G.R. No.

157163               June 25, 2014

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
HON. JUDGE AGAPITO L. HONTANOSAS, JR., REGIONAL TRIAL COURT,
BRANCH 16, CEBU CITY, SILVERIO BORBON, SPOUSES XERXES AND ERLINDA
FACULTAD, AND XM FACULTAD & DEVELOPMENT CORPORATION, Respondents.

BERSAMIN, J.:

FACTS:

 Injunction should not issue except upon a clear showing that the applicant has a right in
esse to be protected, and that the acts sought to be enjoined are violative of such right. A
preliminary injunction should not determine the merits of a case, or decide controverted
facts, for, being a preventive remedy, it only seeks to prevent threatened wrong, further
injury, and irreparable harm or injustice until the rights of the parties can be settled.

 On May 22, 2001, respondents Spouses Silverio and Zosima Borbon, Spouses Xerxes
and Erlinda Facultad,and XM Facultad and Development Corporation commenced Civil
Case No. CEB-26468 to seek the declaration of the nullity of the promissory notes, real
estate and chattel mortgages and continuing surety agreement they had executed in favor
of the petitioner. They further sought damages and attorney’s fees, and applied for a
temporary restraining order (TRO) or writ of preliminary injunction to prevent the
petitioner from foreclosing on the mortgages against their properties.

 The complaint alleged that the respondents had obtained a loan from the petitioner, and
had executed promissory notes binding themselves, jointly and severally, to pay the sum
borrowed; that as security for the payment of the loan, they had constituted real estate
mortgages on several parcels of land in favor of the petitioner; and that they had been
made to sign a continuing surety agreement and a chattel mortgage on their Mitsubishi
Pajero.

 It appears that the respondents’ obligation to the petitioner had reached ₱17,983,191.49,
but they had only been able to pay ₱13 Million because they had been adversely affected
by the economic turmoil in Asia in 1997. The petitioner required them to issue postdated
checks to cover the loan under threat of foreclosing on the mortgages. Thus, the
complaint sought a TRO or a writ of preliminary injunction to stay the threatened
foreclosure.

COURT DECISION:

RTC RULING:

On June 6, 2001, the petitioner filed its answer with affirmative defenses and counterclaim, as
well as its opposition to the issuance of the writ of preliminary injunction, contending that the
foreclosure of the mortgages was within its legal right to do.2

Also on June 6, 2001 the petitioner filed a motion to dismiss reiterating its affirmative defenses,
to wit:

I) THAT THE COMPLAINT SHOULD BE DISMISSED BECAUSE VENUE IS

IMPROPERLY LAID. (RULE 16, SECTION 1, PARAGRAPH (C);

II) THAT THE COURT HAS NOTACQUIRED JURISDICTION OVER THE

SUBJECT MATTER OFTHE CLAIM BECAUSE THE PROPER LEGAL FEES HAS
NOT BEEN PAID IN ACCORDANCE WITH RULE 14, OF THE RULES OF COURT
AND CIRCULAR NO. 7 OF THE SUPREME COURT, SERIES OF 1988;

III) THAT ZOSIMA BORBON’S COMPLAINT SHOULD BE DISMISSED BECAUSE

PLAINTIFF ZOSIMA BORBON HAS NO LEGAL PERSONALITY TO SUE BEING
 DECEASED, SPOUSE OF PLAINTIFF SILVERIO BORBON. (RULE 16, SECTION
1(d);

IV) THAT THE ESTATE OF ZOSIMA BORBON BEING AN INDISPENSABLE

PARTY, THE COMPLAINT SHOULD BE AMENDED TO INCLUDE THE ESTATE
OF ZOSIMA BORBON. (RULE 16, SECTION 1(j);

V) THAT THE COMPLAINT OFPLAINTIFF XM FACULTAD AND

DEVELOPMENT CORPORATION, SHOULD BE DISMISSED BECAUSE THERE IS
NO BOARD RESOLUTION AUTHORIZING THE FILING OF THIS CASE. [RULE
16, SECTION 1 (d)];

VI) THAT THE PLEADING ASSERTING THE CLAIM STATES NO CAUSE OF

ACTION.3

On July 5, 2001, the RTC denied the petitioner’s motion to dismiss for being unmeritorious,4 but
granted the respondents’ application for preliminary injunction,5 to wit:

WHEREFORE, premises considered, the application for preliminary injunction is GRANTED.

