G.R. No.

113236            March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, Petitioner, . . . [D]efendant is a banking corporation. It operates under a certificate of authority
vs. issued by the Central Bank of the Philippines, and among its activities, accepts savings and
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents. time deposits. Said defendant had as one of its client-depositors the Fojas-Arca
QUISUMBING, J.: Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special
savings account with the defendant, the latter authorized and allowed withdrawals of
SUMMARY: Fojas-Arca is a company that holds a special savings account with respondent Luzon funds therefrom through the medium of special withdrawal slips. These are supplied
Development Bank (LDB). The arrangement between Fojas-Arca and LDB was that withdrawals by the defendant to Fojas-Arca.
could be made through special withdrawal slips.
In January 1978, Firestone and Fojas-Arca entered into a "Franchised Dealership
In 1978, Fojas-Arca and petitioner Firestone entered into a Franchised Dealership agreement where Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and
Fojas-Arca could purchase on credit the products of Firestone. Fojas-Arca purchased tires from sell Firestone’s products.
firestone and to cover these, issued 6 special withdrawal slips drawn upon LDB. Firestone deposited
them with its account in Citibank and all 6 of these were honored by LDB. On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-
Arca purchased on credit Firestone products from Firestone with a total amount of
A similar transaction occurred between Fojas-Arca and Firestone, this time involving 4 special P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to Firestone six (6)
withdrawal slips. However, 3 out of 4 of the slips were dishonored and notice of such dishonor special withdrawal slips drawn upon the defendant. In turn, these were deposited by
reached Firestone 6 months after the fact. As a result, Citibank debited the account of Firestone in the Firestone with its current account with the Citibank. All of them were honored and
the amount of over ₱2 million. paid by the defendant.

Firestone filed a complaint for a sum of money against LDB, contending that the latter had been This singular circumstance made Firestone believe and relied on the fact that the
negligent in making it appear that the special withdrawal slips were checks. It averred the following as succeeding special withdrawal slips drawn upon the defendant would be equally
tortious acts of LDB: sufficiently funded. Relying on such confidence and belief and as a direct consequence
thereof, Firestone extended to Fojas-Arca other purchases on credit of its products.
(1) the acceptance and payment of the special withdrawal slips without the presentation
of the depositor's passbook thereby giving the impression that the withdrawal slips are On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J,
instruments payable upon presentment K) and delivered to Firestone the corresponding special withdrawal slips in payment
(2) giving the special withdrawal slips the general appearance of checks; and thereof drawn upon the defendant, to wit:
(3) the failure of respondent bank to seasonably warn Firestone that it would not honor
two of the four special withdrawal slips. WITHDRAWAL SLIP
DATE AMOUNT
NO.
Essentially, Firestone argues that it was led into believing that the withdrawal slips would be honored,
similar to the first transaction. June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Issue: Whether LDB was negligent in doing the above-listed acts Aug. 15, 1978 42129 880,000.00
Held: No. As found by the CA, every time that Fojas-Arca would issue special withdrawal slips, LDB Sep. 15, 1978 42130 981,500.00
would notify Fojas-Arca to present the passbook whenever it received a collection note from another
bank, belying Firestone's claim that respondent bank was negligent in not requiring a passbook under These were likewise deposited by Firestone in its current account with Citibank and
the subject transaction. in turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it
had done in respect of the previous special withdrawal slips. Out of these four (4)
Next, the SC explained that the withdrawal slips in question were not negotiable instruments. Thus, withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was
the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply honored and paid by the defendant in October 1978. Because of the absence for a long
in this case. Hence, LDB was under no obligation to give immediate notice that it would not make period coupled with the fact that defendant honored and paid withdrawal slips No. 42128
payment on the subject withdrawal slips. dated July 15, 1978, in the amount of P981,500.00 Firestone's belief was all the more
strengthened that the other withdrawal slips were likewise sufficiently funded, and that it
The SC held that the fact that the other withdrawal slips were honored and paid by respondent bank had received full value and payment of Fojas-Arca's credit purchased then outstanding at
was no license for Citibank to presume that subsequent slips would be honored and paid the time. On this basis, Firestone was induced to continue extending to Fojas-Arca further
immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the purchase on credit of its products as per agreement (Exh. "B").
highest degree of care.
However, on December 14, 1978, Firestone was informed by Citibank that special
The SC concluded by explaining the withdrawal process. Current account deposits are accepted by withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated
the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or August 15, 1978 for P880,000.00 were dishonored and not paid for the reason 'NO
representative, who indicates therein the current account number to which the deposit is to be ARRANGEMENT.' As a consequence, the Citibank debited Firestone's account for the
credited, the name of the depositor or current account holder, the date of the deposit, and the amount total sum of P2,078,092.80 representing the aggregate amount of the above-two special
of the deposit either in cash or in check. withdrawal slips. Under such situation, Firestone averred that the pecuniary losses it
suffered is caused by and directly attributable to defendant's gross negligence.
THE CASE: This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546, which
affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's On September 25, 1979, counsel of Firestone served a written demand upon the defendant for the
complaint for damages. satisfaction of the damages suffered by it. And due to defendant's refusal to pay Firestone's claim,
Firestone has been constrained to file this complaint, thereby compelling Firestone to incur litigation
FACTS: The facts of this case, adopted by the CA and based on findings by the trial court, are as expenses and attorney's fees which amount are recoverable from the defendant.
follows:
 Controverting the foregoing asseverations of Firestone, defendant asserted, inter At the outset, we note that Firestone admits that the withdrawal slips in question were non-
alia that the transactions mentioned by Firestone are that of Firestone and Fojas- negotiable. Hence, the rules governing the giving of immediate notice of dishonor of
Arca only, [in] which defendant is not involved; Vehemently, it was denied by negotiable instruments do not apply in this case. Firestone itself concedes this point. Thus,
defendant that the special withdrawal slips were honored and treated as if it were respondent bank was under no obligation to give immediate notice that it would not make payment on
checks, the truth being that when the special withdrawal slips were received by defendant, the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable
it only verified whether or not the signatures therein were authentic, and whether or not the instruments. It could not expect these slips to be treated as checks by other entities. Payment or
deposit level in the passbook concurred with the savings ledger, and whether or not the notice of dishonor from respondent bank could not be expected immediately, in contrast to
deposit is sufficient to cover the withdrawal; if Firestone treated the special withdrawal slips the situation involving checks.
paid by Fojas-Arca as checks then Firestone has to blame itself for being grossly negligent
in treating the withdrawal slips as check when it is clearly stated therein that the withdrawal In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development
slips are non-negotiable; that defendant is not a privy to any of the transactions between Bank, had honored and paid the previous withdrawal slips, automatically credited Firestone's current
Fojas-Arca and Firestone for which reason defendant is not duty bound to notify nor give account with the amount of the subject withdrawal slips, then merely waited for the same to be
notice of anything to Firestone. If at first defendant had given notice to Firestone it is merely honored and paid by respondent bank. It presumed that the withdrawal slips were "good."
an extension of usual bank courtesy to a prospective client; that defendant is only dealing
with its depositor Fojas-Arca and not the Firestone. In summation, defendant categorically WITHDRAWAL SLIPS NOT NEGOTIABLE INSTRUMENTS
stated that Firestone has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).
It bears stressing that Citibank could not have missed the non-negotiable nature of the
Firestone's complaint for a sum of money and damages with the Regional Trial Court of Pasay City, withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a
Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of credit instrument lies in its freedom to circulate freely as a substitute for money. The
defendant. withdrawal slips in question lacked this character.

