POLYSTERENE MANUFACTURING CO., INC., PETITIONER, VS. THE COURT OF APPEALS AND DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENTS.

The decision of respondent Court of Appeals in CA-G.R. No.
09201-SP, setting aside the orders dated November 5, 1985 and May 12, 1986 of
the court a quo^[1]
in Civil Case No. 11819 thereof, and the resolution of said respondent court denying petitioner’s motion for the
reconsideration of said decision, are assailed in this petition for review on certiorari.

The antecedental facts which led to the
filing of the original action below are undisputed and are hereinunder
set forth as synthesized by the court
below and implicitly adopted by respondent court.^[2]

On March 8, 1973,
petitioner entered into a loan agreement for US$1,100,000.00 with Mitsubishi
International Corporation.  The loan was
stipulated to be paid within a period of eight years with interest at the rate of 8% per annum, which payment was
guaranteed by private respondent Development
Bank of the Philippines (DBP).

On October 23, 1973,
petitioner executed a deed of mortgage in favor of private respondent to secure
the payment of any and all obligations, damages and liabilities the latter may
incur by reason of the principal obligation, the bulk of which was used to
finance machineries and equipment needed by petitioner to build a polysterene plant.

Meanwhile, on October 25, 1973, Mitsubishi International
Corporation ceded all its rights and claims for payment of the loan in favor of
Bank of Tokyo Trust Company.

On December 17, 1973, private respondent, by means of a letter
addressed to the Bank of Tokyo, guaranteed irrevocably the payment of the principal obligation and interest on the loan subject to
certain conditions,^[3]
to wit:

1.       1% per month or 12%
per annum shall be due on whatever amount may be advanced by the DBP arising out of the
guarantee, plus 1/2% service fee on the amount so advanced;

2.       All payments that may
be made by the DBP arising out of the guarantee shall be payable on demand; and

3.       Polysterene
shall provide insurance coverage on all insurance amounts mortgaged to the DBP
equivalent to at least the outstanding balance of the total accommodations to
cover such risks and in such amounts and currencies as may be required by the
DBP, the insurance to be placed by
DBP.

Sometime in January 1982, the plant of petitioner, which was
previously insured, was completely burned and the insurance proceeds thereof
were paid to private respondent as beneficiary.

On May 17, 1985, petitioner received notice of the extrajudicial
foreclosure and scheduled sale of its mortgaged properties, based on an alleged
unpaid obligation in favor of private respondent in the amount of P43,602,245.51. 
Petitioner protested, claiming that the amount did not reflect the true and accurate amount of its
obligations and demanded that foreclosure be suspended until a reconciliation
of the accounts shall have been arrived at.           

Private respondent agreed to the suspension of the foreclosure
sale but required petitioner to issue, as it did in fact issue, six postdated
checks in the total amount of P3,000,000.00 or
P500,000.00 for each check, subject to the result of the reconciliation.  Three of these checks were encashed by private respondent.  However, after allegedly realizing that it
had overpaid private respondent, petitioner issued a stop payment order on the
remaining three checks.

Thereafter, or on September 27, 1985, petitioner filed the
hereinbefore stated Civil Case No. 11819 for injunction with prayer for the
issuance of a writ of preliminary injunction and/or restraining order in the
aforementioned trial court, to enjoin private respondent from proceeding with
the foreclosure proceedings.^[4]

Private respondent, in opposition thereto, alleged that said
foreclosure was initiated under the provisions of Presidential Decree No. 385;
that petitioner had not paid 20% of the outstanding arrearages; and that the
issue raised by petitioner in its complaint is only one of accounting.^[5]

Finding petitioner’s case impressed with merit as one not falling
within the ambit of Presidential Decree No. 385, there being a
“significant and tremendous” discrepancy between the accounting
records of petitioner and private respondent, and taking note of the payment of
the insurance proceeds and other payments made by petitioner such that it had
allegedly overpaid private respondent, the trial court on November 5, 1985
issued an order with the following dispositive part:

“WHEREFORE, premises considered, let a writ of preliminary injunction be issued prohibiting and
enjoining the defendant from proceeding with the foreclosure of the mortgaged
properties of the plaintiff upon the latter’s filing and approval of a bond in the amount of P300,000.00 to answer for all and any damages which the
defendant may suffer by reason of the issuance of the writ.”^[6]

