University of the Philippines College of Law

2D

Topic GENERAL CONCEPTS

Case No. GR No. 161417 / Feb 8, 2007
Case Name MA. TERESA CHAVES BIACO vs PHILIPPINE COUNTRYSIDE RURAL BANK
Ponente TINGA, j.

RELEVANT FACTS

 Petitioner’s husband, a branch manager of respondent, obtained several loans as shown in various
promissory notes (8 notes with different values). Such were secured by executing a real estate mortgage
signed by Sps Biaco. Upon failure to settle the loans, bank sent him a written demand (which has
reached P1,080,676.50), which proved futile.
 Feb 2000: Respondent-Bank filed a complaint for foreclosure of mortgage against the Sps Biaco before
RTC.
 Summons was served in Ernesto’s office but he failed to answer for unknown reasons. They were then
declared in default upon motion by the bank.
 Judge ordered the Sps Biaco to pay the bank the remaining loan (1.26M), litigation expenses and atty’s
fees and that in case of non-payment, the Sheriff is ordered to sell the lot at a public auction.
 Eventually, the lot was sold for P150K in a public auction
 Resp-bank filed an “ex parte motion for judgment” for the issuance of a writ of execution against the
other properties of the spouses Biaco for the full settlement of the remaining obligation, which was
granted.
 Sheriff executed 2 notices of levy against other properties registered under the name of petitioner Ma.
Teresa Chaves Biaco. But they were denied registration because she sold them to her daughters.
 Petitioner sought annulment of the RTC decision contending that extrinsic fraud prevented her from
participating in the judicial foreclosure proceedings. She alleged that:
o She only came to know about the judgment 6 months after its finality.
o The bank failed to verify the authenticity of her signature on the real estate mortgage and did
not inquire into the reason for the absence of her signature on the promissory notes.
o RTC failed to acquire jurisdiction because summons were served on her through her husband
without any explanation as to why personal service could not be made. (substituted service)
 CA ruled that since judicial foreclosure proceedings are quasi in rem, the jurisdiction over the person of
defendant is not essential as long as the court acquires jurisdiction over the res and that since the Sps
Biaco were not opposing parties, there can be no extrinsic fraud between them.
 She filed the instant Petition for Review
ISSUE AND RATIO DECIDENDI

Issue Ratio
W/N trial court has YES.
jurisdiction 1. The judicial foreclosure proceeding instituted by the bank vested the
trial court with jurisdiction over the res. A judicial foreclosure
proceeding is an action quasi in rem. As such, jurisdiction over the
person of petitioner is not required, it being sufficient that the trial
court is vested with jurisdiction over the subject matter.
a. The rules on service of summons under Rule 14 of the Rules

W/N the judgment may be
annulled on the ground of
extrinsic fraud
WHEREFORE, the instant petition is GRANTED. The Decision dated August 27, 2003 and the Resolution dated
December 15, 2003 of the Court of Appeals in CAG.R. SP No. 67489 are SET ASIDE. The Judgment dated July 11,
2000 and Order dated February 9, 2001 of the Regional Trial Court of Cagayan de Oro City, Branch 20, are
likewise SET ASIDE.
University of the Philippines College of Law
2D
of Court likewise apply according to the nature of the action.
b. In an action in personam (against a person on the basis of his
personal liability), jurisdiction over the person of the
defendant is necessary for the court to validly try and decide
the case. In a proceeding in rem or quasi in rem (against the
thing itself instead of against the person), jurisdiction over
the person of the defendant is not a prerequisite to confer
jurisdiction on the court provided that the court acquires
jurisdiction over the res. Jurisdiction over the res is acquired
either (1) by the seizure of the property under legal process,
whereby it is brought into actual custody of the law; or (2) as
a result of the institution of legal proceedings, in which the
power of the court is recognized and made effective
But, TC exceeded its jurisdiction in granting the execution of other
properties
2. TC’s order of execution against other properties of the Biacos went
beyond its jurisdiction over the res and rendered a personal judgment
against the spouses Biaco. 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.
3. Petitioner’s right to due process was violated when she was not
personally served the summons and was unable to participate in the
proceedings. Such warrants the annulment of the judgment.
NO Extrinsic Fraud
1. The overriding consideration is that the fraudulent scheme of the
prevailing litigant prevented a party from having his day in court. No
fraud was perpetrated by the bank upon petitioner, noting that the
Sps Biaco were codefendants in the case and shared the same
interest. Whatever fact or circumstance concealed by the husband
from the wife cannot be attributed to the bank.
2. It is well-settled that the use of forged instruments during trial is not
extrinsic fraud because such evidence does not preclude the
participation of any party in the proceedings
RULING