CASE DIGEST

A Case Digest
Presented to the Faculty
of De La Salle University – Dasmariñas

In Partial Fulfilment
of the Requirements in Obligations and Contracts

Amita, Elyshia Eireen Zsanel

Descallar, Audrey Celestine

Dungca, Lander Amiel

Garcia, Rachelle Althea

Macusi, Sherain Morie

Paguipo, Mark Daven

Teodosio, Marielle Anne

Timpac, Hajar

Umali, Usha Ira Jene

October 2024
G.R. No. 176246 February 13, 2009
PREMIERE DEVELOPMENT BANK, petitioner,
vs.
CENTRAL SURETY and INSURANCE COMPANY, INC., respondents,
NACHURA, J.:

FACTS: On August 20, 1999, respondent Central Surety & Insurance Company
(Central Surety) obtained an industrial loan of ₱6,000,000.00 from petitioner Premiere
Development Bank (Premiere Bank) with a maturity date of August 14, 2000. This
₱6,000,000.00 loan, evidenced by Promissory Note (PN) No. 714-Y, stipulates payment
of 17% interest per annum payable monthly in arrears and the principal payable on due
date. In addition, PN No. 714-Y provides for a penalty charge of 24% interest per
annum based on the unpaid amortization/installment or the entire unpaid balance of the
loan. In all, 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 of the ₱6,000,000.00 loan, Central Surety executed in favor of

Premiere Bank a Deed of Assignment with Pledge covering Central Surety’s
Membership Fee Certificate No. 217 representing its proprietary share in Wack Wack
Golf and Country Club Incorporated (Wack Wack Membership).

Parenthetically, Central Surety had another commercial loan with Premiere Bank in the
amount of ₱40,898,000.00 maturing on October 10, 2001. This loan was, likewise,
evidenced by a PN numbered 376-X and secured by a real estate mortgage over
Condominium Certificate of Title No. 8804, Makati City. PN No. 376-X was availed of
through a renewal of Central Surety’s prior loan, then covered by PN No. 367-Z.

Accordingly, by September 20, 2000, Central Surety issued Bank of Commerce (BC)
Check No. 08114 dated September 22, 2000 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," as
reflected in Central Surety’s Disbursement Voucher. However, for undisclosed reasons,
Premiere Bank returned BC Check No. 08114 to Central Surety, and in its letter dated
September 28, 2000, demanded from the latter, not just payment of the ₱6,000,000.00
loan, but also the ₱40,898,000.00 loan which was originally covered by PN No. 367-Z.

On October 13, 2000, Premiere Bank responded and signified acceptance of Central
Surety’s checks under the following application of payments:

Significantly, the ₱8,600,000.00 check payments were not applied in full to Central
Surety’s ₱6,000,000.00 loan under PN No. 714-Y and the Spouses Castañeda’s
personal loan of ₱2,600,000.00 under PN No. 717-X. Premiere Bank also applied
proceeds thereof to a commercial loan under PN No. 235-Z taken out by Casent Realty
and Development Corporation (Casent Realty), and to Central Surety’s loan originally
covered by PN No. 367-Z, renewed under PN No. 376-X, maturing on October 20,
2001.

As a result, Central Surety filed a complaint for damages and release of security
collateral, specifically praying that the court render judgment: (1) declaring Central
Surety’s ₱6,000,000.00 loan covered by PN No. 714-Y as fully paid; (2) ordering
Premiere Bank to release to Central Surety its membership certificate of shares in Wack
Wack; (3) ordering Premiere Bank to pay Central Surety compensatory and actual
damages, exemplary damages, attorney’s fees, and expenses of litigation; and (4)
directing Premiere Bank to pay the cost of suit.

On July 12, 2005, the RTC rendered a decision dismissing Central Surety’s complaint
and ordering it to pay Premiere Bank ₱100,000.00 as attorney’s fees.

