1

CASES:
1. Ventil vs. Intermediate Appellate Court GR No. 74431 November 6,1989
2. Ibardo vs. Pelagia Nava et. al. GR No. 28587 January 8, 1963
3. Homeowners Association of El Deposito vs. Lood 47 SCRA 174
4. Farles vs. City Mayor of Baguio 44 SCRA 239
5. Cavite Development Bank vs. Lim 324 SCRA 346
6. Cagungun vs. Planters Development Bank 473 SCRA 259
7. Heirs of Eduardo Manlapat vs. CA 459 SCRA 412

FULL TEXT
1. Ventil vs. Intermediate Appellate Court GR No. 74431 November 6,1989

FIRST DIVISION

G.R. No. 74431 November 6, 1989

PURITA MIRANDA VESTIL and AGUSTIN VESTIL, petitioners,

vs.
INTERMEDIATE APPELLATE COURT, DAVID UY and TERESITA UY, respondents.

Pablo P. Garcia for petitioners. Roberto R. Palmares for private respondents.

CRUZ, J.:

Little Theness Tan Uy was dead at the age of three. Her parents said she died because she was bitten by a dog of the petitioners,
but the latter denied this, claiming they had nothing to do with the dog. The Uys sued the Vestils, who were sustained by the
trial court. On appeal, the decision of the court a quo was reversed in favor of the Uys. The Vestils are now before us. They ask
us to set aside the judgment of the respondent court and to reinstate that of the trial court.

On July 29, 1915, Theness was bitten by a dog while she was playing with a child of the petitioners in the house of the late
Vicente Miranda, the father of Purita Vestil, at F. Ramos Street in Cebu City. She was rushed to the Cebu General Hospital,
where she was treated for "multiple lacerated wounds on the forehead" 1 and administered an anti-rabies vaccine by Dr.
Antonio Tautjo. She was discharged after nine days but was readmitted one week later due to "vomiting of saliva." 2 The
following day, on August 15, 1975, the child died. The cause of death was certified as broncho-pneumonia. 3

Seven months later, the Uys sued for damages, alleging that the Vestils were liable to them as the possessors of "Andoy," the
dog that bit and eventually killed their daughter. The Vestils rejected the charge, insisting that the dog belonged to the deceased
Vicente Miranda, that it was a tame animal, and that in any case no one had witnessed it bite Theness. After trial, Judge Jose R.
Ramolete of the Court of First Instance of Cebu sustained the defendants and dismissed the complaint. 4

The respondent court arrived at a different conclusion when the case was appealed. 5 It found that the Vestils were in
possession of the house and the dog and so should be responsible under Article 2183 of the Civil Code for the injuries caused
by the dog. It also held that the child had died as a result of the dog bites and not for causes independent thereof as submitted
by the appellees. Accordingly, the Vestils were ordered to pay the Uys damages in the amount of P30,000.00 for the death of
Theness, P12,000.00 for medical and hospitalization expenses, and P2,000.00 as attorney's fees.
 2

In the proceedings now before us, Purita Vestil insists that she is not the owner of the house or of the dog left by her fath er as
his estate has not yet been partitioned and there are other heirs to the property. Pursuing the logic of the Uys, she claims, even
her sister living in Canada would be held responsible for the acts of the dog simply because she is one of Miranda's heirs.
However, that is hardly the point. What must be determined is the possession of the dog that admittedly was staying in the
house in question, regardless of the ownership of the dog or of the house.

Article 2183 reads as follows:

The possessor of an animal or whoever may make use of the same is responsible for the damage which it may cause, although
it may escape or be lost. 'This responsibility shall cease only in case the damages should come from force majeure from the
fault of the person who has suffered damage.

Thus, in Afialda v. Hisole, 6 a person hired as caretaker of a carabao gored him to death and his heirs thereupon sued the owner
of the animal for damages. The complaint was dismissed on the ground that it was the caretaker's duty to prevent the carabao
from causing injury to any one, including himself.

Purita Vestil's testimony that she was not in possession of Miranda's house is hardly credible. She said that the occupants of the
house left by her father were related to him ("one way or the other") and maintained themselves out of a common fund or by
some kind of arrangement (on which, however, she did not elaborate ). 7 She mentioned as many as ten of such relatives who
had stayed in the house at one time or another although they did not appear to be close kin. 8 She at least implied that they did
not pay any rent, presumably because of their relation with Vicente Miranda notwithstanding that she herself did not seem to
know them very well.

There is contrary evidence that the occupants of the house, were boarders (or more of boarders than relatives) who paid the
petitioners for providing them with meals and accommodations. It also appears that Purita Vestil had hired a maid, Dolores
Jumao-as, who did the cooking and cleaning in the said house for its occupants. 9 Her mother, Pacita, who was a nursemaid of
Purita herself, categorically declared that the petitioners were maintaining boarders in the house where Theness was bitten by a
dog.10 Another witness, Marcial Lao, testified that he was indeed a boarder and that the Vestils were maintaining the house for
business purposes. 11 And although Purita denied paying the water bills for the house, the private respondents submitted
documentary evidence of her application for water connection with the Cebu Water District, which strongly suggested that she
was administering the house in question. 12

While it is true that she is not really the owner of the house, which was still part of Vicente Miranda's estate, there is no doubt
that she and her husband were its possessors at the time of the incident in question. She was the only heir residing in Cebu City
and the most logical person to take care of the property, which was only six kilometers from her own house. 13 Moreover, there
is evidence showing that she and her family regularly went to the house, once or twice weekly, according to at least one
witness, 14 and used it virtually as a second house. Interestingly, her own daughter was playing in the house with Theness when
the little girl was bitten by the dog. 15 The dog itself remained in the house even after the death of Vicente Miranda in 1973 and
until 1975, when the incident in question occurred. It is also noteworthy that the petitioners offered to assist the Uys with their
hospitalization expenses although Purita said she knew them only casually. 16

The petitioners also argue that even assuming that they were the possessors of the dog that bit Theness there was no clear
showing that she died as a result thereof. On the contrary, the death certificate 17 declared that she died of broncho-pneumonia,
which had nothing to do with the dog bites for which she had been previously hospitalized. The Court need not involve itself in
an extended scientific discussion of the causal connection between the dog bites and the certified cause of death except to note
that, first, Theness developed hydrophobia, a symptom of rabies, as a result of the dog bites, and second, that asphyxia
broncho-pneumonia, which ultimately caused her death, was a complication of rabies. That Theness became afraid of water
after she was bitten by the dog is established by the following testimony of Dr. Tautjo:

COURT: I think there was mention of rabies in the report in the second admission?

A: Now, the child was continuously vomiting just before I referred to Dr. Co earlier in the morning and then the father, because
the child was asking for water, the father tried to give the child water and this child went under the bed, she did not like to drink
the water and there was fright in her eyeballs. For this reason, because I was in danger there was rabies, I called Dr. Co.

Q: In other words, the child had hydrophobia?

 3

A: Yes, sir. 18

As for the link between rabies and broncho-pneumonia, the doctor had the following to say under oath:

A: Now, as 1 said before, broncho-pneumonia can result from physical, chemical and bacterial means. ... It can be the result of
infection, now, so if you have any other disease which can lower your resistance you can also get pneumonia.

xxx xxx xxx

Q: Would you say that a person who has rabies may die of complication which is broncho-pneumonia?

A: Yes.

Q: For the record, I am manifesting that this book shown the witness is know as CURRENT DIANOSIS & TREATMENT,
1968 by Henry Brainerd, Sheldon Margen and Milton Chaton. Now, I invite your attention, doctor, to page 751 of this book
under the title "Rabies." There is on this page, "Prognosis" as a result of rabies and it says: Once the symptoms, have appeared
death inevitably occurs after 2-3 days as a result of cardiac or respiratory failure or generalized paralysis. After a positive
diagnosis of rabies or after a bite by a suspected animal if the animal cannot be observed or if the bite is on the head, give
rabies vaccine (duck embryo). Do you believe in this statement?

A: Yes.

Q: Would you say therefore that persons who have rabies may die of respiratory failure which leave in the form of
bronco-pneumonia?

A: Broncho-pneumonia can be a complication of rabies. 19

On the strength of the foregoing testimony, the Court finds that the link between the dog bites and the certified cause of death
has beep satisfactorily established. We also reiterate our ruling in Sison v. Sun Life Assurance Company of Canada, 20 that the
death certificate is not conclusive proof of the cause of death but only of the fact of death. Indeed, the evidence of the child's
hydrophobia is sufficient to convince us that she died because she was bitten by the dog even if the death certificate stated a
different cause of death. The petitioner's contention that they could not be expected to exercise remote control of the dog is not
acceptable. In fact, Article 2183 of the Civil Code holds the possessor liable even if the animal should "escape or be lost" and
so be removed from his control. And it does not matter either that, as the petitioners also contend, the dog was tame and was
merely provoked by the child into biting her. The law does not speak only of vicious animals but covers even tame ones as long
as they cause injury. As for the alleged provocation, the petitioners forget that Theness was only three years old at the time she
was attacked and can hardly be faulted for whatever she might have done to the animal.

It is worth observing that the above defenses of the petitioners are an implied rejection of their original posture that there was
no proof that it was the dog in their father's house that bit Theness.

According to Manresa the obligation imposed by Article 2183 of the Civil Code is not based on the negligence or on the
presumed lack of vigilance of the possessor or user of the animal causing the damage. It is based on natural equity and on the
principle of social interest that he who possesses animals for his utility, pleasure or service must answer for the damage which
such animal may cause. 21

We sustain the findings of the Court of Appeals and approve the monetary awards except only as to the medical and
hospitalization expenses, which are reduced to P2,026.69, as prayed for in the complaint. While there is no recompense that can
bring back to the private respondents the child they have lost, their pain should at least be assuaged by the civil damages to
which they are entitled.

