Sy Bang vs. Sy

A counsel's unauthorized dismissal of a client's case without the client's knowledge or consent constitutes extrinsic fraud warranting the grant of a Petition for Relief from Judgment under Rule 38, as such conduct deprives the client of the opportunity to fully and fairly present its case, which is the very definition of extrinsic fraud that invalidates a final judgment.

The late Sy Bang had two marriages: his first wife, Ba Nga, bore him five children including petitioner Jose Sy Bang, while his second wife, Rosita Ferrera Sy, bore him eight children including respondents Rosauro Sy, Enrique Sy, and Juliet Sy. Sy Bang died intestate in 1971, leaving numerous properties and businesses. The heirs from the second marriage filed a Complaint for Partition in 1980 against the heirs from the first marriage, docketed as Civil Case No. 8578, and a notice of lis pendens was annotated on certificates of title covering the disputed properties. The RTC rendered a Third Partial Decision in 1982 declaring that properties registered in the names of Jose Sy Bang and his wife Iluminada Tan and their children belonged to the estate of Sy Bang, which decision was affirmed by the Court of Appeals in 1993 and is still pending appeal before the Supreme Court under G.R. No. 114217. The annotations of lis pendens on the titles were eventually cancelled, and respondents' attempt to have them re-annotated was denied by the Register of Deeds and the Land Registration Authority, prompting petitioners to file a Petition for Quieting of Titles to protect their claimed ownership over the subject lots.

Sy Bang died intestate in 1971, leaving numerous properties and businesses. He had five children with his first wife, Ba Nga, including petitioner Jose Sy Bang, and eight children with his second wife, Rosita Ferrera Sy, including respondents Rosauro Sy, Enrique Sy, and Juliet Sy. Petitioner Iluminada Tan is the wife of Jose Sy Bang, and the remaining petitioners are their children, except for Anthony Sy Bang who is their nephew.

In 1980, the heirs of Sy Bang from his second marriage filed a Complaint for Partition before the RTC against Jose Sy Bang, Iluminada Tan, and the other heirs, docketed as Civil Case No. 8578. A notice of lis pendens was annotated on the certificates of title covering the disputed properties. On 8 June 1982, the RTC rendered a Third Partial Decision declaring that all properties, businesses, and assets registered in the names of Jose Sy Bang and his wife and their children belonged to the estate of Sy Bang. This decision was affirmed by the Court of Appeals on 6 May 1993, and petitioners' appeal to the Supreme Court, docketed as G.R. No. 114217, remains pending. Meanwhile, the annotations of lis pendens on the titles were eventually cancelled by the Register of Deeds of Lucena City. Respondents sought re-annotation of the lis pendens on eight Transfer Certificates of Title covering properties in the names of the petitioner spouses and their children, but the Register of Deeds denied the request, ruling that re-annotation required a court order. The Land Registration Authority upheld this denial in a Resolution dated 3 February 1999, citing Section 108 of the Property Registration Decree.

To forestall respondents' attempts to interfere with their property rights, petitioners filed on 17 June 1996 a Petition for Quieting of Titles with Prayer for the Issuance of Writ of Prohibition, docketed as Civil Case No. 96-81, claiming absolute ownership over the subject lots acquired through their individual efforts and personal resources. Respondents moved to dismiss, but the RTC denied the motion on 4 March 1997, and the denial was affirmed by the Court of Appeals on 28 August 1997 in CA-G.R. SP No. 44043. The case was set for trial, but before it could be heard, petitioner Jose Sy Bang died on 11 September 2001. The RTC ordered counsel Atty. Eduardo Santos to submit authority from the heirs for substitution, but Atty. Santos failed to comply. Instead, on 18 April 2002, he manifested in open court his intention to move for the dismissal of the Petition for Quieting of Titles, and on 19 April 2002, he filed a Manifestation, signed only by himself, claiming that Iluminada Tan and the heirs of Jose Sy Bang had decided to move for dismissal because the LRA Resolution and the Court of Appeals judgment in CA-G.R. SP No. 44043 were sufficient legal protection of their rights. On 6 May 2002, Atty. Santos filed a second Manifestation, this time securing the conformity of petitioner Robert Sy Bang. On the same date, the RTC issued an Order treating the first Manifestation as a motion to dismiss and granting the same, thereby dismissing Civil Case No. 96-81.

