G.R. No. 171206 - Heirs of the Late Spouses Magsalang vs. Manila Banking Corporation

On June 16, 1975, spouses Flaviano and Salud Maglasang obtained a P350,000 credit line from Manila Banking Corporation (now First Sovereign Asset Management [SPV-AMC], Inc.).
They secured two advances under this line: P209,790.50 on October 24, 1975, and P139,805.83 on March 15, 1976.
The loans bore 12% per annum interest and a 4% penalty upon default, with both advances due within one year.

Flaviano died intestate on February 14, 1977. His widow Salud and their eleven children appointed their brother Edgar Maglasang as attorney-in-fact.
On March 30, 1977, Edgar filed a petition for letters of administration for Flaviano’s estate before the Court of First Instance of Leyte, Ormoc City, Branch 5 (Sp. Proc. No. 1604-0).
The court appointed Edgar as administrator on August 9, 1977, and issued a notice to creditors on August 30, 1977. Manila Banking Corporation filed its secured claim for P382,753.19 as of October 11, 1978.

During the intestate proceedings, Edgar and co-heir Oscar secured further loans from the bank, signing promissory notes as security.
On December 14, 1978, the probate court terminated proceedings upon an extra-judicial partition of Flaviano’s properties, yet recognized the bank’s right to foreclose within the prescriptive period.

The bank foreclosed the mortgage under Act No. 3135 and emerged as highest bidder at P350,000. A deficiency remained.
On June 24, 1981, it filed Civil Case No. 1998-0 in the Regional Trial Court (RTC) of Ormoc City to recover a deficiency of P250,601.05 as of May 31, 1981.
After trial, on April 6, 1987, the RTC ordered the heirs to pay P434,742.36 plus 12% interest, 4% penalty, and 10% attorney’s fees, jointly and severally.
The Court of Appeals (CA) affirmed on July 20, 2005, and denied reconsideration on January 4, 2006.

Whether the CA erred in affirming the RTC’s award of the deficiency amount.
Whether Section 7, Rule 86 of the Rules of Court or Act No. 3135 governs the bank’s remedies and its right to recover any deficiency.
Whether the bank waived its right to foreclose by filing its claim during probate proceedings.
Whether the extra-judicial foreclosure was invalid for not holding the auction in the provincial capital as stipulated.
Whether the heirs are personally liable for their deceased parents’ loans.