Gullas V PNB

Paulino Gullas, Plaintiff-Appellant, v. The Philippine National Bank, Defendant-Appellant.
G.R. No. L-43191. November 13, 1935.
Facts: The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is
a member of the Philippine Bar, resident in the City of Cebu. The second named is a banking
corporation with a branch in the same city. Attorney Gullas has had a current account with the bank.
It appears from the record that on August 2, 1933, the Treasurer of the United States for the United
States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco
Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of this check. Thereupon it
was cashed by the Philippine National Bank. Subsequently the treasury warrant was dishonored by
the Insular Treasurer. At that time the outstanding balance of Attorney Gullas on the books of the
bank was P509. Against this balance he had issued certain cheeks which could not be paid when the
money was sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila.
The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas
which could not be delivered to him at that time because he was in Manila. In the bank's letter of
August 21, 1933, addressed to Messrs. Paulino Gulla and Pedro Lopez, they were informed that the
United States Treasury warrant No. 20175 in the name of Francisco Sabectoria Bacos for $361 or
P722, the payment for which had been received has been returned by our Manila office with the
notation that the payment of his check has been stopped by the Insular Treasurer. "In view of this
therefore we have applied the outstanding balances of your current accounts with us to the part
payment of the foregoing check", namely, Mr. Paulino Gullas P509. On the return of Attorney Gullas
to Cebu on August 31, 1933, notice of dishonor was received and the unpaid balance of the United
States Treasury warrant was immediately paid by him. As a consequence of these happenings, two
occurrences transpired which inconvenienced Attorney Gullas. In the first place, as above indicated,
checks including one for his insurance were not paid because of the lack of funds standing to his
credit in the bank. In the second place, periodicals in the vicinity gave prominence to the news to the
great mortification of Gullas.
Issue: Whether PNB has the right to automatically credit Gullas' account and was not prejudicial to
the latter.
Ruling: The Court is accordingly are of the opinion that the action of the bank was prejudicial to
Gullas. The Negotiable Instruments Law contains provisions establishing the liability of a general
indorser and giving the procedure for a notice of dishonor. The general indorser of negotiable
instrument engages that if he be dishonored and the, necessary proceedings of dishonor be duly
taken, he will pay the amount thereof to the holder. In this connection, it has been held a long line
of authorities that notice of dishonor is in order to charge all indorser and that the right of action
against him does not accrue until the notice is given. Starting, therefore, from the premise that the
Philippine National Bank had with respect to the deposit of Gullas a right of set off, we next consider
if that remedy was enforced properly. The fact we believe is undeniable that prior to the mailing of
notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant. At this point recall that Gullas was
merely an indorser and had issued in good faith. As to a depositor who has funds sufficient to meet
payment of a check drawn by him in favor of a third party, it has been held that he has a right of
action against the bank for its refusal to pay such a check in the absence of notice to him that the
bank has applied the funds so deposited in extinguishment of past due claims held against him.

Gullas V PNB

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Gullas V PNB

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Paulino Gullas, Plaintiff-Appellant, v. The Philippine National Bank, Defendant-Appellant.

G.R. No. L-43191. November 13, 1935.

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