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    Commercial Law Reviewer by Balbastro

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    9K views312 pages

    Commercial Law Reviewer

    Uploaded by

    Sid Sid
    Commercial Law Reviewer by Balbastro

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
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    Itake this opportunity to acknowledge the invalu- ‘able assistance extended to me by my son, Melecio P. Balbastro I, in the preparation and typing ofthis work. ‘Quezon Gity, Philippines, April 1, 1994 ARTURO E. BALBASTRO Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapler 7 Chapter 8 Chapter 9 Table of Contents General Principles, Negotiable Instruments Law (act 2951) Documents of Tile to Goods (Aaicis 1807-1820, New Crit Goan, and Warehovee Rosell: Law ‘Act 2137) Uniform Currency Law (RA No. 818, apaaing FLA. No 529) Price Tags Law (RA No.71, 98 mendes) Anti-Dumping Law (RA Neo. 1957) Retail Trade Law A Ho. 1180) Flag Law (CA. No. 198,28 amended by FLA. Ne. 134), ‘Corporation Code (P.Big. 68) 15 403 132 139 142. 144 162 Chapter 10 Chapter 11 Chapter 12 Chapter 13. Chapter 14 Chapter 15: Chapter 16 Chapter 17 Chapter 18 Chapter 19 Rovised Securities Act (BF.Big. 178) Reorganization of the Securties and Exchange Commission, ete. (PD.No. 902-8) Insurance Code IPD.No. 612) ‘The Copyright Law (RA No. 8000) The Patent Law (RA No. a259) The Trademark Law RA No. 2000) The insolvency Law (Peto, 1956, a5 amerdea ‘The Bulk Seles Law (PotNo. 9982, 28 amended) ‘The Chattel Mortgage Law (Pet No. 1508, as amended) ‘The New Central Bank Act (RA No. 7852) 285, 413 422 4a7 468 44 488 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Chapter 27 Chapter 26 General Banking Act (RA. No. 937, 65 emenea) ‘The Rural Banks Act, (R.A. No. 720, as amendes) (Off-Shore Banking Law (PD.No. 1034) Secrecy of Bank Daposits (RA. No, 1406, as amendes) ‘The Philippine Deposit Insurance Corporation (RA. No. 2801) Truth in Lending Act (BA.No. 9765) Trust Receipts Law (PD. No. 115) ‘Common Carriors (Acicles 1732-1708, Now Civ Code) Maritime Transportation (Ais 873-669, Codo of Conor, ‘Aries 580-588, Gage of Commerce, 438 suporseded by LA No. 8106, ‘Articles 806-345, Code of Commerce) 498 508 508 si 524 528 532 su Chapter29 Public Service Law (CA.No, 146, as amended) Chapter 30 Salvage Law Chapter 31 Carriage of Goods by Sea Act (Puble Act No. 521, 74% US Congrece-CA No. 65) 598 607 612 REVIEWER IN COMMERCIAL LAW Chapter 1 General Principles, Concepts and Definitions ‘Commerce Defined Q: What 's commerce? A’ Commerce is that phase of human activity which has for ts object to facltale the excharige of goods and. ‘services withthe intont to realize a profit. It emoraces, commercial intercourse in all its branches, inclucing ttansporation of persons and property by common ‘Commercial Law (Q: What is commercial aw? ‘A: Commercial Laws that branch of private law whien governs the rights of property and the relations of ersons engaged in commerce, Maritime Law Q What is maritime law? ‘A: Martime Laws part of commercial law which strictly ‘lates to shipping and its incidents. Its the law of the ‘sea and governs acts arising out of mattime commerce REVIEWER IN COMMERCIAL LAW Provisions of the Code of Commerce Still n Effect ‘Q; What portione of the Code of Commerce of 1888 are stil in affect? A: The portions which are stilin force are the follow 1} Merchants, Book of Merchants.and General Provisions on Contracts, (Aris, 1-63, Coda of Commerce) 2), sJoint Account Associations. (Ars. 239-243, bic.) 2) Commercial Barter, (Ar, 346, Ibid.) 4} Transfers of Non-Negotiable Cregits. (Arts. 347-348, Ibid.) 5) Commercial Contracts of Overland Transporation. (Arts, 349-379, Ibid.) 8). Letters of Credit. (Arts. 567-572, Ibid) 7) Maritime Commerce. (Arts. 573-869, Ibid.) Merchants. ©: Who are merchants? ‘A: Those individuals who, having legal capacity to engage in commerce, habitually devote themselves thereto, as well as partnerships and corporations duly organized in accordance with law and registered with the Securiles and Exchange Commission Q What are the three elements of a merchant? GENERAL PRINCIPLES: ‘A: The three elements are: 41, natural or juridical person; 2. legal capacity, that is, capacity to do acts ‘with legal effects; and 3 habitualty, the test of which is the intention land not the number of acts Law Merchant Q: What is law merchant? A. It's the system of law that does