El Blanco Español-Filipino v.

Palanca
G.R. No. L-11390, March 26, 1918
J. Street

Digest Author: June Vincent Ferrer III

Topic: Remedies for protecting property rights – Action in rem, action in personam, action quasi in rem

Plaintiff-appellee: El Blanco Español-Filipino

Defendant-appellant: Vicente Palanca, administrator of the estate of Engracio Palanca Tanquinyeng

Case Summary: Engracio mortgaged his property to El Banco to secure a loan. Later on, Engracio returned to
China. While he was in China, he wasn’t able to pay and thus, the bank instituted an action to foreclose the
property. The clerk of court was thus directed to send notice by mail to Engracio. CFI granted. Years later, the
administrator of Engracio’s property requested that CFI’s judgment be set aside claiming that CFI never
acquired jurisdiction over the person of Engracio and his property. Motion denied. Hence, this petition. The
Court ruled that the property itself is the sole thing which is impleaded and is the object which is the subject of
the exercise of judicial power. Thus, it follows that the jurisdiction of the court in such case is based on the
power which it possesses over the property.

Doctrine: An action to foreclose a mortgage is a proceeding quasi in rem. Although it is not strictly speaking
an action in rem, it substantially partakes of that nature.

FACTS

 On June 16, 1906, Engracio Palanca Tanquinyeng y Limquingco mortgaged his property to secure a
loan from El Banco Español-Filipino
o For P218,294.10
o Interest of 8% per annum, payable at the end of each quarter
o Property was situated in the city of Manila
o At the time of the mortgage, the estimated value of the property was P292,558

 After the execution of the mortgage, Engracio returned to China

o It was his native country

 On March 31, 1908, the bank instituted an action to foreclose the mortgage upon Engracio’s property

 However, since Engracio was a nonresident at the time the action was instituted, it was necessary for
the bank to give notice to Engracio by publication
o Thus, the court ordered the publication and it was made in a newspaper of the city of Manila

 The court also directed that the clerk of court should deposit in the post office in a stamped envelope a
copy of the summons and complaint directed to Engracio at his last place of residence (Amoy, Empire
of China)
o An affidavit signed by Bernardo Chan y Garcia showed that he had deposited in Manila post-
office the required documents addressed to Engracio
 Garcia is an employee of the attorneys for the bank

 CFI granted
o Engracio failed to appear and thus, he lost by default
o Ordered Engracio to pay his indebtedness of P249,355.32 with interest from March 31, 1908
o In case of Engracio’s failure to pay before July 6, 1908, the bank may foreclose the property

 Engracio was not able to pay

 o Thus, his property was sold and brought in the bank for P110,200

 On January 29, 1910, Engracio died

o He wasn’t able to return to the Philippines since he left

 7 years after the sale, Vicente Palanca filed a motion requesting the court to set aside the order of
default and to vacate all the proceedings subsequent to it
o Vicente is the administrator of the estate of Engracio
o Claimed that the order of default and judgment were void
 The court never acquired jurisdiction over Engracio and over the subject of the action

 Motion was denied

 Hence, this appeal.

Vicente contends:

 CFI’s judgment is void

o CFI entered a personal judgment against the absent debtor for the full amount of the
indebtedness secured by the mortgage
 Engracio was prejudiced by the fact that the bank became the purchaser of the property at the
foreclosure sale for a price greatly below that which had been agreed upon in the mortgage as the
upset price of the property
o The parties to this mortgage made a stipulation that the value placed upon the mortgaged
properties should serve as a basis of sale in case the debt should remain unpaid and the bank
should proceed to a foreclosure.
o The upset price stated in that stipulation for all the parcels involved in this foreclosure was
P286,000.
o Thus, when the bank bought in the property for the sum of P110,200, it violated that stipulation.
 ISSUES AND HELD

1. W/N CFI acquired jurisdiction to enable it to proceed with the foreclosure – YES

RULES

Jurisdiction over the property which is the subject of litigation

 Jurisdiction
o May refer to the authority of the court to entertain a particular kind of action or to administer a
particular kind of relief
o May refer to the power of the court over the parties
o May refer to the power of the court over the property which is the subject to the litigation

 Jurisdiction over the property which is subject of litigation

o May result from a seizure of the property under legal process
 It is brought into the actual custody of the law
o May result from the institution of legal proceedings
 Under special provisions of law, the power of the court over the property is recognized
and made effective
 The property may never be taken into actual custody at all although it is at all times
within the potential power of the court

