2/25/2021 G.R. No.

167434

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Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 167434 February 19, 2007

SPOUSES RAMON M. NISCE and A. NATIVIDAD PARAS-NISCE, Petitioners,

vs.
EQUITABLE PCI BANK, INC., Respondent.

DECISION

CALLEJO, SR., J.:

On November 26, 2002, Equitable PCI Bank1 (Bank) as creditor-mortgagee filed a petition for extrajudicial
foreclosure before the Office of the Clerk of Court as Ex-Officio Sheriff of the Regional Trial Court (RTC) of Makati
City. It sought to foreclose the following real estate mortgage contracts executed by the spouses Ramon and
Natividad Nisce over two parcels of land covered by Transfer Certificate of Title (TCT) Nos. S-83466 and S-83467 of
the Registry of Deeds of Rizal: one dated February 26, 1974; two (2) sets of "Additional Real Estate Mortgage"
dated September 27, 1978 and June 3, 1996; and an "Amendment to Real Estate Mortgage" dated February 28,
2000. The mortgage contracts were executed by the spouses Nisce to secure their obligation under Promissory
Note Nos. 1042793 and BD-150369, including a Suretyship Agreement executed by Natividad. The obligation of the
Nisce spouses totaled ₱34,087,725.76 broken down as follows:

Spouses Ramon & Natividad Nisce - - - - - ₱17,422,285.99

Natividad P. Nisce (surety) - - - - - - - - - - US$57,306.59

and - - - - - - - - - - - - ₱16,665,439.772

On December 2, 2002, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on January 14, 2003,3 or on
January 30, 2003 in the event the public auction would not take place on the earlier setting.

On January 28, 2003, the Nisce spouses filed before the RTC of Makati City a complaint for "nullity of the Suretyship
Agreement, damages and legal compensation" with prayer for injunctive relief against the Bank and the Ex-Officio
Sheriff. They alleged the following: in a letter4 dated December 7, 2000 they had requested the bank (through their
lawyer-son Atty. Rosanno P. Nisce) to setoff the peso equivalent of their obligation against their US dollar account
with PCI Capital Asia Limited (Hong Kong), a subsidiary of the Bank, under Certificate Deposit No. 016125 and
Account No. 090-0104 (Passbook No. 83-3041);6 the Bank accepted their offer and requested for an estimate of the
balance of their account; they complied with the Bank’s request and in a letter dated February 11, 2002, informed it
that the estimated balance of their account as of December 1991 (including the 11.875% per annum interest) was
US$51,000.42,7 and that as of December 2002, Natividad’s US dollar deposit with it amounted to at least
₱9,000,000.00; they were surprised when they received a letter from the Bank demanding payment of their loan
account, and later a petition for extrajudicial foreclosure.

The spouses Nisce also pointed out that the petition for foreclosure filed by the Bank included the alleged obligation
of Natividad as surety for the loan of Vista Norte Trading Corporation, a company owned and managed by their son
Dino Giovanni P. Nisce (₱16,665,439.77 and US$57,306.59). They insisted, however, that the suretyship agreement
was null and void for the following reasons:

(a) x x x [I]t was executed without the knowledge and consent of plaintiff Ramon M. Nisce, who is by law the
administrator of the conjugal partnership;

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(b) The suretyship agreement did not redound to the benefit of the conjugal partnership and therefore did not
bind the same;

(c) Assuming, arguendo, that the suretyship contract was valid and binding, any obligation arising therefrom is
not covered by plaintiffs’ real estate mortgages which were constituted to secure the payment of certain
specific obligations only.8

The spouses Nisce likewise alleged that since they and the Bank were creditors and debtors with respect to each
other, their obligations should have been offset by legal compensation to the extent of their account with the Bank.

To support their plea for a writ of preliminary and prohibitory injunction, the spouses Nisce alleged that the amount
for which their property was being sold at public auction (₱34,087,725.76) was grossly excessive; the US dollar
deposit of Natividad with PCI Capital Asia Ltd. (Hong Kong), and the obligation covered by the suretyship
agreement had not been deducted. They insisted that their property rights would be violated if the sale at public
auction would push through. Thus, the spouses Nisce prayed that they be granted the following reliefs:

(1) that upon the filing of this Complaint and/or after due notice and summary hearing, the Honorable Court
immediately issue a temporary restraining order (TRO) restraining defendants, their representatives and/or
deputies, and other persons acting for and on their behalf from proceeding with the extrajudicial foreclosure
sale of plaintiffs’ mortgaged properties on 30 January 2003 or on any other dates subsequent thereto;

(2) that after due notice and hearing and posting of the appropriate bond, the Honorable Court convert the
TRO to a writ of preliminary prohibitory injunction;

(3) that after trial on the merits, the Honorable Court render judgment –

(a) making the preliminary injunction final and permanent;

(b) ordering defendant Bank to set off the present peso value of Mrs. Nisce’s US dollar time deposit,
inclusive of stipulated interest, against plaintiffs’ loan obligations with defendant Bank;

(c) declaring the Deed of Suretyship dated 25 May 1998 null and valid and without any binding effect
as to plaintiff spouses, and ordering defendant Bank to exclude the amounts covered by said
suretyship contract from plaintiffs’ obligations with defendant Bank;

(d) ordering defendant Bank to pay plaintiffs the following sums:

(i) at least ₱3,000,000.00 as moral damages;

(ii) at least ₱1,500,000.00 as exemplary damages; and

(iii) at least ₱500,000.00 as attorney’s fees and for other expenses of litigation.

