Citibank vs Sabeniano

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Case Digest



Date: October 12 2006
Petitioner: Citibank and Investors’ Finance Corporation (under the name and style FNCB Finance)
Respondent: Modesta Sabeniano

Ponente: Chico Nazario

Facts: Modesta Sabeniano was a client of both Citibank and FNCB Finance. Sabeniano filed a
complaint against petitioners claiming that she made substantial deposits and money market
placements with petitioners. The proceeds were supposedly deposited automatically to Sabeniano’s
account with Citibank. However, petitioners refused to return her deposits despite her repeated
demands. Hence, this present action. Petitioners, however, claimed that Sabeniano obtained several
loans from Citibank. When Sabeniano failed to pay, Citibank exercisted its right to off set Sabeniano’s
outstanding loans with her deposits and money market placements pursuant to the Declaration of
Pledge and the Deeds of Assignment executed by Sabeniano.
The lower court declared the compensation illegal and ordered Citibank to refund the
amount of US$149,632.99 to Sabeniano. Sabeniano was also declared indebted to Citibank in the
amount of P1,069,847.40. The CA affirmed. Upon MR, the CA deleted the portion where it ordered
petitioners to return to Sabeniano the proceeds of her money market placement with AIDC.

Issue: As to the money market placements

Ratio: This Court is tasked to determine whether petitioners are indeed liable to return the foregoing
amounts, together with the appropriate interests and penalties, to respondent.

Money market placements with petitioner Citibank
The history of respondent's money market placements with petitioner Citibank began on 6
December 1976, when she made a placement of P500,000.00 as principal amount, which was
supposed to earn an interest of 16% p.a. and for which PN No. 20773 was issued. Respondent did not
yet claim the proceeds of her placement and, instead, rolled-over or re-invested the principal and
proceeds several times in the succeeding years for which new PNs were issued by Citibank to replace
the ones which matured. Citibank did not deny the existence nor questioned the authenticity of PNs
No. 23356 and 23357 it issued in favor of respondent for her money market placements. In fact, it
admitted the genuineness and due execution of the said PNs, but qualified that they were no longer
Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested,
respondent was able to establish prima facie that Citibank is liable to her for the amounts stated.
Reviewing the evidence, the SC found that Citibank failed to satisfactorily prove that PNs No.
23356 and 23357 had already been paid, and that the amount so paid was actually used to open one
of respondent's TD accounts with Citibank. Moreover, while there are documentary evidences to
support and trace respondent's money market placements with petitioner Citibank, from the original
PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357, there is an evident
absence of any documentary evidence on the payment of these last two PNs and the use of the
proceeds thereof by respondent for opening TD accounts. The paper trail seems to have ended with
the copies of PNs No. 23356 and 23357.
The significance of this Court's declaration that PNs No. 23356 and 23357 are still outstanding
becomes apparent in the light of petitioners' next contentions – that respondent used the proceeds
of PNs No. 23356 and 23357, together with additional money, to open TD Accounts No. 17783 and
17784 with petitioner Citibank; and, subsequently, respondent pre-terminated these TD accounts
and transferred the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB Finance for
money market placements. While respondent's money market placements with petitioner FNCB
Finance may be traced back with definiteness to TD Accounts No. 17783 and 17784, there is only
flimsy and unsubstantiated connection between the said TD accounts and the supposed proceeds
paid from PNs No. 23356 and 23357. With PNs No. 23356 and 23357 still unpaid, then they represent
an obligation of petitioner Citibank separate and distinct from the obligation of petitioner FNCB
Finance arising from respondent's money market placements with the latter.

