G.R. No. 167434 - Spouses Nisce vs. Equitable PCI Bank, Inc.

Case Summary (G.R. No. 167434)

Petitioner

Spouses Ramon M. Nisce and A. Natividad Paras‑Nisce — mortgagors and obligors under Promissory Note Nos. 1042793 and BD‑150369; Natividad additionally executed a Suretyship Agreement and claimed a US dollar deposit placed through PCI Capital Asia Ltd. (Hong Kong).

Respondent

Equitable PCI Bank, Inc. — creditor‑mortgagee that filed the petition for extrajudicial foreclosure to satisfy the loan obligations of the spouses.

Key Dates

Mortgage and related instruments executed over several years (1974, 1978, 1996, amendment in 2000).
Bank filed extrajudicial foreclosure petition: November 26, 2002.
Initial sale settings and resets: sale dates in January and March 2003; RTC injunction: March 24, 2003 (preliminary injunction issued by RTC); CA reversal: December 22, 2004; Supreme Court decision: February 19, 2007.

Applicable Law

1987 Philippine Constitution (as decision date is after 1990).
Civil Code provisions on legal compensation (Articles 1278 and 1279), and on deposits and loans (Articles 1953 and 1980).
Rules of Court: Rule 65 (certiorari), Rule 58 Section 3 (preliminary injunction).
Jurisprudential doctrines on corporate personality and piercing the corporate veil (instrumentality/alter ego doctrine).

Factual Background

The bank sought extrajudicial foreclosure to satisfy a debt claimed to total roughly P34,087,725.76 (a stated composition included P30,533,552.24 as of January 31, 2003, exclusive of subsequent charges). The spouses asserted defenses: (1) they had a US$ time deposit originally deposited via PCIB and transferred to PCI Capital (Certificate of Deposit No. CD‑01612 / Account No. 090‑0104 / Passbook No. 83‑3041) whose peso equivalent should be set off against the loan; (2) Natividad’s suretyship for a third‑party (their son’s company) was invalid as against the conjugal partnership and/or outside the scope of the mortgages; and (3) alleged uncredited partial payments totaling P4,600,000.00.

Procedural History

Equitable PCI Bank filed for extrajudicial foreclosure and scheduled public auctions; the spouses filed a complaint before the RTC seeking annulment of suretyship, damages, legal compensation (setoff), and injunctive relief to stop the sale.
The RTC, after hearing and evidence, granted a writ of preliminary injunction on March 24, 2003 upon the posting of a P10,000,000.00 bond, to preserve the status quo pending resolution of contested issues.
Equitable PCI Bank did not file a motion for reconsideration in the RTC but sought certiorari relief in the Court of Appeals (CA) under Rule 65, contending the RTC acted without or in excess of jurisdiction or with grave abuse of discretion.
The CA granted the bank’s petition and nullified the RTC order granting the preliminary injunction. The CA held the trial court committed grave abuse of discretion, found no basis for legal compensation against the bank because the allegedly offsettable deposit was with PCI Capital (a distinct juridical person), and noted the P4,600,000.00 claim was not properly pleaded or proven.
The spouses moved for reconsideration in the CA, were denied, and then elevated the case to the Supreme Court by petition for review.

Issues Presented to the Supreme Court

Whether Equitable PCI Bank’s petition for certiorari to the CA was prematurely filed given its failure to file a motion for reconsideration in the RTC.
Whether the CA erroneously resolved merits of the main case when reviewing the RTC’s grant of a preliminary injunction.
Whether the RTC committed grave abuse of discretion in issuing a preliminary injunction enjoining the extrajudicial foreclosure.

Standard on Motion for Reconsideration and Rule 65 Exceptions

The Court reiterated the general rule that filing a motion for reconsideration in the court a quo is a condition precedent to a Rule 65 certiorari petition, intended to allow correction of errors without immediate resort to extraordinary remedies. However, recognized exceptions exist where a motion for reconsideration would be futile or where the order is a nullity, where the question is purely one of law already raised and passed upon, or where urgency, lack of due process, or other special circumstances make the filing unnecessary. The Court concluded that the RTC’s March 24, 2003 order was subject to attack because it was issued with grave abuse of discretion amounting to excess or lack of jurisdiction and thus could be treated as a nullity for the purposes of Rule 65.

Standard for Granting a Preliminary Injunction

The Court restated Rule 58(3) requisites: the applicant must show (a) entitlement to the relief requested which includes restraining acts complained of; (b) that continuation or nonperformance would probably work injustice; or (c) that acts threatened would probably violate the applicant’s rights and tend to render the judgment ineffectual. A preliminary injunction is extraordinary, equitable, preservative of the status quo, and requires the plaintiff to demonstrate a present and unmistakable right and a special necessity to prevent serious or irreparable harm. The evidence needed at the injunctive stage need not be conclusive, but must be sufficient to show an ostensible right to the final relief.

