In a landmark decision, the Supreme Court has ruled that banks must not unreasonably decline payments from borrowers, a move that could prevent borrowers from incurring additional interest and fees. The ruling came after the SC Third Division reviewed a case involving Premiere Development Bank and a couple who attempted to settle their PHP2.6 million personal loan with a check.
The couple, whose personal loan was also tied to three corporate loans totaling PHP86.8 million due to the husband’s executive roles in a realty corporation and an insurance firm, faced resistance from the bank. Despite submitting checks totaling PHP8.6 million to cover both their personal loan and one of the corporate loans, the bank refused to accept these as full payment for the specified loans. Instead, it amalgamated the payments and applied them across all loans.
The couple challenged this action in court, arguing that the PHP2.6 million check should have been applied exclusively to their personal loan. Both the lower court and the Court of Appeals sided with the couple, a decision that the Supreme Court upheld.
The Supreme Court’s ruling was grounded in Article 1252 of the Civil Code, which allows borrowers with multiple loans from the same lender to direct how their payments are allocated. The court emphasized that this right pertains to loans held by the same borrower and cannot be extended to treat separate entities, such as the couple and the companies, as one.
The tribunal criticized the bank for wrongly combining the payments of the personal and corporate loans, despite the clear distinction between the couple and the companies. The court also highlighted the bank’s obligation to act with integrity and diligence, warning against practices that unfairly burden borrowers.
Consequently, the Supreme Court ordered Premiere Development Bank to apply the PHP2.6 million check solely to the couple’s personal loan and awarded them PHP4 million in damages.