(Article published in the Mar 7, 2007
issue of Manila Standard Today)
It ought not to, but it does happen very often, to so many and almost everywhere in this our place in the torrid sun. A lending financial institution gives out a loan secured by a mortgage on real estate. The loan does not get paid. The lender forecloses on the mortgage. Almost always, it is met by suit in court. Invariably, the torture begins with the issuance by the judge of what is known as a Temporary Restraining Order (TRO).
An illustration. On 27 July 1998, Phil Compak Boards, Inc. failed to pay the Bank of the Philippine Islands (BPI) a promissory note in the amount of P14,000,000.00 which was secured by a real estate mortgage on a piece of property in Ozamix City. Unable to collect, BPI on 15 September 1998 filed before the Regional Trial Courts of Ozamiz City and Pagadian City an application for the extrajudicial foreclosure of the mortgaged property.
In retaliation, Phil. Compk Boards, Inc. on 07 October 1998, filed before the RTC Branch 15 of said cities a complaint for damages with prayer for a temporary restraining order and a writ of preliminary injunction to enjoin the foreclosure proceedings being undertaken by the ex-officio sheriffs.
any notice or hearing, the trial court issued on 14 October 1998 a
temporary restraining order enjoining the sheriffs from proceeding with
the foreclosure proceedings. Then, after hearing, it issued a writ of
preliminary injunction dated 05 December 1999.
BPI brought the case to the Court of Appeals which reversed the trial court. Phil. Compk Boards, Inc., for its part, went to the Supreme Court by way of petition on certiorari dated 01 February 2001.
It took the Supreme Court only a little over four months to rule that “the petition has no merit.” But it took two and a half years in the judicial mill for BPI to put its foreclosure back on track (Philippine Compak Boards, Inc. vs. Court of Appeals and Bank of Philippine Island, G.R. No. 147865, Jun 18 2001.)
Another case. In the pursuit of their business, the spouses Luis K.S. Lim and Chua Siam secured and obtained several loans from BPI amounting to P11,000,000.00. To secure the loans, they executed a real estate mortgage over their property covered by Transfer Certificate of Title No. 29518. The spouses defaulted in the payment of their loan obligation which had by then ballooned to P18,865,509.00, inclusive of interest and surcharges. In a letter dated 15 September 1997, BPI demanded of the borrowers to pay in full their overdue account. In response, the spouses sent two (2) letters to BPI submitting proposals to settle their matured obligation. BPI rejected the offer and, instead, filed with the Sheriff of Manila a petition for the extrajudicial foreclosure of the real estate mortgage.
On 08 December 1997, obviously to prevent the extrajudicial foreclosure proceedings from taking place, the borrowers filed with the RTC, Manila a complaint for damages and injunction with prayer for a temporary restraining order against BPI and the sheriff. On the same date, the trial court issued a temporary restraining order enjoining the foreclosure sale of the mortgaged property scheduled on 09 December 9 and set the hearing on the application for a writ of preliminary injunction to 12 December 1997. But in an Order dated 16 December 1997, the trial court denied the spouses’ application for preliminary injunction and lifted its earlier temporary restraining order. That, however, was not the end of the TRO.
The spouses questioned the lifting and went to the Court of Appeals. When they lost at the Court of Appeals, they elevated the matter to the Supreme Court. On 13 February 2006 the Supreme Court ruled that the spouses had no right to injunctive relief against BPI. The spouses, the court noted, “not once denied that their loans were already due and that they have defaulted in the payment thereof. Thus, the foreclosure of the mortgage becomes a matter of right on the part of BPI, for such is the purpose of security of the loans.” (Sps. Luis K.S. Lim and Chua Siam et al v. The Court of Appeals, et al. , G.R. No. 134617,13 February 2006).
More than seven years elapsed before the lifting of the TRO issued in 1997 was finally held correct by the judicial system.
In both cases, the TRO, seen from hindsight, had very little chance of being eventually upheld. Nevertheless, its eventual nullification took so much time. In both cases, the judicial process was used to unjustly delay the enforcement by the creditor of what was its own as a matter of right.
Instances like these prompted the Bankers Association of the Philippines, with the encouragement of then BSP Governor, Rafael Buenaventura, to ask the Supreme Court, on 16 October 2002 in a letter addressed to then Chief Justice Hilario G. Davide, Jr. and on 30 January 2006 in another to his successor Chief Justice Artemio V. Panganiban, to propose some revisions in the rules on TRO that are meant to safeguard “lending operations, not so much as to shield banks as to protect the savings that bank depositors-heading state inducement have entrusted to banks.” After a long wait, the BAP will get some of their requested changes.
Three (3) days from now, on 10 March 2007, some of BAP’s suggestions will be part of the law on TROs. A.M. No. 99-10-05-0, issued by the Supreme Court under newly appointed Chief Justice Reynato S. Puno by resolution on 20 February 2007, will put into effect some remedial rules on extrajudicial or judicial foreclosure of real estate mortgages.
Three reforms will be instituted. First, two allegations in the complaint seeking to enjoin the foreclosure, which used to be routinely raised, even on flimsy if not false grounds, will no longer be accepted by the court without further validating circumstances being proven.
Thus, if the debtor alleges that the loan secured by the mortgage has been paid or not delinquent, his application for a TRO must be verified (that is, sworn to be true of his own knowledge) and supported by evidence of payment.
In the same vein, if the debtor claims that the interest charged is unconscionable, he must make prior payment to the mortgagee of at least twelve percent (12%) per annum interest on the principal obligation as stated in the lender’s application for foreclosure and he must update the payment monthly while the case is pending.
a “status quo order”, i.e. one where the court tells the parties not
to disturb the status quo at the time of the filing of the case, will be
treated for the euphemism that it is, namely, a temporary restraining in
order in very translucent disguise. Effective
10 March 2007, all the requirements and restrictions prescribed for the
issuance of a temporary restraining order or writ of preliminary
injunction, such as the posting of a bond, (which by the way must be equal
to the outstanding debt) and the time limitation for its effectivity (a
TRO issued by a court lower than the Supreme Court is
good for no more than 20 days) will also apply to status quo
Finally, the Supreme Court wants speedy disposition of all cases where the court has enjoined enjoined foreclosures and, to show its intent to ensure compliance, the high court requires quarterly reporting of the progress of cases involving ten million pesos (Php 10, 000,000.00) and above.
True, not all the travails of the foreclosing mortgagee will disappear with the effectivity of A.M. No. 99-10-05-0. But it is a significant step away from the heretofore common impression, particularly of foreign investors, that the Philippine legal system is inherently biased in favor of a defaulting debtor.