Apex Mining, Inc. vs. Court of Appeals

The gross negligence of counsel that deprives the client of due process of law constitutes extrinsic fraud warranting annulment of judgment, notwithstanding the general rule that the negligence of counsel binds the client; the exception applies where reckless or gross negligence deprives the client of due process, results in outright deprivation of the client's liberty or property, or where the interests of justice so require.

Private respondents were mining claim operators whose tunnel, Tunnel T-45, was allegedly damaged in November 1987 by a bulldozer owned by APEX Mining, Inc. (APEX), a mining corporation; Engr. Panfilo Frias and Engr. Rey Dionisio were impleaded as co-defendants. The dispute was governed by the rules on annulment of judgment under Section 9(2) of Batas Pambansa Blg. 129, now Rule 47 of the 1997 Rules of Civil Procedure, which vests exclusive original jurisdiction in the Court of Appeals over actions to annul Regional Trial Court judgments on the grounds of lack of jurisdiction or extrinsic fraud. APEX was also in a joint venture with Base Metals Mineral Resources Corporation under a Memorandum of Agreement, which later became relevant to the execution of the judgment.

Private respondents Miguel Bagaipo, Alfredo Roa, Edgar Barrera, Bonifacio Baruis, Jr., Francisco Bello, and Leopoldo I. Cagatin filed a complaint for damages on 9 December 1987 against petitioners Apex Mining Corporation (APEX) and/or Engr. Panfilo Frias and Engr. Rey Dionisio before the Regional Trial Court of Davao del Norte. The case was raffled to Branch 11 of Tagum, 11th Judicial Region, and docketed as Civil Case No. 2131. The complaint alleged that sometime in November 1987, a bulldozer owned by APEX, due to its negligence, damaged private respondents' mining claim known as Tunnel T-45, thereby putting a stop to their mining operations. Petitioners, through their retained counsel, filed an answer denying the material allegations and alleging that private respondents constructed the tunnel within APEX's mining claim area without authority or approval.

During trial on the merits, private respondents presented three witnesses who were cross-examined by petitioners' retained law firm through Atty. Gerardo C. Olaguer, a partner of the firm. After private respondents rested their case, petitioners' counsel filed a demurrer to evidence, which was denied by the trial court in its order of 23 June 1992. In the same order, the trial court set the reception of evidence for the defendants on 18 February 1993. Notice of the order was received by petitioners' counsel; however, when the case was called on that date, counsel did not appear. On motion of the plaintiffs, the trial court issued an order declaring defendants to have waived their right to present evidence in their defense. Despite due notice of the order, counsel did not move for reconsideration.

On 24 June 1993, the trial court rendered a decision finding APEX liable for damages but absolving the other defendants, ordering APEX to pay P100,000 for rehabilitation expenses of Tunnel No. 45, unearned income of P72,000 per day from 14 November 1987 until complete rehabilitation, P5,000 for complaint preparation, P10,000 attorney's fees, and costs. Counsel appealed to the Court of Appeals, but the appeal was dismissed on 13 May 1994 for failure to pay the docket fees within the reglementary period. Counsel did not move for reconsideration, and entry of judgment was made on 10 August 1994. The case was remanded to the court of origin, and upon motion of private respondents, a writ of execution was issued on 15 February 1995. It appearing that APEX was in a joint venture with Base Metals Mineral Resources Corporation under a Memorandum of Agreement, the trial court issued on 7 September 1995 an order directing Base Metals to turn over to the clerk of court and/or the sheriff all money and machineries due to APEX.

