PNB V.

CA

Summary: Antonio, special administrator of his father’s estate, obtained a loan from
PNB secured by a real estate mortgage on a parcel of land forming part of the estate,
pursuant to an order by the probate court. When the estate was unable to pay, PNB
proceeded to extrajudicially foreclose the mortgage. When there was a deficiency, PNB
filed suit to recover such. RTC dismissed; CA affirmed the dismissal. SC ruled in favor of
the respondents. It held that there are 3 options granted to a creditor under Sec. 7, Rule
86: 1) Waive the mortgage and claim the entire debt from the estate of the mortgagor as
an ordinary claim; 2) Foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and 3) Rely on the mortgage exclusively, foreclosing the same at any
time before it is barred by prescription without right to file a claim for any deficiency. The
plain result of adopting the third mode is that the creditor waives his right to recover any
deficiency from the estate. Following Perez v. PNB, the third mode includes extrajudicial
foreclosure sales. Hence, there is no right on the part of PNB to claim the deficiency,
since it resorted to extrajudicial foreclosure.

Facts:
 Spouses Antonio and Asuncion Chua were the owners of a parcel of land
covered by a TCT and registered in their names.
 Upon Antonio’s death, the probate court appointed his son, respondent Allan
Chua, special administrator of his estate. He was also authorized to obtain a loan
accommodation of Php 550k from petitioner PNB to be secured by a real estate
mortgage over the aforementioned parcel of land.
 Allan obtained a loan of Php 450k from PNB with interest at 18.8% pa. He also
executed a deed of real estate mortgage on the parcel of land.
 The loan was unpaid; hence, PNB extrajudicially foreclosed the mortgage. PNB
was the highest bidder, however, there was still a deficiency of Php 372,825.63.
To claim this deficiency, PNB instituted an action with the RTC against Asuncion
and Allan.
 RTC: ordered the dismissal of PNB’s complaint.
 CA: affirmed the RTC by dismissing PNB’s appeal.
 Hence, the present petition for review on certiorari under Rule 45 of the ROC.

Issue and Held:

 WoN the CA erred in ruling that petitioner may no longer pursue by civil action
the recovery of the balance of indebtedness after having foreclosed the property
securing the same-
o PET: Pursuant to jurisprudence, hen proceeds of the sale are insufficient
to pay the debt, the mortgagee has the right to recover the deficiency
from the debtor. Moreover, Act 3135, not the ROC Sec. 7, Rule 86,
applies in this case.
o RESP: Having chosen the remedy of foreclosure, petitioner is precluded
from pursuing its deficiency against the estate of Antonio, pursuant to
Sec. 7, Rule 86.
o SC: Petitioner’s cited cases involve ordinary debts secured by mortgage.
The case at bar involves foreclosure of mortgage arising out of a
settlement of estate, wherein the administrator mortgaged a property
belonging to the estate of the decedent pursuant to an authority given by
the probate court.
 o The conditions for the validity of the deed pursuant to Sec. 7, Rule 89 and
Sec. 7f, Rule 89, have been complied with. It follows that Sec. 7, Rule 86
appropriately applies.
o Case law holds that this rule grants to the mortgagee three distinct,
independent, and mutually exclusive remedies that can be alternatively
pursued by the mortgage creditor for the satisfaction of his credit in case
the mortgagor dies:
 Waive the mortgage and claim the entire debt from the estate of
the mortgagor as an ordinary claim;
 Foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and
 Rely on the mortgage exclusively, foreclosing the same at any
time before it is barred by prescription without right to file a claim
for any deficiency
o The court reexamined Perez v. PNB and Pasno v. Ravina:
 The ruling requiring a judicial foreclosure (Pasno) virtually wipes
out the third alternative conceded by the Rules to the mortgage
creditor, and which would precisely include extrajudicial
foreclosures by contrast with the second alternative.
 Following the Perez ruling that the third mode includes
extrajudicial foreclosure sales, the result of the extrajudicial
foreclosure is that the creditor waives any further deficiency.
 In short: Pasno overturned; Pasno dissent as adopted in Perez,
that a creditor who elects to foreclose by extrajudicial sale waives
all right to recover against the estate of the deceased debtor for
any deficiency remaining unpaid after the sale, is the correct rule.
o In the case at bar, petitioner has chosen the option of extrajudicial
foreclosure. Hence, it may no longer avail of the complaint for the
recovery of the balance of indebtedness against the estate.
 WoN the respondents and the estate have further liability to the petitioner- NO.
o Given the above conclusion, it follows that no liability remains on the part
of respondents and Antonio’s estate.

Ruling:
 Petition denied.