Citibank v. Sabeniano

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G.R. No. 156132
October 12, 2006
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing business
under the name and style of FNCB Finance, petitioners,
vs.
MODESTA R. SABENIANO, respondent.

Doctrine: While there is no express legal requirement that the Declaration of Pledge had to be notarized to be effective,
even so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized documents,
and petitioner Citibank must discharge the burden of proving due execution and authenticity of the Declaration of Pledge.

Facts:
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Sabeniano is a client of both Citibank and FNCB.
Sabeniano claims to have substantial deposits and money market placements with Citibank, as well as money
market placements with Ayala Investment and Development Corporation(AIDC) and FNCB, the proceeds of
which are directly deposited to Sabaniano’s Citibank accounts.
Sabeniano alleges that Citibank refused to return her deposits and the proceeds of her money market
placements despite her repeated demands.
On August 8, 1985, Sabeniano filed a complaint against Citibank.
RTC ordered Citibank to refund the Sabeniano $149,632.99 with legal inerest at 12% per annum compounded
yearly. It also ordered Sabeniano to pay Citibank P1,069,847.40.
Both parties appealed. The CA rendered a decision in favor of Sabeniano.
Citibank did not dispute the fact that Sabeniano has substantial deposits and money market placements.
However, Citibank claims that Sabeniano is indebted to Citibank, evidenced by promissory notes amounting to
P2,123,843.20.
To secure the multiple loans Sabeniano executed a deed of assignment of her money market placements, and a
declaration of pledge covering all of her present and future fiduciary placements.
Sabeniano failed to pay her debt which led to Citibank to apply the proceeds of the money market placements to
satisfy her outstanding loan balance.
Respondent disputes the narration of facts concerning her loans and the alleged authority she gave for the offset of her money market placements and deposit accounts with petitioners against her obligation.

Issue/s: Can Citibank apply the proceeds to satisfy respondent’s outstanding loan balance?
Held:
With regard to loan and deposit account. Yes.
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
1. (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
2. (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
3. (3) That the two debts be due;
4. (4) That they be liquidated and demandable;
5. (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.
- Respondent and Citibank were creditor and debtor of each other; Citibank was creditor with respect to respondent’s
loan and latter was creditor with respect to her savings account with Citibank;
- As far as her deposit account was concerned, since bank deposits, whether fixed, savings, or current, should be
considered as simple loan or mutuum by the depositor to the banking institution;
- Both debts consist in sum of money;

- Compensation takes place by operation of law, so even in the absence of express authority from respondent,
Citibank had the right to effect the partial compensation of respondent’s outstanding loans with her deposit account
(31k);
With regard to the money market placements and loans. No, but payment authorized by deed of assignment.
- Proceeds of money market placements with FNCB amounted to around 1 million pesos; - Here, respondent was
creditor and FNCB was the debtor; while as to the outstanding loans, Citibank was creditor while respondent the
debtor;
- Hence, legal compensation would not apply; Citibank exercised its rights to the proceeds of respondent’s money
market placements with FNCB by virtue of the Deed of Assignment:
- CA did not consider the deed for petitioners’ failure to produce the
original copies (in violation of the best evidence rule); SC disagrees;
- The deeds are important in establishing the authority given by respondent to Citibank to use as security for her
loans her money market placements with FNCB;
- Paragraph 2: In the event the OBLIGATIONS are not paid at maturity or upon demand, as the 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 same in payment of the OBLIGATIONS;
- Paragraph 5: This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the
PLACEMENT or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE;
Citibank partially extinguished respondent’s obligations thru the application of the security given by the respondent
for her loans:
- Although the pertinent documents were entitled Deeds of Assignment, they were, in reality, more of a pledge by
respondent to petitioner Citibank of her credit due from petitioner FNCB Finance by virtue of her money market
placements with the latter;
- When the PNs for the money market placements mature without them being redeemed, Citibank collected from
FNCB the proceeds thereof, and applied the same against respondent’s outstanding loans (leaving no surplus);
Balance still left (despite legal compensation and application of proceeds of PNs from money market placements):
- Citibank then proceeded to apply respondent’s dollar accounts with Citibank-Geneva against the remaining
(pursuant to a Declration of Pledge);
- But SC deems the same exceedingly suspicious and irregular;
- Declaration of Pledge unnotarized; while no requirement of notarization, it could not enjoy prima facie presumption
of due execution;
- Citibank unable to establish date when Declaration of Pledge was actually executed; it presented only a photocopy;
respondent was able to secure a copy dated September 24,1979 but she proved that she was out of the country at
that time;
- It was irregularly filled-out; in the space for pledgor, Citibank was typewritten; it made no sense;
- Respondent denied that it was her signature on the declaration; forgery; when a document is alleged on the basis
of forgery, best evidence rule is applied; no original document;

Dispositive: IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November
2002, is hereby AFFIRMED WITH MODIFICATION, as follows –
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDEREDto
return to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand
Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three
Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of Fourteen and a
half percent (14.5%) per annum, beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine
Cents (US$149,632.99) from respondent's Citibank-Geneva accounts to petitioner Citibank in Manila, and the
application of the same against respondent's outstanding loans with the latter, is DECLAREDillegal, null and
void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its equivalent in Philippine
currency using the exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary
placements and current accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred
Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos
(P250,000.00); and attorney's fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the
respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million SixtyNine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest.
These outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding PNs, from 5
September 1979 until payment thereof.
SO ORDERED.

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