WHEREFORE, the challenged decision is AFFIRMED as above modified. The petition is DENIED, with costs against the
petitioners. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

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2. Ibardo vs. Pelagia Nava et. al. GR No. 28587 January 8, 1963
*** see digest

3. Homeowners Association of El Deposito vs. Lood 47 SCRA 174

EN BANC

G.R. No. L-31864 September 29, 1972

THE HOMEOWNERS ASSOCIATION OF EL DEPOSITO, BARRIO CORAZON DE JESUS, SAN JUAN, RIZAL,
represented by its President NAPOLEON VILORIA, PANTALEON PENARANDA, JULIAN PENARANDA, PILAR
DEL PILAR, MIGUEL POMPERADA, ESTER PORRAS, TEODULO ROBLANDO, PABLO RELATO, ABRAHAM
REMPULA, HUGO ROBETO, ASUNCION REYES, ERNESTO SALAZAR, FEDERICO SALAZAR, JUANITO
SALLEGUE, SAMONTE NESTOR, BEN SANTOS, ELEUTERIA SANTOS, DOMINGO SARMOY, CORA SASTRE,
TRANSFIGURACION SOMBE, PEDRO SUBONG, IGMEDIO TAMBONG, SALVADOR TERUEL, ALFREDO
TORRES, CELSO TORRES, ROQUE TUMAMPIL, TITA TUTANES, CATALINA UNANA, DIONISIA VIGIL,
ASUNCION VILLANUEVA, DELMO VILLANUEVA, JOSE VILORIA, JR., BENIGNO VIRAY, DOMINADOR
WINDECA, SALVADOR YULO, JOSUE DAGON, FELIPE TORRENTE, LEON LUCAS, JACINTO PASCUAL, and
THREE HUNDRED SIXTY ONE OTHER MEMBERS, THE HOMEOWNERS ASSOCIATION OF EL DEPOSITO,
BARRIO HALO HALO, SAN JUAN, RIZAL, represented by its President AQUILINO BELO, JUAN GARCIA,
GREGORIO GARCIA, PABLO REANO, DOMINADOR TIBAR, GERONIMO LAZARRAGA, and ONE HUNDRED
THIRTY OTHER MEMBERS, petitioners,
vs.
HON. GUARDSON LOOD, Judge of The Court of First Instance of Rizal, Branch VI, Pasig, Rizal, THE
MUNICIPALITY OF SAN JUAN, RIZAL, MUNICIPAL MAYOR OF SAN JUAN, MUNICIPAL COUNCIL OF SAN
JUAN, RIZAL, ENGINEERING DISTRICT OF RIZAL, ACTING THRU NICOLAS ALDANA, ENGINEER II, Pasig,
Rizal, respondents.

H. A. Jambora for petitioners. Office of the Solicitor General for respondents.

PER CURIAM:p

Petitioners filed on April 15, 1970 this action for certiorari and prohibition with preliminary injunction to set aside respondent
court's questioned orders dated February 9, 1970 and March 30, 1970 denying petitioners' motions for issuance of a writ of
preliminary injunction to stay the demolition and removal of their houses and structures on a parcel of public land in barrios
Corazon de Jesus and Halo Halo in San Juan, Rizal, (more popularly known as "El Deposito" from the Spanish times), pending
final outcome of Civil Case No. 11078 filed by them before respondent court.

Petitioners' action below was one for declaratory relief to declare as null and void as ex post facto legislation, municipal
ordinance No. 89, as amended, of respondent Municipality of San Juan, prohibiting squatting on public property and providing
a penalty therefor, under which ordinance, petitioners claimed, respondents were summarily demolishing and removing their
houses and improvements.

On April 20, 1970, upon issuance of summons requiring respondents to answer the petition, the Court issued a temporary
restraining order restraining respondents, until further orders, "from proceeding with the summary destruction, removal and
demolition of all other houses found in the premises of the land in barrio Corazon de Jesus and barrio Halo Halo, San Juan,
Rizal, by reason of Ordinance No. 89-Amd. as amended, passed by the Municipal Council of San Juan, Rizal, on April 26,
1968 ... ."

Respondents filed their answer in due course and the case was thereafter submitted for decision with the filing by the parties of
their respective memoranda in lieu of oral argument.

As restated by petitioners themselves in their memorandum, the main issue at bar is whether respondent judge "exceeded his
authority and jurisdiction and gravely abused his discretion"1 in issuing the questioned orders of February 9, and March 30,
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1970, denying the preliminary injunction sought to stay demolition and removal of petitioners' houses and structures.
Petitioners raise as issues also the issue of validity and constitutionality of municipal ordinance No. 89-Amended as questioned
by them in their action below, and whether respondent Engineer may remove or demolish their houses without a special court
demolition order under said challenged ordinance; and furthermore, "whether the filing of the petition for compulsory
registration in LRC Cad. Case No. N-6, LRC Cad. Rec. No. N-511 which placed in issue the status of the land as demanded for
reasons of public interest where the houses and other improvements of the petitioners as claimants in the cadastral proceeding
are found, precludes the enforcement of municipal ordinance No. 89-Amd."2

Subsequent events have cleared up the matter of this last issue as to the alleged pendency of a petition in petitioner's favor for
compulsory registration of the land in question, as shown by proceedings held in the Rizal court of first instance and this Court
as hereinafter recounted.

A motion to reopen the cadastral proceedings 3 was filed under date of August 2, 1971 by petitioners as claimants, citing the
passage on June 19, 1971 of Republic Act No. 6236 which extended the time limit (not to extend beyond December 31, 1976)
for filing of applications for free patents and for judicial confirmation of imperfect and incomplete titles to public agricultural
lands.

The court of first instance of Rizal, Branch I, presided by Judge Emilio V. Salas had denied such reopening of the proceedings
as per its order dated August 20, 1971, "it appearing that the instant case was dismissed without prejudice in our order dated
April 6, 1970, which order was affirmed by the Supreme Court in its resolution in G.R. No.
L-32156, dated August 10, 1970, which became final and executory since September 1, 1970."4

Petitioners-claimants' motion for reconsideration, notwithstanding, withdrawal of the opposition of respondent municipality of
San Juan, Rizal, was denied in the Rizal court of first instance's order dated November 16, 1971.

A special civil action for certiorari and mandamus was then filed on December 13, 1971 by petitioners-claimants and docketed
as Case L-34438 of this Court. 5 Said action was dismissed for lack of merit per the Court's resolution therein of December 16,
1971. Reconsideration was denied for lack of merit per the Court's resolution of May 23, 1972, after the Court had received the
comment of the therein respondent Metropolitan Waterworks and Sewerage System, (as successor-in-interest of Nawasa)
asserting its ownership of the property since its survey in 1910 as conducted for the Metropolitan Water District
(predecessor-in-interest of Nawasa) and approved by the Director of Lands. In its comment, said therein respondent MWSS
further averred that within the property which had been declared for taxation purposes in the name of the old Metropolitan
Water District (with a total area of 132,597 square meters, of which 14,138 square meters are used for public roads) 6 are
"aqueducts and an underground reservoir", and that its predecessor-in-interest (Nawasa) had sold a portion (16,409 sq. meters)
of the property to the Municipality of San Juan (on which are constructed the municipality's elementary school, home
economics building and gymnasium), leased a portion thereof (4,102 sq. meters) for the municipality's public high school, and
"leased some lots to those who have squatted on the said property." 50,000 square meters or five hectares of the property were
likewise leased by the Nawasa to the Pinaglabanan Commemorative Commission (created by Executive Order No. 263 of the
President of the Philippines dated August 15, 1957)7 for a 99-year period from August 21, 1963 for the site of the national
shrine to commemorate the "Battle of Pinaglabanan" on August 28 and 29, 1896 between the Katipunan revolutionaries and the
Spanish garrison defending the gunpowder dump (called the "polvorin") in San Juan, Rizal. Final entry of the dismissal order
of December 16, 1971 was made as of June 12, 1972. Hence, it is quite clear that as of now, there exist no proceedings,
cadastral or otherwise, questioning the public character of the land and asserting petitioners' alleged claims of ownership
thereto.

On the main issue at bar, the Court is satisfied that by no means may respondent court be said to have exceeded its authority or
gravely abused its discretion in issuing its questioned orders denying petitioners' motion below for a writ of preliminary
injunction allegedly "to maintain the status quo" and stay demolition and removal of their illegal constructions found to be
public nuisances per se and serious hazards to public health,8 by virtue of the following principal considerations:

1. As found in respondent court's extended two-page order of February 9, 19709 and ten-page order of March 30,
1970 10 denying reconsideration, petitioners' motions to maintain the alleged status quo were based on the same grounds
already reiterated before and denied by then Judge (now appellate associate justice) Andres Reyes who was then presiding over
respondent court in an order dated September 19, 1968, 11 which was upheld in a similar action for certiorari by the Court of
Appeals in its decision of February 4, 1969. 12
 6

2. In both said proceedings before Judge Reyes and the Court of Appeals, petitioners succeeded in obtaining restraining orders
or preliminary writs of injunction to stay demolition, which were dissolved upon said court's handing down their order or
decision on the merits of the injunction petitions submitted by petitioners. With petitioners definitely having lost their bid to
reopen the cadastral proceedings to pursue their alleged claims of ownership over the lands occupied by their
constructions, supra, no further reason or justification exists to continue the stay order against the removal and demolition of
their constructions.

