G.R. No. 192108 - Spouses Sy vs. Andok's Litson Corp.

The respondent, BPI Agricultural Development Bank, extended a revolving credit line amounting to P7,000,000 to petitioner Eugene L. Lim and his wife, which was primarily intended to finance a poultry farm construction.
In connection with this credit facility, the couple executed two promissory notes:

Promissory Note No. 1000045-08 dated January 9, 1998 for P2,000,000 (maturing on July 8, 1998)
Promissory Note No. 1000045-09 dated April 8, 1998 for P5,000,000 (maturing on October 5, 1998)

Aside from the revolving credit line, petitioner also availed medium term loans evidenced by:

Promissory Note No. 6000201-00 dated September 4, 1997 for P3,294,117.63 (maturing on August 19, 1999)
Promissory Note No. 6000191-00 dated February 19, 1997 for P2,000,000 (maturing on February 19, 2002)

The Promissory Notes Nos. 1000045-08, 1000045-09, and 6000201-00 contained a cross-default provision triggering acceleration of the entire debt if any default occurred in any of the borrower's obligations.

The cross-default clause stated that failure to pay any due amount under any obligation to the bank or its affiliates would render the entire outstanding balance immediately due and payable without the need for prior notice.
A late payment charge of 2% per month was also stipulated in addition to the interest due under the notes.
The fourth promissory note (No. 6000191-00) carried a substantially similar default provision.

To secure their obligations, petitioner and his wife executed real estate mortgages covering properties in Ozamis City.
The use of these properties as collateral was intended to guarantee the repayment of both the revolving credit and medium term loans.

Petitioner defaulted on Promissory Note No. 1000045-08 and had an overdraft of P16,000,000 with the respondent.
On July 27, 1998, the bank issued a final demand letter declaring that all of petitioner’s availments under the revolving credit and medium term loans were immediately due and payable, demanding full settlement within five days.

Following the failure of petitioner and his wife to settle their obligations, the respondent initiated an application for extrajudicial foreclosure of the mortgages before the Office of the Sheriff of the RTC of Ozamis City in September 1999.
In response, petitioner filed a complaint for injunction with damages before the RTC of Ozamis City on October 15, 1998.

The complaint sought to enjoin the foreclosure of the properties and claimed that the acceleration of the entire loan obligation by the bank was an act of gross bad faith and abuse of right.
Petitioner's allegations included that the acceleration was arbitrary, capricious, and especially prejudicial in the context of the prevailing economic crisis and high interest rates.

A Temporary Restraining Order was issued by Branch 15 of the Ozamis City RTC on October 23, 1998, to preserve the status quo.
After hearings on the application for a writ of preliminary injunction, the trial court, on March 13, 2000, issued an order granting the preliminary injunction based on its finding that the acceleration clause raised legal questions and its enforcement would cause irreparable damage if foreclosure proceeded.
Petitioner’s motion for reconsideration was denied, leading to the respondent filing a petition for certiorari before the Court of Appeals.

The Court of Appeals, in its decision dated June 30, 2006, lifted the preliminary injunction on the ground that petitioner failed to demonstrate a clear right in esse—a prerequisite for the issuance of a writ of preliminary injunction.
The appellate court ruled that petitioner's allegations did not establish that the acceleration of the loans, based strictly on the clear provisions of the promissory note, violated any legal right that warranted injunctive relief.

Whether petitioner established a clear right in esse warranting the issuance of a writ of preliminary injunction.
Whether the acceleration clause (cross-default provision) in the promissory notes was validly invoked by the respondent upon petitioner’s default.
Whether the respondent’s application of the acceleration clause and subsequent foreclosure proceedings constituted an abuse of right or acted in gross bad faith, as alleged by the petitioner.
Whether the trial court erred in granting a preliminary injunction, given that the factual and legal bases for such an injunction were confined to the enforceable terms of the promissory notes.