Banco do Brasil vs. Court of Appeals

An action initially classified as in rem or quasi in rem is converted into an action in personam when the plaintiff seeks a personal judgment for damages against the defendant; consequently, extraterritorial service of summons under Rule 14, Section 17 is ineffective to acquire jurisdiction over a non-resident foreign corporation not found in the Philippines, and any judgment rendered without personal jurisdiction over the defendant is void.

The dispute arose from the seizure of the vessel M/V Star Ace by the Bureau of Customs at San Fernando, La Union, on suspicion of being a hijacked vessel involved in smuggling. After the vessel ran aground during successive typhoons, Duraproof Services entered into a salvage agreement with the vessel's owners. When the Bureau of Customs forfeited the vessel and its cargo, Duraproof Services filed a petition for certiorari to enforce its salvor's lien, impleading various parties including Banco do Brasil, which claimed an interest in the vessel as a mortgagee or lienholder. The central legal issue involved determining the nature of the action against Banco do Brasil and the validity of the service of summons effected upon it as a non-resident foreign corporation.

• The vessel M/V Star Ace, owned by Omega Sea Transport Company and carrying cargo for various consignees including Singkong Trading Co., experienced engine trouble and docked at San Fernando, La Union in January 1989.
• The Bureau of Customs seized the vessel and its cargo pursuant to Section 2301 of the Tariff and Customs Code, suspecting it was the hijacked M/V Silver Med and that its cargo would be smuggled.
• After the vessel ran aground during successive typhoons and was abandoned, Duraproof Services (represented by Cesar Urbino, Sr.) entered into a salvage agreement on June 8, 1989, to secure and repair the vessel for $1 million and fifty percent of the cargo after expenses.
• The District Collector of Customs lifted the warrant of seizure on July 17, 1989, finding no fraud, but Customs Commissioner Salvador Mison subsequently forfeited the vessel and cargo in favor of the government pursuant to Section 2530 of the Tariff and Customs Code.
• Duraproof Services filed a Petition for Certiorari, Prohibition and Mandamus with the Regional Trial Court of Manila to enforce its salvor's lien, impleading various parties including Banco do Brasil, which was alleged to be one of the claimants of the vessel.
• Banco do Brasil is a non-resident foreign corporation not engaged in business in the Philippines; summons was served upon it by publication as it had no direct representative in the country.
• The trial court declared Banco do Brasil in default and, on February 18, 1991, rendered a decision ordering it to pay $300,000.00 in damages to private respondent for being a "nuisance defendant."
• Banco do Brasil learned of the existence of the case and the decision only on April 4, 1991, through the Embassy of the Federative Republic of Brazil in the Philippines.
• On April 10, 1991, Banco do Brasil filed an Urgent Motion to Vacate Judgment and to Dismiss Case, specifically questioning the court's exercise of personal jurisdiction over it.
• The trial court granted the motion on May 20, 1991, setting aside the decision as against Banco do Brasil for lack of jurisdiction over its person.
• The Court of Appeals reversed the trial court and reinstated the decision, holding that the suit was in rem and that service by publication was sufficient to acquire jurisdiction.

• The action filed against it is for damages, making it an action in personam, which requires personal service of summons for the court to acquire jurisdiction over a non-resident foreign corporation.
• As a non-resident foreign corporation not engaged in business in the Philippines and not found in the country, extraterritorial service by publication under Rule 14, Section 17 is insufficient unless the action is in rem or quasi in rem.
• The trial court did not acquire jurisdiction over its person, rendering the February 18, 1991 decision void as to it.
• The decision had not become final and executory when the motion to vacate was filed on April 10, 1991, as it only learned of the decision on April 4, 1991, and filed the motion within the reglementary period.

• The suit is in rem, not in personam, because it primarily seeks to exclude Banco do Brasil from any interest in the vessel M/V Star Ace and to enforce a salvor's lien against the res.
• As an action in rem, extraterritorial service of summons by publication is sufficient to confer jurisdiction over the defendant.
• The February 18, 1991 decision of the trial court had already become final and executory, and the trial court correctly set it aside but the appellate court correctly reinstated it.

• Procedural Issues:
  • Whether the trial court acquired jurisdiction over petitioner Banco do Brasil through extraterritorial service of summons by publication.
  • Whether the trial court's decision dated February 18, 1991 had become final and executory as to petitioner Banco do Brasil.
• Substantive Issues:
  • Whether the action against Banco do Brasil is in rem or in personam in nature.
  • Whether the trial court could validly render a personal judgment for damages against Banco do Brasil in the amount of $300,000.00.

