SPS. ARTURO J. UY AND LEONCIA O. UY, CAMALIG ART CENTER, INC. AND OBANDO-UY DEVELOPMENT CORPORATION, PETITIONERS, VS. THE HONORABLE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT O…

Uy versus Keppel Bank

The Case

This is a petition for certiorari brought by spouses Arturo and Leoncia Uy, together with Camalig Art Center, Incorporated and Obando-Uy Development Corporation, against the Presiding Judge of the Regional Trial Court of Lipa City and Keppel Bank Philippines, Incorporated. The petitioners ask the Supreme Court to reverse the trial court's refusal to issue a writ of preliminary injunction that would stop the bank from taking possession of three mortgaged parcels of land, from disposing of them, and from cancelling the petitioners' titles. The case matters because it fixes the standard for the extraordinary remedy of injunction in foreclosure settings: a party who has defaulted on a loan cannot claim a clear legal right to freeze the bank's possession of the foreclosed property while the main case is still pending.

Procedural History

The petitioners filed a complaint for annulment of mortgage and foreclosure, with a prayer for a temporary restraining order and injunction, before the Regional Trial Court of Lipa City. On 26 April 2005, the trial court issued an order denying the prayer for preliminary injunction. The petitioners moved for reconsideration, and on 6 July 2005 the trial court denied the motion. The petitioners then went directly to the Supreme Court by a petition for certiorari under Rule 65, seeking review and reversal of both orders. The Supreme Court dismissed the petition and affirmed both assailed orders.

Facts

On 6 September 1999 and 3 May 2000, the petitioners obtained loans from Keppel Bank in the total amount of twenty million pesos. To secure the loans, petitioner Leoncia Uy executed a mortgage agreement over three parcels of land in Lipa City, covered by transfer certificates of title numbered T-110170, T-110171, and T-110172, all registered in her name.

After almost a year of paying the monthly amortization, the petitioners began to default. They were able to have their loans restructured, but after a few payments they again failed to meet their obligations. The bank demanded payment and warned of foreclosure. The petitioners sought concessions, and a series of offers and counter offers followed, including a proposed memorandum of agreement and a dacion en pago, but these failed. Even a proposal sent through counsel was denied.

On 10 December 2003, the bank applied for extra-judicial foreclosure before the Office of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Lipa City. The petitioners sent another proposal and asked that the foreclosure sale set for 11 February 2004 be deferred, but the bank denied the request. The sale proceeded, and the bank, as the highest bidder, was awarded the certificate of sale dated 14 April 2004. The petitioners then filed their complaint for annulment of the mortgage and foreclosure, with a prayer for a restraining order and injunction, which the trial court denied.

Issues

• Whether or not the petitioners are entitled to a writ of preliminary injunction to enjoin the bank, its agents, assigns, or representatives from taking possession or control of the properties covered by the three transfer certificates of title, from disposing of or encumbering them, and from cancelling the petitioners' titles for the issuance of new titles in the bank's name.

Applicable Provisions

The decision does not quote a statute; it applies the settled requisites for the issuance of a writ of preliminary injunction, which the Court states as follows:

Before the writ may issue, it is necessary that the party seeking it must establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage.

These requisites govern the whole case, because the petitioners must show a clear legal right before any injunction may issue.

The Court also relies on the rule in Ong versus the Court of Appeals, quoted in the decision:

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. Regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice of course to the eventual outcome of said case. Hence, an injunction to prohibit the issuance of the writ of possession is entirely out of place.

This rule bears directly on the case because the petitioners' challenge to the mortgage and the foreclosure cannot, by itself, defeat the bank's right to possess the foreclosed properties.

Ruling

On the sole issue, the Court held that the petitioners are not entitled to a writ of preliminary injunction. The Court first set aside the arguments attacking the propriety and equity of the mortgage agreement, because those arguments go to the very core of the main case still pending before the trial court, and the Supreme Court will not preempt the trial court's judgment on the matter.

The Court then explained that injunction is an extraordinary remedy, calculated to preserve or maintain the status quo of things before the litigation, and generally availed of to prevent actual or threatened acts until the merits of the case can be heard. While the grant of the writ rests on the sound discretion of the trial judge, extreme caution must be observed in its exercise. Applying the requisites, the Court stressed that in the absence of a clear right, injunction is not proper, and that the possibility of irreparable damage without proof of an adequate existing right is not a ground for injunction.

The Court found that the trial court denied the prayer precisely because the petitioners failed to establish a clear legal right that had been violated materially and substantially, or an urgent and paramount necessity to prevent serious damage. The trial court found that the petitioners unquestionably failed to pay their loans, so the bank had the right to foreclose the mortgage and, as an adjunct to its right of ownership, the right to be allowed possession of the foreclosed properties. With no clear right on the part of the petitioners over the foreclosed properties, the denial of the injunction was proper.

Doctrine

A writ of preliminary injunction is extraordinary and is calculated to preserve or maintain the status quo of things before the litigation, to prevent actual or threatened acts until the merits can be heard. The grant rests on the sound discretion of the trial judge, but extreme caution must be observed. Before the writ may issue, the party seeking it must establish a right in esse, or a clear and unmistakable right to be protected; a violation of that right; and an urgent and permanent act and urgent necessity for the writ to prevent serious damage. In the absence of a clear right, injunction is not proper, and the possibility of irreparable damage without proof of an adequate existing right is not a ground for injunction.

A question regarding the validity of a mortgage or of its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. Regardless of a pending suit for annulment of the mortgage or of the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice to the eventual outcome of that case, and an injunction to prohibit the issuance of the writ of possession is entirely out of place.

Disposition

The Supreme Court dismissed the petition and affirmed the two assailed orders of the trial court denying the prayer for preliminary injunction.

Remember This

The line worth memorizing is that injunction requires a clear and unmistakable right, and a pending suit to annul a mortgage or its foreclosure is no ground to withhold a writ of possession from the purchaser. Examiners use this case to test the requisites of preliminary injunction and the rule that a writ of possession issues notwithstanding a pending annulment case.