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I. COURSE INSTRUCTOR: ALLEN JOY A.

TACTAY

II. COURSE NAME: LAWS ON NEGOTIABLE INSTRUMENTS AND CREDIT


TRANSACTION

III. COURSE DESCRIPTION: This subject delves into the basics and
complexities of the Negotiable Instruments Law and the provisions of
the New Civil Code of the Philippines regarding credit transactions. It
provides the students with a penetrating and balanced perspective of
the functions of credit instruments normally used in business
transactions.

IV. GENERAL OBJECTIVE: At the end of the course, the students should be
able to:
a. Differentiate the different types of negotiable instruments and
credit transactions;
b. Identify the features of negotiable instruments and when they
are supposed to be used;
c. Know the proper remedies and actions to be taken when
endorsing negotiable instruments and loans; and
d. Know the laws/statutes in the Philippines governing negotiable
instruments and credit transactions

V. TEXTBOOK: Any book on Negotiable Instruments Law and Credit


Transcation.

VI. REFERENCES: Negotiable Instruments Law by de Leon, Negotiable


Instruments Act No. 2031, New Civil Code provisions (Article 1933-
Article 2141), Comments and Cases on Credit Transactions by De Leon,
Hector S.
PRELIMS: Brief Introduction and Concepts

I. Introduction
a. Origin
b. Purpose
c. Application
d. Types of Negotiable Instruments
e. Distinctions
f. Concept of Real and Personal Defenses

II. Form of Negotiable Instruments


a. Promissory Note
b. Bills of Exchange

III. Functions of a negotiable instrument

IV. Characteristics of negotiable instrument


a. Negotiability
b. accummulation of secondary contracts

V. Negotiable instruments compared with other papers


a. document of title
b. letter of credit
c. certificate of stock
d. pawn ticket
e. postal money order
f. treasury warrant

VI. Legal Tender Character

NOTE: First Quiz

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS


I. Requisites of negotiability (Sec. 1, NIL)
a. must be in writing and signed by the maker or drawer
b. must contain an unconditional promise or order to pay a sum certain in
money
i. Promise or order to pay must be unconditional
- Reference to transaction (Sec. 3, NIL)
- Source or payment or account to be debited

ii. Payable in sum certain in money


- provisions which do not affect certainty of sum payable
 payment of interest (Sec. 2, NIL)
 payment by installments (Sec. 2, NIL)
 acceleration clause (Sec. 2, NIL)
 payment with exchange (Sec. 2, NIL)
 payment of attorney’s fees (Sec. 2, NIL)

c. Payable on demand or at a fixed or determinable future time


i. when payable on demand (Sec. 7, NIL)
ii. when payable at determinable future time (Sec. 4, NIL)
d. Payable to order or bearer
i. when payable to bearer (Sec. 9, NIL)
ii. rule when instrument is payable to a fictitious person
iii. when payable to order - to whose order the instrument may be
made payable (Sec. 8, NIL)

e. omissions that do not affect negotiability (Sec.6, NIL)


f. additional provisions not affecting negotiability (Sec. 5, NIL)
i. sale of collateral securities
ii. confession of judgment
iii. waiver of benefit
iv. option to require something in lieu of payment

II. Rules to be followed in interpreting negotiable instruments (Sec. 17)


NOTE: Second Quiz
NEGOTIATION

1. Modes of transfer
2. Concept of negotiation (Sec. 30, NIL);
3. Ways of negotiation (in case of order or bearer instruments)
4. Concept of delivery
5. Indorsement
i. Concept
ii. how made (Sec. 31 & 32, NIL)
iii. kinds:
 special and blank (Sec. 34 & 35, NIL)
 conditional (Sec. 39, NIL)
 qualified (Sec. 38, NIL)
 restrictive (Sec. 36 & 37, NIL)
iv. Other rules on indorsement
 indorsement of an instrument payable to bearer (Sec. 40, NIL)
 where instrument is payable to two or more persons (Sec.21, NIL)
 instrument is drawn or indorsed to a person as cashier (Sec. 42, NIL)
 where name of payee or indorsee is misspelled (Sec. 43, NIL)
 indorsement in a representative capacity (Sec. 44, NIL)
 presumption as to time of indorsement (Sec. 45, NIL)
 place of indorsement (Sec. 46, NIL)\
 striking out of indorsement (Sec. 48, NIL)
 transfer of an order instrument without indorsement (Sec.49, NIL)

