G.R. No.

113236

March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents. FACTS: Fojas-Arca Enterprises is one of the clients of Luzon Devt Bank (Luzon). Fojas-Arca authorized withdrawals of funds from its account with Luzon using special withdrawal slips. These withdrawal slips are supplied by the Luzon to Fojas-Arca. Firestone and Fojas-Arca entered into an agreement whereby Fojas-Arca has the privilege to purchase on credit and sell Firestones products. Fojas-Arca bought on credit Firestone products from Firestone with a total amount of P4.89M. As payment, Fojas-Arca issued to Firestone 6 withdrawal slips drawn upon Luzon. Firestone deposited the withdrawal slips with its current account in Citibank. All of them were honored and paid by Luzon. This circumstance made Firestone believe that the succeeding special withdrawal slips would also be sufficiently funded, so it allowed Fojas-Arca to make subsequent purchases on credit of its products. However, in the next purchases, Firestone was informed by Citibank 2 of the withdrawal slips were dishonored for the reason 'NO ARRANGEMENT.' Because of this, Citibank debited Firestone's account the amount of the two special withdrawal slips. Under such situation, Firestone claimed that the losses it suffered is caused by Luzons negligence. Firestone claimed that Luzon was negligent in 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. failing to warn Firestone that it would not honor two of the four special withdrawal slips ISSUE: W/N Luzon should be held liable for damages suffered by Firestone, due to its allegedly belated notice of non-payment of the withdrawal slips. HELD: No. The initial transaction in this case was between Firestone and Fojas-Arca. When Firestone deposited the withdrawal slips with Citibank, Citibank credited the amount to Firestone's account, then presented the slips for payment to Luzon. It was at this point that the the issue arose. The rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case because the withdrawal slips in question were

non-negotiable. Luzon was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. It appears that Citibank, knowing that Luzon had honored the previous withdrawal slips, automatically credited Firestone's account, then merely waited for the same to be honored and paid by Luzon. 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 fact that the other withdrawal slips were honored and paid by Luzon was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care. The withdrawal slips deposited with Firestones account with Citibank were not checks, and 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.