Philippine Tourism Authority vs. Philippine Golf Development & Equipment, Inc.

Negligence of counsel in failing to file a responsive pleading does not constitute extrinsic fraud warranting annulment of judgment, and a petition for certiorari under Rule 65 cannot substitute for an ordinary appeal.

PTA, a tourism agency tasked to bolster and promote tourism, contracted Atlantic Erectors, Inc. (AEI) for the construction of the Intramuros Golf Course Expansion Projects. AEI, unable to construct the golf course aspect, sub-contracted this portion to PHILGOLF for ₱27,000,000.00, with a stipulation allowing PHILGOLF to submit progress billings directly to PTA and for PTA to pay PHILGOLF directly.

• The Sub-Contract: PTA contracted AEI for the Intramuros Golf Course Expansion Projects. AEI sub-contracted the golf course construction to PHILGOLF for ₱27,000,000.00, stipulating direct submission of progress billings to PTA and direct payment by PTA to PHILGOLF.
• The Collection Suit: PHILGOLF filed a collection suit against PTA for ₱11,820,550.53 plus interest. PTA sought and obtained two successive extensions to file an answer but ultimately failed to file one.
• Default Judgment: The RTC declared PTA in default and rendered judgment ordering PTA to pay the outstanding obligation with 12% interest, attorney's fees, litigation costs, and moral, nominal, and exemplary damages.
• Execution and Shift in Remedies: PHILGOLF moved for execution pending appeal, which the RTC granted, resulting in the garnishment of PTA's bank account. PTA successfully challenged the execution pending appeal via certiorari in the CA. PTA then withdrew its appeal on the merits and filed a petition for annulment of judgment, which the CA dismissed.

• Extrinsic Fraud: PTA argued that the gross negligence of its counsel in failing to file an answer amounted to extrinsic fraud warranting annulment of judgment.
• State Immunity: PTA maintained that as a government entity, it should not be bound by the inactions or negligence of its counsel.
• Availability of Remedies: PTA contended that there were no other available remedies left except a petition for annulment of judgment.

• Extrinsic Fraud: Whether the negligence of PTA's counsel in failing to file a responsive pleading constitutes extrinsic fraud warranting annulment of judgment.
• State Immunity: Whether PTA can invoke state immunity to avoid being bound by its counsel's negligence in a proprietary contract.
• Propriety of Annulment/Certiorari: Whether annulment of judgment or certiorari is the proper remedy given the availability of appeal.

• Extrinsic Fraud: Extrinsic fraud was not established. Extrinsic fraud requires a fraudulent act by the prevailing party outside the trial that prevents the unsuccessful party from presenting its case. Counsel's failure to file an answer despite extensions is mere negligence, not the willful indifference constituting gross negligence, and certainly not extrinsic fraud. PTA also failed to avail of a motion to lift the order of default.
• State Immunity: State immunity is inapplicable. The application of state immunity is proper only in sovereign transactions. In entering into a business contract for the golf course project, PTA acted in a proprietary capacity, descending to the level of an individual and tacitly consenting to be sued.
• Propriety of Annulment/Certiorari: Annulment of judgment and certiorari were improper. Annulment of judgment under Rule 47 is an equitable recourse allowed only when ordinary remedies are no longer available through no fault of the petitioner. Appeal was an available remedy, and PTA inexplicably withdrew a properly filed appeal to pursue annulment. Certiorari under Rule 65 cannot substitute for an appeal.

• Negligence of Counsel — A client is bound by the procedural acts and mistakes of counsel unless gross negligence is proven. Gross negligence is characterized by want of even slight care, willfully and intentionally acting or omitting to act with conscious indifference to consequences. Mere negligence in submitting pleadings within the mandated period does not qualify.
• Extrinsic Fraud — Any fraudulent act of the prevailing party in the litigation committed outside of the trial that prevents the unsuccessful party from fully exhibiting their case by fraud or deception practiced on them by their opponent. It does not cover the negligence of a party's own counsel.
• Annulment of Judgment — An equitable recourse under Rule 47 allowed only in exceptional cases where ordinary remedies (new trial, appeal, petition for relief) are no longer available through no fault of the petitioner.
• State Immunity in Proprietary Transactions — State immunity applies only to sovereign transactions; when the State enters into a business contract, it descends to the level of an individual and is deemed to have tacitly given its consent to be sued.
• Certiorari as a Remedy — A special civil action for certiorari under Rule 65 is available only when there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. It is not a mode of appeal and cannot substitute for a lost appeal.

• "A client is bound by the acts, even mistakes, of his counsel in the realm of procedural technique[,] and unless such acts involve gross negligence that the claiming party can prove, the acts of a counsel bind the client as if it had been the latter’s acts."
• "Annulment of Judgment under Rule 47 of the Rules of Court is a recourse equitable in character and allowed only in exceptional cases where the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no fault of petitioner."

• Labao v. Flores, G.R. No. 187984, November 15, 2010, 634 SCRA 723 — Followed for the rule that a client is bound by the procedural mistakes of counsel unless gross negligence is proven.
• LBC Express - Metro Manila, Inc. v. Mateo, G.R. No. 168215, June 9, 2009, 589 SCRA 33 — Followed for the definition of gross negligence.
• City Government of Tagaytay v. Guerrero, G.R. Nos. 140743, 140745 and 141451-52, September 17, 2009, 600 SCRA 33 — Followed for the definition of extrinsic fraud and the nature of annulment of judgment as an exceptional recourse.
• United States of America v. Ruiz, No. L-35645, May 22, 1985, 136 SCRA 487 — Followed for the doctrine that state immunity does not apply to commercial or economic affairs.
• Land Bank of the Philippines v. Court of Appeals, 456 Phil. 755 (2003) — Followed for the rule that certiorari under Rule 65 is not a substitute for appeal.

• Rule 47, Rules of Court — Governs annulment of judgments; applied to deny the petition because ordinary remedies were available and the grounds (extrinsic fraud) were absent.
• Rule 65, Rules of Court — Governs certiorari; applied to dismiss the petition because it was improperly used as a substitute for appeal.

Antonio T. Carpio (Chairperson), Jose Portugal Perez, Maria Lourdes P. A. Sereno, Bienvenido L. Reyes.