Citibank, v.

Sabeniano | Apa
October 16, 20016
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORSÊ FINANCE CORPORATION, doing business under the
name and style of FNCB Finance, petitioners, vs. MODESTA R. SABENIANO, respondent.
CHICO-NAZARIO, J.:

SUMMARY:
 Sabeniano obtained loans from Citibank, Manila to an aggregeate amount of P1,920,000. These were issued to
her through Manager’s Checks that were crossed. The amount covered by 10 promissory notes. She defaulted
on the loan, and subsequently signed 2 Deeds of assignments (over her money market placements with FNCB)
and, allegedly, a declaration of pledge over her Citibank-Geneva Account.
 For her failure to deliver once more, Citibank effected compensation over Her Citibank, Manila and Citibank-
Geneva account, as well as collecting on the money market placements.
 Sabeniano filed a complaint against Citibank and FNCB Finance for refusing to return the deposits.
 RTC ruled that the Set-off effected by Citibank of Sabeniano’s outstanding loans with her dollar deposit with
Citibank Switzerland for US$149,632.99 was illegal, null and void considering that Citibank-Manila and Geneva
are separate and distinct entities. Nonetheless, it found that she indebted to Citibank for P1,069,847.40. This
was affirmed by the CA.
 The SC affirmed the lower courts’ rulings findings that, firstly, Citibank failed to exercise the proper diligence in
its failure to provide the original copy of the pledge made. Hence, the allegation of respondent that the same
was forged stands.
 Furthermore, Sabeniano did indeed have outstanding loans for P1,920,000. The Manager Checks were crossed
for payee's account only, and they were actually deposited, cleared, and paid. It is presumed, therefore, that the
said checks were properly deposited to the account of Sabeniano, who was clearly named the payee in the
checks.
 A crossed check can only be deposited, and the drawee bank may only pay to another bank in the payee's or
indorser's account. Hence, the mere fact that manager’s check do not bear her signature at the back does not
negate deposit thereof in her account.
 Thirdly, BPI (where the Managers Checks were deposited) 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.
 Fourthly, Sabeniano hasn’t shown that she paid the proceeds of the loan. While she presented provisional
receipts which stated that Citibank received checks from her as payment for her loans, she failed to specifically
identify which loans were actually paid.
 Furthermore, 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.
 Lastly, the liquidation made by Citibank-Manila on Sabeniano’s accounts was party invalid. Citibank-Manila had
no authority to demand their remittance of the Citibank-Geneva funds considering that they were not principal
creditors of each other, as Citibank itself admitted that Citibank-Geneva is a distinct and separate entity.

DOCTRINE:
 [As to Sabeniano’s allegation that the Declaration of Pledge was forged] The best evidence of a forged
signature in an instrument is the instrument itself. Despite respondent’s several attempts to have the original
copy of the pledge produced Citibank failed to comply with the production of the original Declaration of Pledge.
 It is admitted that Citibank-Geneva 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
Citibank- Geneva 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.

