SECOND DIVISION
BANK OF THE
PHILIPPINE G.R. No.
142731
ISLANDS (formerly
FAR EAST
BANK AND TRUST
COMPANY), Present:
Petitioner,
- versus - PUNO,
J., Chairperson,
SANDOVAL-GUTIERREZ,
COURT OF APPEALS
and AZCUNA, and
JIMMY T. GO, GARCIA,
JJ.
Respondents.
Promulgated:
June
8, 2006
x-----------------------------------------------------------------------------------------x
DECISION
AZCUNA,
J.:
This is a petition for review on
certiorari filed by Bank of the Philippine Islands of the decision and
resolution of the Court of Appeals, which in turn partially denied a petition
for certiorari questioning the temporary restraining order (TRO) and
preliminary injunction issued by Judge Urbano C. Victorio, Sr. [1]
The facts as narrated in the Court of
Appeals decision are as follows:
Petitioner, Far East
Bank and Trust Company, granted a total of eight (8) loans to Noah’s Arc
Merchandising (Noah’s
In an order[3]
dated
After hearing, the P200,000.00).
The dispositive portion read:
“WHEREFORE, it appearing that the acts complained of
would be in violation of plaintiff’s right and would work injustice to the
plaintiff and so as not to render ineffectual whatever judgment may be issued
in this case, the application [for] preliminary injunction is hereby granted
and the defendants and all persons
acting in their behalf are hereby ordered to cease, desist, and refrain from
proceeding with the scheduled foreclosure and public auction sale of the
mortgaged property covered by TCT No. 160277 until further orders from this
Court.
This Order shall be effective upon petitioner’s filing
of a bond in the amount of Two Hundred Thousand Pesos (P200,000.00) to
answer for any and all damages that defendants may suffer by reason of the
issuance of the writ of preliminary injunction.
As prayed for, defendants are hereby directed to file
their answer on or before
SO ORDERED.” (Rollo p. 175)
Private-respondent then
filed a bond as required by the order.
Petitioner moved for a reconsideration
of the aforementioned order which motion was denied in the Order dated
“WHEREFORE, premises considered, the motion for
reconsideration is hereby denied and the other pending incident pertaining
thereto are noted and this case be set for pre-trial.
LET THEREFORE, a notice of pre-trial be sent to the
parties.
SO ORDERED.” (Rollo, p. 219)[4]
After petitioner’s motion for
reconsideration was denied in an order dated July 30, 1998, petitioner filed a
petition for certiorari with the Court of Appeals, praying that the orders
dated May 7, 1998 and July 30, 1998, granting the writ of preliminary
injunction and denying the motion for reconsideration, respectively, be
annulled and set aside and the writ of preliminary injunction be
dissolved. Furthermore, petitioner asked
to be allowed to proceed with the auction sale of the property.
The Court of Appeals promulgated its
decision dated
The issue in this case is: “Whether the trial
court erred in the issuance of the Writ of Preliminary Injunction or not.”
Petitioner averred that private respondent
had not shown any right which should be protected by an injunction. Private respondent naturally claimed
otherwise and asserted that since four (4) of the promissory notes have not yet
matured there was no basis to foreclose the mortgage (Comment, p 15). He also claimed that his right to due process
entitles him to legal demand prior to the filing of the foreclosure proceedings
against the subject property (Comment, p. 16).
It has been held that an injunction may be
issued in order to preserve the status quo.
Thus, in Cagayan de Oro City Landless Residents Association, Inc., v. Court of
Appeals (254 SCRA 220 [1996]) it was held:
As an extraordinary remedy, injunction is calculated to
preserve the status quo of things and is generally availed of to prevent actual
or threatened acts, until the merits of the case can be heard. x x x. (254 SCRA 228).
In the case at bar, there is a need to first
settle the question of whether the demand made by petitioner was sufficient to
render private respondent in default or not.
In Rose Packing Co., Inc. v. Court of Appeals (167 SCRA 309
[1988]) it was held that the question of whether the debtor is in default
should first be settled to determine if the foreclosure was proper. In the same case it was also held that said
question should be resolved by the trial court, to wit:
While petitioner corporation does not deny, in fact, it
admits its indebtedness to respondent bank (Brief for Petitioner, pp. 7-11),
there were matters that needed the preservation of the status quo between the
parties. The foreclosure sale was
premature.
