G.R. No. 161417 – 544 Phil. 45 – 515 SCRA 106 – Remedial Law – Civil Procedure – In rem vs In personam proceedings – Service of Summons – Resident Defendant – Extrinsic Fraud
Ernesto Biaco, husband of Teresa Biaco, acquired several loans from Philippine Countryside Rural Bank (PCRB) from 1996 to 1998. To secure the loans, he mortgaged certain property in favor of the bank. He was able to pay loans from 1996 to 1997 but he defaulted in loans obtained in 1998 which amounted to more than a million pesos.
Eventually, PCRB filed a complaint for foreclosure against the spouses Biaco. Summons were issued by the trial judge. The Sherriff served the summons to Ernesto at the latter’s office. No summons was served to Teresa.
Ernesto did not file a responsive pleading (so did Teresa because she was not aware sans the summons being served her). The case was heard ex-parte and the spouses were ordered to satisfy the debt and failure to do so will authorize the Sheriff to auction the mortgaged the property.
Eventually, the mortgaged property was auctioned for P150k which is not sufficient to cover the P1 M+ debt. Upon motion by PCRB, a notice of levy was issued against the personal properties of Teresa to satisfy the deficiency.
It was only at this point that Teresa learned of the previous ex parte proceedings. She then sought to have the judgment annulled as she now claims that she was deprived of due process when she did not receive summons; that it was only her husband who received the summons; that there was extrinsic fraud because her husband deliberately hid the fact of the foreclosure proceeding.
PRCB argued that the foreclosure proceeding is an action quasi in rem, hence Teresa’s participation is not required so long as the court acquires jurisdiction over the res which is what happened in the case at bar; that Teresa cannot invoke extrinsic fraud because such situation cannot occur in her case because she is a co-defendant of Ernesto.
ISSUE: Whether or not the judgment of the trial court should be annulled.
HELD: Yes. It is admitted that the proceeding is a quasi in rem proceeding and that the presence of Teresa is not required because the trial court was able to acquire jurisdiction over the res (mortgaged property). HOWEVER, her constitutional right to due process is superior over the procedural matters mentioned. Her right to due process was violated when she did not receive summons. Teresa, as a resident defendant, who does not voluntary appear in court must be personally served with summons as provided under Section 6, Rule 14 of the Rules of Court. Even if the action is quasi in rem, personal service of summons is essential in order to afford her due process. The substituted service made by the sheriff at her husband’s office cannot be deemed proper service absent any explanation that efforts had been made to personally serve summons upon her but that such efforts failed. Further, the order of the trial court compelling Teresa to pay off the debt using her personal property is a judgment in personam which the court cannot do because it only acquired jurisdiction over the res and not over the person of Teresa.
On the issue of extrinsic fraud, the Court of Appeals, agreeing with PCRB, is correct that there is none in the case at bar. Extrinsic fraud exists when there is a fraudulent act committed by the prevailing party outside of the trial of the case, whereby the defeated party was prevented from presenting fully his side of the case by fraud or deception practiced on him by the prevailing party. 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, a false promise of a compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side. The above is not applicable in the case of Teresa. It was not PCRB which made any fraud. It should be noted that spouses Biaco were co-defendants in the case and shared the same interest.
