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PNB vs. CA Case Digest

What are the Remedies of a Mortgagee in Mortgages Involving an Estate?

Facts: Spouses Antonio and Asuncion Chua were the owners of a parcel of land covered by a TCT and registered in their names. Upon the death of Antonio, the probate court appointed his son, private respondent Allan Chua as special administrator of the intestate estate. The court also authorized Allan to obtain a loan accommodation from PNB to be secured by a real estate mortgage over the above-mentioned parcel of land, which Allan did for P450,000.00 with interest.

For failure to pay the loan in full, the bank extrajudicially foreclosed the real estate mortgage. During the auction, PNB was the highest bidder. However, the loan had a payable balance. To claim this deficiency, PNB instituted an action with the RTC against Asuncion and Allan. The RTC dismissed PNB’s complaint. The CA affirmed the decision. PNB appealed contending that under prevailing jurisprudence, when the proceeds from an extrajudicial foreclosure is not enough to pay off the loan, the mortgagee can file a civil case against the mortgagor to satisfy the deficiency. 

Issue: May PNB still pursue by civil action the recovery of the balance of indebtedness after having foreclosed the property securing the same?

Held:  No. Under Section 7, Rule 89, once the deed of real estate mortgage is 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.

In the present case, it is undisputed that the conditions under the aforecited rule have been complied with. It follows that Sec. 7 of Rule 86, appropriately applies to the controversy at hand. 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, among them:

(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;

(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and

(3) to 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.

Petitioner herein has chosen the mortgage-creditors option of extrajudicially foreclosing the mortgaged property of the Chuas. This choice now bars any subsequent deficiency claim against the estate of the deceased, Antonio M. Chua. Petitioner may no longer avail of the complaint for the recovery of the balance of indebtedness against said estate, after petitioner foreclosed the property securing the mortgage in its favor. It follows that in this case no further liability remains on the part of respondents and the late Antonio M. Chuas estate.

Petitioner cited Prudential Bank v. Martinez as precedent for holding that in extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the mortgagor. However, it must be pointed out the cited cases involve ordinary debts secured by a mortgage. The case at bar, we must stress, involves a 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. As the Court of Appeals correctly stated, the Rules of Court on Special Proceedings comes into play decisively. (PNB vs. CA et al, G.R. No. 121597, June 29, 2001)

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