Case Summary (G.R. No. L-48359)
Petitioner
Manolo P. Cerna was neither a signatory to the promissory note nor the chattel mortgage. He had executed a Special Power of Attorney in favor of Delgado authorizing Delgado to mortgage petitioner’s Taunus automobile. Petitioner consistently denied that he was a debtor or co-mortgagor, alleged Delgado’s death and the need to proceed against Delgado’s estate, and claimed the special power of attorney might be forged.
Respondent
Conrad C. Leviste extended a loan evidenced by a promissory note signed by Delgado alone and proceeded to secure the obligation by a chattel mortgage (which, in form, referenced Delgado acting as attorney-in-fact for petitioner). Leviste filed a collection suit for the unpaid promissory note against Delgado and petitioner as alleged solidary debtors.
Key Dates and Procedural Milestones
- October 16, 1972: Promissory note executed by Delgado; chattel mortgage executed by Delgado (authorizing mortgage over petitioner’s automobile via Special Power of Attorney).
- April 4, 1973: Petitioner’s first motion to dismiss filed in trial court (grounds: lack of cause of action, Delgado’s death, abandonment of mortgage).
- June 28, 1976: Court of Appeals denied first certiorari petition (CA G.R. No. 03088).
- February–May 1977: Second motion to dismiss filed and denied by trial court.
- March 31, 1978: Court of Appeals granted relief insofar as action against Delgado and denied relief as to petitioner (CA G.R. No. SP-07237).
- March 30, 1993: Supreme Court decision dismissing petitioner’s review petition on procedural grounds (while addressing substantive points).
Applicable Law and Authorities Cited
- Civil Code: Art. 1311 (contracts take effect only between the parties), Art. 1207 (solidary liability requires express stipulation, law, or nature of obligation), Art. 2085 (requisites for pledge and mortgage, including authority to dispose of property).
- Rules of Court / Code of Civil Procedure: Section 7, Rule 86, and Sec. 708 (treatment of mortgage debts against a deceased estate and the creditor’s election between foreclosure and proving as a claim against the estate).
- Precedent and doctrine cited in the decision: Osorio v. San Agustin (interpretation of creditor’s election re: mortgage vs. proving claim), Banco de Oro v. Bayuga, People v. Mata, and scholarly authority (Agbayani, Commercial Laws).
Facts
Delgado executed a promissory note promising payment of P17,500 at 12% interest and, on the same date, executed a chattel mortgage over his Willy’s jeep and, acting as petitioner’s attorney-in-fact, mortgaged petitioner’s Taunus. Delgado defaulted. Leviste filed a collection suit against Delgado and petitioner as solidary debtors. Petitioner moved to dismiss repeatedly, asserting lack of cause of action against him, Delgado’s death (and the need to proceed against the estate), and that Leviste’s prosecution of a collection suit constituted abandonment of the chattel mortgage remedy.
Procedural History
Petitioner’s first motion to dismiss was denied by the trial court. He pursued a certiorari petition to the Court of Appeals, which was denied for failure to prove Delgado’s death and alleged forgery of the special power. After a second motion to dismiss was denied, petitioner again sought certiorari; the Court of Appeals dismissed his petition insofar as it sought relief against petitioner but granted relief as to Delgado. Petitioner brought a petition for review to the Supreme Court.
Issue Presented
Whether the complaint for recovery of money based on a promissory note should have been dismissed as to petitioner, where petitioner did not sign the note and had only granted Delgado a special power of attorney to mortgage petitioner’s car—specifically, whether the filing of a collection suit by the mortgagee operated as an abandonment of the chattel mortgage and thereby precluded recovery against petitioner.