not rast exclusively (on the institutions or local customs of any particular ‘country, but consists of certain principles of equity and usages of trade which general convenience and ‘common sense of justi have established to regulate the dealings of merchants and mariners af all the- ‘commercial couniies of the civilized world. In chor, it is the common iaw of commercial law. Joint Account QWhat is a joint account or Participacion”? A Ii atransaction of merchants where other merchants ‘agree lo contibute the amount of capital agraed upon, uentas en ‘REVIEWER IN COMMERCIAL LAW ‘and participating in the favorable or unfavorable results tharect in the proporiicn they may determine (Article 239, Code of Commerce) Distinctions Between Joint Account and Partnership Q: How do you distinguish joint account or ‘euentas en participacion’ trom partnership? ‘A: The uistinotions are as follows: 1) A partnership has a firm name while a joint ‘account has none and is conducted in the: ‘name'of the ostensible partner, 2) While a partnership has jurical personality ‘andi may sue orbe sued underits firm name, a joint account has no juricical personality ‘and can cue or be suod oniy in tho namo of the ostensible partner. 8) While @ partnership has a common fund. a Joint account has none, 4) Wille in-a partnership, all general partners have the right of management, in a joint acount, the ostensible partner manages its business operations. 5) While liquidation of a partnership may, by agreement, be entrusted to a partner of GENERAL PRINCIPLES: ‘partners, in a joint account liquidation thereof ‘can only be done by the astensible partner. Sources of Commercial Law ©: What era he sources of Commercial Law? As They are 1. Laws 1. Maritime legislation b. Treaties or conventions which are contracts Cor agreements between or among states 2. Judicial decisions 3, Commercial usages and customs 4. Opinions, commentaries and coxifications of ursts and legal scholars. Characteristics of Commercial Law ‘Q: What aro tho charactericties of Commercial Law? ‘A: The characteristics of Commercial Law are: 1. Cosmopoiitenism or universalty which reters to the univorsial applicaion of Commercial Law, REVIEWER IN COMMERCIAL LAW 2. Realism characterizes Commercial Law ast applies to actual life and human activities. 8. Prociseness is the exaciness with which the Principles of Commercial Law provide Solutions to problems of commerce as in the ‘case of Negotiable Instruments Law, to cite an example, 4. Progroscivances characterizes law in general that law must be stable but it cannot stand stil. Such characteristic apples of greator force to Gommercial Law, especially in the face of the rapid advances of science and technology. Aval Q: What is en aval? A: itis an insirument which is given as a security or collateral for anothar instrument. Example: Jose buys goods from Pedro andities to issue a check in payment ofthe price. However, Pecko does not belive inthe cred or solvency of Jose. So, Jose asks Ramon to issuo his own cheok, covering the amount ofthe price ofthe goods. Peck receives the check of Jose in payment ofthe prea, br wth the check of Ramon as.@ secur GENERAL PRINCIPLES: Pedi has no right to use the check of Ramon Unless andl until there is something wrong with tho check ‘of Jose. In cther words, Pedro should use frst the check ‘of Jose. I the check of Jose is good, Pedro cannot use ‘he check of Ramon. Hawever, should the check of Jace be dishonored by the drawee bank for non-payment, it is tme that Pedro can use or resort to the check of Ramon. In this case, the check of Ramon serves as an aval. Problem: Upon the insistence of Gartos, who did not believe in the crecit of Santos, whose check alone is not _acceplable to Carlos, Ramon sent seperately three (3) parts ofa set of bilof exchange lo Carlos wnoindorsed and dolivered said parts te three (3) persone. Santos issued a check to Carlos in payment of certain goods. In case of dishonor of the thres (3) bils of exchange ‘and atter due notice, is Ramon lable for the same? Explain brietly, Answer: In favor of Carlos, Ramon incurs no liability at this point. Ramon issued the three (3) parts ofthe bill ‘of exchange to Carlos as avalto secure the payment of the price for the goods. Carlos should have used the ‘check of Santos first before using the three (3) parts of the bill of exchange, these being the secunty for the ‘REVIEWER IN COMMERCIAL LAW check of Santos. Only when the chack of Santos is