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PhilNationalBankvsCA:121597:June29,2001:J.Quisumbing:SecondDivision

SECONDDIVISION

[G.R.No.121597.June29,2001]

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. COURT OF APPEALS, ALLAN

M.CHUAasSpecialAdministratoroftheIntestateEstateofthelateANTONIOM.
CHUAandMrs.ASUNCIONM.CHUA,respondents.
DECISION
QUISUMBING,J.:

Thispetitionassailsthedecision[1]oftheCourtofAppealsdatedJuly25,1995inCAG.R.CVNo.36546,
affirmingthedecisiondatedSeptember4,1991oftheRegionalTrialCourtofBalayan,Batangas,Branch10in
CivilCaseNo.1988.
Thefacts,asfoundbythetrialcourtandbytheCourtofAppeals,arenotdisputed.
The spouses Antonio M. Chua and Asuncion M. Chua were the owners of a parcel of land covered by
TransferCertificateof Title No. P142and registered in their names.Upon Antonios death, the probate court
appointed his son, private respondent Allan M. Chua, special administrator ofAntonios intestate estate. The
courtalsoauthorizedAllantoobtainaloanaccommodationoffivehundredfiftythousand(P550,000.00)pesos
from petitioner Philippine National Bank to be secured by a real estate mortgage over the abovementioned
parcelofland.
OnJune29,1989,AllanobtainedaloanofP450,000.00frompetitionerPNBevidencedbyapromissory
note,payableonJune29,1990,withinterestat18.8percentperannum.Tosecuretheloan,Allanexecuteda
deedofrealestatemortgageontheaforesaidparcelofland.
OnDecember27,1990,forfailuretopaytheloaninfull,thebankextrajudiciallyforeclosedtherealestate
mortgage,throughtheExOfficioSheriff,whoconductedapublicauctionofthemortgagedpropertypursuantto
theauthorityprovidedforinthedeedofrealestatemortgage.Duringtheauction,PNBwasthehighestbidder
withabidpriceP306,360.00.Since PNBs total claim as of the date of the auction sale was P679,185.63, the
loan had a payable balance of P372,825.63.To claim this deficiency, PNB instituted an action with the RTC,
Balayan,Batangas,Branch10,docketedasCivilCaseNo.1988,againstbothMrs.AsuncionM.ChuaandAllan
Chuainhiscapacityasspecialadministratorofhisfathersintestateestate.
Despitesummonsdulyserved,privaterespondentsdidnotanswerthecomplaint.Thetrialcourtdeclared
themindefaultandreceivedevidenceexparte.
OnSeptember4,1991,theRTCrendereditsdecision,orderingthedismissalofPNBscomplaint.[2]
Onappeal,theCourtofAppealsaffirmedtheRTCdecisionbydismissingPNBsappealforlackofmerit.[3]
Hence,thepresentpetitionforreviewoncertiorariunderRule45oftheRulesofCourt.Petitionercitestwo
grounds:
I

THECAERREDINHOLDINGTHATPNBCANNOLONGERPURSUEITSDEFICIENCYCLAIM
AGAINSTTHEESTATEOFDECEASEDANTONIOM.CHUA,HAVINGELECTEDONEOFITS
ALTERNATIVERIGHTPURSUANTTOSECTION7RULE86OFTHERULESOFCOURTDESPITE
ASPECIALENACTMENT(ACT.NO.3135)COVERINGEXTRAJUDICIALFORECLOSURESALE
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ALLOWINGRECOURSEFORADEFICIENCYCLAIMASSUPPORTEDBYCONTEMPORARY
JURISPRUDENCE.
II

