353 SCRA 601



Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former had the privilege to purchase on credit  the latter’s products.  In paying for these products, the former could pay through special withdrawal slips.  In turn, Firestone would deposit these slips with Citibank.  Citibank would  then  honor  and  pay  the  slips.    Citibank  automatically  credits  the account  of  Firestone  then  merely  waited  for  the  same  to  be  honored  and paid  by  Luzon  Development  Bank.    As  this  was  the  circumstances,
Firestone  believed  in  the  sufficient  funding  of  the  slips  until  there  was  a time  that  Citibank  informed  it  that  one  of  the  slips  was  dishonored.    It wrote  then  a  demand  letter  to  Fojas  Arca  for  the  payment  and  damages but the latter refused to pay, prompting Firestone to file an action against


The withdrawal slips, at the outset, are non-negotiable.  Hence, the rule on immediate notice of dishonor is non-applicable to the case at hand.  Thus, the bank was under no obligation to give immediate notice that it wouldn't make  payment  on  the  subject  withdrawal  slips.    Citibank  should  have known  that  withdrawal  slips  are  not  negotiable  instruments.    It  couldn't expect then the slips be treated like checks by other entities.  Payment or notice of dishonor from respondent bank couldn't be expected immediately in contrast to the situation involving checks. 

In the case at bar, Citibank relied on the fact that LDB honored and paid the  withdrawal  slips  which  made  it  automatically  credit  the  account  of Firestone  with  the  amount  of  the  subject  withdrawal  slips  then  merely waited for LDB to honor and pay the same.  It bears stressing though that Citibank  couldn't  have  missed  the  non-negotiable  character  of  the  slips.  The  essence  of  negotiability  which  characterizes  a  negotiable  paper  as  a credit  instrument  lies  in  its  freedom  to  be  a  substitute  for  money.    The withdrawal slips in question lacked this character.
The  withdrawal  slips  deposited  were  not  checks  as  Firestone  admits  and Citibank generally was not bound to accept the withdrawal slips as a valid mode of deposit.  Nonetheless, Citibank erroneously accepted the same as such  and  thus,  must  bear  the  risks  attendant  to  the  acceptance  of  the instruments.  Firestone and Citibank could not now shift the risk to LDB for their committed mistake.