NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S 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 wasn’t 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 wasn’t 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 doesn’t 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 didn’t 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 didn’t 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 case—on 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 depositor’s 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 depositor’s 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 shouldn’t 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 didn’t.