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Title
Premiere Development Bank vs. Central Surety and Insurance Company, Inc.
Case Decision Date
G.R. No. 176246 13 Feb 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.
loan payments dispute speci!c security Show all tags (29)
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Facts:
Background of the Transaction
Premiere Development Bank (“Premiere Bank”) granted Central Surety &
Insurance Company (“Central Surety”) an industrial loan amounting to
₱6,000,000.00 on August 20, 1999.
The loan was evidenced by Promissory Note (PN) No. 714-Y which provided for:
- An interest rate of 17% per annum payable monthly in arrears. - A penalty charge of
24% per annum based on either the unpaid installment or the entire unpaid balance.
Collateral and Security Arrangements
To secure the ₱6,000,000.00 loan, Central Surety executed a Deed of
Assignment with Pledge covering its Membership Fee Certi!cate No. 217 (its
proprietary interest in Wack Wack Golf and Country Club Incorporated).
Key o"cers, Constancio T. Castaneda, Jr. (President) and Engracio T. Castaneda
(Vice-President), represented Central Surety and solidarily bound themselves to
the obligations under the promissory notes.
Additional security arrangements involved separate collateral for the
₱40,898,000.00 loan via a real estate mortgage over Condominium Certi!cate of
Title No. 8804.
Communications and Payment Tenders
On August 22, 2000, Premiere Bank sent a demand letter to Central Surety
insisting on the settlement of the ₱6,000,000.00 obligation, warning that failure
to comply within !ve days would trigger the transfer of the Wack Wack
membership certi!cate.
In response, on August 24, 2000, Central Surety, via its counsel, indicated its
intention to settle the ₱6,000,000.00 account by the end of September,
mentioning that an initial payment had already been made as of August 14,
2000.
On September 20, 2000, Central Surety issued Bank of Commerce (BC) Check
No. 08114 payable to Premiere Bank for ₱6,000,000.00.
The check, received with the notation “full payment of loan – Wack Wack,” was
later returned by Premiere Bank for undisclosed reasons.
Following the returned payment, Premiere Bank’s letter dated September 28,
2000, expanded its demand to include the ₱40,898,000.00 loan (originally
secured by PN No. 367-Z), threatening foreclosure of both pledged securities if
full settlement was not made within ten days.
On September 29, 2000, Central Surety re-tendered the ₱6,000,000.00 check
(BC Check No. 08114) along with a separate tender (BC Check No. 08115 for
₱2,600,000.00) intended to address a personal loan for the spouses Castaneda
secured by PN No. 717-X.
Application of Payments and Dispute Over Allocation
On October 13, 2000, Premiere Bank acknowledged receipt of check payments
totaling ₱8,600,000.00 and issued a letter stating the allocation of such
payments:
- ₱1,044,939.45 to Account No. COM 235-Z. - ₱1,459,693.15 to Account No. IND 717-X. -
₱4,476,200.18 to Account No. COM 367-Z. - ₱1,619,187.22 to Account No. COM 714-Y.
Judicial Proceedings
Central Surety !led a complaint seeking:
- A declaration that its ₱6,000,000.00 loan (PN No. 714-Y) was paid in full. - The release
of the pledged Wack Wack Membership certi!cate. - Damages, including compensatory,
actual, exemplary damages, attorney’s fees, and litigation expenses.
Issue:
Discretionary Right on the Application of Payments
Whether Premiere Bank’s stipulation in Promissory Note No. 714-Y that grants it
sole discretion to apply payments to any of Central Surety’s obligations is valid
and enforceable.
Whether the act of sending the demand letter on August 22, 2000, amounted to
a waiver of that contractual right, thereby estopping the bank from exercising its
discretion.
Extinguishment of the Debt
Whether the tender and encashment (and subsequent return) of the
₱6,000,000.00 check (BC Check No. 08114) by Central Surety extinguished its
debt under PN No. 714-Y.
Whether the re-tender of the check by Central Surety constituted a valid tender
of payment.
Release of the Pledged Collateral
Whether the Wack Wack Membership certi!cate, served as collateral under the
Deed of Assignment with Pledge for the ₱6,000,000.00 loan, should be released
given the disputed application of payments.
How the “dragnet clause” in the pledge—designed to cover not just the initial
advance but also subsequent loans—a#ects the release of the pledged security.
Award of Attorney’s Fees and Damages
Whether the RTC was justi!ed in awarding ₱100,000.00 as attorney’s fees to
Premiere Bank based on allegations of malicious suit !ling by Central Surety.
Whether such an award should be maintained or deleted in view of the conduct
and evidence regarding malicious prosecution.
Separate Loan Obligations and the Doctrine of Corporate Personality
Whether obligations incurred by other entities (such as Casent Realty or the
personal obligation of the spouses Castaneda) should be considered distinct
from Central Surety’s obligations.
The implication of separate and distinct collateral agreements on the
application of payments and the extents of liability.
Ruling:
(Subscriber-Only)
Ratio:
(Subscriber-Only)
Doctrine:
(Subscriber-Only)
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