G.R. No. L-18816, December 29, 1962
PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs. TOMAS DE VERA, defendant-appellant.

FACTS

Defendant Tomas de Vera obtained a loan from plaintiff Philippine Bank of Commerce, secured by a real estate mortgage over two parcels of land. Upon maturity of the obligation on March 15, 1956, De Vera failed to pay the outstanding balance. Consequently, the bank extrajudicially foreclosed the mortgage under Act No. 3135 . At the public auction, the bank itself emerged as the highest bidder, purchasing the properties for P86,700.00.
After applying the auction proceeds to the debt, a deficiency of P99,033.20 remained. The bank filed an action in the Court of First Instance of Manila to recover this deficiency amount from De Vera. The trial court ruled in favor of the bank, ordering De Vera to pay the balance with interest and attorney’s fees. De Vera appealed, contesting the bank’s right to recover a deficiency after an extrajudicial foreclosure sale.

ISSUE

Whether a mortgagee-creditor, after conducting an extrajudicial foreclosure of a real estate mortgage under Act No. 3135 , is entitled to recover from the mortgagor any deficiency resulting when the auction sale price is less than the outstanding obligation.

RULING

Yes, the mortgagee is entitled to recover the deficiency. The Supreme Court affirmed the trial court’s decision. The Court held that Act No. 3135 , which governs extrajudicial foreclosure, is silent on the mortgagee’s right to recover a deficiency. However, this silence does not constitute a prohibition against such recovery. The legal logic proceeds from the nature of a mortgage as merely an accessory security, not a satisfaction of the principal obligation.
The Court applied Article 2131 of the Civil Code, which provides that matters concerning mortgages not covered in the Civil Code are governed by the Mortgage Law. Under the still-operative Mortgage Law, the mortgagee expressly retains the right to claim any deficiency. This principle is also recognized under the Rules of Court for judicial foreclosure, based on the equitable doctrine that a foreclosure sale is only for the purpose of applying the proceeds to the debt. The Court found no reason to apply a different rule to extrajudicial foreclosure, as the nature of the security and the underlying debt remain identical.
The Court distinguished real estate mortgages from other securities where the law explicitly bars deficiency claims, such as in pledges under Article 2115 of the Civil Code and installment sales of personal property under Article 1484. The legislature’s express prohibition in those instances underscores that its silence in Act No. 3135 implies no such intent to extinguish the creditor’s right to the unpaid balance. The extrajudicial foreclosure is merely a procedural remedy for sale; it does not constitute a waiver of the right to demand full payment of the debt. Therefore, the creditor can institute a separate personal action to recover the deficiency.