Biaco v. Philippine Countryside Rural Bank

Facts:

Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves Biaco. While employed in the PCRB as branch manager, Ernesto obtained several loans from the respondent bank as evidenced by promissory notes.

As security for the payment of the said loans, Ernesto executed a real estate mortgage in favor of the bank covering a parcel of land. The real estate mortgages bore the signatures of the spouses Biaco.

When Ernesto failed to settle the above-mentioned loans on its due date, respondent bank through counsel sent him a written demand on September 28, 1999. The amount due as of September 30, 1999 had already reached ₱1,080,676.50.

The written demand, however, proved futile.

On February 22, 2000, respondent bank filed a complaint for foreclosure of mortgage against the spouses Ernesto and Teresa Biaco before the RTC of Misamis Oriental. Summons was served to the spouses Biaco through Ernesto at his office. However, Ernesto failed to file an answer and the Spouses were declared in default. The respondent bank was allowed to present its evidence ex parte.

Arturo Toring, the branch manager of the respondent bank, testified that the spouses Biaco had been obtaining loans from the bank since 1996 to 1998. The loans for the years 1996-1997 had already been paid by the spouses Biaco, leaving behind a balance of ₱1,260,304.33 representing the 1998 loans. The amount being claimed is inclusive of interests, penalties and service charges as agreed upon by the parties. The appraisal value of the land subject of the mortgage is only ₱150,000.00 as reported by the Assessor’s Office.

The respondent judge ordered the spouses to pay plaintiff bank within a period of not less than 90 days nor more than one hundred 100 days from receipt of this decision the loan of ₱1,260,304.33.

In case of non-payment within the period, the Sheriff of this Court is ordered to sell at public auction the mortgaged Lot to satisfy the mortgage debt, and the surplus if there be any should be delivered to the defendants spouses. In the event however[,] that the proceeds of the auction sale of the mortgage[d] property is not enough to pay the outstanding obligation, the defendants are ordered to pay any deficiency of the judgment as their personal liability.

The mortgaged property was sold at public auction in favor of the respondent bank in the amount of ₱150,000.00.

The amount of the property sold at public auction being insufficient to cover the full amount of the obligation, the respondent bank filed an "ex parte motion for judgment" praying for the issuance of a writ of execution against the other properties of the spouses Biaco for the full settlement of the remaining obligation. Granting the motion, the court ordered that a writ of execution be issued against the spouses Biaco to enforce and satisfy the judgment of the court for the balance of ₱1,369,974.70.

The sheriff executed 2 notices of levy against properties registered under the name of petitioner, however, they were denied registration because Ma. Teresa had already sold the two (2) properties to her daughters on April 11, 2001.

Petitioner sought the annulment of the RTC decision; her MR was denied; petitioner filed the instant Petition for Review.

Issue:

Whether or not the court acquires jurisdiction over a non-resident defendant in attachment proceedings

Held:

The Court explained, citing El Banco Español-Filipino v. Palanca, that foreclosure and attachment proceedings are both actions quasi in rem. As such, jurisdiction over the person of the (non-resident) defendant is not essential. Service of summons on a non-resident defendant who is not found in the country is required, not for purposes of physically acquiring jurisdiction over his person but simply in pursuance of the requirements of fair play, so that he may be informed of the pendency of the action against him and the possibility that property belonging to him or in which he has an interest may be subjected to a judgment in favor of a resident, and that he may thereby be accorded an opportunity to defend in the action, should he be so minded.

Significantly, the Court went on to rule, citing De Midgely v. Ferandos, et. al. and Perkins v. Dizon, et al. that in a proceeding in rem or quasi in rem, the only relief that may be granted by the court against a defendant over whose person it has not acquired jurisdiction either by valid service of summons or by voluntary submission to its jurisdiction, is limited to the res.

Similarly, in this case, while the trial court acquired jurisdiction over the res, its jurisdiction is limited to a rendition of judgment on the res. It cannot extend its jurisdiction beyond the res and issue a judgment enforcing petitioner’s personal liability. 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.