11.) Citibank v.

Sabeniano o Citibank supposedly informed Sabeniano of the foregoing

GR # 156132 | October 16, 2006 compensation through letters, thus, Citibank et al were surprised
Petition: For review on certiorari when six years later, Sabeniano and her counsel made repeated
Petitioner: CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS requests for the withdrawal of respondent's deposits and MMPs
FINANCE CORPORATION, doing business under the name and style of FNCB with Citibank, including her dollar accounts with Citibank-Geneva
Finance and her money market placements with petitioner FNCB Finance.
Respondent: Modesta R. Sabeniano
Article 1286, Compensation RTC decision
● RTC declared that the offsetting was illegal, and ordered Citibank to refund
DOCTRINE the Sabeniano $149,632.99 with legal inerest at 12% per annum
Compensation is a recognized mode in extinguishing obligations. Compensation compounded yearly.
takes place by operation of law, therefore, even in the absence of an expressed ● It also ordered Sabeniano to pay Citibank P1,069,847.40.
authority from Sabeniano, Citibank had the right to effect, on 25 June 1979, the partial
compensation or off-set of respondents outstanding loans with her deposit account, CA decision:
amounting to P31,079.14. ● The CA rendered a decision in favor of Sabeniano.
● The CA modified the decision but only to the extent of Sabeniano’s loans
FACTS which it ruled that Citibank failed to establish the indebtedness and is also
● Sabeniano is a client of both Citibank and FNCB. without legal and factual basis.
o Citibank, N.A., is a banking corporation duly registered under US
Laws and is licensed to do commercial banking and trust functions Hence, this petition:
in the Philippines. ● Citibank did not dispute the fact that Sabeniano has substantial deposits and
o Investor's Finance Corporation (aka FNCB Finance), is an affiliate money market placements. However, Citibank claims that Sabeniano is
company of Citibank, handling money market placements indebted to Citibank, evidenced by promissory notes amounting to
▪ MMPs are short term debt instruments that give the owner P2,123,843.20.
an unconditional right to receive a stated, fixed sum of ● To secure the multiple loans Sabeniano executed a deed of assignment of
money on a specified date. her money market placements, and a declaration of pledge covering all of
● Unfortunately, the business relations among the parties subsequently went her present and future fiduciary placements.
awry. ● Sabeniano failed to pay her debt which led to Citibank to apply the proceeds
● On August 8, 1985, Sabeniano filed a complaint against Citibank. of the money market placements to satisfy her outstanding loan balance.
● Argument of Sabeniano: ● Respondent disputes the narration of facts concerning her loans and the
o Sabeniano claims to have substantial deposits and money market alleged authority she gave for the off-set of her money market placements
placements with Citibank, as well as money market placements and deposit accounts with petitioners against her obligation.
with Ayala Investment and Development Corporation (AIDC) and
FNCB, the proceeds of which are directly deposited to Sabaniano’s ISSUE/S
Citibank accounts. 1. W/N there was a valid off-setting of obligation/compensation when Citibank
o Sabeniano alleges that Citibank refused to return her deposits and used her savings account with the bank? - YES
the proceeds of her money market placements despite her 2. W/N there was a valid off-setting of obligation/compensation when Citibank
repeated demands. used her money market placement with FNCB Finance? – YES
● Argument of Citibank and FNCB: 3. W/N there was a valid off-setting of obligation/compensation when Citibank
o Citibank et al admitted that Sabeniano had deposits and money used the former’s dollar accounts with Citibank-Geneva? - NO
market placements with them, including dollar accounts in other
Citibank branches. PROVISIONS
o However, they also alleged that respondent later obtained several Art. 1286. Compensation takes place by operation of law, even though the debts may
loans from Citibank, executed through Promissory Notes and be payable at different places, but there shall be an indemnity for expenses of
secured by a pledge on her dollar accounts, and a deed of exchange or transportation to the place of payment.
assignment against her MMPS with FNCB Finance.
o When Sabeniano defaulted, Citibank exercised its right to off-set or Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
compensate respondent's outstanding loans with her deposits and
money market placements, pursuant to securities she executed.