FACTS:
 Modesta Sabeniano obtained loans from Citibank, Manila. Significant are the loans which Sabeniano obtained from
July 1978 to Jan. 1979, covered by 10 promissory notes (first set) w/ aggregate principal amount of P1,920,000.
 Citibank paid the proceeds of the loans to Sabeniano in manager’s checks specifically naming Sabeniano as payee.
They were crossed checks with the words “payee’s account only”.
o These crossed MCs were deposited in several different bank accounts and cleared by the Clearing office of
the Central Bank as evidenced by the stamp marks and notations on the checks.
o Important in this case are MCs No. 220701 and 226467 deposited with BPI Cubao Branch, which stamped
the checks with "All prior endorsement and/or Lack of endorsement guaranteed."
o Said checks do not bear Sabeniano’s indorsement.
 When Sabeniano was unable to pay the first set of PNs upon their maturity, these were rolled-over or renewed
several times, necessitating the execution by Sabeniano of new PNs in favor of Citibank, Manila.
 As of 5 Apr. ‘79, Sabeniano had outstanding 10 PNs (second set) obtained from Jan. 1979 to Mar. 1979, the principal
amount of which remained at P1,920,000.
 To secure her loans, she executed in favor of Citibank, Manila:
o (1) 2 Deed of assignments of her money market placements with FNCB Finance to secure P500k per Deed
(PN No. 8169 & PN No. 8167 latter rolled-over to PNs No. 20138 and 20139)
o (2) Declaration of Pledge for “all present and future fiduciary placements held in [her] personal and/or joint
name with Citibank, Switzerland,” to secure all claims which Citibank may have or, in the future, acquire,
against her.
 When Sabeniano failed to pay the 2nd set of PNs upon their maturity, Citibank, Manila demanded payment for loan
of P1,920,000.
o She made partial payment to Citibank via a Comtrust Check for P62,683.33 and asked for recomputation and
extension and also wrote a letter to FNCB Finance authorizing it to release the accrued quarterly interests
from the placements to be forwarded directly to Citibank, Manila.
 By Sept 5, ’79, Sabeniano’s outstanding and past due obligations to Citibank totaled P2,123,843.20, representing the
principal amounts plus interests.
 To liquidate Sabeniano’s outstanding balance, Citibank effected compensation thru the application of the ff:
o (1) the proceeds of her money market placements with FNCB Finance (PNs No. 20138 and 20139): P
1,022,916.66
o (2) her savings deposit account with Citibank: P 31,079.14
o (3) dollar remittance from Citibank-Geneva (peso equivalent of US$149,632.99): P1,102,944.78
 Aug. 8, ’85: Sabeniano filed a complaint against Citibank and FNCB Finance for refusing to return the deposits in her
account and the proceeds of her money market placements with the Ayala Investment deposited automatically to
her accounts with Citibank.
o For the 1st set of PNs: Her debt was only P1.15M which she already paid. She also did not receive some of
the loans.
 ADMITS: Execution of PN 34534 representing P150k for which she received MC 228270. This was
already paid since she invested this amount in a money market placement with FNCB Finance used
as security for her loan and later forfeited by Citibank.
 DENIES: Receipt of MCs No. 220701 (for the loan of P400k) and No. 226467 (for the loan of P250k),
and pointed out that the checks did not bear her indorsements.
 As to other checks, while she did not deny receiving all other checks, said checks were allegedly
received, not as proceeds of loans, but as payment of the principal/interests from her money market
placements with Citibank.
o For the 2nd set of PNs: She acknowledged having signed them all but only as part of the simulated loans she
and Mr. Tan of Citibank concocted for DBP to approve her pending loan application.
 RTC (Aug. 24, ‘95):
o (1) Set-off effected by Citibank of Sabeniano’s outstanding loans with her dollar deposit with Citibank
Switzerland for US$149,632.99 was illegal, null and void. Citibank to refund Sabeniano with legal interest
o (2) Sabeniano still indebted to Citibank for P1,069,847.40 as of 5 Sept. 1979.
 CA: Affirmed RTC with modification ruling entirely in favor of Sabeniano. Citibank & FNCB Finance failed to produce
the original copies in violation of the best evidence rule.

ISSUE #1
WoN Citibank exercised due diligence (No)
 Respondent denies that it was her signature on the Declaration of Pledge. She claimed that the signature was a
forgery. As a rule, forgery cannot be presumed and must be proved by clear evidence and the burden of proof
lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument
itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison
between the alleged forged signature and the authentic and genuine signature of the person whose signature is
theorized upon to have been forged.
 HOWEVER, despite respondent’s several attempts to have the original copy of the pledge produced Citibank
failed to comply with the production of the original Declaration of Pledge.
 It is admitted that Citibank-Geneva 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
Citibank- Geneva 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.
 Thus, the photocopy of the pledge presented by petitioner Citibank has nil probative value.
 Furthermore, 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.

