Firestone Tire & Rubber Co.

vs CA
353 SCRA 601

FACTS: 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 it.

ISSUE: Whether the withdrawal slips in question are negotiable.

RULING: No. The withdrawal slips, at the outset, are non-negotiable. Hence, the rules governing 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 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.

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.