Contributor: Dahlia Claudine May Perral

Citation: CITIBANK, N.A. vs . MODESTA R. SABENIANO

G.R. No. 156132. October 16, 2006
Topic: CREDIT TRANSACTION
Principle: 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.
Certain principles of private international law should be considered when the property
pledged was in the possession of an entity in a foreign country. In the absence of any allegation and
evidence of the specific rules and laws governing the constitution of a pledge in the foreign country, it
will be presumed to be the same as Philippine local or domestic laws; this is known as processual
presumption.

Bar Question:
S is a client of Citibank and FNCB Finance having deposits and money market placements,
including dollar accounts in Citibank branch in Geneva. S obtained several loans with Citibank – some
were paid but some were not. The loans were secured by S’s money market placements with FNCB
Finance through a Deed of Assignment plus a Declaration of Pledge which states that all present and
future fiduciary placements held in S’s (Dollar Accounts) personal and/or joint name with Citibank-
Geneva, will secure all claims that Citibank may have or, in the future, acquire against S. The Deed of
Assignment was duly notarized while the Declaration of Pledge was not notarized and Citibank’s copy
was undated.
S failed to pay her obligations after repeated demands. Citibank then proceeded applying S's
dollar accounts with Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of
Pledge supposedly executed by S in its favor. However, during trial it Citibank failed to prove the due
execution of the Declaration of Pledge. It was further admitted that Citibank N.A Manila and Citibank-
Geneva is distinct and separate. Was Citibank’s execution of the Declaration of Pledge to off-set S’s loan
valid and legal?

Suggested Answer:
No.
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.
In this case, without the Declaration of Pledge, 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, 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 remittance of S’s dollar accounts from Citibank-Geneva and the application
thereof to her outstanding loans with Citibank was illegal, and null and void.