3. As was well stated in then Judge Reyes' order of September 19, 1968, petitioners failed after several hearings "to show that
they have even a color of title to entitle them to exercise the right of possession to the premises in question. On the other hand,
the land is admittedly public land and consequently the petitioners have no right to possession thereof....." 13

4. Petitioners' lack of right to the injunction sought by them was further shown in the Court of Appeals' decision of February 4,
1969, where it noted that "their very evidence, their documentary proof, would justify that their houses were built upon land of
the Metropolitan Water District, that is to say, of the Philippine Government, therefore, such tax declarations of petitioners'
houses themselves are the best proof of their admission that their possession of the lands they occupy was not and could not be
adverse" 14 and that "their shanties pose a veritable danger to public health." 15

5. No error, much less abuse of authority or discretion, could be attributed to respondent court's statements and reasons for
denying the injunction sought by petitioners, as per its order of March 30, 1970, denying reconsideration, as follows:

... The issues raised by the pleadings to determine whether or not the petitioners are entitled to a writ of preliminary injunction,
or a status quo, in the words of the petitioners, had been resolved several times not only by this Court but also by the Court of
Appeals, and this Court believes that insofar as the same grounds are concerned, they are res judicata

xxx xxx xxx

Lastly, the Court does not lose sight of the fact that the land in question is public land, in the sense that it is untitled. However,
as the government now contends, the land in question is clothed with a public purpose to be utilized for public service by the
government. This fact has not been denied and as a matter of fact, the petitioners admit that the land in question is public
land. ...

6. The question of validity or unconstitutionality of municipal ordinance No. 89-Amended need not be resolved in this
proceeding, as it should first properly be submitted for resolution of the lower court in the action below. Suffice it to note that
the Solicitor General appears to have correctly stated the actual situation in that petitioners do not dispute the authority of the
San Juan council to pass ordinances providing for the summary abatement of public nuisances, and that the ordinance in
question may not be faulted for being ex post facto in application since it "does not seek to punish an action done which was
innocent before the passage of the same. Rather, it punishes the present and continuing act of unlawful occupancy of public
property or properties intended for public use." 16 At any rate, the decisive point is that independently of the said ordinance,
petitioners' constructions which have been duly found to be public nuisances per se (without provision for accumulation or
disposal of waste matters and constructed without building permits contiguously to and therefore liable to pollute one of the
main water pipelines which supplies potable water to the Greater Manila area) may be abated without judicial proceedings
under our Civil Code. 17

As stated in Sitchon vs. Aquino, 18 the police power of the state justifies the abatement or destruction by summary proceedings
of public nuisances per se. No error, much less any abuse of discretion, grave or otherwise, may therefore be attributed against
respondent court in having issued its orders denying for imperative reasons of public health and welfare the preliminary
injunction sought again by petitioners to allow them to continue occupying the land in question with their condemned
constructions and structures.

ACCORDINGLY, judgment is hereby rendered dismissing the petition. The temporary restraining order heretofore issued on
April 20, 1970 is hereby dissolved and such dissolution is declared immediately executory. No pronouncement as to costs.

Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar and Esguerra, JJ., concur. Makalintal, J., is on
leave. Antonio, J., took no part.
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4. Farrles vs. City Mayor of Baguio 44 SCRA 239

EN BANC

G.R. No. L-24245 April 11, 1972

LEONOR FARRALES, assisted by her husband, EMILIO FARRALES, plaintiffs-appellants,

vs.
THE CITY MAYOR OF BAGUIO, THE CHIEF OF POLICE, THE MARKET SUPERINTENDENT AND THE CITY
TREASURER, defendants-appellees.

Ernesto C. Hidalgo and Pedro O. Trinidad for plaintiff-appellants. The City Attorney for defendants-appellees.

MAKALINTAL, J.:p

This appeal by the plaintiffs from the decision of the Court of First Instance of Baguio in its Civil Case No. 622 was taken to
the Court of Appeals and subsequently certified by the latter to this Court for the reason that only questions of law are involved.

The decision appealed from states the facts and conclusions arrived at by the court a quo, as follows:

This is an action for damages. Plaintiff was the holder of a municipal license to sell liquor and sari-sari goods. When the
temporary building where she had her stall was demolished in order that the city might construct a permanent building, Plaintiff
was ordered to move her goods to another temporary place until the permanent building was completed. She did not like the
location pointed out by city officials where she could install her temporary stall. Instead, taking the law into her own hands,
Plaintiff built a temporary shack at one end of the Rice Section, Baguio City Market (see Exhibits 3, 4, and 6), without seeking
prior permit or permission from any city official. When the police threatened to demolish this shack, which was built on the
cement passageway at the end of the Rice Section building, Plaintiff came to this Court seeking an injunction. Before this Court
would issue an injunction, a hearing was held where this Court refused to issue the same unless Plaintiff could show proper
permit. Plaintiff could not do so, so the police demolished the shack, brought the materials and goods to the City Hall and
subsequently delivered both materials and goods to Plaintiff. Plaintiff cited the police for contempt but this Court, in an order
dated September 19, 1956, denied Plaintiff's petition. That order was final in character — not interlocutory — and no appeal
having been made would operate as res judicata to his present suit which is based on the same act of demolition. To evade the
effects of res judicata, Plaintiff amended her complaint so as to include as Defendants the policemen whom she claims did the
demolishing. The only question to be determined by this Court is whether the demolition of the shack was in order or not.
There is no doubt Plaintiff had not permit to build the shack and this shack was built in the passageway where people pass
when going to the hangar market building. Plaintiff insists that the proper procedure should have been for either the City
Engineer or the City Health Officer to commence legal proceedings for the abatement of this "nuisance". This Court believes
that the police officers properly demolished the shack for it had been built in defiance of orders from City Hall officials.
Plaintiff had been assigned a place where to install her shack — she did not like this and, following her own desires, built the
shack in the middle of a passage. Should the police wait for the City Engineer or City Health Officer to act in order to clear the
passageway of this illegal construction? This Court believes that they could clear the passageway on their own responsibility,
just like they can push a car that is parked in the wrong place without waiting for court proceedings. In fact in the case
of Verzosa v. City of Baguio, G.R. No. L-13546, Sept. 30, 1960, our Supreme Court permitted the removal of a building built
under temporary permit on Session Road without court proceedings simply because the temporary permit had expired. In this
present case, with greater reason — the removal of Plaintiff's building is justified.

The complaint of Plaintiff is therefore, dismissed with costs against Plaintiff.

The first error assigned by the appellant refers to the order of the trial court refusing to declare the defendants in default and
allowing them to file their answer to the complaint after the expiration of the reglementary period for that purpose. Such action
of the court was justified and indeed explained by it in an order dated September 29, 1956, denying the plaintiff's motion for
reconsideration of the permission granted on August 24, 1956 to the defendants to file their answer. The Court said:

The stenographic notes of that day show that Atty. Baclit appeared in this case on behalf of the Plaintiffs and when the issue of
the sufficiency of Plaintiffs' complaint was raised by the City Attorney, and Atty. Baclit said he had no knowledge of the same,
this Court suspended hearing to wait for Atty. Benjamin Rillera, attorney of record of Plaintiffs and who was the one who filed
 8

the Motion to Declare Defendant in Default. Subsequently that morning, Atty. Rillera came and manifested to this Court his
willingness to withdraw his motion and, to allow Defendants to file their answer. This was the reason for the order of this Court
dated August 24, 1956. Plaintiffs are bound by the actuations of their Counsel. The fact that he refused to file a motion for
reconsideration and instead insisted in withdrawing as counsel for Plaintiffs would be no justification of revoking the order of
August 24, 1956. The motion for reconsideration filed by Plaintiffs personally is, therefore, denied for lack of merit.

The other errors assigned by the appellant have to do with the merits of the case. The appellant's contention is that the shack or
temporary stall put up by her inside the premises of the Baguio City Market was not a nuisance or if it was a nuisance at all it
was one per accidens and not per se and therefore could be abated only after the corresponding judicial proceeding. The
uncontradicted evidence does not support the appellant's contention. In the first place she had no permit to put up the temporary
stall in question in the precise place where she did so. In the second place, its location on the cement passageway at the end of
the Rice Section building was such that it constituted an obstruction to the free movement of people. As the court a
quo correctly observed, this fact is shown clearly on the photographs marked Exhibits 3, 4 and 6. Judging by these photographs
it cannot even be said that what the appellant constructed was a temporary stall. It was nothing more than a lean-to, improvised
with pieces of used scrap iron roofing sheets. It was obviously not a "building" within the meaning of the Charter of the City of
Baguio (Art. V, Section 2557 [d] Adm. Code) relied upon by the appellant and under which the power "to cause buildings,
dangerous to the public, to be made secure or torn down, is vested in the City Engineer, subject to the approval of the City
Mayor.

It is true that under Article 702 of the Civil Code "the District Officer shall determine whether or not abatement, without
judicial proceedings, is the best remedy against public nuisance;" but in this case the failure to observe this provision is not in
itself a ground for the award of damages in favor of the appellant and against the appellees. According to Article 707 of the
same Code, a public official extrajudicially abating a nuisance shall be liable for damages in only two cases: (1) if he causes
unnecessary injury, or (2) if an alleged nuisance is later declared by the courts to be not a real nuisance.

