PAULINO GULLAS vs.

THE PHILIPPINE NATIONAL BANK

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

FACTS:

The Treasurer of the United States issued a Warrant payable to the order of Francisco Bacos.
Atty. Paulino Gullas and Pedro Lopez signed as endorsers of this check. It was cashed by PNB, but was
dishonored by the Insular Treasurer.

At that time, the outstanding balance of Atty. Gullas on the books of the bank was P509. Against
this balance he had issued certain checks which could not be paid when the money was sequestered by
the bank.

The bank, upon learning of the dishonor of the treasury warrant, sent notices by mail to Atty.
Gullas, but these could not be delivered to him at that time because he was in Manila.

In the bank's letter addressed to Gullas and Lopez, they were informed that the US Treasury
warrant has been returned due to the stop payment order by the Insular Treasurer. They were also
informed that PNB applied the outstanding balances of Atty. Gullas in his current account for the
payment of the foregoing check.

Because of what PNB did (it applied Gullas’s deposit to pay for the unpaid check), the checks
issued by Atty. Gullas including one for his insurance were not paid because of the lack of funds. Certain
publications also published articles regarding the matter, to the prejudice of Atty. Gullas.

ISSUE:

WON PNB had the right to apply Gullas’s deposit for the payment of the indorsed check

HELD: No.

The NIL establishes 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.
(Negotiable Instruments Law, sec. 66.)

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. 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, Gullas was merely an indorser and had issued in good faith.

Atty. Gullas should be awarded nominal damages because of the premature action of the bank against
which Atty. Gullas had no means of protection.