EQUITABLE PCI BANK, INC., PETITIONER, VS. MARIA LETICIA FERNANDEZ AND ALICE SISON VDA. DE FERNANDEZ, RESPONDENTS.

Equitable PCI Bank versus Fernandez

The Case

This is a petition for review brought by Equitable PCI Bank against Maria Leticia Fernandez and Alice Sison Vda. de Fernandez. The bank asks the Supreme Court to undo a preliminary injunction that stopped it from extrajudicially foreclosing five mortgaged parcels of land. The case matters because it settles two things at once: when an interlocutory order may be attacked by certiorari rather than by waiting for an appeal, and what a debtor must show before a court may enjoin a foreclosure. The Court reminds us that foreclosure is a necessary consequence of non-payment, and that an injunction issued without a clear legal right on the debtor's side is grave abuse of discretion.

Procedural History

The respondents filed a complaint for annulment of the real estate mortgages, the notice of extrajudicial sale, and the foreclosure proceedings, with a prayer for a temporary restraining order or writ of injunction, before the Regional Trial Court of Urdaneta City, Branch 45. The trial court issued a twenty-day temporary restraining order, then, on 28 January 2003, granted the writ of preliminary injunction, ordering the bank and the sheriff to cease and desist from conducting the extrajudicial foreclosure and sale, conditioned on a bond of 200,000 pesos. The bank moved for reconsideration; the trial court denied it on 16 July 2003.

The bank then filed a petition for certiorari before the Court of Appeals, arguing that the trial court issued its orders without factual or legal basis. In its Resolution of 29 October 2003, the Court of Appeals dismissed the petition for lack of merit, holding that an order granting a writ of preliminary injunction is interlocutory and cannot by itself be the subject of an appeal or a petition for certiorari, and that the proper remedy is an ordinary appeal from the adverse judgment in the main case. The Court of Appeals denied the bank's motion for reconsideration on 1 April 2004. Hence this petition for review before the Supreme Court.

Facts

From 1998 to 2000, Equitable PCI Bank extended several loans to the respondents totaling 26,200,000 pesos, evidenced by promissory notes and secured by real estate mortgages over five parcels of land, three registered in the respondents' names and two in the name of Alice Sison Vda. de Fernandez.

The promissory notes matured, and despite demands the respondents failed to pay. On 22 October 2002, pursuant to the deeds of real estate mortgage, the bank filed a petition for extrajudicial foreclosure before the Office of the Clerk of Court of Urdaneta City. After due notice and publication, the foreclosure sale was scheduled for 16 December 2002.

On 11 December 2002, the respondents filed their complaint for annulment with a prayer for injunctive relief. The trial court issued a temporary restraining order, heard the application, and on 28 January 2003 issued the writ of preliminary injunction, reasoning that the properties were said to be worth 100,000,000 pesos against a loan of only 26,200,000 pesos, and that foreclosure should be held in abeyance pending the merits. The respondents did not deny their indebtedness; in their complaint they admitted they were still indebted to the bank.

Issues

• Whether or not the Court of Appeals erred in summarily dismissing the bank's petition for certiorari on the ground that an interlocutory order granting a writ of preliminary injunction cannot be the subject of certiorari.
• Whether or not the trial court acted with grave abuse of discretion in issuing the writ of preliminary injunction, there being no clear legal right shown by the respondents to be protected.

Applicable Provisions

Section 4, Rule 58 of the Rules of Court, on the injunction bond, is the provision the trial court applied in its order:

Pursuant to Section 4, Rule 58 of the New Rules of Court, the plaintiffs are hereby directed to file an injunction bond in the amount of P200,000.00 for said plaintiffs to pay such amount to the defendant bank, which they may sustain by reason of the injunction of the Court should it finally decide that the plaintiffs are not entitled thereto.

The bond does not cure a writ issued without a clear legal right; it only answers for damages should the injunction prove unjustified.

Ruling

On the first issue, the Court agreed with the Court of Appeals that interlocutory orders, because they do not dispose of the case on the merits, are not appealable, and that certiorari is generally not available to challenge them; the proper remedy is an ordinary appeal from an adverse judgment, incorporating the grounds for assailing the interlocutory order. But the Court carved out the exception: where the assailed interlocutory order is patently erroneous and appeal would not afford adequate and expeditious relief, certiorari may be allowed. The petition has merit.

On the second issue, the Court held that for a writ of preliminary injunction to be proper, the invasion of the right sought to be protected must be material and substantial, the complainant's right must be clear and unmistakable, and there must be an urgent and paramount necessity for the writ to prevent serious damage. In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. Here the respondents failed to show any right to be protected, and they did not deny their indebtedness. Foreclosure is valid where the debtor is in default; it is but a necessary consequence of non-payment of the mortgage indebtedness. On the face of the respondents' clear admission that they could not settle their obligations, the bank had a clear right to foreclose. The injunction was therefore issued with grave abuse of discretion.

Doctrine

First, an interlocutory order is not appealable, and certiorari is generally not the remedy against it; the aggrieved party must appeal from the final judgment and assign the interlocutory order as error. By way of exception, certiorari lies where the interlocutory order is patently erroneous and appeal would not afford adequate and expeditious relief.

Second, a writ of preliminary injunction requires a clear and unmistakable legal right, a material and substantial invasion of that right, and an urgent and paramount necessity to prevent serious damage. Absent a clear legal right, the writ is grave abuse of discretion.

Third, foreclosure is valid where the debtor is in default; in a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose, seize, and sell the property to apply the proceeds to the obligation. A debtor who admits non-payment cannot enjoin foreclosure on the mere claim that the property is worth more than the loan.

Disposition

The Supreme Court granted the petition, reversed and set aside the Court of Appeals Resolutions of 29 October 2003 and 1 April 2004, and nullified the writ of preliminary injunction issued by the Regional Trial Court of Urdaneta City, Branch 45. The bank won.

Remember This

Memorize this line: foreclosure is but a necessary consequence of non-payment, and an injunction issued without a clear legal right is grave abuse of discretion. Examiners use this case to test the exception to the rule that interlocutory orders cannot be reached by certiorari, and to test the requisites of a preliminary injunction against a foreclosing mortgagee.