Analysis of Setoff / Legal Compensation Claim

The Court applied the legal compensation rules under Articles 1278 and 1279 of the Civil Code: compensation is available only when two persons are, in their own right, mutually creditors and debtors, and when other requisites (sum in money, maturity, liquidity, absence of retention/controversy by third persons) are met. The Court observed that when Natividad deposited funds with PCIB and those funds were transferred to PCI Capital, PCI Capital — by issuance of the certificate of deposit — became the debtor to Natividad. PCI Capital is a separate juridical person, and the existence of share ownership by PCIB or its subsequent merger with Equitable Bank does not automatically convert PCI Capital’s obligations into obligations of Equitable PCI Bank. The Court emphasized the separate corporate personality doctrine and the strict criteria for piercing the corporate veil (instrumentality/alter ego): complete domination and control, use to perpetrate fraud or injustice, and proximate causation of injury. The spouses did not produce sufficient evidence to meet the high threshold required to disregard PCI Capital’s separate personality and to impute its indebtedness to Equitable PCI Bank. Therefore, legal compensation could not be recognized against the bank based on the PCI Capital deposit.

Analysis of the P4,600,000.00 Alleged Payments

The Court found petitioners failed to prove the claimed P4,600,000.00 payments. The only documentary evidence consisted of a mere list of check serial numbers and amounts; the checks themselves, receipts, or evidence that the bank cashed or credited those instruments were not produced. The petitioners bore the burden to show that the bank received and applied those payments. Their failure to adduce sufficient evidence meant the RTC’s issuance of the preliminary injunction was not supported by a showing that their loan obligations had in fact been extinguished or substantially reduced by such payments.

Evaluation of the RTC’s Exercise of Discretion

The Court underscored that a trial court’s findings on preliminary injunction are provisional and primarily entrusted to its discretion; however, such discretion may be interfered with where there is manifest abuse. Here, given petitioners’ failure to establish an ostensible right to relief (no adequate proof of setoff or of the P4.6M payments) and the absence of grounds to pierce the corporate veil, the RTC lacked sufficient factual or legal basis to enjoin extrajudicial foreclosure. The Court concluded the writ of preliminary injunction was issued without proof of entitlement or irreparable injury, rendering the order a nullity subject to corrective actio

Case Syllabus (G.R. No. 167434)

Citation and Procedural History

Reported at 545 Phil. 138, Third Division, G.R. No. 167434, decided February 19, 2007; ponente: Justice Callejo, Sr.
Bank, as creditor-mortgagee, filed an extrajudicial foreclosure petition on November 26, 2002 before the Office of the Clerk of Court as Ex-Officio Sheriff of the Regional Trial Court (RTC) of Makati City.
Ex-Officio Sheriff first set public auction for January 14, 2003 (or January 30, 2003 if earlier setting failed); sale later reset by agreement among parties to January 30, 2003, and subsequently reset by the Sheriff to March 5 and March 27, 2003.
On January 28, 2003, spouses Nisce filed with the RTC a complaint for annulment of a suretyship agreement, damages and legal compensation, praying also for injunctive relief to stop the foreclosure sale.
RTC, after hearings and weighing evidence, issued an Order of March 24, 2003 granting a writ of preliminary injunction upon the posting and approval of a P10,000,000.00 bond; plaintiffs posted the bond and it was approved.
Equitable PCI Bank sought relief from the Court of Appeals (CA) by way of certiorari under Rule 65, alleging the RTC acted with grave abuse of discretion and without jurisdiction in issuing the injunction.
The CA, in a decision dated December 22, 2004, granted the petition and nullified the RTC order, holding that the injunction lacked factual and legal basis and that the trial court committed grave abuse in issuing it; the CA also held that the Rule 65 petition was not barred by failure to move for reconsideration because the issue was purely one of law.
Spouses Nisce filed a petition for review on certiorari to the Supreme Court raising errors by the CA; the Supreme Court denied the petition and affirmed the CA decision, ordering costs against petitioners.

