BPI vs Concepcion Hijos | Ostrand, J.

FACTS
Concepcion executed a PN in favor of the plaintiff for the sum of P342,372.64, payable on demand, and as security
for payment, deposited 700 shares of the Philippine National Bank as collateral with the plaintiff and gave it a
mortgage on 5,680 square meters of land, with improvements, situated on R. Hidalgo Street in Manila. It defaulted
in payment so foreclosure proceedings were instituted.

Elser entered into negotiations with the Concepcions and offered to take over the mortgaged property and assume
the mortgage debt. To this the Concepcions agreed on the condition that they be relieved of all liability for the
debt. Elser wrote the bank informing it of the agreement with the Concepcions but the bank did not reply. It
appeared that it was unwilling to release the Concepcions from their liability for the mortgage debt and insisted on
their confessing a judgment in the foreclosure proceedings. Concepcions refused to do unless the bank would agree
to bid in the mortgage property for the full amount of the judgment.

Elser wrote to the bank again with the understanding that the bank would bid in the land at the foreclosure sale for
the full amount of the judgment and sell it to him for the same price. No direct reply was given and Elser invited
plaintiff to a conference with Nolting, the president of the bank, in regard to the matter. The negotiations did not
lead to any action on the part of the bank, but, Elser entered into an agreement in the form of bilateral deed of
sale, with V. Concepcion & Hijos, Inc., and Venancio Concepcion.

The bank never gave notice of its conformity with the agreement. It petitioned the court to include Henry W. Elser
as defendant in the complaint, on the strength of the obligations assumed by him in said agreement.

Elser died and the plaintiff asked that the administrator of the estate, C. W. Rosenstock, be substituted in his place
as defendants, and that the action be continued against Rosenstock in the capacity on the ground that this action is
for the foreclosure of a mortgage.

ISSUES/HELD
1. WON the bank, having failed to present its claim to the committee on claims and appraisal, it must be
regarded as having elected to rely on its mortgage alone and therefore can have no personal judgement
against the Elser estate / YES
2. WON the amount of the deficiency, if any, could not be proved before the foreclosure sale and had been
effected; that section 708 expressly provide for the proof of the deficiency judgment before the committee
after the sale of the mortgaged property; that this provisions must be construed to mean that the
presentation and prosecution of the claim of the deficiency must be made after, not before, the sale; and
that if the mortgagee presents his claim from a deficiency before a deficiency judgment have been
rendered, he will loose his rights under the mortgage and be regarded as having abandon his security /
NO

RATIO
1. According to Section 7081 of the Code of Civil Procedure, the mortgagee has the election of one out of three
courses: (1) He may abandon his security and share in the general distribution of the assets of the estate, or (2)
he may foreclose, secure a deficiency judgment and prove his deficiency judgment before the committee, or (3) he
may rely upon his security alone, in which case he can receive no share in the distribution of the assets of the
estate.

In this case the bank did not abandon the security and took no steps of any sort before the committee within the
time limit provided by the sections 689 and 690 of the Code of Civil Procedure. The committed ceased to function
long ago, and the bank has now nothing to rely on except the mortgage. Internationally or not, it has bought itself
within the third course provided for in section 708; it has no alternative.

1
SEC. 708. 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 before the committee, and
share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon
security, by ordinary 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 pledge, in the foreclosure or
other proceedings to realize upon the security, he any prove his deficiency judgment before the committee against
the estate of the deceased; or he may rely upon his mortgage or other security alone, and foreclose the same at
any time, within the period of statute of limitations, and in that event he shall not be admitted as an creditor, and
shall receive no share in the distribution of the other assets of the estate
2. This clearly a misconception of the statute, and the cases cited by the appellant in support for its contention are
not in point. Until the foreclosure sale is made, the demand for the payment of deficiency is a contingent claim
within the meaning of sections 746, 747, and 748 of the Code of Civil Procedure 2. These sections are in entire
harmony with section 708; the amount of the deficiency cannot be ascertained or proven until the foreclosure
proceedings have terminated, but the claim for the deficiency must be presented to the committee within the
period fixed by sections 689 and 690 of the Code. The committee does not then pass upon the validity of the claim
but reports it to the court. If the court "from the report of the committee" or from "the proofs exhibited to it" is
satisfied that the contingent claim is valid, the executor or administrator may be required to retain in his
possession sufficient assets to pay the claim when it becomes absolute, or enough to pay the creditor his
proportionate share if the assets of the estate are insufficient to pay the debts. When the contingent claim has
become absolute, its amount may be ascertained and established in the manner indicated by sections 748 and 749.
As will be seen, the bank both could and should have presented its claim to the committee within the time
prescribed by the law.

DISPOSITIVE
The appeal is without merit and the judgment of the court below is affirmed with the costs against the plaintiff-
appellant.

2
SEC. 746. Claims may be presented to committee. — If a person is liable as surety for the deceased, or has other
contingent claims against his estate which cannot be proved as a debt before the committee, the same may be
presented with the proof, to the committee, who shall state in their report that such claim was presented to them.

SEC. 747. Estate to be retained to meet claims. — If the court is satisfied from the report of the committee, or
from proofs exhibited to it, that such contingent claim is valid, it may order the executor or administrator to retains
in his hands sufficient estate to pay such contingent claim, when the same becomes absolute, or if the estate is
insolvent, sufficient to pay a portion equal to the dividend of the other creditors.

SEC. 748. Claim becoming absolute in two years, how allowed. — If such contingent claims becomes absolute and
is presented to the court, or to the executor or administrator, within two years from the time limited for other
creditors to present their claims, it may be allowed by the court if not disputed by the executor or administrator,
and, if disputed, it may be proved that the committee already appointed, or before others to be appointed, for the
purpose, as if presented for allowance before the committee had made its report.