FACTS ON GENERAL INDORSER AND THE LIABILITIES OF AN ACCOMMODATION

PARTY.
Ang Tiong Vs. Lorenzo Ting and Felipe Ang
G. R. No. L-26767, February 22, 1968
Castro, J.:

DOCTRINE

FACTS ON ESTABLISHING THE LIABILITY OF A GENERAL INDORSER AND GIVING

THE PROCEDURE FOR A NOTICE OF DISHONOR.
Paulino Gullas, Vs. The Philippine National Bank
G.R. No. L-43191, November 13, 1935
Malcolm, J.:

DOCTRINE:
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. 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

Facts:
Petitioner Gullas maintains a current account with herein respondent PNB. He together with one Pedro
Lopez signed as endorsers of a Warrant issued by the US Veterans Bureau payable to the order of one
Francisco Bacos. PNB cashed the check but was subsequently dishonored by the Insular Treasurer. PNB
then sent notices to petitioner which could not be delivered to him at the time because he was in Manila.
PNB in the letter informed the petitioner the outstanding balance on his account was applied to the part
payment of the dishonored check. Upon petitioner’s return, he received the notice of dishonor and
immediately paid the unpaid balance of the warrant. As a consequence of these, petitioner was
inconvenienced when his insurance was not paid due to lack of funds and was publicized widely at his area
to his mortification

ISSUE:
Is PNB has the right to apply petitioner’s deposit to his debt to the bank.

RULING:
No, 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. The Civil Code contains provisions regarding compensation
(set off) and deposit. The portions of Philippine law provide that compensation shall take place when two
persons are reciprocally creditor and debtor of each other. In this connection, it has been held that the
relation existing between a depositor and a bank is that of creditor and debtor.

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.
Gullas was merely an indorser and had issued in good faith. 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.
FACTS ON WITHIN WHAT TIME A CHECK MUST BE PRESENTED.
Philippine National Bank Vs. Benito Seeto
G.R. No. L-4388, August 13, 1952
Labrador, J.:

DOCTRINE
A check must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay. Unlike a bill of exchange as
required by Section 143, Section 144 of the law is not applicable to the case at bar but Section 84, which
provides: Liability of person secondarily liable, when instrument dishonored. — Subject to the
provisions of this Act, when the instrument is dishonored by nonpayment, as immediate right of recourse
to all parties secondarily liable thereon accrues to the holder.
It is true that Section 143 and 144 of the law are not applicable, because these are provisions having to do
with the presentation of a bill of exchange for acceptance, and are not applicable to a check, as to which
presentment for acceptance is not required. It is also true that Section 84 is applicable, but its application
is subject to the condition imposed by Section 186, to the effect that the check must be presented for
payment within a reasonable time after its issue.

FACTS
In 1948, Gan Yek Kiao drew a check in the amount of P5,000.00 payable to cash or to bearer. The check
was delivered to Benito Seeto. Seeto presented the check to Philippine National Bank for payment. PNB
gave Seeto the amount of the check. The check was later dishonored. PNB asked Seeto to refund the
amount given to him but Seeto refused because he said the cause of the dishonor was PNB’s unreasonable
delay in encashing it. PNB invoked Section 84 of the Negotiable Instruments Law which states:
SEC. 84. Liability of person secondarily liable, when instrument dishonored. – Subject to the provisions
of this Act, when the instrument is dishonored by nonpayment, an immediate right of recourse to all
parties secondarily liable thereon accrues to the holder.

ISSUE:
Is PNB is correct that Seeto is liable for unqualified indorsement of the check

RULING :
No. Section 84 of the Negotiable Instruments Law must be coupled with Section 186 of the same law
which states:
SEC. 186. Within what time a check must be presented. – A check must be presented for payment within
a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the
loss caused by the delay.
In effect, Seeto was discharged from liability as a secondary party. Section 186 expressly requires that a
check must be presented for payment within a reasonable time after issue. It has been ruled in a lot of
cases that unreasonable delay in the presentment of a negotiable instrument discharges a drawer only to
the extent of the loss caused thereby but an indorser is wholly discharged thereby irrespective of any
question of loss or injury. Only when there is affirmative proof that the indorser knew when he cashed the
check that there would be no funds in the bank to meet it can this rule be avoided.