Parties and Core Contested Instruments

Petitioners: Spouses Ramon M. Nisce and A. Natividad Paras-Nisce.
Respondent: Equitable PCI Bank, Inc. (formerly Philippine Commercial and International Bank and the Equitable Banking Corporation; later merged and known as Equitable PCI Bank).
Instrumental promissory notes and mortgages:
- Promissory Note No. BD-150369 (loan dated July 11, 1996; P20,000,000.00 principal; maturity July 11, 2001; interest 16.731% p.a.).
- Promissory Note No. 1042793 (loan dated March 1, 2000; P13,089,936.90 principal; maturity March 1, 2005; interest 13.9869% p.a.).
- Several real estate mortgage instruments: initial mortgage dated February 26, 1974; Additional Real Estate Mortgages dated September 27, 1978 and June 3, 1996; Amendment to Real Estate Mortgage dated February 28, 2000; mortgages covered two parcels under TCT Nos. S-83466 and S-83467 (Registry of Deeds of Rizal) located in Makati City.
- A suretyship agreement dated May 25, 1998 (allegedly making Natividad surety for Vista Norte Trading Corporation obligations).
Depository instruments and accounts relevant to petitioners’ defense:
- Passbook No. 83-3041 reflecting a US dollar deposit initially of US$20,500.00 (deposit on July 19, 1984); transfer of US$20,000.00 to PCI Capital Asia Ltd. (Hong Kong) by cable order; Certificate of Deposit No. CD-01612 (issued July 20/23, 1984) with interest rate 11.875% p.a., maturing October 22, 1984 and rolled over until further instruction.
- Account No. 090-0104 referred to in petitioners’ letters and correspondence as the dollar account at PCI Capital they sought to set off against loan obligations.

Stated Amounts, Claimed Obligations and Monetary Breakdown

Petition for foreclosure originally sought satisfaction of petitioners’ obligations totaling P34,087,725.76, broken down as:
- Spouses Ramon & Natividad Nisce: P17,422,285.99
- Natividad P. Nisce (surety): US$57,306.59 and P16,665,439.77
Bank’s amended petition for foreclosure sought to satisfy:
- Petitioners’ loan account at P30,533,552.24 (exclusive of interests, penalties, and other charges) as of January 31, 2003, based on PN Nos. 1042793 and BD-150369 plus interest, penalties and other charges; and
- The amounts P16,665,439.77 and US$57,306.59 allegedly covered by Natividad’s suretyship (later deleted or amended in petition).
Petitioners asserted that the sale amount (P34,087,725.76) was grossly excessive because it failed to factor (a) alleged setoff by the peso equivalent of Natividad’s US dollar deposit at PCI Capital and (b) alleged prior payments totaling P4,600,000.00 which petitioners asserted were received by the Bank but not credited.

Factual Background and Timeline of Key Events

July 19, 1984: Natividad deposited US$20,500.00 with PCIB and requested the transfer of US$20,000.00 to PCI Capital Asia Ltd. (Hong Kong); cable order evidences the transfer; Certificate of Deposit No. 01612 issued by PCI Capital.
July 11, 1996: Petitioners executed PN No. BD-150369 for P20,000,000.00, secured by amendment to mortgage.
March 1, 2000: Petitioners obtained another loan evidenced by PN No. 1042793 for P13,089,936.90, secured by a real estate mortgage executed February 28, 2000.
Partial payments were made by petitioners: P13,866,666.50 principal reduction on BD-150369 and P5,348,239.82 on interests; as of September 2000 balance under BD-150369 was P4,333,333.46; as of May 30, 2001, balance on PN No. 1042793 was P2,218,793.61.
June 1991: Petitioners’ sons stranded in Hong Kong; petitioners sought partial release of dollar deposit; PCIB’s computer records allegedly showed no such account; petitioners repeatedly tried to have PCIB/PCI Capital locate or account for the deposit (requests and correspondence in November 1991, January 27, 1992 and September 11, 2000).
December 7, 2000: Natividad wrote to the Bank through counsel offering setoff of the peso equivalent of dollar deposit against loan obligations; son's letter later estimated account balance as of December 1991 at US$51,000.42.
November 26, 2002: Bank filed extrajudicial foreclosure petition to satisfy indebtedness secured by mortgages.
January 28, 2003: Spouses filed complaint for annulment of suretyship, damages and legal compensation with prayer for injunctive relief; sought TRO and preliminary/prohibitory injunction to enjoin foreclosure sale.
March 24, 2003: RTC issued order granting preliminary injunction upon posting of P10,000,000 bond; injunction enjoined Bank and its agents from proceeding with extrajudicial foreclosure sale of specified TCTs.
Bank filed Rule 65 petition in CA; CA granted petition on December 22, 2004 and nullified RTC Order; CA held petition for certiorari not barred by absence of motion for reconsideration given legal nature of issue, and concluded trial court committed grave abuse of discretion in issuing injunction.
Supreme Court denied petition by petitioners and affirmed CA decision; costs against petitioners.

Claims, Contentions and Reliefs Sought by Spouses Nisce (Plaintiffs Below)

Primary claims in complaint and supplemental pleadings:
- Annulment of the Suretyship Agreement (allegedly executed without R
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