Philippine Development and Industrial Corporation vs. Court of Appeals

A real estate mortgage executed pursuant to a repayment agreement that restructures outstanding loan obligations is valid and binding, and the mortgagor's consent is not vitiated by undue influence where the mortgagor voluntarily negotiated the terms, accepted the benefits of the agreement, and failed to seek annulment of the principal contract; non-redemption within the statutory period bars the mortgagor from enjoining consolidation of title in the mortgagee's name.

PDIC is a domestic corporation that obtained credit facilities from EPCIB (now Banco De Oro Unibank, Inc.) in 1996 to fund its Sta. Ana Villas Condominium Project in Sta. Ana, Manila. The credit line consisted of a secured credit line and a clean credit line, each in the amount of ₱100,000,000.00, secured by a real estate mortgage over the project's mother title, TCT No. 230861. When PDIC's drawn amounts became past due, the parties entered into a Repayment Agreement in June 2000, under which PDIC acknowledged its outstanding obligations and undertook to execute substitute mortgages over 29 condominium units and a parcel of land in Meycauayan, Bulacan, in exchange for the release of the original mortgage on the mother title. The legal framework governing the foreclosure is Act No. 3135, as amended, which regulates the extrajudicial sale of property under special powers inserted in or annexed to real estate mortgages.

In 1996, PDIC applied for and was granted a credit line by EPCIB, consisting of a secured credit line and a clean credit line, each in the amount of ₱100,000,000.00, to fund its Sta. Ana Villas Condominium Project in Sta. Ana, Manila. The grant was embodied in a Letter of Approval dated August 8, 1996. As security, PDIC executed a Real Estate Mortgage dated September 16, 1997 over the parcel of land covered by TCT No. 230861, the mother title of the condominium project. PDIC thereafter availed of the full ₱100,000,000.00 clean credit line.

In January 1997, PDIC requested EPCIB to release funds from the secured credit line, as the clean credit line was already fully utilized. After evaluating PDIC's account and considering market and economic conditions, EPCIB decided to defer additional credit accommodation and likewise refused to release the ₱45,000,000.00 subsequently requested by PDIC to complete the project. PDIC was thus constrained to seek financing from other banks at higher interest rates. The amounts previously drawn by PDIC had become past due, and EPCIB intended to take legal action. PDIC, however, requested EPCIB to defer legal action and allow it to make payments under terms acceptable to the bank.

In June 2000, the parties entered into a Repayment Agreement, under which PDIC acknowledged its indebtedness to EPCIB in the aggregate amount of ₱26,222,098.23 and US$2,777,686.69 as of November 30, 1999, and that these obligations had become past due. On June 8, 2000, pursuant to the Repayment Agreement, PDIC executed real estate mortgages over 29 condominium units of the condominium project and a parcel of land in Meycauayan, Bulacan covered by TCT No. 283102. In turn, EPCIB released the original REM dated September 16, 1997 covering the mother title. When PDIC defaulted under the Repayment Agreement, EPCIB sent a demand letter dated September 4, 2002. PDIC offered to settle by way of dacion en pago, but the parties failed to agree on the terms. EPCIB then initiated extrajudicial foreclosure proceedings.

The extrajudicial sale was scheduled on April 21, 2003, with notice received by PDIC on March 3, 2003. On April 11, 2003, PDIC filed a complaint before the RTC of Makati City, which was dismissed for lack of jurisdiction. On April 21, 2003, the mortgaged properties were sold to EPCIB as the sole bidder, and a Certificate of Sale was issued by Sheriff Dait. On June 16, 2003, PDIC filed before the RTC of Manila a complaint for annulment of mortgage and foreclosure sale with application for TRO and preliminary injunction, alleging that the REMs dated June 8, 2000 were void, having been executed against its will through EPCIB's machinations and undue influence. PDIC claimed that EPCIB's unjustified refusal to release funds from the secured credit line and its refusal to release the mother title unless substitute mortgages were executed effectively trapped PDIC into executing the REMs under duress.

