PLEDGE

MANOLO P. CERNA, vs. THE HONORABLE COURT OF APPEALS and

CONRAD C. LEVISTE
G.R. No. L-48359 | 1993-03-30
DOCTRINE:
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.
FACTS:
On October 16, 1972, Celerino Delgado obtained a 90-day loan amounting to 17,500
from Conrad Leviste. On the same date, the former executed a chattel mortgage on
Willys jeep owned by him and acting as attorney-in-fact of Cerna, he also mortgage a
Taunus car owned by the latter. The period lapsed without Delgado paying the loan.
Leviste filed a collection suit against Delgado and Cerna, as solidary debtor. Cerna filed
a motion to dismissed citing lank of cause of action against the petitioner and the death
of Delgado. Petitioner also stated that for filing a collection suit he looses the right to
foreclose the mortgage and that Levistes claim should be filed in the settlement
proceedings of the estate of Delgado. The trial court dismissed his motion. The Court of
Appeals (CA) as well has denied his petition for a special civil action of certiorari,
mandamus and prohibition with preliminary injunction on 28 June 1976. On 18
February 1977, the petitioner again filed a second motion to dismiss on the ground that
the court, now presided by a new judge, Judge Nelly L. Romero Valdellon, acquired no
jurisdiction on the case. The petition was denied since an earlier petition, on the same
grounds was already resolved. A petition for certiorari was filed with the CA and the
same was dismissed. Hence, this instant petition for review was raised.
ISSUE
1. Whether Delgado and Cerna were solidary creditors.
2. Whether upon filing of the collection, the creditor, Leviste looses its right to
foreclosure losing its right against the property of Cerna.
HELD 1:
No. 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 of
loan remains to be primarily bound. It is only upon the default of the latter that the
creditor may have been 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 creditors has recourse on the principal debtor.

HELD 2: Yes
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. We agree with petitioner that the filing of collection suit barred the
foreclosure of the mortgage. 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. Despite the merits of the case of the petitioner, the petition was
dismissed on procedural ground. The first motion which was appealed to the CA raising
the same facts and circumstances was already final. We agree with the contention of
private respondent, that the action has been barred by the principle of res judicata.
SPOUSES WILFREDO N. ONG AND EDNA SHEILA PAGUIO-ONG v. ROBAN
LENDING CORPORATION

557 SCRA 516 (2008)

In a true dacion en pago, the assignment of the property extinguishes the monetary
debt.
On various dates, petitioner Spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong
obtained several loans from respondent Roban Lending Corporation in the total amount
of P4, 000,000. These loans were secured by real estate mortgage on Spouses Ongs
parcel of lands.
Later Spouses Ong and Roban executed several agreements an amendment to the
amended Real Estate Mortgage which consolidated their loans amounting to P5,
916,117.50; dacion in payment wherein spouses Ong assigned their mortgaged
properties to Roban to settle their total obligation and Memorandum of Agreement
(MOA) in which the dacion in payment agreement will be automatically enforced in case
spouses Ong fail to pay within one year from the execution of the agreement.
Spouses Ong filed a complaint before Regional Trial Court of Tarlac City to declare
the mortgage contract, dacion in payment agreement, and MOA void. Spouses Ong
allege that the dacion in payment agreement is pactum commissorium, and therefore
void. In its Answer with counterclaim, Roban alleged that the dacion in payment
agreement is valid because it is a special form of payment recognized under Article 1245
of the Civil Code. RTC ruled in favor of Roban, finding that there was no pactum
commissorium. The Court of Appeals upheld the RTC decision.
ISSUE:
Whether or not the dacion in payment agreement entered into by Spouses Ong and
Roban constitutes pactum commissorium
HELD:
The Court finds that the Memorandum of Agreement and Dacion in Payment constitute
pactum commissorium, which is prohibited under Article 2088 of the Civil Code which
provides that the creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and void
The elements of pactum commissorium, which enables the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure proceedings,
are: (1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.
Here, Memorandum of Agreement and the Dacion in Payment contain no provisions
for foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the
failure by the
petitioners to pay their debt within the one-year period gives respondent the right
to enforce the Dacion in Payment transferring to it ownership of the properties covered
by TCT No. 297840. Respondent, in effect, automatically acquires ownership of the
properties upon Spouses Ongs failure to pay their debt within the stipulated period.
In a true dacion en pago, the assignment of the property extinguishes the monetary
debt.
Here, the alienation of the properties was by way of security, and not by way of
satisfying the debt. The Dacion in Payment did not extinguish Spouses Ongs obligation
to Roban. On the contrary, under the Memorandum of Agreement executed on the same
day as the Dacion in Payment, petitioners had to execute a promissory note for P5, 916,
117.50 which they were to pay within one year