Court’s Substantive Analysis on Liability
The Supreme Court rejected the Court of Appeals’ conclusion that petitioner was solidarily liable. The Court emphasized the foundational principle that contracts bind only the parties who contract (Civil Code, Art. 1311). Because only Delgado signed the promissory note, petitioner was not a party to the loan contract and was not a debtor under the note. Solidary liability exists only where expressly provided or required by law or by the nature of the obligation (Civil Code, Art. 1207); neither the promissory note nor the mortgage explicitly made petitioner a solidary obligor. The chattel mortgage was characterized as accessory to the principal loan contract; the fact that a third party’s property was used as security under authority of a special power of attorney did not, by itself, make the third-party owner (petitioner) a co-debtor or co-mortgagor. The special power of attorney merely authorized Delgado to mortgage petitioner’s property and satisfied the requirement in Article 2085 that the mortgagor have free disposal of the property or be legally authorized.
Court’s Substantive Analysis on Election of Remedies
The Court agreed with petitioner that a mortgagee who elects to file a suit for collection (seeking a money judgment) abandons the remedy of foreclosure of the chattel mortgage. Citing doctrinal authority and precedent, the decision explains that when a mortgagee proceeds by collection action rather than foreclosing the security, the mortgagee manifests an abandonment of the mortgaged property as the basis for relief. Consequently, once Leviste elected to sue on the promissory note (a money claim) he could not thereafter pursue the mortgaged third-party’s personal liability by foreclosing the mortgage. This rule is further reinforced where the principal debtor is deceased: Section 7, Rule 86 (and its predecessor Sec. 708) permit a creditor holding a claim secured by mortgage against a deceased to either abandon the security and prove the claim against the estate or to foreclose the mortgage and realize upon the security, but not both; the law affords the creditor a choice, and electing one remedy precludes the other (as explained in Osorio v. San Agustin).
Procedural Bar: Res Judicata and Abuse of Process
Although the Court found merit in petitioner’s substantive arguments, it denied the petition on procedural grounds. The Supreme Court held that petitioner’s repetitive petitions amounted to an attempt to circumvent the finality of the earlier Court of Appeals decision (CA G.R. No. 03088) and c
Case Syllabus (G.R. No. L-48359)
Citation and Court
- 292-A Phil. 649, Second Division, G.R. No. L-48359, March 30, 1993.
- Decision authored by Justice Campos, Jr.
- Supreme Court disposition: Petition dismissed with costs.
- Concurring Justices listed in the final paragraph: Narvasa, C.J. (Chairman), Padilla, Regalado, and Nocon, JJ., concur.
- The Court of Appeals decision under review: CA-G.R. No. SP-07237, March 31, 1978, penned by Justice Ramon G. Gaviola, Jr., with Justices B.S. de la Fuente and Hugo E. Gutierrez, Jr., concurring.
Parties
- Petitioner: Manolo P. Cerna.
- Respondents: The Honorable Court of Appeals and Conrad C. Leviste.
- Other principal actor in underlying dispute: Celerino Delgado (deceased at relevant times).
Underlying Transaction — Promissory Note (Oct. 16, 1972)
- Promissory note executed by Celerino Delgado in favor of Conrad C. Leviste, dated October 16, 1972.
- Textual terms (as quoted in the record): "FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at 98 K-11 St., Kamias Rd., Quezon City, promise to pay to the order of CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his office at 215 Buendia Ave., Makati, Rizal, the total sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine Currency, without necessity of demand, with interest at the rate of TWELVE (12%) PERCENT per annum."
- Only Celerino Delgado signed the promissory note; no signature of Manolo P. Cerna appears on the note.
Underlying Security — Chattel Mortgage (Oct. 16, 1972)
- On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him.
- Acting as attorney-in-fact of petitioner Manolo P. Cerna, Delgado also mortgaged a 'Taunus' car owned by petitioner.
- The chattel mortgage instrument, as quoted, recites: the chattel mortgage "made and entered into this 16th day of October, 1972 at Makati, Rizal, by and between: CELERINO DELGADO, x x x as Attorney-in-Fact of Manolo P. Cerna x x x by virtue of a Special Power of Attorney executed by said Manolo P. Cerna in my favor under date of October 10, 1972 and acknowledged before Orlando J. Coruna x x x herein referred to as the MORTGAGOR; - and - CONRAD C. LEVISTE x x x hereinafter referred to as the MORTGAGEE."