The RTC Manila issued a 72-hour TRO on June 16, 2003, extended it on June 20, 2003, and granted a writ of preliminary injunction on July 7, 2003. After trial on the merits, the RTC Manila rendered a Decision on June 30, 2015, dismissing PDIC's case, declaring the foreclosure sale valid, and lifting the writ of preliminary injunction. The RTC found that PDIC was not deceived or subjected to undue influence, noting that it was PDIC itself that requested the deferment of legal action and negotiated the terms of the Repayment Agreement. The RTC likewise sustained the validity of the extrajudicial foreclosure sale notwithstanding the presence of only one bidder, holding that the two-bidder requirement under Supreme Court Circular A.M. No. 99-10-05-0 is found in Presidential Decree No. 1594, which governs government infrastructure contracts, not in Act No. 3135. The CA affirmed the RTC's decision on April 23, 2018, finding no merit in PDIC's contention that its consent was vitiated by undue influence.

• Clear Legal Right to Injunctive Relief: PDIC insisted that it had a clear legal right to retain title over the subject properties until final judgment, arguing that the last, actual, peaceable, and uncontested situation was its ownership and possession, that the validity of the REMs and foreclosure remained contested on appeal, and that the CA had confirmed in a separate proceeding (CA-G.R. No. 95063) that PDIC's consent was vitiated in the execution of the Repayment Agreement.
• Vitiated Consent: PDIC maintained that the subject REMs were void for having been executed against its will, consummated on account of undue influence exerted by EPCIB. It argued that EPCIB's wanton breach of the credit line grant by unilaterally refusing to release proceeds from the secured credit line, coupled with its refusal to release the mother title, engineered a situation in bad faith to trap PDIC into executing the Repayment Agreement and the substitute mortgages under duress.
• Invalidity of Foreclosure: PDIC surmised that having established the invalidity of the REMs, the subsequent foreclosure, consolidation of title, and implementation of the writ of possession must likewise be declared null and void for having no basis in fact and in law.

• No Clear Legal Right: EPCIB countered that the CA's denial of injunctive relief was proper, as PDIC had no clear and unmistakable legal right to prevent consolidation of title, the RTC Manila having already sustained the validity of the REMs in the decision under appeal.
• Right to Foreclose and Non-Redemption: EPCIB argued that its right to foreclose necessarily arose when PDIC failed to settle its loan obligations secured by the REMs, and that PDIC did not exercise its right to redeem the subject properties, thus having no right to enjoin consolidation of title.
• No Grave and Irreparable Damage: EPCIB contended that PDIC failed to show it would suffer grave and irreparable damage, its claims of inconvenience, expense, and loss of reputation being merely speculative, and that it was the bank that stood to suffer grave injury if deprived of its ownership rights over the subject properties.

• Grave Abuse of Discretion — Injunctive Relief: Whether the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in denying PDIC's application for the issuance of a TRO to restrain EPCIB from consolidating its title over the subject properties.
• Validity of REMs and Foreclosure: Whether the CA erred in sustaining the RTC Manila's decision finding that the REMs over PDIC's condominium units and Bulacan property and the subsequent extrajudicial foreclosure sale are valid.

• Grave Abuse of Discretion — Injunctive Relief: No. The CA did not act with grave abuse of discretion in denying the application for injunctive relief, PDIC having failed to demonstrate a clear legal right to the protection of a TRO or WPI, especially as it never redeemed the foreclosed properties within the redemption period.
• Validity of REMs and Foreclosure: No. The CA did not err in sustaining the RTC's ruling, the subject REMs containing all the elements of a valid contract of mortgage, PDIC's consent not having been vitiated by undue influence, and the foreclosure being a necessary consequence of non-payment of the secured obligations.

• Grave Abuse of Discretion — Injunctive Relief: Under Section 3, Rule 58 of the Rules of Court, a preliminary injunction may be granted only when the applicant is entitled to the relief demanded, the commission of the act complained of would probably work injustice, or a party is doing acts probably in violation of the applicant's rights. The applicant must show an actual and existing substantial right — a right in esse — directly threatened by the act sought to be enjoined, and that the invasion of the right is material and substantial with urgent and paramount necessity for the writ. Where the plaintiff's right is doubtful or disputed, a preliminary injunction is not proper. In this case, PDIC's claim of a clear legal right to retain title was unwarranted. In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose and have the property sold. The purchaser in an extrajudicial foreclosure sale is entitled to possession of the property, and the pendency of an action for annulment does not stay the issuance of a writ of possession. As the sole bidder in the foreclosure sale, EPCIB obtained a better right to possession. Critically, PDIC never exercised its right to redeem within the redemption period, and the filing of an action assailing the validity of the mortgage does not interrupt that period. PDIC's failure to redeem had lost for it any right in the properties, and consolidation of title in EPCIB's name during the pendency of the appeal would not cause irreparable injury warranting injunctive protection.

