Biaco v. Philippine Countryside Rural Bank
REITERATIONFacts
The Antecedents: Ernesto Biaco, husband of petitioner Ma. Teresa Chaves Biaco, obtained several loans from Philippine Countryside Rural Bank (PCRB) while employed as its branch manager. As security, Ernesto executed a real estate mortgage in favor of the bank, covering a parcel of land, with the signatures of both spouses. Ernesto failed to settle the loans, and PCRB sent a written demand. Subsequently, PCRB filed a complaint for foreclosure of mortgage against the spouses Biaco. Summons was served on Ernesto at his office, but he failed to file an answer, leading to their declaration in default. The RTC ordered the spouses Biaco to pay the loan amount, and in case of non-payment, the mortgaged property was to be sold at public auction. If the proceeds were insufficient, the spouses were to be liable for the deficiency. Procedural History: The sheriff served the judgment to Ernesto Biaco. The spouses Biaco did not appeal. PCRB filed a motion for execution, which was granted. The mortgaged property was sold at public auction to PCRB for an amount insufficient to cover the obligation. PCRB then filed an ex parte motion for deficiency judgment, which the RTC granted, ordering a writ of execution against the spouses Biaco for the remaining balance. Notices of levy were issued against properties of Ma. Teresa Biaco but were denied registration as she had already sold them. The Petition: Petitioner Ma. Teresa Chaves Biaco sought annulment of the RTC judgment, alleging extrinsic fraud and lack of jurisdiction, claiming she only learned of the judgment after its finality. She argued that the bank failed to verify her signature's authenticity on the mortgage and did not inquire about her absence on the promissory notes. She also asserted that the trial court lacked jurisdiction due to improper service of summons on her through her husband without justification for substituted service.
Issue(s)
Whether the Court of Appeals erred in ruling that there was no extrinsic fraud. Whether the trial court acquired jurisdiction over the person of the petitioner, considering the nature of the action as quasi in rem and the requirements for service of summons. Whether the service of summons upon the petitioner through her husband at his office constituted valid substituted service. Whether the deficiency judgment rendered against the petitioner is void for lack of jurisdiction over her person.
Ruling
The petition is granted. The Decision of the Court of Appeals and the Judgment and Order of the Regional Trial Court are set aside. The deficiency judgment against the petitioner is declared void.
Ratio Decidendi
On the issue of extrinsic fraud: The Court held that extrinsic fraud must be committed by the prevailing party outside the trial, preventing the defeated party from presenting their case. In this instance, the alleged concealment by the husband from his wife regarding the loans and foreclosure proceedings could not be attributed to the respondent bank, as they were co-defendants with identical interests. The Court reiterated that the use of forged instruments during trial does not constitute extrinsic fraud as it does not prevent a party from participating in the proceedings. Therefore, the appellate court correctly ruled that no fraud was perpetrated by the respondent bank upon the petitioner. On the issue of jurisdiction and service of summons in quasi in rem actions: The Court explained that a judicial foreclosure proceeding is an action quasi in rem, meaning jurisdiction over the res (the property) is essential, but jurisdiction over the person of the defendant is not a prerequisite for the court to validly try and decide the case, provided the res is within the court's jurisdiction. However, summons must still be served to satisfy due process requirements. For a resident defendant who does not voluntarily appear, personal service is required. If personal service cannot be effected within a reasonable time, substituted service may be resorted to, either by leaving copies at the defendant's residence with a person of suitable age and discretion, or at their office with a competent person in charge, in accordance with Rule 14 of the Rules of Court. The Sheriff's Return of Service indicated service on the petitioner through her husband at his office, but without any explanation for the resort to substituted service, thus violating due process. On the validity of substituted service of summons: The Court found that the service of summons on the petitioner through her husband at his office, as indicated by the Sheriff's Return of Service, was not proper substituted service under Rule 14 of the Rules of Court. The return did not provide any explanation or justification for why personal service could not be made on the petitioner, nor did it show that the summons was left with a person in charge of her husband's office. This failure to comply with the rules on substituted service meant that the petitioner was denied her constitutional right to due process, as she was prevented from participating in the judicial foreclosure proceedings. On the deficiency judgment: The Court ruled that while the trial court acquired jurisdiction over the res in the quasi in rem foreclosure action, its jurisdiction was limited to the res itself. The trial court exceeded its jurisdiction when it rendered a deficiency judgment against the spouses Biaco, which is a personal judgment, without first acquiring valid jurisdiction over the person of the petitioner. Such an act violates the petitioner's constitutional right to due process. Citing established jurisprudence, the Court emphasized that in in rem or quasi in rem proceedings, any relief granted against a defendant over whom jurisdiction has not been acquired is limited to the res and cannot extend to a personal judgment.
Main Doctrine
A deficiency judgment rendered against a defendant in a quasi in rem action, without prior acquisition of jurisdiction over the person of the defendant, violates the constitutional right to due process and warrants annulment of the judgment.