Borlongan vs. BDO Unibank, Inc.

A non-debtor spouse is considered a "stranger" to a collection suit who may file an independent action to annul the levy and execution sale of conjugal property under Section 16, Rule 39 of the Rules of Court if the surety agreement executed by the debtor-spouse did not redound to the benefit of the conjugal partnership; furthermore, service of summons by publication is improper unless the defendant's whereabouts are unknown despite diligent inquiry, and the denial of a TRO constitutes a violation of the constitutional right to due process where the validity of the judgment and execution is directly assailed.

The case arose from the discovery by spouses Eliseo and Carmelita Borlongan in 2012 that their conjugal property in Pasig City had been sold at public auction to Banco de Oro (BDO) in 2009. The sale was executed pursuant to a 2007 judgment of the Regional Trial Court (RTC) of Makati in a collection suit where Carmelita was impleaded as a surety for the obligations of Tancho Corporation. The husband, Eliseo, was not a party to the surety agreements or the collection suit. The central dispute involves the validity of the service of summons upon Carmelita, the effect of the surety obligation on conjugal property, and the right of the non-debtor spouse to challenge the execution sale in an independent proceeding.

• Sometime in 1976, spouses Eliseo Borlongan, Jr. and Carmelita Borlongan acquired a conjugal property located at No. 111, Sampaguita St., Valle Verde II, Pasig City, covered by Transfer Certificate of Title (TCT) No. 0421.
• In 2012, the spouses discovered that the title contained an annotation indicating the property was the subject of an execution sale in Civil Case No. 03-0713 pending before the RTC of Makati.
• BDO (formerly Equitable PCI Bank) filed the complaint for sum of money against Tancho Corporation (principal debtor) and Carmelita, who allegedly signed four security agreements totaling P13,500,000.00 as a surety for Tancho Corporation's obligations.
• On July 2, 2003, the Makati RTC directed the service of summons to all defendants at the Fumakilla Compound, Pasig City, the business address of Tancho Corporation provided by BDO. However, BDO had already foreclosed the Fumakilla Compound in August 2000 and consolidated ownership in November 2001.
• On July 31, 2003, the process server filed a return stating that summons remained unserved as the defendants were no longer holding office at the Fumakilla Compound.
• On October 27, 2003, after only one attempt at personal service, BDO moved for leave to serve summons by publication, which the RTC granted on October 28, 2003.
• On November 29, 2007, the Makati RTC rendered a Decision holding the defendants liable for P32,543,856.33 plus interest and attorney's fees.
• On October 6, 2009, the subject property was sold at auction to BDO as the highest bidder pursuant to the Writ of Execution issued by the Makati RTC.
• Eliseo Borlongan was not a party to the surety agreements or the collection suit. He discovered the levy and sale only in 2012 and filed a separate complaint for annulment before the Pasig RTC, alleging that the surety agreements did not redound to the benefit of the conjugal partnership.
• The General Information Sheet (GIS) filed by Tancho Corporation with the Securities and Exchange Commission (SEC) in 1997 and 2000 listed Carmelita's address as 41 Chicago St., Quezon City, information readily available to the process server and BDO.

• Carmelita Borlongan argued that she was deprived of due process because she was never properly served with summons; service by publication was invalid because her whereabouts were known and could have been ascertained by diligent inquiry, such as through the SEC records; the Court of Appeals erred in denying her application for a TRO and WPI, which was necessary to preserve the status quo and prevent the consolidation of BDO's ownership over the subject property while her petition for annulment of judgment was pending.
• Eliseo Borlongan argued that he is a "stranger" to the collection suit and may file an independent action under Section 16, Rule 39 of the Rules of Court to annul the levy and execution sale of their conjugal property; the surety agreement signed by his wife did not redound to the benefit of the conjugal partnership, citing Article 122 of the Family Code; he had no opportunity to intervene in the Makati RTC case as he only discovered the attachment after the decision became final; denying him the right to file a separate action would violate his constitutional right to due process.

