PRUDENTIAL BANK, PLAINTIFF-APPELLEE, VS. RENATO M. MARTINEZ AND VIRGINIA J. MARTINEZ, DEFENDANTS-APPELLANTS.

This case is certified to Us by the
Court of Appeals in its Resolution dated August 30, 1979, for the reason that only pure questions
of law are involved.

The Court of Appeals adopted the findings of fact of the trial
court as follows:

“This is a case for sum of money filed by plaintiff Prudential
Bank against defendants Renato M. Martinez and Virginia J. Martinez, seeking to
recover a deficiency of P25,775.10 with daily interest
thereon of P15.35.

“The plaintiff in its complaint alleged that on January 27 and
February 2, 1970 defendants obtained a loan from the plaintiff in the total sum
of P48,000.00 and in consideration thereof, the said defendants executed on
said dates promissory notes in favor of the plaintiff, promising to pay jointly
and severally, the sum of P48,000.00 on or before January 27, 1971 with interest
thereon at 12% per annum, partially secured by a real estate mortgage on the
property covered by Transfer Certificate of Title No. 97467 of the Register of
Deeds of Manila; that the loan became due and defendant defaulted despite
plaintiff’s demand letters; that as a consequence, the mortgage was
extra-judicially foreclosed; that the plaintiff was the highest and lone bidder
at the auction sale, for the sum of P52,760.00; that after deducting therefrom
the attorney’s fees, registration fees, sheriff’s fees, and publication
expense, there still remained a balance of P25,775.10 due to plaintiff, which
plaintiff now seeks to recover plus interest and attorney’s fees.

“The defendants admit the allegations in the complaint, except
paragraphs 8 and 9 thereof and alleged that plaintiff has no cause of action
and therefor not entitled to recover and pray for P3,000.00
attorney’s fees plus costs of litigation in the amount of P1,000.00.

“When the issues were joined a pre-trial was conducted and the
Court issued the following pre-trial order, to wit:

‘With the admission in the answer of paragraphs 1 to 5 of the
complaint, the parties believed that there are no controversies as to the
facts.  From the point of view of the
defendants, they will submit the case on the following issues:  (1) Whether plaintiff can still collect the
deficiencies after the extra-judicial foreclosure of mortgage; (2) what should
be the basis of the computation of the attorney’s fees?  Should it be the principal or should the 10%
be based on the principal plus interest; and (3) Whether
the plaintiff can still collect attorney’s fees in its effort to recover the
deficiencies.  However, plaintiff’s
counsel believes there is only one issue and that is whether any deficiency
amount can be collected after extra-judicial foreclosure of mortgage.

‘WHEREFORE, it is hereby ordered that the parties be given a period
of thirty (30) days from today within which to file their respective memoranda
simultaneously.

‘SO ORDERED.’” (Rollo, pp. 30-32)

On July 8, 1977,
the lower Court rendered a decision, the dispositive portion of which reads:

“WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants, ordering the latter to pay the former,
jointly and severally, the amounts of P25,775.10 with
daily interest thereon of P15.85 from September
10, 1976 until fully paid and P2,500.00 for and as attorney’s fees,
plus costs of suit.” (Records, p. 18)

Thereupon, defendants appealed to the Court of Appeals with these
two assignments of errors, namely –

“I

“THE LOWER COURT
ERRED IN HOLDING THAT THE PLAINTIFF-APPELLEE IS ENTITLED TO RECOVER THE
DEFICIENCY IN THE SUM OF P25,775.10 AFTER THE
EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE TO SATISFY THE INDEBTEDNESS, AND AFTER
THE MORTGAGED PROPERTY HAD BEEN CONVEYED TO THE PLAINTIFF-APPELLEE IN
SATISFACTION OF THE LOANS.

“II

“THE LOWER COURT
ERRED IN AWARDING THE SUM OF P2,500.00 AS ATTORNEY’S
FEES TO PLAINTIFF-APPELLEE.” (Appellants’ Brief, p. 9, Rollo)

Appellants argue that the Legislature never intended to grant to
a mortgagee the right to recover the deficiency arising from an extrajudicial
foreclosure of mortgage inasmuch as such recovery is not a natural right of the
mortgagee, hence, the need to expressly grant the same in a judicial foreclosure
proceedings; that consequently, an express prohibition against such claim would
be quite superfluous; and that besides, there is no need to enumerate negative
remedies or solutions in the law. 
Further, they aver that if mortgagees were allowed such right, the
debtors would be at the mercy of their creditors considering the summary nature
of extrajudicial foreclosure proceedings. 
They, likewise, point to the limited readership of auction sale notices
which lead to the sale of mortgaged properties for much less than their actual
value notwithstanding that the mortgage value of the said properties is higher
than its fair market value.  Finally,
appellants assail the award of attorney’s fees in the sum of P2,500.00 as unconscionable. 
They claim that the computation of the attorney’s fees should have been
based on the terms of promissory note which provided for a ten percent (10%)
award of the principal obligation; and that since the attorney’s fees were
already collected by the appellee when it foreclosed the mortgage, such fees
should no longer be awarded in this case. 
(Appellants Brief, pp. 4-11, Rollo, p. 9)

We affirm.

