1

FIRST DIVISION [ G.R. No. 124873, July 14, 1999 ]

UNITED BF HOMEOWNERS ASSOCIATION, AND HOME INSURANCE AND GUARANTY CORPORATION, PETITIONERS, VS. BF HOMES, INC., RESPONDENTS. DECISION
PARDO, J. Assailed in this petition for review on certiorari is the decision[1] and resolution[2] of the Court of Appeals granting respondent BFHI's petition for prohibition, and ordering Atty. Roberto C. Abrajano, hearing officer of the Home Insurance and Guaranty Corporation, to refrain from hearing HIGC CASE NO. HOA-95-027 and to dismiss it for lack of jurisdiction. The antecedent facts are as follows: Petitioner United BF Homeowners' Association, Inc. (UBFHAI) is the umbrella organization and sole representative of all homeowners in the BF Homes Paraaque Subdivision, a seven hundred sixty five (765) hectare subdivision located in the south of Manila. Respondent BF Homes, Inc. (BFHI) is the owner-developer of the said subdivision, which first opened in 1968.[3] In 1988, because of financial difficulties, the Securities and Exchange Commission (SEC) placed respondent BFHI under receivership to undergo a ten-year (10) rehabilitation program, and appointed Atty. Florencio B. Orendain receiver. The program was composed of two stages: (1) payment of obligations to external creditors; and (2) payment of obligations to Banco Filipino.[4] When Atty. Florencio B. Orendain took over management of respondent BFHI in 1988, several things were not in order in the subdivision.[5] Preliminary to the rehabilitation, Atty. Orendain entered into an agreement with the two major homeowners' associations, the BF Paraaque Homeowners Association, Inc. (BFPHAI) and the Confederation of BF Homeowners Association, Inc. (CBFHAI), for the creation of a single, representative homeowners' association and the setting up of an integrated security program that would cover the eight (8) entry and exit points to and from the subdivision. On December 20, 1988, this tripartite agreement was reduced into a memorandum of agreement, and amended on March 1989. Pursuant to these agreements, on May 18, 1989, petitioner UBFHAI was created and registered with the Home Insurance and Guaranty Corporation (HIGC),[6] and recognized as the sole representative of all the homeowners' association inside the subdivision. Respondent BFHI, through its receiver, turned over to petitioner UBFHAI the administration and operation of the subdivision's clubhouse at #37 Pilar Banzon Street,[7] and a strip of open space in Concha Cruz Garden Row,[8] on June 23, 1989 and May, 1993, respectively. On November 7, 1994, the first receiver was relieved and a new committee of receivers, composed of respondent BFHI's eleven (11) members of the board of directors was appointed.[9] On April 7, 1995, based on BFHI's title to the main roads, the newly appointed committee of receivers sent a letter to the different homeowners' association in the subdivision informing them that as a basic requirement for BFHI's rehabilitation, respondent BFHI would be responsible for the security of the subdivision in order to centralize it and abate the continuing

