G.R. No. 183063 - Republic vs. Serrano

Case Summary (G.R. No. 183063)

Relevant Dates and Procedural Posture

FEBTC granted eight loans to Noah’s Ark evidenced by identical promissory notes signed by Looyuko, Jimmy T. Go and Wilson Go; all loans were secured by a real estate mortgage over TCT No. 160277. FEBTC proceeded with an extrajudicial foreclosure and scheduled an auction for 14 April 1998. Private respondent filed an action with a prayer for a TRO and/or preliminary injunction on 8 April 1998. A TRO was issued 14 April 1998 and extended to the maximum 20 days by order dated 15 April 1998. On 7 May 1998 the trial court granted a preliminary injunction effective upon posting of a P200,000 bond; respondent posted a bond. FEBTC’s motion for reconsideration of the injunction was denied 30 July 1998. FEBTC filed a petition for certiorari in the Court of Appeals; the Court of Appeals’ decision of 26 August 1999 partially denied the certiorari and increased the injunctive bond to P5,000,000. FEBTC’s motion for reconsideration before the Court of Appeals was denied by resolution dated 3 April 2000. FEBTC then filed a petition for review on certiorari before the Supreme Court.

Applicable Law and Constitutional Framework

Because the decision was rendered after 1990, the 1987 Philippine Constitution constitutes the constitutional backdrop of the decision. Controlling procedural and substantive law invoked in the decision includes the Rules of Court (Rule 58, Sections 3, 5 and Rule 22, Section 1) and pertinent provisions of the Civil Code (Article 1169 on delay/default; Articles 1278–1279 on compensation). The Court also relied on prior jurisprudence cited in the record regarding injunctions, demand and default, legal compensation, and the nature of novation.

Core Issues Presented

Whether private respondent was entitled to a TRO and a writ of preliminary injunction to enjoin the extrajudicial foreclosure and auction sale;
Whether the trial court improperly issued the TRO and preliminary injunction (both substantively and procedurally); and
Ancillary issues raised on whether demand was required and whether certain acts by the bank constituted waiver, novation, estoppel or bad faith.

Trial Court and Court of Appeals Findings on Injunction and Bond

The trial court granted the preliminary injunction (7 May 1998) conditioned on a P200,000 bond. The Court of Appeals, on certiorari, found that preservation of the status quo was appropriate pending resolution of whether the debtor was in default (citing precedents on the necessity of settling the question of default before allowing foreclosure), but agreed that the P200,000 bond was grossly insufficient to protect the bank against damages caused by the injunction. The Court of Appeals therefore denied the petition for certiorari insofar as it upheld the injunction but ordered that private respondent file an injunctive bond in the amount of P5,000,000.

Supreme Court: Entitlement to Injunctive Relief — Substantive Analysis

The Supreme Court held that private respondent was not entitled to TRO or preliminary injunction. The Court applied Section 3, Rule 58 of the Rules of Court, which sets the substantive grounds for preliminary injunctions. The Court emphasized that the promissory notes expressly waived presentment, demand, protest and notice of non-payment and contained an acceleration clause enabling the bank to accelerate maturity without demand upon certain events of default. Under Civil Code Article 1169, default generally arises upon demand, but the law also recognizes when demand is not necessary—one such circumstance being express waiver of demand. Because the co-signors expressly waived demand in the promissory notes, demand was unnecessary to establish default as to the co-signors; consequently, the prerequisites for injunctive relief to halt foreclosure were not met.

Supreme Court: Defense of Legal Compensation, Novation and Estoppel

Private respondent contended that FEBTC’s withholding of lease payments owed to Noah’s Ark and applying those amounts against Noah’s Ark’s loan constituted waiver, novation or estoppel. The Supreme Court rejected these contentions, characterizing the bank’s conduct as legal compensation by operation of law rather than novation or waiver. The Court applied the Civil Code’s rules on compensation (Arts. 1278–1279) and found the requisites for legal compensation present: reciprocal creditor-debtor relation between FEBTC and Noah’s Ark, monetary obligations on both sides, due and demandable debts, liquidation/demandability, and absence of third-party retention or controversy. Because the offsetting of obligations occurred by operation of law and not by agreement substituting a new obligation, no novation took place and the mortgage and loan obligations subsisted; thus, FEBTC retained the contractual right to foreclose and was not estopped from doing so.