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 Art. 1279. In order that compensation may be proper, it is necessary; ● Relationship of the parties: As to these money market placements,
(1) That each one of the obligors be bound principally, and that he be at the Sabeniano was the creditor and FNCB Finance the debtor; while, as to the
same time a principal creditor of the other; outstanding loans, Citibank was the creditor and Sabeniano the debtor.
(2) That both debts consist in a sum of money, or if the things due are ● Legal compensation, under Article 1278 of the Civil Code, would not apply
consumable, they be of the same kind, and also of the same quality if the since the first requirement for a valid compensation, that each one of the
latter has been stated; obligors be bound principally, and that he be at the same time a principal
(3) That the two debts be due; creditor of the other, was not met.
(4) That they be liquidated and demandable; ● What petitioner Citibank actually did was to exercise its rights to the
(5) That over neither of them there be any retention or controversy, commenced proceeds of respondent’s money market placements with petitioner FNCB
by third persons and communicated in due time to the debtor. Finance by virtue of the Deeds of Assignment executed by respondent in its
favor.
Art. 2118. If a credit has been pledged becomes due before it is redeemed, the o This Court gives the Deeds of Assignment grave importance in
pledgee may collect and receive the amount due. He shall apply the same to the establishing the authority given by the respondent to petitioner
payment of his claim, and deliver the surplus, should there be any, to the pledgor. Citibank to use as security for her loans her money her market
placements with petitioner FNCB Finance
RULING & RATIO o These Deeds of Assignment constitute the law between the parties,
1. YES – Citibank’s act of using Sabeniano’s saving accounts to liquidate her loans and the obligations arising therefrom shall have the force of law
was valid. between the parties and should be complied with in good faith.
● Petitioner Citibank was only acting upon the authority granted to it under the
● Compensation is a recognized mode of extinguishing obligations. foregoing Deeds when it finally used the proceeds of PNs No. 20138 and
● Relationship of the parties: 20139, paid by FNCB Finance, to partly pay for Sabeniano’s outstanding
o Sabeniano and Citibank are creditor and debtor of each other: loans
Citibank as the creditor as regards Sabeniano’s loan, and ● Strictly speaking, it did not effect a legal compensation or off-set under
Sabeniano as the creditor with respect to her savings account to Article 1278 of the Civil Code, but rather, it partly extinguished
Citibank. respondents obligations through the application of the security given
o Sabeniano was the creditor of Citibank, as far as her deposit by the Sabeniano for her loans.
account was concerned, since bank deposits, whether fixed, ● Although the pertinent documents were entitled Deeds of Assignment, they
savings, or current, should be considered as simple loan or were, in reality, more of a pledge by Sabeniano to Citibank of her credit due
mutuum by the depositor to the banking institution. from FNCB Finance by virtue of her money market placements with the
● Both debts consist in sums of money. latter.
● By June 1979, all of respondents PNs in the second set had matured and ● PNs No. 20138 and 20139 matured on 3 September 1979, without them
became demandable, while Sabeniano’s savings account was demandable being redeemed by respondent, so that petitioner Citibank collected from
anytime. petitioner FNCB Finance the proceeds thereof, which included the principal
● Neither was there any retention or controversy over the PNs and the deposit amounts and interests earned by the money market placements, amounting
account commenced by a third person and communicated in due time to the to P1,022,916.66, and applied the same against respondents outstanding
debtor concerned. loans, leaving no surplus to be delivered to respondent.
● Compensation takes place by operation of law, therefore, even in the
absence of an expressed authority from Sabeniano, Citibank had the right to 3. NO – Citibank’s application of Sabeniano’s dollar accounts with Citibank-
effect, on 25 June 1979, the partial compensation or off-set of respondents Geneva on her remaining loan balance is invalid; hence, null and void.
outstanding loans with her deposit account, amounting to P31,079.14. ● Despite the legal compensation of Sabeniano’s savings account and the
total application of the proceeds of PNs No. 20138 and 20139 to
2. YES – The usage of Sabeniano’s money market placement with FNCB Finance in respondents outstanding loans, there still remained a balance of
satisfaction for the outstanding obligation is valid. P1,069,847.40.