Plaintiffs further pray for costs of suit and such other reliefs as may be deemed just and equitable.9

On same day, the Bank filed an "Amended Petition" with the Office of the Executive Judge for extrajudicial
foreclosure of the Real Estate Mortgage to satisfy the spouses’ loan account of ₱30,533,552.24, exclusive of
interests, penalties and other charges; and the amounts of ₱16,665,439.77 and US$57,306.59 covered by the
suretyship agreement executed by Natividad Nisce.10

In the meantime, the parties agreed to have the sale at public auction reset to January 30, 2003.

In its Answer to the complaint, the Bank alleged that the spouses had no cause of action for legal compensation
since PCI Capital was a different corporation with a separate and distinct personality; if at all, offsetting may occur
only with respect to the spouses’ US$500.00 deposit account in its Paseo de Roxas branch.

In the meantime, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on March 5 and 27, 2003.11 The
spouses Nisce then filed a Supplemental Complaint with plea for a temporary restraining order to enjoin the sale at
public auction.12 Thereafter, the RTC conducted hearings on the plaintiffs’ plea for a temporary restraining order,
and the parties adduced testimonial and documentary evidence on their respective arguments.

The Case for the Spouses Nisce

Natividad frequently traveled abroad and needed a facility with easy access to foreign exchange. She inquired from
E.P. Nery, the Bank Manager for PCI Bank Paseo de Roxas Branch, about opening an account. He assured her that
she would be able to access it from anywhere in the world. She and Nery also agreed that any balance of account
remaining at maturity date would be rolled over until further instructions, or until she terminated the facility.13

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Convinced, Natividad deposited US$20,500.00 on July 19, 1984, and was issued Passbook No. 83-3041.14 Upon
her request, the bank transferred the US$20,000.00 to PCI Capital Asia Ltd. in Hong Kong via cable order.15

On July 11, 1996, the spouses Nisce secured a ₱20,000,000.00 loan from the Bank under Promissory Note No. BD-
150369.16 The maturity date of the loan was July 11, 2001, payable in monthly installments at 16.731% interest per
annum. To secure the payment of the loan account, they executed an Amendment to the Real Estate Mortgage over
the properties17 located in Makati City covered by TCT Nos. S-83466 and S-83467.18 They later secured another
loan of ₱13,089,936.90 on March 1, 2000 (to mature on March 1, 2005) payable quarterly at 13.9869% interest per
annum; this loan agreement is evidenced by Promissory Note (PN) No. 104279319 and covered by a Real Estate
Mortgage20 executed on February 28, 2000. They made a partial payment of ₱13,866,666.50 on the principal of
their loan account covered by PN No. BD-150369, and ₱5,348,239.82 on the interests.21 These payments are
evidenced by receipts and checks.22 However, there were payments totaling ₱4,600,000.00 received by the Bank
but were not covered by checks or receipts.23 As of September 2000, the balance of their loan account under PN
No. BD-150369 was only ₱4,333,333.46.24 They also made partial payment on their loan account under PN No.
1042793 which, as of May 30, 2001, amounted to ₱2,218,793.61.25

On July 20, 1984, PCI Capital issued Certificate of Deposit No. CD-01612;26 proof of receipt of the US$20,000.00
transferred to it by PCI Bank Paseo de Roxas Branch as requested by Natividad. The deposit account was to earn
interest at the rate of 11.875% per annum, and would mature on October 22, 1984, thereafter to be payable at the
office of the depositary in Hong Kong upon presentation of the Certificate of Deposit.

In June 1991, two sons of the Nisce spouses were stranded in Hong Kong. Natividad called the Bank and requested
for a partial release of her dollar deposit to her sons. However, she was informed that according to its computer
records, no such dollar account existed. Sometime in November 1991, she submitted her US dollar passbook with a
xerox copy of the Certificate of Deposit for the PCIB to determine the whereabouts of the account.27 She reiterated
her request to the Bank on January 27, 199228 and September 11, 2000.29

In the meantime, in 1994, the Equitable Banking Corporation and the PCIB were merged under the corporate name
Equitable PCI Bank.