On appeal by Central Surety, the CA reversed and set aside the trial court’s ruling. The
appellate court held that with Premiere Bank’s letter dated August 22, 2000 specifically
demanding payment of Central Surety’s ₱6,000,000.00 loan, it was deemed to have
waived the stipulation in PN No. 714-Y granting it the right to solely determine
application of payments, and was, consequently, estopped from enforcing the same. In
this regard, with the holding of full settlement of Central Surety’s ₱6,000,000.00 loan
under PN No. 714-Y, the CA ordered the release of the Wack Wack Membership
pledged to Premiere Bank.

ISSUES:

1. Whether Premiere Bank waived its right of application of payments on the loans
of Central Surety.
2. In the alternative, whether the ₱6,000,000.00 loan of Central Surety was
extinguished by the encashment of BC Check No. 08114.
3. Corollarily, whether the release of the Wack Wack Membership pledge is in
order.

HELD: At the hub of the controversy is the statutory provision on application of

payments, specifically Article 1252 of the Civil Code, viz: 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. Unless the parties so
stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet
due.

Verily, the debtor’s right to apply payment can be waived and even granted to the
creditor if the debtor so agrees.

In the case at bench, the records show that Premiere Bank and Central Surety entered
into several contracts of loan, securities by way of pledges, and suretyship agreements.
In at least two (2) promissory notes between the parties, Promissory Note No. 714-Y
and Promissory Note No. 376-X, Central Surety expressly agreed to grant Premiere
Bank the authority to apply any and all of Central Surety’s payments,

Corollary thereto, and upon the second issue, the tender of the amount of
₱6,000,000.00 by Central Surety, and the encashment of BC Check No. 08114 did not
totally extinguish the debt covered by PN No. 714-Y.

On August 29, 1999, the parties executed the Deed of Assignment with Pledge (of the
Wack Wack Membership), to serve as security for an obligation in the amount of
₱15,000,000.00 (when the actual loan covered by PN No. 714-Y was only
₱6,000,000.00), the intent of the parties was for the Wack Wack Membership to serve
as security also for future advancements.

In any event, even without this Court’s prescription in Prudential, the release of the
Wack Wack Membership as the pledged security for Promissory Note 714-Y cannot yet
be done as sought by Central Surety. The chain of contracts concluded between
Premiere Bank and Central Surety reveals that the Wack Wack Membership, which
stood as security for Promissory Note 714-Y, and which also stands as security for
subsequent debts of Central Surety, is a security in the form of a pledge. Its return to
Central Surety upon the pretext that Central Surety is entitled to pay only the obligation
in Promissory Note No. 714-Y, will result in the extinguishment of the pledge, even with
respect to the subsequent obligations, because Article 2110 of the Civil Code provides:

(I) If the thing pledged is returned by the pledgor or owner, the pledge is extinguished.
Any stipulation to the contrary is void.

This is contrary to the express agreement of the parties, something which Central
Surety wants this Court to undo. We reiterate that, as a rule, courts cannot intervene to
save parties from disadvantageous provisions of their contracts if they consented to the
same freely and voluntarily

The instant petition is PARTIALLY GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 85930 dated July 31, 2006, as well as its Resolution dated
January 4, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial
Court of Makati City, Branch 132, in Civil Case No. 00-1536, dated July 12, 2005, is
REINSTATED with the MODIFICATION that the award of attorney’s fees to the
petitioner is DELETED. No pronouncement as to costs.
G.R. No. 159748 July 31, 2007

SPOUSES VIRGILIO AND DIGNA ANASTACIO-CALINA, petitioners,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, respondent.

PUNO,,C.J:

FACTS: On July 16, 1975, the Spouses Calina and respondent DEVELOPMENT BANK
OF THE PHILIPPINES (DBP) entered into an agricultural (deep-sea fishing) loan
agreement, whereby respondent lent to petitioners the amount of ₱1,356,000.00. On
July 24, 1975, 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. From August 1975 to September 25, 1975 DBP has already
released ₱451,589.80 to petitioners.