dishonored by the drawee bank, has Carlos the right to use one part of the bill of exchange issued by Ramon, With respectto the three persons to whom Garlos indorsed and delivered the three (3) parts of the bill of ‘exchange separately, Ramon is kable to esch of them for each part, said three (3) persons being holders in ‘due course. This is without prejudice to Ramon's right to reimbursement for all three (3) parts of the bill of exchange from Carlos. Allonge. (©: What isan allonge? ‘A: Itisa piece of paper that is attached permanenty to an instrument for the purpose of accommodating of allowing additional indorsements. The majority tue is ‘hat an allonge is allowed only when the back portion of ‘the instrumant is already filled up with indoreements, ‘The attachment ofthe adcitional pioce of papermust bbe with a sense of permanericy. A more pin or paper lip wil not sutfice. The addtional piace of paper must be at least pasted thereto. Crossed Check (Q; What is a crossed check? GENERAL PRINCIPLES AA: Itis a check with two paralil ines, clagonally written ‘on the upper left portion of a check, Purposes for Crossing a Check (Q:Whatare the diferent purposas for erossinga check? ‘A: The ditferent purposes are: 1), Under the Code of Commerce, the purpose is 10 protect the interest of the drawer. When the ‘rawercrossos.a shock, ho csnds amescage to Bart —> Charlie —~ Daley drawer payee culprit. collecting bank “To: Fair Bank (drawee bank) Alex bought goods from Bar for 100,000 on a sixty-day credit. When the 60-day period was about to ‘expire, Alex issued @ chack for 100,000.00 payable to Bart's order drawn upon Fair Bank which is the ‘depositary of Alex. ee Bart ran One hundred thousand only FAIR BANK vos e245 oon esenewezaseo [REVIEWER IN COMMERCIAL LAW Tho check fell into O's hands. C forged B's signature, making it appear that B indorsed the check t0.C. C.deposited the checkin his account with bank D. Fay to Carlos oF order, Bart “Mer tdersoments ofc OM indersement parereed ator Bonk {ack oteneck) NEGOTIASLE INSTRUMENTS LAW Daisy Bank stamped on the face of the check “All Prior Indersements or Lack of Indorsement Guaranteed” which was signed and dated by the authorized office of Daisy Bank. Afterwards, Daisy Bank sent the check through clearing to Fair Bank. ‘After the clearing house period expired, and without hearing any word from Fair Bank, Daisy Bank allowed Chale to withdraw from his account the amount ‘of tha check: Aftor the 60-day period expired, Bart demanded fram Aiex payment for tha goods. It was only then that Alex discovered that something went wrong with the check. When Alex inquired from Fair Bank, Faic Bank replied thatit debited Alex's account to pay the collecting bbank, Daisy Bank. When Alex demended that Fair Bark reimburse the amount, Fair Bank credited back tha ‘amount of P100,00010 Alex's account Fair Bank demanded from Daisy Bank reimbursement for P100,000.00. Daisy Bank refused to-comply with the demand. 41) Can Bart recover from Alex under the check? Explain briotty. Answer: ‘No, Bar is not a holder ofthe check which never ‘came tohis possession although he is the payee named thoroin REVIEWER IN COMMERCIAL LAW 2) Can B recover tromA? Explain brie. Answer: Yes. B can recover from A under the contract of sale forthe price ofthe goods which B gold tA. In fact, ‘A issued the check in question purportedly in payment ff the goods bought by him from B, which check unfortunately did not reach B, 8) Can B recover from © under the check? Explain briethy? ‘Answer: No. B has no privity with'©. Howover, for B to ‘un afterG, he has to implead Aand the cause of action against C is quasi-delict, not under the check. 4) Can B recover from D?- Explain briefly Answer: No. There is ne privily of contract between B ana. 5) IX refused to crecit back the P100,000t0 A’s ‘account, has A any cause of action against X? Explain bret. Answer: (NEGOTIABLE INSTRUMENTS LAW Yes. The contract of deposit between Alex and Fair Bank oniy authorizes Fair Bank to deduct or debit {rom Alex's account in accordance with Alex's inctruction ‘r order addressed to Fair Bank, the depositary bank. Inthis case, the authorty or order of Alex to Fair Bank isto pay Bart, Since the payment was made toa \wrong party, Fair Bank has no authority to deduct the amount from As account so it has to credit back the ‘amount paid tothe wrong party However, Fair Bank can put up the defense that twas As negligence that was ihe proximate cause of the