Citibank Vs Sabeniano Case Digest

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing business under the name and style of FNCB Finance vs. MODESTA R. SABENIANO G.R. NO. 156132 October 12, 2006 CHICO-NAZARIO, J. FACTS: Modesta Sabeniano (respondent) is a client of both Citibank, N.A. (formerly known as the First National City Bank) and Investor's Finance Corporation (FNCB Finance). Citibank is a banking corporation duly authorized and existing under the laws of the United States of America and is licensed to do commercial banking activities and perform trust functions in the Philippines. FNCB Finance, on the other hand, did business under the name and style of FNCB Finance, an affiliate company of petitioner Citibank, specifically handling money market placements for its clients. It is now, by virtue of a merger, doing business as part of its successor-in-interest, BPI Card Finance Corporation. Regrettably, the business relations among the parties subsequently went awry. Respondent filed a Complaint (Accounting, Sum of Money and Damages) against petitioners. Respondent claimed to have substantial deposits and money market placements with the petitioners, as well as money market placements (MMP) with the Ayala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondents’ accounts with petitioner Citibank. In their joint Answer, petitioners admitted that respondent had deposits and money market placements with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondents outstanding loans with her deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed respondent Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and her counsel made repeated requests for the withdrawal of respondent’s deposits and money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of the Complaint and for the

award of actual, moral, and exemplary damages, and attorney’s fees. The case was eventually decided by the RTC after 10 years as follows: a. illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff; b. Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank, however, without interest and penalty charges from the time the illegal setoff was effected on 31 October 1979

The ruling was then appealed to the CA. The CA modified the decision but only to the extent of Sabeniano’s loans which it ruled that Citibank failed to establish the indebtedness and is also without legal and factual basis. The CA ruled as follows: a. (same with RTC); b. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual basis; c. As defendants-appellants failed to account the following plaintiffappellants money market placements, savings account and current accounts, the former is hereby ordered to return the same, in accordance with the terms and conditions agreed upon by the contending parties Apparently, both of the parties to the case, namely, the respondent, on one hand, and the petitioners, on the other, made separate attempts to bring the aforementioned Decision of the Court of Appeals, dated 26 March 2002, before the SC for review. G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al). judgment sought to be reviewed has become final and executory. Respondents failed to file, within the reglementary period, a Motion for Reconsideration or an appeal of the Resolution of the Court of Appeals.

G.R. No. 156132 (Citibank vs CA, et al): affirmed with modification- deleted subparagraph 3 of the assailed CA decision.

ISSUES: 1. Whether or not there was a valid compensation of loan with regard to Sabeniano’s deposits? 2. Whether or not there was a valid compensation of loan with regard to Sabeniano’s MMPs? 3. WON Sabeniano's "Declaration of Pledge" with Citibank-Geneva as security for her loans with Citibank-Manila is valid and binding upon respondent? RULING: General Requirement of Compensation: 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) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (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) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. 1. Yes. As already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At the same time, respondent was the creditor of petitioner 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. 2. Yes, but technically speaking Citibank did not effect a legal compensation or offset 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. Respondent's money market placements were with petitioner 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 (thereby implying that money market placement is a simple loan or mutuum); while, as to the outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, 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 petitioner FNCB Finance by virtue of the Deeds of Assignment executed by respondent in its favor. Petitioner 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 petitioner FNCB Finance, to partly pay for respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or offset 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 petitioner Citibank of her credit due from petitioner FNCB Finance by virtue of her money market placements with the latter. According to Article 2118 of the Civil Code: ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor. PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, so that petitioner 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.

3. NO. 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 CitibankGeneva 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. Which leads the SC to suspicions regarding the Declaration of Pledge. First, the SC questioned why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized yet left the Declaration of Pledge unnotarized. Petitioner Citibank should 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, petitioner 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. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that the written document is truly dated. Since it is undeniable that respondent was out of the country on 24 September 1979, then she could not have executed the pledge on the said date.

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. The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. 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 made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined by experts. Yet, despite several Orders by the RTC, petitioner Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that CitibankGeneva had possession of the original copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and resources to convince CitibankGeneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court that it had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner Citibank has nil probative value. In addition, even if this Court cannot make a categorical finding that respondent's signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the presentation of the original document and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced. 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, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other.

Therefore, the off-setting or compensation of Sabeniano's loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be effected. DISPOSITIVE PORTION: 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 ORDERED to 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 DECLARED illegal, 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 Sixty-Nine 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.