C-09

Gullas v. PNB (1935)

1980

Law on SIMPLE LOAN govern bank deposits (i.e., fixed, savings, current) But as a mere INDORSER, effective notice should have been given for him to protect his rights.

Atty. Gullas has a current account with PNB. The treasury of the US issued a warrant in the amount of $361 payable to the order of Bacos. Gullas and Lopez signed as indorsers of this warrant. Thereupon it was cashed by PNB. The warrant was subsequently dishonored by the Insular treasurer. At that time, Gullas had a balance of P500 in PNB. From this balance, he also issued some checks which eventually could not be paid when it was sequestered by the Bank. When it learned of the dishonor, PNB sent notice to Gullas stating that it applied the outstanding balances from his current account as payment of the dishonored warrant. Such notice could not be delivered to him since he was out of town. WITHOUT ANY ACTION FROM GULLAS, PNB APPLIED THE DISHONORED WARRANT AGAINST HIS ACCOUNT. Because of this, Gullas was unable to pay for the checks he issued before the application. Gullas filed a complaint against PNB.

WON PNB has a right to apply a deposit to the debt of a depositor to the bank

YES PNB has a right to apply the payment against the account of the depositor. The relation between a depositor and a bank is that if CREDITOR AND DEBTOR. The general rule is that a bank has a right to set off of the deposit in its hands for the payment of any indebtedness to it on the part of the depositor. However, prior to the mailing of the 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. NOTICE SHOULD HAVE BEEN GIVEN TO HIM IN ORDER THAT HE MIGHT PROTECT HIS INTEREST. He should be awarded with nominal damages because of the premature action of the Bank (i.e., P250).