G.R. No. 48183 - People vs. Schneckenburger

Petitioners: Premiere Development Bank (PDB).
Respondents: Spouses Engracio T. CastaAeda and Lourdes E. CastaAeda (Spouses CastaAeda).
Spouses CastaAeda had an outstanding personal loan of PHP 2.6 million with PDB under Promissory Note (PN) No. 717-X due on September 10, 2000 (the Subject Loan).
As collateral, Engracio pledged a proprietary share in Manila Polo Club (MPC Certificate No. 170), registered under his brother Constancio T. CastaAeda, Jr.'s name.

Engracio was president of Casent Realty and vice-president of Central Surety.
Constancio was president of Central Surety.
Casent Realty had a loan of PHP 40 million (PN 235-Z).
Central Surety had two loans: PHP 40,898,000 (PN 376-X) and PHP 6 million (PN 714-Y).
These loans were secured by separate pledge and real estate mortgage contracts.

Parties renegotiated but failed to agree on partial payment; the Subject Loan matured on September 10, 2000.
On September 20, 2000, Spouses CastaAeda tendered a BC check of PHP 2.6 million to PDB for the Subject Loan.
Central Surety also tendered a BC check for PHP 6 million for its loan under PN 714-Y.
PDB refused to accept the Spouses’ payment as full settlement and instead applied the combined PHP 8.6 million payment (Spouses' PHP 2.6M + Central Surety's PHP 6M) to four loans of different debtors as follows:

Spouses CastaAeda filed a complaint for specific performance with damages for correct application of payment to their personal loan.
PDB justified its application based on a waiver clause in the PN allowing it to apply payments to any obligations of the debtor.
PDB alleged Engracio was bound solidarily as co-borrower and surety for corporate loans.
Spouses CastaAeda also signed surety agreements limiting their liability for corporate loans.
Central Surety separately sued PDB; this case was decided in favor of PDB regarding its application of payments for corporate loans.

RTC ruled in favor of Spouses CastaAeda, ordering PDB to apply the PHP 2.6 million to the Subject Loan and release the MPC Certificate No. 170.
RTC invalidated PDB’s unilateral increase of interest rate from 16.3% to 26%.
CA affirmed RTC with reduced attorney's fees award, holding that application of payment requires debts to be owed by the same debtor.
CA held corporate debts and Spouses’ personal debts are separate by law.
CA denied PDB’s Motion for Reconsideration affirming the separate loan obligations.

Whether the Court of Appeals erred in not applying the exception in Article 1252 of the New Civil Code on application of payment.
Whether the waiver clause in the promissory note allowing PDB to apply payments to any obligations constitutes an exception to Article 1252.
Whether the collateral MPC Certificate No. 170 can be released despite the existence of cross-default and cross-guarantee provisions affecting other loans.