Professional Documents
Culture Documents
1 NIL Firestone Tire and Rubber Co Vs CA
1 NIL Firestone Tire and Rubber Co Vs CA
FACTS
Luzon Development Bank (Defendant/LBP) is a banking corporation. One of its clients, the Fojas-Arca Company, maintained a special
savings account with defendant, to which the LBP allowed withdrawals of funds through the medium of special withdrawal slips.
Later, Firestone Tire & Rubber Co. (Plaintiff/Firestone) and Fojas-Arca entered into a Franchised Dealership Agreement whereby
Fojas Archa has the privilege to purchase on credit and sell plaintiff’s products, amounting to P4, 896,000. In payment of these
purchases, Fojas-Arca delivered six special withdrawal slips upon LBP. Consequently, these were deposited by Firestone in its current
account with Citibank. All six withdrawal slips were honored and paid by LBP. This circumstance made Firestone believe that the
succeeding withdrawal slips would be equally sufficiently funded.
However, on December 14, 1978, Firestone was informed by Citibank that the TWO special withdrawal slips were dishonored and not
paid for the reason of NO ARRANGEMENT. By this, Firestone wrote a demand upon LBP for the satisfaction of the damages suffered
by it, but due to LBP’s refusal to heed such demand, plaintiff filed this complaint.
LBP’s Assertions:
The transactions mentioned by Firestone are that of Firestone and Fojas-Arca only, and which, LBP is not involved, for which
reason defendant is not duty bound to notify nor give notice of anything to plaintiff.
LBP denied that the withdrawal slips were honored by them, they merely verified w/n the signatures were authentic, and w/n
funds were sufficient. If Firestone treated such slips as checks then Firestone has to blame itself for gross negligence treating
the withdrawal slips as check when it is clearly stated that the withdrawal slips are non-negotiable.
ISSUE: W/N LBP (defendant) 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. Petitioner Firestone admitted that the withdrawal slips were non-negotiable. Hence, 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 such notice that it
would not make payment.
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.
Ratio:
Why Citibank and Firestone should bear the risk
The withdrawal slips were not checks, as Firestone admits. Citibank was not bound to accept the withdrawal slips as valid mode of
deposit. But having erroneously accepted it, Citibank, and Firestone, must bear the risks attendant to the acceptance.