Navarro vs. Court of Appeals

A final and executory judgment cannot be annulled absent extrinsic or collateral fraud; an erroneous judgment is not necessarily void, and the proper remedy is appeal. Annulment of judgment is not a substitute for a lost appeal.

Petitioner Lourdes Navarro and private respondent Olivia V. Yanson were involved in the operation of Allied Air Freight Agency in Bacolod, with Yanson supplying equipment and money, her brother Atty. Rodolfo Villaflores acting as Manager, and Navarro as Cashier, under an alleged agreement to share profits equally. The dispute concerned whether their arrangement constituted a partnership and the ownership of personal properties used in the business. The New Civil Code provisions on partnership, including Articles 1767, 1769, 1771, and 1772, supplied the legal framework for determining the existence and form of a partnership.

Private respondent Olivia V. Yanson filed on July 23, 1976 a complaint against petitioner Lourdes Navarro for Delivery of Personal Properties With Damages, incorporating an application for a writ of replevin. The complaint, later docketed as Civil Case No. 716 (12562) of the Court of First Instance of Bacolod, Branch 55, was amended to include Olivia's husband Ricardo B. Yanson as co-plaintiff and Lourdes's husband Menardo Navarro as co-defendant. On July 27, 1976, Executive Judge Oscar R. Victoriano approved the application for a writ of replevin. By Sheriff's Return of Service dated March 3, 1978, private respondents had received all pieces of personal property sought to be recovered from petitioners.

At the center of the dispute was the operation of Allied Air Freight Agency in Bacolod. According to the trial court's findings, both Olivia and Lourdes admitted entering into an agreement to operate the agency; Olivia supplied the necessary equipment and money, her brother Atty. Rodolfo Villaflores was Manager, and Lourdes was Cashier, with part of the agreement being equal sharing of proceeds. Olivia brought chattels into the transaction, and Lourdes and Villaflores worked in the business. The trial court found no proof that a partnership, oral or written, had been constituted at the inception of the transaction, and the movables Olivia brought for the business remained registered in her name. Co-ownership or co-possession of some items and sharing of proceeds by way of advances were not indicative of a partnership, and the books and records retrieved by the Commissioner did not show a partnership as conceptualized by law. The trial court also found the Audit Report not highly reliable, describing it as more of a personal estimate, and the alleged profits as a difference after valuating assets rather than profits from real operation.

On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision. The trial court sustained the ownership of plaintiff Olivia over all chattels recovered by virtue of the writ of replevin and listed in the complaint; declared the Ford Fiera Jeep registered in and remaining in Lourdes's possession to belong to Olivia; ordered Lourdes to reimburse Olivia P6,500 representing the amount advanced to pay part of the price; and ordered Lourdes to return other equipment brought by Olivia during the operation of the business as listed in the complaint and not yet recovered. The trial court reasoned that no partnership existed, so dissolution, liquidation, or winding up was beside the point, and that Olivia had ceased from her contract of agency as a personal prerogative. It found the alleged P20,000 assumption by Lourdes's husband to be a mere allegation. As to the vehicle registered in Lourdes's name, the trial court considered Lourdes's admission that part of the purchase price came from the business and the Audit Report showing P6,500 disbursed from business funds, and ordered reimbursement to Olivia to allow Lourdes continuous possession, invoking the principle that no one shall enrich himself at the expense of another.

Petitioners received a copy of the decision on January 10, 1991, almost nine months after its rendition. On January 16, 1991, they filed a Motion for Extension of Time To File a Motion for Reconsideration, which was granted on January 18, 1991. Private respondents opposed, citing Habaluyas Enterprises, Inc. vs. Japson, which proscribes motions for extension of time to file a motion for new trial or reconsideration. The trial judge vacated the January 18, 1991 order and declared the April 30, 1990 decision final and executory. Petitioners' motion for reconsideration was subsequently filed on February 1, 1991, or 22 days after receipt of the decision. On February 4, 1991, the trial court issued a writ of execution; the Sheriff's Return of Service declared the writ duly served and satisfied, and a receipt for P6,500 issued by Mrs. Lourdes Yanson was submitted by the Sheriff.

Petitioners filed with the Court of Appeals a petition for annulment of the trial court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record, and that the decision sustaining the writ of replevin was void because properties belonging to the partnership did not actually belong to any of the parties until final disposition and winding up. The trial court's factual findings, as discussed above, negated petitioners' claim of partnership and supported its conclusion that the properties recovered by replevin belonged to Olivia.

