CAVITE DEVELOPMENT BANK v.

LIM
February 1, 2000 | Mendoza, J. | Special Problems in Sales: Sale by
a non-owner
Digester: Bea, Alexis
SUMMARY: Rodolfo Guansing mortgaged a parcel of land in order
to obtain a loan in the amount of P90k from CDB. He defaulted on
his payment thus, the land was foreclosed. CDB was the highest
bidder and he failed to redeem. Sps. Lim offered to buy the land
under the terms and conditions specified below (please read it).
Pursuant to the terms and conditions, Lim paid P30k option money.
Subsequently, she found out that the title of Rodolfo was cancelled
and the land is actually under the name of Rodolfos father. Lim is
suing for specific performance and damages. SC held that there
was a valid contract of sale despite the fact that P30k was termed
as Option Money because it was, despite its name, was earnest
money. Even if it was a valid contract of sale, the performance is
impossible because CDB cannot give what it does not own, thus
making the contract a nullity.
DOCTRINE: Ownership of the thing sold is required during the
consummation of the contract. While an exception to the rule that
morgated property is void when mortgagor is not the owner exists
(when the mortgagee is in good faith), CDB cannot possibly claim
good faith because as a banking institution, they are required to
exercise due diligence.

FACTS:
Petitioners Cavite and Development Bank (CDB) and Far East
Bank and Trust Company are banking institutions organized
under Philippine laws
On or about June 15, 1983, Rodolfo Guansing obtained a
P90,000.00 loan from CDB with which he mortgaged a parcel
of land in La Loma Quezon City which was registered to his
name as security
He defaulted in his payment of the loand so CDB foreclosed the
mortgage
At the foreclosure sale, the property was sold to CDB as the
highest bidder
o Guansing failed to redeem and thus on March 2, 1987,
CDB consolidated title to the property in its name

Private respondent Lolina Chan Lim, assisted by a broker

(Remedios Gatpandan) offered to purchase the property from
CDB for P300,000 under the following conditions
o 10% Option Money
o Balance payable in cash
o Provided that the property shall be cleared of illegal
occupants or tenants
Pursuant to these terms of the offer, Lim paid CDB P30,000.00
as Option Money for which she was issued an Official Receipt
by the latter
However, sometime after the sale, Lim discovered that the
subject property was originally registered in the name of
Perfecto Guansing, father of the mortgagor Rodolfo Guansing
o While Rodolfo succeeded in having the property
registered in his name, it appears that the father
instituted a civil case in the RTC for the cancellation of
the sons title
On March 23, 1984, the trial court rendered a decision
restoring Perfectos previous title and cancelling Rodolfos on
the ground that the latter was fraudulently obtained. This
decision has since become final and executory
Aggrieved by what she considered a serious misrepresentation
by CDB and its mother company (FEBTC), she filed an action
for specific performance and damages against petitioners
RTC: rendered a decision in favor of Sps. Lim.
o 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
o The performance of CDB of its obligation under the
perfected contract of sale had become impossible on
account of the 1984 decision of the RTC cancelling the
title in the name of Rodolfo Guansing
o 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
o CA affirmed. Hence, the appeal.

RULING: Decision of Court of Appeals is AFFIRMED

Whether or not there was a perfected contract of saleYES.

In determining the nature of a contract, the courts are not
bound by the name or title given to it by the contracting
parties
In the case at bar, the P30,000.00, although termed as option
money is actually in the nature of earnest money or down
payment when considered with the other terms of the offer
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 pricethus, it is earnest money
CDB had accepted Lims offer to purchase and should no
longer be subject to the final approval of FEBTC
Whether or not there was a valid contract of saleNO.
It is already impossible for CDB to perform its obligation as
seller to deliver and transfer ownership of the property under
the principle of Nemo dat quod non habet (One cannot give
what one does not have)
Ownership of the thing sold is required not during the
perfection of the contract, but during consummation
Thus, the sale by CDB to Lim of the property mortgaged by
Rodolfo Guansing must be deemed a nullity because CDB did

not have a valid title for the property since the mortgagor was
not the owner of the property foreclosed
There exists an exception to the rule that mortgaged property
is void when mortgagor is not the owner thereof: when the
mortgagee is in good faith on the principle that all persons
dealing with property covered by a TCT are not required to go
beyond what appears on the face of the title
However, contrary to their claims, CDB cannot be considered a
mortgagee in good faith because they cannot be excused from
the duty of exercising the due diligence required of respectable
banking institutions
o It is standard practice for banks, prior to the approval of
loans, to send representatives to the premises of the
land offered as security and to determine who are the
real owners thereof
o Banking institutions are expected to exercise more care
and prudence than private individuals in their dealings
because their business is affected with public interest
Spouses Lim are thus entitled to recover the P30,000.00 money
paid by them plus legal interest.
o Considering CDBs negligence, an award for moral
damages was also given