Gochan vs. Mancao

In an action for legal redemption under Article 1620 of the Civil Code, only the redeeming co-owner and the buyer are indispensable parties; the selling co-owner and third persons, including other lot owners in the subdivision, are not required to be impleaded. Consequently, the exclusion of a third-party lot owner from such action does not constitute extrinsic fraud warranting annulment of judgment under Rule 47 of the Rules of Civil Procedure.

Felix Gochan, Amparo Alo, and Jose A. Cabellon were co-owners of Lot Nos. 1028 and 1030 under Subdivision Plan Psd-21702 in Lahug, Cebu City. The petitioners are successors-in-interest of Gochan. Respondent Charles Mancao acquired subdivision lots from the heirs of vendees who had purchased from Alo, one of the original co-owners. In 1998, the petitioners initiated a legal redemption action against the Spouses Paray, who had purchased certain lots from the heirs of Alo. The parties executed a Compromise Agreement conveying the disputed lots to petitioners for Php650,000.00, which the Regional Trial Court approved in 1998 and annotated on the certificates of title in 1999. Respondent, claiming ownership of lots affected by the redemption and alleging that the subject lots were road lots beyond the commerce of men, subsequently petitioned the Court of Appeals to annul the compromise and the trial court's judgment.

• Co-ownership and Subdivision: Felix Gochan, Amparo Alo, and Jose A. Cabellon were co-owners of Lot Nos. 1028 and 1030 under Subdivision Plan Psd-21702 located in Lahug, Cebu City. Petitioners are successors-in-interest of Gochan. Respondent purchased Lot Nos. 1028-D-1, 1028-D-3, 1028-D-4, and 1028-E from the children of Angustias Velez and Eduardo Palacios, who had acquired their lots from Alo.

• Legal Redemption Action: In 1998, petitioners and Mae Gochan filed Civil Case No. CEB-22825 against the Spouses Bonifacio Paray, Jr. and Alvira Paray for legal redemption of 20 lots (Lot Nos. 1028-DD through 1028-VV and 1030-I) covered by TCT Nos. 2318 to 2337. The Spouses Paray had purchased these lots from the heirs of Alo. The certificates of title were registered under the names of Gochan, Alo (married to Patricio Beltran), and Genoveva S. De Villalon (successor-in-interest of Cabellon).

• Compromise and Judgment: On November 20, 1998, the parties executed a Compromise Agreement whereby the Spouses Paray conveyed all their shares, interests, and participation over the properties to petitioners for Php650,000.00. On November 27, 1998, the RTC, Branch 17, approved the agreement and rendered judgment based on the compromise. The decision was annotated on December 29, 1999, in the subject TCTs as Entry No. 188688.

• Petition for Annulment: Respondent filed a petition before the Court of Appeals for declaration of nullity of the final decision and compromise agreement, alleging that the subject lots were road lots serving the subdivision and thus beyond the commerce of men under Article 420 of the Civil Code and various provisions of Presidential Decree No. 957. He claimed standing as a subdivision lot owner prejudiced by the registration, asserting that the road lots were necessary for access to his property and were subject to a perpetual use warranty from Alo to her vendees. He argued that the compromise was a ploy to give legal color to petitioners' occupation of the road lots, effectively excluding other lot owners from using the same.

• Defenses: Petitioners countered that respondent was not a real party-in-interest required to be impleaded in the redemption case, and that the grounds cited constituted neither extrinsic fraud nor lack of jurisdiction. They noted respondent's pending intervention in a related injunction case (Civil Case No. CEB-22996) and raised forum shopping and litis pendentia. They argued that respondent was estopped from claiming the lots were beyond commerce of men, having himself purchased similar lots at a tax sale.

• CA Ruling: The Court of Appeals found extrinsic fraud, holding that petitioners employed schemes to exclude respondent and other co-owners from participating in the trial by filing the redemption case and immediately terminating it via compromise without notice to affected lot owners. The CA concluded the subject lots were road lots within a residential subdivision, beyond the commerce of men, and that the compromise fraudulently vested absolute ownership upon petitioners in violation of the perpetual use warranty.

• Lack of Extrinsic Fraud: Petitioner argued that the Court of Appeals erred in finding extrinsic fraud, maintaining that respondent's non-impleading in the redemption case was not fraudulent because only the redeeming co-owner and the buyer are indispensable parties in legal redemption actions under Article 1620 of the Civil Code.