Private respondent’s motion for reconsideration having been
denied, it filed a petition for certiorari under Rule 65 with respondent
Court of Appeals.  Respondent court, in
its decision dated September 26, 1986,^[7]
set aside the questioned orders noting that there was no allegation nor was
there evidence to show that petitioner has paid at least 20% of its arrearages
after the filing of the foreclosure proceedings.  Accordingly, it ruled that no injunction
should have been issued to restrain the foreclosure.  Anent petitioner’s contention that the
substantial discrepancy between its computation and that of private respondent
removes its case from the ambit of Presidential Decree No.385, respondent court
stated that there are no portions in the decree indicating an intention to give
it a restricted or limited application.^[8]

On petitioner’s motion for reconsideration, respondent court, in its resolution dated March 4, 1987,^[9]
denied the same after finding no necessity to pass upon the constitutional
issue raised therein and holding against the applicability of the ruling in Filipinas
Marble Corporation vs. The Hon. Intermediate
Appellate Court, et al.^[10]
cited by petitioner.

Hence, the instant petition.

In amplification of its position, petitioner posits that
Presidential Decree No. 385 constitutes an incursion into the domain of
judicial power vested by the Constitution in courts established by law, in the
sense that it deprives the courts of their inherent and supposedly undiminishable power to issue injunctions and/or
restraining orders.  Further, petitioner
asseverates that the decree is violative of the due
process clause enshrined in the Constitution in that government financial
institutions are given the power to effect foreclosure
outright on the sole basis of their own financial records.

As a complementary issue, petitioner argues that granting that
Presidential Decree No. 385 is constitutional, it nevertheless does not apply
to the present case, the discrepancy in its accounting records vis-a-avis those of private respondent being very
significant.  It contends that Filipinas
Marble, although not on all fours with the present case, is authority
for the holding that “Presidential Decree No. 385 cannot automatically be
applied where the extent of the loan actually received by the borrower still
has to be determined.”^[11]

The relevant portion of Presidential Decree No. 385 reads:

“SECTION 2. No restraining order,
temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in
compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order,
temporary or permanent
injunction is sought by the borrower(s) or any third party or parties, except
after due hearing in which it is established
by the borrower and admitted by the government financial institution concerned
that twenty percent (20%) of the outstanding arrearages has been paid after the
filing of the foreclosure proceedings.”

x x
x

 The provision, therefore, contemplates
the instance where the borrower has sought a writ of injunction, in a principal
action therefor or as an ancillary remedy in another case or proceeding, to enjoin the
foreclosure of its properties by the government financial institution
concerned.  Consistent with the procedural
requirements set forth therein, a hearing should first be had to determine
whether or not 20% of the outstanding arrearages has
been paid, as a prerequisite for the issuance of a temporary restraining
order or a writ of preliminary injunction.

This cannot, however, be logically and plausibly arrived at
unless the court, on the basis of the evidence then in its possession, makes a
determination itself, provisionally at the very least, on the matter of the
actual existence of arrearages and the amount thereof on which 20% shall be
computed or reckoned.

In the case at bar, we note that the above-stated procedure was
not followed.  In fact, the trial court
only went so far as to find that there was a significant discrepancy between
the financial records of petitioner and private respondent and concluded on the
basis thereof that Presidential Decree No. 385 was not applicable.  There is no showing whatsoever that the trial court attempted to resolve the
discrepancy by ascertaining the factual existence of any arrearage and the
amount thereof if there really was such a default.

Although respondent court held that there was no evidence
presented to show that petitioner had paid at least 20% of the alleged
arrearages, it does not appear that
a hearing had been held in the court a quo for such purpose.  The finding that there was no allegation in
the complaint to the same effect flies in the face of petitioner’s allegation that it even overpaid private
respondent.  In such a situation, the
court must perforce conduct a hearing to determine the primal
requirement, that is, the existence of arrearages, if any, and thereafter
whether or not 20% thereof has been paid. 
Such facts must be ascertained
not only for purposes of the formulistic allegations in the complaint for
injunction, but because these are contemplated or required by the decree itself
as the bases sine qua non for the issuance
of the writ.