Upon filing by the plaintiff applicants of a bond in the amount of ₱2,000,000 in favor of
defendant to the effect that applicants will pay to adverse party all damages which it may sustain
by reason of the injunction, let a writ of preliminary injunction be issued directing the defendant
and its agents or representatives, to cease and desist from commencing foreclosure and sale
proceedings of the mortgaged properties; from taking possession of the Mitsubishi Pajero subject
of the chattel mortgage; and from using the questioned post-dated checks as evidence for the
filing of complaint against plaintiffs Facultad for violation of Batas Pambansa Blg. 22, while the
present case is pending litigation.

This writ of preliminary injunction shall continue until further orders from the Court.

Ruling of the CA

Dissatisfied, the petitioner assailed the orders of the RTC by petition for certiorari in the CA,
submitting the lone issue of:

WHETHER OR NOT THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF

DISCRETION WHEN IT ISSUED AN ORDER DENYING THE MOTION TO DISMISS AND
GRANTING THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.

On July 9, 2002, however, the CA rendered the adverse decision under review, to wit:

WHEREFORE, premises considered, the assailed order of the Regional Trial Court (RTC) of
Cebu City, Branch 16 dated July 5, 2001 and August 22, 2001 are hereby AFFIRMED. Let the
original records of this case be remanded immediately to the court a quo for further proceedings.
SO ORDERED.8

 The CA denied the petitioner’s motion for reconsideration through its resolution of
February 12, 2003.13

ISSUES:

Hence, this appeal, with the petitioner positing as follows:

1. Whether or not Civil Case No. CEB-26468 should be dismissed for (a) non-payment of
the correct amount of docket fee; and (b) improper venue;14

2. Whether or not the issuance of the writ of preliminary injunction against the petitioner,
its agents and representatives, was in order.
RULING:

The appeal is partly meritorious.

1. Civil Case No. CEB-26468 was a personal action; hence, venue was properly laid

The CA and the RTC held that Civil Case No. CEB-26468, being for the declaration of the
nullity of a contract of loan and its accompanying continuing surety agreement, and the real
estate and chattel mortgages, was a personal action; hence, its filing in Cebu City, the place of
business of one of the plaintiffs, was correct under Section 2, Rule 4 of the Rules of Court.

The petitioner contends, however, that Civil Case No. CEB-26468 was a real action that should
be commenced and tried in the proper court having jurisdiction over the area wherein the real
property involved, or a portion thereof, was situated; and that consequently the filing and docket
fees for the complaint should be based on the value of the property as stated in the certificate of
sale attached thereto.

We sustain the lower courts’ holdings.

The determinants of whether an action is of a real or a personal nature have been fixed by the
Rules of Court and relevant jurisprudence. According to Section 1, Rule 4 of the Rules of Court,
a real action is one that affects title to or possession of real property, or an interest therein.

 Based on the afore quoted allegations of the complaint in Civil Case No. CEB-26468, the
respondents seek the nullification of the promissory notes, continuing surety agreement,
checks and mortgage agreements for being executed against their will and vitiated by
irregularities, not the recovery of the possession or title to the properties burdened by the
mortgages.

 Well-settled is the rule that an action to annul a contract of loan and its accessory real
estate mortgage is a personal action. In a personal action, the plaintiff seeks the recovery
of personal property, the enforcement of a contractor the recovery of damages. In
contrast, in a real action, the plaintiff seeks the recovery of real property, or, as indicated
in Section 2 (a), Rule 4 of the then Rules of Court, a real action is an action affecting title
to real property or for the recovery of possession, or for partition or condemnation of, or
foreclosure of mortgage on, real property.

 In the same vein, the action for annulment of a real estate mortgage in the present case
must fall under Section 2 of Rule 4, to wit:

o SEC. 2. Venue of personal actions. – All other actions may be commenced and
tried where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of a
nonresident defendant where he may be found, at the election of the plaintiff.

 Thus, Pasig City, where the parties reside, is the proper venue of the action to nullify the
subject loan and real estate mortgage contracts. The Court of Appeals committed no
reversible error in upholding the orders of the Regional Trial Court denying petitioner’s
motion to dismiss the case on the ground of improper venue.

2. Respondents were not entitled to the writ of preliminary injunction

In their application for the issuance of the writ of preliminary injunction, the respondents averred
that the nullity of the loan and mortgage agreements entitled them to the relief of enjoining the
petitioner from: (a) foreclosing the real estate and chattel mortgages; (b)taking possession, by
replevin, of the Mitsubishi Pajero; and (c) depositing the postdated checks; that respondents
Spouses Facultad would suffer injustice and irreparable injury should the petitioner foreclose the
mortgages and file criminal complaints for violation of Batas Pambansa Blg.22 against them; and
that such threatened acts, if done, would render ineffectual the judgment of the trial court.20 They
prayed that the petitioner be enjoined from doing acts that would disturb their material
possession of the mortgaged properties, manifesting their willingness to post a bond for the
issuance of the writ of preliminary injunction.21