THECAERREDINHOLDINGTHATALLANM.CHUA,ASSPECIALADMINISTRATOROFTHE
INTESTATEESTATEOFHISDECEASEDFATHERANTONIOM.CHUAONONEHAND,ANDHIM
ANDHISMOTHERASUNCIONCHUAASHEIRSONTHEOTHERHANDARENOLONGER
LIABLEFORTHEDEBTSOFTHEESTATE.[4]
The primary issue posed before us is whether or not it was error for the Court of Appeals to rule that
petitioner may no longer pursue by civil action the recovery of the balance of indebtedness after having
foreclosed the property securing the same. A resolution of this issue will also resolve the secondary issue
concerninganyfurtherliabilityofrespondentsandofthedecedentsestate.
Petitionercontendsthatunderprevailingjurisprudence,whentheproceedsofthesaleareinsufficienttopay
thedebt,themortgageehastherighttorecoverthedeficiencyfromthedebtor.[5]ItalsocontendsthatAct3135,
otherwiseknownasAnActtoRegulatetheSaleofPropertyunderSpecialPowersInsertedinorAnnexedto
RealEstateMortgages,isthelawapplicabletothiscaseofforeclosuresaleandnotSection7ofRule86ofthe
RevisedRulesofCourt[6]asheldbytheCourtofAppeals.[7]
Private respondents argue that having chosen the remedy of extrajudicial foreclosure of the mortgaged
propertyofthedeceased,petitionerisprecludedfrompursuingitsdeficiencyclaimagainsttheestateofAntonio
M.Chua.ThistheysayispursuanttoSection7,Rule86oftheRulesofCourt,whichstatesthat:
Sec.7.Rule86.Mortgagedebtduefromestate.Acreditorholdingaclaimagainstthedeceasedsecuredby
mortgageorothercollateralsecurity,mayabandonthesecurityandprosecutehisclaiminthemannerprovided
inthisrule,andshareinthegeneraldistributionoftheassetsoftheestateorhemayforeclosehismortgageor
realizeuponhissecurity,byactionincourt,makingtheexecutororadministratorapartydefendant,andifthere
isajudgmentforadeficiency,afterthesaleofthemortgagedpremises,orthepropertypledged,inthe
foreclosureorotherproceedingtorealizeuponthesecurity,hemayclaimhisdeficiencyjudgmentinthemanner
providedintheprecedingsectionorhemayrelyuponhismortgageorothersecurityaloneandforeclosethe
sameatanytimewithintheperiodofthestatuteoflimitations,andinthateventheshallnotbeadmittedasa
creditor,andshallreceivenoshareinthedistributionoftheotherassetsoftheestatebutnothingherein
containedshallprohibittheexecutororadministratorfromredeemingthepropertymortgagedorpledgedby
payingthedebtforwhichitisholdassecurity,underthedirectionofthecourtifthecourtshalladjudgeittobe
fortheinterestoftheestatethatsuchredemptionshallbemade.
Pertinent to the issue at bar, according to petitioner, are our decisions he cited.[8] Prudential Bank v.
Martinez, 189 SCRA 612, 615 (1990), is particularly cited by petitioner as precedent for holding that in
extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to pay the debt, the
mortgageehastherighttorecoverthedeficiencyfromthemortgagor.
However,itmustbepointedoutthatpetitionerscitedcasesinvolveordinarydebtssecuredbyamortgage.
Thecaseatbar,wemuststress,involvesaforeclosureofmortgagearisingoutofasettlementofestate,wherein
theadministratormortgagedapropertybelongingtotheestateofthedecedent,pursuanttoanauthoritygivenby
theprobatecourt.AstheCourtofAppealscorrectlystated,theRulesofCourtonSpecialProceedingscomes
intoplaydecisively.
Tobeginwith,itisclearfromthetextofSection7,Rule89,thatoncethedeedofrealestatemortgageis
recorded in the proper Registry of Deeds, together with the corresponding court order authorizing the
administrator to mortgage the property, said deed shall be valid as if it has been executed by the deceased
himself.Section7providesinpart:
Sec.7.Rule89.Regulationsforgrantingauthoritytosell,mortgage,orotherwiseencumberestateThecourt
havingjurisdictionoftheestateofthedeceasedmayauthorizetheexecutororadministratortosellpersonal
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estate,ortosell,mortgage,orotherwiseencumberrealestate,incasesprovidedbytheseruleswhenitappears
necessaryorbeneficialunderthefollowingregulations:
xxx
(f)Thereshallberecordedintheregistryofdeedsoftheprovinceinwhichtherealestatethussold,mortgaged,
orotherwiseencumberedissituated,acertifiedcopyoftheorderofthecourt,togetherwiththedeedofthe
executororadministratorforsuchrealestate,whichshallbevalidasifthedeedhadbeenexecutedbythe
deceasedinhislifetime.
Inthepresentcase,itisundisputedthattheconditionsundertheaforecitedrulehavebeencompliedwith.It
followsthatwemustconsiderSec.7ofRule86,appropriatelyapplicabletothecontroversyathand.
Caselawnowholdsthatthisrulegrantstothemortgageethreedistinct,independentandmutuallyexclusive
remediesthatcanbealternativelypursuedbythemortgagecreditorforthesatisfactionofhiscreditincasethe
mortgagordies,amongthem:
(1)towaivethemortgageandclaimtheentiredebtfromtheestateofthemortgagorasanordinaryclaim
(2)toforeclosethemortgagejudiciallyandproveanydeficiencyasanordinaryclaimand
(3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription
withoutrighttofileaclaimforanydeficiency.[9]