2 proliferation of squatters.[10] On the same day, petitioner UBFHAI filed with the HIGC a petition for mandamus with preliminary injunction against respondent BFHI.[11] In substance, petitioner UBFHAI alleged that the committee of receivers illegally revoked their security agreement with the previous receiver. They complained that even prior to said date, the new committee of receivers committed the following acts: (1) deferred petitioner UBFHAI's purchase of additional pumps; (2) terminated the collection agreement for the community assessment forged by the petitioner UBFHAI with the first receiver; (3) terminated the administration and maintenance of the Concha Cruz Garden Row; (4) sent a letter to petitioner UBFHAI stating that it recognized BFPHAI[12] only, and that the subdivision's clubhouse was to be administered by it only; and (5) took over the administration of security in the main avenues in the subdivision. On April 11, 1995, the HIGC issued ex parte a temporary restraining order. Particularly, respondent BFHI was enjoined from: "...taking over the Clubhouse located at 37 Pilar Banzon St., BF Homes Paraaque, Metro Manila, taking over security in all the entry and exit points and main avenues of BF Homes Paraaque Subdivision, impeding or preventing the execution and sale at auction of the properties of BF Paraaque Homeowners Association, Inc., in HIGC HOA-90-138 and otherwise repudiating or invalidating any contract or agreement of petitioner with the former receiver/BFHI concerning funding or delivery of community services to the homeowners represented by the latter."[13] On April 24, 1995, without filing an answer to petitioner UBFHAI's petition with the HIGC, respondent BFHI filed with the Court of Appeals a petition for prohibition for the issuance of preliminary injunction and temporary restraining order, to enjoin HIGC from proceeding with the case.[14] On May 2, 1995, the HIGC issued an order deferring the resolution of petitioner UBFHAI's application for preliminary injunction, until such time that respondent BFHI's application for prohibition with the appellate court has been resolved. When the twenty-day (20) effectivity of the temporary restraining order had lapsed, the HIGC ordered the parties to maintain the status quo.[15] Meanwhile, on November 27, 1995, the Court of Appeals promulgated its decision[16] granting respondent BFHI's petition for prohibition, as follows: "WHEREFORE, premises considered, the petition is hereby GRANTED, prohibiting the public respondent Roberto C. Abrajano from proceeding with the hearing of HIGC CASE NO. HOA-95027. Consequently, the public respondent is hereby ordered to DISMISS HIGC CASE NO. HOA95-027 for lack of jurisdiction." "SO ORDERED."[17] On April 24, 1996, the appellate court denied petitioner's motion for reconsideration.[18] Hence, this petition for review on certiorari. Petitioner UBFHAI raises two issues: (1) whether or not the Rules of procedure promulgated by the HIGC, specifically Section 1(b), Rule II of the "Rules of Procedure in the Settlement of Homeowners' Disputes" is valid; (2) whether or not the acts committed by the respondent constitute an attack on petitioner's corporate existence.[19] Corollary to these, petitioner questions the appellate court's jurisdiction over the subject case. Originally, administrative supervision over homeowners' associations was vested by law with the Securities and Exchange Commission. On May 3, 1979, pursuant to Executive Order 535,[20] this function was delegated to the Home Insurance and Guaranty Corporation (HIGC).[21] Section 2 of Executive Order 535 provides:

3 "2. In addition to the powers and functions vested under the Home Financing Act, the Corporation, shall have among others, the following additional powers; (a) To require submission of and register articles of incorporation of homeowners associations and issue certificates of incorporation/registration, upon compliance by the registering associations with the duly promulgated rules and regulations thereon; maintain a registry thereof; and exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission with respect to homeowners association, the provision of Act 1459, as amended by P. D. 902-A, to the contrary notwithstanding;" By virtue of this amendatory law, the HIGC not only assumed the regulatory and adjudicative functions of the SEC over homeowners' associations, but also the original and exclusive jurisdiction to hear and decide cases involving: "(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity."[22] On December 21, 1989, the HIGC adopted its rules of procedure in the hearing of homeowners' disputes. Section 1(b), Rule II enumerated the types of disputes over which the HIGC has jurisdiction, and these include: "Section 1. Types of Disputes- The HIGC or any person, officer, body, board, or committee duly designated or created by it shall have jurisdiction to hear and decide cases involving the following: xxx (b) Controversies arising out of intra-corporate relations between and among members of the association, between any and/or all of them and the association of which they are members, and insofar as it concerns its right to exist as a corporate entity, between the association and the state/general public or other entity." [emphasis supplied] Therefore, in relation to Section 5 (b), Presidential Decree 902-A, the HIGC's jurisdiction over homeowners' disputes is limited to controversies that arise out of the following intra-corporate relations: (1) between and among members of the association; (2) between any or all of them and the association of which they are members or associates; and (3) between such association and the state, insofar as it concerns their individual franchise or right to exist as such entity. (Emphasis supplied.) Though it would seem that Section 1(b), Rule II of the HIGC's revised rules of procedure is just a reproduction of Section 5 (b), Presidential Decree 902-A, the rules deviated from the provisions of the latter. If the provisions of the law would be followed to the letter, the third type of dispute over which the HIGC has jurisdiction should be limited only to a dispute between the state and the association, insofar as it concerns the association's franchise or corporate existence. However, under the HIGC's revised rules of procedure, the phrase "general public or other entity"[23] was added. It was on this third type of dispute, as provided in Section 1 (b), Rule II of the HIGC's revised rules of procedure that petitioner UBFHAI anchors its claim that the HIGC has original and exclusive jurisdiction over the case. In the comment filed by the HIGC with the appellate court, it maintained that it has original and exclusive jurisdiction over the dispute pursuant to the power and authority granted it in the revised rules of procedure. Respondent BFHI disputes this, contending that the rules of procedure relied upon by petitioner are not valid implementation of Executive Order No. 535, as amended, in relation to Presidential Decree 902-A. The question now is whether HIGC, in promulgating the above-mentioned rules of procedure, went beyond the authority delegated to it and unduly expanded the provisions of the delegating law. In relation to this, the question is whether or not the revised rules of procedure are valid.