Here no unnecessary injury was caused to the appellant, and not only was there no judicial declaration that the alleged nuisance
was not really so but the trial court found that it was in fact a nuisance. Indeed it may be said that the abatement thereof was not
summary, but through a judicial proceeding. The appellant, after having been warned by the city police of Baguio that the
lean-to she had put up without a permit would be demolished, went to court and asked for an injunction. A hearing was then
held and the court refused to issue the writ unless she showed the proper permit. The denial of her petition for injunction upon
her failure to produce such a permit was in effect an authority for the police to carry out the act which was sought to be
enjoined. And it was an authority which was later confirmed by the same court in its decision. Under the circumstances there is
absolutely no ground to award damages in favor of the appellant.

WHEREFORE, the judgment appealed from is affirmed, without pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur. Makasiar, J.,
concurs in the result.

5. Cavite Development Bank vs. Lim 324 SCRA 346

SECOND DIVISION

[G.R. No. 131679. February 1, 2000]

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES
CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals in C.A. GR CV No. 42315 and the order
dated December 9, 1997 denying petitioners motion for reconsideration.
 9

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly
organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the
amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma,
Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the
highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No.
300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase
the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for
P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants or tenants. Scjuris

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was
issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim
discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo
Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the
same title he mortgaged to CDB and from which the latters title (TCT No. 355588) was derived. It appears, however, that the
father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of
his sons title. On March 23, 1984, the trial court rendered a decision [2] restoring Perfectos previous title (TCT No. 91148) and
cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since become
final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell
the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages
against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863.
On April 20, 1990, the complaint was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected
contract of sale between Lim and CDB, contrary to the latters contention that the written offer to purchase and the payment of
P30,000.00 were merely pre-conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its
obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No.
Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability
despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo
Guansings title without admitting their failure to discharge their duties to the public as reputable banking institutions; and (4)
CDB and FEBTC are liable for damages for the prejudice caused against the Lims. [3] Based on the foregoing findings, the trial
court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the
legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private respondents, jointly and
severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorneys fees, and
the costs of the suit.[4]

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the
Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9,
1997. Hence, this petition. Petitioners contend that - Jjlex
 10

1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the
decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY
THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages,
attorneys fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend
that Lims letter-offer clearly states that the sum of P30,000.00 was given as option money, not as earnest money. [5] They thus
conclude that the contract between CDB and Lim was merely an option contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parties thereto but by principles of law. [6] In determining the
nature of a contract, the courts are not bound by the name or title given to it by the contracting parties. [7] In the case at bar, the
sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money
or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,[8] we explained the nature
of an option contract, viz. -

An option contract is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the
party who has given the option not to enter into the principal contract with any other person during the period
designated, and within that period, to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate agreement distinct from the contract to which the
parties may enter upon the consummation of the option. Newmiso

An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result
in the perfection or consummation of the sale. Only when the option is exercised may a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the
balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of
paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a
contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based
on the testimony of the witnesses establish that CDB accepted Lims offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs offer as good and no longer subject
to a final approval. In his testimony for the defendants on February 13, 1992, FEBTCs Leomar Guzman stated
that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs offer to purchase was
endorsed thereto by Myoresco Abadilla, CDBs senior vice-president, with a recommendation that the
necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord
with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p.
12); that, in compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988
(Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was
thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure, and neither did the banks return
the amount of P30,000.00 to the plaintiffs.[9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale was perfected and, indeed, partially
executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale,
rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of the property. Acctmis
 11

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying this precept to
a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price.[10] It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that
such subject matter of the sale exists at that point in time. [11] Thus, under Art. 1434 of the Civil Code, when a person sells or
alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the
buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However,
under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing
sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation
stage where the principle of nemo dat quod non habet applies.

In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the sellers of the subject land were no longer the
owners of the same because of a prior sale.[13] Again, in Nool v. Court of Appeals,[14] we ruled that a contract of repurchase, in
which the seller does not have any title to the property sold, is invalid:

We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid and enforceable
contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale
contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of
the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held:

"Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses,
they were no longer owners of the same and the sale is null and void."

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale.
Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void.
A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a)
contract which is the direct result of a previous illegal contract, is also void and inexistent."

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the
sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners)
does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the
Civil Code itself recognizes a sale where the goods are to be acquired x x x by the seller after the perfection of
the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of
sale, provided he acquires title to the property later on. Misact

In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to
the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner,
the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No.
5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil
Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the
time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. [15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a
nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property
because the foreclosure sale, by virtue of which the property had been awarded to CDB as highest bidder, is likewise void since
the mortgagor was not the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which
the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder
who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the
owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 2085 [16] of the Civil Code, in providing for the
essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the
absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in
the payment of the loan.
 12

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title
being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy.
This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. [17] The
public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate
of title. Sdjad

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed investigation of
the history of the title of the property given as security before accepting a mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith.
While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagors title, they cannot be
excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,[18] we noted that it is
standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and
to investigate who are the real owners thereof, noting that banks are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands, for their business is affected with public interest. We held
thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original
registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one
who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that
one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of
title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being
the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly
acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances
apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when
the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it
was by means of a self-executed deed of extra-judicial settlement, a fact which should be noted on the face of
Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense
of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the
reversal of the judgment rendered against it by the lower court. [19]

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansings title.
It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With
Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that
Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible
defect in or question as to the mortgagors title. Moreover, the alleged ocular inspection report[20] by CDBs representative was
never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by
persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.[21] Sppedsc

II.

The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of
the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim
was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its
title having been cancelled.[22] Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation
and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagors title was cancelled; (3) CDB is not
privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagors title was not annotated in the
latters title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be
properly raised.[23] Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls
under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we
are convinced of petitioners negligence in approving the mortgage application of Rodolfo Guansing.
 13

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:

....

(2).......When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.

Private respondents are thus entitled to recover the P30,000.00 option money paid by them. Moreover, since the filing of the
action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at
the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988,
when petitioners accepted the payment. This is in accord with our ruling in Castillo v. Abalayan[24] that in case of a void sale,
the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it, with interest at the legal rate,
computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party
"may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return what was
given does not become legally demandable. Sccalr

Considering CDBs negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and
our ruling in Tan v. Court of Appeals[25]that moral damages may be recovered even if a banks negligence is not attended with
malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages
are only intended to alleviate the moral suffering undergone by private respondents, not to enrich them at the expense of the
petitioners.[26] Accordingly, the award of moral damages must be reduced to P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive
and should be reduced to P30,000.00. The award of P30,000.00 attorneys fees based on Art. 2208, pars. 1, 2, 5 and 11 of the
Civil Code should similarly be reduced to P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of damages as
above stated.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

 14

6. Cagungun vs. Planters Development Bank 473 SCRA 259

SECOND DIVISION

LAPRECIOSISIMA CAGUNGUN, G.R. No. 158674

REMEDIOS L. CAGUNGUN, JESUS L.
CAGUNGUN, VICENTE L. CAGUNGUN, JR., Present:
RICARDO L. CAGUNGUN, EDUARDO L. PUNO,
CAGUNGUN, ROWENA L. CAGUNGUN, Chairman,
ALVIN L. CAGUNGUN and ALMA L. AUSTRIA-MARTINEZ,*
CAGUNGUN, P e t i t i o n e r s, CALLEJO, SR.,
- versus - TINGA, and
CHICO-NAZARIO, JJ.
PLANTERS DEVELOPMENT BANK, R e s p o
n d e n t. Promulgated: October 17,
2005
X--------------------------------------------------X

DECISION

CHICO-NAZARIO, J.:

Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure are the decision [1] of the
Court of Appeals dated 25 March 2002 that modified the decision of the Regional Trial Court (RTC) of Olongapo City, Branch
74, in Civil Case No. 245-0-83, dated 26 June 1997, deleting the awards of moral and exemplary damages and finding that the
mortgaged loan was deemed paid and enjoining foreclosure, as well as reducing the awards for litigation fees and expenses, and
its Resolution[2] dated 06 June 2003 denying petitioners Lapreciosisima Cagungun, et al.s motion for reconsideration.

The antecedents are summarized by the Court of Appeals in its decision as follows:

On September 1, 1987, the spouses Vicente Cagungun and Lapreciosisima Cagungun (or the Cagungun
spouses) filed suit with the Regional Trial Court of Olongapo City against the Country Development Bank (or
COUNTRY), and which was docketed as Civil Case No. 245-083 and assigned to Branch 74. Vicente
Cagungun has since died and was substituted as plaintiff on August 8, 1984 by their children. On the other
hand COUNTRY has entered into a merger and reflective of this the party defendant has been changed to
Planters Development Bank (or PLANTERS) on September 1, 1987.

COUNTRY had opened an extension office in Olongapo City, and among their first customers were
the Cagungun spouses who had diverse business interests in the locality. They opened some accounts, and for
two (2) of which they were issued Savings Passbook No. 12241-16 in the name of Purings Dry Goods and
Savings Passbook No. 38470-29 in the names of V/L Cagungun.

It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law Sarah
Cagungun, that because of the exigencies of their businesses that required daily deposits of the proceeds and
of the trust that they have reposed with COUNTRY and its personnel, they entrusted and left with them their
said savings pass books. At least once a day the Branch manager Ruperto Reyes or a certain Bong and Ding
would come to get their funds and with the agreement that these would be rounded off and deposited to their
account while the odd remainder would be applied to their loan. The arrangement apparently went well, until
March 1981 when the Cagungun spouses received a letter from COUNTRY telling them that their loan is past
due and payment was demanded . . . or else. This prompted them to investigate, but this was tedious and
difficult because of lack of cooperation and even resistance from COUNTRY. But with the help of friends in
high places the Cagungun spouses were able to access and pry information that in the year 1979 on the dates
of October 8, 18, 20 and 31 and November 15, and December 4 and 8, with the use of withdrawal slips a total
of P220,000.00 was withdrawn from their Savings Passbook No. 12241-16. These withdrawals were invalid
for no such withdrawal was authorized, made or received by the depositors, and the signatures of Vicente
 15

Cagungun on the slips were forgeries. This was confirmed by Arcadio Ramos, Chief of the Questioned
Documents Division of the NBI when these were subjected to examination.

