A.C. No. 12353 - Melody H. Santos vs. Atty. Emilio S. Paaa, Jr.

The Spouses Jacinto Gotangco and Charity Bantug owned seven parcels of land in Palayan City with a total area of 21,000 square meters, covered by Transfer Certificates of Title (TCT) Nos. NT-166092 to NT-166098.
The spouses were also awarded another parcel identified as Lot No. 168, NG-130 (Pls-378) in Canaderia, Palayan City, later declared for taxation under Tax Declaration (TD) No. 0502 and for which a sales patent was secured.

On August 22, 1980, the Gotangcos secured a loan of P121,400.00 from the Development Bank of the Philippines (DBP) for a poultry project, using their parcels of land as collateral through a real estate mortgage.
On December 16, 1981, they executed a Deed of Undertaking promising to secure a sales patent over Lot No. 168 within two years and to deliver the owner’s duplicate copy of the title for the annotation of DBP’s mortgage.

On July 17, 1982, the Gotangcos, acting as vendors, executed a contract to sell the seven mortgaged parcels to Elpidio O. Cucio for P50,000.00, payable in two installments.
The parties agreed that Cucio’s payments were to be made directly to DBP and applied toward the mortgage indebtedness, with the execution of a deed of sale upon full payment.
Cucio made several remittances to DBP, first amounting to P16,000.00 (received January 13, 1983) and then additional deposits as recorded by DBP, which acknowledged these payments.

Following DBP’s request, the Gotangcos secured a sales patent over Lot No. 168, resulting in the issuance of TCT No. NT-177647 on March 23, 1983. They turned over the owner’s duplicate copy to DBP for annotation of the mortgage.
Subsequent payments were made by the parties, including a partial payment of P57,097.36 in July 1983, and the completion of the balance of the purchase price by Cucio in 1984, amid the restructuring of the Gotangcos’ loan with DBP.

On July 3, 1988, a fire gutted the Gotangcos’ poultry farm and its improvements. Later that year, DBP’s insurance pool offered to settle an insurance claim for P167,149.14, which the Gotangcos did not act upon.
Amid mounting arrearages and DBP’s repeated notices—including a demand on February 20, 1989—the outstanding principal as of September 30, 1989 was P246,183.74, though DBP later alleged arrearages of P737,474.33.
DBP subsequently sent warnings and filed an application for extrajudicial foreclosure, issuing a Notice of Sale on June 7, 1990.

Elpidio Cucio filed a complaint against both the Gotangcos and DBP with the RTC of Palayan City seeking a preliminary injunction and damages, alleging that DBP refused to release the owner’s duplicate titles and that the Gotangcos delayed executing a deed of sale despite full payment.
The Gotangcos countered, claiming DBP had consented to the contract to sell and was therefore obliged to release the titles upon receipt of the substitute collateral (TCT No. NT-177647).
DBP admitted charging interest and receiving Cucio’s payments only as deposits while denying any consent to the contract to sell executed between Cucio and the Gotangcos.

The Gotangcos, anxious about the impending foreclosure, filed a petition for a writ of preliminary injunction to stop the auction sale, which was initially granted through a Temporary Restraining Order and later confirmed in a permanent form by the trial court on October 4, 1990.
During the trial, evidence including account statements and testimony (from Jacinto Gotangco) was presented. The Gotangcos also faced internal difficulties when Jacinto Gotangco died on February 8, 1992.

On April 14, 1992, the RTC rendered judgment ordering DBP to release the owner’s duplicate titles and directing the Gotangcos to execute a deed of sale to Cucio, while permanently enjoining DBP from foreclosing the properties and awarding the Gotangcos moral damages of P250,000.00.
On appeal, the Court of Appeals affirmed the RTC decision with modifications, particularly reducing the moral damages award to P50,000.00 and clarifying the conditions under which DBP must release the certificates and the execution of the deed of sale.

In its petition for review on certiorari, DBP contended that the permanent injunction nullified its mortgage lien and barred any extrajudicial foreclosure, in contravention of the mandatory provisions of P.D. No. 385.
DBP argued there was no factual or legal basis for awarding moral damages, asserting that any mental anguish suffered by the Gotangcos was either absent or amounted to damnum absque injuria.
DBP maintained that its exercise of the foreclosure right was lawful under the terms of the mortgage and that the injunctive relief was overly broad and misapplied.

Whether the permanent injunction issued by the trial court—and affirmed by the Court of Appeals—effectively nullifies DBP’s right to enforce its mortgage lien through extrajudicial foreclosure, in light of the mandatory provisions under P.D. No. 385.
Whether the trial court erred in its application or extension of injunctive relief to de facto prohibit DBP from foreclosing the mortgage even after deductive evidentiary findings regarding the Gotangcos’ account.

Whether the evidence supports the award of moral damages against DBP based on an alleged abuse of right under Article 19 of the New Civil Code.
Whether the Gotangcos established the necessary elements of malice or bad faith to justify the imposition of moral damages on DBP.

Whether DBP was obligated to release the owner’s duplicate certificates of the titles once the Gotangcos had substituted the collateral with TCT No. NT-177647.
Whether the conduct of the parties—specifically DBP’s initiation of foreclosure proceedings during pending litigation—constituted an abuse of its rights under the terms of the real estate mortgage and the applicable law.