In disputes involving foreclosure, a preliminary injunction—a court order preventing certain actions—is only granted when there’s a clear demonstration that the mortgagor’s rights are being unmistakably violated. This means a homeowner seeking to stop a foreclosure must convincingly show that the bank is acting unlawfully. The Supreme Court decision in Spouses Humberto P. Delos Santos and Carmencita M. Delos Santos v. Metropolitan Bank and Trust Company clarifies the high bar for obtaining such an injunction. The court emphasized that a mortgagor already in default—failing to meet their loan obligations—generally cannot prevent a foreclosure, reinforcing the lender’s right to proceed when the borrower defaults on the loan terms.

Mortgage Disputes: Can Escalated Interest Rates Halt Foreclosure?

The case of Spouses Humberto P. Delos Santos and Carmencita M. Delos Santos v. Metropolitan Bank and Trust Company arose from a loan dispute between the Delos Santos spouses and Metrobank. The spouses had taken out loans totaling P12,000,000.00 from Metrobank to construct a hotel on their property in Davao City. These loans were secured by a real estate mortgage on the property. The loan agreements stipulated interest rates that were fixed for the first year but subject to escalation or de-escalation based on market conditions. The agreements also stated that the entire loan amount would become due upon default in any installment payment. When the spouses defaulted on their payments, Metrobank initiated extrajudicial foreclosure proceedings on the mortgaged property. This action led the spouses to file a complaint with the Regional Trial Court (RTC), seeking damages and a determination of the correct interest rates, while requesting a preliminary injunction to halt the foreclosure sale. The central legal question was whether the spouses were entitled to a preliminary injunction to prevent the foreclosure, given their default and the presence of escalation clauses in their loan agreements.

The spouses argued that Metrobank had no right to foreclose because they were not in default, claiming that the bank had improperly imposed and increased interest rates without basis. They also alleged overpayment of interest, which they contended should have been applied to their outstanding obligations. The RTC initially granted a temporary restraining order but later dissolved it and denied the preliminary injunction, a decision that was upheld by the Court of Appeals (CA). The CA ruled that the spouses had failed to demonstrate a clear right to the injunction, especially since they did not oppose Metrobank’s motion for reconsideration and were remiss in updating their installment payments. The Supreme Court then reviewed the CA’s decision, focusing on whether the RTC had committed grave abuse of discretion in denying the injunction and whether the spouses had a valid basis for preventing the foreclosure. The Supreme Court ultimately sided with Metrobank, denying the petition for review.

The Supreme Court thoroughly examined the propriety of issuing a writ of certiorari and a preliminary injunction in this case. The Court emphasized that a writ of certiorari is a limited remedy used to correct errors of jurisdiction, not merely to rectify any error made by a lower court. The Court referred to the case of Estares v. Court of Appeals, stating:

The writ of certiorari – being a remedy narrow in scope and inflexible in character, whose purpose is to keep an inferior court within the bounds of its jurisdiction, or to prevent an inferior court from committing such grave abuse of discretion amounting to excess of jurisdiction, or to relieve parties from arbitrary acts of courts (i.e., acts that courts have no power or authority in law to perform)  – is not a general utility tool in the legal workshop, and cannot be issued to correct every error committed by a lower court.

The Supreme Court highlighted that to justify the issuance of certiorari, there must be a clear showing that the lower court acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. Additionally, it must be proven that there is no other plain, speedy, and adequate remedy available in the ordinary course of law. The Court found that the spouses failed to demonstrate that the RTC acted with grave abuse of discretion. Merely disagreeing with the RTC’s findings was insufficient to warrant the issuance of certiorari. The Court also reiterated the principle that the sole office of the writ of certiorari is the correction of errors of jurisdiction, including grave abuse of discretion amounting to lack of jurisdiction.

Building on this principle, the Court addressed the denial of the preliminary injunction. The Supreme Court noted that the foreclosure of a mortgage is a necessary consequence of the non-payment of the secured obligation. The Court stated that, according to the case of Equitable PCI Bank, Inc. v. OJ-Mark Trading, Inc.:

Where the parties have stipulated in their agreement, mortgage contract and promissory note that the mortgagee is authorized to foreclose the mortgage upon the mortgagor’s default, the mortgagee has a clear right to the foreclosure in case of the mortgagor’s default. Thereby, the issuance of a writ of preliminary injunction upon the application of the mortgagor will be improper.

