G.R. No. 198935 - Maynilad Water Supervisors Association vs. Maynilad Water Services, Inc.

On August 26, 1996, Philippine National Bank (PNB) granted Castalloy Technology Corporation (Castalloy) a credit line initially amounting to P4,000,000.00, later increased to P45,000,000.00 on October 15, 1996.
Pursuant to the credit line, Castalloy executed three promissory notes in favor of PNB:

PN No. 404/96 dated August 29, 1996, for US$190,910.00 (released in pesos at P4,992,442.00).
PN No. 451/96 dated September 24, 1996, for US$381,650.26 (released in pesos at P9,985,000.00).
PN No. 473/96 dated October 8, 1996, for US$495,426.83 (released in pesos at P12,980,487.10).

To secure the repayment of these loans, respondents Allied Industrial Corporation and Alinsu Steel Foundry Corporation executed a real estate mortgage in favor of PNB over four parcels of land (covered by TCT Nos. 8516, 1676, 30722, and 30721 issued by the Register of Deeds of Mandaue City).
Additionally, respondents Gloria C. Ngo and Tomas C. Ngo, Jr. executed a joint and solidary guarantee agreement in favor of PNB.

Castalloy denied executing these two notes, contending that the signature of Gloria was forged and that the proceeds were never deposited in the corporate bank account.

Castalloy defaulted in its obligation to pay under the established promissory notes.
In response, PNB initiated extrajudicial foreclosure proceedings against Castalloy, Allied, and Alinsu to enforce the real estate mortgage.
Concurrently, Castalloy with Allied, Alinsu, Gloria, and Tomas filed a complaint for determination of the correct amount of obligation and for an injunction restraining the foreclosure sale, arguing discrepancies in the conversion and computation of the loan amounts.
The respondents contended that the dispute regarding whether the amounts were correctly computed (and whether the loans had been converted from US dollars to pesos) should preclude the foreclosure sale pending judicial determination.

The Regional Trial Court (RTC), Branch 56 of Mandaue City, on April 27, 2006, granted a writ of preliminary injunction against the foreclosure, subject to a bond of P5,000,000.00, to prevent irreparable injury to the respondents.
PNB’s subsequent motion for reconsideration of the RTC’s order was denied on May 31, 2006.
Dissatisfied, PNB elevated the matter to the Court of Appeals (CA) via a petition for certiorari under Rule 65 of the Rules of Court.

On February 28, 2007, the CA denied PNB’s petition, affirming the RTC’s issuance of the preliminary injunction.
The CA cited precedent (e.g., Sps. Almeda v. CA) to support that the bank could not invoke its right of collection when the exact loan obligation had yet to be determined.
The CA’s denial of PNB’s motion for reconsideration was confirmed in its resolution dated May 24, 2007.

Whether the CA erred in finding no grave abuse of discretion on the part of the RTC when it issued the writ of preliminary injunction in favor of the respondents.
Whether the conflicting loan computations and disputed promissory notes provide a valid ground for restraining the foreclosure sale of the mortgaged properties.