In the last week of January 1976, typhoon Asyang hit Palawan, and totally destroyed
the fishing boat under construction. On January 26, 1978, petitioner 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. On October 3, 1978, the DBP wrote a
letter to the petitioners, demanding immediate payment of ₱666,195.55, representing
the amount of their obligation plus interest from August 18, 1978, excluding daily
additional interest.

On December 11, 1980, 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. On October 20, 1981, the court issued the writ of
attachment against the Cummins Marine Diesel Engine.

On October 29, 1984, petitioners requested the DBP to signify its conformity to the sale
of the Cummins Marine Diesel Engine for ₱600,000.00. The DBP refused, and decided
to sell the engine at public auction. The auction was held on March 8, 1985, but no bids
were made for the engine. On August 26, 1985, DBP wrote petitioners a letter, finally
agreeing to the sale of the engine for ₱600,000.00, and the payment of the proceeds
thereof as settlement for their agricultural (deep-sea fishing) loan. DBP also agreed to
condone any penalty charges and interest on past due interest computed up to the date
of payment of the said amount. Unfortunately, the Cummins Marine Diesel Engine
remained unsold.

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 Calina’s 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 trial court granted the motion.

On February 3, 1992, the engine was sold for the sum of ₱550,000.00, and the amount
was applied to the loan.

The Court concludes that, based on the subsequent novation of the contract after the
project was discontinued due to a fortuitous event, and with the proceeds of the
mutually agreed sale of the subject Cummins Engine absorbed by the DBP, the loan
obligation is considered as settled and/or fully paid.

The respondent filed a petition for review with the Court of Appeals, claiming that the
trial court erroneously declared that the loan obligation is fully settled. The Court of
Appeals REVERSED and SET ASIDE and a new one entered ordering defendants-
appellees, Spouses Virgilio Calina and Digna Anastacio, to pay plaintiff-appellant,
Development Bank of the Philippines, the amount of ₱666,195.55 plus 12% interest
from August 18, 1878 (sic) until fully paid to be computed based on diminishing balance
method less the ₱550,000.00 proceeds from the sale of the aforesaid Cummins Engine
and 10% attorney’s fees.

Then, the petitioners filed a petition for review on the error of the appellate court’s
decision, in its comment, respondent contended.

ISSUES:

1. Whether the amount of ₱550,000.00 fully settled the loan in question.

2. Whether the couple should be ordered to pay attorney's fees.

HELD: We note that throughout the proceedings before the trial court, the appellate
court and before this Court, petitioners have not assailed the computation of their debt.
Thus, it is settled that as of August 18, 1978, petitioners owed ₱666,195.55 to the
respondent. As of February 3, 1992, petitioners had paid ₱550,000.00 to the
respondent.

Plainly, the petitioners have not fully paid their obligation to the respondent. In addition,
the 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 bank’s business. The charging of
interest for loans forms a very essential and fundamental element of the banking
business.

Finally, the court disallows the payment of attorney’s fees awarded by the appellate
court. A fortuitous event, typhoon Asyang, caused the destruction of the fishing boat
subject of the project. This supervening event, independent of the will of the obligor,
cannot render the latter liable (Article 1266) beyond the restitution of what they may
have received in advance from the creditor.