We have already ruled in several cases that in extrajudicial
foreclosure of mortgage, where the proceeds of the sale are insufficient to pay
the debt, the mortgagee has the right to recover the deficiency from the debtor
(Philippine Bank of Commerce v. De Vera, L-18816, December 29, 1962, 6 SCRA
1026; Development Bank of the Philippines v. Vda. de Moll L-25802, January 31,
1972, 43 SCRA 82; Development Bank of the Philippines v. Murang, L-29130,
August 8, 1975, 66 SCRA 141; Development Bank of the Philippines v. Zaragoza,
L-23493, August 23, 1978, 84 SCRA 668; and DBP v. Tomeldan, G.R. No. 51269,
November 17, 1980, 101 SCRA 171).  A
careful scrutiny of the arguments presented in the case at bar yields no
substantial and convincing reasons for Us to depart
from Our previous ruling.  Appellants’
arguments merely rehashed the objections already considered and overruled in
the aforementioned cases.  Thus, in
Philippine Bank of Commerce v. De Vera (supra), We
declared that:

“A reading of the provisions of Act No. 3135, as amended (re
extra-judicial foreclosure) discloses nothing, its is
true, as to the mortgagee’s right to recover such deficiency.  But neither do we find any provision
thereunder which expressly or impliedly prohibits such recovery.

“Article 2131 of the new Civil Code, on the contrary,
expressly provides that ‘The form, extent and consequences of a mortgage, both
as to its constitution, modification and extinguishment, and as to other
matters not included in this Chapter, shall be governed by the provisions of
the Mortgage Law and of the Land Registration Law.’ 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.  (See Soriano v. Enriquez, 24
Phil. 584; Banco de Islas Filipinas v. Concepcion
e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101).  Under the Rules of Court (Sec. 6, Rule 70),
‘Upon the sale of any real property, under an order for a sale to satisfy a
mortgage or other incumbrance thereon, if there be a balance due to the
plaintiff after applying the proceeds of the sale, the court, upon motion,
should render a judgment against the defendant for any such balance for which,
by the record of the case, he may be personally liable to the plaintiff, x x
x.’ It is true that this refers to a judicial foreclosure, but the underlying
principle is the same, that the mortgage is but a security and not a
satisfaction of indebtedness.  x x x.

“Let it be noted that 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.  Thus, in respect to pledges,
Article 2115 of the new Civil Code expressly states:  ‘x x x. 
If the price of the sale is less (than the amount of the principal
obligation) neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary.‘
Likewise in the event of the foreclosure of a chattel mortgage on the thing
sold in installments ‘he (the vendor) shall have no further action against the
purchaser to recover any unpaid balance of the price.  Any agreement to the contrary shall be void’
(Article 1484, paragraph 3, ibid).  It is
then clear that in the absence of a similar provision in Act No. 3135, as
amended, it can not be concluded that the creditor loses his right given him
under the Mortgage Law and recognized in the Rules of Court, to take action for
the recovery of any unpaid balance on the principal obligation, simply because
he has chosen to foreclose his mortgage extra-judicially pursuant to a special
power of attorney given him by the mortgagor in the mortgage contract.”
(pp. 1029-1030)

Moreover, the fact that the mortgaged property is sold at an
amount less than its actual market value should not militate against the right
to such recovery.  We fail to see any
disadvantage going for the mortgagor.  On
the contrary, a mortgagor stands to gain with a reduced price because he
possesses the right of redemption.  When
there is the right to redeem, inadequacy of price should not be material,
because the judgment debtor may reacquire the property or also sell his right
to redeem and thus recover the loss he claims to have suffered by the reason of
the price obtained at the auction sale (De Leon v. Salvador, L-30871, December
28, 1970 and Bernabe v. Cruz, et al., L-31603, December 28, 1970; 36 SCRA
567).  Generally, in forced sales, low
prices are usually offered and the mere inadequacy of the price obtained at the
sheriff’s sale unless shocking to the conscience will not be sufficient to set
aside a sale if there is no showing that in the event of a regular sale, a
better price can be obtained (Ponce de Leon v. Rehabilitation Finance
Corporation, L-24571, December 18, 1970, 36 SCRA 289).

Lastly, We find that the award of
attorney’s fees is proper.  It cannot be
disputed that the proceedings in the extrajudicial foreclosure and the
deficiency suit are altogether different. 
The first is extrajudicial and summary in nature while the second is a
court action.  Hence, the efforts exerted
by the lawyer in these two separate courses of action should be
recognized.  Besides, the basis of the
extrajudicial foreclosure proceeding was the Deed of Real Estate Mortgage,
particularly condition No. 7 thereof, where the parties stipulated for a ten
percent (10%) attorney’s fees to be collected in the event that
the mortgage is foreclosed or a legal
action is taken to foreclose the mortgage
(Appellee’s Brief, Rollo, p. 9, underlining supplied).  However, the proceeds in that sale were
insufficient to pay the debt contained in the appellant’s promissory note.  The appellee was, therefore, constrained to
file a deficiency suit, an eventuality not covered by the Deed of Real Estate
Mortgage.  Necessarily, the basis of this
case is the promissory note executed by the appellants.  We find that the note itself shows that
appellants obligated themselves to pay the sum of ten percent as attorney’s
fees whether incurred or not, exclusive of cost and other expenses of
collection (Records, p. 7).  Clearly, the
trial court’s award of attorney’s fees was not without basis.  The amount of P2,500.00
awarded as attorney’s fees being less than ten percent (10%) of the deficiency
sued for is just and proper in the premises.

ACCORDINGLY, the decision Appealed from is hereby
AFFIRMED.  Costs
against the appellants.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Grino-Aquino, JJ., concur.