Money market placements with FNCB Finance
According to petitioners, respondent's TD Accounts No. 17783 and 17784, in the total amount
of P1,100,000.00, were supposed to mature on 15 March 1978. However, respondent, through a
letter, pre-terminated the said TD accounts and transferred all the proceeds thereof to FNCB Finance
for money market placement. Pursuant to her instructions, TD Accounts No. 17783 and 17784 were
pre-terminated and Citibank issued Manager's Checks (MC) No. 19925341 and 19925142 for the
amounts of P500,000.00 and P600,00.00, respectively. Both MCs were payable to Citifinance, with the
additional notation that "A/C MODESTA R. SABENIANO." Typewritten on MC No. 199253 is the phrase
"Ref. Proceeds of TD 17783," and on MC No. 199251 is a similar phrase, "Ref. Proceeds of TD 17784."
These phrases purportedly established that the MCs were paid from the proceeds of respondent's
pre-terminated TD accounts with Citibank. Upon receipt of the MCs, FNCB Finance deposited the
same to its account with Feati Bank and Trust Co., as evidenced by the rubber stamp mark of the
latter found at the back of both MCs. In exchange, petitioner FNCB Finance booked the amounts
received as money market placements, and accordingly issued PNs No. 4952 and 4962, for the
amounts of P500,000.00 and P600,000.00, respectively, payable to respondent's savings account with
petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1 June 1977. Once again, respondent
rolled-over several times the principal amounts of her money market placements with petitioner
FNCB Finance.
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal
amounts of her money market placements as she chose to receive the interest income therefrom.
Petitioner FNCB Finance also pointed out that when PN No. 4962, with principal amount of
P600,000.00, matured on 1 June 1977, respondent received a partial payment of the principal which,
together with the interest, amounted to P102,633.33;44 thus, only the amount of P500,000.00 from
PN No. 4962 was rolled-over to PN No. 5758.
Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their
maturity, were rolled over to PNs No. 8167 and 8169, respectively. PN No. 816745 expressly canceled
and superseded PN No. 5757, while PN No. 816946 also explicitly canceled and superseded PN No.
5758. Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal
amounts and interests covered by PNs No. 5757 and 5758 when these were already canceled and
superseded. It is now incumbent upon this Court to determine what subsequently happened to PNs
No. 8167 and 8169.
Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts
and interests of PNs No. 8167 and 8169. Then again, Checks No. 77035 and 77034 were later returned
to FNCB Finance together with a memo. According to the memo, the two checks, in the total amount
of P1,000,000.00, were to be returned to respondent's account with instructions to book the said
amount in money market placements for one more year.
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of
"Citibank N.A. A/C Modesta Sabeniano," in the amount of P1,022,916.66, as full payment of the
principal amounts and interests of both PNs No. 20138 and 20139 and, resultantly, canceling the said
PNs. Respondent actually admitted the issuance and existence of Check No. 100168, but with the
qualification that the proceeds thereof were turned over to Citibank. Respondent did not clarify the
circumstances attending the supposed turn over, but on the basis of the allegations of petitioner
Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was used by it
to liquidate respondent's outstanding loans. Therefore, the determination of whether or not
respondent is still entitled to the return of the proceeds of PNs No. 20138 and 20139 shall be
dependent on the resolution of the issues raised as to the existence of the loans and the authority of
petitioner Citibank to use the proceeds of the said PNs, together with respondent's other deposits
and money market placements, to pay for the same.

Savings and current accounts with petitioner Citibank
Respondent presented and submitted before the RTC deposit slips and bank statements to
prove deposits made to several of her accounts with Citibank, particularly, Accounts No. 00484202,
59091, and 472-751, which would have amounted to a total of P3,812,712.32, had there been no
withdrawals or debits from the said accounts from the time the said deposits were made.
Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14
of respondent's savings account with petitioner Citibank, and that respondent failed to move for
reconsideration or to appeal this particular finding of fact by the trial and appellate courts, it is
already binding upon this Court. Respondent is already precluded from claiming any greater amount
in her savings and current accounts with petitioner Citibank. Thus, this Court shall limit itself to
determining whether or not respondent is entitled to the return of the amount of P31,079.14 should
the off-set thereof by petitioner Citibank against her supposed loans be found invalid.

Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC her own
computations of her money market placements and dollar accounts with Citibank-Geneva,
purportedly amounting to a total of United States $343,220.98.
According to the foregoing computation, by 25 October 1979, respondent had a total of
US$156,942.70, from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner
Citibank in Manila, and was used by the latter to off-set respondent's outstanding loans. The balance
of respondent's accounts with Citibank-Geneva, after the remittance to petitioner Citibank in Manila,
amounted to US$7,309.71, which was subsequently expended by a transfer to another account with
Citibank-Zuerich, in the amount of US$6,998.84, and by payment of various bank charges, including
closing charges, in the amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave
more credence to the computation of Citibank-Geneva as to the status of respondent's accounts
with the said bank, rather than the one prepared by respondent herself, which was evidently self-
serving. Once again, this Court shall limit itself to determining whether or not respondent is entitled
to the return of the amount of US$149,632.99 should the off-set thereof by petitioner Citibank
against her alleged outstanding loans be found invalid.

Issue: As to the loans procured by respondent

Ratio: Citibank was able to establish by preponderance of evidence the existence of
respondent's loans.
Respondent did indeed have outstanding loans with Citibank at the time it effected the off-
set or compensation on 25 July 1979 (using respondent's savings deposit with Citibank), 5
September 1979 (using the proceeds of respondent's money market placements with FNCB Finance)
and 26 October 1979 (using respondent's dollar accounts remitted from Citibank-Geneva). The
totality of petitioners' evidence as to the existence of the said loans preponderates over
It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the
respondent specifically named as payee. MCs checks are drawn by the bank's manager upon the
bank itself and regarded to be as good as the money it represents.79 Moreover, the MCs were
crossed checks, with the words "Payee's Account Only."
In general, a crossed check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payee's bank which, in turn, must present it for
payment against the drawee bank in the course of normal banking hours. The crossed check cannot
be presented for payment, but it can only be deposited and the drawee bank may only pay to
another bank in the payee's or indorser's account.
The crossed MCs presented by petitioner Bank were indeed deposited in several different
bank accounts and cleared by the Clearing Office of the Central Bank. The crossed MCs are already in
the possession of Citibank, the drawee bank, which was ultimately responsible for the payment of
the amount stated in the checks. Given that a check is more than just an instrument of credit used in
commercial transactions for it also serves as a receipt or evidence for the drawee bank of the
cancellation of the said check due to payment, then, the possession by Citibank of the said MCs, duly
stamped "Paid" gives rise to the presumption that the said MCs were already paid out to the
intended payee, who was in this case, the respondent. The presumptions are disputable, meaning,
they are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence.
Respondent, however, was unable to present sufficient and credible evidence to dispute these
It should be recalled that out of the nine MCs presented by Citibank, respondent admitted to
receiving one as proceeds of a loan (MC No. 228270), denied receiving two (MCs No. 220701 and
226467), and admitted to receiving all the rest, but not as proceeds of her loans, but as return on the
principal amounts and interests from her money market placements.
The mere fact that MCs No. 220701 and 226467 do not bear respondent's signature at the
back does not negate deposit thereof in her account. The liability for the lack of indorsement on the
MCs no longer fall on petitioner Citibank, but on the bank who received the same for deposit, in this
case, BPI Cubao Branch. Once again, it must be noted that the MCs were crossed, for payee's account