InPerezv.PhilippineNationalBank,[10]reversingPasnovs.Ravina,[11]weheld:
TherulinginPasnovs.Ravinanothavingbeenreiteratedinanyothercase,wehavecarefullyreexaminedthe
same,andaftermaturedeliberationhavereachedtheconclusionthatthedissentingopinionismorein
conformitywithreasonandlaw.Ofthethreealternativecoursesthatsection7,Rule87(nowRule86),offersthe
mortgagecreditor,towit,(1)towaivethemortgageandclaimtheentiredebtfromtheestateofthemortgagoras
anordinaryclaim(2)foreclosethemortgagejudiciallyandproveanydeficiencyasanordinaryclaimand(3)
torelyonthemortgageexclusively,foreclosingthesameatanytimebeforeitisbarredbyprescription,without
righttofileaclaimforanydeficiency,themajorityopinioninPasnovs.Ravina,inrequiringajudicial
foreclosure,virtuallywipesoutthethirdalternativeconcededbytheRulestothemortgagecreditor,andwhich
wouldpreciselyincludeextrajudicialforeclosuresbycontrastwiththesecondalternative.
Theplainresultofadoptingthelastmodeofforeclosureisthatthecreditorwaiveshisrighttorecoverany
deficiencyfromtheestate.[12]FollowingthePerezrulingthatthethirdmodeincludesextrajudicialforeclosure
sales,theresultofextrajudicialforeclosureisthatthecreditorwaivesanyfurtherdeficiencyclaim.Thedissent
inPasno,asadoptedinPerez,supportsthisconclusion,thus:
Whenaccountisfurthertakenofthefactthatacreditorwhoelectstoforeclosebyextrajudicialsalewaivesall
righttorecoveragainsttheestateofthedeceaseddebtorforanydeficiencyremainingunpaidafterthesaleit
willbereadilyseenthatthedecisioninthiscase(referringtothemajorityopinion)willimposeaburdenupon
theestatesofdeceasedpersonswhohavemortgagedrealpropertyforthesecurityofdebts,withoutany
compensatoryadvantage.
Clearly, in our view, petitioner herein has chosen the mortgagecreditors option of extrajudicially
foreclosingthemortgagedpropertyoftheChuas.Thischoicenowbarsanysubsequentdeficiencyclaimagainst
theestateofthedeceased,AntonioM.Chua.Petitionermaynolongeravailofthecomplaintfortherecoveryof
thebalanceofindebtednessagainstsaidestate,afterpetitionerforeclosedthepropertysecuringthemortgagein
itsfavor.ItfollowsthatinthiscasenofurtherliabilityremainsonthepartofrespondentsandthelateAntonio
M.Chuasestate.
WHEREFORE,findingnoreversibleerrorcommittedbyrespondentCourtofAppeals,theinstantpetition
isherebyDENIED.TheassaileddecisionoftheCourtofAppealsinCAG.R.CVNo.36546isAFFIRMED.
Costsagainstpetitioner.
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SOORDERED.
Bellosillo(Chairman),Mendoza,Buena,andDeLeon,Jr.,JJ.,concur.
[1]Rollo,pp.2836.
[2]Id.at28.
[3]Id.at36.
[4]Id.at17.
[5]Id.at18.
[6]Id.
[7]Supra,note5.
[8]DBPvs.Tomeldan,101SCRA171,174(1980)DBPvs.Zaragoza,84SCRA668(1978)DBPvs.Mirang,66SCRA141(1975)
DBPvs.Vda.DeMoll,43SCRA82(1972)PhilippineBankofCommercevs.DeVera,6SCRA1026(1962).
[9] Maglaquevs.PDB,307SCRA156,161162(1999)Vda.DeJacobvs. Court ofAppeals, 184 SCRA 294, 301 (1990) Bicol
SavingsandLoanAssociationvs.CA,etal.,171SCRA630(1989).
[10]124Phil.260(1966).
[11]54Phil.378(1930).
[12]Pasnov.Ravina,supra.

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