Premiere Development Bank vs Central Surety

PREMIERE DEVELOPMENT BANK VS CENTRAL SURETY & INSURANCE COMPANY, INC. 579 SCRA 359 FACTS: Respondent Central Surety & Insurance Company (Central Surety) acquired an industrial loan worth six million pesos from petitioner Premiere Development Bank, evidenced by Promissory Note. Should Central Surety fail to pay, it would be liable to Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid penalties up to maturity date; and (3) unpaid balance of the principal. To Secure Payment for the loan Central Surety executed a Deed of Assignment with Pledge in favor of Premier Bank its proprietary share in Wack Wack and golf and country Club. Central Surety had another commercial loan with Premiere Bank worth 40,898,000.00 pesos, again by Promissory Note. To secure payment of the loan they were secured a real estate mortgage over a Condominium Certificate. This was availed through a renewal of Central Surety’s prior loan. It was stipulated in the contract that Premiere Bank as creditor would have the right to decide to which the payment would be applied, and that there is no need for an express demand from the creditor to make the obligations due and demandable. Central Surety issued a check worth 6,000,000.00 pesos and payable to Premiere Bank. However, the latter returned such check and sent a letter, as part of a normal bank procedure, demanding payment and threatening foreclosure of Central Surety’s securities, the pledge and real estate mortgage, should it fail to pay within ten days from date of receipt. This was alleged by the latter to be an act of waiving Premiere Bank’s right to apply payments. Central Surety moves for the release of the Wack Wack Membership pledge for their supposed paid loan. The lower court ruled in favor of Premiere Bank, while the Court of Appeals reversed the prior decision of the lower court. ISSUE: (1) Whether or not Premiere Bank waived its right of application of payments on the loans of Central Surety; (2) Whether the release of the Wack Wack Membership pledge is in order. HELD: (1) No. Relevant to the case is the statutory provision on application of payments, particularly Article 1252 of the Civil Code. “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. xxx” 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. (2) No. Considering that the parties are bound by a contract of adhesion, where Central Surety imposed a readymade contract on Premiere Bank, the latter had freedom to reject or adhere to the contract. Central Surety, being a well-established personality, would also not be considered as a disadvantaged party. The contract between the parties falls on the dragnet clause, which is one “specifically phrased to subsume all debts of past and future origins.” The security clause in the instant case is that of a continuing pledge, wherein the Wack Wack Membership served as security for the standing obligation, also for future advancements. Such security worth 15,000,000.00 pesos was clearly worth more than the industrial loan worth 6,000,000.00 pesos, which was understood to secure the ballooning debt of the Central Surety. As all demandable obligations are yet to be fulfilled, the release of the Wack Wack membership as security cannot yet to be done as prayed for by Central Surety. Wherefore, the instant petition is partially granted. The decision of the Court of Appeals is set aside and the decision of the Regional Trial Court of Makati is reinstated with modification.