SYNOPSIS

Spouses Antonio M. Chua and Asuncion M. Chua were the owners of a

parcel of land covered by Transfer Certificate of Title No. P-142. Upon
Antonio's death, the probate court appointed his son, Allan M. Chua, as
special administrator of his estate. It also authorized Allan to obtain a
loan accommodation of five hundred fifty thousand pesos (P550,000) to
be secured by a real estate mortgage over the above-mentioned parcel of
land. Pursuant thereto, on June 29, 1989, Allan obtained a loan of
P450,000.00 from the Philippine National Bank (PNB). However, for
failure to pay the loan in full, the bank extrajudicially foreclosed the real
estate mortgage. During the auction, PNB was the highest bidder with a
bid price P372,825.63. Subsequently, to claim the deficiency, PNB
instituted an action with the Regional Trial Court (RTC), Branch 10 of
Balayan, Batangas, against both Mrs. Asuncion M. Chua and Allan M.
Chua in his capacity as special administrator of his father's estate.
Despite summons having been duly served, Asuncion Chua and Allan
Chua did not answer the complaint. The trial court declared them in
default and received evidence ex parte. Thereafter, the RTC rendered its
decision, ordering the dismissal of PNB's complaint. The Court of
Appeals affirmed the RTC decision. Hence, the PNB filed the instant
petition. cHaADC
The Court ruled that case law now holds that Section 7 of Rule 86 of the
Rules of Court 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. The plain result of adopting the last mode of foreclosure
is that the creditor waives his right to recover any deficiency from the
estate. Clearly, petitioner herein has chosen the mortgage-creditor's
option of extrajudicially foreclosing the mortgaged property of the

Chuas. This choice barred 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. Chua's estate.
SYLLABUS
1.
REMEDIAL LAW; EXTRAJUDICIAL FORECLOSURE OF
MORTGAGE; PRUDENTIAL BANK v. MARTINEZ; NOT
APPLICABLE IN CASE AT BAR. Prudential Bank vs. 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 mortgagee
has the right to recover the deficiency from the mortgagor. However, it
must be pointed out that petitioner's cited cases involves 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.
2.
ID.; SPECIAL PROCEEDINGS; SETTLEMENT OF ESTATE OF
DECEASED PERSON; CLAIM AGAINST ESTATE; REMEDIES
THAT CAN ALTERNATIVELY BE PURSUED BY THE
MORTGAGEE FOR THE SATISFACTION OF HIS CREDIT IN CASE
THE MORTGAGOR DIES. Case law now holds that Section 7, Rule
86 of the Rules of Court 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. aSHAIC
3.
ID.; ID.; ID.; ID.; ID.; IF THE CREDITOR ADOPTED THE
EXTRAJUDICIAL FORECLOSURE, HE WAIVES ANY FURTHER
DEFICIENCY CLAIM. In Perez v. Philippine National Bank,
reversing Pasno v. Ravina, we held: The ruling is Pasno vs. Ravina not
having been reiterated in any other case, we have carefully reexamined
the same, and after mature deliberation have reached the conclusion that
the dissenting opinion is more in conformity with reason and law. Of the
three alternative courses that Section 7, Rule 87 (now Rule 86), offers
the mortgage creditor, to wit, (1) to 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; (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, the majority opinion in Pasno vs. Ravina, in
requiring a judicial foreclosure, virtually wipes out the third alternative
conceded by the Rule to the mortgage creditor, and which would
precisely included extra-judicial foreclosures by contrast with the second
alternative. The plain result of adopting the last mode of foreclosure is
that the creditor waives his right to recover any deficiency from the
estate. Following the Perez ruling that the third mode includes
extrajudicial foreclosure sales, the result of extrajudicial foreclosure is
that the creditor waives any further deficiency claim. The dissent in
Pasno, as adopted in Perez, supports this conclusion, thus: "When
account is further taken of the fact 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 it will
be readily seen that the decision in this case (referring to the majority
opinion) will impose a burden upon the estate of deceased persons who
have mortgaged real property for the security of debts, without any
compensatory advantage."
4.
ID.; ID.; ID.; ID.; ID.; ID.; APPLIED IN CASE AT BAR.
Clearly, in our view, petitioner herein has chosen the mortgage creditor's
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 this case no further liability remains
on the part of respondents and the late Antonio M. Chua's estate.
EIAaDC

