G.R. No. L-21813 July 30, 1966
AMPARO G. PEREZ, ET AL., plaintiffs and appellees, vs. PHILIPPINE NATIONAL BANK, Binalbagan Branch, ET AL., defendants and appellants.

FACTS

On August 29, 1939, Vicente Perez mortgaged Lot No. 286-E to the Philippine National Bank (PNB) to secure a loan. Vicente Perez died on October 7, 1942, survived by his widow and children (the appellees). The estate of Vicente Perez was settled in Special Proceedings No. 512, which was closed after the project of partition was approved. PNB did not file a claim in the estate proceedings. The widow had inquired about the loan balance in 1947 and was informed of the outstanding amount. On January 2, 1963, PNB extrajudicially foreclosed the mortgage. The property was sold at auction to PNB, and after the redemption period, the original certificate of title in Vicente Perez’s name was cancelled and a new one issued in PNB’s name. The widow and heirs were not notified of the foreclosure. They subsequently filed an action to annul the foreclosure sale and the transfer of title, and to recover damages. The trial court annulled the foreclosure, citing the doctrine in Pasno vs. Ravina, and awarded damages and attorney’s fees to the heirs. PNB appealed.

ISSUE

Whether the extrajudicial foreclosure of a mortgage is valid after the death of the mortgagor, or whether such foreclosure must be done judicially as required by the trial court following Pasno vs. Ravina.

RULING

The Supreme Court reversed the trial court and upheld the validity of the extrajudicial foreclosure. Re-examining the doctrine in Pasno vs. Ravina, the Court adopted the dissenting opinion therein, which held that Section 7, Rule 87 of the Rules of Court (now Rule 86) provides three alternatives to a mortgagee-creditor: (1) waive the mortgage and claim the debt from the estate; (2) foreclose judicially and claim any deficiency; or (3) rely on the mortgage alone and foreclose it at any time within the period of limitations, waiving any claim for deficiency. The third alternative includes extrajudicial foreclosure. The power to sell in a mortgage deed is a power coupled with an interest that survives the death of the mortgagor. The majority ruling in Pasno vs. Ravina, which required judicial foreclosure, was found to improperly eliminate the third alternative. However, due to PNB’s failure to notify the heirs of the foreclosure despite knowing of the mortgagor’s death since 1947, which prevented them from paying the debt or effecting a timely redemption, the Court, in equity, modified the judgment. The Court declared the extrajudicial foreclosure and the transfer of title valid but granted the heirs the right to redeem the property within sixty days by paying the capital, stipulated interest up to foreclosure, plus 12% interest thereafter, useful expenditures by PNB, less any rents and profits PNB derived from the property. No damages or costs were awarded.