Petitioners discovered only on 29 July 2002 that their Petition for Quieting of Titles had been dismissed. They alleged that Atty. Eduardo Santos had misled them into believing they had won the case, collecting his attorney's fees while concealing the dismissal. Petitioners secured new counsel and filed a Petition for Relief on 23 September 2002. The RTC found that Atty. Santos committed fraud against the petitioners, noting that there was no basis for him to represent that the heirs had decided to dismiss the case, that his move coincided with his demand for attorney's fees, and that his concealment of the dismissal order prevented petitioners from presenting their case. The RTC granted the Petition for Relief and reinstated the quieting of title case. The Court of Appeals, however, reversed, holding that the fraud was not extrinsic as contemplated under Rule 38 and that petitioners were bound by their counsel's actions, finding no gross negligence amounting to deprivation of due process. The Supreme Court undertook a factual review because the findings of the Court of Appeals were contrary to those of the RTC.

• Extrinsic Fraud: Petitioners argued that their former counsel, Atty. Eduardo Santos, committed extrinsic fraud by filing an unauthorized Manifestation on 19 April 2002 seeking the dismissal of their Petition for Quieting of Titles without their knowledge or consent, thereby depriving them of the opportunity to fully and fairly present their case in court.
• Gross Negligence of Counsel: Petitioners maintained that Atty. Eduardo Santos was guilty of gross negligence and unprofessional conduct by misleading them into believing they had already won the case, concealing the dismissal order, and collecting attorney's fees under false pretenses, such that they should not be bound by his actions.
• Overlooked Facts: Petitioners contended that the Court of Appeals overlooked certain substantial and relevant facts which, if properly considered, would have justified a conclusion concurring with the RTC's findings that extrinsic fraud was committed.

• No Extrinsic Fraud: Respondents argued that the fraud alleged by petitioners was not the extrinsic or collateral fraud contemplated under Section 1, Rule 38 of the Rules of Court, as there was no evidence that respondents employed fraud or deception to deprive petitioners of their opportunity to present their case.
• Binding Effect of Counsel's Actions: Respondents maintained that petitioners were bound by the actions and decisions of their counsel regarding the conduct of the case, and that the alleged misrepresentation by counsel did not amount to gross negligence that would deprive petitioners of their day in court.
• Insufficient Evidence of Fraud: Respondents pointed to Atty. Eduardo Santos' Manifestation filed on 7 October 2002, asserting that he had consulted with three of the petitioners — the Sy Bang brothers — before moving for dismissal, and argued that this Manifestation was unrebutted and negated petitioners' claim of fraud.
• Procedural Defects: Respondents objected that the Petition for Relief was not accompanied by an affidavit of merit and that the Verification was signed by only one of the petitioners.

• Extrinsic Fraud: Whether the Court of Appeals erred in not holding that extrinsic fraud was committed by petitioners' former counsel, Atty. Eduardo Santos, which prevented petitioners from fully presenting their evidence in the quieting of title controversy.
• Gross Negligence of Counsel: Whether the Court of Appeals erred in failing to recognize that Atty. Eduardo Santos was guilty of gross negligence that prevented petitioners from fully presenting their case, such that petitioners should not be bound by said negligence.
• Overlooked Facts: Whether the Court of Appeals overlooked certain substantial and relevant facts which, if properly considered, would have justified a conclusion concurring with the RTC's findings.

• Extrinsic Fraud: Yes. The Court of Appeals erred in ruling that no extrinsic fraud was committed. Atty. Eduardo Santos' unauthorized filing of the Manifestation on 19 April 2002, without petitioners' knowledge or consent, induced the RTC to dismiss the Petition for Quieting of Titles and thereby deprived petitioners of the opportunity to fully and fairly present their case — the very definition of extrinsic fraud under Rule 38.
• Gross Negligence of Counsel: Yes. The gross negligence exception to the general rule that clients are bound by their counsel's actions applies here, as Atty. Santos' conduct amounted to clear abandonment of his clients' cause — he filed unauthorized manifestations, concealed the dismissal order, misled petitioners into believing they had won, and collected fees under false pretenses.
• Overlooked Facts: Yes. The Court of Appeals' findings of fact were contrary to those of the RTC, warranting a factual review by the Supreme Court. Upon examination of the evidence on record, the preponderance of evidence supported the RTC's findings that extrinsic fraud was committed.

