Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Lesson title: Course Orientation and Overview of Negotiable Materials:
Instruments Law Student Activity Sheet
Lesson Objectives: References:
At the end of this module, I should be able to: Hector S. De Leon: Philippine
1. Introduce Commercial law and Banking laws Negotiable Instruments Law
2. Explain the basic concepts of a negotiable instrument Fidelito Soriano: Reviewer on
Business Laws
UST Golden Notes: Mercantile
Law
Act No. 2031: Negotiable
Instruments Law
Productivity Tip: After finishing this module, explain quickly what you’ve learned to your parents / friend
/ pet. Check your module materials again if your explanation is accurate.
A. LESSON PREVIEW/REVIEW
1) Introduction
Which of the following have you done?
Issued/received/seen a check
Deposited/withdrawn/transacted in a bank
Paid/received money through remittance services
If you answered yes to any of the questions above, what are your concerns while doing so? If you
haven’t done any of them, why not?
In this module, we will learn how banking laws are relevant in preparation to the CPA licensure
examination but also in everyday money transactions.
2) Activity 1: What I Know Chart, part 1 (3 mins)
Do you know anything about commercial transactions? Try answering the questions below by
writing your ideas under the first column What I Know. It’s okay if you write keywords or phrases
that you think are related to the questions.
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
What I Know Questions: What I Learned
What is commercial law?
What are banking laws?
What is a negotiable
instrument?
B.MAIN LESSON
1) Activity 2: Content Notes
Commercial law, also known as mercantile law or trade law, is the body of law that applies to the
rights, relations, and conduct of persons and business engaged in commerce, merchandising,
trade, and sales. It is often considered to be a branch of civil law and deals with issues of both
private law and public law (Wikipedia).
Many of these categories fall within Financial law, an aspect of Commercial law pertaining
specifically to financing and the financial markets. It can also be understood to regulate corporate
contracts, hiring practices, and the manufacture and sales of consumer goods. Many countries
have adopted civil codes that contain comprehensive statements of their commercial law.
For CPALE, Regulatory Framework for Business Transactions (RFBT) extends to business laws
including their legal implications. Candidates should know and understand the pertinent legal
provisions, general principles, concepts, and underlying philosophy of the laws applicable to
commerce and business.
What are the laws covered in RFBT?
Based on October 2022 CPALE Syllabus, the following laws are covered in RFBT:
1. Bouncing Checks Law
2. Financial Rehabilitation and Insolvency Act
3. Law on Other Business Transactions
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Law on Other Business Transactions includes Secrecy of Bank Deposits, Philippine Deposit
Insurance Corporation, Truth Lending Act, Data Privacy Act, Anti-Money Laundering Act,
Electronic Commerce Act and others.
Banking laws, on the other hand, is the broad term for laws that govern how banks and other
financial institutions conduct business (Legal Career Path).
What do banking laws regulate?
Banking laws may exist in order to achieve many objectives and some of these objectives include:
- Provide transparency for consumers
- Reduce risk for banking customers
- Avoid misuse of banks for purposes like money laundering
- Allow consumers to bank with confidentiality
- Prevent other crimes
- Prioritize bank lending according to economic and social priorities
- Provide fair banking and equal opportunities for banking
- Prevent terrorism
- Create fair debt collection practices
- Make credit card agreements fair to consumers
- Prevent banks from making unfair loans to insiders like officers and principal shareholders
- Allow customers to reasonably raise disputes
- Other goals (Legal Career Path)
Note: Banking laws are part of commercial laws.
What is a negotiable instrument?
It is a written contract for the payment of money which is intended as a substitute for money
and It passes from one person to another as money, in such a manner as to give a holder in due
course the right to hold the instrument free from defenses available to prior parties (Sundiang
Sr. & Aquino, 2011).
What are the characteristics/features of a negotiable instrument?
1. Negotiability – The note may pass from hand to hand similar to money so as to give the
holder in due course (HIDC) the right to hold the instrument and collect the sum payable for
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
himself free from any infirmity in the instrument or defect in the title of any of the prior parties
or defenses available to them among themselves.
