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HEIRS OF LATE SPS. FLAVIANO MAGLASANG v. MANILA BANKING CORPORAT ON

FACTS:

Spouses Flaviano and Salud Maglasang obtained a credit line from Manila Banking Corporation (MBC) in the amount of P350,000.00, secured by a real estate mortgage over seven properties. They availed loans amounting to P209,790.50 and P139,805.83, due within one year. After Flaviano's death, the surviving heirs appointed Edgar Maglasang as their attorney-in-fact. Edgar and Oscar, another heir, obtained loans from MBC and signed promissory notes. The probate court terminated the intestate proceedings, recognizing MBC's right to foreclose the mortgage. MBC foreclosed the mortgage and was the highest bidder, but there was a deficiency in the obligation. MBC sued to recover the deficiency amount of P250,601.05, which the RTC ordered the petitioners to pay. The CA affirmed the RTC's decision, holding that Act No. 3135 entitled MBC to claim the deficiency amount. Petitioners argue that Section 7, Rule 86 of the Rules applies and that MBC waived its right to foreclose by filing its claim against the estate. They also argue that the foreclosure was invalid for not being conducted in the capital of the Province of Leyte and deny personal liability for the loans.

ISSUES:

  1. Whether or not Section 7, Rule 86 of the Rules of Court or Act No. 3135 applies in this case.

  2. Whether or not the respondent is entitled to recover the deficiency amount after extra-judicial foreclosure.

  3. Whether or not the extra-judicial foreclosure of the properties was null and void for not adhering to the stipulated venue in the mortgage contract.

RULING:

  1. Section 7, Rule 86 of the Rules of Court applies in this case as it provides the remedies for a creditor holding a claim against the deceased secured by a mortgage.

  2. The respondent is not entitled to recover the deficiency amount. By choosing to extra-judicially foreclose under Section 7, Rule 86, the respondent waived its right to claim any deficiency amount.

  3. The extra-judicial foreclosure was valid. The auction sale conducted in Ormoc City complies with Section 2 of Act No. 3135, which allows the sale within the province where the property is situated.

PRINCIPLES:

  1. Section 7, Rule 86 of the Rules of Court - Provides that a creditor with a secured claim against the deceased can either waive the security and claim from the estate, foreclose the mortgage judicially and claim any deficiency, or rely on the security and foreclose without claiming any deficiency.

  2. Act No. 3135 - Governs the procedure for extra-judicial foreclosure of real property and allows the foreclosure sale to be conducted within the province where the property is situated.

  3. Mutually Exclusive Remedies - The remedies under Section 7, Rule 86 are distinct, independent, and mutually exclusive, meaning the election of one remedy bars the creditor from pursuing the others.

  4. Venue of Foreclosure Sale - The stipulation in the mortgage contract regarding the venue of the foreclosure sale, absent exclusive language, allows for a sale at any venue permitted under Act No. 3135.