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El Banco-Espanyol-Filipino v.

Palanca
37 Phil. 921 (1918)

Recit-Ready:
Action: Motion to vacate judgment rendered
Facts:
In July 1908, El Banco Espanyol Filipino obtained a judgment against its debtor
Engracio Palanca Tanquinyeng y Limquingco, where the said defendant was
ordered in default and the mortgaged properties were foreclosed. The defendant
was declared in default because he went back to his native country, Chin (City of
Amoy) and died there in 1910. Seven years after the foreclosure proceedings, or
in 1915, Vicente Palanca, administrator of the estate of Engracio filed a motion to
vacate judgment on the ground that the court did not acquire jurisdiction over the
defendant and over the subject properties to enable it to proceed with the
foreclosure proceedings.

Issue: WON the trial court acquired the necessary jurisdiction over the property to
enable it to proceed with the foreclosure proceedings?

Held:
YES. A foreclosure proceeding is an action quasi in rem where a judgment may
be rendered as long as the court acquires jurisdiction over the property (res), and
jurisdiction over the person of the defendant is not essential. Only the following are
necessary to acquire jurisdiction over the property and thus foreclose the properties:
That the property is located within the territory of the court;
That the purpose of the litigation is to subject the property to an obligation
fixed upon it;

Jurisdiction over the property which is the subject of litigation may be acquired
through:
A seizure of the property under legal process, whereby it is brought into the
actual custody of the law, (e.g. attachment proceedings)or
It may result from the institution of legal proceedings, wherein under the
special provisions of law, the power of the court over the property is
recognized and made effective. (e.g. proceeding to register a land title)

Facts:
On March 31, 1906 Engracio Palanca Tanquinyeng y Limquingco owed El Banco
Espanyol Filipino (Bank) P218,294.10, with an interest at 8% per annum, payable
at the end of each quarter.
A mortgage was executed by Engracio on various parcels of real property in
Manila as security for a debt owed by him to El Banco Espanyol Filipino (Bank).
The parties estimated the value of the property at P292,558 which was about
P75,000 in excess of the indebtedness.
After the execution of the mortgage instrument, Engracio returned to his native
country, China, where he died on Jan. 29, 1910, without returning to the
Philippines.
El Banco Espanyol Filipino instituted an action to foreclose a mortgage upon
various parcels of real property owned by Engracio in Manila.
Engracio (defendant) was a non-resident at the time of the foreclosure, hence, it
was necessary to give notice to him by publication. An order for publication was
made in due from in a newspaper of the city of Manila. The court further directed
that the clerk of court deposit in the post office in a stamped envelope a copy of
the summons and complaint directed to the defendant at his place of his
residence, Amoy, China.
It does not appear in the record, whether or not the clerk complied with this order
or not. However, it was found in the records that an affidavit signed by Bernardo
Chan y Garcia, an employee of the attorneys for the bank, showing that he had
deposited in the Manila post-office a registered letter, addressed to Engracio, at
Manila, containing copies of the complaint, the plaintiffs affidavit, the summons,
and the order of the court directing publication. It also appears from the
postmasters receipt that Bernardo probably used an envelope obtained from the
clerks office, as the receipt purports to show that the letter emanated from the
said office.
In July 1908, a decision was rendered in favor of the Bank and the defendant was
declared in default. The decision stated that publication had been properly made
in a newspaper, but nothing was said about notice having been given by mail.
The court ordered that the defendant should deliver to the clerk of court
P249,355, the amount of indebtedness, to satisfy the judgment. It was also
declared that in case of failure of the defendant to satisfy the judgment within
such period, the mortgage property located in Manila should be exposed to
public sale.
The defendant failed to deliver the amount to the clerk of court, hence, the court
ordered the sale of the property. In the public sale, the property was brought by
the Bank and the sale was confirmed by the court on August 7, 1908.
After seven years, Vicente Palanca, as administrator of the estate of Engracio
filed a motion to set aside the order of default and the judgment for being void
because the court never acquired jurisdiction over the defendant or over the
subject of the action.
Palanca also contended that the judgment is void because the court entered a
personal judgment against the absent debtor for the full amount of the
indebtedness secured by the mortgage.
Court of First Instance: Denied
Appellate Court: Denied

Issue: Whether or not the trial court acquired the necessary jurisdiction over the
property to enable it to proceed with the foreclosure proceedings?

