ACCOUNTANCY INTEGRATION 4

ACTIVITY ACTG-INT4-BUSINESS LAW AND TAXATION

CHAPTER 5 LAW ON NEGOTIABLE INSTRUMENTS

APPLICATION OF LAW

Directions: Read and answer each question carefully.

Note: Copying answers directly from your classmates or from any book and sites from
the internet will automatically get 0 points.

Case 1
Lorenzo signed several blank checks instructing Nicky, his secretary, to fill them as payment for
his obligations. Nicky filled one check with her name as payee, placed P30,000.00 thereon,
endorsed and delivered it to Evelyn as payment for goods the latter delivered to the former.
When Lorenzo found out about the transaction, he directed the drawee bank to dishonor the
check. When Evelyn encashed the check, it was dishonored. Is Lorenzo liable to Evelyn?

Yes, Lorenzo is liable to Evelyn. Lorenzo effectively allowed Nicky to fill in the blank
cheques by signing them and handing them over. As a result, Lorenzo is liable for the payment to
Evelyn, even if he later directed the bank to dishonor the check.

Case 2
Can a corporation be an accommodation party, if so, does the liability of an accommodation
party attach to a corporation?

Yes, a corporation may be an accommodation party. Yes, the obligation of an

accommodation party extends to a corporation.

Case 3
Earl Louie makes a promissory note payable to bearer and delivers the same to Joana. Joana,
however, endorses it to Ana in this manner:
"Payable to Ana. Signed: Joana."
Later, Ana, without indorsing the promissory note, transfers and delivers the same to Batista.
The note is subsequently dishonored by Earl Louie. May Batista proceed against Earl Louie for
the note?

Yes, Batista may pursue Earl Louie for the note. Batista, as the holder of a bearer, has the
authority to compel payment against Earl Louie, the manufacturer, regardless of any earlier
endorsements.

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Case 4

How does the “shelter principle” embodied in the Negotiable Instruments Law operate to give
the rights of a HIDC to a holder who does not have the status of a HIDC? Briefly explain.

The "shelter principle" of the Negotiable Instruments Law enables a holder who is not a
holder in due course (HIDC) to acquire the rights of a HIDC when acquiring a negotiable
instrument from a HIDC. This implies that even if the holder does not complete all of the
qualifications to be designated a HIDC, they can nonetheless inherit the HIDC's privileges if they
get the instrument from one.

Case 5
The drawer delivered a check to Wilma, an agent, for safekeeping only and for the purpose of
evidencing her sincere intention to buy a car owned by RC, who is Wilma’s principal. Wilma did
not return the check and delivered it as payment for her hospital expenses to MB Clinic. Does the
presumption that every holder is presumed to be HIDC apply to MB Clinic?

No, the presumption that every holder will be a holder in due course (HIDC) does not
apply to MB Clinic.

Case 6
NSW received three post dated and crossed checks issued on the condition that the drawer on
due date would make sufficient deposits to cover the checks. NSW did not wait for the maturity
and indorsed the check to an investment house, which deposited the same. The checks bounced.
Is the investment house a holder in due course?

No, the investment house will not be a holder in the future.

Case 7
Is a corporation to which four crossed checks were indorsed by the payee corporation a holder in
due course and hence entitled to recover the amount of the checks when the same had been
dishonored for the reason of “payment stopped”?

No, the corporation to which the crossed checks were endorsed is not a holder in due
course and has no right to collect the amount of the checks after they were dishonored owing to
"payment stopped."

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ACTIVITY ACTG-INT4-BUSINESS LAW AND TAXATION

Case 8
X draws a check against his current account with Bonifacio Bank in favor of B. Although X does
not have sufficient funds, the bank honors the check when it is presented for payment.
Apparently, X has conspired with the bank's bookkeeper so that his ledger card would show that
he still has sufficient funds.

The bank files an action for recovery of the amount paid to B because the check presented has no
sufficient funds. Decide the case

X is responsible to the bank for the sum paid to B.

Case 9

A issued a promissory note payable to B or bearer. A delivered the note to B. B indorsed the
note to C. C placed the note in his drawer, which was stolen by the janitor
X. X indorsed the note to D by forging C's signature. D indorsed the note to E who in turn
delivered the note to F, a holder in due course, without indorsement. Discuss the individual
liabilities to F of A, B and C.

As the creator of the promissory note, A is accountable to F.

B is not responsible to F since the note was payable to the bearer when delivered to B.
C is not accountable to F since the note was taken before any further negotiations could take
place.

Case 10
Treasury warrants were indorsed by A and B. These were presented for encashment by PNB.
Subsequently, these were dishonored by the Insular Treasurer. Because of the dishonor, PNB
applied A’s deposit in the PNB for payment of the warrant. Is the application of the deposit of A
properly enforced?

Yes, PNB's application of deposit A for payment of dishonored treasury warrants is

correctly enforced.

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