G.R. No. 64220 - Searth Commodities Corp. vs. Court of Appeals

On May 17, 1972, petitioner Searth Commodities, Inc. (Searth) borrowed Three Hundred Seventy Thousand Pesos (P370,000) from the Development Bank of the Philippines (DBP) to finance its hybrid tomato plantation in Tubao, La Union.
As collateral for this loan, Searth executed real estate and chattel mortgages covering:

A 60-hectare (or 52-hectare per DBP’s information) agricultural land in Tubao, La Union;
Farm machinery;
A 200-square meter residential lot and house in Manila in the name of Araceli Camacho;
A 406-square meter residential lot and house in Quezon City in the name of Prospero Castro;
A 439-square meter residential lot and house in Quezon City in the name of Manuel Tarroja.

In June 1972, a series of floods and typhoons struck Luzon, destroying the tomato plantation.
On October 21, 1972, Presidential Decree (P.D.) No. 27 was issued, proclaiming the entire country as a land reform area.
As a result, farmers took possession of the 60-hectare agricultural lot, effectively paralyzing Searth’s operations.

In 1974, DBP foreclosed on the executed mortgages due to Searth’s failure to pay the agricultural loan, with none of the petitioners redeeming the properties.
Title to the foreclosed properties was consolidated in DBP’s name.
On October 27, 1980, DBP advertised the sale of some of its acquired assets, including the three residential properties previously owned by petitioners Camacho, Castro, and Tarroja.

On October 30, 1980, the petitioners filed Civil Case No. 39128 for annulment of the real estate mortgages and the foreclosure sale, and simultaneously sought a writ of preliminary injunction to stop the sale of the residential properties.
Their complaint contended that the foreclosure sale was null and void on several grounds:

The foreclosure sale’s publication did not comply with legal requirements;
The mortgages were voidable on the ground of usurious interest;
The loan was oversecured since the value of the farm machinery and expropriated agricultural land exceeded the DBP loan amount, thereby unjustifying the foreclosure of the additional residential properties.

Initially, Judge Rizalina Bonifacio-Vera issued an order restraining the bidding, but after its expiration, Judge Josue Bellosillo dissolved the restraining order and denied its extension based on Section 2 of P.D. No. 385, which limits interference with government financial institutions’ foreclosure proceedings.

The petitioners moved for reconsideration against Judge Bellosillo’s order, which was denied.
A petition for certiorari was raised before the Court of Appeals against Judge Bellosillo’s decisions.
The petitioners raised three specific arguments:

The sale of the additional collateral (the three residential properties), despite being valued at P950,000.00 versus a claimed remaining balance of only P17,858.00, should be enjoined pending the hearing on merits, especially because they were willing to settle the outstanding balance.
P.D. No. 385 should not apply to their case, arguing it is meant only for borrowers who default with large arrearages under government financial institutions.
The granting of an injunction was necessary to prevent the sale from rendering the annulment action moot and to avert prejudice to their interests, given that the properties remained in DBP’s possession.

On June 29, 1983, this Court issued a temporary restraining order enjoining DBP from enforcing the contested resolutions of the Court of Appeals dated April 13, 1983, and May 23, 1983.

Whether the petitioners are entitled to a writ of injunction to halt the sale of the three residential properties, despite their delayed action in questioning the foreclosure sale.

The petitioners argue that given the alleged disparity between the remaining balance of the loan and the value of the foreclosed assets, the sale should be stopped pending a hearing on the merits.
They underscore their readiness to settle the outstanding balance as justification for the injunction.

Whether P.D. No. 385 is applicable in this case to bar the issuance of a restraining order against DBP’s actions.

The petitioners contend that the decree applies only to cases of malicious or deliberate default involving large arrearages and should not be invoked against their claims.
They assert that the residential properties, being additional collateral, should be exempt from the limitations imposed by the decree.

Whether the grant of an injunctive writ is proper given that the petitioners have an alternative remedy (i.e., registering a notice of lis pendens) to protect any residual interest in the disputed properties.