Held: YES
The trial court acquired jurisdiction over the properties in Manila even if it did
not acquire jurisdiction over the defendant. Jurisdiction over the property,
even without acquiring jurisdiction over the defendant, is enough to proceed
with the foreclosure proceedings, which is an action quasi in rem.
Where the defendant in a mortgage foreclosure is a non-resident and refuses
to appear or otherwise submit himself to the authority of the court, the
jurisdiction of the court is limited to the mortgaged property. With respect to
property, the jurisdiction of the court is based upon the fact that it is located
within the district and that the court, under the law, is vested with the power to
subject the property to the obligation created by the mortgage. In such case
personal jurisdiction over the nonresident defendant is nonessential and in
fact cannot be acquired.
Jurisdiction may have reference to:
o The authority of the court to entertain a particular kind of action or to
administer a particular kind of relief, or
o It may refer to the power of the court over the parties, or
o Over the property which is the subject to the litigation.
Jurisdiction over the person
o Acquired by the voluntary appearance of a party in court and his
submission to its authority
o Or by the coercive power of legal process exerted over the person
Jurisdiction over the property which is the subject of litigation may
result either from
o A seizure of the property under legal process, whereby it is brought
into the actual custody of the law, (e.g. attachment proceedings)or
o It may result from the institution of legal proceedings, wherein under
the special provisions of law, the power of the court over the property
is recognized and made effective. (e.g. proceeding to register a land
title)
The jurisdiction of the court over the property subject of a mortgaged is based
on the following considerations:
o That the property is located within the district;
o That the purpose of the litigation is to subject the property by sale to
an obligation fixed upon it by the mortgage;
o That the court at a proper stage of the proceedings take the property
into its custody, if necessary, and exposes it to sale for the purpose of
satisfying the mortgage debt.
In a foreclosure proceeding against the property of a non-resident mortgagor
who fails to come in and submit himself personally to the jurisdiction of the
court the following rules apply:
o That the jurisdiction of the court is derived from the power which it
possesses over the property (from law, territory)
o That the jurisdiction over the person is not acquired and is
nonessential;
o That the relief granted by the court must be limited to such as can be
enforced against the property itself.
Action in rem v. quasi in rem
o Action in rem is, used only with reference to certain proceedings in
courts of admiralty wherein the property alone is treated as
responsible for the claim or obligation upon which the proceedings are
based.
o The action quasi in rem an individual is named as defendant, and the
purpose of the proceeding is to, subject his interest therein to the
obligation or lien burdening the property. All proceedings having for
their sole object the sale or other disposition of the property of the
defendant, whether by attachment, foreclosure, or other form of
remedy, are in a general way thus designated. The judgment entered
in these proceedings is conclusive only between the parties. In this
kinds of proceedings, if the defendant appears in court, the action
becomes an action in personam. If the defendant fails to appear, the
action is quasi in rem.
In proceedings in rem or quasi in rem against a nonresident who is not served
personally within the state, and who does not appear, the relief must be
confined to the res, and the court cannot lawfully render a personal judgment
against him. Therefore in an action to foreclose a mortgage against a
nonresident, upon whom service has been effected exclusively by publication,
as in this case, no personal judgment for the deficiency can be entered, but
the mortgage can be foreclosed.
Under the Code of Civil Procedure, in a foreclosure proceeding against a
nonresident owner, it is necessary for the court to:
o Ascertain the amount due
o And to make an order requiring the defendant to pay the money into
court.
The trial court did all these and it cannot be interpreted as rendering a
personal judgment, which requires jurisdiction over the person of the
defendant. In an action to foreclose a mortgage against a nonresident
defendant who fails to submit himself to the jurisdiction of the court, no
adjudication can be made which involves a determination of a personal
liability of either party arising out of the contract of mortgage. A personal
judgment against the debtor for the deficiency can only be rendered after the
property mortgaged has been sold and the proceeds applied to the mortgage
debt.
Hence, since a personal judgment is not rendered in this case and the action
is quasi in rem. The failure of the clerk to send notice by mail to the
nonresident defendant in a foreclosure proceeding, as required by an order of
the court, does not defeat the jurisdiction of the court over the mortgaged
property.
Clarification by the Court of the Pennoyer v. Nef ruling:
o In Pennoyer v. Neff, a personal judgment upon constructive or
substituted service against a nonresident who does not submit himself
to the jurisdiction of the court is invalid. This applies to all kinds of
constructive or substituted process, including service by publication
and personal service outside of the jurisdiction in which the judgment
is rendered; and the only exception is where the nonresident
defendant has expressly or impliedly consented to the mode of
service.
o Process of one State cannot run into other States or countries and
that due process of law requires that the defendant shall be brought
under the power of the court by service of process within the State, or
by his voluntary appearance, in order to authorize the court to pass
upon the question of his personal liability.

(Other issues)

Issue: Whether or not due process was observed?