As early as 1970, in the case of Teoxon vs. Members of the Board of Administrators (PVA),[24] we ruled that the power to promulgate rules in the implementation of a statute is necessarily limited to what is provided for in the legislative enactment. Its terms must be followed for an administrative agency cannot amend an Act of Congress.[25] "The rule-making power must be confined to details for regulating the mode or proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute."[26] If a discrepancy occurs between the basic law and an implementing rule or regulation, it is the former that prevails.[27] In the present case, the HIGC went beyond the authority provided by the law when it promulgated the revised rules of procedure. There was a clear attempt to unduly expand the provisions of Presidential Decree 902-A. As provided in the law, insofar as the association's franchise or corporate existence is involved, it is only the State, not the "general public or other entity" that could question this. The appellate court correctly held that: "The inclusion of the phrase GENERAL PUBLIC OR OTHER ENTITY is a matter which HIGC cannot legally do x x x."[28] The rule-making power of a public administrative body is a delegated legislative power, which it may not use either to abridge the authority given it by Congress or the Constitution or to enlarge its power beyond the scope intended. Constitutional and statutory provisions control what rules and regulations may be promulgated by such a body, as well as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or which are in derogation of, or defeat, the purpose of a statute.[29] Moreover, where the legislature has delegated to an executive or administrative officers and boards authority to promulgate rules to carry out an express legislative purpose, the rules of administrative officers and boards, which have the effect of extending, or which conflict with the authority-granting statute, do not represent a valid exercise of the rule-making power but constitute an attempt by an administrative body to legislate.[30] "A statutory grant of `powers should not be extended by implication beyond what may be necessary for their just and reasonable execution."[31] It is axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the enabling statute if such rule or regulation is to be valid.[32] Thus, we hold that Rule II, Section 1(b) of HIGC's "Revised Rules of Procedure in the Hearing of Homeowners' Disputes" is void, without ruling on the validity of the rest of the rules. Neither can the HIGC claim original and exclusive jurisdiction over the petition for mandamus under the two other types of disputes enumerated in Presidential Decree 902-A and in the revised rules. The dispute is not one involving the members of the homeowners' association nor it is one between any and/or all of the members and the associations of which they are members. The parties are the homeowners' association and the owner-developer, acting at the same time as the corporation's committee of receivers. To reiterate, the HIGC exercises a very limited jurisdiction over homeowners' disputes. The law confined this authority to controversies that arise out of the following intra-corporate relations: (1) between and among members of the association; (2) between any and/or all of them and the association of which they are members; and (3) insofar as it concerns its right to exist as a corporate entity, between the association and the state. None of the parties to the litigation can enlarge or diminish it or dictate when it shall attach or when it shall be removed.[33] Jurisdiction is defined as the power and authority of a court to hear, try and decide a case. Jurisdiction over the subject matter is conferred by the Constitution or by law. Nothing can change the jurisdiction of the court over the subject matter. That power is a matter of legislative enactment which none by the legislature may change.[34]

In light of the foregoing, we do not see the need to discuss the second issue. Whether or not the acts committed or threatened to be committed by the respondent against the petitioner would constitute an attack on the latter's corporate existence would be immaterial. The HIGC has no jurisdiction to hear and resolve the dispute. Having dispensed with the question of jurisdiction, there is no need for the HIGC to proceed with the hearing of HIGC-HOA 95-027. It would just be an exercise in futility since it has no jurisdiction. Furthermore, it was apparent that the board of directors of respondent BFHI, acting as the committee of receivers, was only trying to find ways and means to rehabilitate the corporation so that it can pay off its creditors. The revocation of the security agreements and the removal of administration and maintenance of certain property that are still under the name of respondent BFHI, were acts done in pursuance of the rehabilitation program. All the security agreements and undertakings were contractual in nature, which respondent BFHI, acting as a committee of receivers and being the successor of the former receiver, could very well alter or modify. WHEREFORE, the Court DENIES the petition for review on certiorari, for lack of merit. The decision and resolution appealed from in CA-G. R. SP. NO. 37072 are AFFIRMED. No costs. SO ORDERED. Davide, C.J., (Chairman), Melo, Kapunan, and Ynares-Santiago, JJ., concur.