Since the attendant circumstances call for prior determination of
requisite facts, we find no necessity to rule upon the constitutional issues
raised by petitioner.  Besides we have
consistently adhered to the doctrine that the constitutionality of a law will
be passed upon only if, and to the extent that, it is directly and necessarily
involved in a justiciable controversy and is
essential to afford relief to the party
entitled to such protection.^[12] As correctly observed by respondent court, we held in Alger Electric, Inc. vs. Court of Appeals, et al.^[13] as follows:

“We see no necessity of
passing upon the constitutional issues raised by respondent
Northern.  This Court does not decide questions of a constitutional nature
unless absolutely necessary to a decision of a case.  If there exists some
other grounds of construction, we decide the case on a non-constitutional
determination.  (See Burton vs. United States, 196 U.S. 283; Siler
vs. Louisville and Nashville R. Co., 213 U.S. 175; Berea College vs. Kentucky,
211 U.S. 45).”

Apropos of petitioner’s claim that Presidential Decree No. 385
does not apply in the present case under the authority of Filipinas Marble,
suffice it to state that the cited case
cannot be a complete basis of the desired reliance.  Said case involved the issue of
misappropriation of the proceeds of the loan which was imputed to the officials
of private respondents, the government lending institutions therein, which took
over the management of petitioner pursuant to one of the conditions for the
loan.  Thus, the liability of the
petitioner therein for the loan, the non-payment of which was the basis for the
foreclosure of the mortgage, was not yet settled, prompting this Court to allow
the issuance of a writ of injunction against the foreclosure sale, because –

“x x x Pending the outcome of such litigation, P.D. 385 cannot
automatically be applied for if it is really proven that respondent DBP is
responsible for the misappropriation of the loan, even if only in part, then
the foreclosure of the petitioner’s properties under the provisions of P.D. 385
to satisfy the whole amount of the loan would be a gross mistake.  It would unduly prejudice the petitioner, its
employees and their families.”

The present case does not present such a situation, although it
may also be observed that one of petitioner’s significant contentions is that
it has even overpaid its obligation to private respondent, an issue that
likewise demands proof and determination before Presidential Decree No. 385 can
be automatically applied.  It bears
mention, in passing, that respondent court, while citing Filipinas Marble,
would limit the non-application of the decree to only two
“scenarios,” the one of relevance to the case at bar being
“where the extent of the loan actually received by the borrower still has
to be determined.” By the same token then, if not more so, the decree
should not likewise apply where the
existence of any balance, arrearages or any obligation still due from the
borrower is precisely disputed and has also still to be determined.

WHEREFORE, the assailed decision and resolution of
respondent Court of Appeals are hereby ANNULLED and SET ASIDE.  The Regional Trial Court, Branch 149 of the
National Capital Judicial Region at Makati, Metro
Manila, or to which Civil Case No.
11819 is presently assigned, is hereby DIRECTED to expediently conduct another
hearing in accordance with the procedure set forth in Section 2 of Presidential
Decree No. 385, as explained in this decision, to determine the propriety of
the issuance of a temporary restraining order or a writ of preliminary
injunction, and thereafter to forthwith proceed with the trial and adjudication
of the case on the merits with appropriate dispatch.

SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Padilla, and Sarmiento, JJ., concur.

^[1]
Regional Trial Court of Makati,
Metro Manila, Branch 149, Judge Manuel
E. Yuson presiding.

^[2]
Rollo, 65-67.

^[3]
Ibid., 54.

^[4]
Ibid., 52-59.

^[5]
Ibid., 60-64.

^[6]
Ibid., 65-70.

^[7]
Penned by Justice Manuel C. Herrera, with Justices Luis A. Javellana
and Celso L. Magsino
concurring.

^[8]
Rollo, 74-75.

^[9]
Ibid., 92-95.

^[10]
142 SCRA 180 (1986).

^[11]
Ibid., 226-234.

^[12]
People, et al. vs. Vera, et al., 65 Phil. 56 (1937); Dumlao,
et al. vs. Commission on Elections (COMELEC), 95 SCRA 392 (1980); National Protectionism Association, et al. vs.
Ongpin, etc., et al., G.R. 67752, April 10, 1989.

^[13]
135 SCRA 37 (1985).