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 121597

June 29, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. COURT OF APPEALS, ALLAN M. CHUA as Special
Administrator of the Intestate Estate of the late ANTONIO M.
CHUA and Mrs. ASUNCION M. CHUA, respondents.
QUISUMBING, J.:
This petition assails the decision1 of the Court of Appeals dated July 25,
1995 in CA-G.R. CV No. 36546, affirming the decision dated September
4, 1991 of the Regional Trial Court of Balayan, Batangas, Branch 10 in
Civil Case No. 1988.
The facts, as found by the trial court and by the Court of Appeals, are not
disputed.
The spouses Antonio M. Chua and Asuncion M. Chua were the owners
of a parcel of land covered by Transfer Certificate of Title No. P-142 and
registered in their names. Upon Antonios death, the probate court
appointed his son, private respondent Allan M. Chua, special
administrator of Antonios intestate estate. The court also authorized
Allan to obtain a loan accommodation of five hundred fifty thousand
(P550,000.00) pesos from petitioner Philippine National Bank to be

secured by a real estate mortgage over the above-mentioned parcel of

land.
On June 29, 1989, Allan obtained a loan of P450,000.00 from petitioner
PNB evidenced by a promissory note, payable on June 29, 1990, with
interest at 18.8 percent per annum. To secure the loan, Allan executed a
deed of real estate mortgage on the aforesaid parcel of land.
On December 27, 1990, for failure to pay the loan in full, the bank
extrajudicially foreclosed the real estate mortgage, through the ExOfficio Sheriff, who conducted a public auction of the mortgaged
property pursuant to the authority provided for in the deed of real estate
mortgage. During the auction, PNB was the highest bidder with a bid
price P306,360.00. 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, Branch 10, docketed as Civil Case No. 1988, against
both Mrs. Asuncion M. Chua and Allan Chua in his capacity as special
administrator of his fathers intestate estate.
Despite summons duly served, private respondents did not answer the
complaint. The trial court declared them in default and received
evidence ex parte.
On September 4, 1991, the RTC rendered its decision, ordering the
dismissal of PNBs complaint.2
On appeal, the Court of Appeals affirmed the RTC decision by
dismissing PNBs appeal for lack of merit.3
Hence, the present petition for review on certiorari under Rule 45 of the
Rules of Court. Petitioner cites two grounds:

I
THE CA ERRED IN HOLDING THAT PNB CAN NO LONGER
PURSUE ITS DEFICIENCY CLAIM AGAINST THE ESTATE
OF DECEASED ANTONIO M. CHUA, HAVING ELECTED
ONE OF ITS ALTERNATIVE RIGHT PURSUANT TO
SECTION 7 RULE 86 OF THE RULES OF COURT DESPITE A
SPECIAL ENACTMENT (ACT. NO. 3135) COVERING
EXTRAJUDICIAL FORECLOSURE SALE ALLOWING
RECOURSE FOR A DEFICIENCY CLAIM AS SUPPORTED BY
CONTEMPORARY JURISPRUDENCE.
II
THE CA ERRED IN HOLDING THAT ALLAN M. CHUA, AS
SPECIAL ADMINISTRATOR OF THE INTESTATE ESTATE OF
HIS DECEASED FATHER ANTONIO M. CHUA ON ONE
HAND, AND HIM AND HIS MOTHER ASUNCION CHUA AS
HEIRS ON THE OTHER HAND ARE NO LONGER LIABLE
FOR THE DEBTS OF THE ESTATE.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 concerning any further liability of
respondents and of the decedents estate.
Petitioner contends that under prevailing jurisprudence, when the
proceeds of the sale are insufficient to pay the debt, the mortgagee has
the right to recover the deficiency from the debtor.5 It also contends that
Act 3135, otherwise known as "An Act to Regulate the Sale of Property

under Special Powers Inserted in or Annexed to Real Estate Mortgages,"