Upon its receipt of the order sometime in December 1995, Base Metals informed APEX about the same. It was only then that APEX learned that its appeal had been dismissed by the Court of Appeals. On 26 February 1996, petitioners, through new counsel, filed a Petition for Annulment of Judgment with the Court of Appeals, contending that the actuations of their former counsel constituted professional chicanery amounting to extrinsic or collateral fraud, and that they had been unduly deprived of their right to be heard and to due process of law through no fault of their own. The Court of Appeals issued a temporary restraining order on 2 February 1996, conducted a hearing on the application for preliminary injunction on 8 March 1996, and granted the writ of preliminary injunction on 21 March 1996. After a preliminary conference and the filing of simultaneous memoranda, the Court of Appeals rendered its decision on 30 April 1997 dismissing the petition for annulment on the ground that it had no jurisdiction to annul or set aside its own decision and that petitioners were bound by the negligence, mistake, or lack of competence of their counsel. The motion for reconsideration was denied on 7 May 1998.

Petitioners then came to the Supreme Court, reiterating the specific acts of their former counsel: failure to inform clients of the scheduled hearing for reception of their evidence; failure to attend that hearing; failure to verify what transpired and to file pleadings to lift the order submitting the case for decision; failure to notify clients of the adverse decision; failure to pay the docketing fees to perfect the appeal; failure to move to reinstate the dismissed appeal; hiding the dismissal from petitioners, resulting in entry of judgment; misrepresenting in a progress report that the case was "still pending on appeal" when the appeal had been dismissed fifteen months earlier; and falsely assuring APEX in October 1995 that the case was still pending resolution.

• Extrinsic Fraud / Professional Chicanery: Petitioners contended that the actuations of their former counsel constituted professional chicanery amounting to extrinsic or collateral fraud properly warranting the annulment of the trial court's judgment.
• Deprivation of Due Process: Petitioners argued that by reason of their former counsel's actuations, they were unduly deprived of their right to be heard and to due process of law through no fault of their own.
• Gross Negligence of Counsel: Petitioners enumerated the specific acts of gross negligence — failure to attend the scheduled hearing, failure to inform clients, failure to pay docket fees, failure to move to reinstate the appeal, concealment of the dismissal, and misrepresentation of the case's status — which they argued were sufficient reasons to annul the adverse decision.
• Jurisdiction of the Court of Appeals: Petitioners argued that the Court of Appeals erred in holding that it had no jurisdiction over the petition for annulment, since Section 9(2) of Batas Pambansa Blg. 129 vests exclusive original jurisdiction over such actions in the Court of Appeals.

• Improper Remedy: Private respondents argued that the petition for annulment should be dismissed because it is not the proper remedy.
• Insufficient Grounds: Private respondents argued that the grounds invoked do not warrant the annulment of the challenged decision.
• Forum-Shopping: Private respondents argued that petitioners were guilty of forum-shopping.

• Jurisdiction of the Court of Appeals: Whether the Court of Appeals had jurisdiction over the petition for annulment of judgment of the Regional Trial Court's decision in Civil Case No. 2131.
• Extrinsic Fraud / Gross Negligence of Counsel: Whether the gross negligence of petitioners' former counsel constituted extrinsic fraud warranting annulment of judgment.

• Jurisdiction of the Court of Appeals: Yes. Under Section 9(2) of Batas Pambansa Blg. 129 (now Rule 47 of the 1997 Rules of Civil Procedure), the Court of Appeals has exclusive original jurisdiction over actions for annulment of judgment of Regional Trial Court decisions. The prior appeal was dismissed for non-payment of docket fees and was never perfected, so the Court of Appeals never acquired appellate jurisdiction over the trial court's decision.
• Extrinsic Fraud / Gross Negligence of Counsel: Yes. The gross negligence of petitioners' former counsel — failing to attend the hearing for the defense, failing to pay the appellate docket fees, and misrepresenting the status of the case — constituted extrinsic fraud that deprived petitioners of their day in court, bringing the case within the recognized exception to the general rule that negligence of counsel binds the client.

