Cavite Development Bank vs. Lim

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

MAIN TOPIC – Real Security


Rodolfo Guansing obtained a loan in the amount of P90,000.00 from Cavite Development Bank, to secure which he mortgaged a parcel of land situated in 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. Guansing failed to redeem, and the mortgaged property was sold to CDB as the highest bidder. TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.

Lim offer to purchase the property from CDB and paid for option money of P30,000. 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. 

The father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court for the cancellation of his son’s title. The trial court rendered a decision restoring Perfecto’s 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, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court. 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 (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 Guansing’s 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.

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the Regional Trial Court.


Whether or not a contract of sale was ever perfected between the parties?


YES, there is a perfected sale. Contracts are not defined by the parties thereto but by 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.

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. 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 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.

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. 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.


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



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.
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.