Cerna vs. Court of Appeals

A final and executory decision in a prior certiorari proceeding bars a subsequent motion to dismiss and petition raising the same grounds under the principle of res judicata; on the merits, a third-party mortgagor is not solidarily liable for the principal debtor's loan absent an express stipulation, a legal provision, or an obligation whose nature requires solidarity, and a mortgagee who files a collection suit abandons the remedy of foreclosure.

Conrad C. Leviste extended a loan to Celerino Delgado, evidenced by a promissory note signed only by Delgado. As security, Delgado executed a chattel mortgage over his own Willy's jeep and, acting as attorney-in-fact of Manolo P. Cerna under a special power of attorney, over Cerna's Taunus car. The dispute implicated the Civil Code rules that contracts bind only the parties, that solidary liability must be expressly stated or required by law or the nature of the obligation, and that a third-party mortgagor's liability is limited to the mortgaged property; it also implicated the rule on mortgage debts due from a deceased's estate.

On October 16, 1972, Celerino Delgado borrowed ₱17,500 from Conrad C. Leviste under a promissory note. By its terms, Delgado promised to pay Leviste, 90 days after date, at Leviste's office in Makati, with 12% interest per annum. The promissory note was signed only by Delgado. On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him and, acting as attorney-in-fact of Manolo P. Cerna under a special power of attorney dated October 10, 1972, also mortgaged a Taunus car owned by Cerna. The chattel mortgage contract named Delgado, as attorney-in-fact of Cerna, as the mortgagor, and Leviste as the mortgagee; only Delgado signed it as mortgagor.

The loan period lapsed without Delgado paying. Leviste then filed a collection suit, Civil Case No. 17507, before the Court of First Instance of Rizal, Branch XXII, against Delgado and Cerna as solidary debtors. Cerna challenged the complaint, maintaining that he was not a debtor under the promissory note and that Leviste's filing of the collection suit abandoned the chattel mortgage security. Cerna also claimed that Delgado had died and that the claim should be pursued in the settlement of Delgado's estate. The trial court denied Cerna's motions to dismiss, and the matter proceeded through the Court of Appeals and eventually to the Supreme Court.

• Lack of Cause of Action / Not a Debtor: Petitioner argued that the complaint, being only for collection of a sum of money based on the promissory note, should be dismissed as against him because he did not sign the promissory note and was not a debtor thereunder.
• Abandonment of Chattel Mortgage: Petitioner maintained that by filing a collection suit, Leviste abandoned the remedy of foreclosure of the chattel mortgage, so Cerna could not be held liable for the debt.
• Third-Party Mortgagor Not Solidarily Liable: Petitioner argued that he was not a co-debtor or solidary debtor; the special power of attorney merely authorized Delgado to mortgage his car and did not make him a mortgagor or solidarily bound with Delgado.
• Death of Principal Debtor / Estate Claim: In his motions to dismiss, petitioner claimed lack of cause of action and that, because Delgado had died, the claim should be filed in the settlement of Delgado's estate and did not survive against him; he also asserted that the trial court acquired no jurisdiction over the deceased defendant.
• Forged Special Power of Attorney: Petitioner claimed that the special power of attorney in favor of Delgado was forged, although the Court of Appeals found this claim inadequately proved.

• Res Judicata: Private respondent contended that the action had been barred by the principle of res judicata because the grounds raised by petitioner had already been resolved in the prior final and executory Court of Appeals decision.

• Solidary Liability of Third-Party Mortgagor: Whether Cerna, who did not sign the promissory note but whose car was mortgaged by Delgado as attorney-in-fact, is solidarily liable with Delgado for the loan.
• Abandonment of Chattel Mortgage: Whether Leviste's filing of a collection suit barred foreclosure of the chattel mortgage and precluded recovery from Cerna.
• Res Judicata: Whether the instant petition is barred by res judicata due to the final and executory decision in the prior certiorari proceeding.