First was the question of whether or not petitioner
corporation was already in default.
x x
x
Petitioner corporation alleges that there had been no
demand on the part of respondent bank previous to its filing a complaint
against petitioner and Rene Knecht personally for
collection on petitioner’s indebtedness (Brief for Petitioner, p.13). For an obligation to become due there must
generally be a demand. Default generally
begins from the moment the creditor demands the performance of the
obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise. (Namarco
v. Federation of United Namarco Distributors, Inc.
49 SCRA 238 [1973]; Borje v. CFI of Misamis Occidental, 88 SCRA 576 [1979]. Whether petitioner corporation is already in
default or not and whether demand had been properly made or not had to be
determined in the lower court. (167 SCRA 317-318).
We now come to the matter of sufficiency of
the bond filed by private respondent.
Petitioner claims that the P200,000.00 bond is grossly
insufficient. It argued, thus:
By enjoining petitioner from conducting the auction sale
of the mortgaged property, petitioner has already suffered damages in the
amount of P715,077.78 representing filing and publication fees. Yet damages to be incurred by petitioner by
reason of the injunction are not limited
to filing and publication fees, granting that the case will drag on for more tha[n] a year, which is usually the case. The injunction would deprive petitioner FEBTC
of its own income from the foreclosed property or from the proceeds of the
foreclosure sale. Obviously it is easily
more than P200,000.00 (Rollo, p. 31).
The Court agrees with
petitioner that the amount of the bond is insufficient. In
The said bond was
supposed to answer only for damages which may be sustained by private
respondents, against whom the mandatory injunction was issued, by reason of the
issuance thereof, and not to answer for damages caused by the actuations of
petitioner, which may or may not be related at all to the implementation of the
mandatory injunction. The purpose of the
injunction bond is to protect the defendant against loss or damage by reason of
the injunction in case the court finally decides that the plaintiff was not entitled
to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated to account
to the defendant in the injunction suit for all damages, or costs and
reasonable counsel’s fees incurred or sustained by the latter in case it is determined
that the injunction was wrongfully issued. (263 SCRA 288-289)
Private respondent’s contention that
considering the market value of the property, the bond is reasonable and proper
(Rollo, p. 240) cannot be upheld considering that no
proof of the value of the property was even presented to buttress this
assertion.
However, the insufficiency of the amount of
the bond prescribed by the trial court does not warrant the lifting of the writ
of injunction. The Court notes that
under Section 7, Rule 58 of the 1997 Rules of Civil Procedure the applicant, in
case the bond is insufficient, may still file one sufficient in amount, to wit:
Sec. 7. Service
of copies of bond; effect of disapproval of same. - - x x
x. If the
applicant’s bond is found to be insufficient in amount, or if the surety or
sureties thereon fail to justify, and a bond sufficient in amount with
sufficient sureties approved after justification is not filed forthwith, the
injunction shall be dissolved. x x x.
The Court considers a bond of Five Million
Pesos (P5,000,000.00) to be more appropriate in the present case.
WHEREFORE, considering the foregoing premises
the petition for certiorari is DENIED; however, private respondent is ordered
to file an injunctive bond in the amount of P5,000,000.00.
SO ORDERED.[5]
Petitioner filed a motion for
reconsideration which was denied in a resolution dated
Petitioner filed the instant petition
for review on certiorari questioning the
3.1
Whether
the Honorable Court of Appeals can resolve the issue of the sufficiency of
demand.
3.2
Whether
private respondent Go is entitled to a temporary restraining order and a writ
of preliminary injunction.
3.3
Whether
the Complaint of private respondent Go has been rendered moot and academic.
For the purpose of clarity, the issues
are restated thus:
1.
Whether or not the private
respondent was entitled to the TRO and writ of preliminary injunction.
2.
Whether or not the TRO and writ
of preliminary injunction were properly issued by Judge Victorio.
