Cerna vs.

Court of Appeals
G.R. No. L-48359. March 30, 1993

FACTS:
Debtor Celerino Delgado entered into a loan agreement with creditor Conrad Leviste (P) covered by a
promissory note. In addition to mortgaging his vehicle, Delgado also mortgaged another vehicle owned by
Manolo Cerna (D) to secure his loan.
The period lapsed without Delgado paying the loan. Leviste (P) filed a collection suit against Delgado and
Cerna (D) as solidary debtors. Cerna (D) filed a motion to dismiss case alleging lack of cause of action against
him because he was not a debtor under the promissory note and secondly, that the case did not survive
Delgado's death. However, Cerna's (D) motion was dismissed.
On appeal, the court ruled that Cerna (D) and Delgado were solidary debtors and that the mortgage created
a joint and solidary obligation against Leviste (P).

ISSUES:
Will the mortgage of a property owned by a third party to secure the debt of the debtor make this third party
solidarily liable with the debtor?

RULING:
No. Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of
loan. Nowhere did it appear in the promissory note that Cerna (D) was a co-debtor. The law is clear that
"contracts take effect only between the parties ... " (Article 1311, Civil Code)
Cerna (D) was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal
debtor, Delgado. This ignores the basic precept that "there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity." (Article 1207, Civil
Code)
There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures
the obligation of another by mortgaging his own property to be solidarily bound with the principal obligor. A
chattel mortgage may be "an accessory contract" (Banco de Oro vs. Bayuga, 93 SCRA 443, 1979) to a contract
of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor
in fulfilling the principal obligation—that is, to pay the loan. The signatory to the principal contract loan
remains to be primarily bound. It is only upon the default of the latter that the creditor may have recourse on
the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of
the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there
be any deficiency, the creditor has recourse on the principal debtor.
Cavite Development Bank v. Lim
GR 131679. 01 February 2000.

FACTS:
Rodolfo Guansing obtained a loan from Cavite Development Bank(CDB) and offered as security his real
estate property. For failing to pay his loan the property was foreclosed and title was issued in the name of
CDB.
Now here comes Lolita Chan Lim, the respondent on this case who offered to buy the property from CDB.
Mrs. Lim paid P30,000.00 as option money and was issued receipt by CDB. However , Mrs. Lim later
discovered that the title of the property is being disputed by Perfecto Guansing, the father of the mortgagee
Rodolfo Guansing. In fact, in a separate case it was declared that Rodolfo fraudulently secured title to the said
mortgaged property and title to it was restored to Perfecto . The 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, filed an action for specific performance and damage against
petitioners.

ISSUES:
Was the sale between CDB and Mrs. Lim perfected?
Is CDB liable for damges?
Is the sale valid?

DECISION:
Contracts are not defined by the parties thereto but by the principles of law. 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 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.
It is because when Mrs. Lim offered to buy the property the 10% so called “option money” forms part of the
purchase price as contemplated 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.
CDB cannot invoke the defense that it is a mortgagee in good faith. It only applies to private individuals and
not to banking institutions. They cannot be excused from the duty of exercising the due diligence required of
banking institutions. It is standard practice for banks, before approving a loan, to investigate who are the real
owners thereof. Banking is affected with public interest that is why they are expected to exercise more care
and prudence than private individuals.
Considering CDB’s negligence it is therefore liable for damages.
As to its validity, the doctrine of “Nemo dat quod non habet” applies. One cannot give what one does not have.
The seller not being the owner the sale is void.
Adriano v. Pangilinan, GR 137471, 16 January 2002