• Procedural:
  • The Court held that extraterritorial service by publication was invalid and ineffective to acquire jurisdiction over Banco do Brasil because the action was in personam, not in rem or quasi in rem. Since Banco do Brasil is a non-resident foreign corporation not engaged in business in the Philippines and not found in the country, personal service of summons (or substituted service if applicable) was required to acquire jurisdiction over its person.
  • The Court held that the decision had not become final as to Banco do Brasil because it learned of the decision only on April 4, 1991, and filed its motion to vacate on April 10, 1991, which was within the reglementary period for appeal. In multi-defendant cases, each defendant has a different period within which to appeal depending on the date of receipt of the decision.
• Substantive:
  • The Court ruled that while the action initially appeared to be in rem or quasi in rem (seeking to exclude Banco do Brasil from interest in the vessel), it was converted into an action in personam when private respondent claimed damages of $300,000.00 for alleged injury caused by Banco do Brasil's being a "nuisance defendant."
  • The Court held that in in rem or quasi in rem actions, relief must be confined to the res, and the court cannot lawfully render a personal judgment against the defendant. Since the relief demanded (damages) was totally alien to the res and sought a personal judgment, the action became in personam, requiring personal jurisdiction over the defendant which was absent in this case.

• Actions in rem, quasi in rem, and in personam — An action in rem is directed against the thing itself, while an action quasi in rem seeks to subject the defendant's interest in property to the obligation burdening it; both do not require jurisdiction over the person of the defendant provided the court has jurisdiction over the res. An action in personam is brought against a person on the basis of personal liability and requires jurisdiction over the person of the defendant.
• Extraterritorial service of summons — Under Rule 14, Section 17 (now Section 15 of the 1997 Rules of Civil Procedure), extraterritorial service by publication or personal service out of the country is proper only in four instances: (1) when the action affects the personal status of the plaintiff; (2) when the action relates to property within the Philippines in which the defendant claims a lien or interest; (3) when the relief demanded consists in excluding the defendant from any interest in property located in the Philippines; or (4) when the defendant's property has been attached within the Philippines. These instances apply only to in rem or quasi in rem actions.
• Conversion of action by claim for damages — When a plaintiff in an action initially in rem or quasi in rem seeks a personal judgment for damages against the defendant for injury to person or property, the action becomes in personam, and the court cannot lawfully render a personal judgment without jurisdiction over the defendant's person.

• "Clear from the foregoing, extrajudicial service of summons apply only where the action is in rem, an action against the thing itself instead of against the person, or in an action quasi in rem, where an individual is named as defendant and the purpose of the proceeding is to subject his interest therein to the obligation or loan burdening the property."
• "However, where the action is in personam, one brought against a person on the basis of his personal liability, jurisdiction over the person of the defendant is necessary for the court to validly try and decide the case."
• "It must be stressed that any relief granted in rem or quasi in rem actions must be confined to the res, and the court cannot lawfully render a personal judgment against the defendant."
• "Therefore, while the action is in rem, by claiming damages, the relief demanded went beyond the res and sought a relief totally alien to the action."

• Vlason Enterprises Corporation v. Court of Appeals — Controlling precedent regarding the same vessel and parties; discussed the finality of judgment in multi-defendant cases where each defendant has a different period to appeal.
• Asiavest Limited v. Court of Appeals — Cited for the distinction between in rem and in personam actions and the jurisdictional requirements for each.
• Valmonte v. Court of Appeals — Cited for the rule that in in rem and quasi in rem actions, jurisdiction over the person of the defendant is not a prerequisite provided the court acquires jurisdiction over the res.
• The Dial Corporation v. Soriano — Cited for the principle that in in personam actions against non-residents, personal service of summons within the state is essential to the acquisition of jurisdiction over the person.
• Villareal v. Court of Appeals — Cited for the rule that relief in in rem or quasi in rem actions must be confined to the res.

• Rule 14, Section 17 of the Rules of Court (now Section 15 of the 1997 Rules of Civil Procedure) — Governs extraterritorial service of summons; cited to establish that it applies only to in rem or quasi in rem actions, not to in personam actions.
• Section 2301 of the Tariff and Customs Code — Cited regarding the district customs collector's authority to seize vessels and cargo suspected of fraud.
• Section 2530 of the Tariff and Customs Code — Cited regarding the forfeiture of the vessel and cargo by the Commissioner of Customs.