• Jurisdiction of the Court of Appeals: The Court of Appeals erred in holding that it had no jurisdiction over the petition for annulment. Section 9(2) of Batas Pambansa Blg. 129 (now Rule 47 of the 1997 Rules of Civil Procedure) clearly vests exclusive original jurisdiction over actions for annulment of judgment of Regional Trial Court decisions in the Court of Appeals. The fact that petitioners had previously appealed the RTC decision was immaterial because the appeal was dismissed for non-payment of docket fees within the reglementary period. An appeal is not deemed perfected if the appellate court's docket fee is not fully paid; perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional, and failure to perfect an appeal defeats the right of appeal and precludes the appellate court from acquiring jurisdiction over the case. It follows that the Court of Appeals did not acquire appellate jurisdiction over the trial court's decision, and its jurisdiction over the annulment petition was therefore proper.

• Extrinsic Fraud / Gross Negligence of Counsel: A judgment can be annulled only on two grounds: (1) lack of jurisdiction and (2) extrinsic fraud. Fraud is regarded as extrinsic or collateral where it has prevented a party from having a trial or from presenting all of his case to the court; it is the kind of fraud that denied the party the opportunity to fully litigate upon the trial all the rights or defenses he was entitled to assert. The general rule is that the negligence of counsel binds the client, based on the principle that any act performed by a counsel within the scope of his general or implied authority is regarded as an act of his client. However, the application of the general rule should be looked into and adopted according to the surrounding circumstances; exceptions have been recognized where reckless or gross negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation of the client's liberty or property, or where the interests of justice so require. The instant case falls within the exception. Petitioners' former counsel was guilty of gross negligence: he failed to attend the scheduled hearing for the reception of the defense's evidence despite due notice; the law firm failed to inform its client of the scheduled hearing; counsel did not take steps to set aside the order declaring waiver of the right to present evidence; counsel failed to pay the docket fee despite repeated notice from the Court of Appeals; and no action was taken on the dismissal, allowing it to become final and executory. The situation was aggravated by the counsel's misrepresentation that the case was still pending on appeal when it had been dismissed sixteen months earlier. Petitioners cannot be faulted for not inquiring into the records and status of the case, as they reasonably expected their retained counsel — which handled a majority, if not all, of petitioners' cases — to protect their interests. The incompetence or negligence was so great that it prevented petitioners from fairly presenting their defense, including their claim that the plaintiffs' tunnel was constructed within APEX's claim area without permission and that the award of P72,000 per day was excessive and without basis. Where counsel is guilty of gross ignorance, negligence, and dereliction of duty resulting in the client being held liable for damages, the client is deprived of his day in court and the judgment may be set aside on such ground. The higher interests of justice and equity demand that petitioners be allowed to present evidence on their defense; to cling to the general rule would only condone a serious injustice to a party whose only fault was to repose faith in his previous lawyers. What should guide judicial action is that a party be given the fullest opportunity to establish the merits of his action or defense rather than for him to lose life, liberty, honor, or property on mere technicalities.

• Extrinsic Fraud — Fraud is extrinsic or collateral where it has prevented a party from having a trial or from presenting all of his case to the court; it is the kind of fraud that denied the party the opportunity to fully litigate all the rights or defenses he was entitled to assert. In this case, the gross negligence of petitioners' former counsel — which prevented them from presenting their defense and pursuing their appeal — constituted extrinsic fraud warranting annulment of judgment.
• Negligence of Counsel Binds the Client; Recognized Exceptions — The general rule is that any act performed by counsel within the scope of his general or implied authority is regarded as an act of the client, so the mistake or negligence of counsel may result in an unfavorable judgment against the client. Exceptions exist where reckless or gross negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation of the client's liberty or property, or where the interests of justice so require. The instant case fell within the exception because the counsel's gross negligence — including failure to attend hearings, failure to pay docket fees, and misrepresentation of the case's status — deprived petitioners of their day in court.
• Perfection of Appeal is Jurisdictional — Perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional; failure to perfect an appeal defeats the right of appeal and precludes the appellate court from acquiring jurisdiction over the case. Because the appeal was dismissed for non-payment of docket fees, the Court of Appeals never acquired appellate jurisdiction over the RTC decision, and its jurisdiction over the annulment petition was therefore proper.