[1]

Associate Justice B.A. Adefuin-De la Cruz, ponente, concurred in by Associate Justices Jorge S. Imperial and Lourdes K. Tayao-Jaguros, Rollo, pp. 30-36.
[2]

In CA-G. R. SP No. 37072, Ninth Division, promulgated on April 24, 1996; Resolution, Rollo, p.

9.
[3]

Rollo, pp. 11-26. The same group of people who own BFHI owned this corporation.

[4]

[5]

There was no centralized security system for the whole village; there were sixty five (65) satellite homeowners' associations averaging 130 homeowners per association, and two major associations, BF Paraaque Homeowners Association, Inc. and the Confederation of BF Homeowners Association, Inc.; no zoning guidelines to regulate the construction and proliferation of business establishments inside the subdivision; nine (9) of the eighteen (18) water wells were not functioning and water supply was becoming scarce; Rollo, p. 97.
[6]

Rollo, p. 75. Rollo, p. 98. Rollo, p. 100. Rollo, p. 15. Rollo, pp. 127-128.

[7]

[8]

[9]

[10]

6
[11]

Docketed as United BF Homeowners' Association, Inc. vs. BF Homes, Inc. HIGC Case No. HOA 95-027.
[12]

This is the original homeowners association and stands for BF Paraaque Homeowners Association, Inc. It is one of the two major homeowners' association within the BF Homes Paraaque Subdivision under the umbrella organization of the United BF Homeowners' Associations, Inc.; Rollo, pp. 167-173.
[13]

Rollo, p. 114.

[14]

Docketed as BF Homes, Inc. vs. Home Insurance and Guaranty Corporation, et. al., CA- G. R. SP No. 37072.
[15]

Rollo, pp. 221-223. Rollo, pp. 30-36 Rollo, p. 36. Rollo, p. 9. Petition for Review by Certiorari, Rollo, p. 11.

[16]

[17]

[18]

[19]

[20]

Amending the Charter of the Home Financing Commission, Renaming it as Home Financing Corporation, Enlarging its Powers, and for other Purposes, May 3, 1979.
[21]

The Home Insurance and Guaranty Corporation was created pursuant to Republic Act 580, as amended by Executive Order 535. It was initially called Home Financing Commission and renamed as Home Financing Corporation, until it came to be known as Home Insurance and Guaranty Corporation.
[22]

Section 5 (b), Presidential Decree 902-A. Emphasis supplied. 33 SCRA 585, 588 [1970]. Supra. Land Bank of the Philippines vs. Court of Appeals, 285 SCRA 404, 407 [1996].

[23]

[24]

[25]

[26]

[27]

Nasipit Lumber Company, Inc. vs. National Wages and Productivity Commission, 289 SCRA 667, 681 [1998].
[28]

Court of Appeals Decision, CA-G.R. SP NO. 37072, Rollo, p. 35. Conte vs. Commission on Audit, 264 SCRA 19, 30-31 [1996]. People vs. Maceren, 79 SCRA 450, 462 [1977].

[29]

[30]

[31]

Nasipit Lumber Company, Inc. vs. National Wages and Productivity Commission, 289 SCRA 667, 681.
[32]

Lina, Jr. vs. Cario, 221 SCRA 515, 531 [1993].

7
[33]

Zamora vs. Court of Appeals, 183 SCRA 279 [1990]. Zamora vs. Court of Appeals, supra.

