[78] Cavite Development Bank v.
Lim Definitions
G.R. No. 131579 | February 1, 2000, Mendoza, J.
Petitioners – Cavite Development Bank and Far East Bank and Trust Company
Respondents – Spouses Cyrus Lim and Lolita Chan Lim
Summary
CBD and FEBTC were assailing the Court of Appeals decision to uphold the RTC’s
ruling saying that they be liable for damages to the Spouses Lim for selling the latter
a piece of property which wasn’t validly owned by the former. This was after the RTC
found that the property acquired by the petitioners from Rodolfo Guansing through
a foreclosure sale wasn’t his (it was actually his Dad’s property), and thus they can’t
possibly transfer the property to the Lims. The Court held that as per the maxim nemo
dat quod non habet, the petitioners cannot possibly cause the transfer of ownership
of the subject land to the Lims. While it was not required that at the perfection of the
sale, the seller be the owner of the thing sold, the seller should nevertheless be so at
the time of delivery or the consummation. Otherwise, the seller will not be able to
comply with his obligation to transfer ownership to the buyer. Furthermore, the
petitioners cannot invoke the defense of being mortgagees in good faith, as they are
banking institutions and thus required to be more vigilant, even those involving
registered lands under the Torrens system, for their business is affected with public
interest
Doctrine
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 (One cannot give what one does not have)
applies.
Nemo dat quod non habet — One cannot give what one does not have.
Foreclosure sale — the mortgagor in default, the forced seller, is 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.
Mortgagee in good faith —wherein the mortgagor is not the owner of the mortgaged
property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are nevertheless given effect; it is based on public policy,
specifically 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.
Provisions
Article 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
Article 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.”
Facts
-Rodolfo Guansing obtained P90,000 loan from CDB to secure a parcel of land, at La
Loma, Quezon City and covered by TCT No. 300809 registered in his name, which he
mortgaged. But Guansing defaulted and thus petitioner CDB foreclosed the
mortgage.
-CBD bought the property at the foreclosure sale. Guansing failed to redeem the
property, and CDB thus consolidated the title to the property in its name. Later,
private respondent Lolita offered to buy the property. The written Offer to Purchase
stated: “We hereby offer to purchase your property… for P300,000 under the
following terms and conditions: 10% Option Money; Balance payable in cash...”.
-Pursuant to the Offer, Lim paid CDB P30,000 as option money. But after some time,
Lim discovered that the subject property was originally registered in the name of
Perfecto Guansing, father of mortgagor Rodolfo.
-Apparently Rodolfo’s title (TCT No. 300809), where the bank’s title (TCT No. 355588)
was derived, was alleged by Perfecto to be fraudulently secured. Perfecto even asked
and got the RTC Branch 83 of Quezon City to restore that to his title (TCT No. 91148)
and to cancel TCT No. 300809. The ruling has since become final and executory.
Because of that the Lims file an action for specific performance and damages against
the private respondents before the RTC Branch 96 of Quezon City. Ruling in favor of
the Lims, the RTC said that:
1. There was a perfected contract of sale between Lim and CDB;
2. Performance by CDB under the contract of sale had become impossible
because of the earlier decision (the case of Perfecto asking another RTC to
cancel Rodolfo’s registration);
3. CDB and FEBTC were not exempt from liability despite the impossibility of
performance (they could not credibly disclaim knowledge of the
cancellation of Rodolfo’s title without admitting failure to discharge their
duty as banking institutions). The trial court ordered CDB and FEBTC to pay
private respondents, jointly and severally, P30,000 plus interest at the legal
rate, P250,000 as moral damages, P50,000 as exemplary damages, and
P30,000 as attorney’s fees.
- CBD and FEBTC then brought the matter to the Court of Appeals, which affirmed
the RTC’s decision in toto and then denied their motion for reconsideration.
Issue and Ratio
1. W/N there was a perfected contract of sale between petitioners CBD and
FEBTC and private respondent Lolita Chan Lim? YES
-Contracts aren’t defined by the parties, but by principles of law
-In determining the nature of a contract, courts aren’t bound by the name or title
given to it by contracting parties
-The sum of P30,000, although denominated in the offer to purchase as “option
money” is actually earnest money/downpayment when considered with the other
terms of the offer
-An option contract is a contract separate from and preparatory to a contract of sale
which, if perfected, doesn’t result to the perfection or consummation of the sale
-Only when the option is exercised may a sale be perfected
-ITC, after payment of the 10% option money, the Offer to Purchase provides for the
payment only of the balance of the purchase price
-This implies that the “option money” forms part of the purchase price. It is
precisely the result of paying earnest money under Art. 1482 of NCC
-Clear that the parties in this case actually entered into a contract of sale,
partially consummated as to the payment of the price
-Given CDB’s acceptance of Offer to Purchase, it appears that the contract of sale was
perfected and indeed partially executed because of partial payment of purchase price
-The contract of sale was perfected and was partially executed because of the partial
payment of the purchase price.
-Contrary to the petitioners’ contentions — that Lim’s written Offer stated that the
P30,000 was an option money, and thus the contract between CDB and Lim was
merely an option contract — that P30,000 “option money” was actually earnest
money or down payment, considering that after the payment of such (10% option
money) the Offer to Purchase provided for the payment only of the balance of the
purchase price. This implied that the so-called “option money” formed part of the
purchase price.
-Furthermore the Court pointed out that CDB and FEBTC already considered the Lims’
Offer as good and no longer subject to a final approval, to establish that the former
had accepted the latter’s Offer.
 2. W/N it is required that at the perfection stage of a contract of sale the
seller is the owner of the thing sod, or even that such subject matter of the
sale exists at that point in time? NO
-Despite all of the perfection to the contract of sale, there is a serious legal obstacle
to the sale, rendering it impossible for CDB to perform its obligation as seller and
deliver and transfer ownership of the property
-The exception, which is the doctrine of the mortgagee in good faith”* does not apply
in this case because while petitioners are not expected to conduct an exhaustive
investigation on the history of the mortgagor's title, they cannot be excused from the
duty of exercising the due diligence required of banking institutions. There is no
evidence that CDB observed its duty of diligence in ascertaining the validity of
Rodolfo Guansing's title. The self-executed deed should have placed CDB on guard
against any possible defect in or question as to the mortgagor's title.

-Nemo dat quod non habet – No one gives what he doesn’t have

-In applying this maxim to a contract of sale, a distinction must be kept in mind
between the perfection and consummation of the contract
Ruling
-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 WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages.
-It is therefore not required that at perfection stage, the seller be the owner
of the thing sold or even that such subject matter exists at the point in time

-Under Article 1434 of the CC, 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
-Same principle behind the sale of future goods under Article 1462
NOTE:
Doctrine of "the mortgagee in good faith”is 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.

-However, under Article 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
-ITC, the sale by CDB to Lim must be deemed a nullity because CDB does not have a
valid title to the said property
Antecedent Cases
Nool v. Court of Appeals (1997): A contract of repurchase, in which the seller does
not have any title to the property sold, is invalid.
Tomas v. Tomas (1980): 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. “Failing to make such inquiry would
hardly be consistent with any pretense of good faith.”

-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.

-Court does not believe that petitioners are mortgagees in good faith

-Both RTC and CA found petitioners guilty of fraud because when they
received the option money, they had already known their title was
cancelled, that they weren’t the owners of the property anymore.