G.R. No. 47430 ; March 13, 1941
MACONDRAY & CO., INC., plaintiff-appellee, vs. ISABEL ABLAZA ET AL., defendants. PRUDENCIO CRUZ, appellant.

FACTS

On December 8, 1933, defendants Isabel Ablaza, Pedro Valdez Liongson, and Francisco Liongson purchased two Willys 77 chassis from plaintiff Macondray & Co., Inc. For the unpaid balance of P1,860, they executed a promissory note (Exhibit A) and a chattel mortgage (Exhibit B) on the same date to secure payment. On May 5, 1934, with the agreement of the original three defendants and the plaintiff, defendant Prudencio Cruz agreed, via a contract (Exhibit C), to be jointly and severally liable with his co-defendants for the payment of the remaining balance on the note, with the express understanding that this arrangement would not affect the existing chattel mortgage (Exhibit B). The defendants defaulted. The plaintiff foreclosed the chattel mortgage, and the two chassis were sold at public auction on January 16, 1935. After applying the proceeds of the sale, a deficiency balance of P748.62 remained. The Court of First Instance of Manila rendered a decision on August 10, 1937, ordering the defendants, jointly and severally, to pay this amount to the plaintiff. Defendant Prudencio Cruz appealed.

ISSUE

1. Whether Act No. 4122 (the Recto Law) is applicable to appellant Prudencio Cruz, thereby requiring the dismissal of the complaint against him.
2. Whether the stipulation in Exhibit C that it would not affect the chattel mortgage (Exhibit B) is null and void for being contrary to Act No. 4122 .
3. Whether the trial court erred in denying appellant’s motion to include Isabel Liongson as a party defendant.

RULING

The Supreme Court affirmed the decision of the trial court in all respects.
1. On the applicability of Act No. 4122 : The Court held that Act No. 4122 , approved on December 9, 1933, was not applicable to the appellant. The principal obligations (promissory note and chattel mortgage) were created on December 8, 1933, one day before the law took effect. The contract (Exhibit C) executed by appellant Cruz on May 5, 1934, did not create new rights or obligations regarding the mortgaged vehicles. It merely made him a joint and solidary obligor under the pre-existing contracts (Exhibits A and B). There was no novation, as the object and principal conditions of the obligation remained the same, there was no substitution of the debtor (only an addition), and no subrogation of a third party to the rights of the creditor. Therefore, the obligations he assumed were those already existing prior to the law’s effectivity.
2. On the validity of the stipulation in Exhibit C: The Court found no merit in the appellant’s claim. The stipulation in Exhibit C that it would not affect the chattel mortgage was valid. Since the chattel mortgage (Exhibit B) was a valid and existing contract executed before Act No. 4122 , and appellant merely assumed the solidary obligation to pay the debt it secured, the stipulation was proper and did not contravene the law.
3. On the motion to include Isabel Liongson: The Court ruled that the trial court correctly denied the motion. The obligation being enforced was joint and solidary. It is a right of the creditor in such cases to proceed against any one or all of the solidary debtors simultaneously. The inclusion of Isabel Liongson was not necessary for the proper determination of the case against the appellant.