CASE DIGEST: Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals

 

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents
G.R No. 113236. March 5, 2001.

FACTS:

Fojas-Arca maintains a special savings account with Luzon Development Bank, the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.

In January 1978, plaintiff Firestone and Fojas-Arca entered into a “Franchised Dealership Agreement” whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiffs products.

Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff 6 special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made plaintiff believe and relied on the fact that the succeeding special withdrawal slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.

On various dates, Fojas-Arca purchased Firestone products on credit and delivered to plaintiff 4 special withdrawal slips in payment thereof.

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these 4 withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff’s belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and payment of Fojas-Arca’s credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per agreement.

However, on December 14, 1978, plaintiff was informed by Citibank that the 2 special withdrawal slips were dishonored and not paid for the reason ‘NO ARRANGEMENT.’ As a consequence, the Citibank debited plaintiffs account for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant’s gross negligence. 

ISSUE:

Whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non- payment of the subject withdrawal slips

RULING:

Petitioner admits that the withdrawal slips in question were non-negotiable. Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. Petitioner itself concedes this point. Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner’s current account with the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the withdrawal slips were “good.”

It bears stressing that Citibank could not have missed the nonnegotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character.

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter’s agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or in check.

The withdrawal slips deposited with petitioner’s current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank—and petitioner as account-holder—must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake.