G.R. No. 42449 July 5, 1989
C & C Commercial Corporation, Clara Reyes Pastor, and Other Stockholders vs. Philippine National Bank, National Investment Development Corporation, Provincial Sheriff of Rizal, City Sheriff of Manila, and Hon. Judge Augusto Valencia

FACTS

Petitioner C & C Commercial Corporation (ACPPI) incurred substantial obligations with respondent Philippine National Bank (PNB) through letters of credit. Due to non-payment, PNB filed a collection suit but later agreed to a Voting Trust Agreement in 1969, allowing PNB and its affiliate, the National Investment Development Corporation (NIDC), to manage ACPPI. During this management, ACPPI executed a chattel mortgage in favor of NIDC to secure a loan. An audit later revealed the PNB/NIDC management was a disastrous failure, prompting ACPPI and its stockholders to file a complaint for termination of the Voting Trust Agreement and damages, alleging grossly negligent management that caused huge corporate losses.
Subsequently, PNB initiated extrajudicial foreclosure proceedings on real estate mortgages assigned to it by the Development Bank of the Philippines and sought to include unsecured obligations from the letters of credit and advances made during the trust period. NIDC also separately moved to foreclose the chattel mortgage. Petitioners applied for a writ of preliminary injunction in the trial court to stop the foreclosure sales, arguing issues of mismanagement and failure of consideration regarding the NIDC loans. The trial court denied the injunction, citing Presidential Decree No. 385, which prohibits courts from issuing injunctions against foreclosure by government financial institutions.

ISSUE

Whether the trial court correctly applied Presidential Decree No. 385 to deny the injunction against the foreclosure sales initiated by PNB and NIDC.

RULING

The Supreme Court granted the petition and set aside the trial court’s order. The Court ruled that PD 385, which mandates automatic foreclosure by government financial institutions, is not an absolute bar to injunctive relief. Following its precedent in Filipinas Marble Corporation v. Intermediate Appellate Court, the Court held that an injunction may issue when the foreclosure is patently void or the secured claim is clearly deficient or fictitious. Here, petitioners raised serious factual issues regarding the validity of the NIDC loans, alleging misappropriation of proceeds and failure of consideration. These allegations, if proven, would mean the foreclosure was based on a claim that was not indubitably owing. Therefore, pending the trial court’s resolution of these issues in the main case (Civil Case No. Q-18176), the foreclosure sale on the chattel mortgage should be enjoined. However, the Court allowed PNB to proceed with the foreclosure of the DBP-assigned real estate mortgages, as those obligations were secured and distinct. The temporary restraining order was made permanent regarding the NIDC foreclosure, subject to the posting of an adequate bond, until the main case is finally resolved.