In a letter dated December 7, 2000, Natividad confirmed to the Bank, through Ms. Shellane R. Casaysayan, her
offer to settle their loan account by offsetting the peso equivalent of her dollar account with PCI Capital under
Account No. 090-0104.30 Their son, Atty. Rosanno Nisce, later wrote the Bank, declaring that the estimated balance
of the US dollar account with PCI Capital as of December 1991 was US$51,000.42.31 Atty. Nisce corroborated this
in his testimony, and stated that Ms. Casaysayan had declared that she would refer the matter to her superiors.32 A
certain Rene Esteven also told him that another offer to setoff his parents’ account had been accepted, and he was
assured that its implementation was being processed.33 On cross examination, Atty. Nisce declared that there was
no response to his request for setoff,34 and that Esteven assured him that the Bank would look for the records of his
mother’s US dollar savings deposit.35 He was later told that the Bank had accepted the offer to setoff the account.36

The Case for the Bank

The Bank adduced evidence that, as of January 31, 2003, the balance of the spouses’ account under the two
promissory notes, including interest and penalties, was ₱30,533,552.24.37 It had agreed to restructure their loans on
March 31, 1998, but they nevertheless failed to pay despite repeated demands.38 The spouses had also been
furnished with a statement of their account as of June 2001. Thus, under the terms of the Real Estate Mortgage and
Promissory Notes, it had the right to the remedy of foreclosure. It insisted that there is no showing in its records that
the spouses had delivered checks amounting to ₱4,600,000.00.39

According to the Bank, Natividad’s US$20,000.00 deposit with the PCIB Paseo de Roxas branch was transferred to
PCI Capital via cable order,40 and that it later issued Certificate of Deposit No. 01612 (Non-transferrable).41 In a
letter dated May 9, 2001, it informed Natividad that it had acted merely as a conduit in facilitating the transfer of the
funds, and that her deposit was made with PCI Capital and not with PCIB. PCI Capital had a separate and distinct
personality from the PCIB, and a claim against the former cannot be made against the latter. It was later advised
that PCI Capital had already ceased operations.42

The spouses Nisce presented rebuttal documentary evidence to show that PCI Capital was registered in Hong Kong
as a corporation under Registration No. 84555 on February 27, 198943 with an authorized capital stock of
50,000,000 (with par value of HKD1.00); the PCIB subscribed to 29,039,993 issued shares at the par value of
HKD1.00 per share;44 on October 25, 2004, the corporate name of PCI Capital was changed to PCI Express Padala
(HK) Ltd.;45 and the stockholdings of PCIB remained at 29,039,999 shares.46

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On March 24, 2003, the RTC issued an Order47 granting the spouses Nisce’s plea for a writ of preliminary injunction
on a bond of ₱10,000,000.00. The dispositive portion of the Order reads:

WHEREFORE, in order not to render the judgment ineffectual, upon filing by the plaintiffs and the approval thereof
by the court of a bond in the amount of Php10,000,000.00, which shall answer for any damage should the court
finally decide that plaintiffs are not entitled thereto, let a writ of preliminary injunction issue enjoining defendants
Equitable-PCI Bank, Atty. Engracio M. Escasinas, Jr., and any person or entity acting for and in their behalf from
proceeding with the extrajudicial foreclosure sale of TCT Nos. 437678 and 437679 registered in the names of the
plaintiffs.48

After weighing the parties’ arguments along with their documentary evidence, the RTC declared that justice would
be best served if a writ of preliminary injunction would be issued to preserve the status quo. It had yet to resolve the
issue of setoff since only Natividad dealt with the Bank regarding her dollar account. It also had to resolve the issue
of whether the Bank had failed to credit the amount of ₱4,600,000.00 to the spouses Nisce’s account under PN No.
BD-150369, and their claim that the Bank had effectively accelerated the respective maturity dates of their loan.49
The spouses Nisce posted the requisite bond which was approved by the RTC. 1awphi1.net

The Bank opted not to file a motion for reconsideration of the order, and instead assailed the trial court’s order
before the CA via petition for certiorari under Rule 65 of the Rules of Court. The Bank alleged that the RTC had
acted without or in excess of its jurisdiction, or with grave abuse of its discretion amounting to lack or excess of
jurisdiction when it issued the assailed order;50 the spouses Nisce had failed to prove the requisites for the issuance
of a writ of preliminary injunction; respondents’ claim that their account with petitioner had been extinguished by
legal compensation has no factual and legal basis. It further asserted that according to the evidence, Natividad
made the US$20,000.00 deposit with PCI Capital before it merged with Equitable Bank – hence, the Bank was not
the debtor of Natividad relative to the dollar account. The Bank cited the ruling of this Court in Escaño v. Heirs of
Escaño and Navarro51 to support its arguments. It insisted that the spouses Nisce had failed to establish
"irreparable injury" in case of denial of their plea for injunctive relief.