v. Negotiation by a prior party (Sec. 50)

NOTE: Third Quiz


MIDTERMS: HOLDERS
I. General concept of a holder
II. Holder in due course (requisites) (Sec. 52, NIL)
a. instrument complete and regular
b. taken before overdue
i. rule in case of installment instruments
ii. rule in case of demand instruments (Sec. 53, NIL)
c. notice of infirmity or defect (Sec. 56 & 57, NIL; see also Sec. 54,NIL)
d. good faith
e. holder for value
III. Presumption of due course holding (Sec. 59, NIL)
IV. Rights of holders in due course (Sec. 57, NIL)
V. Shelter Rule (Sec. 58, NIL)

LIABILITY OF PARTIES
I. Primary and secondary liability distinguished
II. Liability distinguished from warranties
III. Liability and/or warranties of parties
a. Maker (Sec. 60, NIL)
b. Drawer (Sec. Sec. 61, NIL)
i. relationship with drawee
ii. relationship with collecting bank
c. Acceptor (Sec. 127 & 62, NIL)
d. Indorsers
i. General indorsers (Sec. 66, NIL)
ii. Qualified indorser (Sec. 65, NIL)
iii. Order of liability
e. Parties negotiating by mere delivery (Sec. 65, NIL)
f. f. Other cases:
 irregular indorser (Sec. 64, NIL)
 indorser of bearer instrument (Sec. 67, NIL)
 accommodation party (Sec. 29, NIL)
 agents signing in behalf of the principal
NOTE: First Quiz
DEFENSES
I. Real and personal defenses, distinguished.
II. Real defenses:
a. minority and ultra vires acts (Sec. 22, NIL)
b. non-delivery of an incomplete instrument (Sec. 15, NIL)
c. fraud in factum
d. forgery and want of authority (Sec. 23, NIL)
 forgery of maker’s signature
 forgery of indorser’s signature
 forgery of drawer’s signature
 forgery of bearer instruments
e. material alteration (partial real defense) (Sec. 124 & 125, NIL)
f. extinctive prescription

III. Personal defenses:


a. ante-dating or post-dating (Sec. 12, NIL)
b. insertion of wrong date (Sec. 13, NIL)
c. filling-up blanks beyond authority (Sec. 14, NIL)
d. want of delivery of a complete instrument (Sec. 16, NIL)
e. absence or failure of consideration (Sec. 28, NIL)
f. simple fraud, duress, intimidation, force or fear, illegality of consideration,
breach of faith (Sec. 55, 56 & 57, NIL)
NOTE: Second Quiz
ENFORCEMENT OF LIABILITY
I. Parties primarily liable and parties secondarily liable
II. General steps in enforcing liability
a. promissory notes
 presentment for payment (Sec. 70, NIL)
 notice of dishonor (Sec. 89, NIL
b. bills of exchange
1. presentment for acceptance (Sec. 143, NIL)
- how made (Sec. 132-135 & 137, NIL)
- time to accept (Sec. 136, NIL)
- rule when incomplete bill is accepted (Sec. 138,NIL)
- kinds of acceptance (Sec. 139-142, NIL)
2. if dishonored by non-acceptance:
 notice of dishonor (Sec. 89, NIL)
 rule in case of foreign bills (See provisions on protest)
3. If accepted:
(a) presentment for payment to acceptor
(b) rule if dishonored upon presentment for payment
(c) rule in case of foreign bill

