G.R. No. L-68010 May 30, 1986
FILIPINAS MARBLE CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, et al., respondents.
FACTS
Petitioner Filipinas Marble Corporation (FMC) obtained a $5 million loan from respondent Development Bank of the Philippines (DBP), secured by mortgages and an assignment of mining claims. The loan approval was conditioned on FMC entering into a management contract with Bancom Systems Control, Inc., granting DBP significant control over FMC’s board and key officers. FMC alleged that DBP and Bancom, through their appointed managers, subsequently mismanaged and misspent the loan proceeds, failing to develop the intended mining project and leaving the corporation in a dire state. Bancom resigned before the management contract expired. DBP then initiated foreclosure proceedings due to massive loan arrearages.
FMC filed an action for nullification of the mortgage and assignment deeds with a prayer for a preliminary injunction to stop the foreclosure. It contended there was a failure of consideration, arguing the loan was never truly delivered to it as the proceeds were controlled and dissipated by DBP’s appointed managers. The trial court and the Intermediate Appellate Court denied the injunction, citing Presidential Decree No. 385, which mandates foreclosure by government financial institutions when arrearages reach at least 20% of the total obligation and prohibits courts from issuing injunctions against such foreclosure.
ISSUE
Whether the trial court and the Intermediate Appellate Court correctly denied the issuance of a writ of preliminary injunction against the foreclosure based solely on the mandatory provisions of P.D. No. 385, without considering the substantive issues raised in the main action regarding the validity of the loan and mortgage agreements.
RULING
The Supreme Court ruled in favor of the petitioner and granted the petition. The Court held that the lower courts erred in denying the preliminary injunction based purely on the mandatory language of P.D. No. 385 without examining the fundamental issues in the main case. The legal logic is that a writ of preliminary injunction is a provisional remedy intended to preserve the status quo pending litigation on the merits. Its issuance hinges on a clear showing of a right to be protected and that the acts sought to be enjoined would violate that right.
The Court found that FMC’s complaint raised serious and substantial questions going to the very existence of the loan obligation itself—specifically, allegations of failure of consideration and the void nature of the mortgage contracts due to the alleged non-delivery of the loan proceeds. If these allegations are proven true, the foreclosure would be based on a non-existent or invalid principal obligation, as a mortgage is merely an accessory contract. Therefore, the factual and legal issues regarding the validity of the loan and securities must first be resolved in a full trial on the merits. To allow foreclosure under P.D. No. 385 without first determining these foundational issues would cause grave and irreparable injustice to FMC. The Court thus annulled the appellate court’s resolutions, ordered the trial court to proceed with the trial, and maintained a restraining order against the foreclosure until the main case is decided.