The side of PLANTERS was explicated by its employees, Internal Auditor Lilia Tactay, Branch
Manager Lolita Mendoza and Cashier Bella Lumanog. It was explained that the withdrawal of P20,000.00
made on October 8, 1979 from Savings Account No. 12241-16 and the withdrawals of a total of P30,000.00
from several of the other accounts of the spouses, were placed on time deposits on the same date by Vicente
Cagungun in five (5) accounts held with their children. The other said withdrawals from Savings Account No.
12241-16 were made by Vicente Cagungun in exchange for Managers Checks made in the names of payees
Santiago Lee, Rosita Saldana, Benito Yap and Joaquin Aganda.[3]

The lower court ruled, among other things, that the withdrawals from Savings Account No. 12241-16 through seven (7)
withdrawal slips[4] amounting to P220,000.00 were not made by petitioners as the alleged signatures of Vicente Cagungun, Jr.
appearing therein were falsified as confirmed by the National Bureau of Investigation Handwriting Expert Arcadio Ramos. It
likewise considered petitioners to have paid their mortgage loan in the amount of P58,297.16 in view of their instruction to
respondent to apply their funds in Savings Account No. 38470-29 thereto which were adequate for this purpose.

For not applying the savings of petitioners in Savings Account No. 38470-29 as payment to their loan, thereby causing
the threatened foreclosure of the real estate mortgage over their house and lot, and for allowing the unauthorized withdrawals
from Savings Account No. 12241-16 through falsified withdrawal slips, the lower court held respondent liable to pay moral
damages. For ignoring the two (2) demand letters of petitioners, the demand letter of petitioners counsel and the representations
made by Pampanga Gov. Estelito Mendoza and Central Bank Governor Jaime Laya, and for the attempt to cover up the
misdeeds of its employees constituting malice and bad faith, respondent was also ordered to pay exemplary damages as an
example to others. On account of these acts, respondent was also ordered to pay attorneys fees and the cost of suit.

In its decision[5] dated 26 June 1997, the lower court disposed of the case in this wise:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant as
follows:

1.) Enjoining the defendant from foreclosing the mortgage of plaintiffs property located at No. 88
Gordon Avenue, Pag-asa, Olongapo City;

2.) Ordering the defendant to pay plaintiffs the amount of P220,000.00 actual damages representing
the total amount withdrawn from their accounts plus twelve (12%) per cent interest per annum from the date
of the filing of the complaint until it shall have been fully paid;

3.) Considering plaintiffs mortgaged account in the amount of P58,297.16 to have been paid;

4.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 moral damages;

5.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 exemplary damages; and

6.) Ordering defendant to pay plaintiffs the amount of P50,000.00 litigation expense, P50,000.00
attorneys fee plus the cost of suit.[6]

Aggrieved, respondent appealed to the Court of Appeals.

The Court of Appeals agreed that money was withdrawn from the deposits of petitioners without their authority or
knowledge, and that this was done by one or some of the personnel of respondent. However, it held that petitioners are not free
from the obligation to pay the admitted loan (P58,297.16) for though the same was not paid for failure of respondent to comply
with the instruction to apply the remainder of the sums deposited to their loan, it remained admittedly an unpaid obligation. It
removed the awards for moral and exemplary damages and reduced the awards for attorneys fees and litigation expenses.
The Court of Appeals promulgated its decision on 25 March 2002, the dispositive portion of which reads:
 16

WHEREFORE, the appealed decision is AFFIRMED, but with these MODIFICATONS (a) the dispositions in
Par. 1 and Par. 3 of the fallo deeming the mortgaged loan paid and enjoining foreclosure, are DELETED; (b)
the disposition in Par. 4 and Par. 5 of the fallo awarding moral and exemplary damages, are DELETED; and (c)
the awards of litigation fees and expenses are REDUCED to a combined P30,000.00.[7]

The motion for reconsideration filed by petitioners was denied in a resolution dated 06 June 2003. [8]

Petitioners are now before us assailing the Decision and Resolution of the Court of Appeals when the latter:

(A) DELETED THE PORTION OF THE RTC DECISION DECLARING THE MORTGAGED
LOAN PAID AND ENJOINING FORECLOSURE;

(B) DELETED THE AWARD OF MORAL AND EXEMPLARY DAMAGES; AND

(C) REDUCED THE LITIGATION FEES AND EXPENSES.[9]

Respondent filed a Comment[10] on 04 September 2003 to which petitioners filed their Reply[11] dated 06 February
2004.

On 06 December 2004, the Court gave due course to the petition and required the parties to submit their respective
memoranda within thirty (30) days from notice.[12] Both parties complied.[13]

We first discuss the deletion made by the Court of Appeals of the awards of moral damages and exemplary damages.

Petitioners maintain that the Court of Appeals erred in removing the award of moral damages considering that it is
settled jurisprudence that the same should be awarded when the injured party suffers mental anguish and serious anxiety. They
contend that the Court of Appeals failed to appreciate the torment they suffered from the time they noticed their deposits were
not properly recorded until the receipt of respondents letter threatening the foreclosure of their residential house and lot for a
loan of P58,000.00. They narrated that respondent bank refused to give them copies of the ledgers of their deposits as well as
copies of the withdrawal slips. Despite the intercession of Pampanga Governor Estelito Mendoza and Central Bank Governor
Jaime Laya, respondent did not give them copies of the ledgers and withdrawal slips. It was only after the Chief of the Criminal
Investigation Service (CIS) of the Philippine Constabulary sent two of his investigators, whom they authorized to look into the
records of their deposits, that they received copies thereof. They discovered therein that the sum of P220,000.00 was withdrawn
from their accounts by respondent bank through its employees by falsifying the signatures of Vicente Cagungun, Jr. in seven
withdrawal slips. Despite the forgeries, they refused to acknowledge its liability. Thus, on 07 September 1983, in order to
protect their rights, petitioners were forced to file the instant case with prayer for issuance of a temporary restraining order
and/or writ of preliminary injunction to enjoin the foreclosure of their property. Petitioners insist that respondent, in allowing
withdrawals in their savings account without their authority or knowledge, is guilty of gross negligence to which it is liable for
moral damages.

On the other hand, respondent maintains that the Court of Appeals was correct in deleting the award of moral damages.

Respondent argues that it should not be faulted if petitioners had to experience inconveniences in acquiring copies of
ledgers of their deposits as well as copies of the withdrawal slips since certain banking procedures must be observed. It
likewise faults petitioners for not strictly observing security rules of financial institutions in the care and custody of their
passbooks, as well as in the standard operating procedure for deposits and withdrawals which led to the alleged improper
recording of deposits and the alleged losses they incurred. It stresses that passbooks should be securely kept by the owner but,
in the case of petitioners, they openly entrusted their passbooks to other people leaving them totally unable to monitor their
transactions. It added that there was absence of any actual injury on the part of the petitioners. It asserts that it neither acted in
bad faith nor took advantage of petitioners deposit for its use and benefit. It claims that petitioners failed to establish fraud on
the part of respondent bank as to make it liable for the alleged improper recording of deposits. It claims that petitioners failed to
present in court the persons (Bong or Ding) to whom they entrusted their money for deposit and to prove that Ruperto Reyes,
then Officer-In-Charge (O-I-C) of the Extension Office of Country Development Bank, defrauded them by facilitating
withdrawals for the benefit of the bank. No proof was adduced to show that they verified if the persons to whom they delegated
 17

to make the deposits faithfully performed the tasks in accordance with their intentions. Respondent insists that it is the
negligence of petitioners, not fraud on its part, which was the reason that petitioners deposits were not applied in accordance
with their intentions resulting to the (threatened) foreclosure of their mortgaged property.

From the foregoing reasons advanced by respondent bank, it is apparent that it is trying to pass all the blame on
petitioners for the unauthorized withdrawals amounting to P220,000.00 and the non-applications of deposits to their loan.

This cannot be. The fact that petitioners left the custody of their passbooks to respondent, through its employee O-I-C
Ruperto Reyes, and that they entrusted to Bong or Ding their deposits will not excuse respondent from being liable. Petitioners
did these things because they trusted and depended on respondent to take care of their accounts with it. If respondent bank was
really strict in enforcing the banking rule that the passbook must be kept by the depositor, why did it not do so? For its failure,
any anomaly or damage that might result therefrom should be borne by it.
We, likewise, find untenable respondents contention that petitioners should have presented O-I-C Ruperto Reyes,
Bong or Ding as witnesses to clear the air. On the contrary, it should have been respondents duty to present these persons they
being their employees. It should have presented these people, especially O-I-C Ruperto Reyes, who had custody of the
passbooks, to explain why unauthorized withdrawals were made and why the instruction to apply petitioners deposit to their
loan was not complied with.
The bank was indeed grossly negligent when it allowed the sum of P220,000.00 to be withdrawn through falsified
withdrawal slips without petitioners authority and knowledge and its failure to comply with petitioners instruction to apply their
deposits on their loan. In so doing, respondent bank breached the trust that petitioners reposed on it.