III. Presentment for payment


a. Concept of presentment
b. Requisites for sufficiency (Sec. 72, NIL)
1. date of presentment (Sec. 71, NIL)
 rule in determining maturity date (Sec. 85, NIL)
 rule in computing time (Sec. 86, NIL)
 rule if payable at a bank (Sec. 75, NIL)
2. place of presentment (Sec. 73 NIL)
 rule if payable at a special place (Sec. 70, NIL)
3. presentment to the party primarily liable
 how presentment made (Sec. 74, NIL)
 rule in case party primarily liable is already dead (Sec. 76, NIL)
 presentment to partners (Sec. 77, NIL)
 presentment to joint debtors (Sec. 78, NIL)

c. Instances where presentment is excused (Sec. 79 & 82, NIL)


d. When delay in presentment excused (Sec. 81, NIL)

IV. Notice of dishonor


a. when dishonor of the instrument occurs:
 dishonor by non-payment (Sec. 83, NIL)
 dishonor by non-acceptance (Sec. 149, NIL)
b. who should give notice
 holder
 agent
 party who may be compelled to pay
c. form of notice (Sec. 43 & 44, NIL)
d. to whom notice is given
(1) party secondarily liable or agent (Sec. 97, NIL)
(2) notice where party is dead (Sec. 98, NIL)
(3) notice to partners (Sec. 99, NIL)
(4) notice to persons jointly liable (Sec. 100, NIL)
(5) notice to bankrupt (Sec. 101, NIL)
e. time and place of notice (Sec. 103-108, NIL)
f. when notice is excused or unnecessary (Sec. 109-112, 114-115, NIL)
g. when delay in giving notice excused (Sec. 113, NIL)

NOTE: Third Quiz


FINALS: DISCHARGE OF INSTRUMENTS
I. Concept of discharge
II. How instrument is discharged (Sec. 119, NIL)
a. payment in due course (Sec. 88, NIL)
 by the principal debtor (Sec. 119 [a])
 by the accommodated party (Sec. 119[b])
b. intentional cancellation
c. rule in case of unintentional cancellation (Sec. 123, NIL)
d. any act that discharge simple contracts
e. principal debtor becomes a holder
III. Discharge of persons secondarily liable (Sec. 120, NIL)
NOTE: First Quiz
CHECKS
I. Checks defined (Sec. 185, NIL)
II. Distinguished from draft
III. Relationship between drawer, drawee and payee
IV. Kinds of check
cashier’s and manager’s check (See BSP Circulars 259, series of 2000 & 291, series of
2001)
 certified check (Sec. 187-189, NIL)
 crossed check (Art. 541, Code of Commerce)
- effects of crossing a check
 memorandum and traveller’s check
V. when required to be presented for payment (Sec. 185, NIL)
VI. effect of death of drawer
NOTE: Second Quiz
CREDIT TRANSCATIONS

I. Commodatum
II. Simple Loan or Mutuum
III. Deposit
IV. Guaranty
V. Pledge, Mortgage and Antichresis
VI. Chattel Mortgage
NOTE: Final Quiz

NOTA BENE:
 Secure a copy of the Negotiable Instruments Act and any book or reviewers on
Negotiable Instruments and Credit Transactions
 Make advance readings: recitations may be conducted during lectures
 Quizzes are always announced and the coverage are noted in this syllabus

GRADING SYSTEM
*Class standing (CS) = 50%
- Attendance, Recitation/class participation, quizzes and seatworks, assignments

*Major Exams = 50%

PG = CS + PE
2

MG = CS + ME
2

FG = CS + FE
2

FINAL GRADE = PG + MG + FG
3

Prepared by: Approved by:

ATTY. ALLEN JOY A. TACTAY DR. EDARLINA A. FAKAT


INSTRUCTOR COLLEGE DEAN