G.R. No. L-7956; November 10, 1913
LUENGO & MARTINEZ, plaintiff-appellant, vs. JOSE MORENO, as judicial administrator of the estate of the deceased German Lopez Vivar, defendant-appellee.

FACTS:
The mercantile partnership Luengo & Martinez (successors to Luengo Hermanos) filed a complaint against the judicial administrator of the estate of German Lopez Vivar. The claim arose from a credit line of P2,500 granted to Lopez Vivar in August 1892, secured by a special mortgage on two of his rural properties. The contract stipulated that the credit was open for an indefinite period, renewable upon partial repayment, and that if six months passed without a payment of at least P500, the entire outstanding balance would become immediately due. An accounting showed that as of March 18, 1899, Lopez Vivar owed a balance of P2,300.62. Despite demands, the debt remained unpaid at his death. The defendant administrator argued that the original secured credit of P2,500 had been fully paid, that any remaining balance was an unsecured ordinary debt, and that the plaintiff’s claim had prescribed for failure to present it before the committee on appraisal of the estate within the statutory period.

ISSUE:
1. Whether the debt of P2,300.62 is a secured (hypothecary) obligation covered by the mortgage, or an unsecured ordinary debt.
2. Whether the plaintiff was required to present its claim before the committee on appraisal of the debtor’s estate.

RULING:
The Supreme Court reversed the trial court’s judgment and ruled in favor of the plaintiff-appellant.
1. The debt is hypothecary and secured by the mortgage. The Court held that the mortgage contract secured the credit line of P2,500. The fluctuating balance resulting from the debtor’s use of the credit and subsequent payments did not transform the obligation into an unsecured one. The final outstanding balance of P2,300.62, which was within the original P2,500 limit, remained secured by the mortgage. The instrument of debt containing the mortgage had not been canceled, and the defendant failed to prove payment of this balance.
2. Presentation of the claim to the estate’s committee was not required. Since the action was hypothecary (for the enforcement of a mortgage), the plaintiff was not obligated to present its claim to the committee on appraisal under Section 708 of the Code of Civil Procedure. The plaintiff properly availed itself of the right to bring a direct action for collection of the debt and, in default of payment, for the sale of the mortgaged property.
Dispositive Portion: The appealed judgment was reversed. The case was remanded to the Court of First Instance of Nueva Ecija with instructions to proceed in accordance with the law and the prayer in the complaint. The estate was ordered to pay the debt of P2,300.62 with legal interest at 6% per annum from March 19, 1899.