FACTS:

The case involves a banking corporation, the defendant, that operates under a certificate of authority issued by the Central Bank of the Philippines. One of the defendant's client-depositors is Fojas-Arca Enterprises Company ("Fojas-Arca") who maintains a special savings account with the defendant. Fojas-Arca is authorized to make withdrawals using special withdrawal slips provided by the defendant.

In January 1978, the plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" allowing Fojas-Arca to purchase on credit and sell the plaintiff's products. Fojas-Arca purchased Firestone products on credit from the plaintiff from January 14, 1978, to May 15, 1978, amounting to P4,896,000.00. Fojas-Arca paid for these purchases by delivering six special withdrawal slips drawn upon the defendant to the plaintiff. The plaintiff then deposited the withdrawal slips with its current account with Citibank, and all of them were honored and paid by the defendant.

Based on this, the plaintiff believed that subsequent withdrawal slips drawn upon the defendant would be similarly funded. Relying on this belief, the plaintiff extended further credit purchases to Fojas-Arca. However, on December 14, 1978, Citibank informed the plaintiff that two withdrawal slips, totaling P2,078,092.80, were dishonored and not paid by the defendant due to "NO ARRANGEMENT." As a result, Citibank debited the plaintiff's account for the amount of the dishonored withdrawal slips.

The plaintiff believed that the defendant's gross negligence caused its financial losses and demanded payment from the defendant. However, the defendant denied any involvement in the transactions between Fojas-Arca and the plaintiff. It asserted that it was not duty-bound to notify or give notice to the plaintiff as it was not a party to those transactions.

The issue in this case is whether the defendant should be held liable for the plaintiff's losses due to the dishonored withdrawal slips.

ISSUES:

1. Whether or not the banking corporation is liable for damages for dishonoring the special withdrawal slips drawn upon it by the client-depositor.

RULING:

1. The Court of Appeals affirmed the dismissal of Firestone's complaint for damages. The court held that the defendant banking corporation cannot be held liable for damages for dishonoring the special withdrawal slips because it was not involved in the transactions between Firestone and Fojas-Arca. The court found that the defendant only verified the authenticity of the signatures in the special withdrawal slips and checked if the deposit level in the passbook concurred with the savings ledger. The court also noted that the withdrawal slips clearly stated that they were non-negotiable. Since the defendant bank was not a party to the transactions and there was no duty on their part to notify or inform Firestone, they cannot be held liable for damages.

PRINCIPLES:

• A banking corporation is not liable for damages for dishonoring withdrawal slips if it was not involved in the transactions between the parties.

• A bank's verification of the authenticity of signatures and the sufficiency of funds in a deposit account is not an endorsement or guarantee of payment.