• BDO argued that the Pasig RTC has no jurisdiction to hear Eliseo's complaint because the issues are barred by res judicata; Eliseo is not a "stranger" to the suit who can file an independent action, citing Spouses Ching v. Court of Appeals; the conjugal property is liable for the surety obligation of Carmelita.
• BDO also argued that the Court of Appeals correctly denied the issuance of a TRO and WPI because upon the expiration of the redemption period, the right of the purchaser to the possession of the foreclosed property becomes absolute; the service of summons by publication was valid; the presumption that official duty has been regularly performed applies to the process server's return.

• Procedural Issues:
  • Whether the Court of Appeals erred in refusing to issue a Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction (WPI) to enjoin BDO from consolidating its ownership over the subject property.
  • Whether the Regional Trial Court of Pasig has jurisdiction to hear and decide the independent action filed by Eliseo Borlongan to annul the levy and execution sale ordered by the Makati RTC.
• Substantive Issues:
  • Whether the service of summons by publication upon Carmelita Borlongan was valid and compliant with due process.
  • Whether a non-debtor spouse is considered a "stranger" to the suit under Section 16, Rule 39 of the Rules of Court, allowing the filing of an independent action to annul the levy and sale of conjugal property.
  • Whether the conjugal partnership is liable for the surety obligation of one spouse.

• Procedural:
  • The Court held that the Court of Appeals gravely erred in denying the issuance of a TRO and/or WPI. The purpose of a preliminary injunction is to preserve the status quo ante, not to pre-empt the decision on the merits. The petitioner established a clear and unmistakable right—her constitutionally protected right to due process and property—which was being violated by the continuous acts of BDO in consolidating ownership based on a judgment rendered without valid service of summons. The violation of a constitutional right constitutes grave and irreparable injury warranting injunctive relief.
  • The Court held that the Pasig RTC has jurisdiction to hear Eliseo's independent action. Section 16, Rule 39 of the Rules of Court expressly allows a third-party claimant to vindicate his claim to the property in a separate action. Eliseo qualifies as a "stranger" or third-party claimant because the surety obligation of his wife is a personal debt that, absent proof of benefit to the family, does not bind the conjugal partnership.
• Substantive:
  • The Court ruled that the service of summons by publication was invalid. The Rules of Court establish a strict hierarchy of service: personal service is preferred, followed by substituted service, and only then by publication. Service by publication is permitted only when the defendant's whereabouts are unknown and cannot be ascertained by diligent inquiry. In this case, only one attempt was made at personal service at an address already foreclosed by BDO. The SEC records (GIS) readily disclosed Carmelita's residential address (41 Chicago St., Quezon City), proving that diligent inquiry would have revealed her location. Thus, the impossibility of personal service was not established, and the subsequent service by publication was ineffective, depriving the Makati RTC of jurisdiction over her person.
  • The Court ruled that Eliseo is a "stranger" to the suit. Under Article 122 of the Family Code, payment of personal debts contracted by one spouse shall not be charged to the conjugal partnership except insofar as they redounded to the benefit of the family. There is no presumption that the conjugal partnership is benefited when a spouse enters into a contract of surety. The benefit must be direct and not merely a by-product. Since BDO failed to prove that the surety agreement redounded to the benefit of the conjugal partnership, the obligation is personal to Carmelita, making Eliseo a stranger entitled to file an independent action under Section 16, Rule 39.
  • The Court ruled that the expiration of the redemption period does not automatically vest absolute possessory rights in the auction purchaser where the validity of the levy and sale is directly put in issue. Redemption is inconsistent with a claim of invalidity of levy and sale, as redemption implies an admission of the regularity of the sale.

