HEIRS OF MAGLASANG V. MANILA BANKING CORP.

Summary: The Spouses Maglasang had unsatisfied obligations, secured by a real

estate mortgage, in favor of respondent Manila Banking Corp. Respondent notified the
probate court of its claim when intestate proceedings were instituted. Eventually, the
probate court terminated the proceedings with the execution of an extrajudicial partition
by the heirs. The obligations to respondent, however, remained unsatisfied. Respondent
was therefore prompted to extrajudicially foreclose the mortgage. When deficiencies
remained after the sale, respondent filed suit to recover the deficiency. RTC ruled in
favor of respondent. CA affirmed. SC held that the extrajudicial foreclosure was validly
conducted in accordance with Act 3135, and such is a valid exercise of respondent’s 3rd
option under Sec. 7, Rule 86. Respondent cannot, however, file any suit to recover any
deficiency amount since it effectively waived its right thereto.

Facts:
 Spouses Maglasang obtained a credit line from Manila Banking Corp. in the
amount of Php 350k, which was secured by a real estate mortgage executed
over 7 of their properties located in Ormoc and Leyte. They availed of their credit
line by securing 2 loans, both of which would become due and demandable
within a year. The said loans were stipulated to earn interest at 12% pa and an
additional 4% penalty would be charged upon default.
 Flaviniano Maglasang (husband) died intestate. His widow Salud and their
surviving children (petitioners) appointed, Edgar (one of the children), as their
attorney in fact. He was also appointed administrator of the estate after his
petition for letters of administration was granted.
 The probate court issued a Notice to Creditors for the filing of money claims
against Flaviniano’s estate. Respondent notified the court of its claim of Php
382,753.19.
 During the pendency of the proceedings, 2 of the petitioners (Edgar and Oscar)
were able to obtain several loans from respondent, secured by promissory notes,
which they signed.
 Eventually, the probate court terminated the proceedings with the surviving heirs
executing an extrajudicial partition of the estate. Despite this, the obligations to
respondent remained unsatisfied. Nonetheless, the court expressly recognized
the respondent’s right under the mortgage and promissory notes.
 Because of this, the respondent proceeded to extrajudicially foreclose the
mortgage covering the Spouses’ properties. After the sale, there was a
deficiency. Respondent proceeded to file a suit to recover such deficiency.
 RTC: ruled in favor of respondents. Petitioner ordered to pay the deficiency plus
interest, penalty, and attorney’s fees.
 CA: affirmed the RTC decision.
Issue and Held:
 WoN the CA erred in affirming the RTC’s award of the deficiency amount in favor
of respondent- YES.
o Claims against deceased persons should be filed during the settlement
proceedings of their estate. Such proceedings are primarily governed by
special rules found in Rules 73-90 of the ROC. Sec. 7, Rule 86, provides
the rule in dealing with secured claims against the estate.
o Since the provision speaks of a “creditor holding a claim against the
deceased secured by a mortgage or other collateral security,” it covers all
 secured claims, whether by mortgage or any other form of collateral,
which a creditor may enforce against the estate of the deceased debtor.
o Reliance on PNB v. CA is misplaced since the case did not in any manner
limit the scope of Sec. 7, Rule 86. It only stated that this section equally
applies to cases where the administrator mortgages the property of the
estate to secure the loan he obtained.
o The secured creditor has 3 remedies/options that he may alternatively
adopt for the satisfaction of his indebtedness:
 Waive the mortgage and claim the entire debt from the estate of
the mortgagor as an ordinary claim
 Foreclose the mortgage judicially and prove the deficiency as an
ordinary claim
 Rely on the mortgage exclusively, or other security and foreclose
the same before it is barred by prescription, without the right to file
a claim for any deficiency
o These are 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.
o 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 Perez v. Ravina, this mode includes extrajudicial foreclosure
sales; the result of extrajudicial foreclosure is that the creditor waives any
further deficiency claim.
o However, the operation of Act 3135 does not entirely discount the
application of Sec. 7, Rule 86 or vice versa. The latter governs the
parameters and the extent to which a claim may be advanced against the
estate, whereas the former sets out the specific procedure to be followed
when the creditor subsequently chooses the third option—specifically,
that of extrajudicially foreclosing real property belonging to the estate.
o Applying all of these precepts to the case at bar:
 Respondent sought to extrajudicially foreclose the mortgage
previously belonging to the Spouses and therefore availed of the
third option.
 Respondent DID NOT exercise the first option of directly filing a
claim against the estate, since it merely notified the probate court
of its claim.
 Thus, having unequivocally opted to exercise the third option,
respondent is now precluded from filing a suit to recover any
deficiency amount.
 WoN the extrajudicial foreclosure was null and void for having been conducted in
violation of the stipulation in the REM contract stating that the auction sale should
be held in the capital of the province where the properties are located- NO.
o The provision in question lacks words of exclusivity which would bar any
other place as being acceptable for such sale to be conducted.
o Absent such qualifying or restrictive words, the stipulated place should
only be as an additional, not a limiting venue. The stipulated venue and
that provided under Act 3135 can thus be applied alternatively.
Ruling:
 Petition partly granted.