only, and the payee named in both checks was none other than respondent. The crossing of the MCs
was already a warning to BPI to receive said checks for deposit only in respondent's account. It was
up to BPI to verify whether it was receiving the crossed MCs in accordance with the instructions on
the face thereof. If, indeed, the MCs were deposited in accounts other than respondent's, then the
respondent would have a cause of action against BPI.
BPI further stamped its guarantee on the back of the checks to the effect that, "All prior
endorsement and/or Lack of endorsement guaranteed." Thus, BPI became the indorser of the MCs,
and assumed all the warranties of an indorser, specifically, that the checks were genuine and in all
respects what they purported to be; that it had a good title to the checks; that all prior parties had
capacity to contract; and that the checks were, at the time of their indorsement, valid and subsisting.
So even if the MCs deposited by BPI's client, whether it be by respondent herself or some other
person, lacked the necessary indorsement, BPI, as the collecting bank, is bound by its warranties as
an indorser and cannot set up the defense of lack of indorsement as against petitioner Citibank, the
drawee bank.
Furthermore, respondent's bare and unsubstantiated denial of receipt of the MCs in question
and their deposit in her account is rendered suspect when MC No. 220701 was actually deposited in
Account No. 0123-0572-28 of BPI Cubao Branch, the very same account in which MC No. 228270
(which respondent admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs
No. 228203, 228357, and 228400 (which respondent admitted to receiving as proceeds from her
money market placements) were deposited. Likewise, MC No. 226467 was deposited in Account No.
0121-002-43 of BPI Cubao Branch, to which MCs No. 226285 and 226439 (which respondent
admitted to receiving as proceeds from her money market placements) were deposited. It is an
apparent contradiction for respondent to claim having received the proceeds of checks deposited in
an account, and then deny receiving the proceeds of another check deposited in the very same
Another inconsistency in respondent's denial of receipt of MC No. 226467 and her deposit of
the same in her account, is her presentation of Exhibit "HHH," a provisional receipt which was
supposed to prove that respondent turned over P500,000.00 to Mr. Tan of petitioner Citibank, that
the said amount was split into three money market placements, and that MC No. 226467 represented
the return on her investment from one of these placements. Because of her Exhibit "HHH,"
respondent effectively admitted receipt of MC No. 226467, although for reasons other than as
proceeds of a loan.
Respondent presented several more pieces of evidence to substantiate her claim that she
received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans
from petitioner Citibank, but as the return of the principal amounts and payment of interests from
her money market placements with petitioners. Part of respondent's exhibits were personal checks
drawn by respondent on her account with Feati Bank & Trust Co., which she allegedly invested in
separate money market placements with both petitioners, the returns from which were paid to her
via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only managed to establish
respondent's issuance thereof, but there was nothing on the face of the checks that would reveal the
purpose for which they were issued and that they were actually invested in money market
placements as respondent claimed.
As a last point on this matter, if respondent truly had money market placements with
petitioners, then these would have been evidenced by PNs issued by either petitioner Citibank or
petitioner FNCB Finance, acknowledging the principal amounts of the investments, and stating the
applicable interest rates, as well as the dates of their of issuance and maturity. After respondent had
so meticulously reconstructed her other money market placements with petitioners and
consolidated the documentary evidence thereon, she came surprisingly short of offering similar
details and substantiation for these particular money market placements.

Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then
it proceeds to analyze her evidence of payment thereof.

Respondent has not yet paid the loans she had with Citibank
In support of respondent's assertion that she had already paid whatever loans she may have
had with petitioner Citibank, she presented as evidence Provisional Receipts No. 19471 and No.
12723 both of Citibank and signed by Mr. Tan, for the amounts of P500,744.00 and P500,000.00,
respectively. While these provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank,
received respondent's checks as payment for her loans, they failed to specifically identify which loans
were actually paid. Petitioner Citibank was able to present evidence that respondent had executed
several PNs in the years 1978 and 1979 to cover the loans she secured from the said bank. Citibank
did admit that respondent was able to pay for some of these PNs, and what it identified as the first
and second sets of PNs were only those which remained unpaid. It thus became incumbent upon
respondent to prove that the checks received by Mr. Tan were actually applied to the PNs in either
the first or second set; a fact that, unfortunately, cannot be determined from the provisional receipts
submitted by respondent since they only generally stated that the checks received by Mr. Tan were
payment for respondent's loans.
Mr. Tan, in his deposition, further explained that provisional receipts were issued when
payment to the bank was made using checks, since the checks would still be subject to clearing. The
purpose for the provisional receipts was merely to acknowledge the delivery of the checks to the
possession of the bank, but not yet of payment. This bank practice finds legitimacy in the
pronouncement of this Court that a check, whether an MC or an ordinary check, is not legal tender
and, therefore, cannot constitute valid tender of payment. (recall PAL vs CA)
In the case at bar, the issuance of an official receipt by Citibank would have been dependent
on whether the checks delivered by respondent were actually cleared and paid for by the drawee
banks. As for PN No. 34534, respondent asserted payment thereof at two separate instances by two
different means. In her formal offer of exhibits, respondent submitted a deposit slip of petitioner
Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No. 5785 for P150,000.00. In her
Formal Offer of Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the
presentation of the said deposit slip was to prove that she already paid her loan covered by PN No.
34534.102 In her testimony before the RTC three years later, on 28 November 1991, she changed her
story. This time she narrated that the loan covered by PN No. 34534 was secured by her money
market placement with petitioner FNCB Finance, and when she failed to pay the said PN when it
became due, the security was applied to the loan, therefore, the loan was considered paid.103 Given
the foregoing, respondent's assertion of payment of PN No. 34534 is extremely dubious.
According to Citibank, the PNs in the second set, except for PN No. 34534, were mere
renewals of the unpaid PNs in the first set, which was why the PNs stated that they were for the
purpose of liquidating existing obligations. PN No. 34534, however, which was part of the first set,
was still valid and subsisting and so it was included in the second set without need for its renewal,
and it still being the original PN for that particular loan, its stated purpose was for personal
investment. Respondent essentially admitted executing the second set of PNs, but they were only
meant to cover simulated loans. Mr. Tan supposedly convinced her that her pending loan application
with DBP would have a greater chance of being approved if they made it appear that respondent
urgently needed the money because petitioner Citibank was already demanding payment for her
simulated loans.
Respondent's defense of simulated loans to escape liability for the second set of PNs is truly a
novel one. It is regrettable, however, that she was unable to substantiate the same. Yet again,
respondent's version of events is totally based on her own uncorroborated testimony. The notations
on the second set of PNs, that they were non-negotiable simulated notes, were admittedly made by
respondent herself and were, thus, self-serving. Equally self-serving was respondent's letter, written
on 7 October 1985, or more than six years after the execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs, together with the letters relating thereto, which
Mr. Tan purportedly asked her to execute. Respondent further failed to present any proof of her
alleged loan application with the DBP, and of any circumstance or correspondence wherein the
simulated or fictitious PNs were indeed used for their supposed purpose.
In contrast, Citibank, as supported by the testimonies of its officers and available
documentation, consistently treated the said PNs as regular loans – accepted, approved, and paid in
the ordinary course of its business. The PNs executed by the respondent in favor of Citibank to cover
her loans were duly-filled out and signed, including the disclosure statement found at the back of the
said PNs, in adherence to the Central Bank requirement to disclose the full finance charges to a loan
granted to borrowers.
Lastly, the exchange of letters between Citibank and respondent, as well as the letters sent by
other people working for respondent, had consistently recognized that respondent owed petitioner
Citibank money. In consideration of the foregoing discussion, this Court finds that the
preponderance of evidence supports the existence of the respondent's loans, in the principal sum of
P1,920,000.00, as of 5 September 1979.

Issue: The impact of the Decision of the Court of Appeals in the Dy case

Ratio: In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank
amounting to P7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real Estate
Mortgage of the properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her
husband were unaware of the said loans and the mortgage of their properties. The transactions were
carried out exclusively between Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan
guilty of fraud for his participation in the questionable transactions, essentially because he allowed
Caedo to take out the signature cards, when these should have been signed by the Dy spouses
personally before him. Although the Dy spouses' signatures in the PNs and Third Party Real Estate
Mortgage were forged, they were approved by the signature verifier since the signature cards
against which they were compared to were also forged. Neither the RTC nor the Court of Appeals,
however, categorically declared Mr. Tan personally responsible for the forgeries, which, in the
narration of the facts, were more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved
who could have perpetrated any fraud or forgery in her loan transactions. Although respondent
attempted to raise suspicion as to the authenticity of her signatures on certain documents, these
were nothing more than naked allegations with no corroborating evidence; worse, even her own
allegations were replete with inconsistencies. She could not even establish in what manner or under
what circumstances the fraud or forgery was committed, or how Mr. Tan could have been directly
responsible for the same.
The factual backgrounds of the two cases are so different and unrelated that the Dy case
cannot be used to prove specific intent, knowledge, identity, plan, system, scheme, habit, custom or
usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the present

Issue: WON the compensation was valid

Ratio: The liquidation of respondent's outstanding loans were valid in so far as Citibank used
respondent's savings account with the bank and her money market placements with FNCB Finance;
but illegal and void in so far as Citibank used respondent's dollar accounts with Citibank-Geneva.

