Gullas V Philippine National Bank

Gullas v Philippine National Bank (Savings and current deposits are loans)
G.R. No. L-43191, November 13, 1935

FACTS:
 The parties to the case are:
 Paulino Gullas -a member of the Philippine Bar, resident in the City of Cebu.
 and the Philippine National Bank- 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: the right of Philippine National Bank, and to apply a deposit to the debt of depositor to the bank
RULING:
 The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq.,
1758 et seq.
 The portions of Philippine law provide that compensation shall take place when two persons are
reciprocally creditor and debtor of each other (Civil Code, article 1195).
 In his connection, it has been held that the relation existing between a depositor and a bank is that of
creditor and debtor.
 As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor.
 In Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a bank has no right,
without an order from or special assent of the depositor to retain out of his deposit an amount sufficient
to meet his indebtedness.
o The basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular
deposits, e. g., the deposit of money with a banker. With freedom of selection and after full
preference to the minority rule as more in harmony with modern banking practice.
 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. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.)
 The decision cited represents the minority doctrine, for on principle it would seem that notice is not
necessary to a maker because the right is based on the doctrine that the relationship is that of creditor
and debtor.
 However this may be, as to an indorser the situation is different, and notice should actually have been
given him in order that he might protect his interests.
 We accordingly are of the opinion that the action of the bank was prejudicial to Gullas.
 But to follow up that statement with others proving exact damages is not so easy.
 For instance, for alleged libelous articles the bank would not be primarily liable.
 The same remark could be made relative to the loss of business which Gullas claims but which could not
be traced definitely to this occurrence.
 Also Gullas having eventually been reimbursed lost little through the actual levy by the bank on his funds.
 On the other hand, it was not agreeable for one to draw checks in all good faith, then, leave for Manila,
and on return find that those checks had not been cashed because of the action taken by the bank.
 That caused a disturbance in Gullas' finances, especially with reference to his insurance, which was
injurious to him.
 All facts and circumstances considered, we are of the opinion that Gullas should be awarded nominal
damages because of the premature action of the bank against which Gullas had no means of protection,
and have finally determined that the amount should be P250.
 Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the
result that the judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff
the sum of P250, and the costs of both instances.
NOTES:
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.
(Negotiable Instruments Law, sec. 66.) 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.

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Gullas v Philippine National Bank (Savings and current deposits are loans)

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

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