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.

FACTS

Petitioner Cavite Development Bank (CDB) foreclosed a mortgage over a property owned by Rodolfo Guansing. After consolidation of title, respondent Lolita Chan Lim offered to purchase the property for P300,000.00, paying P30,000.00 as “Option Money” under terms including a condition that the property be cleared of illegal occupants. CDB accepted the payment and issued an official receipt. However, Lim later discovered that Rodolfo Guansing’s title (TCT No. 300809), from which CDB’s derived, had been cancelled by a final 1984 court decision in favor of his father, Perfecto Guansing, on grounds of fraud. Consequently, CDB could not convey clean title.
The Lim spouses filed an action for specific performance and damages. The trial court ruled a perfected contract of sale existed, but its performance became impossible due to the defective title. It held CDB and its mother company, Far East Bank and Trust Company (FEBTC), liable for damages due to negligence, as they should have known the title’s invalidity. The Court of Appeals affirmed the decision. Petitioners appealed, contending no sale was perfected, only an option contract, and they were unaware of the title’s cancellation.

ISSUE

Whether a contract of sale was perfected between the parties and whether petitioners are liable for damages despite the impossibility of performance.

RULING

Yes, a contract of sale was perfected. The Supreme Court held that the agreement, despite the term “Option Money,” constituted a perfected contract of sale. The payment was not for an option but operated as earnest money or a partial payment, as the offer’s terms indicated a meeting of minds on the price and object. Acceptance was manifested by CDB’s issuance of an official receipt for the payment. Under Article 1475 of the Civil Code, a contract of sale is perfected at the moment there is a meeting of minds upon the thing and the price.
Petitioners are liable for damages. Performance became legally impossible due to the defective title, which was cancelled before the sale agreement. However, petitioners were not exempt from liability under Article 1266 of the Civil Code, as the impossibility was attributable to their negligence. As a banking institution, CDB had the duty to verify the validity of the title it acquired and subsequently offered for sale. Its failure to discover the final 1984 court judgment cancelling the title constituted gross negligence, making it liable for damages. The Court modified the awards, reducing moral damages to P50,000.00, exemplary damages to P30,000.00, and attorney’s fees to P20,000.00, while affirming the order to refund the P30,000.00 with legal interest.