• Nature of the Lots: Petitioner contended that the Court of Appeals erred in assuming the lots were within a residential subdivision and thus beyond the commerce of men, disputing the application of White Plains Association, Inc. v. Legaspi and asserting that the more recent White Plains Homeowners Association, Inc. v. Court of Appeals should apply.

• Inapplicability of PD 957 and PD 1216: Petitioner argued that the Court of Appeals erred in applying Presidential Decree Nos. 957 and 1216, which are inapplicable to the case and do not have retroactive effect.

• Availability of Other Remedies: Petitioner maintained that the respondent had other adequate legal remedies available, such as a direct proceeding to attack the certificates of title or an easement case, rendering the extraordinary remedy of annulment of judgment improper.

• Extrinsic Fraud: Respondent argued that extrinsic fraud attended the procurement of the judgment because petitioners deliberately filed the redemption case and entered into a compromise agreement to foreclose him and other subdivision lot owners from intervening, thereby preventing a full contest of the ownership of the road lots.

• Road Lots Beyond Commerce of Men: Respondent maintained that the subject lots were road lots serving the subdivision, evidenced by the certificates of title, DENR certification, and historical subdivision documents, and were therefore beyond the commerce of men under Article 420 of the Civil Code and Sections 17 and 22 of PD 957.

• Violation of Perpetual Use Warranty: Respondent asserted that petitioners violated the warranty executed by Alo in 1950 binding herself not to alienate the road lots and to allow vendees perpetual use thereof, and that the compromise agreement fraudulently disregarded this covenant.

• Standing as Real Party-in-Interest: Respondent argued that as a subdivision lot owner prejudiced by the registration of the decision vesting ownership of road lots in petitioners, he had legal standing to seek annulment under Section 7, Rule 3 of the Rules of Court.

• Extrinsic Fraud: Whether the Court of Appeals correctly found that extrinsic fraud existed when respondent was not impleaded in the redemption case and when petitioners entered into a compromise agreement with Bonifacio Paray.

• Indispensable Parties: Whether respondent was an indispensable party required to be impleaded in the legal redemption action under Article 1620 of the Civil Code.

• Nature of Subject Lots: Whether the subject lots were road lots within a residential subdivision beyond the commerce of men.

• Applicability of Subdivision Laws: Whether Presidential Decree Nos. 957 and 1216 apply to the subject lots and have retroactive effect.

• Proper Remedy: Whether annulment of judgment under Rule 47 was the correct remedy available to respondent.

• Extrinsic Fraud: Extrinsic fraud was not established. The exclusion of respondent from the legal redemption case did not constitute extrinsic fraud because under Article 1620 of the Civil Code, only the redeeming co-owner and the buyer are indispensable parties; the selling co-owner is not indispensable, and a fortiori, a third person like respondent is not required to be impleaded. The allegation of extrinsic fraud must be substantiated by preponderance of evidence with specific proof of trickery, artifice, or device employed by the prevailing party to prevent the defeated party from fully presenting his case; mere allegations or speculation are insufficient.

• Nature of Remedy: Annulment of judgment under Rule 47 is an extraordinary remedy allowed only in exceptional cases where no adequate remedy exists through no fault of the petitioner. The issues raised by respondent—whether the lots are road lots, whether they are within a subdivision project, and whether a right of way exists—require a full-blown trial in an appropriate action (such as a direct attack on the certificates of title, an easement case, or the pending Civil Case No. CEB-22996), not a collateral attack via annulment proceedings which would otherwise make a farce of final judgments.

• Substantive Issues: The determination of whether the lots are road lots beyond the commerce of men and the applicability of PD 957 and PD 1216 involve factual and legal issues that cannot be resolved in an annulment proceeding, which is limited to the grounds of extrinsic fraud and lack of jurisdiction (and denial of due process). These substantive questions must be litigated in the proper forum where evidence can be fully presented.

• Extrinsic Fraud Defined — Extrinsic fraud refers to any fraudulent act of the prevailing party committed outside the trial of the case which prevents the unsuccessful party from exhibiting fully his side of the case, such as keeping him away from court, false promises of compromise, or keeping the defendant in ignorance of the suit. It operates upon matters pertaining not to the judgment itself but to the manner in which it is procured. In contrast, intrinsic fraud pertains to acts at trial which prevented a fair determination and could have been litigated therein. Extrinsic fraud must be definitively established by the claimant as mere allegation does not warrant annulment.