• Solidary Liability of Third-Party Mortgagor: No. Only Delgado signed the promissory note and was bound by the loan; solidary liability arises only when expressly stated or required by law or the nature of the obligation, and a third-party mortgagor is not solidarily bound with the principal debtor.
• Abandonment of Chattel Mortgage: Yes. A mortgagee who files a collection suit abandons the remedy of foreclosure of the chattel mortgage, and the creditor cannot thereafter run after the mortgaged property or the third-party mortgagor for satisfaction of the debt.
• Res Judicata: Yes. The prior Court of Appeals decision in CA G.R. No. 03088 had become final, and the second motion to dismiss and subsequent petition raised the same grounds, so the action was barred by res judicata.

• Solidary Liability of Third-Party Mortgagor: The promissory note was signed only by Delgado; petitioner had no part in the contract of loan. Under Article 1311 of the Civil Code, contracts take effect only between the parties, and under Article 1207, solidary liability exists only when the obligation expressly so states or when the law or the nature of the obligation requires solidarity. No provision of law or jurisprudence makes a third person who secures another's obligation by mortgaging his own property solidarily bound with the principal obligor. A chattel mortgage may be an accessory contract to a loan, but that fact alone does not create solidarity. The signatory to the principal loan remains primarily bound; only upon his default may the creditor have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for recovery of the loan. The liability of a third-party mortgagor extends only to the property mortgaged, and any deficiency may be recovered from the principal debtor. Here, the chattel mortgage was signed only by Delgado as mortgagor. Although the contract described Delgado as attorney-in-fact of Cerna, the special power of attorney merely authorized Delgado to mortgage Cerna's property, in compliance with Article 2085 of the Civil Code; it did not make Cerna a mortgagor or a solidary debtor.
• Abandonment of Chattel Mortgage: Even assuming petitioner was obligated under the mortgage contract, he could not be held liable because the complaint was for recovery of a sum of money, not for foreclosure of the security. A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note. The reason is that by electing to file a collection suit rather than foreclosure, the mortgagee manifests a lack of desire and interest to go after the mortgaged property as security. Thus, Leviste, having chosen to file the collection suit, could not run after petitioner for satisfaction of the debt. This was even more true because of the death of the principal debtor, Delgado. Under Section 7, Rule 86 of the Rules of Court, a creditor holding a claim against a deceased secured by mortgage or other collateral security may abandon the security and prosecute his claim in the estate proceedings, or he may foreclose the mortgage or realize upon the security; he may not pursue both remedies. Osorio vs. San Agustin interpreted this rule to mean that if the creditor elects one remedy, he must abandon the other, and if he fails in one, he fails utterly.
• Res Judicata: Although the petition had substantive merit, it was denied on procedural grounds. After the denial of the first motion to dismiss, petitioner filed CA G.R. No. 03088, alleging grave abuse of discretion; the Court of Appeals denied the petition, and that decision became final. Petitioner then filed a second motion to dismiss based on the same grounds; it was denied, and another petition for certiorari and prohibition was instituted, resulting in the decision under review. The second motion was filed to circumvent the effects of the finality of the prior Court of Appeals decision, and petitioner intended the second motion and subsequent proceedings as remedies for his lapsed appeal. The action was therefore barred by res judicata. Petitioner should have allowed the trial of the case to proceed, where his defenses could still have been presented and heard.