The decision of the Court of Appeals is AFFIRMED, with the modification that the
petitioners are ordered to pay to respondent the amount of ₱666,195.55, plus 12%
interest computed from August 18, 1978 until February 2, 1992. From this sum,
₱550,000.00, representing the previous payment of the petitioners, must be deducted.
On the remaining balance shall be added the payment of 12% interest, to be computed
from February 3, 1992 until full payment. The award of attorney’s fees is deleted.
G.R. No. 113626 September 27, 2002
JESPAJO REALTY CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, TAN TE GUTIERREZ, and CO TONG, respondents.
AUSTRIA-MARTINEZ, J.:

FACTS: Jespajo Realty Corporation, the owner of an apartment building in Binondo,

Manila, entered into separate lease agreements with tenants Tan Te Gutierrez and Co
Tong starting February 1, 1985. The contracts stipulated a monthly rent, with automatic
20% annual increases, and no definite period for the lease. Tan Te Gutierrez occupied
room No. 217 for a monthly rent of ₱847.00 while Co Tong occupied the Penthouse for
₱910.00 per month. The agreement granted the lessees the right to terminate the lease
at any time by providing the lessor with 60 days written notice. The lessor retained the
right to terminate the lease if the lessees violated any of the agreement's terms and
conditions. The lease would continue indefinitely if the lessees were up-to-date with
their rental payments.

On January 2, 1990, Jespajo Realty unilaterally sought to increase the rent to ₱3,500
effective February 1, 1990, which the tenants opposed, citing the agreed terms of the
lease. Following the tenants' refusal to pay the higher amount, the lessor demanded
they vacate the premises and initiated legal action. The tenants attempted to pay the
original rent through consignation in court on May 2, 1990, depositing the rental
amounts for the disputed period.

The Metropolitan Trial Court (MTC) dismissed the ejectment case filed by Jespajo
Realty, finding that the lessor had violated the lease terms by demanding a higher rent
than stipulated. The Regional Trial Court (RTC) reversed this decision, ruling in favor of
Jespajo Realty and ordering the tenants to vacate the premises. However, the Court of
Appeals (CA) later reversed the RTC decision, reinstating the MTC's ruling and
concluding that the lessor had wrongfully demanded an excessive rent increase.
Jespajo Realty's petition for review was subsequently brought to the Supreme Court.

ISSUES:
1. Whether the lease contracts between the parties were terminable by the lessor
even though they stipulated an indefinite period of lease for as long as the
lessees paid rent.
2. Whether the disagreement over the amount of rent due should be settled through
a consignation case or an ejectment case.

HELD: The Court found that Article 1687 of the New Civil Code, which deals with lease
periods that are not fixed, did not apply to the case at bar. The lease contract between
the petitioner and the respondents included a period subject to a resolutory condition.

The wording of the agreement is clear: "The lease period xxx shall continue for an
indefinite period provided the lessee is up-to-date in the payment of his monthly
rentals." The condition for the contract to remain in effect is that the lessee is current
with monthly payments. The lessees, Gutierrez and Co Tong, consistently paid their
rent with a 20% yearly increase. When the petitioner unilaterally increased the rental
payment to more than 20%, or P3,500.00 a month, the agreement between the lessor
and the lessees was still valid with the original terms and conditions agreed upon.
The petitioner’s argument that a provision in a contract allowing for an indefinite lease
period contradicts Article 1308 of the Civil Code, which upholds the principle of
mutuality of contracts, is not valid. The benefit of the period in favor of the lessee was
granted in exchange for an automatic 20% yearly increase in monthly rentals.
Additionally, the lease agreement clearly states that violation of any of the terms and
conditions of the contract is sufficient grounds for termination by the lessor. This
removes the contract from the application of Article 1308.

Furthermore, the Court found that the petitioner was estopped from claiming that the
lease contract had been terminated because they had led the lessees to believe that
their lease would continue indefinitely as long as they promptly paid their monthly
rentals.

It was also found that the petitioner's allegation that the respondents had not paid their
rent was false. The issue of whether the P3,500.00 monthly rental is the correct amount
to be paid by the respondents was already determined in the ejectment case by the
Metropolitan Trial Court, a decision that the Court of Appeals correctly upheld.

Finding no error in the assailed decision, the Supreme Court DENIED the petition for
lack of merit and AFFIRMED the decision of the Court of Appeals. Costs against
petitioner.