PNB vs. CA , ALLAN M.
CHUA
G.R. No. 121597
June 29, 2001
FACTS: The spouses Chua were the owners of a parcel of land covered by a TCT
and registered in their names. Upon the husbands death, the probate court appointed
his son, private respondent Allan as special administrator of the deceaseds intestate
estate. The court also authorized Allan to obtain a loan accommodation from PNB to
be secured by a real estate mortgage over the above-mentioned parcel of land, which
Allan did for P450,000.00 with interest.
For failure to pay the loan in full, the bank extrajudicially foreclosed the real estate
mortgage. During the auction, PNB was the highest bidder. However, the loan having
a payable balance, to claim this deficiency, PNB instituted an action with the RTC,
Balayan, Batangas, against both Mrs. Chua and Allan.
The RTC rendered its decision, ordering the dismissal of PNBs complaint. On appeal,
the CA affirmed the RTC decision by dismissing PNBs appeal for lack of merit.
Hence, the present petition for review on certiorari under Rule 45 of the Rules of
Court.
ISSUE: The WON it was error for the CA 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.
HELD: petition is DENIED.
The assailed decision of the CA is AFFIRMED.
No
Petitioner relies on Prudential Bank v. Martinez, 189 SCRA 612, 615 (1990),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 CA correctly stated, the Rules of Court on Special Proceedings
comes into play decisively. The applicable rule is Section 7 of Rule 86 of the Revised
Rules of Court ( which PNB contends is not.)
In the present case it is undisputed that the conditions under the aforecited rule have
been complied with [see notes]. It follows that we must consider Sec. 7 of Rule 86,
appropriately applicable to the controversy at hand, which in summary [and case law
as well] 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.
Clearly petitioner herein has chosen the mortgage-creditors option
ofextrajudicially foreclosing the mortgaged property of the Chuas. This choice now
bars any subsequent deficiency claim against the estate of the deceased. 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 deceaseds estate.
NOTES:
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
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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.

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.

Gavino Aldamiz v. Judge of CFI Mindoro

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December 29, 1949 Moran, C.J.
FACTS: Santiago Rementeria y Aldamizcogeascoa, the decedent was a Spaniard
and member of the commercial partnership "Aldamiz y Rementeria." The other
members were his brothers. Santiago Rementeria died in Spain in 1937, and probate
proceedings were instituted in the same year in the CFI of Mindoro by Gavino
Aldamiz represented by Atty. Juan L. Luna. Gavino Aldamiz was appointed
administrator and was again represented by respondent Atty. Juan Luna.
After ten years from the date of his appointment, Gavino Aldamiz, as administrator,
through his attorney, Juan L. Luna, submitted his accounts for the years 1944, 1945
and 1946 and also a project of partition with a view to closing the proceedings. The
court approved the accounts but refused to approve the project of partition unless all
debts including attorney's fees be first paid. In the project of partition, it was expressly
stated that attorney's fees, debts and incidental expenses would be proportionately
paid by the beneficiaries after the closure of the testate proceedings, but the court
refused to sanction this clause of the project.
Attorney Luna, to comply with the wishes of the court, without filing a written petition
to have his professional fees fixed, and without previous notice to all the interested
parties, submitted evidence of his services and professional standing so that the court
may fix his compensation and the administrator may make payment thereof. It is to be
noted that Attorney Luna served as attorney for the administrator as legal consultants
to Santiago and his brothers and to the "Aldamiz y Rementeria,".
He did not charge them professional services, thus showing disinterested and
extreme liberality due to friendship and other personal considerations toward his
clients. When he wanted to close accounts of the estate, he showed no interest in
demanding for payment by preferring to leave the matter to the future negotiation or
understanding with the interested parties.
When the amount of his fees was fixed by the court and Gavino Aldamiz asked him
for a substantial reduction, he answered that it was not he who had fixed the amount
but the court, and advised his client to file a motion for reconsideration, with the
assurance that he would offer no objection to any reduction in amount and to any
extension of the time for paying what might be granted by the court.
The Court issued its order of January 21, 1947, awarding respondent Attorney Luna,
in payment of his professional services, an aggregate sum of P28,000. Petitioner was
able to pay P5,000 only, and upon his failure to pay the balance after several
demands made upon him by respondent attorney, the latter filed an ex-parte motion
for execution which was granted by the respondent Court.
ISSUE: WON the court erred in fixing the amount of attorneys fees and issuing a writ
of execution (YES)
HELD:
1. The correct procedure for the collection of attorney's fees, is for the counsel to
request the administrator to make payment and file an action against him in his
personal capacity and not as an administrator should he fail to pay. If the judgment is
rendered against the administrator and he pays, he may include the fees so paid in
his account to the court.
The attorney also may, instead of bringing such an action, file a petition in the testate
or intestate proceeding "asking that the court, after notice to all persons interested,
allow his claim and direct the administrator to pay it as an expense of administration."
No written petition for the payment of attorney's fees has ever been filed by the
respondent attorney and the interested parties had not been previously notified
thereof nor of the hearing held by the court. Consequently, the order issued by the
respondent court for the payment of the respondents fees and all subsequent orders
implementing it, are null and void, as having been issued an excess of jurisdiction.
2. The order of execution is also null and void because a writ of execution is not the
proper procedure allowed by the Rules of the Court for the payment of debts and
expenses of administration. The proper procedure is for the court to order the sale of
personal estate or the sale of mortgaged of real property of the deceased and all
debts or expenses of administration should be paid out of the proceeds of the sale or
mortgage.
The order for the sale or mortgage should be issued upon motion of the administrator
and with the written notice to all the heirs, legatees and devisees residing in the
Philippines. Execution may issue only where the devisees, legatees or heirs have
entered into possession of their respective portions in the estate prior to settlement
and payment of the debts and expenses of administration and it is later ascertained
that there are such debts and expenses to be paid, in which case "the court having
jurisdiction of the estate may, by order for that purpose, after hearing, settle the
amount of their several liabilities, and order how much and in what manner each
person shall contribute, and may issue execution if circumstances require.