G.R. No. 121158 December 5, 1996
CHINA BANKING CORPORATION, et al., petitioners, vs. COURT OF APPEALS, et al., respondents.

FACTS

China Banking Corporation (China Bank) extended loans to Native West International Trading Corporation and its president, So Ching. To secure these obligations, So Ching, with his wife Cristina’s consent, executed two real estate mortgages over their properties. Upon the loans’ maturity and the borrowers’ failure to pay despite demand, China Bank initiated extrajudicial foreclosure proceedings through notaries public. Notices were issued, and a foreclosure sale was scheduled.
Eight days before the scheduled sale, the spouses So and Native West filed a complaint in the Regional Trial Court (RTC) for accounting with damages, seeking to enjoin the foreclosure. They raised multiple alleged violations, including non-compliance with Supreme Court Administrative Circular No. 3 and P.D. No. 1079 on publication, claims that their liability was limited to specific amounts stated in the mortgages, and allegations of usury and violations of the Truth in Lending Act. The RTC, without addressing the substantive merits, issued a preliminary injunction, reasoning that the “accounting issue” was evidentiary and required a trial to prevent irreparable injury.

ISSUE

Whether the Regional Trial Court committed grave abuse of discretion in issuing the writ of preliminary injunction to enjoin the extrajudicial foreclosure of mortgage.

RULING

Yes, the RTC committed grave abuse of discretion. The Supreme Court held that a preliminary injunction should not issue when the petitioner’s right is clear and the foreclosure is pursuant to a mortgage contract containing an express authority for extrajudicial foreclosure. The core legal principle is that a preliminary injunction is a preservative remedy for injuries that are irreparable, and it cannot be used to take property from a party with a clear legal right pending litigation.
The Court found the RTC’s basis—a purported “thorny issue” of accounting requiring a trial—to be legally insufficient to override the mortgagee’s clear contractual right to foreclose. The mortgages expressly secured “all obligations” of the mortgagors to the bank, a standard provision deemed a “dragnet clause” that extends the security to cover all debts, past or future. The borrowers’ mere denial of the exact amount due does not negate the admitted existence and non-payment of the principal obligation. An injunction should not issue where the defendant’s case rests on a mere denial. Furthermore, the alleged procedural defects in the foreclosure notice (non-compliance with Administrative Circular No. 3 and P.D. 1079) were not proper grounds for an injunction but were matters to be raised in the foreclosure proceedings themselves or in a subsequent action to annul the sale. The RTC’s order effectively paralyzed the exercise of a clear contractual and legal right based on unproven defenses, constituting grave abuse of discretion. The Court made the injunction permanent and ordered the RTC to proceed with the principal case with dispatch.