The spouses, for their part, pointed out that the Bank failed to file a motion for reconsideration of the trial court’s
order, a condition sine qua non to the filing of a petition for certiorari under Rule 65 of the Rules of Court. Moreover,
the error committed by the trial court is a mere error of judgment not correctible by certiorari; hence, the petition
should have been dismissed outright by the CA. They reiterated their claim that they had made a partial payment of
₱4,600,000.00 on their loan account which petitioner failed to credit in their favor. The Bank had agreed to debit
their US dollar savings deposit in the PCI Capital as payment of their loan account. They insisted that they had
never deposited their US dollar account with PCI Capital but with the Bank, and that they had never defaulted on
their loan account. Contrary to the Bank’s claim, they would have suffered irreparable injury had the trial court not
enjoined the extrajudicial foreclosure of the real estate mortgage.

On December 22, 2004, the CA rendered judgment granting the petition and nullifying the assailed Order of the
RTC.52 The appellate court declared that a petition for certiorari under Rule 65 of the Rules of Court may be filed
despite the failure to file a motion for reconsideration, particularly in instances where the issue raised is one of law;
where the error is patent; the assailed order is void, or the questions raised are the same as those already ruled
upon by the lower court. According to the appellate court, the issue raised before it was purely one of law: whether
the loan account of the spouses was extinguished by legal compensation. Thus, a motion for the reconsideration of
the assailed order was not a prerequisite to a petition for certiorari under Rule 65.

The appellate court further declared that the trial court committed grave abuse of its discretion in issuing the
assailed order, since no plausible reason was given by the spouses Nisce to justify the injunction of the extrajudicial
foreclosure of the real estate mortgage. Given their admission that they had not settled the obligations secured by
the mortgage, the Bank had a clear right to seek the remedy of foreclosure.

The CA further declared as devoid of factual basis the spouses Nisce’s argument that the Bank should have
applied, by way of legal compensation, the peso equivalent of their time deposit with PCI Capital as partial
settlement of their obligations. It held that for compensation to take place, the requirements set forth in Articles 1278
and 1279 of the Civil Code of the Philippines must be present; in this case, the parties are not mutually creditors and
debtors of each other. It pointed out that the time deposit which the spouses Nisce sought to offset against their
obligations to the Bank is maintained with PCI Capital. Even if PCI Capital is a subsidiary of the Bank, compensation
cannot validly take place because the Bank and PCI Capital are two separate and distinct corporations. It pointed
out the settled principle "that a corporation has a personality separate and distinct from its stockholders and from
other corporations to which it may be connected."

The CA further declared that the alleged ₱4,600,000.00 payment on PN No. BD-150369 was not pleaded in the
spouses’ complaint and supplemental complaint before the court a quo. What they alleged, aside from legal
compensation, was that the mortgage is not liable for the obligation of Natividad Nisce as surety for the loans
obtained by a trading firm owned and managed by their son. The CA further pointed out that the Bank precisely

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amended the petition for foreclosure sale by deleting the claim for Natividad’s obligation as surety. The appellate
court concluded that the injunctive writ was issued by the RTC without factual and legal basis.53

The spouses Nisce moved to have the decision reconsidered, but the appellate court denied the motion. They thus
filed the instant petition for review on the following grounds:

5.1. THE HONORABLE COURT OF APPEALS ERRED IN TAKING COGNIZANCE OF THE PETITION FOR
CERTIORARI DESPITE THE BANK’S FAILURE TO FILE A MOTION FOR RECONSIDERATION WITH THE
TRIAL COURT.

5.2. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT

PREMATURELY RULED ON THE MERITS OF THE MAIN CASE.

5.3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT JUDGE HAD
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN ISSUING A TEMPORARY RESTRAINING ORDER AND A WRIT OF PRELIMINARY INJUNCTION IN
FAVOR OF THE SPOUSES NISCE.54

Petitioners aver that the CA erred in not dismissing respondent Bank’s petition for certiorari outright because of the
absence of a condition precedent: the filing of a motion for reconsideration of the assailed Order of the RTC before
filing the petition for certiorari in the CA. They insist that respondent bank’s failure to file a motion for reconsideration
of the assailed Order deprived the RTC of its option to resolve the issue of whether it erred in issuing the writ of
preliminary injunction in their favor.

