G.R. No. 106314-15 - Heirs of Cabais vs. Court of Appeals

On July 6, 1921, defendants V. Concepcion e Hijos, Inc., and Venancio Concepcion executed a promissory note in favor of the Bank of the Philippine Islands (the plaintiff) for P342,372.64, payable on demand.
To secure payment, the defendants deposited 700 shares of the Philippine National Bank as collateral and mortgaged 5,680 square meters of land with improvements on R. Hidalgo Street, Manila.

Henry W. Elser negotiated with the Concepcions, offering to take over the mortgaged property and assume the mortgage debt, conditioned on the Concepcions being relieved of all liability.
On March 23, 1922, Elser sent a letter to the plaintiff bank outlining his offer to assume the obligations and pay monthly installments with a plan to reduce the mortgage balance over three years.
The plaintiff did not reply to Elser’s letter and refused to release the Concepcions from liability, insisting they confess judgment in the foreclosure.
On April 21, 1922, Elser wrote again seeking written confirmation that the bank would bid the property for the full judgment amount and resell it to him for that price.
The bank made no written reply but via conversations including a meeting on April 28, 1922, with bank president Nolting, Elser was told the bank would not retract on its acceptance of his offer; further discussions were referred to the bank’s counsel, Zaragoza.

Elser entered into a bilateral deed of sale with V. Concepcion e Hijos, Inc., and Venancio Concepcion.
By this deed, Elser agreed to subrogate himself to their obligations to the bank and in consideration, the Concepcions sold and transferred the mortgaged properties to him and released their liability.
The deed specifically acknowledged the mortgage debt and Elser’s assumption thereof, including interest and encumbrances.

The bank petitioned the court to include Elser as a defendant based on his assumed obligations.
The Concepcions asked for Elser’s substitution in their place as defendant, arguing the bank accepted the substitution.
Multiple amended complaints and demurrers were filed, centering on whether the bank consented or accepted Elser as debtor and the validity of the contract between Concepcions, Elser, and the bank.
Elser’s guardian filed a cross-complaint alleging Elser was of unsound mind when assuming the obligation and was induced by false representations; they prayed for cancellation of the deed.
Elser died during the case and his administrator was substituted as defendant.
After trial, the court absolved Elser’s estate and held the Concepcions liable to the bank, ordering foreclosure if payment was not made.
Both the bank and Concepcions took exceptions to the judgment and moved for a new trial, which was denied, leading to this appeal.

Whether the contract between the Concepcions and Elser constituted a stipulation pour autrui in favor of the bank, enabling the bank to maintain an action against Elser.
Whether the bank accepted Elser as a substitute debtor corresponding to a novation that would release the Concepcions from their obligations.
Whether the bank may maintain a cause of action against Elser or his estate given the lack of written consent or acceptance of the substitution by the bank.
Whether the American doctrine permitting suit against an assumer of a mortgage debt applies in this case or whether Philippine law governs.
Whether the bank’s failure to present its deficiency claim to the probate committee barred it from action against Elser’s estate.
Whether the bank properly exercised its rights under Section 708, Code of Civil Procedure, regarding mortgage debts against an estate.