Philippine Bank of Commerce vs. Tomas de Vera

A mortgagee may recover the deficiency after extrajudicial foreclosure under Act No. 3135, as amended, because the mortgage is merely security and not satisfaction of the indebtedness, and the statute neither expressly nor impliedly prohibits such recovery. The right is recognized under the Mortgage Law and reflected in Section 6, Rule 70 of the Rules of Court for judicial foreclosure, and the same principle applies to extrajudicial foreclosure.

Philippine Bank of Commerce was the mortgagee-creditor of Tomas de Vera under a consolidated real estate mortgage and deed of assignment covering two registered parcels. The dispute required construction of Act No. 3135, as amended, which governs extrajudicial foreclosure but does not expressly address the mortgagee's right to recover any deficiency after the auction sale; the Mortgage Law and the Rules of Court, by contrast, recognize such a right in judicial foreclosure. The case therefore concerned whether the choice of extrajudicial foreclosure under a special power of attorney in the mortgage contract extinguished the creditor's right to sue for the unpaid balance.

Tomas de Vera was indebted to Philippine Bank of Commerce in the total amount of P127,312.24 under a contract (Exh. A) entitled "Consolidation of First Real Estate Mortgage and Deed of Assignment," executed on April 26, 1951. The debt was guaranteed by a real estate mortgage over de Vera's lands described in TCT No. 1631 of the Register of Deeds of Pasay City and TCT No. 37641 of the Register of Deeds of the City of Rizal (now Pasay City), with the same terms and conditions embodied in the original Deed of Real Estate Mortgage, both dated February 28, 1947. The documents and Exhibit A were presumably registered in the Registry of Deeds of Pasay City.

The obligation matured on March 15, 1956. Despite several demands, de Vera failed to pay the outstanding balance of P99,033.20 as of January 31, 1958 under contract Exhibit A. The bank filed a petition with the Sheriff of Pasay City on March 14, 1956 (Exh. B) to sell the properties subject to the real estate mortgage, which the trial court's recital described as executed and duly recorded in the Registry of Deeds on May 17, 1949, for the sum of P150,000.00.

Acting on the petition, the Sheriff sold at public auction the two parcels of land covered by TCT No. 1631 and No. 37641 to the highest bidder, the plaintiff creditor Philippine Bank of Commerce, for P86,700.00. The corresponding certificate of sale (Exh. C) was issued by the Sheriff of Pasay City and dated April 16, 1956. After deducting the auction price, and together with interest up to January 31, 1958, there remained an outstanding balance of P99,033.20, as shown by the Statement of Account (Exhibit D).

The bank then brought the present action to recover that balance. The trial court treated the facts as undisputed and rendered the decision appealed from.

• Statutory Silence Under Act No. 3135: Appellant Tomas de Vera urged that because Act No. 3135, as amended, is silent as to the mortgagee's right to recover a deficiency arising after an extrajudicial foreclosure sale of the mortgage, the mortgagee may not recover the same.

• Recovery of Deficiency After Extrajudicial Foreclosure: Whether the trial court correctly held the appellee Bank entitled to recover from appellant the sum of P99,033.20 as a deficiency arising after the extrajudicial foreclosure, under Act No. 3135, as amended, of the mortgaged properties.

• Recovery of Deficiency After Extrajudicial Foreclosure: Yes. Act No. 3135 neither expressly nor impliedly prohibits recovery of the deficiency, and the mortgage is merely security and not satisfaction of the indebtedness.

• Recovery of Deficiency After Extrajudicial Foreclosure: Act No. 3135, as amended, is silent on the mortgagee's right to recover a deficiency after extrajudicial foreclosure, but no provision expressly or impliedly prohibits such recovery. Article 2131 of the New Civil Code provides that the form, extent, and consequence of a mortgage are governed by the Mortgage Law and the Land Registration Law; under the Mortgage Law, still in force, the mortgagee has the right to claim the deficiency resulting from the price obtained at public auction and the outstanding obligation at the time of foreclosure. Section 6, Rule 70 of the Rules of Court allows a deficiency judgment in judicial foreclosure, and although that rule refers to judicial foreclosure, the underlying principle is the same: the mortgage is but a security and not a satisfaction of indebtedness. The trial court correctly observed that a real estate mortgage does not limit or minimize the obligation; it guarantees fulfillment, and upon default the creditor may foreclose judicially or extrajudicially. By analogy and equity, if a deficiency remains after the public auction, the mortgagee may proceed in a proper action against the debtor for that deficiency, and it is immaterial whether the highest bidder is the creditor itself. The legislature expressly bars deficiency recovery in pledges under Article 2115 and in installment sales of personal property under Article 1484, paragraph 3, but no similar provision exists in Act No. 3135; hence, the creditor does not lose the right recognized under the Mortgage Law and the Rules of Court simply because it chose extrajudicial foreclosure pursuant to a special power of attorney. Medina vs. Philippine National Bank, 56 Phil. 651, is analogous: resort to extrajudicial foreclosure under Act No. 3135 was merely a proceeding for sale and not a waiver of the right to demand payment of the whole debt.