Savings Account with petitioner Citibank
There is little controversy when it comes to the right of Citibank to compensate respondent's
outstanding loans with her deposit account. As already found by this Court, Citibank was the creditor
of respondent for her outstanding loans. At the same time, respondent was the creditor of 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 sums of money. By June 1979, all of respondent's PNs in the second set had matured
and became demandable, while respondent's savings account was demandable anytime. Neither
was there any retention or controversy over the PNs and the deposit account commenced by a third
person and communicated in due time to the debtor concerned. Compensation takes place by
operation of law, therefore, even in the absence of an expressed authority from respondent, Citibank
had the right to effect, on 25 June 1979, the partial compensation or off-set of respondent's
outstanding loans with her deposit account, amounting to P31,079.14.

Money market placements with FNCB Finance
Respondent's money market placements were with FNCB Finance, and after several roll-overs,
they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the
check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the
principal amounts and interests. As to these money market placements, respondent was the creditor
and petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was
the creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 CC,
would not apply since the first requirement for a valid compensation, that each one of the obligors
be bound principally, and that he be at the same time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's
money market placements with FNCB Finance by virtue of the Deeds of Assignment executed by
respondent in its favor.
The SC gave the Deeds of Assignment grave importance in establishing the authority given
by the respondent to petitioner Citibank to use as security for her loans her money her market
placements with FNCB Finance, represented by PNs No. 8167 and 8169, later to be rolled-over as PNs
No. 20138 and 20139. These Deeds of Assignment constitute the law between the parties, and the
obligations arising therefrom shall have the force of law between the parties and should be complied
with in good faith.
Citibank was only acting upon the authority granted to it under the foregoing Deeds when it
finally used the proceeds of PNs No. 20138 and 20139, paid by FNCB Finance, to partly pay for
respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or off-set
under Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations
through 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 Citibank of her credit due from petitioner FNCB Finance by virtue of her money market
placements with the latter. PNs No. 20138 and 20139 matured on 3 September 1979, without them
being redeemed by respondent, so that Citibank collected from petitioner FNCB Finance the
proceeds thereof, which included the principal amounts and interests earned by the money market
placements, amounting to P1,022,916.66, and applied the same against respondent's outstanding
loans, leaving no surplus to be delivered to respondent.

Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondent's savings account and the total application of
the proceeds of PNs No. 20138 and 20139 to respondent's outstanding loans, there still remained a
balance of P1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar
accounts with Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of
Pledge supposedly executed by respondent in its favor.
Certain principles of private international law should be considered herein because the
property pledged was in the possession of an entity in a foreign country, namely, Citibank-Geneva. 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, Switzerland, they will be presumed to be the same
as Philippine local or domestic laws; this is known as processual presumption.
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly
suspicious and irregular. First of all, it escapes this Court why Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would
think that petitioner Citibank would take greater cautionary measures with the preparation and
execution of the Declaration of Pledge because it involved respondent's "all present and future
fiduciary placements" with a Citibank branch in another country, specifically, in Geneva, Switzerland.
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.
Second, Citibank was unable to establish the date when the Declaration of Pledge was
actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank
before the RTC was undated. It presented only a photocopy of the pledge because it already
forwarded the original copy thereof to Citibank-Geneva when it requested for the remittance of
respondent's dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure a
copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24
September 1979. Respondent, however, presented her passport and plane tickets to prove that she
was out of the country on the said date and could not have signed the pledge.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard
printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It
should be noted, however, that in the space which should have named the pledgor, the name of
Citibank was typewritten. The pledge, therefore, made no sense, the pledgor and pledgee being the
same entity. Was a mistake made by whoever filled-out the form? Yes, it could be a possibility.
Nonetheless, considering the value of such a document, the mistake as to a significant detail in the
pledge could only be committed with gross carelessness on the part of petitioner Citibank, and
raised serious doubts as to the authenticity and due execution of the same. The Declaration of
Pledge had passed through the hands of several bank officers in the country and abroad, yet,
surprisingly and implausibly, no one noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed
that the signature was a forgery. When a document is assailed on the basis of forgery, the best
evidence rule applies. Citibank presented only photocopies of the Deed.
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
remittance of respondent's dollar accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since,
petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the
dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, Citibank was the creditor and respondent was the debtor. The parties in these
transactions were evidently not the principal creditor of each other.
Therefore, this Court declares that the remittance of respondent's dollar accounts from
Citibank-Geneva and the application thereof to her outstanding loans with petitioner Citibank was
illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to respondent the
amount of US$149,632,99 from her Citibank-Geneva accounts, or its present equivalent value in
Philippine currency; and, at the same time, respondent continues to be obligated to petitioner
Citibank for the balance of her outstanding loans which, as of 5 September 1979, amounted to