2. Accumulation of secondary contracts– A characteristic of a negotiable instrument where
additional parties become involved as they are transferred from one person to another (De
Leon, 2010).
The Philippine Negotiable Instruments Law was enacted as Act. No. 2031 on the 3rd of February
1911. It took effect 90 days after its publication on March 4, 1911 in the Official Gazette of the
Philippine Islands. This law is 109 years old and has not been repealed or superseded by our
Congress. Our law is patterned with slight modifications after the Uniform Negotiable Instruments
Act of the United States of 1896. The prevailing reason of the Act is to facilitate transactions in
commercial paper and to promote free flow of credit.
Albeit not part of the CPALE Syllabus, NIL law is pertinent to introduce commercial papers as a
medium of payment or a conduit of a certain transaction. It specifically applies to negotiable
instruments or to those instruments which satisfy the requirements of negotiability laid down
under Section 1 of the same Act. The law finds application, more often than not, to business or
commercial industries particularly in their expedient transactions and/or operations.
Section 1. Form of negotiable instruments.
An instrument to be negotiable must conform to the following requirements:
(a) It 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;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The factors to determine the negotiability are as follows:
1. Words that appear on the Face of negotiable instrument
2. Requirements enumerated in Section 1 of NIL
3. Intention of the parties by considering the whole of the instrument
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Rules governing the use of phrases in the Negotiable Instruments
1. As to promissory note
a. The word “promise” need not be used. Any expression equivalent to a promise is
sufficient.
b. Mere acknowledgment of a debt is not a promissory note.
c. Language used must indicate a written undertaking to pay.
2. As to bill of exchange
a. It must contain an order for payment as distinguished from a mere request.
b. The order is not invalidated just because it contains words of civility. Thus, insertion of
polite words like “please” does not alter the character of the instrument; as long as the
language expresses the drawer’s will that the money be paid.
Image from UST Golden Notes
Incidents in the life of a negotiable instrument
1. Issue – first delivery of the instrument to the payee;
2. Negotiation – transfer from one person to another so as to constitute the transferee a holder;
3. Presentment for acceptance (in certain kinds of Bills of Exchange) (Sec. 143)
4. Acceptance – written assent of the drawee to the order;
5. Dishonor by non-acceptance – refusal to accept by the drawee;
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
6. Presentment for payment – the instrument is shown to the maker or drawee/ acceptor for him
to pay;
7. Dishonor by non-payment – refusal to pay by the maker or drawee/ acceptor
8. Notice of dishonor – notice to the persons secondarily liable that the maker or the drawee/
acceptor refused to pay or to accept instrument;
9. Protest
10. Discharge
Here are the rules of construction in case of ambiguities in a Negotiable Instrument:
1. Words prevail over figures.
2. If the date from which interest is to run is unspecified, interest runs from the date of the
instrument; if undated, from the issue thereof.
3. If undated, the instrument is considered dated as of the time it was issued.
4. Written provisions prevail over printed.
5. If there is doubt whether it is a bill or note, the holder may treat it as either at his election.
6. When not clear in what capacity it was signed, deemed signed as an indorser.
7. When two or more persons sign a negotiable instrument stating "promise to pay,"in case of
liability, they shall be deemed to be jointly and severally liable (Sec. 17).
Other terminologies/principles to take notice:
A Holder for value is one who has given a valuable consideration for the instrument. A holder for
value is deemed as such not only as regards the party to whom the value has been given to by him
but also in respect to all those who became parties prior to the time when value was given. (Sec.
26)
To be considered as a Holder in due course (HIDC), the holder must have taken the instrument:
1. That is Complete and regular upon its face;
2. Became the holder before it was Overdue, and without notice that it has been previously
dishonored, if such was the fact;
3. Took it in good Faith and for value; and
4. At the time it was negotiated to him, he had no notice of any Infirmity in the instrument or
defect in the title of the person negotiating it. (Sec. 52)
Under the "shelter principle," the HIDC, by negotiating the instrument, to a party not an HIDC,
transfers all his rights as such holder to the latter and acquires the right to enforce the instrument
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
as if he was an HIDC. The principle applies to a "sheltered" holder who is not a party to any fraud
or illegality impairing the validity of the instrument.