[34]

SECOND DIVISION [ G.R. NO. 161417, February 08, 2007 ]

MA. TERESA CHAVES BIACO, PETITIONER, VS. PHILIPPINE COUNTRYSIDE RURAL BANK, RESPONDENT. DECISION
TINGA, J.: Petitioner, Ma. Teresa Chaves Biaco, seeks a review of the Decision [1] of the Court of Appeals in CA-G.R. No. 67489 dated August 27, 2003, which denied her petition for annulment of judgment, and the Resolution [2] dated December 15, 2003 which denied her motion for reconsideration. The facts as succinctly stated by the Court of Appeals are as follows: Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves Biaco. While employed in the Philippine Countryside Rural Bank (PCRB) as branch manager, Ernesto obtained several loans from the respondent bank as evidenced by the following promissory notes: Feb. 17, 1998 Mar. 18, 1998 May 6, 1998 May 20, 1998 July 30, 1998 Sept. 8, 1998 Sept. 8, 1998 P 65,000.00 30,000.00 60,000.00 350,000.00 155,000.00 40,000.00 120,000.00

As security for the payment of the said loans, Ernesto executed a real estate mortgage in favor of the bank covering the parcel of land described in Original Certificate of Title (OCT) No. P14423. 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 ONE MILLION EIGHTY THOUSAND SIX HUNDRED SEVENTY SIX AND FIFTY CENTAVOS (P1,080,676.50). 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 (Export and Industry Bank) located at Jofelmor Bldg., Mortola Street, Cagayan de Oro City. Ernesto received the summons but for unknown reasons, he failed to file an answer. Hence, the spouses Biaco were declared in default upon motion of the respondent bank. The respondent bank was allowed to present its evidence ex parte before the Branch Clerk of Court who was

8 then appointed by the court as Commissioner. 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 P1,260,304.33 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 P150,000.00 as reported by the Assessor's Office. Based on the report of the Commissioner, the respondent judge ordered as follows: WHEREFORE, judgment is hereby rendered ordering defendants spouses ERNESTO R. BIACO and MA. THERESA [CHAVES] BIACO to pay plaintiff bank within a period of not less than ninety (90) days nor more than one hundred (100) days from receipt of this decision the loan of ONE MILLION TWO HUNDRED SIXTY THOUSAND THREE HUNDRED FOUR PESOS and THIRTY THREE CENTAVOS (P1,260,304.33) plus litigation expenses in the amount of SEVEN THOUSAND SIX HUNDRED FORTY PESOS (P7,640.00) and attorney's fees in the amount of TWO HUNDRED FIFTY TWO THOUSAND THIRTY PESOS and FORTY THREE CENTAVOS (P252,030.43) and cost of this suit. In case of non-payment within the period, the Sheriff of this Court is ordered to sell at public auction the mortgaged Lot, a parcel of registered land (Lot 35802, Cad. 237 {Lot No. 12388-B, Csd-10-002342-D}), located at Gasi, Laguindingan, Misamis Oriental and covered by TCT No. P14423 to satisfy the mortgage debt, and the surplus if there be any should be delivered to the defendants spouses ERNESTO and MA. THERESA [CHAVES] BIACO. 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. SO ORDERED. On July 12, 2000, the sheriff personally served the above-mentioned judgment to Ernesto Biaco at his office at Export and Industry Bank. The spouses Biaco did not appeal from the adverse decision of the trial court. On October 13, 2000, the respondent bank filed an ex parte motion for execution to direct the sheriff to sell the mortgaged lot at public auction. The respondent bank alleged that the order of the court requiring the spouses Biaco to pay within a period of 90 days had passed, thus making it necessary to sell the mortgaged lot at public auction, as previously mentioned in the order of the court. The motion for execution was granted by the trial court per Order dated October 20, 2000. On October 31, 2000, the sheriff served a copy of the writ of execution to the spouses Biaco at their residence in #92 9th Street, Nazareth, Cagayan de Oro City. The writ of execution was personally received by Ernesto. By virtue of the writ of execution issued by the trial court, the mortgaged property was sold at public auction in favor of the respondent bank in the amount of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00). 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 ONE MILLION THREE HUNDRED SIXTY NINE THOUSAND NINE HUNDRED SEVENTY FOUR PESOS AND SEVENTY CENTAVOS (P1,369,974.70). The sheriff executed two (2) notices of levy against properties registered under the name of petitioner Ma. Teresa Chaves Biaco. However, the notices of levy were denied registration

