G.R. No. 138703 - Development Bank of the Philippines vs. Court of Appeals

In March 1968, Development Bank of the Philippines (DBP) granted respondents Philippine United Foundry and Machinery Corp. (PHUMACO) and Philippine Iron Manufacturing Co., Inc. (PHILIMCO) an industrial loan of ₱2,500,000 (₱500,000 cash; ₱2,000,000 in DBP Progress Bonds) secured by a June 26, 1968 promissory note and mortgage over present and future assets.
In November 1968, DBP extended a five-year revolving guarantee of ₱1,700,000, reflected in an amended mortgage contract.

On September 10, 1975, after defaults, DBP consolidated outstanding principal (₱4,655,992.35) into a new seven-year promissory note (November 12, 1975) at 12% interest per annum, with partial principal amortizations starting Year 3, secured by mortgage.
Accrued interest and charges (₱3,074,672.21) were evidenced by a separate “Notes Taken for Interest” promissory note of the same date, likewise secured by mortgage. Both notes imposed additional interest, penalty charges, and service fees on unpaid amortizations and bank advances.

Respondents, still in default, requested refinancing. DBP extended three foreign-currency loans drawn from its own borrowings:

December 11, 1980 note: US$661,330, maturity December 15, 1990, interest rate = 3% + DBP borrowing rate; secured by mortgage.
June 5, 1981 note: US$666,666, maturity June 23, 1991, interest rate = 3% + DBP borrowing rate; secured by mortgage.
December 16, 1981 note: US$486,472.37, maturity December 31, 1982, interest rate = 4% + DBP borrowing cost; secured by mortgage.

These notes provided additional service fees, interest and penalty charges on defaulted amortizations and bank advances.

In October 1985, DBP computed respondents’ arrears at ₱62,954,473.68 (after applying ₱5,150,827.71 in payments) and initiated foreclosure, later suspending proceedings amid respondents’ assurances of a military contract fund.
On December 23, 1986, respondents sued for injunctive relief and annulment of mortgage; amended to implead Asset Privatization Trust (APT, later PMO). RTC issued preliminary injunction (May 4, 1987) and, after trial, granted permanent injunction, ordering respondents to pay only the original ₱6,200,000 loan, applying prior payments as interest and penalties, and barring further charges.
On May 7, 1999, the Court of Appeals affirmed. DBP filed a motion for reconsideration; PMO filed a Rule 45 petition in the Supreme Court.

PMO raised errors of law: misapplication of interest rates, improper crediting of AFP contract failures against DBP loans, and invalid injunction under Presidential Decree No. 385.
Respondents opposed on grounds of factual issues, forum shopping, and defective certification against forum shopping.

Is the determination of respondents’ total obligation a reviewable question of law?

Were the promissory notes and mortgages executed under undue influence or supported by valid consideration?

Can respondents offset their DBP loan obligations due to the AFP’s alleged breach?

Did the foreign‐currency denomination and variable interest provisions violate the Usury Law or Philippine currency‐conversion rules?

Does issuance of a permanent injunction against DBP/PMO contravene PD 385’s prohibition on restraining foreclosures?

Did PMO engage in impermissible forum shopping by filing a direct petition despite DBP’s pending motion for reconsideration?