Case Summary (G.R. No. 161417)
Factual Background: Loans, Mortgage, and Default
Ernesto Biaco obtained several loans from PCRB evidenced by promissory notes (amounts listed in the record ranging from P30,000 to P350,000, aggregating to a claimed balance). As security for those loans Ernesto executed a real estate mortgage in favor of PCRB over the parcel covered by Original Certificate of Title No. P-14423. The mortgage documents bore the signatures of both spouses. PCRB served a written demand on Ernesto on September 28, 1999; as of September 30, 1999 PCRB claimed the indebtedness had reached P1,080,676.50. The mortgage and lending relationship was the subject matter of the foreclosure suit PCRB later filed when payment did not follow demand.
Trial Proceedings, Default, and Findings
PCRB filed a complaint for judicial foreclosure on February 22, 2000. Summons, according to the sheriff’s return, were served through Ernesto at his office on March 16, 2000; Ernesto acknowledged receipt. Ernesto did not file an answer and the spouses were declared in default. PCRB was permitted to present evidence ex parte before the Branch Clerk appointed as Commissioner. Testimony presented established loan activity and claimed unpaid balances (the record reflects P1,260,304.33 as the balance for 1998 loans, inclusive of agreed interest, penalties, and service charges). The Assessor’s Office reported an appraisal value of P150,000 for the mortgaged lot. Based on the Commissioner’s report, the trial court rendered judgment ordering payment of P1,260,304.33 plus litigation expenses and attorney’s fees, and, in the event of nonpayment within the set period, ordered the sheriff to sell the mortgaged property at public auction; any deficiency was to be made the personal liability of the defendants.
Execution, Auction Sale, and Deficiency Proceedings
The trial court’s judgment was served (the record indicates personal service upon Ernesto). PCRB moved ex parte for execution after the payment period elapsed; the motion was granted and a writ of execution issued. The mortgaged property was sold at public auction in favor of PCRB for P150,000, an amount insufficient to satisfy the judgment. PCRB then sought and obtained an ex parte deficiency judgment and an order issuing a writ of execution against other real properties of the spouses to satisfy the remaining obligation (the record identifies an ordered deficiency of P1,369,974.70). Notices of levy were executed against properties registered under petitioner’s name; those levies were reported denied registration because the properties had been sold by petitioner to her daughters on April 11, 2001.
Petition for Annulment — Petitioner’s Contentions
Petitioner sought annulment of the RTC judgment on grounds of extrinsic fraud and denial of due process. She asserted she learned of the foreclosure only more than six months after finality and claimed she was prevented from participating because (a) summons were not personally served on her but instead were left with her husband at his office; (b) her husband concealed knowledge of the proceedings; (c) the bank failed to verify the authenticity of her signature on the mortgage and did not explain the absence of her signature on the promissory notes; and (d) the trial court therefore lacked jurisdiction over her person and the ensuing deficiency judgment was void insofar as it imposed personal liability without valid service.
Court of Appeals’ Ruling and Rationale
The Court of Appeals addressed two circumstances alleged to have kept petitioner unaware: the sheriff’s failure to personally serve petitioner and the husband’s concealment. The appellate court held that judicial foreclosure is an action quasi in rem; consequently, jurisdiction over the person of the defendant is not essential so long as the court acquires jurisdiction over the res. The court emphasized that spouses were co-defendants sharing the same interest, and therefore fraud by one spouse against the other could not be imputed to the bank; the CA also held that allegations of forged signatures concern intrinsic matters of evidence and do not constitute extrinsic fraud warranting annulment. The Court of Appeals denied petitioner’s annulment petition.
Legal Standards on Extrinsic Fraud, Jurisdiction and Service of Summons
The Supreme Court reiterates the established contours of extrinsic fraud: it exists where a prevailing party, by fraudulent acts outside the trial, prevents the defeated party from fully presenting his case — examples include keeping a party away from court, false promises, or otherwise keeping a defendant in ignorance of the suit. Intrinsic fraud, such as the use of forged instruments as evidence, ordinarily does not qualify because it does not bar participation in the proceedings. Jurisdictional analysis depends on whether an action is in personam, in rem, or quasi in rem: in personam actions require personal jurisdiction; in rem and quasi in rem actions may proceed so long as the court acquires jurisdiction over the res (by seizure or by institution of proceedings). Nonetheless, summons must be served to satisfy due process: a resident defendant who does not voluntarily appear must be personally served under Section 6, Rule 14, and substituted service under Section 7, Rule 14 is permissible only after reasonable efforts at personal service have failed and then only by authorized modes (leaving copies at residence with a person of suitable age and discretion, or at the defendant’s office with a competent person in charge).
Supreme Court’s Analysis: Due Process, Service, and Excess of Jurisdiction
The Supreme Court found dispo
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Facts of the Case
- Petitioner is Ma. Teresa Chaves Biaco; her husband is Ernesto Biaco, who was employed as branch manager of Philippine Countryside Rural Bank (PCRB).
- Ernesto obtained several loans from PCRB evidenced by promissory notes dated and valued as follows:
- February 17, 1998 — P65,000.00
- March 18, 1998 — P30,000.00
- May 6, 1998 — P60,000.00
- May 20, 1998 — P350,000.00
- July 30, 1998 — P155,000.00
- September 8, 1998 — P40,000.00
- September 8, 1998 — P120,000.00
- As security for payment of the loans, Ernesto executed a real estate mortgage in favor of PCRB covering the parcel of land described in Original Certificate of Title (OCT) No. P-14423; the real estate mortgage bore the signatures of both spouses Biaco.