• Hierarchy and Strict Compliance in Service of Summons — Personal service is the preferred mode; substituted service is allowed only if personal service is impossible within a reasonable time; service by publication is allowed only when the defendant's whereabouts are unknown and cannot be ascertained by diligent inquiry. The rules on substituted service and service by publication are extraordinary in character and must be followed strictly, faithfully, and fully.
• Impossibility of Prompt Personal Service — For substituted service to be valid, the sheriff must demonstrate impossibility of prompt personal service by stating in the return the specific efforts made to find the defendant personally (at least three tries on at least two different dates) and the reasons for failure.
• Suretyship and Conjugal Partnership Liability — There is no presumption that the conjugal partnership is benefited when a spouse enters into a contract of surety or guaranty. Under Article 122 of the Family Code, conjugal property cannot be held liable for the personal obligation of one spouse unless some direct advantage or benefit is shown to have accrued to the partnership.
• Stranger to the Suit (Third-Party Claim) — A non-debtor spouse is considered a "stranger" to a collection suit where the obligation of the other spouse did not redound to the benefit of the conjugal partnership. As a stranger, the non-debtor spouse may file an independent action to annul the levy and execution sale of conjugal property under Section 16, Rule 39 of the Rules of Court.
• Due Process and Jurisdiction — Service of summons is a vital and indispensable ingredient of due process. Compliance with the rules regarding the service of summons is as much an issue of due process as it is of jurisdiction. A judgment rendered without valid service of summons is void.
• Nature of Preliminary Injunction — The sole object of a preliminary injunction is to preserve the status quo until the merits of the case can be heard. It is not a prejudgment of the case unless it grants the main prayer, leaving nothing left for the trial court to try.

• "The sole object of a preliminary injunction is to preserve the status quo until the merits of the case can be heard."
• "A writ of preliminary injunction would become a prejudgment of a case only when it grants the main prayer in the complaint or responsive pleading, so much so that there is nothing left for the trial court to try except merely incidental matters."
• "As the essence of due process lies in the reasonable opportunity to be heard and to submit any evidence the defendant may have in support of her defense, she must be properly served the summons of the court."
• "Simply put, personal service of summons is the preferred mode. And, the rules on the service of summons other than by personal service may be used only as prescribed and only in the circumstances authorized by statute."
• "There is no presumption that the conjugal partnership is benefited when a spouse enters into a contract of surety."
• "Conjugal property cannot be held liable for the personal obligation contracted by one spouse, unless some advantage or benefit is shown to have accrued to the conjugal partnership."
• "Redemption is an implied admission of the regularity of the sale and would estop the petitioner from later impugning its validity on that ground."

• Manotoc v. Court of Appeals — Cited for the requirements to effect valid substituted service of summons, including the necessity of showing impossibility of prompt personal service through several attempts and specific details in the sheriff's return.
• Spouses Ching v. Court of Appeals (2003) — Distinguished; held that the husband of a judgment debtor is not a stranger who can file a separate action. The Court differentiated the present case because in Ching, the spouse had the opportunity to intervene but refused, whereas here, Eliseo only discovered the attachment after the decision became final.
• Spouses Ching v. Court of Appeals (2004) — Cited for the rule that there is no presumption that the conjugal partnership is benefited when a spouse enters into a contract of surety; the burden is on the creditor to establish such benefit.
• Buado v. Court of Appeals — Cited for the rule that a non-debtor spouse is a stranger to the suit if the obligation did not redound to the benefit of the conjugal partnership, allowing the filing of an independent action under Section 16, Rule 39.
• Cometa v. Intermediate Appellate Court — Cited for the rule that the expiration of the redemption period does not automatically vest absolute possessory rights where the validity of the levy and sale is directly put in issue.
• Levi Strauss (Phils.) Inc. v. Vogue Traders Clothing Company — Cited regarding the nature of preliminary injunction as an interlocutory remedy based on initial evidence, intended solely to preserve the status quo.

• 1987 Constitution, Article III, Section 1 (Due Process Clause) — Guarantees that no person shall be deprived of life, liberty, or property without due process of law; cited as the basis for the requirement of proper service of summons.
• Family Code, Article 122 — Provides that payment of personal debts contracted by the husband or the wife before or during the marriage shall not be charged to the conjugal partnership except insofar as they redounded to the benefit of the family.
• Rules of Court, Rule 14, Sections 6, 7, and 14 — Govern personal service, substituted service, and service by publication of summons, establishing the hierarchy and requirements for each mode.
• Rules of Court, Rule 39, Section 16 — Allows third-party claimants (strangers to the case) to vindicate their claims to property levied under execution in a separate action.
• Rules of Court, Rule 58, Section 3 — Provides the grounds for the issuance of a preliminary injunction, requiring a clear right to be protected and an urgent necessity to prevent serious damage.