Case Digest: Gullas v. Philippine National Bank, 62 SCRA 519

Commercial Law | Bank Deposit

Facts:

• Paulino Gullas is a member of the Philippine Bar residing in Cebu.
• On August 2, 1933, the Treasurer of the United States for the United States Veterans Bureau issued a Warrant in the amount of $361 or P722, payable to the order of Francisco Sabectoria Bacos. 
• Paulino Gullas and Pedro Lopez signed as endorsers of this check. 
• 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.
• On August 20, 1933, Gullas left for Manila.
• The bank, upon learning of the dishonor, sent notices to Gullas, who was in Manila at the time.
• On August 21, 1933, the bank informed Gullas and Lopez of the dishonor and stated that they had applied the outstanding balance of Gullas's account to partially cover the dishonored Treasury Warrant.
• On August 31, 1933, Gullas returned to Cebu o and immediately paid the unpaid balance of the Treasury Warrant.
• As a result of these events, Gullas faced two inconveniences: 
1. his checks, including one for insurance, were not paid due to insufficient funds in his account, and 
2. the news of the dishonor caused him great mortification as it was publicized in local periodicals.

CFI-Cebu:  Sentenced the Philippine National Bank to return to the account of the plaintiff the sum of P509, with legal interest and costs, the plaintiff to secure damages in the amount of P10,000 more or less, and the defendant to be absolved totally from the amended complaint.

1.  The element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and hence, are the real parties-in-interest; and
2. The Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused."

• It added that allowing the 112 cases for Qualified Theft filed against the respondents violate the constitutional right of the respondents to be informed of the nature and cause of the accusation. 

Issue: 

• Whether the Philippine National Bank has the right to apply a deposit to the debt of depositor to the bank.  YES

Held:

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. (Fulton Iron Works Co. vs. China Banking Corporation [1933], 59 Phil., 59.)

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. 

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. 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. 

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.