In summary, Citibank is ordered by this Court to pay respondent the proceeds of her money market
placements, represented by PNs No. 23356 and 23357, amounting to P318,897.34 and P203,150.00,
respectively, earning an interest of 14.5% per annum as stipulated in the PNs,139 beginning 17 March
1977, the date of the placements.
Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its equivalent in
Philippine currency, which had been remitted from her Citibank-Geneva accounts. These dollar accounts,
consisting of two fiduciary placements and current accounts with Citibank-Geneva shall continue earning
their respective stipulated interests from 26 October 1979, the date of their remittance by Citibank-Geneva
to petitioner Citibank in Manila and applied against respondent's outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans,
which amounted to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as
stipulated in the corresponding PNs, from the time of their respective maturity dates, since the supposed
payment thereof using respondent's dollar accounts from Citibank-Geneva is deemed illegal, null and
void, and, thus, ineffective.

Issue: WON Citibank is liable for damages

Ratio: Although this Court appreciates the right of petitioner Citibank to effect legal compensation of
respondent's local deposits, as well as its right to the proceeds of PNs No. 20138 and 20139 by virtue
of the notarized Deeds of Assignment, to partly extinguish respondent's outstanding loans, it finds
that petitioner Citibank did commit wrong when it failed to pay and properly account for the
proceeds of respondent's money market placements, evidenced by PNs No. 23356 and 23357, and
when it sought the remittance of respondent's dollar accounts from Citibank-Geneva by virtue of a
highly-suspect Declaration of Pledge to be applied to the remaining balance of respondent's
outstanding loans. It bears to emphasize that banking is impressed with public interest and its
fiduciary character requires high standards of integrity and performance. A bank is under the
obligation to treat the accounts of its depositors with meticulous care whether such accounts consist
only of a few hundred pesos or of millions of pesos.142 The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible.143 Petitioner Citibank
evidently failed to exercise the required degree of care and transparency in its transactions with
respondent, thus, resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her investments and deposits for
more than two decades. During this span of years, respondent had found herself in desperate need
of the amounts wrongfully withheld from her.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social
humiliation suffered by the respondent, the award of moral damages is but proper. However, this
Court reduces the amount thereof to P300,000.00, for the award of moral damages is meant to
compensate for the actual injury suffered by the respondent, not to enrich her.
Having failed to exercise more care and prudence than a private individual in its dealings with
respondent, Citibank should be liable for exemplary damages, in the amount of P250,000.00, in
accordance with Article 2229 and 2234 of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to an award of
attorney's fees. Additionally, attorney's fees may be awarded when a party is compelled to litigate or
to incur expenses to protect his interest by reason of an unjustified act of the other party.149 In this
case, an award of P200,000.00 attorney's fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to petitioners. Respondent
was compelled to institute the present case in the exercise of her rights and in the protection of her
interests. In fact, although her Complaint before the RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in her favor. Any injury resulting from the exercise of
one's rights is damnum absque injuria.

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