Biaco vs.

Philippine Countryside Rural Bank

G.R. No. 161417. February 8, 2007.
Tinga J.

Petitioner : MA. TERESA CHAVES BIACO

Respondent: PHILIPPINE COUNTRYSIDE RURAL BANK

Facts:

 Petitioner Teresa Biaco was the wife of Ernesto, who obtained several loans from
respondent bank, in the years 1996-1998, when he was still working as the bank’s branch
manager.

 As security for the payment of the said the loans, Ernesto executed a real estate mortgage
(REM) in favor of the respondent bank covering a parcel of land described in OCT P-14423,
located at Laguindingan, Misamis Oriental. The REM bore the signatures of the Sps Biaco.
Ernesto failed to settle his loans obtained in 1998 with value of around P1.2M.

 Respondent bank then filed a complaint for foreclosure of mortgage against Sps Biaco,
before the RTC-Misamis Oriental. Summons was served to the Sps Biaco through Ernesto at
his office who was then working at Export and Industry Bank in Cagayan de Oro City.

 Due to failure of Sps to file an answer, they were declared in default; and the bank was
allowed to present its evidence ex parte. The trial court rendered judgment in favor of
respondent bank, ordering Sps Biaco to pay their loans plus litigation expenses, attorney’s
fees and cost of suit, within the period of not less than 90 days nor more than 100 days from
the receipt of the decision.

 The trial court also ordered that in case of non-payment within the period, the Sheriff is
ordered to sell the mortgaged land at public auction; and if the proceeds of the sale is not
sufficient, Sps Biaco are ordered to pay the deficiency as their personal liability. In July
2000, the Sheriff personally served the RTC judgment to Ernesto at his office.

 Sps Biaco failed to pay within the given period. In October 2000, a copy of the writ of
execution was served by the sheriff to Sps Biaco at their residence in CDO. Ernesto
personally received the summon.

 By virtue of the writ of execution, the mortgaged land was sold at a public auction for P
150,000. Being insufficient, the RTC granted the respondent’s bank ex parte motion for
judgment, which prayed for the issuance of a writ of execution against the other properties
of the Sps Biaco, for the full settlement of the remaining obligation.

 Petitioner sought the annulment of the RTC decision before the CA on the following
contentions: (1) that extrinsic fraud prevented her from participating in the judicial
foreclosure proceedings because the bank failed to verify the authenticity of her signature
on the REM; and (2) that the RTC failed to acquire jurisdiction over her because summons
were served on her through her husband without explanation as to why personal service
could not be made.
  The CA ruled the following: (1) that Sps Biaco were not opposing parties and fraud
committed by one against the other does no consist extrinsic fraud; and (2) that judicial
foreclosure proceedings are actions quasi in rem; and as such, jurisdiction over the
petitioner was not essential as long as jurisdiction over the res is acquired by the RTC.

 Petitioner moved for reconsideration but was denied. Hence the Petition for Review before
the SC. Petitioner asserted that even if the action is quasi in rem, personal service of
summons is essential in order to afford her due process. Furthermore, petitioner argued
that the deficiency judgment was a personal judgment which should be deemed void
because of lack of jurisdiction over her person.

 In its Comment, respondent bank reiterated CA’s ruling that service of summon upon the
petitioner is not necessary in actions quasi in rem, it being sufficient that the court acquire
jurisdiction over the res.

Issues:
1. Whether extrinsic fraud was perpetrated against the petitioner?
2. Whether the RTC lack jurisdiction to hear the complaint for foreclosure of mortgage due to
failure of the sheriff to personally serve summon to the petitioner?
3. Whether petitioner was denied due process when the RTC issued the deficiency judgment
against her, and thus the annulment of the RTC judgment is warranted?

Rulings:

1. Whether extrinsic fraud was perpetrated against the petitioner?

No.
Extrinsic fraud is present where the unsuccessful party had been prevented from exhibiting
fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away
from court.
In the present case, the husband, who concealed the circumstances from petitioner, was the
latter’s codefendant.
Thus, the concealment committed by the husband does not constitute extrinsic fraud.

2. Whether the RTC lack jurisdiction to hear the complaint for foreclosure of mortgage due to
failure of the sheriff to personally serve summon to the petitioner?

No.
The question of whether the RTC has jurisdiction depends on the nature of the action. For
actions which are quasi in rem, such as judicial foreclosure of mortgage, jurisdiction over the
person of the defendant is not a prerequisite to confer jurisdiction on the court provided that the
court acquires jurisdiction over the res.

Jurisdiction over the res is acquired either (1) by the seizure of the property under legal
process, whereby it is brought into actual custody of the law; or (2) as a result of the institution of
legal proceedings, in which the power of the court is recognized and made effective.
 In this case, the judicial foreclosure proceeding instituted by respondent bank undoubtedly
vested the trial court with jurisdiction over the res. A judicial foreclosure proceeding is an action
quasi in rem. As such, jurisdiction over the person of petitioner is not required, it being sufficient
that the trial court is vested with jurisdiction over the subject matter.

Therefore, the trial court has been conferred jurisdiction for the judicial foreclosure
proceeding even if the sheriff of the trial court failed to personally serve summon to the petitioner.

3. Whether petitioner was denied due process when the RTC issued the deficiency judgment
against her, and thus the annulment of the RTC judgment is warranted?

Yes.

In the cases De Midgely v. Ferandos, et al. and Perkins v. Dizon, et al., the SC ruled that in a
proceeding in rem or quasi in rem; the only relief that may be granted by the court against a
defendant, whose person the court has not acquired jurisdiction either by valid service of summons
or by voluntary submission to its jurisdiction; is limited to the res.

In this case, when the RTC issued the deficiency judgment (that is, the Sps have to pay any
deficiency when the proceeds of the auction sale is not sufficient), the trial court rendered judgment
beyond the res since deficiency judgment is a judgment enforcing personal liability to the
petitioner. In doing so without first having acquired jurisdiction over the person of petitioner,
as it did, the trial court violated her constitutional right to due process, warranting the annulment
of the judgment rendered in the case.

Therefore, the petition seeking to annul the judgment of the RTC was granted.