is the law applicable to this case of foreclosure sale and not Section 7 of
Rule 86 of the Revised Rules of Court6 as held by the Court of Appeals.7
Private respondents argue that having chosen the remedy of extrajudicial
foreclosure of the mortgaged property of the deceased, petitioner is
precluded from pursuing its deficiency claim against the estate of
Antonio M. Chua. This they say is pursuant to Section 7, Rule 86 of the
Rules of Court, which states that:
Sec. 7. Rule 86. Mortgage debt due from estate. A creditor
holding a claim against the deceased secured by mortgage or other
collateral security, may abandon the security and prosecute his
claim in the manner provided in this rule, and share in the general
distribution of the assets of the estate; or he may foreclose his
mortgage or realize upon his security, by action in court, making
the executor or administrator a party defendant, and if there is a
judgment for a deficiency, after the sale of the mortgaged premises,
or the property pledged, in the foreclosure or other proceeding to
realize upon the security, he may claim his deficiency judgment in
the manner provided in the preceding section; or he may rely upon
his mortgage or other security alone and foreclose the same at any
time within the period of the statute of limitations, and in that
event he shall not be admitted as a creditor, and shall receive no
share in the distribution of the other assets of the estate; but
nothing herein contained shall prohibit the executor or
administrator from redeeming the property mortgaged or pledged
by paying the debt for which it is hold as security, under the
direction of the court if the court shall adjudge it to be for the
interest of the estate that such redemption shall be made.

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 mortgagee has the right to recover the
deficiency from the mortgagor.
However, it must be pointed out that petitioners 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.
To begin with, it is clear from the text of Section 7, Rule 89, that 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. Section 7 provides in part:
Sec. 7. Rule 89. Regulations for granting authority to sell,
mortgage, or otherwise encumber estate The court having
jurisdiction of the estate of the deceased may authorize the
executor or administrator to sell personal estate, or to sell,
mortgage, or otherwise encumber real estate, in cases provided by
these rules when it appears necessary or beneficial under the
following regulations:
xxx

(f) There shall be recorded in the registry of deeds of the province

in which the real estate thus sold, mortgaged, or otherwise
encumbered is situated, a certified copy of the order of the court,
together with the deed of the executor or administrator for such
real estate, which shall be valid as if the deed had been executed
by the deceased in his lifetime.
In the present case, it is undisputed that the conditions under the
aforecited rule have been complied with. It follows that we must
consider Sec. 7 of Rule 86, appropriately applicable to the controversy at
hand.
Case law now 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.9
In Perez v. Philippine National Bank,10 reversing Pasno vs. Ravina,11 we
held:
The ruling in Pasno vs. Ravina not having been reiterated in any
other case, we have carefully reexamined the same, and after
mature deliberation have reached the conclusion that the dissenting

opinion is more in conformity with reason and law. Of the three

alternative courses that section 7, Rule 87 (now Rule 86), offers the
mortgage creditor, to wit, (1) to 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) 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, the
majority opinion in Pasno vs. Ravina, in requiring a judicial
foreclosure, virtually wipes out the third alternative conceded by
the Rules to the mortgage creditor, and which would precisely
include extra-judicial foreclosures by contrast with the second
alternative.
The plain result of adopting the last mode of foreclosure is that the
creditor waives his right to recover any deficiency from the
estate.12 Following the Perez ruling that the third mode includes
extrajudicial foreclosure sales, the result of extrajudicial foreclosure is
that the creditor waives any further deficiency claim. The dissent
inPasno, as adopted in Perez, supports this conclusion, thus:
When account is further taken of the fact 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 it will be readily seen that the
decision in this case (referring to the majority opinion) will impose
a burden upon the estates of deceased persons who have mortgaged
real property for the security of debts, without any compensatory
advantage.

Clearly, in our view, 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.
WHEREFORE, finding no reversible error committed by respondent
Court of Appeals, the instant petition is hereby DENIED. The assailed
decision of the Court of Appeals in CA-G.R. CV No. 36546
is AFFIRMED. Costs against petitioner.1wphi1.nt
SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.