PNB VS CA

Gr. 121597 June 29, 2001

(Remedial Law – Special Proceedings – Remedies of a Mortgagee in Mortgages Involving an Estate)

FACTS:

Allan Chua was the administrator of the estate of Antonio Chua (his dead father). In 1989, Allan was authorized by
the probate court to take out a loan of P550k using a land belonging to Antonio’s estate as a collateral. Allan then
took out a P450k loan from the Philippine National Bank (PNB) and the loan was secured by a real estate mortgage
involving the said parcel of land.

Allan however defaulted from paying the loan. The loan has now grown to P679,185.63 inclusive of interests.  In
December 1990, PNB chose to foreclose extrajudicially the mortgaged land. So a public sale was held and PNB was
the highest bidder at P306,360.00. Since the purchase price was not sufficient to cover Allan’s indebtedness, PNB
filed a complaint against Allan in his capacity as administrator of the Chua Estate.

Allan defaulted in the civil case and it was heard ex parte. Nevertheless, the RTC dismissed the complaint. The Court
of Appeals affirmed the RTC. The case was dismissed because it was ruled that PNB can no longer run after the
estate after the extrajudicial foreclosure. PNB contends 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: Whether or not PNB may demand Allan Chua or the estate to cover the deficiency which was not paid off in
the extrajudicial foreclosure.

HELD: No. Once a deed of real estate mortgage executed by an administrator involving a property belonging to the
estate is registered with the Registry of Deeds, it is as if the mortgage has been executed by the deceased himself.
As such, the indebtedness belongs to the estate. It is true that if 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.
However, this rule is only applicable to ordinary mortgages. In mortgages involving properties of an estate, pursuant
to Rule 89 of the Rules of Court as well as prevailing case laws, the mortgagee (in this case PNB) has three
remedies in case the estate defaults from paying the loan, to wit:

1. To waive the mortgage and claim the entire debt from the estate of the mortgagor (deemed as Antonio
Chua) 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.
In the case at bar, PNB chose the third remedy which as an exclusive remedy. The third remedy includes extrajudicial
foreclosure as what PNB opted to have. As a result, PNB waived all right to recover against the estate of the
deceased debtor for any deficiency remaining unpaid after the sale.