G.R. No. 161004 - Technogas Philippines Manufacturing Corp. vs. Philippine National Bank

Case Summary (G.R. No. 161004)

Factual Background

On December 3, 1991, Tecnogas obtained from PNB an Omnibus Line of P35 million and a five-year Term Loan of P14 million. To secure these obligations, Tecnogas executed a REM over its parcel of land in Parañaque City under TCT No. 122533, registered with the Registry of Deeds of Parañaque City. The REM expressly authorized PNB to extrajudicially foreclose as Tecnogas’s duly constituted attorney-in-fact in case of default. It further provided that the mortgage would stand as security for “any and all other obligations” of Tecnogas to PNB, of whatever kind or nature, and regardless of whether such obligations were contracted before, during, or after the constitution of the mortgage.

The loan relationship evolved through various occasions where Tecnogas requested increases, renewals, and restructurings when it could not pay on the due dates. When the loan matured, PNB sent collection letters. Tecnogas did not make payment in the manner demanded; instead, it proposed to settle by dación en pago, conveying TCT No. 122533. As of April 15, 2001, Tecnogas’s obligation to PNB was P205,025,743.59, inclusive of interest and penalties.

Petition for Extrajudicial Foreclosure and RTC’s Injunction

On August 16, 2001, PNB filed in the RTC of Parañaque City a petition for extrajudicial foreclosure of the REM. The auction sale was set for September 20, 2001. A day before the scheduled auction, Tecnogas filed with the same RTC a complaint for annulment of extrajudicial foreclosure sale, with an application for a temporary restraining order (TRO) and writ of preliminary injunction, docketed as Civil Case No. 01-0330. The RTC issued a TRO valid for 72 hours and then extended it for seventeen (17) days.

On October 8, 2001, the RTC granted Tecnogas’s application and issued a writ of preliminary injunction enjoining the extrajudicial foreclosure sale. PNB sought reconsideration and moved to dissolve the writ, but the RTC denied these motions in its Order dated September 11, 2002. PNB then filed with the Court of Appeals a petition for certiorari, seeking annulment of the RTC’s October 8, 2001 and September 11, 2002 Orders.

Court of Appeals Disposition in CA-G.R. SP No. 73822

On July 24, 2003, the Court of Appeals reversed the RTC. It ruled that the trial court committed grave abuse of discretion in enjoining the extrajudicial foreclosure sale. The Court of Appeals held that Tecnogas’s proposal to pay through dación en pago did not constitute payment because PNB did not accept the proposed conveyance. Consequently, the injunction was not proper since Tecnogas’s default made the extrajudicial foreclosure a necessary consequence.

Tecnogas moved for reconsideration, but the Court of Appeals denied it in a Resolution dated November 5, 2003, prompting Tecnogas to file the present petition.

The Parties’ Contentions Before the Supreme Court

Tecnogas framed its arguments around whether the RTC judges committed grave abuse of discretion correctible by certiorari under Rule 65, whether the Court of Appeals impermissibly pre-empted the merits of the main case, and whether errors of judgment attended the RTC’s rulings. It also argued that the petition had not become moot due to the subsequent foreclosure proceedings.

Tecnogas admitted its liability and acknowledged that its proposal to pay by dación en pago was not accepted by PNB. It nonetheless argued that its proposal amounted to a valid tender of payment. It further claimed that the Court of Appeals decided issues that belonged to the trial court in Civil Case No. 01-0330. Finally, it asserted that the foreclosure sale did not render the petition moot.

PNB countered that the dación en pago proposal did not extinguish Tecnogas’s obligation, and that foreclosure was proper due to default. PNB also maintained that the Court of Appeals did not pre-empt the trial court’s resolution of the main case because any findings made were necessary to decide the propriety of injunctive relief. PNB lastly argued that foreclosure mooted the petition.

Issues

The Court confined the controversy to two core issues: first, whether the Court of Appeals erred in ruling that Tecnogas was not entitled to injunctive relief; and second, whether the foreclosure sale rendered the petition moot.

Governing Principles on Preliminary Injunction and Clear Legal Right

The Court reiterated that a writ of preliminary injunction may be issued only upon a clear showing of the applicant’s existence of (one) a right in esse or a clear and unmistakable right to be protected, (two) a violation of that right, and (three) an urgent and paramount necessity for the writ to prevent serious damage. The absence of a clear legal right makes the issuance of the injunctive writ a grave abuse of discretion.

Dación en pago and Extinguishment of Obligation

On the concept of dación en pago, the Court explained that it is a special mode of payment where the debtor offers another thing for acceptance by the creditor as equivalent of an outstanding obligation. The arrangement is treated as a sale, in that the creditor essentially buys the offered property, with the price charged against the debtor’s debt. The essential elements of sale—consent, object certain, and cause or consideration—must be present. The Court emphasized that novation, and thus total extinguishment of the debt, takes place only when the offered thing is accepted by the creditor.

No Clear Legal Right to Injunction

Applying these principles, the Court held that the Court of Appeals did not err in ruling that Tecnogas had no clear legal right to injunctive relief. Tecnogas’s proposal to settle through dación en pago was not accepted by PNB. Since there was no acceptance, the proposal did not extinguish the obligation. The Court further ruled that the unaccepted proposal neither novated the mortgage arrangement nor suspended its execution because there was no meeting of the minds on whether the loan would be extinguished by delivery of the mortgaged property as dación en pago.