As mentioned, the RTC issued the writ of preliminary injunction on July 16, 2001 based on the
foregoing allegations of the respondents’ application,22 and the CA upheld the issuance in its
assailed July 9, 2002 decision.23

The petitioner submits that the issuance of the writ of preliminary injunction constituted a
violation of Administrative Circular (AC) No. 07-99 dated June 25, 1999, and thus subjected
respondent Judge to administrative sanction;24 that injunction could not issue to enjoin the
prosecution of the criminal offenses because such prosecution was imbued with public
interest;25 and that the petitioner, as the mortgagee, could not be prohibited from exercising its
legal right to foreclose the mortgages because foreclosure of the mortgages was its proper
remedy under the law.26

A preliminary injunction is an order granted at any stage of an action prior to the judgment or
final order requiring a party or a court, agency or a person to refrain from a particular act or
acts.27 It is the "strong arm of equity," an extraordinary peremptory remedy that must be used
with extreme caution, affecting as it does the respective rights of the parties.28 The requirements
for the issuance of a writ of preliminary injunction or TRO are enumerated in Section 3, Rule 58
of the Rules of Court, to wit:

Section 3. Grounds for issuance of preliminary injunction. - 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, eitherfor 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 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 tending to render the

As with all equitable remedies, injunction must be issued only at the instance of a party who
possesses sufficient interest in or title to the right or the property sought to be protected. It is
proper only when the applicant appears to be entitled to the relief demanded in the complaint,
which must aver the existence of the right and the violation of the right, or whose averments
must in the minimum constitute a prima facies howing of a right to the final relief sought.
Accordingly, the conditions for the issuance of the injunctive writ are: (a) that the right to be
protected exists prima facie; (b) that the act sought to be enjoined is violative of that right; and
(c) that there is an urgent and paramount necessity for the writ to prevent serious damage. An
injunction will not issue to protect a right not in esse, or a right which is merely contingent and
may never arise; or to restrain an act which does not give rise to a cause of action; or to prevent
the perpetration of an act prohibited by statute. Indeed, a right, to be protected by injunction,
means a right clearly founded on or granted by law or is enforceable as a matter of law. (Bold
emphasis supplied)

Under the circumstances averred in the complaint in Civil Case No. CEB-26468, the issuance of
the writ of preliminary injunction upon the application of the respondents was improper. They
had admittedly constituted the real estate and chattel mortgages to secure the performance of
their loan obligation to the petitioner, and, as such, they were fully aware of the consequences on
their rights in the properties given as collaterals should the loan secured be unpaid. The
foreclosure of the mortgages would be the remedy provided by law for the mortgagee to exact
payment.30 In fact, they did not dispute the petitioner’s allegations that they had not fully paid
their obligation, and that Civil Case No. CEB-26468 was precisely brought by them in order to
stave off the impending foreclosure of the mortgages based on their claim that they had been
compelled to sign pre-printed standard bank loan forms and mortgage agreements.

 It is also basic that the power to issue a writ of injunction is to be exercised only where
the reason and necessity therefor are clearly established, and only in cases reasonably free
from doubt.35 For, truly, a preliminary injunction should not determine the merits of a
case,36 or decide controverted facts.37 As a preventive remedy, injunction only seeks to
prevent threatened wrong,38 further injury,39 and irreparable harm40 or injustice41 until the
rights of the parties can be settled.

 Every court should remember that an injunction should not be granted lightly or
precipitately because it is a limitation upon the freedom of the defendant's action. It
should be granted only when the court is fully satisfied that the law permits it and the
emergency demands it,50 for no power exists whose exercise is more delicate, which
requires greater caution and deliberation, or is more dangerous in a doubtful case, than
the issuance of an injunction.51

CONCLUSION:

WHEREFORE, the Court PARTIALLY GRANTS the petition for review on certiorari;
MODIFIES the decision promulgated on July 9, 2002 by annulling and setting aside the writ
of preliminary injunction in Civil Case No. CEB-26468 issued by the Regional Trial Court,
Branch 16, in Cebu City for being devoid of factual and legal bases; ORDERS the Regional
Trial Court, Branch 16, in Cebu City to proceed with dispatch in Civil Case No. CEB-26468;
and DIRECTS the respondents to pay the costs of suit.

Notes: under Rule 58 Of Rules Of Court, provides a Writ of Preliminary

Injunction to issue, the following requisites must be present:

(1) the existence of a clear and unmistakable right that must be

protected, and

(2) an urgent and paramount necessity for the writ to prevent serious
damage.