ISSUE #2
Whether Sabeniano has outstanding loans at the time it made the offset or compensation on 25 July ’79, 5 Sept. ’79 and
26 Oct. ’79? (YES) [Whether the manager checks representing the proceeds of Sabeniano’s loans were properly received
and deposited despite the absence of her indorsement? (YES)]
 Sabeniano did indeed have outstanding loans for P1,920,000 with Citibank at the time it effected the off-set or
compensation.
 The second set of PNs were mere renewals of prior loans. The first set of PNs is supported by the existence of the
MCs that represent the proceeds received by Sabeniano.
 As to MC No. 228270: Sabeniano admitted to the receipt of this check representing the proceeds of her loan
covered by PN No. 34534. It was deposited at BPI, Cubao Branch. The check also bore her signature at the back.
 As to MCs No. 220701 and 226467: She denies having received said checks. However, evidence show that she has
indeed received them when they were deposited in her account, cleared and paid.
 (1) Checks were crossed for payee's account only, and they were actually deposited, cleared, and paid. It is
presumed that the said checks were properly deposited to the account of Sabeniano, who was clearly named the
payee in the checks.
o To hold that it didn’t would lead to the conclusion that an irregularity had occurred somewhere from the
time of the issuance of the said checks, to their deposit, clearance, and payment, and which would have
involved not only Citibank, but also BPI, which accepted the checks for deposit, and the Central Bank, which
cleared the checks.
o The MCs were drawn by the bank's manager upon the bank itself and regarded to be as good as the money
it represents. They were crossed checks, with the words "Payee's Account Only."
o GENERAL RULE: A crossed check cannot be presented for payment to the drawee bank in cash, but it can
only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account.
o It is the duty of the collecting bank PCI Bank to ascertain that the check be deposited in payee's account
only. It is bound to scrutinize the check and to know its depositors before it can make the clearing
indorsement "all prior indorsements and/or lack of indorsement guaranteed."
o The crossed MCs are already in the possession of Citibank, the drawee bank. A check serves as a receipt or
evidence for the drawee bank of the cancellation of the said check due to payment. 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.
 o It is presumed that private transactions have been fair and regular, and that the ordinary course of business
has been followed. This was not properly rebutted by Sabeniano.
 (2) The mere fact that MCs No. 220701 and 226467 do not bear her signature at the back does not negate deposit
thereof in her account.
o The liability for the lack of indorsement on the MCs no longer fall on Citibank, but on the bank who
received the same for deposit, in this case, BPI Cubao.
o The MCs were crossed, for payee's account only, and the payee named in both checks was none other than
Sabeniano. The crossing of the MCs was already a warning to BPI to receive said checks for deposit only in
Sabeniano's account.
o 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 Sabeniano's, then Sabeniano
would have a cause of action against BPI.
 (3) BPI further stamped its guarantee on the back of the checks to the effect that, "All prior endorsement and/or
Lack of endorsement guaranteed."
o Thus, BPI became the indorser of the MCs, and assumed all the warranties of an indorser:
 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 (NIL, Sec. 66, in rel. to
Sec. 65).
o Even if the MCs deposited by BPI's client, whether it be by Sabeniano 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 Citibank, the drawee bank.
 (4) Both manager’s checks were actually deposited in her account in BPI Cubao in which the manager’s checks she
admitted to have received were also deposited.
 (5) A provisional receipt was also presented which evidences her receipt of MC No. 226467, albeit not as a loan.

ISSUE #3
Whether she has already paid the proceeds of the first set of PNs? (NO)
 She presented provisional receipts which stated that Citibank received checks from her as payment for her loans.
However, they failed to specifically identify which loans were actually paid.
 It is incumbent upon Sabeniano to prove that the checks received were actually applied to the PNs in either the first
or second set; a fact that cannot be determined from the provisional receipts submitted since they only generally
stated that the checks received were payment for her loans.
 Also, 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.
 A check, whether an MC or an ordinary check, is not legal tender and, therefore, cannot constitute valid tender of
payment.
 The issuance of an official receipt by Citibank would have been dependent on whether the checks delivered by
Sabeniano were actually cleared and paid for by the drawee banks.

ISSUE #3
Whether the liquidation of Sabeniano’s outstanding loans thru the offset or compensation made by Citibank with her
Citibank savings deposit, money market placements with FNCB Finance, and dollar accounts with Citibank-Geneva was
valid? (In part)
 For her Citibank savings account (OFFSET VALID): There was valid legal compensation as Citibank & Sabeniano were
both principal creditor of each other and both debts consist in sums of money.
 For Sabeniano’s money market placements with FNCB Finance (OFFSET VALID): There was no legal compensation
since Citibank and Sabeniano, in this case, were not a principal creditor of each other. However, Citibank has a right
to liquidate them on the basis of the Deed of Assignment.
o Deed of Assignment was, in reality, a pledge by Sabeniano to Citibank entitling Citibank to a right to payment
when Sabeniano’s credit was due but was not redeemed (Art. 2118).
o It gave authority to Citibank to use the proceeds of her money market placements with FNCB Finance,
 represented by PNs No. 8167 and 8169, later to be rolled-over as PNs No. 20138 and 20139.
o PNs No. 20138 and 20139 matured on 3 Sept. 1979, without them being redeemed by Sabeniano, so that
Citibank collected from FNCB Finance the proceeds, which included the principal amounts and interests
earned by the money market placements, amounting to P1,022,916.66, and applied the same against
Sabeniano’s outstanding loans, leaving no surplus to be delivered to her
 For Citibank-Geneva dollar accounts (OFFSET NOT VALID): Citibank had no authority to demand their remittance as
the Declaration of Pledge was irregularly filled-out (Citibank was named as pledgor and not Sabeniano). It was also
unnotarized and the date of its execution was not sufficiently established. Sabeniano also claims that her signature
was a forgery. There was also no legal compensation since they were not principal creditors of each other as Citibank
itself admitted that Citibank-Geneva is a distinct and separate entity.

DISPOSITIVE: Petition PARTLY GRANTED. CA AFFIRMED WITH MODIFICATION.

 Sabeniano ORDERED to pay Citibank the balance of her outstanding loans
 Citibank ORDERED to return to Sabeniano the principal amounts of PNs No. 23356 and 23357 (P318,897.34 &
P203,150)
 Remittance of US$149,632.99 from Sabeniano’s Citibank-Geneva accounts to Citibank in Manila to be refunded