Case Summary (G.R. No. 127957)
Key Dates
Relevant filing and procedural dates included: loan availments and promissory notes between 1997–1998; EBC demand March 12, 2001; EBC petition for extrajudicial sale filed May 23, 2001 (EJF No. 1399); PCIB demand January 23, 2001 and petition for sale filed May 23, 2001; sheriff’s notices setting sale for June 29, 2001; YKS complaint filed June 19, 2001 (Civil Case No. 2001-06-93); RTC temporary restraining order issued June 27, 2001 and preliminary injunction granted December 3, 2001; RTC motion for reconsideration denied May 20, 2004; Court of Appeals decision denying certiorari June 27, 2005; petition to the Supreme Court and the Supreme Court’s resolution denying the petition (petition denied; decision affirmed).
Applicable Law and Legal Standards
Constitutional basis: 1987 Philippine Constitution (applicable given decision date). Procedural and substantive authorities expressly cited in the record: Rules of Court (Rule 58, Sec. 3 — grounds for issuance of preliminary injunction; Rule 65 — certiorari), standards for certiorari (grave abuse of discretion amounting to lack or excess of jurisdiction), and Civil Code provisions that the trial court discussed (Articles 2089 and 2126). The twin requisites for preliminary injunction under Rule 58, Sec. 3 are: (a) existence of an actual, existing right to be protected and (b) probable injustice if the act complained of were to continue during litigation.
EBC Account — Facts and Claims
EBC granted YKS a credit line originally in the amount of P4,000,000, later amended into a P53,000,000 credit line secured by a real estate mortgage on two Tacloban properties (TCT Nos. T-22461 and T-22460). YKS alleged that the loan consideration ballooned to P53,000,000 through amendments and that corporate officers were induced to sign a blank surety agreement later filled to show liability up to P85,000,000. By June 29, 1998, EBC had partially released P10,400,000.00 through specified promissory notes; by March 12, 2001 EBC demanded payment of outstanding obligations, and on May 23, 2001 EBC filed an extrajudicial petition for sale to satisfy P10,400,000.00 (exclusive of interests, penalties, and other charges). Sheriff’s Notice of Extrajudicial Sale set auction for June 29, 2001.
PCIB Account — Facts and Claims
On August 13, 1997, YKS obtained a promissory note (PN No. 095/97-344) for a dollar-denominated loan of US$2,500,000.00 which was converted and released in pesos at approximately P26.00 to the dollar (about P65,000,000.00). The PCIB credit line/loan was secured by mortgages on multiple YKS properties (list of TCT numbers provided). A promissory note dated December 24, 1998 (PN No. 366-00756-98) reflected a total obligation of P140,967,120.36 and a stated maturity by single payment on December 17, 2004; PCIB also credited P103,240,277.90 to YKS’s account on the same date and debited $2,633,680.55 as payment on the converted loan. PCIB’s demand of January 23, 2001 pegged the obligation at P162,295,233.54 (exclusive of interest, penalty, and other charges). PCIB filed a petition for extrajudicial foreclosure sale on May 23, 2001 and a Sheriff’s Notice set a sale for June 29, 2001.
YKS’s Pleadings and Claims in the RTC (Civil Case No. 2001-06-93)
YKS filed a complaint for declaratory relief, annulment/nullity of foreclosure, release of mortgages, injunction, damages, and related reliefs. YKS alleged defects in the petitions for sale: incorrect claim amounts, inclusion of amounts not covered by the mortgages (including quantified penalties not in the mortgages), doubts as to the validity and consideration of promissory notes relied upon by the banks, and that one PCIB note (PN No. 366-00756-98) had not matured (maturity December 17, 2004) and thus the debt was not yet due. YKS asserted that it was induced to sign blank surety agreements later filled to reflect erroneous amounts and that substantial discrepancies existed among promissory notes, credit memos, and demand letters. YKS sought a temporary restraining order and preliminary injunction to preserve the status quo and prevent foreclosure pending determination of the main action.
RTC Proceedings — TRO and Preliminary Injunction
The RTC issued a temporary restraining order on June 27, 2001, and after hearing parties’ position papers granted a writ of preliminary injunction on December 3, 2001, conditioned on a P3,000,000.00 bond. The injunction enjoined defendants, their agents and any persons acting for them from posting or publishing notices of sale, conducting foreclosure sales, executing certificates of sale, registering same, executing deeds of final sale, paying transfer taxes, or any act that would disturb the status quo ante litem until further order.
