DIGEST/ GESELLE SAGUIN/ MANOLO P. CERNA, Petitioner, vs. THE HONORABLE COURT OF APPEALS and CONRAD C. LEVISTE, Respondents.

 MANOLO P. CERNA, Petitioner, vs. THE HONORABLE COURT OF APPEALS and CONRAD C. LEVISTE, Respondents.

FACTS: 

 This is a petition for Review on Certiorari of the decision in the Court of Appeals. 

    On October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note . As payment, he made a promissory note in favor of Leviste.  To secure the note, Delgado executed a chattel mortgage over a jeep owned by him and a car owned by the Cerna (under a special power of Attorney). 

    The period lapsed without Delgado paying the loan. This prompted Leviste to file a collection suit against Delgado and Cerna as solidarily debtors.Herein petitioner filed his first Motion to Dismiss. The grounds cited in the Motion were lack of cause of action against petitioner and the death of Delgado.  Petitioner claimed that the claim should be filed in the proceedings for the settlement of Delgado's estate as the action did not survive Delgado's death. Moreover, he also stated that since Leviste already opted to collect on the note, he could no longer foreclose the mortgage. This Motion to Dismiss was denied because herein petitioner failed to prove the death of Delgado and the consequent settlement proceedings regarding the latter's estate. Neither did petitioner adequately prove his claim that the special power of attorney in favor of Delgado was forged. 

    The court also dismissed his second petition to motion to dismiss on the case for having no jurisdiction.Petitioner filed a motion to reconsider the said order but this was denied. Then, on October 17, 1977, he filed another petition for certiorari and prohibition with the Court of Appeals. This petition was dismissed by the said court in a decision which stated that the  petition insofar as it alleges lack of cause of action on the part of the herein petitioner is concerned, is hereby dismissed and/or denied and the writ of preliminary injunction previously issued by this Court is hereby lifted and/or set aside.

ISSUE: 

WHETHER OR NOT THE COMPLAINT BE DISMISSED FOR LACK OF CAUSE OF ACTION AS AGAINST MANOLO P. CERNA WHO IS NOT A DEBTOR UNDER THE PROMISSORY NOTE 

 RULING: 

    The Court ruled that 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. The law is clear that "(c)ontracts take effect only between the parties. . . ." 

 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. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract - loan - remains to be primarily bound. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor.

     Petitioner lent his car to Delgado so that the latter may mortgage the same to secure his debt. Thus, from the contract itself, it was clear that only Delgado was the mortgagor regardless of the fact that he used properties belonging to a third person to secure his debt. Granting, however, that petitioner was obligated under the mortgage contract to answer for Delgado's indebtedness, under the circumstances, petitioner could not be held liable because the complaint was for recovery of a sum of money, and not for the foreclosure of the security. Thus, the petitioner's filing of collection suit barred the foreclosure of the mortgage.Hence, Leviste, having chosen to file the collection suit, could not now run after petitioner for the satisfaction of the debt. 

This is even more true in this case because of the death of the principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person. Under Section 7, Rule 86 of the Rules of Court provides: Sec. 7. Mortgage debt due from estate. - A creditor holding a claim against the deceased secured by mortgage or other collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or other security alone, and foreclose the same at any time within the period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate; . . . . 

But while there is merit in the substantial allegations of this petition, We are constrained to deny the petition on procedural grounds. The facts of this case reveal that the decision under review is the decision in the second certiorari and prohibition case lodged by petitioner against the judge trying the civil case. It appeared that after the denial of the first motion to dismiss, petitioner filed CA-G.R. No. 03088 wherein petitioner alleged grave abuse of discretion on the part of Judge Sison. The first petition was denied by the Court of Appeals. The decision became final. The second motion to dismiss, based on the same grounds, was thereafter filed. It was likewise denied and another petition for certiorari and prohibition was again instituted. The decision in the latter case is now under review. Hence, the  action has been barred by the principle of res judicata.