 An illustration of the jurisdiction acquired by the actual seizure is found in attachment proceedings
o Where property is seized at the beginning of the action, or some subsequent stage of its
progress, and held to abide the final event of the litigation

 An illustration of the potential jurisdiction over the res is found in the proceeding to register the title of
land under our system for the registration of land
o The court, without taking actual physical control over the property, assumes to exercise a
jurisdiction in rem over the property and to adjudicate the title in favor of the petitioner against all
the world at the instance of some person claiming to be owner

Action in rem

 Action in rem
o Certain proceedings in courts wherein the property alone is treated as responsible for the claim
or obligation upon which the proceedings are based
o 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
o The judgment entered in these proceedings is conclusive only between the parties.

 An action to foreclose a mortgage is a proceeding quasi in rem

o Although it is not strictly speaking an action in rem, it substantially partakes of that nature

 If the defendant appears, the cause becomes a suit in personam

o Thus, the property attached remains liable, under the control of the court, to answer to any
demand which may be established against the defendant by the final judgment of the court

 However, if the defendant does not appear and there’s no service of process on him, the case becomes
a suit in rem
o Thus, the property attached is subject to the payment of the demand which the court may find
due to the plaintiff
  In ordinary attachment proceedings, the defendant is not personally served, the preliminary seizure is
to be considered necessary in order to confer jurisdiction upon the court
o In this case, the lien on the property is acquired by the seizure
o The purpose of the proceedings is to subject the property to that lien

 If a lien already exists, whether created by mortgage, contract, or statute, the preliminary seizure is not
necessary
o Thus, the court proceeds to enforce such lien in the manner provided by law as though the
property had been seized upon attachment

 The mere circumstance that an attachment of the property may be seized at the inception of the
proceedings does not materially affect the fundamental principle involved in both cases although in the
foreclosure suit it is not yet taken into legal custody until the time comes for the sale
o Here, the court is exercising a jurisdiction over the property in a proceeding directed essentially
in rem

Jurisdiction over Non-residents

 Jurisdiction over the person of the defendant is obtained by the voluntary submission of the defendant
or by the personal service of process upon him within the territory where the process is valid

 However, if the defendant is a non-resident and refuses to come in voluntarily, the court never acquires
jurisdiction over the person at all

 The jurisdiction of the court over the property is based on the following conditions and considerations:
(1) That the property is located within the district
(2) That the purpose of the litigation is to subject the property by sale to an obligation fixed upon
it by the mortgage
(3) That the court at a proper stage of the proceedings takes the property into its custody, if
necessary, and exposes it to sale for the purpose of satisfying the mortgage debt

 Propositions of the court relative to the foreclosure proceeding against the property of a non-resident
who fails to voluntarily submit himself to the jurisdiction of the court
(1) The jurisdiction of the court is derived from the power which it possesses over the property
(2) Jurisdiction over the person is not acquired an is non-essential
(3) The relief granted by the court must be limited to such as can be enforced against the
property itself

Jurisdiction by publication and notice

 Jurisdiction over the person cannot be acquired by publication and notice

 A personal judgment upon constructive or substituted service against a nonresident who does not
appear is invalid
o 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
o Unless the nonresident defendant has expressly or impliedly consented to the mode of service

 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 to court to pass upon
the question of his personal liability

 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, no personal judgment for the deficiency can be made

APPLICATION

 In this case, the property itself is the sole thing which is impleaded and is the object which is the subject
of the exercise of judicial power
o Thus, it follows that the jurisdiction of the court in such case is based on the power which it
possesses over the property

2. W/N the CFI entered a personal judgment against the absent debtor – NO

RULE

 In a foreclosure proceeding against a non-resident owner, it is necessary for the court to ascertain the
amount due and to make an order requiring the defendant to pay the money in court
o Pursuant to Sec. 256, Code of Civil Procedure

 A personal judgment against the debtor for the deficiency is not to be rendered until after the property
has been sold and the proceeds applied to the mortgage debt
o Sec. 260, Code of Civil Procedure

APPLICATION

 CFI’s judgment contains the following:

o “Said defendant Engracio is indebted in the amount of P249,355.32, plus the interest, to the
Banco Español-Filipino”

 This is not the language of a personal judgment

o It is clearly intended as compliance with the requirement that the amount due shall be
ascertained and that the defendant shall be required to pay it