An accommodation party is one who has signed the instrument as maker, acceptor, indorser or
drawer, without receiving value therefore, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation party. (Sec.
29).
2) Activity 3: Skill-building Activities
Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.
Try to complete each exercise before looking at the feedback.
Exercise 1: Think-Pair-Share – In 5 minutes, discuss the following with a classmate and try to
answer all his/her queries. Should you have no answer for the latter, write it in a clean sheet of
paper.
1. Course syllabus
2. Requisites of negotiability
3. Parties to a negotiable instrument
Exercise 2: Read the definition of Negotiable Instrument in the content notes, try to visualize how
the instrument should look then draft it in the space below.
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
3) Activity 4: What I Know Chart, part 2
It’s time to answer the questions in the What I Know chart in Activity 1. Log in your answers in the
table.
4) Activity 5: Check for Understanding (5 mins)
For us to determine whether we have learned something for today I will ask you this question:
1. What are banking laws?
______________________________________________________________________________________________________
______________________________________________________________________________________________________
2. Give me at least three (3) objectives of banking laws.
______________________________________________________________________________________________________
______________________________________________________________________________________________________
3. How do you apply the shelter principle in NIL?
______________________________________________________________________________________________________
______________________________________________________________________________________________________
C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning
Congratulations for finishing this module! Shade the number of the module that you finished.
Did you have challenges learning the concepts in this module? If none, which parts of the module
helped you learn the concepts?
______________________________________________________________________________________________________
______________________________________________________________________________________________________
Some question/s I want to ask my teacher about this module is/are:
______________________________________________________________________________________________________
______________________________________________________________________________________________________
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
FAQs
1. I promise to pay A or bearer Php100,000.00 from my inheritance which I will get after the death
of my father. Indicate and explain whether the promissory note is negotiable or non-negotiable.
It is non-negotiable. It is based on a contingency and not an unconditional promise or order to pay
a sum certain in money [Sec. 1 (b), NIL].
2. Explain each requirement of negotiability present or absent in the instrument.
January 1, 2021
Cebu City
P100,000.00
Sixty days after date, I promise to pay Bobby or his designated representative the sum of ONE
HUNDRED THOUSAND PESOS (P100,000.00) from my BPI Acct. No. 1234 if, by this due date,
the sun still sets in the west to usher in the evening and rises in the east the following morning
to welcome the day.
(Sgd.) Antonio Reyes
The instrument contains a promise to pay and was signed by the maker, Antonio Reyes; the
promise to pay is unconditional insofar as the reference to the setting of the sun in the west in the
evening and its rising in the east in the morning are concerned, these are certain to happen; the
instrument contains a promise to pay a sum certain in money, P100,000.00; the money is payable
at a determinable future time, sixty days after January 1, 2021; the instrument is not payable to
order or to bearer; the promise to pay is conditional, because the money will be taken from a
particular fund, the BPI Account No. 1234.
KEY TO CORRECTIONS
Answers to Skill-Building Exercises
Exercise 1: Answers may slightly vary
This document is the property of PHINMA EDUCATION
Course Code: Banking Laws
Module #1
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Concept Discussion
Course syllabus
Bouncing Checks Law, Financial Rehabilitation and Insolvency
Act, Secrecy of Bank Deposits, Philippine Deposit Insurance
Corporation, Truth Lending Act, Data Privacy Act, Anti-Money
Laundering Act, Electronic Commerce Act and others
Requisites of negotiability
1. It must be in Writing and signed by the maker or drawer;
2. Must contain an Unconditional promise or order to pay a
sum certain in money;
3. Must be payable on demand, or at a fixed or determinable
future time;
4. Must be payable to Order or to bearer; and
5. Where the instrument is Addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty (Sec.1).
Parties to a negotiable
instrument For promissory notes, parties are maker and payee. While for
bills of exchange, parties are drawer, drawee, payee and
acceptor.
Exercise 2: (Possible answer only since answer will vary.)
January 1, 2021
Makati City
P10,000.00
For the value received, I promise to pay Juan Dela Cruz or order the sum of Ten Thousand
Pesos on March 31, 2021.
(Sgd.) Maria Delo Santos
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