Pinausukan Seafood House, Roxas Boulevard, Inc. vs. Far East Bank & Trust Company

Extrinsic fraud as a ground for annulment of judgment must emanate from an act of the adverse party, and the fraud must be of such nature as to have deprived the petitioner of its day in court; fraud committed by the petitioner's own counsel, even if grossly negligent, does not constitute extrinsic fraud.

Pinausukan Seafood House, Roxas Boulevard, Inc. is a corporation owning a 517-square-meter parcel of land in Pasay City registered under Transfer Certificate of Title No. 126636. Bonier de Guzman, then president of Pinausukan, executed four real estate mortgages over the corporate property in favor of Far East Bank and Trust Company (now Bank of the Philippine Islands) on various dates in 1993, securing loans totaling ₱5,762,500.00. When the obligation ballooned to ₱15,129,303.67 by June 2001, the Bank initiated extrajudicial foreclosure proceedings. Pinausukan disputed the validity of the mortgages, claiming Bonier had acted without corporate authorization.

On various dates in 1993, Bonier de Guzman, then president of Pinausukan Seafood House, Roxas Boulevard, Inc., executed four real estate mortgages over the corporation's 517-square-meter parcel of land in Pasay City in favor of Far East Bank and Trust Company, securing loans totaling ₱5,762,500.00. The property was registered under Transfer Certificate of Title No. 126636 in Pinausukan's name. When the unpaid obligation ballooned to ₱15,129,303.67 as of June 2001, the Bank commenced extrajudicial foreclosure proceedings on August 13, 2001 in the Office of the Ex Officio Sheriff of the RTC in Pasay City. Two weeks later, the sheriff issued a notice of sheriff's sale, setting the public auction for October 8, 2001.

Learning of the impending sale, Pinausukan, represented by Zsae Carrie de Guzman, filed an action for annulment of real estate mortgages in the RTC on October 4, 2001 (Civil Case No. 01-0300), alleging that Bonier had obtained the loans only in his personal capacity and had constituted the mortgages on the corporate asset without Pinausukan's consent through a board resolution. The case was assigned to Branch 108. Pinausukan also applied for a temporary restraining order or writ of preliminary injunction to enjoin the foreclosure and auction. During trial, Pinausukan presented Zsae Carrie de Guzman as its first witness on May 30, 2002, but subsequent hearing dates were reset several times. In August 2002, the parties informed the RTC of attempts to settle the case.

On September 5, 2002, the counsels of both parties failed to appear in court despite having agreed to the hearing date. Accordingly, on October 31, 2002, the RTC dismissed Civil Case No. 01-0300 for failure to prosecute. The order of dismissal attained finality. On June 24, 2003, the sheriff issued a new notice of extrajudicial sale concerning Pinausukan's property, which Pinausukan received a week later. Pinausukan inquired from the RTC and discovered that its counsel of record, Atty. Michael Dale Villaflor, had not informed it of the October 31, 2002 dismissal order. According to the petition, Atty. Villaflor stated that although the registry return receipt indicated he received the order on November 28, 2002, he had by then transferred offices without notifying Pinausukan of his change of address.

On July 24, 2003, Pinausukan filed a petition for annulment of judgment in the Court of Appeals, seeking to nullify the October 31, 2002 dismissal order. The petition, verified by Roxanne de Guzman-San Pedro, a director and Executive Vice President for Finance and Treasurer of Pinausukan, alleged that Atty. Villaflor had been guilty of gross and palpable negligence constituting professional misconduct amounting to extrinsic fraud. The CA dismissed the petition on July 31, 2003, citing the failure to attach the affidavits of witnesses required by Section 4, Rule 47 of the Rules of Court, and observing that the verification related only to the correctness of the petition's allegations, which was a requirement entirely separate from the affidavits of witnesses. The CA denied Pinausukan's motion for reconsideration on September 12, 2003.

• Relaxation of Procedural Requirements: Pinausukan argued that the requirement for attaching affidavits of witnesses to the petition for annulment should be relaxed, because even if Roxanne had executed the required affidavit as a witness, she would only repeat the allegations already in the petition, thereby duplicating her allegations under oath.
• Negligence of Counsel as Extrinsic Fraud: Pinausukan maintained that the gross and palpable negligence of Atty. Villaflor in failing to keep track of the case and in failing to apprise Pinausukan of developments constituted professional misconduct amounting to extrinsic fraud, and that such negligence should not preclude it from obtaining relief since it entirely relied on its counsel.
• Merits of the Underlying Claim: Pinausukan argued that it needed a chance to prove in the RTC that Bonier had no right to mortgage its property.