Petitioners insist that in resolving whether a petition for a writ of preliminary injunction should be granted, the trial
court and the appellate court are not to resolve the merits of the main case. In this case, however, the CA resolved
the bone of contention of the parties in the trial court: whether the loan account of petitioners with respondent bank
had been extinguished by legal compensation against petitioner Natividad Nisce’s US dollar savings account with
PCI Capital in Hong Kong. The CA reversed the assailed order of the trial court by resolving the main issue in the
trial court on its merits, and declaring that the US dollar savings deposit of the petitioner Natividad Nisce with the
PCI Capital cannot be used to offset the loan account of petitioners with respondent bank. In fine, according to
petitioners, the CA preempted the ruling of the RTC on the main issue even before the parties could be given an
opportunity to complete the presentation of their respective evidences. Petitioners point out that in the assailed
Order, the RTC declared that to determine whether respondent had credited petitioners for the amount of
₱4,600,000.00 under PN No. BD-150369 and whether respondent as mortgagee-creditor accelerated the maturities
of the two (2) promissory notes executed by petitioner, there was a need for a full-blown trial and an exhaustive
consideration of the evidence of the parties.

Petitioners further insist that a petition for a writ of certiorari is designed solely to correct errors of jurisdiction and not
errors of judgment, such as errors in the findings and conclusions of the trial court. Petitioners maintain that the trial
court’s erroneous findings and conclusions (according to respondent bank) are not the proper subjects for a petition
for certiorari. Contrary to the findings of the CA, they did not admit in the trial court that they were in default in the
payment of their loan obligations. They had always maintained that they had no outstanding obligation to
respondent bank precisely because their loan account had been offset by the US dollar deposit of petitioner
Natividad Nisce, and that they had made check payments of ₱4,600,000.00 which respondent bank had not credited
in their favor. Likewise erroneous is the CA ruling that they would not suffer irreparable damage or injury if their
properties would be sold at public auction following the extrajudicial foreclosure of the mortgage. Petitioners point
out that their conjugal home stands on the subject properties and would be lost if sold at public auction. Besides,
petitioners aver, the injury to respondent bank resulting from the issuance of a writ of preliminary injunction is amply
secured by the ₱10,000,000.00 injunction bond which they had posted.

For its part, respondent avers that, as held by the CA, the requirement of the filing of a motion for reconsideration of
the assailed Order admits of exceptions, such as where the issue presented in the appellate court is the same issue
presented and resolved by the trial court. It insists that petitioners failed to prove a clear legal right to injunctive
relief; hence, the trial court committed grave abuse of discretion in issuing a writ of preliminary injunction.

Respondent maintains that the sole issue involved in the petition for certiorari of respondent in the CA was whether
or not the trial court committed grave abuse of its discretion in issuing the writ of preliminary injunction. Necessarily,
the CA would have to delve into the circumstances behind such issuance. In so doing, the CA had to consider and
calibrate the testimonial and documentary evidence adduced by the parties. However, the RTC and the CA did not
resolve with finality the threshold factual and legal issue of whether the loan account of petitioners had been paid in
full before it filed its petition for extrajudicial foreclosure of the real estate mortgage.

The Ruling of the Court

The Petition in the

Court of Appeals
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Not Premature

The general rule is that before filing a petition for certiorari under Rule 65 of the Rules of Court, the petitioner is
mandated to comply with a condition precedent: the filing of a motion for reconsideration of the assailed order, and
the subsequent denial of the court a quo. It must be stressed that a petition for certiorari is an extraordinary remedy
and should be filed only as a last resort. The filing of a motion for reconsideration is intended to afford the public
respondent an opportunity to correct any actual error attributed to it by way of re-examination of the legal and factual
issues.55 However, the rule is subject to the following recognized exceptions:

(a) where the order is a patent nullity, as where the court a quo has no jurisdiction; (b) where the questions raised in
the certiorari proceeding have been duly raised and passed upon by the lower court, or are the same as those
raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question
and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the
action is perishable; (d) where, under the circumstances, a motion for reconsideration would be useless; (e) where
petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in a criminal case, relief
from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the
proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings was ex parte or in
which the petitioner had no opportunity to object; and (i) where the issue raised is one purely of law or public interest
is involved.56

As will be shown later, the March 24, 2003 Order of the trial court granting petitioner’s plea for a writ of preliminary
injunction was issued with grave abuse of discretion amounting to excess or lack of jurisdiction and thus a nullity. If
the trial court issues a writ of preliminary injunction despite the absence of proof of a legal right and the injury
sustained by the plaintiff, the writ is a nullity.57

Petitioners Are Not

Entitled to a Writ of
Preliminary Prohibitory
Injunction

Section 3, Rule 58 of the Rules of Court provides that a preliminary injunction may be granted when the following
have been 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 nonperformance 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 a 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 tendering to render the judgment ineffectual.