● Respondents money market placements were with FNCB Finance, and after ● Citibank then proceeded to applying Sabeniano’s dollar accounts with
several roll-overs, they were ultimately covered by PNs No. 20138 and Citibank-Geneva against her remaining loan balance, pursuant to a
20139, which, by 3 September 1979, the date the check for the proceeds of Declaration of Pledge supposedly executed by respondent in its favor.
the said PNs were issued, amounted to P1,022,916.66 ● In the absence of any allegation and evidence presented by petitioners of
the specific rules and laws governing the constitution of a pledge in Geneva,

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 Switzerland, they will be presumed to be the same as Philippine local or amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos
domestic laws; this is known as processual presumption. and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One
● Upon closer scrutiny of the Declaration of Pledge, this Court finds the same Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of
exceedingly suspicious and irregular. Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;
o It escapes this Court why Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the Declaration of Pledge 2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US
unnotarized. Dollars and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva
o Citibank was unable to establish the date when the Declaration of accounts to petitioner Citibank in Manila, and the application of the same against
Pledge was actually executed. respondents outstanding loans with the latter, is DECLARED illegal, null and void.
o The Declaration of Pledge was irregularly filled-out. The pledge was Petitioner Citibank is ORDEREDto refund to respondent the said amount, or its
in a standard printed form. equivalent in Philippine currency using the exchange rate at the time of payment, plus
▪ It was constituted in favor of Citibank, N.A., otherwise the stipulated interest for each of the fiduciary placements and current accounts
referred to therein as the Bank. involved, beginning 26 October 1979;
▪ It should be noted, however, that in the space which
should have named the pledgor, the name of petitioner 3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount
Citibank was typewritten. of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the
▪ The pledge, therefore, made no sense, the pledgor and amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in
pledgee being the same entity. the amount of Two Hundred Thousand Pesos (P200,000.00); and
o Sabeniano denied that it was her signature on the Declaration of
Pledge. She claimed that the signature was a forgery. 4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding
● Sabeniano made several attempts to have the original copy of the pledge loans, which, from the respective dates of their maturity to 5 September 1979, was
produced before the RTC so as to have it examined by experts. Yet, despite computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-
several Orders by the RTC, Citibank failed to comply with the production of Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These
the original Declaration of Pledge. outstanding loans shall continue to earn interest, at the rates stipulated
in the corresponding PNs, from 5 September 1979 until payment thereof.
● Citibank-Geneva had possession of the original copy of the pledge.
o While petitioner Citibank in Manila and its branch in Geneva may be NOTES
separate and distinct entities, they are still incontestably related, Deed of Assignment between Sabeniano and FNCB Finance, as regards the
and between petitioner Citibank and respondent, the former had former’s money market placement with the latter:
more influence and resources to convince Citibank-Geneva to
return, albeit temporarily, the original Declaration of Pledge. The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
● Without the Declaration of Pledge, Citibank had no authority to demand the xxx x
remittance of Sabeniano’s dollar accounts with Citibank-Geneva and to
apply them to her outstanding loans. 2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the
o It cannot effect legal compensation under Article 1278 of the Civil case may be, the ASSIGNEE is fully authorized and empowered to collect and
receive the PLACEMENT (or so much thereof as may be necessary) and apply the
Code since, Citibank itself admitted that Citibank-Geneva is a
same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at
distinct and separate entity.
any time, and from time to time, upon request by the ASSIGNEE, the ASSIGNOR will
● The remittance of Sabeniano’s dollar accounts from Citibank-Geneva
promptly execute and deliver any and all such further instruments and documents as
and the application thereof to her outstanding loans with Citibank was
may be necessary to effectuate this Assignment.
illegal, and null and void.
xxx x
DISPOSITION
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay
assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March
and deliver the PLACEMENT or so much thereof as may be necessary to liquidate
2002, as already modified by its Resolution, dated 20 November 2002, is hereby
the OBLIGATIONS, to the ASSIGNEE in accordance with terms and provisions
AFFIRMED WITH MODIFICATION, as follows
hereof
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner
Citibank is ORDERED to return to respondent the principal amounts of the said PNs,
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