• Extrinsic Fraud: Whether the gross negligence of petitioner's own counsel in failing to track the case and apprise the client of developments constitutes extrinsic fraud within the meaning of Rule 47 of the Rules of Court.
• Procedural Requirements: Whether the petitioner's failure to attach the affidavits of witnesses required under Section 4, Rule 47 of the Rules of Court is a fatal defect that warrants the outright dismissal of the petition for annulment, notwithstanding the presence of a verified petition.
• Litigant's Duty to Monitor Case: Whether the petitioner may be excused from its own failure to monitor the progress of its case by entrusting everything entirely to its counsel.

• Extrinsic Fraud: No. The gross negligence of petitioner's own counsel did not constitute extrinsic fraud because extrinsic fraud must emanate from an act of the adverse party, not from one's own lawyer; the remedy of the client is to proceed against its counsel, not to re-litigate the case.
• Procedural Requirements: No. The failure to attach the affidavits of witnesses was a fatal procedural defect; the verification of the petition, which relates only to the correctness of the allegations, is not a substitute for the separate and distinct requirement of submitting affidavits of witnesses under Section 4, Rule 47.
• Litigant's Duty to Monitor Case: No. A litigant has a continuing duty to keep itself abreast of developments in its case and cannot entirely leave the matter in the hands of its counsel; Pinausukan's failure to keep in regular touch with its counsel was its own responsibility.

• Extrinsic Fraud: Extrinsic fraud, as defined in Cosmic Lumber Corporation vs. Court of Appeals, refers to fraud or deception practiced by the unsuccessful party's opponent that prevents the party from fully exhibiting his case — such as keeping him away from court, a false promise of compromise, or keeping the defendant in ignorance of the suit. The overriding consideration is that the fraudulent scheme of the prevailing litigant prevented the petitioner from having its day in court. The CA correctly observed that the allegations in Pinausukan's petition spoke only of mistake and gross negligence of its own counsel, not of any fraudulent act by the Bank as the prevailing party. Even if Atty. Villaflor's neglect were true, it did not amount to extrinsic fraud because it did not emanate from any act of the Bank and did not occur outside the trial of the case. The remedy of the client against its negligent counsel is a separate matter between lawyer and client, not a ground to re-litigate a case where judgment has already been rendered.

• Procedural Requirements: Section 4, Rule 47 of the Rules of Court requires the petition for annulment to be accompanied by, among others, the affidavits of witnesses or documents supporting the cause of action or defense. The purpose of this requirement, together with the verification and the particularization of the allegations of extrinsic fraud, is to bring all relevant facts to the CA's cognizance so it can determine whether the petition has substantial merit. The CA correctly distinguished the verification from the affidavits of witnesses: the verification relates only to the correctness of the allegations in the petition, while the affidavits of witnesses are the means by which the petitioner details the extrinsic fraud relied upon, since extrinsic fraud cannot be presumed from the recitals of the pleading alone but must be particularized as to the facts constitutive of it. Pinausukan's failure to include the affidavits of witnesses was therefore fatal to its petition.

• Litigant's Duty to Monitor Case: As a litigant, Pinausukan should not have entirely left the case in the hands of its counsel. It had a continuing duty to keep itself abreast of developments to protect its own interest in the litigation. This duty could have been discharged by keeping in regular touch with its counsel, which Pinausukan did not do. Consequently, the failure to be fully aware of developments in the case was Pinausukan's own responsibility, and it has only itself to blame.

• Extrinsic Fraud in Annulment of Judgment — Extrinsic fraud refers to any fraudulent act of the prevailing party in litigation, committed outside the trial, that prevents the defeated party from fully presenting his side. It must emanate from the adverse party, not from one's own counsel. Fraud committed by the petitioner's own lawyer — even gross negligence — does not constitute extrinsic fraud under Rule 47; the client's remedy is to proceed against the lawyer, not to re-litigate the case. The Court applied this by holding that Atty. Villaflor's failure to track the case and apprise Pinausukan of the dismissal order, even if true, did not amount to extrinsic fraud because it did not emanate from the Bank.

• Distinction Between Verification and Affidavits of Witnesses — The verification of a pleading serves only to secure an assurance that the allegations are true and correct and not the product of imagination or speculation, and that the pleading is filed in good faith. It is not a substitute for the affidavits of witnesses required under Section 4, Rule 47, which serve the distinct purpose of particularizing the facts constitutive of extrinsic fraud so the CA can determine whether the petition has substantial merit. The Court applied this by affirming the CA's dismissal for Pinausukan's failure to attach the required affidavits, notwithstanding the verified petition.

• Annulment of Judgment as an Exceptional Remedy — A petition for annulment of judgment is a remedy in equity so exceptional in nature that it may be availed of only when other remedies are wanting, and only if the judgment was rendered by a court lacking jurisdiction or through extrinsic fraud. The petitioner must show that ordinary remedies (new trial, appeal, petition for relief) are no longer available through no fault of the petitioner. The grounds are limited to extrinsic fraud and lack of jurisdiction. The action must be filed within four years from discovery of extrinsic fraud, or before it is barred by laches if based on lack of jurisdiction.

