G.R. No.

176246               February 13, 2009

PREMIERE DEVELOPMENT BANK, Petitioner, 

vs.
CENTRAL SURETY & INSURANCE COMPANY, INC., Respondent.

Facts:

Central Surety obtained an industrial loan of ₱6,000,000.00 from petitioner Premiere Bank with
a maturity date of August 14, 2000, evidenced by a Promissory Note. It stipulates payment of
17% interest per annum payable monthly in arrears and the principal payable on due date and a
penalty charge of 24% interest per annum.

To secure payment of the loan, Central Surety executed in favor of Premiere Bank a Deed of
Assignment with Pledge covering Central Surety’s Membership Fee Certificate representing its
proprietary share in Wack Wack Golf and Country Club Incorporated. Constancio T. Castañeda,
Jr. and Engracio T. Castañeda, president and vice-president of Central Surety, respectively,
represented Central Surety and solidarily bound themselves to the payment of the obligation.

Central Surety had another commercial loan with Premiere Bank in the amount of
₱40,898,000.00 maturing on October 10, 2001, evidenced by a Promissory Note and secured by
a real estate mortgage over Condominium Certificate.

On September 20, 2000, Central Surety issued Bank of Commerce in the amount of
₱6,000,000.00 and payable to Premiere Bank. The check was received by Premiere Bank’s
Senior Account Manager, Evangeline Veloira, with the notation "full payment of loan-Wack
Wack”.

An amount of ₱2,600,000.00 was also tendered to Premiere Bank as payment for the Spouses
Engracio and Lourdes Castañeda’s personal loan.

Significantly, the ₱8,600,000.00 check payments were not applied in full to Central Surety’s loan
and the Spouses Castañeda’s personal. Premiere Bank also applied proceeds thereof to a
commercial taken out by Casent Realty and Development Corporation.

 Central Surety’s counsel wrote Premiere Bank and reiterated Central Surety’s demand for the
application of the check payments to the loans and asked that the Wack Wack Membership
pledge, the security for the ₱6,000,000.00 loan, should be released.
ISSUE:

Whether or not Premiere Bank waived its right of application of payments on the loans of
CentralSurety; (2) Whether the release of the Wack Wack Membership pledge is in order.

HELD:

Article 1252 of the Civil Code provides: He who has various debts of the same kind in
favor of one and the same creditor, may declare at the time of making the payment, to which of
them the same must be applied. The debtor’s right to apply payment is only directory, and not
mandatory, as manifested by the use of the word “may”. Such right may be waived or even
granted to the creditor if both parties agree on such circumstance.

In the instant case, it was stipulated in the contract that the right to apply payments would
be enjoyed by the Premiere Bank. It cannot be understood that such granted right was waived by
Premiere Bank. As all debts were already due, the subsequent demand made by Premiere Bank
cannot be equated with a waiver of the right to demand payment of all the matured obligations of
Central Surety to Premiere Bank. The Court also recognized the standard practice in commercial
transactions to send demand letters before default may set in. The demand cannot be considered
a waiver for a waiver must be positively demonstrated, and voluntary, made knowingly,
intelligently and with sufficient awareness of relevant circumstances and likely consequences.

Also any inference of a waiver made by Premiere Bank is denied by the provision of the
Promissory Note that “no failure on the part of Premiere Bank to exercise, and no delay in
exercising any right hereunder, shall operate as a waiver thereof.”
When Central Surety issued a check as payment to Premiere Bank, it knew very well that it had
several loans which granted Premiere Bank the right to apply its payment.
 G.R. NO. 159748 : July 31, 2007

SPOUSES VIRGILIO AND DIGNA ANASTACIO-

CALINA, Petitioners, v. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

FACTS:

Spouses Calina and DBP entered into an agricultural (deep-sea fishing) loan agreement,
whereby respondent lent to petitioners the amount of P1,356,000.00. As security for payment of
the loan, petitioners executed a promissory note in favor of respondent, promising to pay the
aforementioned sum, together with 12% interest per annum.

Towers Assurance Corporation, acting as surety for petitioners, executed a Performance

Bond for the amount of P319,085.60.

Spouses Calina commenced the construction of a fishing boat on a beach in Panakan,

Palawan. It then purchased one unit of a Cummins Marine Diesel Engine. Petitioners requested
DBP to conduct its inspection of the partially completed keel of the fishing boat but they were
unavailable and failed to visit the construction site.

Typhoon Asyang hit Palawan, and totally destroyed the fishing boat under construction.
All materials were washed out to sea.  Virgilio Calina informed the DBP of his decision to
abandon the project. He requested the DBP to grant him 60 days within which to sell the
Cummins Marine Diesel Engine and out of the proceeds thereof, pay all his obligations to DBP.

DBP wrote a letter to the petitioners, demanding immediate payment of their obligation
plus interest, excluding daily additional interest.

DBP filed a complaint for sum of money, with a prayer for the issuance of a writ of
preliminary attachment for the Cummins Marine Diesel Engine, against the Spouses Calina and
Towers Assurance Corporation.

Petitioners sought buyers for the Cummins Marine Diesel Engine by advertising in
several newspapers.  Pacific Power and Process Corporation offered to buy the Cummins Marine
Diesel Engine but unfortunately, the petitioners buyer had already lost interest. They tried to find
other buyers but to no avail. They finally came to an agreement for the disposition of the
engine. On August 28, 1989, they filed a Joint Motion to Lift the Writ of Attachment so that they
could sell the engine pending litigation and apply the proceeds of the sale to the payment of the
Spouses Calinas outstanding account with DBP, without prejudice to whatever negotiation and
agreements that the parties may enter into to settle the case amicably in the event the sales
proceeds of the Cummins Marine Diesel Engine is not sufficient to pay off the total obligation.
The engine was sold for the sum of P550,000.00 and the amount was applied to the loan. 

The parties, however, could not agree whether the total amount of the loan had been fully settled.

ISSUE:

Whether or not petitioners are required to pay interest on the advance of P451,589.80 made by
DBP, in violation of the Agreement between the parties and without any valid document in
support thereof.

HELD:

Respondent had the right to demand interest on its loan based on their contract. In their
promissory note petitioners agreed to pay 12% interest per annum on their loan. Article 1253 of
the New Civil Code provides that, if the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered. The respondent is a bank. To
hold that bank debtors should not pay interest on their loans would be anathema to the nature of
any banks business. The charging of interest for loans forms a very essential and fundamental
element of the banking business. In fact, it may be considered to be the very core of the bankings
existence or being