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Gullas vs. National Bank, 62 PHIL. 519, NO. 43191 NOVEMBER 13, 1935

The bank applied a deposit from attorney Paulino Gullas to cover a dishonored treasury warrant that Gullas had endorsed. Without notifying Gullas first, the bank seized $509 from his account to pay the warrant, causing some of his checks to bounce. Gullas sued the bank, arguing they improperly exercised their right of set off. The court ruled that banks generally have the right of set off, but in this case the bank acted improperly against Gullas as an indorser by not providing notice before seizing the funds, denying him the ability to protect his interests. The bank should have notified Gullas before applying the funds from his account.

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244 views2 pages

Gullas vs. National Bank, 62 PHIL. 519, NO. 43191 NOVEMBER 13, 1935

The bank applied a deposit from attorney Paulino Gullas to cover a dishonored treasury warrant that Gullas had endorsed. Without notifying Gullas first, the bank seized $509 from his account to pay the warrant, causing some of his checks to bounce. Gullas sued the bank, arguing they improperly exercised their right of set off. The court ruled that banks generally have the right of set off, but in this case the bank acted improperly against Gullas as an indorser by not providing notice before seizing the funds, denying him the ability to protect his interests. The bank should have notified Gullas before applying the funds from his account.

Uploaded by

mark gil alpas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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GULLAS VS.

NATIONAL BANK,
62 PHIL. 519, NO. 43191 NOVEMBER 13, 1935

PONENTE: MALCOLM, J.:

FACTS:
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 indorsers 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 checks which could not be paid when the
money was sequestered by the bank. 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 addressed to Messrs. Paulino Gullas and Pedro Lopez, they were informed that the United
States Treasury warrant 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 notice of dishonor was received and the unpaid balance of the United
States Treasury warrant was immediately paid by him.
As a consequence, checks including one for his insurance were not paid because of the
lack of funds standing to his credit in the bank and periodicals in the vicinity gave prominence to
the news to the great mortification of Gullas.

ISSUE:
Whether the Philippine National Bank has the right to apply a deposit to the debt of a
depositor.

RULING:
Yes. 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. With freedom of selection and after full consideration, we have decided
to adopt the general rule in 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 checks 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.

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