Firestone vs CA

Firestone Tire & Rubber Co. of the Phils. vs. Court of Appeals

[G.R. No. 113236.  March 5, 2001]

FACTS:

Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development Bank which authorized and allowed the former to withdraw funds from its account through the medium of special withdrawal slips.  Fojas-Arca purchased on credit products from Firestone with a total amount of P4,896,000.00.  In payment of these purchases, Fojas-Arca delivered to plaintiff six special withdrawal slips drawn upon the respondent bank.   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.  However, in a subsequent transaction involving the payment of withdrawal slips by Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the total sum of P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO ARRANGEMENT".

ISSUE:

Whether 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:

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.  As the withdrawal slips in question were non-negotiable,  the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply.  The 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.  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.