NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 105 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
being the drawer and indorser respectively. Another, Firestone may
have sent the notice to Fojas Arca.

141 GULLAS V. PNB
62 PHIL 519

FACTS:
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.

Sec. 90. By whom given. - The notice may be given by or on behalf
of the holder, or by or on behalf of any party to the instrument who
might be compelled to pay it to the holder, and who, upon taking it
up, would have a right to reimbursement from the party to whom
the notice is given.

NOTICE MAY BE GIVEN BY
1. The holder
2. Another in behalf of the holder
3. Any party to the instrument who may be compelled to pay it to
the holderagainst any party whom he has a right of
reimbursement should such party giving notice pay the instrument
4. Another person in behalf of such party

Sec. 91. Notice given by agent. - Notice of dishonor may be given
by any agent either in his own name or in the name of any party
entitled to given notice, whether that party be his principal or not.

NOTICE OF AGENT
Notice may be given by the agent and it is not necessary that the
agent be authorized by the principal
He may give the notice in his name or in the name of his principal
A collecting bank may give notice, and where it has done so, no notice
from the owner is necessary
And where the cashier of the drawee bank which had refused to pay a
check gave the check to a notary to protest, which was done, it was
held that the possession of the check by the cashier was evidence of
his agency of the holder to present it for protest

Sec. 92. Effect of notice on behalf of holder. - Where notice is given
by or on behalf of the holder, it inures to the benefit of all
subsequent holders and all prior parties who have a right of
recourse against the party to whom it is given.

MEANING OF BENEFIT
Benefit refers to the right to charge the person secondarily liable who
received notice
The party to whom this benefit inures can charge the party receiving
notice of dishonor, even if himself didnt give the notice

INURES TO THE BENEFIT OF THE FOLLOWING
1. All parties prior to the holder, who have a right of recourse
against the party to whom the notice is given
2. All holders subsequent to the holder giving notice

I PROMISE TO PAY B OR ORDER P1000.

SGD.A
*B!C!D!E!F
*F notifies B, C, D, E
1. The notice of F to B inures to the benefit of C, D and E, as they
are parties prior to F, who have a right of recourse against B