• Extrinsic Fraud: Under Section 1, Rule 38 of the Rules of Court, a petition for relief from judgment may be granted when a judgment or final order is entered against a party through fraud, accident, mistake, or excusable negligence. Where fraud is the ground, it must be extrinsic or collateral — that is, fraud that prevented the unsuccessful party from fully and fairly presenting his case or defense and from having an adversarial trial of the issue. Extrinsic fraud can be committed by counsel against his client when the latter is prevented from presenting his case to the court, as when the lawyer connives to defeat or corruptly sells out his client's interest. In this case, Atty. Eduardo Santos filed a Manifestation on 19 April 2002, signed only by himself, claiming that the heirs of Jose Sy Bang had decided to move for dismissal — a representation that was unqualified and, as the evidence showed, unauthorized. This Manifestation induced the RTC to dismiss the Petition for Quieting of Titles on 6 May 2002. Atty. Santos did not inform petitioners of the dismissal order; petitioners learned of it only on 29 July 2002. The documentary evidence submitted by respondents was largely consistent with petitioners' version, and only Atty. Santos' later Manifestation of 7 October 2002 contradicted petitioners' allegations — but that Manifestation did not contain a clear statement that the Sy Bang brothers had agreed to the dismissal, nor did it show that the other 12 petitioners had authorized the three brothers to act on their behalf. Atty. Santos' later Manifestation was also inconsistent with his earlier one, which had claimed the decision was that of Iluminada Tan and all the heirs. By preponderance of evidence, petitioners established that Atty. Santos committed extrinsic fraud that deprived them of their day in court.

• Gross Negligence of Counsel: The general rule is that a client is bound by the mistakes of his counsel. However, an exception applies where the negligence of counsel is so gross, reckless, and inexcusable that the client is deprived of his day in court — specifically, where reckless or gross negligence of counsel deprives the client of due process, where application of the rule would result in outright deprivation of liberty or property, or where the interests of justice so require. For a claim of counsel's gross negligence to prosper, nothing short of clear abandonment of the client's cause must be shown. Here, Atty. Santos filed an unauthorized manifestation seeking dismissal, concealed the dismissal order from his clients, misled them into believing they had won the case, and collected attorney's fees under false pretenses. He did not secure the conformity of any petitioner to the first Manifestation, and only obtained Robert Sy Bang's signature on the second Manifestation — which was filed on the same day the RTC had already dismissed the case based on the first Manifestation. Robert Sy Bang's knowledge could not be imputed to the other 14 petitioners. This conduct constituted clear abandonment of the clients' cause, warranting application of the exception.

• Overlooked Facts: In a Petition for Review under Rule 45, only errors of law are generally reviewed. However, questions of fact may be determined when the findings of fact of the Court of Appeals are contrary to those of the trial court. Here, the RTC found that extrinsic fraud was committed, while the Court of Appeals found none. The Supreme Court undertook a factual review and found that the preponderance of evidence supported the RTC's findings. Petitioners presented the testimonies of Benedict Sy Bang and Robert Sy Bang, which were unrebutted by respondents, who presented no witnesses. The documentary evidence offered by respondents was largely consistent with petitioners' version. Petitioners acted with diligence, filing the Petition for Relief within two months of discovering the dismissal on 29 July 2002. The RTC's assessment of the weight of evidence was affirmed.

• Extrinsic Fraud in Petition for Relief from Judgment — Extrinsic or collateral fraud that invalidates a final judgment is fraud that prevented the unsuccessful party from fully and fairly presenting his case or defense and the losing party from having an adversarial trial of the issue. It can be committed by counsel against his client when the latter is prevented from presenting his case to the court, as when the lawyer connives to defeat or corruptly sells out his client's interest. In this case, counsel's unauthorized dismissal of the case without the clients' knowledge or consent constituted extrinsic fraud, as it outrightly deprived petitioners of their day in court.

• Binding Effect of Counsel's Negligence; Exception for Gross Negligence — A client is generally bound by the mistakes of his counsel. The exception applies when the negligence of counsel is so gross, reckless, and inexcusable that the client is deprived of his day in court. The recognized exceptions are: (1) where reckless or gross negligence of counsel deprives the client of due process of law; (2) when the rule's application will result in outright deprivation of the client's liberty or property; or (3) where the interests of justice so require. For a claim of counsel's gross negligence to prosper, nothing short of clear abandonment of the client's cause must be shown. The Court applied the exception because Atty. Santos' unauthorized dismissal, concealment of the dismissal order, and misleading representations to his clients constituted clear abandonment of their cause.