• Doctrine of Immutability of Final Judgments — A judgment that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect, even to correct an erroneous conclusion of fact or law. This doctrine serves to avoid delay in the administration of justice and to put an end to judicial controversies. The Court invoked this doctrine to explain the judicial reluctance toward annulment of judgments, which disregards this cornerstone principle.

• Litigant's Duty to Monitor Case — A litigant has a continuing duty to keep itself abreast of developments in its case and cannot entirely leave the matter in the hands of its counsel. Failure to do so is the litigant's own responsibility and cannot serve as a basis for annulment.

• "Extrinsic fraud, as a ground for the annulment of a judgment, must emanate from an act of the adverse party, and the fraud must be of such nature as to have deprived the petitioner of its day in court. The fraud is not extrinsic if the act was committed by the petitioner's own counsel." — This is the opening pronouncement of the decision and states the controlling rule that frames the entire case: negligence of one's own counsel does not constitute extrinsic fraud.

• "Even in the presence of fraud, annulment will not lie unless the fraud is committed by the adverse party, not by one's own lawyer. In the latter case, the remedy of the client is to proceed against his own lawyer and not to re-litigate the case where judgment had been rendered." — This passage, quoted from the CA resolution, articulates the ratio decidendi on the distinction between extrinsic fraud by the adverse party and negligence by one's own counsel, and the corresponding remedy available to the aggrieved client.

• "A petition for annulment of judgment is a remedy in equity so exceptional in nature that it may be availed of only when other remedies are wanting, and only if the judgment, final order or final resolution sought to be annulled was rendered by a court lacking jurisdiction or through extrinsic fraud." — This passage, quoting Dare Adventure Farm Corporation vs. Court of Appeals, defines the canonical formulation of the nature and limits of annulment of judgment as an exceptional equitable remedy.

• Banco Español-Filipino vs. Palanca, 37 Phil. 921 (1918) — Recognized as an early authority on the remedy of annulment of judgment, cited for the historical development of the action and for Justice Street's characterization of a void judgment as "a lawless thing, which can be treated as an outlaw and slain at sight."
• Dulap vs. Court of Appeals, 42 SCRA 537 (1971) — Followed for the proposition that a court of first instance has authority to take cognizance of a suit to annul a final judgment rendered by another court of first instance, subordinating the policy of judicial stability to orderly administration of justice.
• Cosmic Lumber Corporation vs. Court of Appeals, 265 SCRA 168 (1996) — Followed as the controlling definition of extrinsic fraud: fraud that prevents the unsuccessful party from exhibiting fully his case, practiced on him by his opponent.
• Dare Adventure Farm Corporation vs. Court of Appeals, 681 SCRA 580 (2012) — Followed for the formulation that annulment of judgment is an exceptional remedy in equity available only when other remedies are wanting and only on the grounds of lack of jurisdiction or extrinsic fraud.
• Mas vs. Dumara-og, 12 SCRA 34 (1964); J.M. Tuason & Co., Inc. vs. Torres, 21 SCRA 1169 (1967); Sterling Investment Corporation vs. Ruiz, 30 SCRA 318 (1969) — Cited as the line of cases confining jurisdiction to annul a judgment to the court rendering it, which were later re-examined and modified in Dulap.

• Section 2, Rule 47, Rules of Court — Provides that annulment of judgment may be based only on the grounds of extrinsic fraud and lack of jurisdiction. Applied to limit the petitioner's grounds for annulment, excluding negligence of its own counsel.
• Section 4, Rule 47, Rules of Court — Requires the petition for annulment to be verified, to allege with particularity the facts and law relied upon, and to be accompanied by affidavits of witnesses or documents supporting the cause of action or defense. Applied as the procedural basis for the CA's dismissal, the petitioner having failed to attach the required affidavits.
• Section 1, Rule 47, Rules of Court — Requires the petitioner to show that ordinary remedies of new trial, appeal, petition for relief, or other appropriate remedies are no longer available through no fault of the petitioner. Cited as the first requirement for annulment of judgment.
• Section 9(2), Batas Pambansa Blg. 129 — Vests exclusive original jurisdiction over actions for annulment of judgments of the RTC in the Court of Appeals. Cited for the statutory basis of the CA's jurisdiction.
• Article 1431, Civil Code — Defines estoppel as rendering an admission or representation conclusive upon the person making it. Cited in the discussion of estoppel as a bar to actions based on lack of jurisdiction.
• Section 2(a), Rule 131, Rules of Court — The evidentiary rule on estoppel, providing that a party who has intentionally led another to believe a particular thing true and to act upon such belief cannot falsify it in litigation. Cited in connection with the concept of estoppel.

Sereno, C.J., Leonardo-De Castro, J., Villarama, Jr., J., and Reyes, J., concurred.