- Only Delgado signed the chattel mortgage as mortgagor; the Special Power of Attorney authorized Delgado to act for Cerna but did not itself make Cerna a signatory mortgagor.
Default and Initial Suit
- The 90-day period lapsed without payment by Delgado.
- Leviste filed a collection suit (Civil Case No. 17507) in the Court of First Instance of Rizal, Branch XXII, naming Delgado and Manolo P. Cerna as solidary debtors.
- The complaint was for recovery of a sum of money based on the promissory note (a collection suit), not a foreclosure action.
First Motion to Dismiss (April 4, 1973) and Trial Court Ruling
- Petitioner Cerna filed his first Motion to Dismiss on April 4, 1973.
- Grounds asserted in the motion:
- Lack of cause of action against Cerna (he did not sign the promissory note).
- Death of Delgado; contention that the claim against Delgado should be filed in estate settlement proceedings because the action did not survive his death.
- That Leviste's election to collect on the promissory note precluded foreclosure of the chattel mortgage.
- Trial court (Judge Nicanor S. Sison) denied the first Motion to Dismiss on August 15, 1973.
First Court of Appeals Petition (CA-G.R. No. 03088) and Ruling (June 28, 1976)
- Petitioner sought special civil action for certiorari, mandamus and prohibition with preliminary injunction before the Court of Appeals (docketed CA-G.R. No. 03088), alleging grave abuse of discretion by Judge Sison in denying the first Motion to Dismiss.
- The Court of Appeals denied the petition on June 28, 1976.
- Grounds for denial by the Court of Appeals:
- Petitioner failed to prove the death of Delgado and consequent settlement proceedings regarding Delgado's estate.
- Petitioner failed to adequately prove his claim that the special power of attorney in favor of Delgado was forged.
Second Motion to Dismiss and Trial Court Ruling (Feb–May 1977)
- Petitioner filed a second Motion to Dismiss on February 18, 1977.
- Grounds repeated: trial court had no jurisdiction over deceased defendant Delgado; claim did not survive; no cause of action against Cerna.
- On May 13, 1977, Judge Nelly L. Romero Valdellon denied the second motion, stating the grounds were reiteration of the first motion and reiterating the August 15, 1973 resolution.
- Petitioner’s motion for reconsideration was denied.
Second Court of Appeals Petition (CA-G.R. No. SP-07237) and Ruling (March 31, 1978)
- Petitioner filed another petition for certiorari and prohibition (CA-G.R. No. SP-07237) on October 17, 1977.
- The Court of Appeals dismissed the petition insofar as it alleged lack of cause of action against Cerna and lifted the previously issued writ of preliminary injunction.
- The Court of Appeals granted the petition insofar as it concerned the deceased Delgado, ordering that the complaint in the lower court against Delgado be dismissed. No costs were imposed by the Court of Appeals.
Issue Brought to the Supreme Court
- Petitioner’s principal legal question presented in the petition for review: whether the complaint for collection of a sum of money based on the promissory note should be dismissed for lack of cause of action as against Manolo P. Cerna, who did not sign the promissory note, considering the doctrine that filing a collection suit is deemed an abandonment of the chattel mortgage security.
Court of Appeals’ Reasoning (as summarized in the petition record)
- The Court of Appeals held that the chattel mortgage contract prima facie created a joint and solidary obligation of petitioner and Delgado.
- Based on that characterization, the Court of Appeals sustained liability of Cerna as a solidary debtor.
Supreme Court Analysis — Contracts and Parties
- Supreme Court emphasized the fundamental principle: "contracts take effect only between the parties" (Civil Code, Art. 1311).
- Only Delgado signed the promissory note; therefore, he alone was bound by the loan contract evidenced by that note.
- The Court reiterated the Civil Code rule 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" (Civil Code, Art. 1207).
- Because the promissory note bore only Delgado’s signature and did not expressly create solidarity as between Delgado and Cerna, Cerna could not be held a solidary obligor on the principal loan contract merely by reason of the chattel mortgage.