• Validity of REMs and Foreclosure: The terms of the subject REMs were clear and unambiguous, executed to secure all amounts payable by PDIC under the Repayment Agreement. Under the Repayment Agreement, PDIC expressly undertook to execute and deliver a REM as security for its existing loan obligations, and EPCIB agreed to release the original REM on the mother title upon due execution of the new mortgages. The execution of the Repayment Agreement constituted a restructuring of PDIC's debt, which necessarily superseded any distinctions between the clean and secured credit lines under the original Letter of Approval. While EPCIB's refusal to release the mother title may have compelled PDIC to execute the substitute REMs, such compulsion cannot be equated with undue influence. Undue influence requires that the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy their free agency. PDIC's acknowledgment of its obligations, its request to defer legal action, and its voluntary execution of the REMs indicated a fairly equal bargaining position. PDIC even benefitted from the Repayment Agreement by obtaining a more manageable payment schedule and a reprieve from legal action. Its acceptance of the release of the original mortgage and its subsequent offer of dacion en pago constituted adoption and affirmation of the Repayment Agreement. Even assuming arguendo that PDIC was forced into executing the agreements, the contract would only be voidable, and the proper remedy would have been to annul it — which PDIC never sought. A mortgage is a mere accessory contract whose validity depends on the principal contract; since PDIC never questioned the validity of the Repayment Agreement, it cannot escape the consequences of the mortgage. EPCIB's right to foreclose upon default was clearly stipulated in the REMs, and foreclosure is a necessary consequence of non-payment of mortgage indebtedness. PDIC's failure to redeem the foreclosed properties made consolidation of title in EPCIB's name a natural legal consequence.

• Requirements for Preliminary Injunction — A preliminary injunction may be granted only when the applicant demonstrates an actual and existing substantial right (a right in esse) directly threatened by the act sought to be enjoined, that the invasion of the right is material and substantial, and that there is an urgent and paramount necessity for the writ to prevent serious damage. The writ will not issue where the plaintiff's right is doubtful or disputed, and the possibility of irreparable damage without proof of an actual existing right is not a ground for its issuance. The Court applied this doctrine by finding that PDIC had no clear legal right to enjoin consolidation of title, as it had failed to redeem the foreclosed properties and the validity of the REMs had been upheld by both the RTC and the CA.

• Undue Influence (Civil Code Article 1337) — Undue influence is present when a person takes improper advantage of their power over the will of another, depriving the latter of a reasonable freedom of choice. The influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy their free agency, making them express the will of another rather than their own. The Court found that PDIC's voluntary negotiation of the Repayment Agreement, its acknowledgment of its obligations, and its acceptance of benefits thereunder negated any claim that its free agency was destroyed.

• Mortgage as an Accessory Contract — A mortgage is a mere accessory contract whose validity depends on the validity of the loan secured by it. The consideration of the mortgage contract is the same as that of the principal contract, and the debtor cannot escape the consequences of the mortgage once the validity of the loan is upheld. The Court applied this by noting that PDIC never questioned the validity of the Repayment Agreement from which the REMs arose, and thus could not escape the consequences of the mortgage contracts.

• Estoppel by Acceptance of Benefits — Parties who have validly executed a contract and availed themselves of its benefits may not, to escape their contractual obligations, invoke irregularities in its execution to seek its invalidation. A party cannot deny a contract's validity after enjoying its benefits. The Court applied this doctrine by emphasizing that PDIC's acceptance of the release of the original mortgage on the mother title and its offer of dacion en pago constituted adoption and affirmation of the Repayment Agreement and the REMs.