The grant of a preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should
be made with great caution. The exercise of sound judicial discretion by the lower court should not be interfered with
except in cases of manifest abuse. Injunction is a preservative remedy for the protection of the parties’ substantive
rights and interests. The sole aim of a preliminary injunction is to preserve the status quo within the last actual status
that preceded the pending controversy until the merits of the case can be heard fully. Moreover, a petition for a
preliminary injunction is an equitable remedy, and one who comes to claim for equity must do so with clean hands. It
is to be resorted to by a litigant to prevent or preserve a right or interest where there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any standard of compensation. A petition for a writ of
preliminary injunction rests upon an alleged existence of an emergency or of a special reason for such a writ before
the case can be regularly tried. By issuing a writ of preliminary injunction, the court can thereby prevent a threatened
or continued irreparable injury to the plaintiff before a judgment can be rendered on the claim.58

The plaintiff praying for a writ of preliminary injunction must further establish that he or she has a present and
unmistakable right to be protected; that the facts against which injunction is directed violate such right;59 and there
is a special and paramount necessity for the writ to prevent serious damages. In the absence of proof of a legal right
and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified.
Thus, where the plaintiff’s right is doubtful or disputed, a preliminary injunction is not proper. The possibility of
irreparable damage without proof of an actual existing right is not a ground for a preliminary injunction.60

However, to establish the essential requisites for a preliminary injunction, the evidence to be submitted by the
plaintiff need not be conclusive and complete.61 The plaintiffs are only required to show that they have an ostensible
right to the final relief prayed for in their complaint.62 A writ of preliminary injunction is generally based solely on
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initial or incomplete evidence.63 Such evidence need only be a sampling intended merely to give the court an
evidence of justification for a preliminary injunction pending the decision on the merits of the case, and is not
conclusive of the principal action which has yet to be decided.64

It bears stressing that findings of the trial court granting or denying a petition for a writ of preliminary injunction
based on the evidence on record are merely provisional until after the trial on the merits of the case shall have been
concluded.65

The trial court, in granting or dismissing an application for a writ of preliminary injunction based on the pleadings of
the parties and their respective evidence must state in its order the findings and conclusions based on the evidence
and the law. This is to enable the appellate court to determine whether the trial court committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in resolving, one way or the other, the plea for injunctive relief.
The trial court’s exercise of its judicial discretion whether to grant or deny an application for a writ of preliminary
injunction involves the assessment and evaluation of the evidence, and its findings of facts are ordinarily binding
and conclusive on the appellate court and this Court.66

We agree with respondent’s contention that as creditor-mortgagee, it has the right under the real estate mortgage
contract and the amendment thereto to foreclose extrajudicially, the real estate mortgage and sell the property at
public auction, considering that petitioners had failed to pay their loans, plus interests and other incremental
amounts as provided for in the deeds. Petitioners contend, however, that if respondent bank extrajudicially
forecloses the real estate mortgage and has petitioners’ property sold at public auction for an amount in excess of
the balance of their loan account, petitioner’s contractual and substantive rights under the real estate mortgage
would be violated; in such a case, the extrajudicial foreclosure sale may be enjoined by a writ of preliminary
injunction.

Respondent bank sought the extrajudicial foreclosure of the real estate mortgage and was to sell the property at
public auction for ₱30,533,552.24. The amount is based on Promissory Notes No. 1042793 and BD-150369,
interests, penalty charges, and attorney’s fees, as of January 31, 2003, exclusive of all interests, penalties, other
charges, and foreclosure costs accruing thereafter.67 Petitioners asserted before the trial court that respondents
sought the extrajudicial foreclosure of the mortgaged deed for an amount far in excess of what they owed, because
the latter failed to credit ₱4,600,000.00 paid in checks but without any receipts having been issued therefor; and the
₱9,000,000.00 peso equivalent of the US$20,000.00 deposit of petitioner Natividad Nisce with PCIB under
Passbook No. 83-3041 and Certificate of Deposit No. CD-01612 issued by PCI Capital on July 23, 1984. Petitioners
maintain that the US$20,000.00 dollar deposit should be setoff against their account with respondent against their
loan account, on their claim that respondent is their debtor insofar as said deposit is concerned.

It was the burden of petitioners, as plaintiffs below, to adduce preponderant evidence to prove their claim that
respondent bank was the debtor of petitioner Natividad Nisce relative to her dollar deposit with PCIB, and later
transferred to PCI Capital in Hong Kong, a subsidiary of respondent Bank. Petitioners, however, failed to discharge
their burden.

Under Article 1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. In order that compensation may be proper, petitioners were burdened to
establish the following:

(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.68

Compensation takes effect by operation of law when all the requisites mentioned in Article 1279 of the New Civil
Code are present and extinguishes both debts to the concurrent amount even though the creditors and debtors are
not aware of the compensation. Legal compensation operates even against the will of the interested parties and
even without their consent.69 Such compensation takes place ipso jure; its effects arise on the very day on which all
requisites concur.70

As its minimum, compensation presupposes two persons who, in their own right and as principals, are mutually
indebted to each other respecting equally demandable and liquidated obligations over any of which no retention or
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controversy commenced and communicated in due time to the debtor exists. Compensation, be it legal or
conventional, requires confluence in the parties of the characters of mutual debtors and creditors, although their
rights as such creditors or their obligations as such debtors need not spring from one and the same contract or
transaction.71

Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loans. Under Article 1953, of the same Code, a
person who secures a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay
the creditor an equal amount of the same kind and quality. The relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. Such deposit may be setoff against the obligation of the depositor with the bank
or similar institution.

