior than the right of the employee to be
employed.
c. X is entitled to the bonus whether the discharge is with or without
cause
d. X is entitled to the bonus because the debtor company has
voluntarily prevented the happening of the condition

16. Example 1: S sold to B in a private instrument his land. Later, B

wanted to have the sale registered, but registration requires a public
instrument. In here, B may compel S to execute the needed public
instrument.
Example 2: S sold to B orally his specific land. After B paid S the price
of the sale, he wanted to register the land in his name hut he needed a
public instrument of sale. In here, B may compel S to execute the
needed public instrument.

a. Both examples are false.

b. Only No. 1 is true.
c. Only No. 2 is true.
d. Both examples are true.

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17. S and B orally agreed that S would sell and B would buy S’s radio for
P400, two years from the date of the agreement. At the end of the two-
year period, S refused to deliver the radio although B was willing to
pay.

a. B can compel S to deliver because B is willing to pay the price.

b. The contract falls under the Statute of Frauds, therefore
unenforceable.
c. No Statute of Frauds because the price is less than P500.
d. The object is movable, oral contract is enforceable.

18. In order that a stipu1ation in favor of a third person in a contract would

be valid and binding upon the parties thereto, three of the requisites
are mentioned in the following enumeration. Which among them is not
a requisite?

a. There must be a stipulation in favor of a third person.

b. The contracting parties must have clearly and deliberately
conferred a favor upon that third person.
c. The ‘third person communicated his acceptance to the obligor
before its revocation.
d. That there must be an’ existing agency between either of the
contracting parties and the third person.

19. D owes C P500. However, C’s right has already prescribed.

Notwithstanding the knowledge of this fact, D paid the amount.
Realizing this mistake, D wants to recover the amount he paid.

a. D can be made to recover on ground of mistake.

b. D can be made to recover on the ground that his obligation is not
legally enforceable.
c. D can be made to recover because this will enrich C at the
expense of D.
d. D cannot recover.

20. Example No. 1: D obliged himself to give C P10,000. However, the day
before the obligation falls due, D’s apartment was completely gutted by
accidental fire. There is no question that the money was also razed by
fire. The obligation of D is totally extinguished because of fortuitous
event.
Example No. 2: D obliged himself to pay C P10,000 with 6% interest,
On the due date, D tendered P10,000 with a promise to pay the P600
interest the day after. If C refused to accept, he can be compelled to
do so because the obligation is divisible.

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.

21. Example No. 1: D for P 10,000 mortgaged his land to C. C instead of a

deed of mortgage executed a deed of sale and let D sign his name.
D’s right is to go to court and ask for annulment.
Example No. 2: D obliged himself to give object No. 1 or object No. 2
to C. In here, both objects are due.

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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22. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.
Which of the following constitutes a definite offer?

a. An offer made through an agent

b. Business advertisement of things for sale
c. Advertisement for bidders
d. All of the above

23. On July 15, 2022, X entered into a contract with Y. On February 10,
2023, X discovered that fraud was committed at the time he entered
into the contract, a fraud that vitiated his consent. The action for
annulment shall be brought

a. Within three years from the time of the fraud

b. Within four years from February 10, 2023
c. Within four years from the time A entered into the contract
d. On February l0, 2023

24. D owes C P 10,000. But the debt soon prescribed. Later X, against the
consent of D, pays C P10,000.

a. X can recover from D P 10,000 because the latter was enriched

at the expense of X.
b. X has no right.
c. X cannot recover from D what he pays C.
d. Both D and C are liable to X.

25. In a contract of sale executed by S and B; it appears S sold his motor

vehicle to B and B bought it for P 10,000. It turned out however, S has
three motor vehicles. Gallant valued P80,000: Hi-Ace van valued
P70,000; and a Jeep valued P60,000. Which of the following is
correct?

a. The contract shall be reformed because there was mistake.

b. The parties can ask for interpretation because the word Motor
vehicle is ambiguous.
c. The parties can ask for annulment of the contract.
d. There is no contract.

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