9 because Ma. Teresa had already sold the two (2) properties to her daughters on April 11, 2001.[3] Petitioner sought the annulment of the Regional Trial Court decision contending that extrinsic fraud prevented her from participating in the judicial foreclosure proceedings. According to her, she came to know about the judgment in the case only after the lapse of more than six (6) months after its finality. She claimed that extrinsic fraud was perpetrated against her because 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. She moreover asserted that the trial court 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. The Court of Appeals considered the two circumstances that kept petitioner in the dark about the judicial foreclosure proceedings: (1) the failure of the sheriff to personally serve summons on petitioner; and (2) petitioner's husband's concealment of his knowledge of the foreclosure proceedings. On the validity of the service of summons, the appellate court ruled that judicial foreclosure proceedings are actions quasi in rem. As such, jurisdiction over the person of the defendant is not essential as long as the court acquires jurisdiction over the res. Noting that the spouses Biaco were not opposing parties in the case, the Court of Appeals further ruled that the fraud committed by one against the other cannot be considered extrinsic fraud. Her motion for reconsideration having been denied, petitioner filed the instant Petition for Review,[4] asserting that 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. Petitioner contends that extrinsic fraud was perpetrated not so much by her husband, who did not inform her of the judicial foreclosure proceedings, but by the sheriff who allegedly connived with her husband to just leave a copy of the summons intended for her at the latter's office. Petitioner further argues that the deficiency judgment is a personal judgment which should be deemed void for lack of jurisdiction over her person. Respondent PCRB filed its Comment, [5] essentially reiterating the appellate court's ruling. Respondent avers that service of summons upon the defendant is not necessary in actions quasi in rem it being sufficient that the court acquire jurisdiction over the res. As regards the alleged conspiracy between petitioner's husband and the sheriff, respondent counters that this is a new argument which cannot be raised for the first time in the instant petition. We required the parties to file their respective memoranda in the Resolution [6] dated August 18, 2004. Accordingly, petitioner filed her Memorandum [7] dated October 10, 2004, while respondent filed its Memorandum for Respondent [8] dated September 9, 2004. Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as where there is no available or other adequate remedy. Jurisprudence and Sec. 2, Rule 47 of the 1997 Rules of Civil Procedure (Rules of Court) provide that judgments may be annulled only on grounds of extrinsic fraud and lack of jurisdiction or denial of due process. [9] Petitioner asserts that extrinsic fraud consisted in her husband's concealment of the loans which he obtained from respondent PCRB; the filing of the complaint for judicial foreclosure of mortgage; service of summons; rendition of judgment by default; and all other proceedings which took place until the writ of garnishment was served. [10] Extrinsic fraud exists when there is a fraudulent act committed by the prevailing party outside of

10 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. [11] 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 overriding consideration is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court. [12] With these considerations, the appellate court acted well in ruling that there was no fraud perpetrated by respondent bank upon petitioner, noting that the spouses 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 respondent bank. Moreover, petitioner's allegation that her signature on the promissory notes was forged does not evince extrinsic fraud. 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. [13] The question of whether the trial court has jurisdiction depends on the nature of the action, i.e., whether the action is in personam, in rem, or quasi in rem. The rules on service of summons under Rule 14 of the Rules of Court likewise apply according to the nature of the action. An action in personam is an action against a person on the basis of his personal liability. An action in rem is an action against the thing itself instead of against the person. An action quasi in rem is one wherein 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. [14] In an action in personam, 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, 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.[15] Nonetheless, summons must be served upon the defendant not for the purpose of vesting the court with jurisdiction but merely for satisfying the due process requirements.[16] A resident defendant who does not voluntarily appear in court, such as petitioner in this case, must be personally served with summons as provided under Sec. 6, Rule 14 of the Rules of Court. If she cannot be personally served with summons within a reasonable time, substituted service may be effected (1) by leaving copies of the summons at the defendant's residence with some person of suitable age and discretion then residing therein, or (2) by leaving the copies at defendant's office or regular place of business with some competent person in charge thereof in accordance with Sec. 7, Rule 14 of the Rules of Court. In this case, the judicial foreclosure proceeding instituted by respondent PCRB undoubtedly 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. There is a dimension to this case though that needs to be delved into. Petitioner avers that she

