FIRESTONE TIRE & RUBBER COMPANY V CA

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

QUISUMBING, J.:

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 complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central
Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as
one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca
maintaining a special savings account with the defendant, 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 and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B)
whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.

On January 14, 1978 up to May 15, 1978. 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 six (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 [sic] and relied [sic] 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 the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to
plaintiff 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 [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) 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 (Exh. "B").
 However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127
dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were
dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited
plaintiff's 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.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction
of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been
constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees
which amount are recoverable from the defendant.

Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions
mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved;
Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it
were checks, the truth being that when the special withdrawal slips were received by defendant, it only
verified whether or not the signatures therein were authentic, and whether or not the deposit level in the
passbook concurred with the savings ledger, and whether or not the deposit is sufficient to cover the
withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff 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; 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. If at first defendant had given notice to plaintiff it is merely an extension of usual bank
courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3,
Dec.; pp. 368-370, id).3

Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113,
docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was
liable for damages under Article 21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent: 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.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed
the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present
the passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent
bank was 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 checks, contrary to petitioner's
assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent
bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would
have been a violation of the law on the secrecy of bank deposits.

Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or
negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the
two intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New
Civil Code.8

The issue for our consideration is 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.
The initial transaction in this case was between petitioner 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.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner'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 petitioner 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 petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from
petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.9 Hence, the
rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this
case.10 Petitioner itself concedes this point.11 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 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.12 The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions of pesos.13 The fact that the other withdrawal slips were honored
and paid by respondent bank 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.14

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.15

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.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.