• Factual Review in Rule 45 Petitions — While only errors of law are generally reviewable in a Petition for Review under Rule 45, questions of fact may be determined by the Supreme Court when the findings of fact of the Court of Appeals are contrary to those of the trial court. The Court invoked this exception because the RTC found extrinsic fraud while the Court of Appeals found none.

• "The extrinsic or collateral fraud that invalidates a final judgment must be such that it prevented the unsuccessful party from fully and fairly presenting his case or defense and the losing party from having an adversarial trial of the issue. There is extrinsic fraud when a party is prevented from fully presenting his case to the court as when the lawyer connives to defeat or corruptly sells out his client's interest." — This passage articulates the controlling definition of extrinsic fraud as applied to counsel's conduct, establishing the ratio decidendi for granting the Petition for Relief.

• "Petitioners were able to establish, by a preponderance of evidence, that Atty. Eduardo Santos committed extrinsic fraud against them. By virtue of his Manifestation filed on 19 April 2002, without petitioners' knowledge and consent, thus inducing the RTC to dismiss the Petition for Quieting of Titles, Atty. Eduardo Santos deprived petitioners of the opportunity to fully and fairly present their case in court. Such is the very definition of extrinsic fraud, which entitles the petitioners to the grant of their Petition for Relief." — This passage states the Court's conclusion applying the definition of extrinsic fraud to the specific facts, tying the unauthorized dismissal to the deprivation of petitioners' day in court.

• "Even if, for the sake of argument, the Court concedes that the petitioners Sy Bang brothers indeed gave their consent to Atty. Eduardo Santos to move for the dismissal of the Petition for Quieting of Titles, there was utter lack of evidence to prove that said three petitioners were authorized by the other 12 petitioners to act on their behalf." — This passage addresses the insufficiency of any alleged consent by three of the fifteen petitioners, establishing that consent of a few cannot bind the rest without competent evidence of authority.

• Garcia vs. Court of Appeals, G.R. No. 96141, 2 October 1991, 202 SCRA 228 — Cited for the proposition that where fraud is the ground for a Petition for Relief, the fraud must be extrinsic or collateral.
• Laxamana vs. Court of Appeals, 176 Phil. 397 (1978) — Cited for the definition of extrinsic fraud as fraud that prevents a party from fully presenting his case, including when a lawyer connives to defeat or corruptly sells out his client's interest.
• Mercado vs. Security Bank Corporation, G.R. No. 160445, 16 February 2006, 482 SCRA 501 — Cited for the principle that extrinsic fraud can be committed by counsel against his client when the latter is prevented from presenting his case to the court.
• Pablo T. Tolentino vs. Hon. Oscar Leviste — Cited by the Court of Appeals for the rule that litigants represented by counsel should not expect that all they need to do is sit back and await the outcome, and that a client is bound by counsel's actions; the Supreme Court recognized this as the general rule but applied the exception for gross negligence.
• Trinidad vs. Court of Appeals, 352 Phil. 12 (1998) — Cited for the rule on preponderance of evidence and the factors a trial court may consider in determining where preponderance lies.

• Section 1, Rule 38, Rules of Court — Provides that when a judgment or final order is entered, or any other proceeding is taken against a party in any court through fraud, accident, mistake, or excusable negligence, he may file a petition in such court praying that the judgment, order, or proceeding be set aside. The Court applied this provision to hold that extrinsic fraud committed by counsel — the unauthorized dismissal of the case without the clients' knowledge or consent — warranted the grant of the Petition for Relief.
• Section 108, Property Registration Decree (Presidential Decree No. 1529) — Provides that no erasure, alteration, or amendment shall be made upon the registration book after the entry of a certificate of title except by order of the proper court. This provision was cited as the basis for the LRA's denial of respondents' request for re-annotation of lis pendens, which was part of the background leading to the filing of the Petition for Quieting of Titles.

Consuelo Ynares-Santiago (Chairperson), Ma. Alicia Austria-Martinez, Antonio Eduardo B. Nachura, and Diosdado M. Peralta concurred with the decision. No separate concurring opinions were noted.