Cerna v.

Court of Appeals
30 March 1993
Campos, Jr. J.

Facts:

Delgado loaned a sum of money of 17,500, with interest of 12% per annum, to Leviste to be
paid within 90 days. Delgado put his Jeepney and the Taunus car of his attorney-in-fact Cerna,
as chattel mortgage for the said loan. Period lapsed without Delgado paying the loan. Leviste
filed a collection suit against Delagado and Cerna as solidary debtors. Cerna questioned the
ruling of both the lower court and CA finding him solidarily liable and that the filling of
collection suit barred the foreclosure of the mortgage.

Issue:

Whether or not Cerna is solidarily liable to the debt of Leviste.

Held:

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"12 to a contract of loan,
but that fact alone does not make a third-party mortgagor solidarily bound with the principal
debtor.

We agree with petitioner that the filing of collection suit barred the foreclosure of the
mortgage. Thus: "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 which he seeks to recover in the said collection suit."
PNB v. Banatao
07 April 2009
Brion, Jr. J.

Facts:

Banatao et al initiated an action against Carag et al before RTC for the recovery of real property,
a new land formation on the banks of the Cagayan River. Carag has secured a homestead
patent, which they use as REM for their loan to PNB. The bank relied on the OCT which at the
time did not contain any annotation of liens and encumbrances. RTC decided in favor of
Banatao. CA set aside the decision and remamded the record to the trial court. Some year
later, Banatao and Carag entered into a compromise agreement whereby ownership of northern
half will be with Banatao while the Southern half goes to Carag. PNB moved for the setting
aside of the compromise agreements and annulment of mortgage.

Issue:

Whether or not the mortgages constituted is void.

Held:

Yes. The present case deserves exactly the same treatment, and the PNB cannot claim that it is
a mortgagee in good faith. The proscription against alienation or encumbrance is unmistakable
even on a cursory reading of the OCTs. Thus, one who contracts with a homestead patentee is
charged with knowledge of the law's proscriptive provision that must necessarily be read into
the terms of any agreement involving the homestead. Under the circumstances, the PNB simply
failed to observe the diligence required in the handling of its transactions and thus made the
fatal error of approving the loans secured by mortgages of properties that cannot, in the first
place, be mortgaged.

Both the defendants respondents and the bank are to be faulted for the invalidity of the
mortgages. We cannot, however, apply the doctrine of pari delicto in accordance with the ruling
that the doctrine does not apply when the contract is prohibited by law. [23] A saving factor for
the bank under the situation is that a mortgage is merely an accessory agreement and does not
affect the principal contract of loan. The mortgages, while void, can still be considered as
instruments evidencing the indebtedness of defendants to the PNB in a proper case for the
collection of the defendants loans.
Belo v. PNB
01 March 2001
De Leon, Jr. J.

Facts:

Belo owned an agricultural land which she leased a portion to Sps. Eslabon in connection with
the said spouses’ sugar plantation business. To finance their business venture, respondents
spouses Eslabon obtained a loan from PNB secured by a real estate mortgage on their own four
(4) residential houses located in Roxas City, as well as on the land owned by Belo. Sps Eslabon
failed to pay mortgages and thereafter extrajudicial foreclosure proceedings against the
mortgaged properties were instituted by PNB. PNB was the highest bidder at the auction. Sps
Belo filed action to annul the mortgage, with an alternative cause of action to compel PNB to
accept offer of spouses Belo which is based on the winning bid price of PNB (P447,632.00) plus
interest and expenses.

Issue:

Whether or not the REM and the foreclosure proceedings are valid.

Held:

Yes. An accommodation mortgage is not necessarily void simply because the accommodation
mortgagor did not benefit from the same. The validity of an accommodation mortgage is
allowed under Article 2085 of the New Civil Code which provides that “(t)hird persons who are
not parties to the principal obligation may secure the latter by pledging or mortgaging their own
property.” The courts a quo correctly held that the letter of Eduarda Belo addressed to
respondent PNB manifesting her intent to redeem the property is a waiver of her right to
question the validity of the SPA and the mortgage contract as well as the foreclosure and the
sale of her subject property.