Bank of the Philippine Islands v. Go
REITERATIONFacts
The Antecedents: Noah's Arc Merchandising, a sole proprietorship owned by Albert T. Looyuko, obtained eight loans from Far East Bank and Trust Company (now Bank of the Philippine Islands). These loans were evidenced by promissory notes co-signed by Albert T. Looyuko and Jimmy T. Go, and secured by a real estate mortgage over a property co-owned by Looyuko and Go. The bank initiated extrajudicial foreclosure proceedings upon claiming default by Noah's Ark. Private respondent Jimmy T. Go filed a complaint seeking to enjoin the auction sale, alleging that some of the loans had not yet matured and that demand had not been made upon him. Procedural History: Jimmy T. Go filed a complaint for damages with a prayer for a Temporary Restraining Order (TRO) and/or preliminary injunction to prevent the foreclosure sale. The trial court issued a TRO, which was later extended. Subsequently, the trial court granted the application for a preliminary injunction, conditioned upon Go posting a bond. The bank moved for reconsideration, arguing the foreclosure was premature for some notes, but the motion was denied. The bank then filed a petition for certiorari with the Court of Appeals, seeking to annul the injunction orders. The Court of Appeals partially denied the petition, affirming the injunction but increasing the bond amount to P5,000,000.00. The bank's motion for reconsideration was denied, leading to the present petition. The Petition: The Bank of the Philippine Islands filed this petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolution of the Court of Appeals. The petitioner argues that the Court of Appeals erred in resolving the issue of the sufficiency of demand, in finding that private respondent Go was entitled to the TRO and preliminary injunction, and in not declaring the complaint moot and academic. The core of the bank's argument is that Go, as a co-signor, waived demand in the promissory notes, and that the bank's act of withholding lease payments owed to Noah's Ark and applying them to the loan constituted legal compensation, not novation, thus entitling the bank to proceed with the foreclosure.
Issue(s)
Whether the private respondent was entitled to the TRO and writ of preliminary injunction. Whether the TRO and writ of preliminary injunction were properly issued by Judge Victorio. Whether the Court of Appeals erred in resolving the issue of the sufficiency of demand.
Ruling
The petition is GRANTED. The decision and resolution of the Court of Appeals are PARTIALLY REVERSED and SET ASIDE, retaining only the portion which increases the amount of the injunctive bond to P5,000,000.00. The writ of preliminary injunction issued by Judge Urbano C. Victorio, Sr. is DISSOLVED.
Ratio Decidendi
On whether the private respondent was entitled to the TRO and writ of preliminary injunction: The Supreme Court ruled that private respondent Go was not entitled to the TRO and preliminary injunction. The Court found that the promissory notes contained an acceleration clause and an express waiver of demand. Therefore, demand was unnecessary for the debtors to be in default, contrary to Go's assertion that demand was not made. The Court also clarified that FEBTC's act of withholding lease payments owed to Noah's Ark and applying them to the loan was a form of legal compensation, not a waiver of default or novation. Legal compensation occurs by operation of law when parties are reciprocally debtors and creditors, and it does not extinguish the underlying loan agreement. Consequently, FEBTC was not estopped from proceeding with the foreclosure. On whether the TRO and writ of preliminary injunction were properly issued by Judge Victorio: The Supreme Court found that the TRO and preliminary injunction were improperly issued. Substantively, as discussed above, private respondent was not entitled to the injunction. Procedurally, Judge Victorio irregularly issued the TRO by excluding Saturdays, Sundays, and legal holidays from the computation of the 20-day period. Rule 22, Section 1 of the Rules of Court provides that such exclusions are only applicable when the last day of the period falls on a non-working day, which was not the case here. Thus, the judge exceeded his authority by extending the TRO beyond the prescribed period. On whether the Court of Appeals erred in resolving the issue of the sufficiency of demand: The Supreme Court held that the Court of Appeals did not err in resolving the issue of the sufficiency of demand. The CA correctly considered the promissory notes, which contained an acceleration clause and a waiver of demand, in determining whether demand was necessary. The issue of demand is intrinsically linked to the propriety of the foreclosure proceedings, which was the subject of the injunction case. Therefore, the CA's consideration of this matter was within its purview when reviewing the trial court's issuance of the injunction.
Main Doctrine
A writ of preliminary injunction may be issued to preserve the status quo, but it requires that the applicant be entitled to the relief demanded, that the act complained of would work injustice, or that a party is acting in violation of the applicant's rights tending to render the judgment ineffectual. In cases of extrajudicial foreclosure, the propriety of the foreclosure must be settled by the trial court, and the issuance of an injunction may be warranted if there is a question regarding default or demand. However, an acceleration clause and a waiver of demand in promissory notes negate the need for demand to declare the debtor in default. Furthermore, legal compensation, which occurs by operation of law, does not constitute novation or waiver of default, and thus does not estop the creditor from foreclosing.