On the first issue, this Court finds
that private respondent was not entitled to the TRO and the writ of preliminary
injunction. Section 3 of Rule 58 of the
Rules of Court provides the grounds for the issuance of a preliminary
injunction, to wit:
A preliminary injunction may be granted when
it is established:
(a)
That
the applicant is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b)
That
the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or
(c)
That
a party, court, agency or person is doing, threatening, or is attempting to do,
or is procuring or suffering to be done, some act or acts probably in violation
of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
As
will be discussed below, private respondent is not entitled to the relief of
injunction against the extrajudicial foreclosure and auction sale. Neither are the extrajudicial foreclosure and
auction sale violative of private respondent’s
rights.
Private respondent claimed that demand
was not made upon him, in spite of the fact that he co-signed the promissory
notes. He also argues that only four of
the eight promissory notes secured by the mortgage had become due. A reading of the promissory notes discloses
that as co-signor, private respondent waived demand. Furthermore, the
promissory notes contain an acceleration clause, to wit:
Upon the happening of any of the following
events, FAR EAST BANK AND TRUST COMPANY or the holder, may at its option,
forthwith accelerate maturity and the unpaid balance of the principal, as
well as interest and other charges which have accrued, shall become due and
payable without demand or notice[:] (1) default in payment or
performance of any obligation of any of the undersigned to FAR EAST BANK AND
TRUST COMPANY or its affiliated companies;
x x
x
I/We hereby waive any diligence, presentment,
demand, protest or notice of non-payment o[r] dishonor with respect to
this note or any extension thereof.[7]
(Emphasis added)
The Civil Code in Article 1169[8]
provides that one incurs in delay or is in default from the time the obligor
demands the fulfillment of the obligation from the obligee.
However, the law expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the parties expressly
waive demand. Hence, since the
co-signors expressly waived demand in the promissory notes, demand was
unnecessary for them to be in default.
Private respondent further argues that
by withholding the lease payments Far East Bank and Trust Company (FEBTC) owed Noah’s
Ark for the space FEBTC was leasing from Noah’s Ark and applying said amounts
to the outstanding obligation of Noah’s Ark, as expressed in a letter from
FEBTC dated May 19, 1998,[9] FEBTC
has waived default, novated the contract of loan as
embodied in the promissory notes and is therefore estopped
from foreclosing on the mortgaged property.
This Court disagrees. FEBTC’s act of
withholding the lease payments and applying them to the outstanding obligation
of Noah’s
x x
x compensation is a mode of extinguishing to the
concurrent amount the obligations of persons who in their own right and as
principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation
of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their
mutual obligations even in the absence of some requisites.[10]
The
Civil Code enumerates the requisites of legal compensation, thus:
Art. 1278.
Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279.
In order that compensation may be proper, it is necessary:
(1)
That
each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2)
That
both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3)
That
the two debts be due;
(4)
That
they be liquidated and demandable;
(5)
That
over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
It
is clear from the facts that FEBTC and Noah’s
Novation did
not occur as private respondent argued.
The Court has declared that a contract cannot be novated
in the absence of a new contract executed between the parties.[11] The legal compensation, which was
acknowledged by FEBTC in its
Since the compensation between the
parties occurred by operation of law, FEBTC did not waive Noah’s
As a result of the absence of novation or waiver of default, FEBTC is therefore not estopped from proceeding with the foreclosure.
Private respondent further argues in
his memorandum that FEBTC was in bad faith when it initiated the foreclosure
proceedings because Noah’s Ark had been requesting for accounting and
reconciliation of its account and the application of interest payment, and that
there were on-going negotiations with FEBTC for the settlement and
restructuring of the loan obligation.
From the evidence on hand, it is clear that FEBTC was acting within its
rights. Private respondent did not
present any other agreement signed by the parties subsequent to the promissory
notes and mortgage contract which can be considered as replacing, altering, or novating the contractual rights between the parties. Even if Noah’s
With regard to the second issue, this
Court finds that the TRO and the writ of preliminary injunction were improperly
issued by Judge Victorio. First of all, on substantive grounds, as
discussed above, private respondent was not entitled to the TRO and the writ of
preliminary injunction.
Second, the issuance of the TRO was,
on procedural grounds, irregular. Section
5, Rule 58 of the Rules of Civil Procedure provides:
Preliminary injunction
not granted without notice; exception. – No preliminary injunction shall be
granted without hearing and prior notice to the party or person sought to be
enjoined. If it shall appear from facts
shown by affidavits or by the verified application that great or irreparable
injury would result to the applicant before the matter can be heard on notice,
the court to which the application for preliminary injunction was made, may
issue a temporary restraining order to be effective only for a period of twenty
(20) days from notice to the party or person sought to be enjoined. Within the said twenty-day period, the court
must order said party or person to show cause, at a specified time and place,
why the injunction should not be granted, determine within the same period whether or not the preliminary
injunction shall be granted, and accordingly issue the corresponding order.