The Court found that the spouses were undeniably in default of their obligations, giving Metrobank the right to proceed with the foreclosure. The Court stressed that an injunction would improperly limit Metrobank’s freedom of action and that the RTC was correct in refusing to grant it. According to the case of City Government of Butuan v. Consolidated Broadcasting System (CBS), Inc.:

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 facie showing 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.

Furthermore, the Court addressed the spouses’ claims regarding the improper increase in interest rates and the alleged overpayment of interest. The Court found that the spouses failed to provide sufficient evidence that they did not consent to the escalation clauses. The Court also noted that the mere allegation of excess payments, without considering accrued interests and penalty charges, was insufficient to justify the issuance of an injunction. The Court referenced Philippine National Bank v. Rocamora, which stated that while escalation clauses are valid, any increase in interest rates must result from an agreement between the parties. However, the absence of proven lack of consent to the increased interest rates weakened the spouses’ claim.

Finally, the Supreme Court distinguished this case from Almeda v. Court of Appeals, which the spouses cited to support their argument that they could not be considered in default until the exact amount of their obligation was determined by the trial court. The Court explained that Almeda involved unique circumstances, including the mandatory foreclosure by a government financial institution and very high-interest rates that practically enslaved the borrowers. Unlike the borrowers in Almeda, the spouses Delos Santos were already in default when they questioned the interest rates and did not consign any amount in court representing what they believed to be their correct outstanding obligation. Therefore, the Court concluded that the spouses did not have a clear right to a preliminary injunction and upheld the CA’s decision.

FAQs

What was the key issue in this case?	The key issue was whether the spouses were entitled to a preliminary injunction to prevent the extrajudicial foreclosure of their mortgaged property by Metrobank, given their default on loan payments and the dispute over interest rates.
What is a preliminary injunction?	A preliminary injunction is a court order issued during a lawsuit that prevents a party from taking a specific action. It is meant to preserve the status quo until a final judgment can be made.
What must a party show to obtain a preliminary injunction against a foreclosure?	To obtain a preliminary injunction, a party must show that they have a clear right to the relief sought, that the act to be enjoined violates that right, and that there is an urgent necessity to prevent serious damage.
Did the spouses demonstrate a clear right to an injunction?	No, the Supreme Court found that the spouses did not demonstrate a clear right to an injunction because they were already in default on their loan obligations, and there was no strong evidence that the interest rates were improperly increased without their consent.
What is the significance of an escalation clause in a loan agreement?	An escalation clause allows the lender to increase the interest rate under certain conditions, such as changes in market rates or legal requirements. However, the Supreme Court has held that such increases must be mutually agreed upon by both parties.
How did the Supreme Court distinguish this case from Almeda v. Court of Appeals?	The Supreme Court distinguished this case from Almeda by noting that Almeda involved unique circumstances, including the mandatory foreclosure by a government financial institution and the imposition of excessively high-interest rates without the borrower’s consent, which were not present in this case.
What is a writ of certiorari, and when is it appropriate?	A writ of certiorari is a remedy used to correct errors of jurisdiction made by a lower court. It is only appropriate when the lower court acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no other adequate remedy available.
What was the effect of the spouses being in default on their loan obligations?	The spouses being in default gave Metrobank the right to proceed with the foreclosure of the mortgage. This default undermined the spouses’ argument that they had a right to prevent the foreclosure.
Why was the spouses’ claim of overpayment of interest not persuasive to the Court?	The spouses’ claim of overpayment was not persuasive because their computation failed to account for accrued interests and penalty charges stipulated in the loan agreements.

The Supreme Court’s decision reinforces the importance of meeting loan obligations and highlights the stringent requirements for obtaining a preliminary injunction against foreclosure. It clarifies that borrowers in default must present a clear and convincing case of rights violation to prevent a lender from exercising its contractual right to foreclosure. This ruling protects the rights of lenders while emphasizing the need for transparency and mutual agreement in loan agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Humberto P. Delos Santos and Carmencita M. Delos Santos, vs. Metropolitan Bank and Trust Company, G.R. No. 153852, October 24, 2012