• "A judgment can be annulled only on two grounds: (1) lack of jurisdiction and (2) extrinsic fraud." — This states the statutory grounds for annulment of judgment under Rule 47 of the 1997 Rules of Civil Procedure and frames the Court's analysis of the annulment petition.
• "Fraud is regarded as extrinsic or collateral where it has prevented a party from having a trial or from presenting all of his case to the court." — This defines the controlling concept of extrinsic fraud and is the standard against which the counsel's conduct was measured.
• "However, the application of the general rule to a given case should be looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been recognized by the court in cases where reckless or gross negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation of the client's liberty or property or where the interests of justice so require, and accord relief to the client who suffered by reason of the lawyer's gross or palpable mistake or negligence." — This articulates the exception to the general rule that negligence of counsel binds the client, and is the doctrinal basis for the Court's ruling.
• "What should guide judicial action is that a party be given the fullest opportunity to establish the merits of his action or defense rather than for him to lose life, liberty, honor or property on mere technicalities." — This states the policy underlying the Court's disposition and is frequently cited for the principle that technicalities should not defeat a party's right to be heard.

• Salonga vs. Court of Appeals, 269 SCRA 534 (1997) — Cited for the general rule that negligence of counsel binds the client, and for the exception where reckless or gross negligence deprives the client of due process of law.
• Aguilar vs. Court of Appeals, 250 SCRA 371 (1995) — Cited for the exception to the general rule and for the principle that a party should be given the fullest opportunity to establish the merits of his case.
• Lao vs. Court of Appeals, 119 SCRA 58 (1991) — Cited for the proposition that where counsel is guilty of gross ignorance, negligence, and dereliction of duty resulting in the client being held liable for damages, the client is deprived of his day in court and the judgment may be set aside.
• Villanueva vs. Court of Appeals, 205 SCRA 537 (1992) — Cited for the rule that perfection of an appeal in the manner and within the period prescribed by law is mandatory and jurisdictional.
• Hodges vs. Court of Appeals, 184 SCRA 281 (1990) — Cited for the rule that an appeal is not deemed perfected if the appellate court's docket fee is not fully paid.
• De Guzman vs. Sandiganbayan, 256 SCRA 171 (1996) — Cited for the principle that a party should not suffer for the lawyer's mistakes and should be afforded another opportunity to present evidence.
• Yuseco vs. Court of Appeals, 68 SCRA 484 (1975) — Cited for the principle that the Court will grant relief to parties aggrieved by perfidy, fraud, reckless inattention, and downright incompetence of lawyers.
• U.S. vs. Umali, 15 Phil. 33 (1910) — Cited for the proposition that where counsel's incompetence is so great and the error so serious that the client, who otherwise has a good cause, is prejudiced and denied his day in court, the litigation may be reopened.
• Laxamana vs. Court of Appeals, 11 SCRA 58 (1978) — Cited for the proposition that where an unsuccessful party has been prevented from fully and fairly presenting his case as a result of his lawyer's professional delinquency or infidelity, the litigation may be reopened.

• Section 9(2), Batas Pambansa Blg. 129 — Vests exclusive original jurisdiction in the Court of Appeals over actions for annulment of judgment of Regional Trial Court decisions. Applied to hold that the Court of Appeals erred in dismissing the annulment petition for lack of jurisdiction.
• Rule 47, 1997 Rules of Civil Procedure — Governs actions for annulment of judgments or final orders; Section 2 provides that a judgment can be annulled only on the grounds of lack of jurisdiction or extrinsic fraud. Applied to determine the grounds for annulment in this case.
• Section 1(c), Rule 6, Revised Internal Rules of the Court of Appeals — Governed the preliminary conference conducted in the annulment proceedings before the Court of Appeals.

• Puno, J.
• Kapunan, J.
• Pardo, J.
• Ynares-Santiago, J.