Given Tecnogas’s default, the Court held that foreclosure became a matter of right for PNB, as the REM’s purpose was to provide security in the event of default. The Court also rejected Tecnogas’s claim that the Court of Appeals pre-empted the main case. It held that the trial court still had to resolve, in Civil Case No. 01-0330, the unresolved questions of whether Tecnogas observed the procedures under Act No. 3135, as amended, on extrajudicial foreclosure of REM and whether Tecnogas suffered damage as

Case Syllabus (G.R. No. 161004)

Tecnogas Philippines Manufacturing Corporation (Tecnogas) sought review under Rule 45 of the Court of Appeals rulings in CA-G.R. SP No. 73822.
Philippine National Bank (PNB) was the respondent opposing the petition and defending the propriety of extrajudicial foreclosure.
The Court of Appeals reversed the Regional Trial Court (RTC) of Paranaque City, Branch 274 orders that granted Tecnogas a writ of preliminary injunction in Civil Case No. 01-0330.
The Supreme Court treated the petition as raising whether the appellate court erred on injunction and whether foreclosure rendered the petition moot.

Loan and Mortgage Background

On December 3, 1991, Tecnogas obtained from PNB an Omnibus Line of P35 million and a 5-year Term Loan of P14 million.
To secure the loans, Tecnogas executed a Real Estate Mortgage (REM) over its land in Paranaque City covered by TCT No. 122533.
The REM authorized PNB to extrajudicially foreclose as duly constituted attorney-in-fact of Tecnogas in case of default.
The REM also provided it would stand as security for any and all other obligations of Tecnogas to PNB, including obligations contracted before, during, or after the REM’s constitution.
The loan was repeatedly increased, renewed, and restructured upon Tecnogas’s requests when it could not pay on due dates.
Upon maturity, PNB sent collection letters, and Tecnogas proposed to pay by dacion en pago conveying TCT No. 122533.
As of April 15, 2001, Tecnogas’s loan obligation was P205,025,743.59, inclusive of interest and penalties.

Extrajudicial Foreclosure and Injunction

On August 16, 2001, PNB filed a petition for extrajudicial foreclosure of the REM in the RTC of Paranaque City.
The auction sale was scheduled for September 20, 2001.
A day before the auction, Tecnogas filed with the RTC a complaint for annulment of the extrajudicial foreclosure sale with an application for TRO and writ of preliminary injunction docketed as Civil Case No. 01-0330.
The RTC initially issued a TRO valid for 72 hours.
On September 21, 2001, the RTC extended the TRO for 17 days.
On October 8, 2001, the RTC granted Tecnogas’s application and issued a writ of preliminary injunction enjoining the extrajudicial foreclosure sale.
PNB sought reconsideration and moved to dissolve the writ, but the RTC denied the motions.
The RTC denial was embodied in an Order dated September 11, 2002.

Court of Appeals Certiorari Ruling

On November 29, 2002, PNB filed a petition for certiorari with the Court of Appeals to annul the RTC’s October 8, 2001 and September 11, 2002 orders.
On July 24, 2003, the Court of Appeals ruled that the RTC committed grave abuse of discretion in enjoining the extrajudicial foreclosure sale.
The Court of Appeals held that Tecnogas’s proposal to pay through dacion en pago was not payment because it had not been accepted by PNB.
The Court of Appeals concluded that the injunction was improper since foreclosure was the necessary consequence of Tecnogas’s default.
Tecnogas moved for reconsideration, but the Court of Appeals denied it on November 5, 2003.
Tecnogas then filed the present petition for review.

Issues Raised on Review

Tecnogas contended that the two RTC judges committed grave abuse of discretion correctible by certiorari under Rule 65.
Tecnogas argued that the Court of Appeals pre-empted the merits of the main case in Civil Case No. 01-0330.
Tecnogas also asserted that the RTC judges committed errors of judgment.
Tecnogas further maintained that the petition was not rendered moot and academic despite the foreclosure developments.
The Supreme Court framed the issues as: whether the Court of Appeals erred in ruling Tecnogas was not entitled to injunctive relief; and whether the foreclosure sale rendered the petition moot.

Parties’ Positions

Tecnogas admitted its liability and acknowledged that its dacion proposal was not accepted by PNB.
Tecnogas argued that, despite non-acceptance, its proposal constituted a valid tender of payment.
Tecnogas contended that the Court of Appeals findings necessarily resolved the main case issues improperly.
Tecnogas argued that the foreclosure sale did not render the petition moot.
PNB countered that the unaccepted dacion proposal did not extinguish Tecnogas’s obligation, making extrajudicial foreclosure proper.
PNB argued that the Court of Appeals did not preempt resolution of Civil Case No. 01-0330 because its findings were necessary to determine propriety of injunction.
PNB maintained that the foreclosure of the REM rendered the petition moot.

Standards for Preliminary Injunction

The Supreme Court held that a writ of preliminary injunction may issue only upon a clear showing of a right in esse or a clear and unmistakable right.
The Court required proof of a violation of that right.
The Court required an