Firestone appealed the decision to the Court of Appeals. It averred that respondent Luzon A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such
Development Bank was liable for damages under Article 2176 in relation to Articles 19 and 20 of account consists only of a few hundred pesos or of millions of pesos. The fact that the other
the Civil Code. As noted by the CA, Firestone alleged the following tortious acts on the part of withdrawal slips were honored and paid by respondent bank was no license for Citibank to
private respondent: (1) the acceptance and payment of the special withdrawal slips without the presume that subsequent slips would be honored and paid immediately. By doing so, it failed
presentation of the depositor's passbook thereby giving the impression that the withdrawal in its fiduciary duty to treat the accounts of its clients with the highest degree of care.
slips are instruments payable upon presentment; (2) giving the special withdrawal slips the
general appearance of checks; and (3) the failure of respondent bank to seasonably warn PROCESS OF WITHDRAWAL
Firestone that it would not honor two of the four special withdrawal slips.
In the ordinary and usual course of banking operations, current account deposits are
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or
appeal and affirmed the judgment of the trial court. According to the appellate court, respondent the latter's agent or representative, who indicates therein the current account number to
bank notified the depositor (Fojas-Arca) to present the passbook whenever it received a which the deposit is to be credited, the name of the depositor or current account holder, the
collection note from another bank, belying Firestone's claim that respondent bank was date of the deposit, and the amount of the deposit either in cash or in check.
negligent in not requiring a passbook under the subject transaction. The appellate court also
found that the special withdrawal slips in question were not purposely given the appearance of The withdrawal slips deposited with Firestone's current account with Citibank were not checks, as
checks, contrary to Firestone's assertions, and thus should not have been mistaken for checks. Firestone admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit.
Lastly, the appellate court ruled that the respondent bank was under no obligation to inform Firestone But having erroneously accepted them as such, Citibank — and Firestone as account-holder — must
of the dishonor of the special withdrawal slips, for to do so would have been a violation of the law on bear the risks attendant to the acceptance of these instruments. Firestone and Citibank could not now
the secrecy of bank deposits. shift the risk and hold private respondent liable for their admitted mistake.

The issue for our consideration is whether or not respondent bank should be held liable for damages
suffered by Firestone, due to its allegedly belated notice of non-payment of the subject withdrawal
slips.

ISSUE: WON respondent Luzon Development Bank was negligent in having dishonored the special
withdrawal slips (NO)

RULING: WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R.
CV No. 29546 is AFFIRMED. Costs against Firestone. SO ORDERED.

RATIO: The initial transaction in this case was between Firestone and Fojas-Arca, whereby the latter purchased tires from the
former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Firestone in turn deposited
these withdrawal slips with Citibank. The latter credited the same to Firestone's current account, then presented the slips for payment to
respondent bank. It was at this point that the bone of contention arose.

On December 14, 1978, Citibank informed Firestone that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and
August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That
information came about six months from the time Fojas-Arca purchased tires from Firestone using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips from Firestone's account, causing the alleged pecuniary damage subject of
Firestone's cause of action.