When petitioner Natividad Nisce deposited her US$20,500.00 with the PCIB on July 19, 1984, PCIB became the
debtor of petitioner. However, when upon petitioner’s request, the amount of US$20,000.00 was transferred to PCI
Capital (which forthwith issued Certificate of Deposit No. 01612), PCI Capital, in turn, became the debtor of
Natividad Nisce. Indeed, a certificate of deposit is a written acknowledgment by a bank or borrower of the receipt of
a sum of money or deposit which the Bank or borrower promises to pay to the depositor, to the order of the
depositor; or to some other person; or to his order whereby the relation of debtor and creditor between the bank and
the depositor is created.72 The issuance of a certificate of deposit in exchange for currency creates a debtor-creditor
relationship.73

Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital [PCI Express Padala (HK) Ltd.]
has an independent and separate juridical personality from that of the respondent Bank, its parent company; hence,
any claim against the subsidiary is not a claim against the parent company and vice versa.74 The evidence on
record shows that PCIB, which had been merged with Equitable Bank, owns almost all of the stocks of PCI Capital.
However, the fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to
justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence
shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those
arising in their respective business.75 A corporation has a separate personality distinct from its stockholders and
from other corporations to which it may be conducted. This separate and distinct personality of a corporation is a
fiction created by law for convenience and to prevent injustice.

This Court, in Martinez v. Court of Appeals76 held that, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the piercing of the
corporate veil. The veil of separate corporate personality may be lifted when, inter alia, the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation; or when the corporation is used as a cloak or cover for fraud or illegality; or to work injustice; or
where necessary to achieve equity or for the protection of the creditors. In those cases where valid grounds exist for
piercing the veil of corporate entity, the corporation will be considered as a mere association of persons. The liability
will directly attach to them.77

The Court likewise declared in the same case that the test in determining the application of the instrumentality or
alter ego doctrine is as follows:

1. Control, not mere majority or complete stock control, but complete dominion, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights;
and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complaint of.

The Court emphasized that the absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation.78

Petitioners failed to adduce sufficient evidence to justify the piercing of the veil of corporate entity and render
respondent Bank liable for the US$20,000.00 deposit of petitioner Natividad Nisce as debtor.

On hindsight, petitioners could have spared themselves the expenses and tribulation of a litigation had they just
withdrawn their deposit from the PCI Capital and remitted the same to respondent. However, petitioner insisted on
their contention of setoff.

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On the ₱4,600,000.00 paid in checks allegedly remitted by petitioners to respondent in partial payment of their loan
account, petitioners failed to adduce in evidence the checks to show that, indeed, the checks were drawn by
petitioners and delivered to respondent, and that respondent was able to cash the checks. The only evidence
adduced by petitioners is a piece of paper listing the serial numbers of the checks and the amount of each check:

PAYMENTS MADE & RECEIVED BY EBC BUT W/O RECEIPTS

1. Dec. 29, 1997 - EBC-0000039462 - ₱2,000,000.00

2. Jan. 22, 1998 - EBC-213016118C - 1,000,000.00

3. Feb. 24, 1998 - UB -0000074619 - 800,000.00

4. Mar. 23, 1998 - EBC-213016121C - 800,000.00

79

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court of Appeals
is AFFIRMED. Costs against petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

ATTESTATION

I attest 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.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is hereby
certified 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
Chief Justice

Footnotes
1 Formerly the Philippine Commercial and International Bank and the Equitable Banking Corporation. The two
banks were later merged under the corporate name "Equitable PCI Bank."

2 Records, pp. 47-50.

3 Id. at 46.

4 Exhibit "K."

5 Exhibit "H."

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6 Supra note 4.

7 Exhibit "L-1."

8 Records, p. 9.

9 Id. at 12-14.

10 Id. at 67-69.

11 Id. at 193.

12 Id. at 186-193.

13 Exhibit "U."

14 Exhibit "I."

15 The cable order reads:

Philippine Commercial International Bank

CABLE ORDER

FULL RATE TELEX PREPARED BY: AUTHORIZED SIGNATURE

NIGHT LETTER Beth Mundo
TESTED BY DATE (Sgd.) Illegible
7.19.84

SEND TO: PCI CAPITAL ASIA LIMITED HONG KONG

TEST ATTN: MR. EDUARDO CARREON/VP

MESSAGE: VALUE TODAY WE CREDITED YOUR ACCOUNT WITH CHASE MANHATTAN

BANK NEW YORK FOR US DOLLARS: TWENTY THOUSAND ONLY (US$20,000.00) AS TIME
DEPOSIT PLACEMENT IN FAVOR OF A. NATIVIDAD PARAS NISCE FOR A PERIOD OF 90
DAYS STOP BY ORDER OF THE SAME UNDER OUR REF NO. PDR TT343 84-90-010
(PASEO DE ROXAS BR) STOP PLS TELEX CONFIRMATION AS WE HAVE INSTRUCTED
CHASE MANHATTAN BANK NY TO CREDIT YOUR ACCOUNT ON EVEN DATE STOP PLS
SEND CERTIFICATE OF DEPOSIT VIA POUCH ATTN: E.P. NERY/AVP STOP THANKS AND
REGARDS FULLSTOP