Judge Victorio,
in an order dated
period of twenty days from notice to the party sought to be enjoined. The rule does not specify that the counting
of the twenty-day period is only limited to working days or that Saturdays,
Sundays and legal holidays are excluded from the twenty-day period. The law simply states twenty days from
notice. Section 1, Rule 22 of the Rules
of Court is pertinent, to wit:
How to compute time. – In computing
any period of time prescribed or allowed by these Rules, or by order of the
court, or by any applicable statute, the day of the act or event from which the
designated period of time begins to run is to be excluded and the date of
performance included. If the last day of
the period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday
in the place where the court sits, the time shall not run until the next
working day.
It
is clear from the last sentence of this section that non-working days (Saturdays,
Sundays and legal holidays) are excluded from the counting of the period only
when the last day of the period falls on such days. The Rule does not provide for any other
circumstance in which non-working days would affect the counting of a
prescribed period. Hence, Judge Victorio exceeded the authority granted to lower courts, in
Section 5, Rule 58 of the Rules of Court, when he excluded non-working days
from the counting of the twenty-day period.
In sum, private respondent was not
entitled to the TRO nor to the preliminary injunction, and the period granted
in the TRO issued by Judge Victorio exceeded that
prescribed in the Rules of Court.
WHEREFORE, the petition is GRANTED
and the decision[12] and
resolution[13] of the
Court of Appeals dated August 26, 1999 and April 3, 2000, respectively, are PARTIALLY
REVERSED and SET ASIDE, retaining only the portion which increases
the amount of the injunctive bond to Five Million Pesos (P5,000,000). The writ of preliminary injunction issued by
Judge Urbano C. Victorio,
Sr., in an order[14] dated
SO ORDERED.
ADOLFO S.
AZCUNA
Associate
Justice
WE
CONCUR:
REYNATO S. PUNO
Chairperson
Associate
Justice
ANGELINA
SANDOVAL-GUTIERREZ RENATO C. CORONA Associate
Justice Associate Justice
CANCIO C.
GARCIA
Associate
Justice
ATTESTATION
I attest that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairperson,
Second Division
CERTIFICATION
Pursuant to
Section 13, Article VIII of the Constitution and the Division Acting
Chairperson’s Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
ARTEMIO V.
PANGANIBAN
Chief Justice
[1]
By virtue of a merger of the Bank of the Philippine Islands and Far
East Bank and Trust Company the corporate life of the latter has terminated and
the merged entity is now called Bank of the Philippine Islands; See, Manifestation
and Urgent Motion for Extension of Time, dated April 25, 2000; CA Rollo, unnumbered.
[2] Rollo, p. 39.
[3] Records, p. 60.
[4] Rollo, pp. 39-41.
[5] Rollo, pp. 41-45.
[6]
[7] Rollo, pp. 50-57.
[8]
ART. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment
of their obligation.
However, the
demand by the creditor shall not be necessary in order that delay may exist:
(1)
When the obligation or law expressly so declare;
x x x.
[9]
NOAH’S
Escolta,
Attention : MS. JULIET T. GO
Administrator
This is to inform you that in view of the non-payment of Noah’s Ark Merchandising of its loan obligation with Far East Bank and Trust Company, we have withheld the February 1998 to May 1998 rental payments to your office and have correspondingly applied said amount to the outstanding obligation of Noah’s Ark Merchandising. We will continue to do so for the succeeding months until such time said loan is fully settled.
Please note that we have not been delinquent in our rental payments and should not be charged with penalties for non-remittance of the same. x x x
[10]
PNB MEDECOR v. Uy, 415 Phil. 348, 359 (2001).
[11]
Bert Osmeña
& Associates Inc. v. CA, 205 Phil. 328 (1983); Tiu
Siuco v. Habana, 45
Phil. 707 (1924).
[12] Rollo, pp. 38–45.
[13]
[14] Records, pp. 113-115.