• Mortgage as Security, Not Satisfaction — A real estate mortgage does not limit or minimize the principal obligation; it merely guarantees fulfillment. Upon default, the creditor may foreclose judicially or extrajudicially, and if the auction price is less than the debt, the creditor may sue for the deficiency. The Court applied this principle to allow the bank to recover P99,033.20 after the mortgaged properties sold for P86,700.00.
• Deficiency Recovery After Extrajudicial Foreclosure Under Act No. 3135 — Act No. 3135, as amended, is silent on the mortgagee's right to recover a deficiency after extrajudicial foreclosure, but it does not expressly or impliedly prohibit such recovery. Article 2131 of the New Civil Code refers to the Mortgage Law and the Land Registration Law, under which the mortgagee may claim the deficiency between the auction price and the outstanding obligation; Section 6, Rule 70 of the Rules of Court recognizes the same principle in judicial foreclosure. The Court applied this to uphold the deficiency judgment.
• No Waiver by Choosing Extrajudicial Foreclosure — A mortgagee's resort to extrajudicial foreclosure under Act No. 3135, pursuant to a special power of attorney in the mortgage contract, is merely a proceeding for the sale of the security and is not a waiver of the right to demand payment of the whole debt. The Court relied on Medina vs. Philippine National Bank, 56 Phil. 651, to reject the appellant's theory.
• Express Statutory Prohibition Required to Bar Deficiency Recovery — When the legislature intends to foreclose the creditor's right to sue for a deficiency after foreclosure of the security, it says so expressly, as in Article 2115 for pledges and Article 1484, paragraph 3, for installment sales of personal property. Because Act No. 3135 contains no similar prohibition, the creditor's right to recover the unpaid balance is not lost.
• Creditor as Highest Bidder — It is of no importance whether the buyer or highest bidder at the public auction is the creditor itself. The Court applied this in holding that the bank's purchase of the mortgaged properties did not bar its deficiency claim.

• "The form, extent and consequence of a mortgage, both as to its constitution, modification and extinguishment, and as to other matters not include in this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land Registration Law." — Article 2131 of the New Civil Code, cited by the Court as the statutory bridge to the Mortgage Law for the mortgagee's right to claim a deficiency.
• "Under the Mortgage Law, which is still in force, the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation at the time of the foreclosure proceedings." — The Court's core statement of the mortgagee's right to a deficiency judgment.
• "It is true that this refers to a judicial foreclosure, but the underlying principle is the same, that the mortgage is but a security an not a satisfaction of indebtedness." — The Court extends the deficiency-judgment principle of Section 6, Rule 70 from judicial to extrajudicial foreclosure.
• "when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from the foreclosure of the security given to guarantee the obligation, it so expressly provides." — The Court distinguishes pledge and chattel mortgage provisions and concludes that Act No. 3135's silence does not bar recovery.

• Soriano vs. Enriquez, 24 Phil. 584 — Cited by the Court as authority under the Mortgage Law that the mortgagee may claim the deficiency resulting from the price obtained at public auction and the outstanding obligation at the time of foreclosure.
• Banco de Islas Filipinas vs. Concepcion decision e Hijos, 53 Phil. 86 — Cited for the same proposition on the mortgagee's right to recover a deficiency.
• Banco Nacional vs. Barreto, 5 Phil. 101 — Cited for the same proposition on the mortgagee's right to recover a deficiency.
• Medina vs. Philippine National Bank, 56 Phil. 651 — Cited as an analogous case holding that resort to extrajudicial foreclosure under Act No. 3135 is merely a proceeding for the sale and is not a waiver of the mortgagee's right to demand payment of the whole debt.

• Act No. 3135, as amended — Governs extrajudicial foreclosure. The Court held that although it is silent on deficiency recovery, it neither expressly nor impliedly prohibits the mortgagee from recovering the unpaid balance after the auction sale.
• Article 2131, New Civil Code — Provides that the form, extent, and consequence of a mortgage are governed by the Mortgage Law and the Land Registration Law. The Court used this to apply the Mortgage Law's recognition of the mortgagee's right to claim a deficiency.
• Section 6, Rule 70, Rules of Court — Provides that upon sale of real property under an order of foreclosure to satisfy a mortgage, if a balance remains due to the plaintiff, the court may render judgment against the defendant for the balance for which he is personally liable. The Court held that although it refers to judicial foreclosure, its underlying principle applies equally to extrajudicial foreclosure.
• Article 2115, New Civil Code — Provides that in a pledge, if the sale price is less than the principal obligation, the creditor is not entitled to recover the deficiency notwithstanding any stipulation to the contrary. The Court cited it as an example of an express statutory bar to deficiency recovery, absent in Act No. 3135.
• Article 1484, paragraph 3, New Civil Code — Provides that in a foreclosure of a chattel mortgage on a thing sold in installments, the vendor has no further action against the purchaser to recover any unpaid balance of the price, and any contrary agreement is void. The Court cited it as another express statutory bar, absent in Act No. 3135.

Bengzon, C.J.; Padilla; Bautista Angelo; Labrador; Concepcion; Reyes, J.B.L.; and Paredes, JJ., concur. Dizon, Regala, and Makalintal, JJ., took no part.