loss. This is specially so iit can be shown that ‘Alex did not take the necessary precautions or exercised due dilgence in sending the check to Bart Under the doctrine of comparative negligence, as between two (2) innocent parties, the party, whose negligence is the proximate cause of the loss, shall suffer the lass. Inthis casa, both Alex and Fair Bankare innocent parties. But it was Alex's negigance which was the proximate cause cfthe loss. This is due tothe failure of ‘Alex to take the necessary precaution in sending the heck to Bar, thereby enabling Charis to forge the ‘signature of Bart in making the indorsement. Therefore, 48 between Alex and Fair Bank, Alox should suff the Joss, REVIEWER IN COMMERCIAL LAW 6) Gan Alex recover from Daisy Bank? Exolain brie. Answer: No. There is no privity of contract between therm. 7)Can Fair Bank recover trom Daisy Bank? Explain briefly Answor: No. The indorsement “All prior indorsements and/or lack of indorsement guaranteed” by the collecting bank, Daisy Bank, should be read in the light of the 24-hour clearing house rules. ‘The fact that Fair Bank allowed the said period 10 expire without informing collecting bank, Daisy Bank, that there was something wrong with the check, entitled the latter bank to allow the withdrawal of the ammount of the check by he forger Charl. In this case, the drawee ‘bank, Fair Bank should sur tho loss. (Republic Bank ¥v. Court of Appeals, G.R. L-42725, 22 April [1991] ‘Comment: ‘The ruling in Republic Bank v. Court of Appeals 'sa reversal of the PNB v. Bank of Pl, G.P. No. 27836, “4 August 1986, end.areversion-jo PNB v. CA and PCIE, L-26001 20'October 1968 25 SCRA 693 and NEGOTIABLE INSTRUMENTS LAW HongKong Shanghai Bank v. People's Bank and Trust Co,, 1-28226, 30 Septomber 1970, 35 SCRA 146. The jast two (2) cases and the subsequent ones following the ruling therein have been criticized as follows: 1) The drawee bank cannot be expected to discover the forgery for the reason that the ‘signature which was forged was not that of the drawer who isa client of the drawee bank, But that of the payee whose signature the drawee ‘bank does not have any specimen for purposes ‘of comparison. The payee is not nesessariy a cliont of the drawae bank. 2) The collecting bank stamped the words “All prior indorsements and/or lack of Indorsement guaranteed’, belore sending he ‘check through clearing to the crawee bank Therefore, the collecting bank should be held liable under the guaranty inasmuch as the forgery is covered thereby. The draweo bank must have relied on said indorsement in allowing the check to go through clearing 9) Between the collecting bank and the drawee bank, itis the former that has direct contact vith the forger. The drawee bankhas ne contact with the forgor whatsoever. FEVIEWER NM COMERCIAL LAW ‘Thore is a standard procedure in banking that before a person can open an aecount with the bank, he js requirod to have three (3) persons ‘of gpod repute and known fo the bank as his feferences. Such procedure has not been {ollowed by the collecting bank when it allowed ‘he forger to open an account with it ‘Q: What is the extent of the guarantee of a collecting ‘bank when it indorses a check bearing a forged indorsement? AA: Itie such an indorser and when itpresants the check to the drawee bank, il guarantees all prior indorsement’s including the forgod indorsoment (Associated Bank v. CA, 252 SCRA 620 [1996)) (@ Who can raise the defense of forgery? ‘AX: A person whose signature to an instrument was {forged was never a party and never consented to the ‘contract which allegedly gave rise to such instrurmant (Associated Bank v. CA, 252 SCRA 620 [1996)). So he is the party who can raise the defense: of forgery ‘against the person who is enforcing or collecting under the instrument in question, |When the indorsement is a forgery, only tho person whose signature is forged can raise the defense of forgery against a holderin due course (Ibid). NEGOTIABLE INSTRUMENTS LAW When the holder's indorsement is forged al patios pir to the forgery may risa the ral defonse of forgery ‘against al parties subsoquent tothe forgery Ibid) ‘An lndorser cannot interpose the defense that the signatures prior to him are forged (Ibid). Payment under a forged indorsement is not to the drawers order (bid, ). ‘Q: When is the drawer precluded from asserting forgery? ‘A: The draweris procluded rom asserting forgery where the drawee bank can prove a failure by the drawer to ‘exercise ordinary care that substantially contributed to tha making of he forged signature (Associated Bank \. CA, 252 SCRA 620 (1996). @: Can the crawoe bank seek reimbursement ora return ofthe amount it paid from the prosantor bank or parson? A: Generally, yes. But the drawee bank has the duty to promptly inform the presentor bank of ths forgery upon discovery and to return the check within twenty-four (24) hours alter discovery of the forgery, but in no event ‘beyond the period fixed by law for the fing of a legal action. (Ibid ) Consideration (@: What constitutes consideration? REVIEWER IN COMMERCIAL LAW A It may consist of any right, interest, profitor benefit ‘acoruing to the party who makes the contract, or any. forbearance, detriment, loss or responsibility 10 act, ‘service or labor given or undertaken by the other party. ‘@How do you clstinguish betwoen “lack of absence of consideration” from * failure of consideration”? 4:1) Lack or absence of consideration - Thers is no consideration since the beginning, 2) Failure of consideration -There is consideration in the beginning, but later on, such consideration disappears. Problem: issues @ check to, the latter being his son, for the Purpose of purchasing school supplies. Is there consideration? Explain aiely. Answer: None. in the beginning, there is no consideration for affection is not a consideration for purposes of the Nagotiabie Instruments Law, unlike in the case of a donation, Problem: Asold his horse toB. Bissues a check in the amount of 150,000 for the price. While the horse was about NEGOTIABLE INSTRUMENTS LAN to be dalivered, the horse died. Was there a ‘consideration for the check? Explain briefly. Answer: None. There i failure of consideration. There was consideration in the beginning, but later on, it disappeared wien the horse died. Q:What isthe effect of lack or fallure of consideration? A: Itis matter of defense as against any person who is nota holderindue cours. Itis a personal or equitable detense. Accommodation ‘@:What is an accommadation party? ‘A:He is one iho has signed the instrument as maker, ‘drawer, acceptor or indorser without receiving any valle therefor and forthe purpose oflendinghis name orcredit to another person. ‘Such a person is liable on the instrument to a holder {or value notwithstanding that such holder, atthe time ‘of the taking ofthe instrument, knew him to be only an ‘acesimmadation party. 6 [REVIEWER IN COMMERCIAL LAW NEGOTIABLE INSTRUMENTS LAW Mustration: Alex —— Bart —— Charlie ‘Accommodation Accommodated Holder party party ‘To: Fair Bank (Drawee Bank) 39 Problem: Bart is buying some goods from Charlie. Charlie does net want to receive Bart's check because he does ot believe in Bart's solvency. Charl told Bartto sacuce | 1 check for the amount of the price from Alex whose Credit standing impresses Charli, Bart talks to his friend ‘Alex. Alex issues a chack for P10,000.00 payable tothe ‘order of Bart and crawn upon Fair Bank Bart gave Alex 500 as a gralication forthe favor. Sune 12 10,000.00 ly _ Alex Upon his receipt of the check from Alex, Bart indorsed the check and dolivered it to Chare who then delivered the goods to Bart but with knowledge that Bart did rot pay Alex any consideration for the check Charli presented the check for payment to Fair ‘Bank. Before Chartie could do that, Alex changed his ‘mind about helping Bart. Alex made a “Stop Payment Order" to Fair Bank so that when the check was presented to Fair Bank, it was dishonored by the same. Charlie made notice of dishonor to Bart and Alex. Can Charlie collect trom Alex? Explain biely Bart ‘ten thousand oni aoa FAIR BANK REVIEWER IN COMMERCIAL LAW Fay to Coils a order, Bart (back of check) NEGOTIABLE INSTAUMENTS LAW Answer: Yes. Charlie can osllectfrem Alex. The fact that there was ne censidoration for tho check is in tho vary nature of an accommodation, Therefore, knowledge on. the part of Charie about the lack of consideration wil not prevent him trom collecting from Alex. The P5OO ie ‘only a gratification but not a consideration. Alex cannot ‘alge the defense of lack of consideration against Charlie, a holder for value. Q: Assuming that Alex pays Charl, isthe instrument diseharged? AA: No. Alexis an accommodation party. Therefore, ha is not the pany ultimately liable or the principal debtor under the instrument. In fact, Alex still needs the instrument 1o secure reimbursement from Bar. : Assuming Bart pays tho chack to Chatllo, is.tho instrument