31 PNB v. CA

PNB v.
CA
GR No. 121597
June 29, 2001
SUMMARY:
Spouses Antonio and Asuncion Chua were the owners of a parcel of land registered in their names.
When Antonio died, the probate court appointed his son Allan as special administrator of the
decedent’s intestate estate. The court also allowed Allan to obtain a loan with PNB worth P550k
and to be secured by an REM over the mentioned parcel of land. Allan obtained a loan worth
P450k with interest, secured by an REM over the said land. Allan was unable to pay, which led to
the extrajudicial foreclosure of the land, where PNB emerged as the highest bidder. Despite the
auction, there was still a claim worth P372k left. PNB instituted a case against the widow and the
son, claiming the deficiency. The issue is whether PNB can still pursue its deficiency claim against
the estate of the deceased? The Court held that no, it can no longer pursue the claim as it was
deemed to have chosen an alternative remedy, extrajudicial foreclosure, and thereby waives its
right to any deficiencies.
FACTS:
This petition assails the decision 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.
Spouses Antonio and Asuncion Chua were the owners of a parcel of land registered in their names.
When Antonio died, the probate court appointed his son Allan as special administrator of the
decedent’s intestate estate. The court also allowed Allan to obtain a loan with PNB worth P550k
and to be secured by an REM over the mentioned parcel of land.
Allan obtained a loan of P450k, with 18.8% interest per annum, as evidenced by a promissory note,
and secured by an REM over the land. He was unable to pay the loan in full, leading to an eventual
extrajudicial foreclosure of the REM. A public auction was held, where PNB emerged as the
highest bidder at the price of P306,360. Since PNB’s total claim was P679,185.63, there was still
a balance of some P372,825.63. To claim this deficiency, PNB instituted an action against
Asuncion and Allan in his capacity as special administrator of his father’s estate.
Despite summons duly served, private respondents did not answer the complaint. Hence, the RTC
declared them in default and received evidence ex parte. The RTC eventually dismissed PNB’s
claim for lack of merit, which was affirmed by the CA. The petitioner filed for a petition for review
on certiorari under Rule 45 of the ROC.
ISSUE:
Whether PNB can still pursue its deficiency claim against the estate of the deceased? No.
HELD:
The Court cited Sec 7, Rule 86 of the ROC, which is as follows:
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.
Petitioner cites Prudential Bank v. Martinez, contending 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. The Court held that Prudential Bank cannot
apply in this case as the former deals with ordinary debts. The case at bar 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. Hence, the rules on Special Proceedings shall apply.
Sec. 7, Rule 891 is clear. 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. Hence, it
follows that Rule 86, Sec. 7 shall be applicable.
Accordingly, the Court has consistently held in various cases the 3 alternative remedies that a
mortgage creditor may elect to satisfy his credit in case the mortgagor dies:
(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.
Hence, if the creditor adopts the last mode, the result of extrajudicial foreclosure is that the creditor
waives any further deficiency claim. In fact, the Court cited the case of Pasno, as adopted in Perez,
which states, “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.”
1
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.
Asuncion and Allan Chua are now no longer liable for the balance of the loan.
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.

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Petitioner cites Prudential Bank v. Martinez, contending that in extrajudicial foreclosure of

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