3. W/N the foreclosure proceedings complied with the requirements of due process – NO

RULES

Notice of foreclosure proceedings

 In a foreclosure case, there must be some notification of the proceedings to the non-resident owner
o To answer this necessity, generally publication is required and in addition, mailing of the notice
to the defendant if his residence his known

 Although commonly called constructive, or substituted service, such notification does not constitute a
service of process in any true sense.
o It is merely a means provided by law whereby the owner may be warned that his property is the
subject of judicial proceedings and that it is uncumbent upon him to take such steps as he sees
fit to protect it

 This mode of notification does not involve any absolute assurance that the absent owner shall thereby
receive actual notice
o The periodical containing the publication may never in fact come to his hands, and the chances
that he should discover the notice may often be very slight
  Even where notice is sent by mail, the probability of his receiving it is dependent upon the correctness
of the receiving address and upon the regularity and security of the mail service

 Mailing of notice is is not required in every event

o Only in case where the defendant’s residence is known
o Hence, it is not absolutely necessary

 Property is always assumed to be in the possession of its owner, in person or by agent

o Thus, he may be safely held to be knowledgeable that proceedings have been instituted for its
condemnation and sale

Notice by mail by the Clerk of Court

 With respect to provisions relative to the sending of notice by mail, the judge shall direct that the notice
be deposited in the mail by the clerk of the court
o However, it is not in terms declared that the notice must be deposited in the mail

 Thus, the absent owner of the mortgaged property must take the risk of the possible failure to perform
his duty
o The absent owner takes the risk that the mail clerk or the mail carrier might possibly lose or
destroy the parcel or envelope containing the notice before it should reach its destination and be
delivered to him

 In placing upon the clerk the duty of sending notice by mail, the performance of that act is put
effectually beyond the control of the plaintiff in the litigation

 The sending of notice by mail was complied with when the court made the order

APPLICATION

 Therefore, the failure of the clerk to mail the notice is not an irregularity that amounts to a denial of due
process of law
o Hence, this irregularity would void the judgment even if proven

 Notice was given by publication in a newspaper and this is the only form of notice which the law
requires

 Any motion to vacate the judgment on the ground of that irregularity must fail
o Unless it is shown that the defendant was prejudiced by that irregularity

4. W/N Engracio was prejudiced by the irregularity – NO

RULE
  An application to open or vacate a judgment because of an irregularity or defect in the proceedings is
usually required to be supported by an affidavit showing the grounds on which the relief is sought and a
meritorious defense to the action

 A general statement that a party has a good defense to the action is insufficient.
o The necessary facts must be averred.
o However, if a judgment is void upon its face, a showing of the existence of a meritorious
defense is not necessary

 There is a presumption that things have happened according to the ordinary habits of life
o Sec. 334(26), Code of Civil Procedure

APPLICATION

 Affidavit showed that:

o Engracio died on January 29, 1910
o The mortgage was executed in 1906
o The foreclosure proceedings were closed and the sale was confirmed on August 7, 1908

 It is unthinkable that a man who had placed a mortgage upon property worth nearly P300,000 and had
then gone to China had no idea that the mortgage had been foreclosed and the property had been sold
o Even supposing that he had no knowledge of those proceedings while they were being
conducted

 In the absence of proof to the contrary, it can be presumed that he did have, or soon acquired,
information as to the sale of his property
o 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, the presumption is clear and strong that this notice reached the defendant
o 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

 Upon that presumption, Engracio voluntarily abandoned all thought of saving his property from the
obligation which he had placed upon it
o Knowledge of the proceedings should be imputed to him
o He acquiesced in the consequences of those proceedings after they had been accomplished

 No disability on the part of the defendant himself existed from the time when the foreclosure was
effected until his death
o The delay in the appointment of the administrator and the institution of this action is a
circumstance which is imputable to the parties in interest whoever they may have been

5. W/N Engracio was prejudiced by the price which the property had been bought at the foreclosure sale

RULE
  A clause in a mortgage providing for a tipo, or upset the price, does not prevent a foreclosure, nor affect
the validity of a sale made in the foreclosure proceedings

APPLICATION

 If any liability was incurred by the bank by the purchasing for a price below that fixed in the stipulation,
its liability was a personal liability derived from the contract of mortgage
o Such a liability count 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 at which it bought in the
property, that liability remains unaffected by the disposition which the court made of this case
o The fact that the bank may have violated such an obligation cannot affect the validity of CFI’s
judgment

RULING

Petition DENIED.