BANKS CANNOT unreasonably refuse payment from borrowers who risk facing higher interest and additional charges, the Supreme Court said in a ruling.
In a decision released Monday, the SC Third Division ordered Premiere Development Bank to accept the check tendered by a couple as full payment for their personal loan worth PHP2.6 million.
The loans were also the surety in three other corporate loans with the same bank amounting to PHP86.8 million, as the husband was president of realty corporation and vice president of an insurance firm.
The separate agreements for the personal and corporate loans included a waiver that the bank can apply payments to any of the borrower’s loans, due or not.
When the loan was due, the couple gave the bank two checks, one for PHP2.6 million to pay off their personal loan and another for PHP6 million to settle one corporate loan. The total amount of PHP8.6 million covers the full payment of both debts.
However, the bank refused to accept the checks as full payment for both loans. Instead, it combined the two check payments and applied the total amount to all loans.
The spouses filed a case against the bank for the correct application of the PHP2.6 million check to their personal loan.
A lower court and the Court of Appeals ruled that the bank should have applied the PHP2.6 million check solely to the spouses’ personal loan and not to the companies’ loans. The SC upheld both decisions.
According to Article 1252 of the Civil Code, when a borrower has multiple loans with the same lender, the borrower has the right to choose how to allocate their payments among the different loans. If the borrower does not exercise this right, the lender may determine the allocation.
The SC clarified that this only applies to multiple loans held by the same borrower.
The tribunal said the bank incorrectly treated the spouses and the companies as a single borrower, combining payments for separate personal and corporate loans even as the spouses and the companies are different entities. It said that while the husband served as official of two different companies, he and his wife maintained separate legal personalities from the companies.
As such, the loans of the spouses and the companies cannot be combined, the SC ruled, noting that payments made by the spouses for their personal loan cannot be applied to the corporate loans, and vice versa.
The SC also reminded the bank of its duty to act in good faith and uphold the high standards of integrity and diligence expected of financial institutions.
Lenders cannot be allowed to unreasonably refuse payment as this unfairly burdens borrowers with higher interest fees and other charges, the high court ruled.
It ordered the bank to apply the PHP2.6 million check solely to the spouses' personal loan and pay the spouses PHP4 million in damages. (Benjamin Pulta)
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