Citibank, N.A. & Investor Finance Corporation v. SabeninanoFacts:This is a case involving Citibank, N.A., a banking corporation duly registered under US Laws and is licensed to do commercial banking and trust functions in the Philippines and Investor's Finance Corporation (aka FNCB Finance), and affiliate company of Citibank, mainly handling money marketplacements(MMPs are short term debt instrumentsthat give the owneran unconditional right to receive a stated, fixed sum ofmoney ona specified date). Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Unfortunately, thebusiness relations among the parties subsequently went awry. Subsequently,Sabenianofiled a complaint with the RTC against petitioners as she claims to have substantial deposits and money market placements with the petitioners and other investment companies, the proceeds of which were supposedly deposited automatically and directly to heraccount with Citibank.Sabeniano alleged that Citibank etal refused to return her deposits and the proceeds of her money market placements despite her repeated demands, thus, the civil case for "Accounting, Sum of Money and Damages. In their reply, Citibank et al admitted that Sabeniano had deposits and money market placements with them, including dollar accounts in other Citibank branches. However, they also alleged that respondent later obtained several loans from Citibank, executed through Promissory Notes and secured by a pledge on her dollar accounts, and a deed of assignment against her MMPS with FNCB Finance. When Sabeniano defaulted, Citibank exercised its right to off-set or compensate respondent's outstanding loans with her deposits and money market placements, pursuant to securities she executed. Citibank supposedly informed Sabeniano of the foregoing compensation through letters, thus, Citibank et al were surprised when six years later, Sabeniano and her counsel made repeated requests for the withdrawal of respondents deposits and MMPs with 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. RTC: The case was eventually decided after 10 years with the Judge declaring the offsetting done as illegal and the return of the amount with legal interest, while Sabeniano was ordered to pay her loans to Citibank. The ruling was then appealed. The CA modified the decision but only to the extent of Sabenianos loans, which it ruled, that Citibank failed to establish the indebtedness and is also without legal and factual basis. The case was thus appealed to the SC.Issue: Whether or not there was a valid off setting/compensation of loan vis a vis thea.)Deposits andb.) MMPs.Held: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 aprincipalcreditor ofthe other;(2) That both debts consist in a sum of money, or if the things due are consumable, theybe of thesame kind, and also of the same quality if thelatter 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 thirdpersons andcommunicated indue 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 thedepositor 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 off-set under Article 1278of 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 aprincipal creditor ofthe 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 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 apledge byrespondentto petitioner Citibank of her credit duefrom petitioner FNCBFinance byvirtue of her money market placements with the latter. According to Article 2118 of the Civil CodeART. 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 thepledgor.

PARAY v. RODRIGUEZ, ET AL., G.R. No. 132287 (JANUARY 24, 2006)FACTS:Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to 1980,respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray (Parays) the payment of certain loan obligations.When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge agreements, among others. However the RTC dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various pledges. This decision attained finality after the Court of Appeals and the Supreme Court affirmed it. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court ofvarious amounts. It was claimed that respondents had attempted to tender payments to theParays ,but had been rejected. Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding for all of the pledged shares. Noneof respondents participated or appeared atthe auction. Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public auction.Respondents argument:Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts.Petitioners argument:Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the tender ofpayment and consignations were made long after theirobligations had fallen due. They pointed out that the amounts consigned could not extinguish the principal loan obligations ofrespondents since they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural requisites for the auction sale had beensatisfied.Ruling of RTC:The RTC dismissed the complaint, expressing agreement withthe position of theParays.It held that respondents had failed to tender or consign payments within a reasonable period after default and that the properremedy of respondents was to haveparticipated in the auction sale.Ruling of CA:The Court of Appeals however reversed the RTC on appeal, ruling that the consignations extinguished theloan obligations and the subjectpledge contracts; and the auction sale as null and void.It (CA) chose to uphold the sufficiency of the consignations owing to an imputed policy of thelaw that favored redemption and mandated a liberal construction to redemption laws. The attempts at payment by respondents were characterized as made in the exercise of the right ofredemption.CA likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of stock as they hadbelonged to different pledgors.ISSUES:1. WON right of redemption exists over personal properties (such as the subject pledged shares).2. WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan obligations and the subject pledged contracts.3. WON the act ofrespondents in consigning the payments should be deemed done inthe exercise of their right ofredemption owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws.4. WON a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the one-year redemptive period5.WON there is a need to individually sell the various shares of stock as they had belonged to different pledgors.HELD:1. No. No law orjurisprudence establishes or affirms such right. Indeed, no such right exists. The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely execution sales of real property.It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needsto do, if thecredit has not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged. In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them. Saidjudgment did not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale at their ownvolition.2. No.There is no doubtthat if the principal obligation is satisfied, the pledges shouldbe terminated as well. Article2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided underArticle 2112 of the Code. In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover not just theprincipal loans, but also the monthly interests thereon.In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5%per month or 60% per annum.3. No. The pledged shares in this case are not subject to redemption. Thus, the consigned payments shouldnotbe treated with liberality, orsomehow construed as having been made inthe exercise of the right ofredemption.4. Yes. Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale arenot entangled in any suspensive condition that is implicit in aredemptive period.5. No. This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately, such as in the case of lot sales for realproperty under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at auction besold separately. On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the items should be sold if two or more things are pledged.No similar option is given to pledgers under the Civil Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale ofpledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in purchasing all the pledged properties with asingle purchase price. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation.RULING:Decision of the Court ofAppeals is SET ASIDE and the decision ofthe RTC Cebu Cityis REINSTATED.