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FIRESTONE vs. CA REQUISITES OF NEGOTIABILITY
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
G.R. No. 113236 March 5, 2001
Special withdrawal slips – non-negotiable
QUISUMBING, J.
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.
FACTS:
Firestone and Fojas-Arca entered into a "Franchised Dealership Agreement"
whereby Fojas-Arca has the privilege to purchase on credit and sell Firestone's products.
Pursuant to the Agreement, Fojas-Arca purchased on credit Firestone products (tires) from
Firestone with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn upon the Luzon Development
Bank (Luzon Bank). In turn, these were deposited by the Firestone with its current account
with the Citibank. All of them were honored and paid by the Luzon Bank. 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,
Firestone extended to Fojas-Arca other purchases on credit of its products. Fojas-Arca
purchased Firestone products on credit and delivered to Firestone the corresponding special
withdrawal slips in payment thereof drawn upon the defendant, to wit:
WITHDRAWAL
DATE AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
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. However, Firestone was informed by
Citibank that special withdrawal slips No. 42127 and No. 42129 were dishonored and
not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited
Firestone's account for the total sum of P2,078,092.80 representing the aggregate amount of
the above-two special withdrawal slips. A written demand upon Luzon Bank was made but
the latter refused thus Firestone has been constrained to file this complaint for damages.
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FIRESTONE vs. CA REQUISITES OF NEGOTIABILITY
Luzon Bank’s Defense:
1. Transaction involved is only between Firestone and Fojas-Arca in which Luzon
Bank is not involved
2. Denies that special withdrawal slips were honored and treated as if it were
checks,
3. If Firestone treated the special withdrawal slips paid by Fojas-Arca as checks
then it has to blame itself for being grossly negligent in treating the withdrawal
slips as check when it is clearly stated therein that the withdrawal slips are non-
negotiable;
4. that defendant is not a privy to any of the transactions between Fojas-Arca and
plaintiff for which reason defendant is not duty bound to notify nor give notice of
anything to plaintiff.
RTC: DISMISSED the complaint
On Appeal:
Firestone alleged the following tortuous acts by Luzon Bank:
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 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 petitioner that it would not
honor two of the four special withdrawal slips.
CA: AFFIRMED ruling of RTC
ISSUES:
Whether or not Luzon Bank should be held liable for damages suffered by Firestone,
due to its allegedly belated notice of non-payment of the subject withdrawal slips
HELD:
NO. At the outset, we note that 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. 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,
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FIRESTONE vs. CA REQUISITES OF NEGOTIABILITY
automatically credited Firestone’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 non-negotiable 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.
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
Firestone as account-holder — must bear the risks attendant to the acceptance of these
instruments. Firestone and Citibank could not now shift the risk and hold Luzon Bank liable
for their admitted mistake.
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