• Partnership: Petitioners maintained that the trial judge ignored evidence showing that the parties clearly intended to form, and in fact actually formed, a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod.
• Void Replevin Decision: Petitioners argued that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership.
• Admissions in Judicio: Petitioners pressed that the idea of a partnership exists on account of the so-called admissions in judicio.
• Annulment of Trial Court Decision: Petitioners claimed in their petition for annulment that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record.

• Finality of Judgment: Respondents maintained that the decision in the case had become final; a writ of execution had been issued and was promptly satisfied by payment of P6,500 to private respondents.
• Opposition to Extension: Private respondents opposed petitioners' motion for extension of time to file a motion for reconsideration, citing Habaluyas Enterprises, Inc. vs. Japson, which proscribes the filing of any motion for extension of time to file a motion for a new trial or reconsideration.

• Annulment of Judgment: Whether the Court of Appeals correctly dismissed the petition for annulment of judgment for failure to allege extrinsic or collateral fraud and because appeal was the proper remedy.
• Partnership: Whether the trial court erred in declaring the non-existence of a partnership between the parties.
• Validity of Replevin Decision: Whether the decision sustaining the writ of replevin is void because the properties allegedly belonging to the partnership do not actually belong to any of the parties until final disposition and winding up.
• Factual Issues on Review: Whether the Supreme Court may entertain a petition for review focused solely on factual issues after the judgment had become final and executory.

• Annulment of Judgment: Yes. The Court of Appeals correctly dismissed the petition; judgments may be annulled only on extrinsic or collateral fraud, and no such ground was alleged. An erroneous judgment is not necessarily void, and appeal was the proper remedy.
• Partnership: No. The trial court's factual findings negated the existence of a partnership; co-ownership or co-possession and sharing of proceeds by advances were not indicative of a partnership under Article 1769, and no partnership was constituted at inception.
• Validity of Replevin Decision: No. The decision sustaining the writ of replevin was not void; the issue had been directly litigated in and passed upon by the trial court, and the judgment had become final and executory.
• Factual Issues on Review: No. The petition focused solely on factual issues, which could no longer be entertained after finality.

• Annulment of Judgment: The Court of Appeals dismissed the petition for annulment on three grounds: judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud (Canlas vs. Court of Appeals); even if erroneous, a judgment is not necessarily void (Chereau vs. Fuentebella); and the remedy should have been appeal. The Supreme Court agreed. The decision had become final; a writ of execution had been issued and was promptly satisfied by payment of P6,500 to private respondents. Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial review. The Court of Appeals correctly threw out the petition because petitioners failed to cite extrinsic or collateral fraud to warrant setting aside the trial court's decision.
• Partnership: Petitioners' arguments were directed against the Regional Trial Court's decision, not the appellate court's disposition of their petition for annulment. The petition focused solely on factual issues which could no longer be entertained. Petitioners pressed that a partnership existed on account of admissions in judicio, but the trial court's factual premises negated that submission. Article 1767 defines a partnership as a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves. Article 1769 governs the determination of whether a partnership exists. Articles 1771 and 1772 provide that while a partnership may be constituted in any form, a public instrument is necessary where immovables or rights are constituted; if the partnership involves a capitalization of P3,000 or more in money or property, it must appear in a public instrument recorded with the Securities and Exchange Commission, and failure to comply affects only the liability of the partners to third persons. Both Olivia and Lourdes admitted an agreement to operate Allied Air Freight Agency, with Olivia supplying equipment and money, her brother Atty. Rodolfo Villaflores as Manager, and Lourdes as Cashier, and with equal sharing of proceeds. Olivia brought chattels, and Lourdes and Villaflores worked in the business. However, there was no proof that a partnership, oral or written, had been constituted at the inception of the transaction, and the movables Olivia brought for the business remained registered in her name. Co-ownership or co-possession of some items and sharing of proceeds by way of advances were not indicative of a partnership. The books and records retrieved by the Commissioner did not show a partnership as conceptualized by law. The Audit Report was not highly reliable, and the alleged profits were a difference after valuating assets rather than profits from real operation. Because no partnership existed, dissolution, liquidation, or winding up was beside the point.
• Validity of Replevin Decision: The trial court sustained possession by plaintiff Olivia of all equipment and chattels recovered by virtue of the writ of replevin. As to the other vehicle registered in Lourdes's name, Lourdes admitted that part of the purchase price came from the business claimed to be mutually operated. The Audit Report showed that P6,500 had been disbursed and paid for the vehicle out of business funds. The trial court sustained the validity of these disbursements. Considering the earlier agreement that only profits were to be shared equally, Olivia had to be reimbursed P6,500 to allow Lourdes continuous possession of the vehicle, consistent with the principle that no one shall enrich himself at the expense of another. The appellate court acted properly in dismissing the petition for annulment, the issue raised therein having been directly litigated in, and passed upon by, the trial court.
• Factual Issues on Review: The petition was focused solely on factual issues which could no longer be entertained. Petitioners' arguments were all directed against the decision of the Regional Trial Court; not a word was said in regard to the appellate court's disposition of their petition for annulment of judgment. The Supreme Court thus found no reversible error in the Court of Appeals' dismissal.