We agree in the findings of the two courts below that the unauthorized transactions were committed by one or some of
the employees of respondent bank for which it should be liable. The evidence showed that respondent did not exercise the
degree of diligence it ought to have exercised in dealing with its clients -- diligence higher than that of a good father of a family.
If only respondent exercised such diligence, no anomaly or irregularity would have happened.

In the case of Philippine National Bank v. Pike,[14] we discussed the degree of diligence imposed on banks as follows:

With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than
that of a good father of a family considering that the business of banking is imbued with public interest due to
the nature of their functions. The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking.
Section 2 of Republic Act No. 8791, which took effect on 13 June 2000, makes a categorical declaration that
the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.

Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a
statutory affirmation of Supreme Court decisions already in esse at the time of such withdrawals. We
elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals that the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.

Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals, we
clarified that said fiduciary relationship means that the banks obligation to observe highest standards of
integrity and performance is deemed written into every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the New Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a family. In
every case, the depositor expects the bank to treat his account with utmost fidelity, whether such accounts
consists only of a few hundred pesos or of millions of pesos.

Settled is the rule that gross negligence of a bank in the handling of its clients deposit amounts to bad faith that calls for an
award of moral damages. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly
caused.[15]
 18

In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals from the deposits of petitioners and its
non-compliance with petitioners instructions regarding the loan payments constitute gross negligence which justifies the award
of moral damages. As employer, respondent is liable for the negligence or misdeed of its employees which caused petitioners to
have sleepless nights thinking about the threatened foreclosure of their house and lot. In addition, the way respondent gave
petitioners a hard time in securing copies of their withdrawal slips and ledgers of their deposits is an indication of bad faith.
Respondent could have easily cooperated with petitioners by immediately furnishing the latter with documents they wanted.
This was not to be. Written communications from petitioners lawyers and from the Central Bank Governor were not sufficient
in order that respondent will provide petitioners with the documents they needed. It was only after two agents of the CIS of the
Philippine Constabulary went to the bank that respondent was obliged to give petitioners what they were asking for.

In culpa contractual or breach of contract, as in the case[16] before us, moral damages are recoverable only if the defendant has
acted fraudulently or in bad faith,[17] or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations.[18]

In fine, the requisites on award of moral damages would require, firstly, evidence of besmirched reputation or physical,
mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly,
proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and
fourthly, that the case is predicated on any of the instances expressed or envisioned by Article 2219[19] and Article 2220 of the
Civil Code.[20]
All these elements are present in the instant case.

There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case
must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.[21] We
find the sum of P300,000.00 awarded by the lower courts excessive. In our view, the award of P100,000.00 as moral damages
is reasonable and is in accord with our rulings in similar cases involving banks negligence with regard to the accounts of their
depositors.[22]

Anent the removal by the Court of Appeals of the award of exemplary damages, we find the same to be not in order.

The law allows the grant of exemplary damages to set an example for the public good. [23] The banking system has
become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society.
Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce,
banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude
and most of all, confidence.[24] For this reason, banks should guard against injury attributable to negligence or bad faith on its
part.[25] The award of exemplary damages is warranted by the failure of respondent bank to prevent the unauthorized
withdrawals from petitioners deposits and its failure to properly apply the latters deposits to their loan. We, however, find
the P300,000.00 awarded by the lower court to be excessive and should accordingly be reduced to P50,000.00.

On the matter of attorneys fees and expenses of litigation, it is settled that the reasons or grounds for the award thereof
must be set forth in the decision of the court.[26] An award of attorneys fees, being an exception from the policy of not putting a
premium or a penalty on the right to litigate, has since been limited to the grounds specified by law. [27] Article 2208[28] of the
Civil Code enumerates the instances where attorneys fees and expenses of litigation can be recovered.

In the case at bar, the RTC clearly stated in its decision that petitioners are entitled to attorneys fees and litigation
expenses because they were compelled to litigate in order to protect their interest. We agree. Moreover, there being an award
for exemplary damages, it follows that there should be an award of attorneys fees and litigation expenses. However, the awards
of P50,000.00 for attorneys fees and P50,000.00 for litigation expenses by the RTC are too much, while the award
of P30,000.00 of the Court of Appeals for both is too small. In as much as this case has been pending for more than twenty (20)
years, the award of P25,000.00 for each will be sufficient.

Petitioners claim that the Court of Appeals erred in deleting the portions of the RTC decision declaring their mortgage
loan paid and enjoining foreclosure. They insist that they were able to prove that the amounts of P30,000.00 and P118,000.00
were respectively withdrawn from their accounts (SA No. 38470-29 and No. 12241-16) and that same were not applied as
payment for their loan. They maintain that by adding together said amounts, the sum thereof is sufficient to pay their loan and
to consider the real estate mortgage as discharged.
 19

Looking at the complaint filed by petitioners, there is no allegation that said amounts were withdrawn from their
accounts and that same were not applied as payments for their loan. Petitioners likewise did not ask in their prayer that said
amounts be returned to them or that they be used to off-set their indebtedness to respondent. Moreover, when petitioners tried
to prove this allegation, counsel for respondent objected[29] and attempted to have the testimony thereon stricken off the record
on the ground of allegata et probata.[30]

Under Section 5, Rule 10 of the Revised Rules of Court, [31] if evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the Court may allow the pleadings to be amended freely when the presentation of
the merits of the action will be subserved thereby and the admission of such evidence would not prejudice the objecting party in
maintaining his action or defense upon the merit. Said section reads:

Sec. 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if
they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any party at any time, even
after judgment but failure to amend does not affect the result of the trial of these issues. If evidence is objected
to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so freely when presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice
him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.

It is thus clear that when there is an objection on the evidence presented because it is not within the issues made by the
pleadings, an amendment must be made before accepting such evidence. If no amendment is made, the evidence objected to
cannot be considered. In the case before us, the trial court, there being an objection on the evidence being presented by
respondent, failed to order the amendment of the complaint. Thus, we are constrained not to consider evidence regarding
the P30,000.00 and P118,000.00 allegedly withdrawn from their accounts. With this ruling, it follows that the outstanding loan
of petitioners in the amount of P58,297.16 remains unpaid.

As regards respondents right to exercise its right to foreclosure of the real estate mortgage on petitioners property, we rule that
respondent cannot exercise such right under the circumstances obtaining. It will be the height of inequity if we allow such a
thing. The evidence is clear that the sum of P220,000.00 was withdrawn from petitioners deposits without their knowledge and
authority. This amount is more than sufficient to pay for the loan had it not been illegally withdrawn. Neither should petitioners
be held liable for any interest on the remaining balance of the loan considering that they could have easily settled their
obligation with respondent if they were not embroiled in the anomaly caused by respondents employees. Finally, payment for
the remaining balance of the loan amounting to P58,297.16 should be deducted from the actual damages awarded by the court.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The 25 March 2002 decision of the Court of
Appeals modifying the decision of the Regional Trial Court of Olongapo City is AFFIRMED with MODIFICATIONS. As
modified, respondent Planters Development Bank is ordered to pay petitioners the following: (1) P220,000.00 as actual
damages representing the total amount withdrawn from petitioners accounts plus interest of 6% per annum to be computed
from the date of the filing of the complaint which interest rate shall become 12% per annum from the time of finality of this
judgment until actual payment; (2) P100,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) P25,000.00
as attorneys fees and P25,000.00 for litigation expenses. Respondent is enjoined from foreclosing the real estate mortgage on
petitioners property located at No. 88 Gordon Avenue, Pag-asa, Olongapo City. Payment for the outstanding loan of petitioners
in the amount of P58,297.16 shall be deducted from the damages awarded by the Court.

SO ORDERED.
 20

7. Heirs of Eduardo Manlapat vs. CA 459 SCRA 412

SECOND DIVISION

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG and LEON M. BANAAG, JR.,
Petitioners, vs.HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and ROSALINA CRUZ-BAUTISTA, and the REGISTER OF DEEDS of Meycauayan,
Bulacan,Respondents.

Present:PUNO, J.,*Chairman, AUSTRIA-MARTINEZ, Acting Chairman, CALLEJO, SR.,TINGA, and CHICO-NAZARIO, JJ.
Promulgated: June 8, 2005

x-------------------------------------------------------------------x

DECISION

TINGA, J.:

Before this Court is a Rule 45 petition assailing the Decision[1] dated 29 September 1994 of the Court of Appeals that reversed
the Decision[2] dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court declared
Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No. T-9327-P(M) as void ab initio and ordered the restoration of
Original Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners
predecessor-in-interest.

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located at Panghulo, Obando,
Bulacan. The property had been originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise in 1916. It
remained unregistered until 8 October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free
patent issued in Eduardos name[3] that was entered in the Registry of Deeds of Meycauayan, Bulacan.[4] The subject lot is
adjacent to a fishpond owned by one

Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).[5]

On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an area of 553 square meters to
Ricardo. The sale is evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo
(Kasulatan)[6] which was signed by Eduardo himself as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez
signing as witness. The deed was notarized by Notary Public Manolo Cruz.[7] On 4 April 1963, the Kasulatan was registered
with the Register of Deeds of Bulacan.[8]

On 18 March 1981, another Deed of Sale[9] conveying another portion of the subject lot consisting of 50 square meters as right
of way was executed by Eduardo in favor of Ricardo in order to reach the portion covered by the first sale executed in 1954 and
to have access to his fishpond from the provincial road.[10] The deed was signed by Eduardo himself and his wife Engracia
Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July 1981 by
Notary Public Arsenio Guevarra.[11]

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo, executed a mortgage with the
Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag deposited the
owners duplicate certificate of OCT No. P-153(M) with the bank.