RTC’s Rationale for Granting Injunctive Relief
The RTC found that (1) it would be inequitable to allow foreclosure and sale of the two properties mortgaged to EBC to satisfy availments of only P10,400,000.00 out of a P53,000,000.00 credit line and that such action would lead to unjust enrichment; (2) PN No. 366-00756-98 clearly reflected maturity by single payment on 12.17.2004 and therefore the debt was not yet due and demandable at the time of the filing of the petition for sale; and (3) significant variances existed among the amounts stated in the promissory note (P140,967,120.36), the credit memo (P103,240,277.90), and the demand letter (P162,295,233.54), with discrepancies too substantial to ignore. The trial court concluded that only after trial on the merits could the true amount be determined and that continuation of foreclosure proceedings would result in serious injury to YKS and potentially render a favorable judgment ineffectual.
CA Proceedings and Ruling
Petitioner sought certiorari in the Court of Appeals (CA) arguing that the RTC committed grave abuse of discretion in issuing the injunction despite lack of clear and convincing right and absence of showing of grave and irreparable injury. The CA denied the petition for certiorari on June 27, 2005, for lack of merit, ordered the RTC to proceed to trial on the merits, and maintained the preliminary injunction in force until the merits were resolved. The CA found no grave abuse of discretion in the RTC’s exercise of its sound discretion in issuing the writ.
Supreme Court Issue and Standard of Review
The sole issue presented to the Supreme Court was whether the RTC committed grave abuse of discretion in issuing the writ of preliminary injunction enjoining foreclosure and public auction of YKS’s properties during the pendency of the main action. The Court reiterated the governing standards: a preliminary injunction requires a clear showing of an existing right to be protected and the likelihood that continuation of the challenged acts during litigation would work injustice
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Parties
- Petitioner: Equitable PCI Bank, Inc. (successor of Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) as relevant to the transactions).
- Private respondent: YKS Realty Development, Inc., a client of PCIB and EBC.
- Respondent judge: Hon. Salvador Y. Apurillo in his capacity as Presiding Judge, Regional Trial Court (RTC) of Tacloban City, Branch 8.
- Court below: Regional Trial Court, Tacloban City (Branch 7 and Branch 8 referenced in the proceedings) and the Court of Appeals (CA).
- Forum in the Supreme Court: Petition for review on certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 168746.
Nature of the Case
- A petition for review on certiorari seeking annulment and setting aside of the CA Decision dated June 27, 2005, which dismissed petitioner’s petition for certiorari under Rule 65.
- Central relief sought below: to nullify RTC resolutions that granted injunctive relief (temporary restraining order and writ of preliminary injunction) restraining extrajudicial foreclosure and sale of properties mortgaged to the petitioner banks.
Factual Background — EBC Account (summary of transactions, securities, and contested amounts)
- YKS obtained a credit line from Equitable Banking Corporation (EBC), originally secured by a Real Estate Mortgage over two properties covered by Transfer Certificates of Title (TCT) Nos. T-22461 and T-22460, situated in Tacloban City.
- The credit line was initially P4,000,000.00 but, due to several amendments to the real estate mortgage, the loan consideration increased to P53,000,000.00.
- YKS alleged that EBC had its corporate officers sign a blank surety agreement that was later filled to show personal liability up to P85,000,000.00.
- By June 29, 1998, EBC had partially released P10,400,000.00 from the P53,000,000.00 credit line, evidenced by Promissory Notes (PN) Nos. BD-98-084, BD-98-086, BD-98-093, and BD-98-097.
- On March 12, 2001, EBC demanded payment of outstanding obligations; YKS failed to pay.
- On May 23, 2001, EBC filed an extrajudicial petition for sale before the Office of the Clerk of Court, RTC Tacloban City, docketed as EJF No. 1399, to satisfy a mortgage indebtedness of P10,400,000.00, exclusive of interests, penalties, and other charges.
- On May 31, 2001, a notice of extrajudicial sale was issued by Sheriff Leonardo G. Aguilar, setting auction for the morning of June 29, 2001.
Factual Background — PCIB Account (dollar loan converted to peso, securities, and contested amounts)
- On August 13, 1997, YKS obtained a dollar-denominated loan from PCIB in the amount of US$2,500,000.00, evidenced by PN No. 095/97-344.
- Although booked in dollars, the loan was converted to pesos and released to YKS in peso at an approximate prevailing rate of P26.00 to US$1.00, resulting in an amount approximated at P65,000,000.00.