• Annulment of Judgment; Extrinsic or Collateral Fraud — Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud. In this case, the Court of Appeals dismissed the annulment petition because no such ground was alleged, and the Supreme Court affirmed.
• Erroneous Judgment Not Necessarily Void — Even if a judgment is erroneous, it is not necessarily void and cannot be annulled by a proceeding for annulment of judgment. The alleged trial court error in finding no partnership did not render the decision void.
• Appeal as Proper Remedy — The remedy against a judgment whose enforcement is sought to be stopped is appeal. Petitioners, having lost their right to appeal, could not substitute annulment of judgment for a belated judicial review.
• Finality of Judgment — A judgment that has become final and executory, with a writ of execution issued and satisfied, can no longer be altered. The Court found the April 30, 1990 decision final and the writ satisfied by payment of P6,500.
• Partnership; Definition and Existence — Under Article 1767 of the New Civil Code, a partnership is a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves. Article 1769 governs the determination of whether a partnership exists. Co-ownership or co-possession of some items and sharing of proceeds by way of advances are not indicative of a partnership.
• Partnership; Form and Registration — Under Articles 1771 and 1772, a partnership may be constituted in any form, but a public instrument is necessary where immovables or rights are constituted; if the capitalization is P3,000 or more in money or property, it must appear in a public instrument recorded with the Securities and Exchange Commission. Failure to comply affects only the liability of the partners to third persons. The trial court found no proof of a partnership at inception and the movables remained registered in Olivia's name.
• Unjust Enrichment — No one shall enrich himself at the expense of another. The trial court ordered Lourdes to reimburse Olivia P6,500 representing the amount advanced from business funds for the vehicle, to allow Lourdes continuous possession.

• "Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition." — This states the controlling ground for annulment of judgment and the reason the Court of Appeals dismissed the petition.
• "Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void (Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be commenced by the petitioners." — This defines the rule that an erroneous judgment is not necessarily void and cannot be annulled.
• "The petitioners' remedy against the judgment enforcement of which is sought to be stopped should have been appeal." — This identifies appeal as the proper remedy and explains why annulment was unavailable.
• "While there may have been co-ownership or co-possession of some items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the existence of any partnership between them." — This is the trial court's factual and legal finding, affirmed by the Supreme Court, that the alleged partnership was not established.

• Canlas vs. Court of Appeals, 164 SCRA 160, 170 — Cited for the rule that judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud; the Court of Appeals relied on it in dismissing the annulment petition.
• Chereau vs. Fuentebella, 43 Phil. 216 — Cited for the rule that an erroneous judgment is not necessarily void and cannot be annulled by a proceeding for annulment of judgment.
• Habaluyas Enterprises, Inc. vs. Japson, 142 SCRA 208 [1986] — Cited by private respondents in opposing petitioners' motion for extension of time to file a motion for reconsideration; it proscribes the filing of any motion for extension of time to file a motion for a new trial or reconsideration.

• Article 1767, New Civil Code — Defines the contract of partnership as one by which two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves. The trial court used this definition to assess the alleged verbal partnership.
• Article 1769, New Civil Code — Provides the rules for determining whether a partnership exists. The trial court applied it in holding that co-ownership or co-possession of some items and sharing of proceeds by way of advances were not indicative of a partnership.
• Articles 1771 and 1772, New Civil Code — Provide that a partnership may be constituted in any form, but a public instrument is necessary where immovables or rights are constituted; if the partnership involves a capitalization of P3,000 or more in money or property, it must appear in a public instrument recorded with the Office of the Securities and Exchange Commission. Failure to comply affects only the liability of the partners to third persons. The trial court found no proof of a partnership at inception and noted that the movables remained registered in Olivia's name.

Justices Feliciano, Bidin, Davide, Jr., and Romero concurred.