Supreme Court: Procedural Irregularity in the TRO’s Duration

Procedurally, the Supreme Court found irregularity in the manner the trial court computed the 20-day TRO period. Section 5, Rule 58 authorizes a temporary restraining order effective only for a period of twenty (20) days from notice to the party sought to be enjoined. The tri

Case Syllabus (G.R. No. 183063)

Procedural History

Petition for review on certiorari filed by Bank of the Philippine Islands (BPI), successor by merger to Far East Bank and Trust Company (FEBTC), challenging the Court of Appeals decision and resolution that partially denied its certiorari petition.
Trial court (Judge Urbano C. Victorio, Sr.) issued a Temporary Restraining Order (TRO) on April 14, 1998, and set hearing for preliminary injunction the same day; TRO was extended on April 15, 1998 for a total of twenty days.
On May 7, 1998, the trial court granted a preliminary injunction effective upon posting of an injunctive bond of P200,000.00 and ordered defendants to cease foreclosure and auction of the mortgaged property pending further orders; plaintiff furnished copy and defendants were directed to file answer by May 14, 1998.
Private respondent (Jimmy T. Go) posted the P200,000.00 bond as required by the trial court’s order.
Petitioner’s motion for reconsideration of the May 7, 1998 injunction was denied on July 30, 1998 on the ground that extrajudicial foreclosure was premature as to four promissory notes; matter set for pre-trial.
Petitioner filed a petition for certiorari with the Court of Appeals seeking annulment of the May 7, 1998 and July 30, 1998 orders and dissolution of the preliminary injunction so it could proceed with the auction sale.
Court of Appeals promulgated a decision on August 26, 1999, partially denying the petition for certiorari but increasing the injunctive bond to P5,000,000.00; petitioner’s motion for reconsideration before the Court of Appeals was denied in a resolution dated April 3, 2000.
Petitioner filed the instant petition for review on certiorari before the Supreme Court, raising issues regarding entitlement to TRO/preliminary injunction, propriety of their issuance, and whether the complaint had become moot and academic.
Supreme Court: granted the petition, partially reversed and set aside the Court of Appeals decision and resolution except for the portion increasing the injunctive bond to P5,000,000.00; dissolved the writ of preliminary injunction issued by Judge Victorio on May 7, 1998; no costs awarded.

Parties, Capacity and Relevant Relationships

Petitioner: Bank of the Philippine Islands (BPI), merged entity absorbing Far East Bank and Trust Company (FEBTC); FEBTC originated the loans and foreclosure proceedings.
Private respondent: Jimmy T. Go, co-signor on promissory notes and co-registered owner of the mortgaged property together with Albert T. Looyuko.
Borrower/obligor: Noah’s Ark Merchandising (Noah’s Ark), a sole proprietorship owned by Albert T. Looyuko, per Department of Trade and Industry Certificate of Registration.
Other signatories: Albert T. Looyuko (owner, principal obligor) and one Wilson Go (co-signor), all signatories to identical promissory notes.
Security: Real estate mortgage over land covered by Transfer Certificate of Title No. 160277 registered in the names of Mr. Looyuko and private respondent Jimmy T. Go.