• Indispensable Parties in Legal Redemption — In an action for legal redemption under Article 1620 of the Civil Code, only the redeeming co-owner and the buyer are indispensable parties. The seller/co-owner is not an indispensable party, and third persons who merely allege their lots are affected are not required to be impleaded. Legal redemption is a privilege granted to minimize co-ownership and consolidate dominion in one sole owner.

• Annulment of Judgment as Extraordinary Remedy — A petition to annul a final judgment under Rule 47 is an equitable remedy allowed only when the ordinary remedies of new trial, appeal, or petition for relief are no longer available through no fault of the petitioner. It strikes at the core of finality of judgments and is not to be granted indiscriminately to prevent making a farce of duly promulgated decisions. Litigation must end and terminate; the basic rule of finality of judgment is grounded on public policy that judgments must become final at a definite date fixed by law.

• "Extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial of the case, whereby the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent."

• "Fraud is regarded as extrinsic 'where it prevents a party from having a trial or from presenting his entire case to the court, or where it operates upon matters pertaining not to the judgment itself but to the manner in which it is procured. The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court.'"

• "We already held that only the redeeming co-owner and the buyer are the indispensable parties in an action for legal redemption, to the exclusion of the seller/co-owner. Thus, the mere fact that respondent was not impleaded as a party in Civil Case No. CEB-22825 is not in itself indicative of extrinsic fraud."

• "The Court has repeatedly stressed that an action to annul a final judgment is an extraordinary remedy, which is not to be granted indiscriminately. It is a recourse equitable in character, allowed only in exceptional cases as where there is no adequate or appropriate remedy available (such as new trial, appeal, petition for relief) through no fault of petitioner."

• "Litigation must end and terminate sometime and somewhere, and it is essential to an effective administration of justice that once a judgment has become final, the issue or cause involved therein should be laid to rest."

• Ancheta v. Guersey-Dalaygon, 523 Phil. 516 (2006) — Cited for the definition of extrinsic fraud as any fraudulent act committed outside the trial preventing the defeated party from fully presenting his case.

• City Government of Tagaytay v. Guerrero, G.R. Nos. 140743 & 140745, September 17, 2009 — Distinguished extrinsic fraud (collateral to the transaction, prevents fair submission) from intrinsic fraud (pertains to issues in the original action).

• Basa v. Aguilar, 202 Phil. 452 (1982) — Established that legal redemption under Article 1620 is a privilege to minimize co-ownership, and that a "third person" within the meaning of the Article is anyone who is not a co-owner.

• Fidel Lagman, et al. v. Lydia Data, et al., G.R. No. 168171, March 21, 2007 — Held that only the redeeming co-owner and the buyer are indispensable parties in legal redemption actions.

• White Plains Association, Inc. v. Legaspi, 271 Phil. 806 (1991) — Applied by the Court of Appeals regarding road lots being beyond the commerce of men; distinguished by the Supreme Court as inapplicable to the procedural issue of annulment.

• Rule 47, Sections 1 and 2, 1997 Rules of Civil Procedure — Govern the annulment of judgments by the Court of Appeals based on extrinsic fraud and lack of jurisdiction; Section 2 explicitly limits grounds to extrinsic fraud and lack of jurisdiction, though jurisprudence recognizes denial of due process as an additional ground.

• Article 1620, New Civil Code — Grants co-owners the right of redemption when shares of other co-owners are sold to a third person; basis for determining indispensable parties in redemption actions.

• Article 420, Civil Code — Defines property of public dominion including roads and thoroughfares; cited by respondent regarding the nature of the subject lots.

• Presidential Decree No. 957 (Subdivision and Condominium Buyers' Protective Decree), Sections 17 and 22 — Mandate that subdivision developers reserve open spaces and roads for public use; cited by respondent but deemed inapplicable to the procedural remedy sought.

• Presidential Decree No. 1216 — Amends Section 31 of PD 957 regarding open spaces; cited by respondent regarding the classification of the subject lots.

Presbitero J. Velasco, Jr. (Chairperson), Roberto A. Abad, Jose Catral Mendoza, and Marvic Mario Victor F. Leonen.