- The PCIB loan was secured by real estate mortgages over numerous YKS properties in Tacloban City, covered by TCT Nos. T-22457, T-22458, T-22459, T-22266, T-23066, T-23145, T-26055, T-26056, T-22697, T-42170, and T-16659.
- In PN No. 366-00756-98 (dated December 24, 1998), the apparent total obligation of YKS was stated as P140,967,120.36, with the stated purpose “working capital” and a maturity six years after date, or on December 17, 2004.
- On December 24, 1998, PCIB credited P103,240,277.90 to YKS’s account as proceeds under “PN No. 756/98” and simultaneously debited $2,633,680.55 as payment of the converted dollar-denominated loan under PN No. 095/97-344.
- On January 23, 2001, PCIB demanded payment, pegging YKS’s total obligation at P162,295,233.54, exclusive of interest, penalty, and other charges, and warned of foreclosure consequences.
- YKS protested the principal amount in a May 8, 2001 letter received by PCIB’s counsel, requesting a breakdown, which PCIB did not provide.
- On May 23, 2001, PCIB filed a Petition for Sale before the Office of the Executive Judge, RTC Tacloban City, praying for extrajudicial foreclosure and sale of the mortgaged properties.
- On May 25, 2001, Sheriff Luis G. Copuaco issued a Sheriff’s Notice of Extrajudicial Foreclosure Sale setting the public auction for the morning of June 29, 2001 at RTC Branch 7, Tacloban City.
Filing by YKS in the RTC — Civil Case No. 2001-06-93 (claims, alleged defects in petitions for sale, and prayers)
- On June 19, 2001, YKS filed a Complaint for Declaratory Relief, Annulment or Declaration of Nullity of Foreclosure, Application for Foreclosure, Notice of Foreclosure Sale, Documents, Interest, Etc., Release of Mortgages, Injunction, and Damages, later docketed as Civil Case No. 2001-06-93.
- YKS alleged that the two petitions for sale (EBC and PCIB) were defective because:
- They did not specify the correct amounts of the claims.
- They included amounts not covered by the real estate mortgages, such as quantified penalties not mentioned in the mortgages.
- The promissory notes relied upon were of questionable validity and should not justify extrajudicial foreclosure.
- Specific contentions by YKS:
- EBC’s credit line was for P53,000,000.00, but availments for that line totaled only P10,400,000.00; thus the entire property should not be foreclosed to satisfy only P10,400,000.00.
- PN No. 366-00756-98 (basis for PCIB’s petition) was null and void, lacked consideration, or was grossly overstated.
- PN No. 366-00756-98 had not matured as of the filing date because its maturity was December 17, 2004; hence, the debt was not due and demandable.
- Corporate officers were induced to sign blank surety agreements later filled in by the bank to reflect erroneous loan amounts.
- Amounts in promissory notes differed from amounts claimed in the petitions for sale.
- YKS sought, inter alia:
- Declarations voiding the petitions for sale and notices of extrajudicial sale.
- Declarations voiding the promissory notes used as basis for the petitions.
- Release of properties from the mortgages.
- Declaration that there was no legal default on PN No. 366-00756-98.
- Accounting and computation of actual releases and payments to determine true principal obligations.
- Issuance of a temporary restraining order and a writ of preliminary injunction enjoining EBC and PCIB from posting notices of sale, conducting foreclosure sales, executing certificates of sale, registering sales, executing deeds of final sale, and disturbing the status quo ante litem.
RTC Preliminary Relief — TRO and Writ of Preliminary Injunction (hearings, orders, and bases)
- On June 25, 2001, the RTC heard YKS’s application for temporary restraining order (TRO); after hearing, the RTC issued a TRO on June 27, 2001.
- The hearing for the writ of preliminary injunction was set for July 13, 2001; parties later agreed to submit position papers to abbreviate proceedings.
- On December 3, 2001, the RTC issued a Resolution granting the writ of preliminary injunction; the dispositive portion ordered:
- Defendants, their agents, representatives, and persons acting for them to maintain the status quo ante litem and cease and desist from posting or publishing any notice of sale regarding the properties, from conducting foreclosure sales, executing Certificates of Sale, registering them with the Register of Deeds, executing Deeds of Final Sale or other consolidation documents, paying capital gains, documentary and other transfer taxes, or performing other acts that would disturb the status quo ante litem until further order.
- The writ would become effective upon YKS’s posting of a bond in the sum of P3,000,000.00.
- RTC reasoning (as summarized in the December 3, 2001 Resolution and later Resolution denying reconsideration):
- It was inequitable for EBC to foreclose and sell properties mortgaged for a P53,000,000.00 line when