Factual Background

FEBTC granted a total of eight (8) loans to Noah’s Ark, each evidenced by identical promissory notes signed by Albert T. Looyuko, Jimmy T. Go, and Wilson Go.
All eight loans were secured by a real estate mortgage on TCT No. 160277.
Petitioner asserted Noah’s Ark defaulted on obligations and initiated extrajudicial foreclosure with auction sale scheduled on April 14, 1998.
On April 8, 1998, private respondent filed a complaint for damages with a prayer for TRO and/or preliminary injunction to enjoin the auction sale; TRO issued April 14, 1998 and preliminary injunction later granted.
FEBTC, by letter dated May 19, 1998, informed Noah’s Ark Building (Noah’s Ark’s administrator) that FEBTC withheld rental payments for February to May 1998 and applied them to Noah’s Ark’s outstanding loan obligation and would continue to do so until the loan was fully settled; FEBTC asserted it was not delinquent in rental payments and should not be charged penalties for non-remittance.
Private respondent asserted (in trial court and in memorandum) that: (a) demand was not made upon him despite being a co-signor, (b) only four of the eight promissory notes had matured, (c) FEBTC’s withholding and application of lease payments constituted waiver, novation or estoppel, (d) there were ongoing requests for accounting, reconciliation and negotiations for restructuring, and (e) FEBTC acted in bad faith.

Issues Presented (as raised by petitioner and restated by the Court)

Whether private respondent Jimmy T. Go was entitled to the Temporary Restraining Order and the writ of preliminary injunction.
Whether the TRO and writ of preliminary injunction were properly issued by Judge Victorio.
Ancillary: whether the Court of Appeals could resolve the question of sufficiency of demand, and whether private respondent’s complaint had been rendered moot and academic (as framed by petitioner).

Governing Legal Provisions and Authorities Quoted

Section 3, Rule 58 of the Rules of Court: grounds for granting a preliminary injunction (entitlement to relief, probable injustice during litigation, acts threatening rights or rendering judgment ineffectual).
Section 5, Rule 58 of the Rules of Civil Procedure: TRO may be issued without notice only when verified application/affidavits show great or irreparable injury would result before hearing on notice; TRO effective only for twenty (20) days from notice and court must order the party to show cause within that period and determine whether preliminary injunction shall be granted.
Section 7, Rule 58 of the 1997 Rules of Civil Procedure: effect when applicant’s bond is found insufficient and applicant may file sufficient bond forthwith, otherwise injunction shall be dissolved.
Section 1, Rule 22 of the Rules of Court: how to compute periods of time; day of act excluded, date of performance included; if last day falls on weekend or legal holiday, time runs to next working day.
Civil Code Article 1169: delay/default arises from demand, except when obligation or law expressly declares demand unnecessary.
Civil Code Articles 1278–1279: requisites for compensation and requisites for legal compensation (mutual principal obligation and principal creditor status, debts in sum of money, both debts due, liquidated and demandable, no retention/controversy).
Jurisprudence cited by the courts: Cagayan de Oro City Landless Residents Association, Inc. v. Court of Appeals (254 SCRA 220 [1996]); Rose Packing Co., Inc. v. Court of Appeals (167 SCRA 309 [1988]); Valencia v. Court of Appeals (263 SCRA 275 [1996]); PNB Medecor v. Uy (415 Phil. 348, 359 (2001)); Bert Osmeña & Associates Inc. v. CA (205 Phil. 328 (1983)); Tiu Siuco v. Habana (45 Phil. 707 (1924)).

Court’s Findings and Holdings — Entitlement to TRO and Preliminary Injunction

The Supreme Court found that private respondent was not entitled to the TRO nor to the preliminary injunction.
On substantive grounds: preliminary injunction requires satisfaction of Section 3, Rule 58 elements; private respondent failed to demonstrate entitlement to relief restraining the foreclosure and auction.
The promissory notes, read in full, contained an express waiver of demand by co-signors and an acceleration clause allowing FEBTC or holder to accelerate maturity and declare unpaid balances due without demand or notice upon certain events (including default).
Because private respondent, as co-signor, expressly waived demand in the promissory notes, demand was unnecessary for him to be in default; thus, lack of prior demand did not prevent foreclo