discharged? ‘A: Yes. Bart isthe accommodated party end, therefore, the party ultimately lable or the principal deblor under the instrument. Payment by Bar at or after maturity in |900¢ faith is payment in dus course which discharges the instrament. Gill Alex collects from Bart, is the instrument ‘iccharged? o | REVIEWER IN COMMERCIAL LAW ‘A: Yes. Batis the accommodated party and, therefore, the principal debior or the party uftmately lable under the instrument. Payment by Bar orafter maui of the instrument is payment in due course which discharges the instrument. : Assuming under tne facts of the main problem above that Charlie indorses and delivers the check to Bart before matunty theraot and Bart pays value therelor in (good faith. isthe instrument cischarged? Explain bret ‘A: Neo. The instrument was renegotiated to the principal debtor but he may sll renegotiate it since the instrument is not yol discharged as it had not yet matured. Such payment does not constitute payment in cue course: which discharges the instrument, Problem: Nora appiiad fora jaan of P 100,000.00 with BUR Bank, By way of accommodation, Nora's sistor, Vilma, executed a promissory note in favor of BUR Bank. When Nota defaulted, BUR Bank sued Vilma, dospite its knowledge that Vilma received no part of the loan. ‘May Vilma be held liable? Explain, (BAR 1998) Answer: ‘Yes, Viima’s execution ofthe promissory note was ‘anaccommocation. Viimais the accommodation party, NEGOTIABLE INSTRUMENTS LAW \while her sister, Nora, isthe accommodated party: Lack of consideration iain the very nature of accommodation. Problem: A issuad a bill of exchange payable to the order of B. B negotiated the bill to C. The bill i payable 20 days from date. © negotiated the same instrument to A on the 10th day, Isthe instrumant discharged? Explain bret. Answer: No. Although isthe principal dabtor, ha can sill renegotiate the bil to a subsequent party because at the time tt was renegotiated to A. the bill was not yet due, Since the instrument had not yet matured, payment thereforby Adoes not consltute paymentin due course that discharges the instrument. Payment by the principal debtor at or after ‘maturity is payment due course which is a ground to discharge the instrumant, In this case, it is nol yet paymontin due course because the instrument had nat yet matured. ‘A.was placed back to his position as before. A didnot acquire any betta right against C and B to whom hei silliable as. prior party. In other words, A cannot collect from C just because the instrument was REVIEWER IN COMMERCIAL LAW renegotiatad back to him. Has back to his poston as, a prior pany. @ Assuming in the preceding problem that upon maturity, A presented the instrument for payment and the same was dishonored, Alter giving notice of dishonor to Band, can Acolloct rom 8 or ©? Explain brietl. A: No. Awas placed back to his position as before. A did not acquire any better ight against Gand B to whom heis stil lable as @ prior party, In other wards, A cannot collect from B or © just bbacause the instrumont vias ronogotiated back to him, He is back to his pesition as a party prior to B or C. Problem: For the purpose of fending his name without receiving vaiue thersfor, Pedro makes a note for 20,000.00 payable to the order af X who in tum ‘negotiates it to ¥, the latter knowing that Pacio is not a party for value. 4. May ¥ recover from Pedro ifthe latter interposes the absence of consideration? 2. Supposing, undor the came facts, Pedro ‘pays the said P20,000.00, may he recover the same amount ‘rom X? (BAR 1988) » NEGOTIABLE INSTRUMENTS LAW Answer: 1. Yes. Pedro is an accommodation party. Absence of consideration is in the very nature of accommodation. Pedro cannot taise the defense of absence of ‘consideration, 2. Yes. While Pedro is the accommodation party, X is the accommodated party who benefited from the transaction. To allow X toavoid reimbursing Pedro would.cenefitute Unjust enrichmant on the part of X at the ‘expense of Pecro. ‘Negotiation Q: What is negotiation? A: tis the transfer of the instrument from one person to another in such a manner.as to constitute the transferee the holder thereot. Hf payable to bearer, itis negotiated by delivery. IF payable to order, itis negotiated by the indorsement of the holder completed by delivery ‘Moro physical transfer of possession isnot delivery, ‘The physical actof transferring possession to constitute

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