Banks can’t unreasonably refuse loan payments – SC

MANILA, Philippines — Banks are not allowed to unreasonably refuse payment from borrowers who risk facing higher interest and additional charges, the Supreme Court said, as it ordered a bank to accept a check tendered by a couple as full payment for their personal loan.

In a 21-page decision on GR No. 185110, the high tribunal’s Third Division denied the petition of Premiere Development Bank and directed it to pay spouses Engracio and Lourdes Castañeda moral and exemplary damages amounting to P4 million, plus P50,000 in attorney’s fees.

The spouses had taken out a P2.6-million personal loan, while two companies—Casent Realty and Development Corp. and Central Surety and Insurance Company Inc. (Central Surety), where Engracio held key positions—had corporate loans totaling P86.8 million.

On Sept. 20, 2000, the spouses tendered two checks: P2.6 million to fully pay their personal loan and another P6 million for Central Surety’s corporate loan.

The bank combined the payments, totaling P8.6 million, and applied them across four loans, including the spouses’ personal loans and the corporate loans.

In response, the spouses filed a case against the bank for the proper application of the P2.6-million check to their personal loan.

Both the Regional Trial Court and the Court of Appeals ruled that the bank should have applied the P2.6 million check solely to the spouses’ personal loans and not to the companies’ loans.

Distinct personalities

In siding with the spouses, the high tribunal emphasized the distinct legal personalities of corporations and their officers, ruling that payments for personal loans cannot be applied to corporate debts.

It upheld that the personal loan of the spouses was separate from the corporate loans tied to Casent Realty and Central Surety.

The Supreme Court, in its ruling penned by Associate Justice Benjamin Caguioa, cited Article 1252 of the Civil Code, which states that borrowers have the right to specify which debt their payment should apply to.

The high court ruled that the bank violated this principle by ignoring the borrowers’ intent to settle their personal loans.

The bank’s refusal to apply the P2.6 million to the personal loan was also deemed an act of bad faith by the high tribunal, as it caused undue interest accrual and penalties.

(2025/01/21-05:30)