Held: YES
Due process of law implies that there must be:
o A court or tribunal clothed with power to hear and determine the
matter before it,
o That jurisdiction shall have been lawfully acquired,
o That the defendant shall have an opportunity to be heard,
o That judgment shall be rendered upon lawful hearing.
In an action to foreclose a mortgage against a non-resident some notification
of the proceedings must be given to the defendant. Under statutes generally
prevailing, this notification commonly takes the form of publication in a
newspaper of general circulation and the sending of notice, by mail, by which
means the owner is admonished that his property is the subject of judicial
proceedings. The provisions of law providing for notice of this character must
be complied with.
In a foreclosure proceeding against a non-resident defendant, the court is
required to make an order for the clerk to mail a copy of the summons and
complaint to the defendant at his last place of residence if known.
The idea upon which the law proceeds in recognizing the efficacy of a means
of notification which may fall short of actual notice is apparently this: Property
is always assumed to be in the possession of its owner, in person or by agent;
and he may be safely held, under certain conditions, to be affected with
knowledge that proceedings have been instituted for its condemnation and
sale.
It is the duty of the owner of real estate, who is a non-resident, to take
measures that in some way he shall be represented when his property is
called into requisition, and if he fails to do this. and fails to get notice by the
ordinary publications which have usually been required in such cases, it is his
misfortune, and he must abide the consequences.
In the present case an order was made directing the clerk to mail the required
copy to the defendant at Amoy, China. No evidence appeared in the record
showing that such notice had in fact been mailed by the clerk; but publication
was regularly made in a periodical as the law requires. The order by the court
constituted a compliance with the law, in so far as necessary to constitute due
process of law, and that if the clerk failed to send the notice, his dereliction in
the performance of his duty was an irregularity, which did not constitute an
infringement of the due process clause.

Issue: Whether or not Palancas motion to vacate judgment was done properly?
Held: NO
A defendant who seeks to vacate a judgment in a foreclosure proceeding on
the ground of irregularity in the sending of notice by post, or failure to send
such notice pursuant to an order of the court, must show that as a result of
such irregularity he suffered some prejudice of which the law can take
account.
Here the defendant was not able to show that he suffered any prejudice.
Moreover, there was negligence on the part of the defendant.
Where the judgment is not void on its face, and may therefore be enforced if
permitted to stand on the record, courts in many instances refuse to exercise
their quasi equitable powers to vacate a judgment after the lapse of the term
at which it was entered, except in clear cases, to promote the ends of justice,
and where it appears that the party making the application is himself without
fault and has acted in good faith and with ordinary diligence.
Laches on the part of the applicant, if unexplained, is deemed sufficient
ground for refusing the relief to which he might otherwise be entitled. There
was laches on the part of the defendant.
The defendant, Engracio Palanca Tanquinyeng y Limquingco, died in January
29, 1910. The mortgage under which the property was sold was executed far
back in 1906; and the proceedings in the foreclosure were closed by the
order of court confirming the sale dated August 7, 1908. It passes the rational
bounds of human credulity to suppose that a man who had placed a
mortgage upon property worth nearly P300,000 and had then gone away
from the scene of his life activities to end his days in the city of Amoy, China,
should have long remained in ignorance of the fact that the mortgage had
been foreclosed and the property sold, even supposing that he had no
knowledge of those proceedings while they were being conducted. It is more
in keeping with the ordinary course of things that he should have acquired
information as to what was transpiring in his affairs at Manila. it is permissible
to consider the probability that the defendant may have received actual notice
of these proceedings from the unofficial notice addressed to him in Manila
which was mailed by an employee of the bank's attorneys.
In view of the well-known skill of postal officials and employees in making
proper delivery of letters defectively addressed, it worth nothing that this
notice seemed reached the defendant, there being no proof that it was ever
returned by the postal officials as undelivered. And if it was delivered in
Manila, instead of being forwarded to Amoy, China, there is a probability that
the recipient was a person sufficiently interested in his affairs to send it or
communicate its contents to him.
To show that the judgment was prejudicial to the defendant, Palanca argued
that the bank violated a stipulation mortgage contract when it purchased the
property for a price greatly below that which had been agreed upon in the
mortgage contract. The parties stipulated that the value placed in the
mortgaged properties should serve as basis of sale in case the debt should
remain unpaid and the bank should proceed to foreclose.
The Court did not pass upon Palancas argument because any liability
incurred by the bank by purchasing for a price below that fixed in the
stipulation, is a personal liability and it could not be the subject of adjudication
in an action where the court had no jurisdiction over the person of the
defendant. If the bank became liable to account for the difference between
the upset price and the price at which it bought in the property, that liability
remains unaffected by the disposition which the court made of this case; and
the fact that the bank may have violated such an obligation can in no wise
affect the validity of the judgment entered in the Court of First Instance.

Malcolm, J., dissenting


It will not take him long daw to state his reasons.
The defendant did not receive any notice and had no opportunity to be heard,
certainly we cannot say that there is due process of law.
"A judgment which is void upon its face, and which requires only an inspection of
the judgment roll to demonstrate its want of vitality is a dead limb upon the
judicial tree, which should be lopped off, if the power so to do exists. It can bear
no fruit to the plaintiff, but is a constant menace to the defendant." (Mills vs.
Dickson, 6 Rich. [S. C.], 487.)