G.R. No. L-51768 September 14, 1990
PRUDENTIAL BANK, plaintiff-appellee, vs. RENATO M. MARTINEZ and VIRGINIA J. MARTINEZ, defendants-appellants.

FACTS

Defendants-appellants Renato and Virginia Martinez obtained a loan from plaintiff-appellee Prudential Bank, secured by a real estate mortgage. Upon default, the bank extrajudicially foreclosed the mortgage and purchased the property at the public auction as the sole bidder. The proceeds from the foreclosure sale were insufficient to cover the total indebtedness, leaving a deficiency of P25,775.10. The bank then filed an action to recover this deficiency amount from the mortgagors.
The defendants admitted the loan and the foreclosure but contested the bank’s right to recover any deficiency after the extrajudicial foreclosure. They argued that such a right is not expressly granted by Act No. 3135 , the law governing extrajudicial foreclosure, and that allowing recovery would be prejudicial to debtors due to the summary nature of such proceedings and the potential for the property to be sold at a price below its market value. They also challenged the award of attorney’s fees.

ISSUE

The primary issue is whether a mortgagee is entitled to recover a deficiency balance from the mortgagor after an extrajudicial foreclosure of the real estate mortgage.

RULING

The Supreme Court affirmed the lower court’s decision, ruling that the mortgagee is entitled to recover the deficiency. The legal logic is anchored on the absence of a statutory prohibition and the principles of contract and obligation. While Act No. 3135 is silent on the mortgagee’s right to claim a deficiency, it does not contain any express or implied prohibition against such recovery. This silence is interpreted as permitting the application of general civil law principles.
The Court, citing established jurisprudence such as Philippine Bank of Commerce v. De Vera, reasoned that a mortgage is merely an accessory security for the principal obligation. The foreclosure and sale of the mortgaged property is only a proceeding to realize the security. If the proceeds are insufficient to satisfy the debt, the mortgagee-creditor retains the right to pursue payment of the balance under the primary loan obligation. The choice of extrajudicial foreclosure, exercised pursuant to a contractual power of attorney, does not constitute a waiver of the right to claim any unpaid balance. The Court also dismissed concerns over inadequate auction sale prices, noting the mortgagor’s right of redemption serves as a protective measure. Regarding attorney’s fees, the Court found the award proper as it was based on a stipulation in the promissory note and represented compensation for the separate judicial action to recover the deficiency, distinct from the fees incurred in the extrajudicial foreclosure itself.