Case Summary (G.R. No. 161417)
Factual Background
Ernesto Biaco, branch manager of PCRB, obtained multiple loans in 1998 totaling P820,000.00 under promissory notes secured by a real estate mortgage on titled land (OCT No. P-14423) signed by both spouses. When the 1998 loans—augmented by interest, penalties and charges—remained unpaid, PCRB demanded payment (September 28, 1999) and filed a judicial foreclosure complaint (February 22, 2000) before the RTC of Misamis Oriental.
Procedural History
Summons were served on Ernesto at his office; neither spouse answered, leading to default. Ex parte evidence established a balance of P1,260,304.33. The RTC rendered a decision (July 11, 2000) ordering payment within 90–100 days or public auction of the mortgaged lot. After auction brought only P150,000.00, PCRB secured a deficiency judgment (February 9, 2001) for P1,369,974.70 and levied on other properties in Ma. Teresa’s name, later sold to her daughters.
Annulment of Judgment Standards
Annulment of judgment is equitable and available only for extrinsic fraud or lack of jurisdiction/denial of due process (Rules of Court, Rule 47, Sec. 2). Extrinsic fraud must prevent a party from presenting its case; lack of jurisdiction includes absence of due process.
Extrinsic Fraud Analysis
Petitioner claimed extrinsic fraud in her husband’s concealment of proceedings and alleged forgery of her signature on promissory notes. The Court observed that both spouses were co-defendants sharing identical interests and that any concealment by Ernesto was not attributable to PCRB. Alleged forgery constitutes intrinsic fraud (affecting trial evidence) and does not, per se, warrant annulment.
Jurisdiction and Nature of Action
Judicial foreclosure is quasi in rem: the court acquires jurisdiction over the res (the mortgaged property) rather than the person. In rem and quasi in rem actions require valid service of summons only to satisfy due process, not to vest subject-matter jurisdiction.
Service of Summons and Due Process
Rule 14 mandates personal service on resident defendants or, upon reasonable effort, substituted service at residence or business. Summons in this case were served solely on Ernesto at his office; no effort to serve Teresa personally was explained. The Sheriff’s Return neglected to justify substituted service on her. Such failure denied petitioner due process by preventing her participation in foreclosure proceedings.
Deficiency Judgment beyond the Res
By granting a deficiency judgment and ordering execution agains
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Facts of the Case
- Ernesto Biaco, branch manager of Philippine Countryside Rural Bank (PCRB), executed seven promissory notes between February and September 1998 for P65,000.00 (Feb. 17), P30,000.00 (Mar. 18), P60,000.00 (May 6), P350,000.00 (May 20), P155,000.00 (July 30), and two notes of P40,000.00 and P120,000.00 (Sept. 8) as evidenced by the bank records.
- To secure these loans, spouses Ernesto and Ma. Teresa Chaves Biaco executed a real estate mortgage covering land under Original Certificate of Title No. P-14423; both spouses signed the mortgage.
- After Ernesto defaulted, PCRB sent a written demand on September 28, 1999, the total amount due as of September 30, 1999, being P1,080,676.50.
Trial Court Proceedings and Judgment
- On February 22, 2000, PCRB filed a complaint for judicial foreclosure of mortgage before the Regional Trial Court (RTC) of Misamis Oriental; summons was served on both spouses through Ernesto at his office in Cagayan de Oro City.
- The spouses failed to file an answer; default was entered at the bank’s motion, and the RTC appointed its Branch Clerk of Court as Commissioner to hear ex parte evidence.
- Commissioner’s report, based on Arturo Toring’s testimony, placed the outstanding balance at P1,260,304.33 (inclusive of interest, penalties, service charges) and appraised the mortgaged land at only P150,000.00.
- RTC’s July 11, 2000 judgment ordered spouses Biaco to pay P1,260,304.33 plus litigation expenses (P7,640.00) and attorney’s fees (P252,030.43) within 90–100 days, failing which the mortgaged lot would be sold at auction and any deficiency made personally liable.
Motion for Execution and Public Auction
- PCRB’s ex parte motion for execution was granted on October 20, 2000; the sheriff served the writ on spouses Biaco at their residence, personally received by Ernesto.
- The mortgaged property was sold at public auction for P150,000.00,