- When Ernesto failed to settle the loans on their due dates, PCRB, through counsel, sent him a written demand on September 28, 1999. The amount due as of September 30, 1999 was P1,080,676.50.
- The written demand did not produce payment.
Filing and Service of Process
- On February 22, 2000, PCRB filed a complaint for foreclosure of mortgage against spouses Ernesto and Teresa Biaco before the Regional Trial Court (RTC) of Misamis Oriental (RTC, Cagayan de Oro City, Branch 20).
- Summons was served to the spouses Biaco through Ernesto at his office (Export and Industry Bank) located at Jofelmor Building, Mortola Street, Cagayan de Oro City.
- Ernesto received the summons but, for unknown reasons, failed to file an answer.
- The spouses Biaco were declared in default upon motion of PCRB.
Ex Parte Presentation of Evidence and Commissioner’s Report
- The trial court allowed PCRB to present its evidence ex parte before the Branch Clerk of Court, who had been appointed Commissioner.
- Arturo Toring, branch manager of PCRB, testified that the spouses had obtained loans from the bank from 1996 to 1998; loans for 1996–1997 had been paid, leaving a balance of P1,260,304.33 representing the 1998 loans.
- The claimed amount included interests, penalties, and service charges as agreed upon by the parties.
- The Assessor’s Office reported the appraisal value of the mortgaged land as P150,000.00.
Trial Court Judgment (Commissioner’s Report Adopted)
- Based on the Commissioner’s report, the trial court rendered judgment ordering spouses Ernesto R. Biaco and Ma. Theresa [Chaves] Biaco to pay PCRB within not less than ninety (90) days nor more than one hundred (100) days from receipt of the decision the loan amount of P1,260,304.33.
- The judgment also awarded litigation expenses of P7,640.00, attorney’s fees of P252,030.43, and costs of suit.
- The judgment ordered that, if the amount was not paid within the period, the Sheriff sell at public auction the mortgaged lot (Lot 35802, Cad. 237 {Lot No. 12388-B, Csd-10-002342-D}), located at Gasi, Laguindingan, Misamis Oriental and covered by TCT No. P-14423, to satisfy the mortgage debt; any surplus was to be delivered to the defendants.
- The judgment further provided that if auction proceeds were insufficient, the defendants were ordered to pay any deficiency as their personal liability.
Service of the Judgment, Execution, and Auction Sale
- On July 12, 2000, the sheriff personally served a copy of the judgment on Ernesto Biaco at his office at Export and Industry Bank.
- The spouses did not appeal from the trial court’s decision.
- On October 13, 2000, PCRB filed an ex parte motion for execution to direct the sheriff to sell the mortgaged lot at public auction; PCRB alleged the 90-day payment period had lapsed.
- The trial court granted the motion for execution by Order dated October 20, 2000.
- On October 31, 2000, the sheriff served a copy of the writ of execution to the spouses Biaco at their residence at #92 9th Street, Nazareth, Cagayan de Oro City; the writ was personally received by Ernesto.
- The mortgaged property was sold at public auction in favor of PCRB for P150,000.00, an amount insufficient to cover the full obligation.
Ex Parte Motion for Deficiency Judgment and Subsequent Levy
- Because the auction proceeds were insufficient, PCRB filed an ex parte motion for judgment praying for issuance of a writ of execution against other properties of the spouses Biaco for full settlement of the remaining obligation.
- The trial court granted the motion and ordered issuance of a writ of execution against the spouses Biaco to enforce and satisfy a balance of P1,369,974.70.
- The sheriff executed two notices of levy against properties registered under the name of petitioner Ma. Teresa Chaves Biaco.
- The notices of levy were denied registration because Ma. Teresa had sold the two properties to her daughters on April 11, 2001.
Petitioner’s Annulment Petition and Allegations of Extrinsic Fraud
- Petitioner sought annulment of the RTC decision asserting extrinsic fraud prevented her from participating in the judicial foreclosure proceedings.
- She claimed she only learned of the judgment after more than six months from its finality.
- Petitioner alleged extrinsic fraud on several grounds:
- PCRB failed to verify the authenticity of her signature on the real estate mortgage.
- PCRB did not inquire why her signature was absent on the promissory notes.
- Summons were served on her through her husband without any explanation why personal service could not be made.
- She asserted possible collusion between her husband and the sheriff, alleging the sheriff left a copy of summons intended for her at her husband’s office.
- Petitioner contended the deficiency judgment was a personal judgment that should be void for lack of jurisdiction over her person.
Court of Appeals’ Findings and Ruling
- The Court of Appeals (CA) succinctly stated the factual background and considered two circumstances keeping petitioner in the dark: (1) failure of the sheriff to personally serve summons on petitioner; and (2) petitioner’s husband’s concealment of his knowledge of the foreclosure proceedings.
- The CA ruled that judicial foreclosure proceedings are actions quasi in rem; therefore, jurisdiction over the person of the defendant is not essential provided the court acquires jurisdiction over the res.
- The CA further ruled that, because the spouses Biaco were co-defendants sharing the same interest, fraud committed by one spouse against the other cannot be considered extrinsic fraud attributable to the plaintiff bank (PCRB).
- The CA denied petitioner’s petition for annulment of judgment and denied her motion for reconsideration; those rulings were the subject of the present petition for review.
Parties’ Contentions Before the Supreme Court
- Petitioner’s c