Assigned n Cases

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FIRST DIVISION

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

UNITED BF HOMEOWNERS ASSOCIATION, AND HOME INSURANCEAND GUARANTY CORPORATION, PETITIONERS, VS. BF HOMES, INC.,

RESPONDENTS.

D E C I S I O N

PARDO, J.

Assailed in this petition for review on certiorariis 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) placedrespondent 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 pointsto 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


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proliferation of squatters.[10]

On the same day, petitioner UBFHAI filed with the HIGC a petition for mandamuswith

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 partea 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'sapplication 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-95-

027. Consequently, the public respondent is hereby ordered to DISMISS HIGC CASE NO. HOA-95-027 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 respondentconstitute 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:


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"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:

x x x

(b) Controversies arising out of intra-corporate relations between and among members of theassociation, 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 andexclusive 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.


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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 ofadministrative 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 andthe 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]


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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 DENIESthe 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.

[4]The same group of people who own BFHI owned this corporation.

[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.

[7]Rollo, p. 98.

[8]Rollo, p. 100.

[9]Rollo, p. 15.

[10]Rollo, pp. 127-128.


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[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.

[16]Rollo, pp. 30-36

[17]Rollo, p. 36.

[18]Rollo, p. 9.

[19]Petition for Review by Certiorari, Rollo, p. 11.

[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, asamended 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.

[23]Emphasis supplied.

[24]33 SCRA 585, 588 [1970].

[25]Supra.

[26]Land Bank of the Philippines vs. Court of Appeals, 285 SCRA 404, 407 [1996].

[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.

[29]

Conte vs. Commission on Audit, 264 SCRA 19, 30-31 [1996].

[30]People vs. Maceren, 79 SCRA 450, 462 [1977].

[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].


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

[34]Zamora vs. Court of Appeals, supra.

SECOND DIVISION

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

MA. TERESA CHAVES BIACO, PETITIONER, VS. PHILIPPINECOUNTRYSIDE RURAL BANK, RESPONDENT.

D E C I S I O N

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 P 65,000.00

Mar. 18, 1998 30,000.00

May 6, 1998 60,000.00

May 20, 1998 350,000.00

July 30, 1998 155,000.00

Sept. 8, 1998 40,000.00

Sept. 8, 1998 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. P-

14423. 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 partebefore the Branch Clerk of Court who was


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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. P-

14423 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 partemotion

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 partemotion for judgment" praying for the

issuance of a writ of execution against the other properties of the spouses Biaco for the fullsettlement 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


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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 thejudicial 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 remit being sufficient that the court acquire jurisdiction over the res. As

regards the alleged conspiracy between petitioner's husband and the sheriff, respondentcounters 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 ongrounds 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 theprevailing partyoutside of


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the trial of the case, whereby the defeated partywas 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 partyhad 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 defendantnever had knowledge of the suit, being kept

in ignorance by the acts of theplaintiff; 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 theprevailing 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 co-

defendants 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 inpersonam, 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 inpersonamis an action against a person on the basis of his personal liability. An

action in remis an action against the thing itself instead of against the person. An action quasiin remis 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 inremor 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 resis 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 inaccordance 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


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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:

x x x x

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[,]

defendantof the above-entitled case at his officeEXPORT & 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-partemotion 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 resand 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 acquiredjurisdiction 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 tohim 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 remor 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.


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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, andVelasco, 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.

[3] Id. at 29-31.

[4] Id. at 3-23.

[5]Id. at 125-142.

[6]Id. at 144-145.

[7]Id. at 149-165.

[8] Id. at 167-181.

[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.

[11]Alba v. Court of Appeals, G.R. No. 164041, 29 July 2005, 265 SCRA 495, 508.

[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 alsoAlaban v. Court of

Appeals,G.R. No. 156021, September 23, 2005, 470 SCRA 697, 708.

[13]Id.

[14]Asiavest Limited v. Court of Appeals, 357 Phil. 536, 553 (1998).

[15]Alba v. Court of Appeals, G.R. No. 164041, July 29, 2005, 465 SCRA 495, 505.

[16] Id. at 506


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[17]CArollo, p. 32.

[18]G.R. No. 78328, June 3, 1991, 198 SCRA 44.

[19]37 Phil. 921 (1918).

[20]159-A Phil. 314, 326 (1975).

[21]69 Phil. 186, 193 (1939).

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