• Non-Interruption of Redemption Period — The period of redemption is not interrupted by the filing of an action assailing the validity of the mortgage. At the expiration of the redemption period, the mortgagee who acquires the property at the foreclosure sale may proceed to have title consolidated and a writ of possession issued. The Court applied this by holding that PDIC's failure to redeem within the period had lost for it any right in the properties, regardless of the pending annulment case.

• "Where the plaintiff's right is doubtful or disputed, such as in this case, 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." — This passage articulates the controlling rule on when injunctive relief is unavailable, directly applying it to PDIC's situation where the validity of the REMs was contested and no clear legal right was demonstrated.

• "There is undue influence when a person takes improper advantage of their power over the will of another, depriving the latter of a reasonable freedom of choice. In other words, for undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy their free agency, making them express the will of another rather than their own." — This passage defines the canonical formulation of undue influence under Article 1337 of the Civil Code, establishing the threshold that PDIC's evidence failed to meet.

• "Parties who have validly executed a contract and have availed themselves of its benefits may not, to escape their contractual obligations, invoke irregularities in its execution to seek its invalidation." — This passage states the doctrine of estoppel by acceptance of benefits, which the Court applied to bar PDIC from challenging the REMs after having accepted the release of the original mortgage and offered dacion en pago.

• "The period of redemption is not interrupted by the filing of an action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure sale can proceed to have the title consolidated in their name and a writ of possession issued in their favor." — This passage establishes the rule that filing an annulment case does not toll the redemption period, a principle critical to the Court's denial of injunctive relief.

• Sps. Lim vs. Court of Appeals, 763 Phil. 328 (2015) — Cited as controlling authority for the requisites of an injunctive writ: the applicant must show a right to be protected directly threatened by the act sought to be enjoined, a material and substantial invasion of that right, and an urgent and paramount necessity for the writ.

• Evy Construction and Development Corp. vs. Valiant Roll Forming Sales Corp., 820 Phil. 123 (2017) — Followed for the principle that an injunctive writ is granted only to applicants with actual and existing substantial rights (rights in esse), and will not issue to applicants whose rights are merely contingent.

• Sps. Dulnuan vs. Metropolitan Bank & Trust Co., 763 Phil. 398 (2015) — Cited for the definition of grave abuse of discretion in the context of injunctive relief, as a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction.

• Development Bank of the Philippines vs. Court of Appeals, 526 Phil. 525 (2006) — Followed for the doctrine that a mortgage is a mere accessory contract whose validity depends on the principal contract, and for the definition of restructuring as applied to debt.

• Sps. Carpo vs. Chua, 508 Phil. 462 (2005) — Cited for the definition of undue influence, specifically the requirement that the influence must overpower the mind of the contracting party and destroy their free agency.

• Sps. Binua vs. Ong, 736 Phil. 698 (2014) — Cited for the rule that in a Rule 45 petition for review, only questions of law may be raised, and findings of fact by the CA supported by substantial evidence are conclusive and binding.

• Section 3, Rule 58, Rules of Court — Enumerates the grounds for the issuance of a preliminary injunction. Applied to determine that PDIC failed to meet the requisites, as it could not show a clear legal right entitled to protection.

• Article 1337, Civil Code — Defines undue influence as taking improper advantage of one's power over the will of another, depriving the latter of a reasonable freedom of choice. Applied to reject PDIC's claim of vitiated consent, as its voluntary negotiation and acceptance of benefits negated the elements of undue influence.

• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Applied to emphasize that PDIC must honor its contractual obligations under the Repayment Agreement and the REMs.

• Article 2087, Civil Code — States that it is of the essence of the contract of mortgage that when the principal obligation becomes due, the things in which the mortgage consists may be alienated for payment to the creditor. Applied to uphold EPCIB's right to foreclose upon PDIC's default.

• Article 2126, Civil Code — Provides that the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. Applied to support the conclusion that EPCIB, as purchaser at the foreclosure sale, obtained a better right to possession.

• Act No. 3135, as amended — Regulates the extrajudicial sale of property under special powers inserted in or annexed to real estate mortgages. Applied to sustain the validity of the foreclosure sale, including the acceptance of a single bidder, as the two-bidder requirement is found in P.D. No. 1594 (government infrastructure contracts), not in Act No. 3135.

Leonen (Chairperson), Hernando, Inting, and J. Lopez, JJ., concurred.