Spec Pro Class 2020

FACTS:

Spouses Flaviano and Salud Maglasang obtained a credit line from Manila Banking Corporation (MBC), which secured by a real estate mortgage executed over seven of their properties. After Flaviano died intestate, Salud and their children appointed Edgar Maglasang as their attorney-in-fact.

 

Edgar filed a petition for letters of administration of the intestate estate of Flaviano, which court granted. The court then issued a Notice to Creditors for the filing of money claims against Flaviano's estate. MBC notified the court of its claim. When Court terminated the proceedings and executed an extra-judicial partition over the properties, the loan obligations owed to MBC remained unsatisfied though the court recognized the rights of MBC to foreclose the mortgage. MBC extrajudicially foreclosed the mortgage; however, after auction sale, a deficiency remained on Maglasangs’ obligation. Thus, it filed a suit to recover the deficiency.

 

RTC ruled in their favor of respondent so Maglasangs appealed to CA contending that under Remedies available to Manila Banking Corp. under Sec. 7, Rule 86 of Rules of Court are alternative and exclusive, such that the election of one operates as a waiver of the others and since MBC filed a claim in the probate court, it has abandoned its right to foreclose the property and is barred from recovering any deficiency. CA denied the appeal and contended that Act. 3135 applies which allows MBC to extrajudicially foreclose and recover the deficiency.

 

ISSUE:

Does MBC have the right to recover the deficiency?

 

HELD:

No. Jurisprudence laid down the rule under Section 7, Rule 86 and explains that the secured creditor has three remedies/options that he may alternatively adopt for the satisfaction of his indebtedness. In particular, he may choose to: (a) waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (b) foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and (c) 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. It must, however, be emphasized that these remedies are distinct, independent and mutually exclusive from each other; thus, the election of one effectively bars the exercise of the others.

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MBC had a right to extrajudicially foreclose the property but it cannot recover the deficiency. Both Sec. 7, Rule 86 of Rules of Court and Act. 3135 apply complementarily in the case at bar. Foreclosure under the 3rd remedy in Sec. 7, Rule 86 of Rules of Court includes extrajudicial foreclosure under Act. 3135. However, upon choosing said remedy, creditor waives his right to recover the deficiency. When MBC sought to extrajudicially foreclose the mortgage of the properties previously belonging to Sps. Maglasang and it therefore, availed of the third option waiving its right to recover the deficiency.

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Thus, the complaint for the recovery of the deficiency amount after extra-judicial foreclosure filed by respondent Manila Banking Corporation was hereby DISMISSED.