On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the name of Eduardo.[12] His
heirs, the Cruzes, were not immediately aware of the consummated sale between Eduardo and Ricardo.

Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse; and children, Patricio,
Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the heirs of Eduardo
 21

(petitioners) inform the Cruzes of the prior sale in favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes
came to learn about the sale and the issuance of the OCT in the name of Eduardo.

Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners on the mortgage and obtain
the surrender of the OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the Bureau of
Lands, NCR Office, they brought the matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During the
hearing, petitioners were informed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for
the purpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, were unwilling to surrender the
OCT.[14]

Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went to RBSP which had custod y
of the owners duplicate certificate of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with RBSPs
manager, Jose Salazar (Salazar), the Cruzes sought to borrow the owners duplicate certificate for the purpose of photocopying
the same and thereafter showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to bring the owners
duplicate certificate outside the bank premises when the latter showed the Kasulatan.[15] The Cruzes returned the owners
duplicate certificate on the same day after having copied the same. They then brought the copy of the OCT to Register of Deeds
Jose Flores (Flores) of Meycauayan and showed the same to him to secure his legal opinion as to how the Cruzes could legally
protect their interest in the property and register the same.[16] Flores suggested the preparation of a subdivision plan to be able
to segregate the area purchased by Ricardo from Eduardo and have the same covered by a separate title.[17]

Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration Officer, Director III, Legal
Affairs Department, Land Registration Authority at Quezon City, who agreed with the advice given by Flores.[18] Relying on
the suggestions of Flores and Arandilla, the Cruzes hired two geodetic engineers to prepare the corresponding subdivision plan.
The subdivision plan was presented to the Land Management Bureau, Region III, and there it was approved by a certain Mr.
Pambid of said office on 21 July 1989.

After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked for the owners duplicate
certificate from Salazar. The Cruzes informed him that the presentation of the owners duplicate certificate was necessary, per
advise of the Register of Deeds, for the cancellation of the OCT and the issuance in lieu thereof of two separate titles in the
names of Ricardo and Eduardo in accordance with the approved subdivision plan.[19] Before giving the owners duplicate
certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the
latter a clearance to borrow the title. Atty. Santiago would give the clearance on the condition that only Cruzes put up a
substitute collateral, which they did.[20] As a result, the Cruzes got hold again of the owners duplicate certificate.

After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the subdivision plan, the Register
of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in
the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455 square meters in the name of Eduardo.[21]

On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo
and retrieved the title they had earlier given as substitute collateral. After securing the new separate titles, the Cruzes furnished
petitioners with a copy of TCT No. 9327-P(M) through the barangay captain and paid the real property tax for 1989.[22]

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector, Department III of the Central Bank
of the Philippines, inquiring whether they committed any violation of existing bank laws under the circumstances. A certain
Zosimo Topacio, Jr. of the Supervision Sector sent a reply letter advising the Cruzes, since the matter is between them and the
bank, to get in touch with the bank for the final settlement of the case.[23]

In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation. It was only then that he
learned of the dealings of the Cruzes with the bank which eventually led to the subdivision of the subject lot and the issuance of
two separate titles thereon. In exchange for the full payment of the loan, RBSP tried to persuade petitioners to accept TCT No.
T-9327-P(M) in the name of Eduardo.[24]

As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the issuance of the TCTs, to wit:
 22

(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapat against Consuelo Cruz,
Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy Registrar,
Meycauayan Branch of the Registry of Deeds of Bulacan;

(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by Rural Bank of San Pascual, Inc. against
the spouses Ricardo Cruz and Consuelo Cruz, et al.[25]

After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs of Eduardo, the dispositive
portion of which reads:

WHEREFORE, premised from the foregoing, judgment is hereby rendered:

1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as void ab initio and ordering the Register of
Deeds, Meycauayan Branch to cancel said titles and to restore Original Certificate of Title No. P-153(M) in the name of
plaintiffs predecessor-in-interest Eduardo Manlapat;

2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz and Rosalina Cruz-Bautista, to pay the
plaintiffs Heirs of Eduardo Manlapat, jointly and severally, the following:

a)P200,000.00 as moral damages;

b)P50,000.00 as exemplary damages;

c)P20,000.00 as attorneys fees; and

d)the costs of the suit.

3.Dismissing the counterclaims.

SO ORDERED.[26]

The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this matter, it ruled tha t
petitioners were bona fide mortgagors of an unclouded title bearing no annotation of any lien and/or encumbrance. This fact,
according to the trial court, was confirmed by the bank when it accepted the mortgage unconditionally on 25 November 1981.
It found that petitioners were complacent and unperturbed, believing that the title to their property, while serving as security for
a loan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice, said title was subdivided into
two portions, leaving them a portion of 455 square meters from the original total area of 1,058 square meters, all because of the
fraudulent and negligent acts of respondents and RBSP. The trial court ratiocinated that even assuming that a portion of the
subject lot was sold by Eduardo to Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes
which eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage
and prejudice of petitioners.[27]

Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled that although the act of the
Cruzes could be deemed fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of
negligence in letting the Cruzes borrow the owners duplicate certificate of the OCT. Neither the bank nor its manager had
business entrusting to strangers titles mortgaged to it by other persons for whatever reason. It was a clear violation of the
mortgage and banking laws, the trial court concluded.
 23

The trial court also ruled that although Salazar was personally responsible for allowing the title to be borrowed, the bank could
not escape liability for it was guilty of contributory negligence. The evidence showed that RBSPs legal counsel was sought for
advice regarding respondents request. This could only mean that RBSP through its lawyer if not through its manager had
known in advance of the Cruzes intention and still it did nothing to prevent the eventuality. Salazar was not even summarily
dismissed by the bank if he was indeed the sole person to blame. Hence, the banks claim for damages must necessarily fail.[28]

The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of its declaration that
reconveyance was in order. As to Flores, his work being ministerial as Deputy Register of the Bulacan Registry of Deeds, the
trial court absolved him of any liability with a stern warning that he should deal with his future transactions more carefully and
in the strictest sense as a responsible government official.[29]

Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court of Appeals. The appellate
court, however, reversed the decision of the RTC. The decretal text of the decision reads:

THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costs against the appellees.

SO ORDERED.[30]

The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 or before the 1981 mortgage,
Eduardo already sold to Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals
noted, is even supported by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo,
and registered with the Register of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the second
time, Eduardo sold to Ricardo a separate area containing 50 square meters, as a road right-of-way.[31] Clearly, the OCT was
issued only after the first sale. It also noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even of
the banks counsel.[32] Hence, the imposition of damages cannot be justified, the Cruzes themselves being the owners of the
property. Certainly, Eduardo misled the bank into accepting the entire area as a collateral since the 603-square meter portion
did not anymore belong to him. The appellate court, however, concluded that there was no conspiracy between the bank and
Salazar.[33]

Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a) can a mortgagor be compelled to
receive from the mortgagee a smaller portion of the originally encumbered title partitioned during the subsistence of the
mortgage, without the knowledge of, or authority derived from, the registered owner; (b) can the mortgagee question the
veracity of the registered title of the mortgagor, as noted in the owners duplicate certificate, and thus, deliver the certificate to
such third persons, invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor; (c) can an
adverse prior claim against a registered title be noted, registered and entered without a competent court order; and (d) can belief
of ownership justify the taking of property without due process of law?[34]

The kernel of the controversy boils down to the issue of whether the cancellation of the OCT in the name of the petitioners
predecessor-in-interest and its splitting into two separate titles, one for the petitioners and the other for the Cruzes, may be
accorded legal recognition given the peculiar factual backdrop of the case. We rule in the affirmative.

Private respondents (Cruzes) own the portion titled in their names

Consonant with law and justice, the ultimate denouement of the property dispute lies in the determination of the respective
bases of the warring claims. Here, as in other legal disputes, what is written generally deserves credence.

A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of ownership over the
portion of Lot No. 2204 with an area of 553 square meters. The duly notarized instrument of conveyance was executed in 1954
to which no less than Eduardo was a signatory. The execution of the deed of sale was rendered beyond doubt by Eduardos
 24

admission in his Sinumpaang Salaysay dated 24 April 1963.[35] These documents make the affirmance of the right of the
Cruzes ineluctable. The apparent irregularity, however, in the obtention of the owners duplicate certificate from the bank, later
to be presented to the Register of Deeds to secure the issuance of two new TCTs in place of the OCT, is another matter.

Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in 1976 in favor of Eduardo; thus,
the Cruzes claim of ownership based on the sale would not hold water. The Court is not persuaded.

Registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly
to bind third persons.[36] The principal purpose of registration is merely to notify other persons not parties to a contract that a
transaction involving the property had been entered into. Where the party has knowledge of a prior existing interest which is
unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of
registration as to him.[37]

Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The conveyance shall not be
valid against any person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third persons having actual
notice or knowledge thereof.[38] Not only are petitioners the heirs of Eduardo, some of them were actually parties to the
Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer
required to bind the heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute mortgage over disputed portion

The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:

ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own
property. (emphasis supplied)

For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article
2085 of the New Civil Code.[39] The mortgagor must be the owner, otherwise the mortgage is void.[40] In a contract of
mortgage, the mortgagor remains to be the owner of the property although the property is subjected to a lien.[41] A mortgage is
regarded as nothing more than a mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgagee
and gives him no right or claim to the possession of the property.[42] In this kind of contract, the property mortgaged is merely
delivered to the mortgagee to secure the fulfillment of the principal obligation.[43] Such delivery does not empower the
mortgagee to convey any portion thereof in favor of another person as the right to dispose is an attribute of ownership.[44] The
right to dispose includes the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the
property, cannot dispose of the whole or part thereof nor cause the impairment of the security in any manner without violatin g
the foregoing rule.[45] The mortgagee only owns the mortgage credit, not the property itself.[46]

Petitioners submit as an issue whether a mortgagor may be compelled to receive from the mortgagee a smaller portion of the lot
covered by the originally encumbered title, which lot was partitioned during the subsistence of the mortgage without the
knowledge or authority of the mortgagor as registered owner. This formulation is disingenuous, baselessly assuming, as it does,
as an admitted fact that the mortgagor is the owner of the mortgaged property in its entirety. Indeed, it has not become a salient
issue in this case since the mortgagor was not the owner of the entire mortgaged property in the first place.