• Third-Party Mortgagor Not Solidarily Liable — A third person who secures another's obligation by mortgaging his own property is not solidarily bound with the principal obligor. A chattel mortgage may be an accessory contract to a loan, but that alone does not make the third-party mortgagor solidarily liable for the principal obligation. The signatory to the principal contract remains primarily bound; the creditor may have recourse on the mortgagors only upon the principal debtor's default, by foreclosing the mortgaged properties, and the third-party mortgagor's liability extends only to the property mortgaged. Applied here because Cerna did not sign the promissory note or the chattel mortgage as mortgagor; the special power of attorney merely authorized Delgado to mortgage Cerna's car.
• Solidary Liability Requires Express Statement or Law/Nature — Under Article 1207 of the Civil Code, there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Applied here because the loan contract did not expressly make Cerna solidarily liable, and no law or jurisprudence imposed solidarity on a third-party mortgagor.
• Contracts Bind Only the Parties — Under Article 1311 of the Civil Code, contracts take effect only between the parties. Applied here because only Delgado signed the promissory note, so Cerna was not bound by the loan contract.
• Special Power of Attorney Does Not Make the Principal a Mortgagor — A special power of attorney authorizing an agent to mortgage property belonging to the principal complies with Article 2085 of the Civil Code but does not make the principal a mortgagor or solidary debtor. Applied here because Delgado acted as Cerna's attorney-in-fact in mortgaging Cerna's car, but only Delgado signed the chattel mortgage as mortgagor.
• Abandonment of Chattel Mortgage by Filing Collection Suit — A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note. The mortgagee thereby manifests a lack of desire and interest to go after the mortgaged property as security. Applied here because Leviste filed a collection suit, so he could not thereafter run after Cerna for satisfaction of the debt.
• Election of Remedies for Mortgage Debt Against a Deceased Estate — Under Section 7, Rule 86 of the Rules of Court, a creditor holding a claim against a deceased secured by mortgage or other collateral security may abandon the security and prosecute his claim in the estate proceedings, or he may foreclose the mortgage or realize upon the security, but he may not pursue both remedies. If he elects one, he must abandon the other; if he fails in one, he fails utterly. Applied here because Leviste pursued a money claim against the deceased Delgado.
• Res Judicata and Finality of Prior Certiorari Decision — A final and executory decision in a prior certiorari proceeding bars a subsequent motion to dismiss and petition raising the same grounds. A party may not circumvent the finality of a prior decision by filing repeated motions and petitions based on the same grounds. Applied here because the grounds in the second motion to dismiss and the subsequent petition had already been resolved in CA G.R. No. 03088, whose decision had become final.

• "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 petitioner was a co-debtor." — This states the ratio for rejecting the Court of Appeals' finding that Cerna was a solidary debtor; it anchors the ruling on the absence of Cerna's signature and participation in the loan contract.
• "There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor." — This is the canonical formulation of the doctrine that a third-party mortgagor is not solidarily liable for the principal debtor's loan.
• "A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit." — This states the abandonment doctrine applied against Leviste after he filed the collection suit instead of foreclosing the chattel mortgage.
• "We agree with the contention of private respondent, that the action has been barred by the principle of res judicata." — This is the procedural ground on which the petition was ultimately dismissed despite the substantive merit found in petitioner's arguments.

• Osorio vs. San Agustin, 25 Phil. 404, 408 (1913) — Cited to interpret the rule on mortgage debts due from a deceased's estate: a creditor may either abandon the security and prosecute the claim in the estate proceedings or foreclose the mortgage, but not both; if he elects one, he must abandon the other, and if he fails in one, he fails utterly.
• Banco de Oro vs. Bayuga, 93 SCRA 443 (1979) — Cited for the proposition that a chattel mortgage may be an accessory contract to a contract of loan.
• People vs. Mata, C.A.-00440-C.R., December 25, 1961, 1 C.A. Rep. (2nd series) 958-960 — Cited, through Agbayani's Commercial Laws of the Philippines, for the rule that a mortgagee who files a collection suit abandons the remedy of foreclosure of the chattel mortgage.

• Article 1311, Civil Code — Contracts take effect only between the parties. Applied because only Delgado signed the promissory note, so Cerna was not bound by the loan contract.
• Article 1207, Civil Code — Solidary liability exists only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Applied because the loan contract did not expressly make Cerna solidarily liable, and no law or jurisprudence imposed solidarity on a third-party mortgagor.
• Article 2085, Civil Code — The persons constituting a pledge or mortgage must have free disposal of their property or be legally authorized for the purpose. Applied because the special power of attorney authorized Delgado to mortgage Cerna's car, but it did not make Cerna a mortgagor.
• Section 7, Rule 86, Rules of Court — A creditor holding a claim against a deceased secured by mortgage or other collateral security may abandon the security and prosecute his claim in the estate proceedings, or he may foreclose the mortgage or realize upon the security, but he may not pursue both remedies. Applied because Leviste pursued a money claim against the deceased Delgado.
• Section 708, Code of Civil Procedure — Substantially similar to Section 7, Rule 86, allowing a creditor holding a claim against a deceased secured by mortgage or other collateral security to abandon the security and prosecute his claim or to realize upon his security by ordinary action. Mentioned as the predecessor provision to Rule 86, Section 7.

Narvasa, C.J., Padilla, Regalado, and Nocon, JJ., concurred.