PCIB PASEO DE ROXAS SUNDRIES

16 Exhibit "U-2."

17 Exhibit "E."

18 Exhibit "A" & "B."

19 Exhibit "U-3."

20 Exhibit "F."

21 Exhibit "U-5."

22 Exhibits "U-5," "U-5-A" to "U-5-FF."

23 Exhibit "U-6."

24 Exhibit "Q-1."

25 Exhibit "U-7."

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26 Exhibit "H."

27 Exhibit "I."

28 Id.

29 Exhibit "J."

30 Exhibit "K."

31 Exhibits "L" & "L-1."

32 TSN, March 4, 2003, p. 82.

33 TSN, April 4, 2003, p. 91.

34 TSN, March 4, 2003, pp. 97-98.

35 Id. at 98.

36 Id. at 99.

37 Exhibit "4-H."

38 Exhibits "4-I" to "4-M."

39 TSN, February 8, 2005, p. 7.

40 Exhibit "8."

41 Exhibit "7."

42 Records, p. 170.

43 Exhibit "B-1"-rebuttal.

44 Exhibit "B-2-A"-rebuttal.

45 Exhibit "C-1"-rebuttal.

46 Exhibit "D-3–A"-rebuttal.

47 Records, pp. 412-416.

48 Id.

49 Id. at 416.

50 Rollo, p. 112.

51 28 Phil. 73 (1914).

52 Penned by Associate Justice Edgardo P. Cruz, with Associate Justices Godardo A. Jacinto and Jose C.
Mendoza (both retired), concurring; rollo, pp. 35-43.
53 Id. at 41-43.

54 Id. at 16.

55 Sevillana v. I.T. (International) Corporation, G.R. No. 99047, April 16, 2001, 356 SCRA 451, 462.

56 Tan, Jr. v. Sandiganbayan, 354 Phil. 467, 469-470 (1998).

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57 Ong Ching Kian Chuan v. Court of Appeals, 415 Phil. 365, 374-375 (2001), citing Developers Group of
Companies, Inc. v. Court of Appeals, 219 SCRA 715 (1993); Inter-Asia Services Corporation v. Court of
Appeals, 331 Phil. 708 (1996).

58 Del Rosario v. Court of Appeals, 325 Phil. 424, 431-432 (1996).

59 Searth Commodities Corporation v. Court of Appeals, G.R. No. 64220, March 31, 1992, 207 SCRA 622,
628.

60 Medina v. Greenfield Development Corporation, G.R. No. 140228, November 19, 2004, 443 SCRA 150,
159.

61 Olalia, et al. v. Hizon, et al., 274 Phil. 66, 74 (1991).

62 Los Baños Rural Bank, Inc. v. Africa, 433 Phil. 930, 940 (2002).

63 La Vista Association, Inc. v. Court of Appeals, 344 Phil. 30, 44 (1997).

64 Saulog v. Court of Appeals, 330 Phil. 590, 602 (1996).

65 Tambaoan v. Court of Appeals, 417 Phil. 638, 694 (2001).

66 Golangco v. Court of Appeals, G.R. No. 124724, December 22, 1997, 283 SCRA 293.

67 Records, pp. 67-69.

68 Article 1279, New Civil Code.

69 Bank of the Philippine Island v. Court of Appeals, 325 Phil. 930. 938 (1996).

70 Republic v. Court of Appeals, G.R. No. 25012, July 22, 1975, 65 SCRA 186, 190.

71 Mavest (U.S.A.) Inc. v. Sampaguita Garment Corporation, G.R. No. 127454, September 21, 2005, 470
SCRA 440, 449.

72 Ma v. Community Bank, 494 F. Supplement 252.

73 Gendrickson v. Buchbinder, 465 F. Supplement 1250.

74 Velarde v. Lopez, Inc., G.R. No. 153886, January 14, 2004, 419 SCRA 422, 431.

75 MR Holdings, Ltd. v. Bajar, G.R. No. 138104, April 11, 2002, 380 SCRA 617, 641.

76 G.R. No. 131673, September 10, 2004, 438 SCRA 130.

77 Id. at 150-151.

78 Id. at 151.

79 Exhibit "U-6."

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