No clear legal right

A writ of preliminary injunction may be issued only upon clear showing by the applicant of the existence of the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; and (3) an urgent and paramount necessity for the writ to prevent serious damage. This case of a gas manufacturer (TPMC) is an illustration of the absence of a clear and unmistakable right to be protected.

On Dec. 3, 1991, TPMC obtained from a bank (PNB) an Omnibus Line of P35 million and a 5-year term loan of P14 million. To secure the loan, TPMC executed a Real Estate Mortgage (REM) over its parcel of land in Parañaque City, covered by Transfer Certificate of Title No. 122533 under which PNB can extrajudicially foreclose the mortgage as the duly constituted attorney-in-fact of TPMC in case the latter defaults on its obligations. The REM also provides that the property mortgage will stand as a security for any and all other obligations of TPMC to PNB, for whatever kind or nature, and regardless of whether the obligations had been contracted before, during or after the constitution of the mortgage.

On several occasions, TPMC’s loan had been increased, renewed and restructured upon its request whenever it could not pay its obligations on their due dates. Finally, when the loan matured, PNB sent collection letters to TPMC. In reply TPMC proposed to pay its obligations by way of dacion en pago conveying TCT No. 122533.

But instead of accepting the offer, PNB filed a petition for extrajudicial foreclosure of the REM in the RTC of Parañaque City on Aug. 16, 2001.  The auction sale was set on Sept. 20, 2001.

But a day before the auction sale, TPMC filed with the Parañaque City RTC a complaint for annulment of extrajudicial foreclosure sale, with a preliminary injunction alleging that its debt has already been extinguished by its offer of dacion en pago.  The RTC granted the TRO and subsequently also issued a writ of preliminary injunction enjoining the extrajudicial foreclosure sale of the mortgaged property. PNB questioned the RTC’s issuance of the writ as a grave abuse of discretion. It contended that the proposal of TPMC to pay by way of dacion en pago did not extinguish its obligation as it was not accepted by PNB. Hence the extrajudicial foreclosure sale was proper. Was PNB correct?

Yes. TPMC has no clear legal right to an injunctive relief because its proposal to pay by way of dacion en pago did not extinguish its obligation.  Undeniably, TPMC’s proposal to pay by way of dacion en pago was not accepted by PNB.

Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. It is only when the thing offered as an equivalent is accepted by the creditor that novation takes place, thereby, totally extinguishing the debt.

Thus, the unaccepted proposal neither novates the parties’ mortgage contract nor suspends its execution as there was no meeting of the minds between the parties on whether the loan will be extinguished by way of dacion en pago. Necessarily, upon TPMC’s default in its obligations, the foreclosure of the REM becomes a matter of right on the part of PNB, for such is the purpose of requiring security for the loans (Technogas Philippines Mfg. Corp. vs. Philippine National Bank, G.R. No. 161004, April 14, 2008).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call tel. 7249445.

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