POWELL vs THE PHILIPPINE NATIONAL BANK G.R. No. L-31339 (November 27, 1929) Villa-Real, J.

: FACTS: In order to secure payments of his debts to PNB, Severino Aldeguer executed mortage deeds in favor of the former. Failing to settle in full his balances, Aldeguers rights and lots were sold at a public auction wherein Asia Banking Corp. was the highest bidder. Aldeguer continued to cultivate his lots mortgaged to the PNB by buying 40 tons of fertilizer from Felipe Gomez to which he issued a promissory note in the amount of P5,000 which the latter endorsed to PNB. PNB, instead of applying the harvested sugar to the payment of the promissory notes acquired by it from Felipe Gomez, applied it to the payment of its credit against Severino P. Aldeguer secured by the two parcels of land that produced said crops. ISSUE: WON Severino Aldeguer can compel PNB to apply the sugar as payment of the promissory notes to the fertilizer being the most burdensome to him. HELD: The Court held that in accordance with the provisions of articles 1172 and 1174 of the Civil Code, suffice it to say that such application of having the sugar pay the promissory notes to the fertilizer which was the most burdensome debt to Aldeguer should have been made at the time of payment, and not afterwards, when his account with the bank had already been credited. In doing so, it waived its preferred right to said sugar for the payment of said promissory notes, because that preferred right subsisted in so far as the sugar continued to belong to the debtor. From the time the Philippine National Bank applied it to the payment of its credit against Severino P. Aldeguer, with the latter's consent, said sugar ceased to belong to said Severino P. Aldeguer, and became the property of the aforesaid Philippine National Bank.