11 was not personally served summons. Instead, summons was served to her through her husband at his office without any explanation as to why the particular surrogate service was resorted to. The Sheriff's Return of Service dated March 21, 2000 states: xxxx That on March 16, 2000, the undersigned served the copies of Summons, complaint and its annexes to the defendants Sps. Ernesto R. & Ma. Teresa Ch. Biaco thru Ernesto R. Biaco[,] defendant of the above-entitled case at his office EXPORT & INDUSTRY BANK, Jofelmore Bldg.[,] Mortola St., Cagayan de Oro City and he acknowledged receipt thereof as evidenced with his signature appearing on the original copy of the Summons. [17] [Emphasis supplied] Without ruling on petitioner's allegation that her husband and the sheriff connived to prevent summons from being served upon her personally, we can see that petitioner was denied due process and was not able to participate in the judicial foreclosure proceedings as a consequence. The violation of petitioner's constitutional right to due process arising from want of valid service of summons on her warrants the annulment of the judgment of the trial court. There is more, the trial court granted respondent PCRB's ex-parte motion for deficiency judgment and ordered the issuance of a writ of execution against the spouses Biaco to satisfy the remaining balance of the award. In short, the trial court went beyond its jurisdiction over the res and rendered a personal judgment against the spouses Biaco. This cannot be countenanced. In Sahagun v. Court of Appeals, [18] suit was brought against a non-resident defendant, Abelardo Sahagun, and a writ of attachment was issued and subsequently levied on a house and lot registered in his name. Claiming ownership of the house, his wife, Carmelita Sahagun, filed a motion to intervene. For failure of plaintiff to serve summons extraterritorially upon Abelardo, the complaint was dismissed without prejudice. Subsequently, plaintiff filed a motion for leave to serve summons by publication upon Abelardo. The trial court granted the motion. Plaintiff later filed an amended complaint against Abelardo, this time impleading Carmelita and Rallye as additional defendants. Summons was served on Abelardo through publication in the Manila Evening Post. Abelardo failed to file an answer and was declared in default. Carmelita went on certiorari to the Court of Appeals assailing as grave abuse of discretion the declaration of default of Abelardo. The Court of Appeals dismissed the petition and denied reconsideration. In her petition with this Court, Carmelita raised the issue of whether the trial court acquired jurisdiction over her husband, a non-resident defendant, by the publication of summons in a newspaper of general circulation in the Philippines. The Court sustained the correctness of extrajudicial service of summons by publication in such newspaper. The Court explained, citing El Banco Espaol-Filipino v. Palanca, [19] 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. [20] and Perkins v. Dizon, et al.[21] 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.

12

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. 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 CA-G.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. SO ORDERED. Quisumbing, (Chairperson), Carpio, Carpio Morales, and Velasco, Jr., JJ., concur.

[1]

Rollo, pp. 28-35; Penned by Associate Justice Romeo A. Brawner and concurred in by Associate Justices Josefina Guevara-Salonga and Arturo D. Brion.
[2]

Id. at 38. Id. at 29-31. Id. at 3-23. Id. at 125-142. Id. at 144-145. Id. at 149-165. Id. at 167-181.

[3]

[4]

[5]

[6]

[7]

[8]

[9]

National Housing Authority v. Evangelista, G.R. No. 140945, May 16, 2005, 458 SCRA 469, 477-478.
[10]

CA rollo, p. 6; Petition (for Annulment of Judgment) dated October 29, 2001. Alba v. Court of Appeals, G.R. No. 164041, 29 July 2005, 265 SCRA 495, 508.

[11]

[12]

Strait Times, Inc. v. Court of Appeals, 356 Phil. 217, 225-226 (1998), 294 SCRA 714, citing Palanca v. The American Food Manufacturing Co., 24 SCRA 819, August 30, 1968, per Zaldivar, J., citing U.S. v. Throckmorton, 98 U.S. 93, 95, 25 L. Ed. 93 (1878); See also Alaban v. Court of Appeals, G.R. No. 156021, September 23, 2005, 470 SCRA 697, 708.
[13]

Id. Asiavest Limited v. Court of Appeals, 357 Phil. 536, 553 (1998). Alba v. Court of Appeals, G.R. No. 164041, July 29, 2005, 465 SCRA 495, 505. Id. at 506

[14]

[15]

[16]

13
[17]

CA rollo, p. 32. G.R. No. 78328, June 3, 1991, 198 SCRA 44. 37 Phil. 921 (1918). 159-A Phil. 314, 326 (1975). 69 Phil. 186, 193 (1939).

[18]

[19]

[20]

[21]