Issuance of OCT No. P-153(M), improper

 25

It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of Eduardo, without any
annotation of any prior disposition or encumbrance. However, the property was sufficiently shown to be not entirely owned by
Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of the records is that the OCT was issued in 1976, long
after the Kasulatan was executed way back in 1954. Thus, a portion of the property registered in Eduardos name arising from
the grant of free patent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud cannot be
accorded judicial sanction.

Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not apply where fraud attended
the issuance of the title, as was conclusively established in this case. The Torrens title does not furnish a shied for fraud.[47]
Registration does not vest title. It is not a mode of acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually has, especially if the registration was done in bad
faith. The effect is that it is as if no registration was made at all.[48] In fact, this Court has ruled that a decree of registration cut
off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the landnot to the right of
ownership thereofwhich was not annotated on the certificate of title issued thereon.[49]

Issuance of TCT Nos. T-9326-P(M) and T-9327-P(M), Valid

The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of the Cruzes and the other for
the portion retained by petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No. 1529 or the
Property Registration Decree. It provides:

SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary instrument shall be registered by the
Register of Deeds, unless the owners duplicate certificate is presented with such instrument, except in cases expressly provided
for in this Decree or upon order of the court, for cause shown.

The production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration,
shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding
upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to
such fraud without prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition
or application, any subsequent registration procured by the presentation of a forged duplicate certificate of title, or a forged
deed or instrument, shall be null and void. (emphasis supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No. 1529. The argument is
baseless. It must be noted that the provision speaks of forged duplicate certificate of title and forged deed or instrument.
Neither instance obtains in this case. What the Cruzes presented before the Register of Deeds was the very genuine owners
duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the instruments of
conveyance are authentic, not forged. Section 53 has never been clearer on the point that as long as the owners duplicate
certificate is presented to the Register of Deeds together with the instrument of conveyance, such presentation serves as
conclusive authority to the Register of Deeds to issue a transfer certificate or make a memorandum of registration in
accordance with the instrument.

The records of the case show that despite the efforts made by the Cruzes in persuading the heirs of Eduardo to allow them to
secure a separate TCT on the claimed portion, their ownership being amply evidenced by the Kasulatan and Sinumpaang
Salaysay where Eduardo himself acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the notion of
separate titling. This prompted the Cruzes to approach the bank manager of RBSP for the purpose of protecting their property
right. They succeeded in persuading the latter to lend the owners duplicate certificate. Despite the apparent irregularity in
allowing the Cruzes to get hold of the owners duplicate certificate, the bank officers consented to the Cruzes plan to register the
deeds of sale and secure two new separate titles, without notifying the heirs of Eduardo about it.

Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the manner of acquiring the owners
duplicate for purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central Bank officer, in
rendering an opinion on the legal feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply
requires the production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, and
 26

the same shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding
upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.

Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending of the owners duplicate
certificate constitutes fraud within the ambit of the third paragraph of Section 53 which could nullify the eventual issuance of
the TCTs. Yet we cannot subscribe to their position.

Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where the property was
mortgaged. Through its manager and legal officer, they were assured of recovery of the claimed parcel of land since they are
the successors-in-interest of the real owner thereof. Relying on the bank officers opinion as to the legality of the means sought
to be employed by them and the suggestion of the Central Bank officer that the matter could be best settled between them and
the bank, the Cruzes pursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds eventually issued
the disputed TCTs.

The Cruzes resorted to such means to protect their interest in the property that rightfully belongs to them only because of the
bank officers acquiescence thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo without the
banks approval. Banks, their business being impressed with public interest, are expected to exercise more care and prudence
than private individuals in their dealings, even those involving registered lands.[50] The highest degree of diligence is expected,
and high standards of integrity and performance are even required of it.[51]

Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title of the mortgagor as noted in
the owners duplicate certificate, and, thus, he cannot deliver the certificate to such third persons invoking an adverse, prior, and
unregistered claim against the registered title of the mortgagor. The strength of this argument is diluted by the peculiar fa ctual
milieu of the case.

A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking
institutions. A mortgagee-bank must exercise due diligence before entering into said contract. Judicial notice is taken of the
standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and
to investigate who the real owners thereof are.[52]

Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their
business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard
against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be
denied the protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and good faith,
as well as to mortgagees of the same character and description.[53] Thus, this Court clarified that the rule that persons dealing
with registered lands can rely solely on the certificate of title does not apply to banks.[54]

Bank Liable for Nominal Damages

Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of the OCT to the Cruzes when the
latter presented the instruments of conveyance as basis of their claim of ownership over a portion of land covered by the title.
Simple rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property entrusted to it
other than to those contractually and legally entitled to its possession. Although we cannot dismiss the banks acknowledgment
of the Cruzes claim as legitimized by instruments of conveyance in their possession, we nonetheless cannot sanction how the
bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the banks cooperative stance facilitated the issuance of
the TCTs. To make matters worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous
as it is unthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized as legitimate owners
of their portion of the property.

Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the disputed TCTs. We
cannot find fault on the part of the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly sanctioned
by law. It is thus ministerial on the part of the Register of Deeds to issue TCT if the deed of conveyance and the original
owners duplicate are presented to him as there appears on theface of the instruments no badge of irregularity or nullity.[55] If
 27

there is someone to blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose manager and legal
officer helped the Cruzes to facilitate the issuance of the TCTs.

The bank should not have allowed complete strangers to take possession of the owners duplicate certificate even if the purpose
is merely for photocopying for a danger of losing the same is more than imminent. They should be aware of the conclusive
presumption in Section 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it
liable for damages under Article 1170 and other relevant provisions of the Civil Code.[56]

In the absence of evidence, the damages that may be awarded may be in the form of nominal damages. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[57] This award rests on the
mortgagors right to rely on the banks observance of the highest diligence in the conduct of its business. The act of RBSP of
entrusting to respondents the owners duplicate certificate entrusted to it by the mortgagor without even notifying the mortgagor
and absent any prior investigation on the veracity of respondents claim and character is a patent failure to foresee the risk
created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every banks mandate to
observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also the right to be afforded due
process before deprivation or diminution of his property is effected as the OCT was still in the name of Eduardo. Notice and
hearing are indispensable elements of this right which the bank miserably ignored.

Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is appropriate.

Five-Year Prohibition against alienation or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the parties is an aspect which is essential, spread as it is all
over the record and intertwined with the crux of the controversy, relating as it does to the validity of the dispositions of the
subject property and the mortgage thereon. Eduardo was issued a title in 1976 on the basis of his free patent application. Such
application implies the recognition of the public dominion character of the land and, hence, the five (5)-year prohibition
imposed by the Public Land Act against alienation or encumbrance of the land covered by a free patent or homestead[58]
should have been considered.

The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March 1981 is obviously covered
by the proscription, the free patent having been issued on 8 October 1976. However, petitioners may recover the portion sold
since the prohibition was imposed in favor of the free patent holder. In Philippine National Bank v. De los Reyes,[59] this
Court ruled squarely on the point, thus:

While the law bars recovery in a case where the object of the contract is contrary to law and one or both parties acted in bad
faith, we cannot here apply the doctrine of in pari delicto which admits of an exception, namely, that when the contract is
merely prohibited by law, not illegal per se, and the prohibition is designed for the protection of the party seeking to recover, he
is entitled to the relief prayed for whenever public policy is enhanced thereby. Under the Public Land Act, the prohibition to
alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the homesteader that portion
of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the
Public Land Act was sold and not merely encumbered, within the prohibited period.[60]

The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two (22) years before the issuance
of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where
the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition nor the rationale therefor which is to keep in the
family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from
the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before
the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few
months past the period of prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural
Bank of San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages.
 28

Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No.
2204, as depicted in the approved plan covering the lot, marked as Exhibit A, and to issue a new title covering the said portion
in the name of the petitioners at the expense of the petitioners. No costs.

SO ORDERED.

[56]The following Civil Code provisions are pertinent:

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.

Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to the circumstances.

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter
for the same.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.

Article 1973. . . . . The depositary is responsible for the negligence of his employees.

[57]Article 2221 of the Civil Code.

See also my Separate Opinion in the case of Agabon v. NLRC, G.R. No. 158693, November 17, 2004: Nominal damages are
adjudicated in order that a right of a plaintiff which has been violated or invaded by another may be vindicated or recognized
without having to indemnify the plaintiff for any loss suffered by him. Nominal damages may likewise be awarded in every
obligation arising from law, contracts, quasi-contracts, acts or omissions punished by law and quasi-delicts, or where any
property right has been invaded.

. . . [I]t should be recognized that nominal damages are not meant to be compensatory, and should not be computed through a
formula based on actual losses. Consequently, nominal damages are usually limited in pecuniary value. This fact should be
impressed upon the prospective claimant, especially one who is contemplating seeking actual/compensatory damages.

- End.