NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 94 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
The US government issued a warrant payable to the order of Bacos. Gullas
and Lopez appeared as indorsers of the warrant. It was then encashed by
the PNB. Subsequently, the warrant was dishonored by the Insular
Treasurer. Upon learning of the dishonor, notices were sent to Gullas by
the bank but it wasnt receive by Gullas as he was currently not within the
vicinity. In the said notices served to Gullas and Lopez, it was indicated
therein that since there was dishonor of the warrant, their corresponding
accounts have been charged. It was only after the return of Gullas in Cebu
when he received the notices. This caused prior inconvenience to Gullas.
First, he wasnt able to pay for his insurance due to the lack of credit in his
bank account and second, the incident was given prominence in Cebu to
the great mortification of Gullas.

HELD:
The general indorser of a negotiable instrument engages that if it be
dishonored and the necessary proceedings of dishonor be duly taken, he
will pay the amount thereof to the holder. In this connection, it has been
held by a long line of authorities that notice of dishonor is necessary in
order to charge an indorser and that the right of action against him doesnt
accrue until the notice is given.

As a general rule, a bank has a right of setoff of the deposits in its hands
for payment of any indebtedness on the part of a depositor but this should
be enforced properly. It is undeniable in this case that PNB didnt enforce
its right properly. It made used of the money in the account of Gullas prior
to its sending of notice of dishonor.

128 ASSOCIATED BANK V. TAN
446 SCRA 282

FACTS:
Tan deposited with the bank a check issued to him by Cheng. The check
was reflected in the bank record and consequently, after being informed
that the check has been cleared, Tan withdrew an amount from his
account. He then deposited money again to his account to make good the
value of the checks he issued to his suppliers. To his surprise, his suppliers
went back to him and told him that the checks he issued all bounced due to
insufficient funds. He demanded the bank to take positive steps about the
incident but the bank didnt do anything.

HELD:
As a general rule, a bank has the right of setoff of the deposits in its hands
for payment of any indebtedness on the part of a depositor but this should
be enforced properly. This is the question to be resolved in this caseon
whether the remedy was properly exercised by the bank.

It is undisputed that purportedly as an act of accommodation to a valued
client, petitioner allowed the withdrawal of the face value of the check prior
to its clearing. That act certainly disregarded the clearance requirement of
the banking system. Such a practice is unusual, because a check is not
legal tender or money and its value can be properly transferred to a
depositors account only after the check has been cleared by the drawee
bank.

Under ordinary banking practice, after receiving a check for deposit, the
bank either credits the amount to a depositors account or infuse value to
that account only after the drawee bank shall have paid the amount.
Before clearance, the collecting bank can only assume the risk that the
check would be cleared and paid out. In this case, bank shouldnt have
allowed Tan to withdraw as it exceeded his outstanding account balance.

Furthermore, there was failure to show immediate notice to Tan. Notice
was proper and ought to be expected given that Tan was a valued client.
Also, as a general indorser, a notice of dishonor should have been first
served upon him. And lastly, the deposit made by Tan was not unusual for
a reputed businessman like Tan who ordinarily takes note of the amount of
money he takes and releases to immediately deposit money in his current
account to answer for the postdated checks he had issued.

129 GONZALES V. RCBC
508 SCRA 459

FACTS:
Gonzales mother received a foreign check from the US, drawn by a certain
doctor on behalf of a medical group. Since the bank gives special
accommodations to its employees to receive the full value of a check
without awaiting the clearing period, Gonzales presented the foreign check
to Gomez, the head of Retail Banking. After examining the same, Gonzales
was asked to indorse it and so she did. Gomez then acquiesced to the
early encashment of the check, signed the check but indicated therein her
authority of up to P17500 only. Afterwards, Gonzales was asked to
procure from another employee his signature and she was good to go. She
did what she was asked to do and she received the value of the check.
Thereafter, the check was dishonored due to having an irregular
indorsement. Gonzales was informed about this. The first arrangement
was that the value of the check would be deducted from her salary.
Thereafter, she was asked to pay the check but she didnt.