Title
Supreme Court
Premiere Development Bank vs. Central Surety and Insurance Company, Inc.
Case
G.R. No. 176246
Decision Date
Feb 13, 2009
Central Surety paid P6M loan via check, but Premiere Bank applied it to other debts. Court upheld bank's right to allocate payments per contract, denied release of pledged security, and deleted attorney’s fees.

Case Summary (G.R. No. 81805)

Facts

  1. On August 20, 1999 Central Surety borrowed ₱6,000,000 from Premiere Bank under Promissory Note No. 714-Y (17% interest, 24% penalty) due August 14, 2000, secured by a pledge of a Wack Wack membership certificate. Constancio and Engracio signed as solidary obligors.
  2. Central Surety had a separate ₱40,898,000 loan due October 10, 2001 (PN No. 376-X), secured by a condominium mortgage.
  3. On August 22, 2000 Premiere Bank demanded full payment of the ₱6 million loan. Central Surety sought extension, then on September 20, 2000 tendered Bank of Commerce check No. 08114 for ₱6 million, which the bank returned, demanding also payment of the ₱40.9 million loan.
  4. Central Surety re-tendered Check No. 08114 and another for ₱2.6 million (spouses’ personal loan), but Premiere Bank applied the ₱8.6 million to four different accounts, including unrelated corporate and personal loans.
  5. Central Surety sued for declaration of full payment of PN 714-Y, release of the Wack Wack pledge, damages and attorney’s fees.
  6. The RTC dismissed the complaint, upheld the bank’s contractual right to apply payments at its discretion, but voided its application to two unrelated accounts and awarded bank ₱100,000 attorney’s fees.
  7. The CA reversed on the ground that Premiere Bank’s August 22, 2000 demand letter waived its contractual right of payment application and estopped it from enforcing the clause; it declared the ₱6 million loan fully paid and ordered release of the pledge.

Key Legal Issues

  1. Did Premiere Bank waive or become estopped from exercising its contractual and statutory right to apply Central Surety’s payments?
  2. Was the ₱6,000,000 loan under PN 714-Y fully extinguished by the tender and encashment of Check No. 08114?
  3. Is Central Surety entitled to immediate release of the pledged Wack Wack membership certificate?

Applicable Law

– 1987 Philippine Constitution (1989 decision)
– Civil Code, Article 1252 (application of payments; debtor’s and creditor’s rights)
– Civil Code, Article 2110 (extinction of pledge upon return of the pledged thing)
– Jurisprudence on acceleration clauses, contractual waiver, contracts of adhesion, and dragnet (“blanket mortgage”) clauses

Analysis

– Article 1252 grants the debtor a directory right to designate the application of payments; failing that, the creditor may apply payments at its discretion. Such right is waivable, including by contract.
– PN 714-Y and PN 376-X expressly empower Premiere Bank “to apply without notice and in any manner it sees fit” any deposits or payments to any obligations of Central Surety, binding upon the latter. They also provide that “no delay in exercising any right … shall operate as a waiver.”
– The bank’s August 22 demand letter did not constitute a voluntary, knowing relinquishment of its right of payment application; demand letters are customary in commercial practice and do not imply waiver of contractual rights.
– At the time of tender, all of Central Surety’s obligations to the bank were due and demandable by virtue of valid acceleration clauses; the bank legitimately applied the ₱6 million and ₱2.6 million checks to the most onerous debts.
– The pledge of the Wack Wack membership was granted under a Deed of Assignment with a “dragnet clause” securing ₱15 million and “any promissory note hereafter executed.” Subsequent loans (PN 376-X) arose

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