PINAUSUKAN SEAFOOD HOUSE, ROXAS BOULEVARD, INC.

,
vs.
FAR EAST BANK & TRUST COMPANY, NOW BANK OF THE PHILIPPINE ISLANDS AND
HECTOR IL. GALURA
G.R. No. 159926
January 20, 2014

THE CASE

Petition for review on certiorari (Rule 45) seeking to undo the dismissal by the CA of the
petitioner’s action for annulment of judgment.

FACTS

Bonier de Guzman (Bonier), then the President of petitioner corporation (Pinausukan), executed
four real estate mortgages involving the petitioner’s parcel of land in favor of Far East Bank and
Trust Company (now Bank of Philippine Islands), to be referred to herein as the Bank. The parcel
of land was registered in the Register of Deeds of Pasay City under the name of Pinausukan.
When the unpaid obligation secured by the mortgages had ballooned to more than P15M, the Bank
commenced proceedings for the extrajudicial foreclosure of the mortgages in the Office of Sheriff,
RTC in Pasay City. The sheriff set the public auction two weeks thereafter.

Learning of the impending sale of its property by reason of the foreclosure of the mortgages,
Pinausukan brought against the Bank and the sheriff an action for the annulment of real estate
mortgages in the RTC averring 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.

In the ensuing trial, Pinausukan presented Carrie de Guzman as its first witness. However, the
subsequent hearing dates were reset several times. The parties informed the RTC about their
attempts to settle the case.

The counsels of the parties did not appear in court on the hearing scheduled despite having
agreed thereto. Accordingly, the RTC dismissed the case for failure to prosecute. The order of
dismissal attained finality.

The sheriff issued a notice of extrajudicial sale concerning the property of Pinausukan. The notice
was received by Pinausukan a week later.

Claiming surprise over the turn of events, Pinausukan inquired from the RTC and learned that Atty.
Villaflor, its counsel of record, had not informed it about the order of dismissal.

Pinausukan brought the petition for annulment in the CA seeking the nullification of the order
dismissing the action for the annulment of real estate mortgages. Its petition, under the verification
of one of its Directors and concurrent Executive Vice President for Finance and Treasurer stated
that its counsel had been guilty of gross and palpable negligence in failing to keep track of the case
he was handling, and in failing to apprise Pinausukan of the developments on the case.

The CA dismissed the petition for annulment, citing the failure to attach the affidavits of witnesses
attesting to and describing the alleged extrinsic fraud supporting the cause of action as required by
Section 4, Rule 47 of the Rules of Court; and observing that the verified petition related only to the
correctness of its allegations, a requirement entirely different and separate from the affidavits of
witnesses required under Rule 47 of the Rules of Court.

The CA also denied Pinausukan’s motion for reconsideration.

Whether or not petitioner Pinausukan has complied with the statutory requirements for the remedy
of annulment of judgement or final order as set forth in Rule 47 of the Rules of Court.

RULING

Pinausukan’s petition for annulment was substantively and procedurally defective.

Given the extraordinary nature and the objective of the remedy of annulment of judgment or final
order, Pinausukan must be mindful of and should closely comply with the following statutory
requirements for the remedy as set forth in Rule 47 of the Rules of Court.

The first requirement prescribes that the remedy is available only when the petitioner can no longer
resort to the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies
through no fault of the petitioner. This means that the remedy, although seen as “a last remedy,” is
not an alternative to the ordinary remedies of new trial, appeal and petition for relief. The petition
must aver, therefore, that the petitioner failed to move for a new trial, or to appeal, or to file a
petition for relief without fault on his part. But this requirement to aver is not imposed when the
ground for the petition is lack of jurisdiction (whether alleged singly or in combination with extrinsic
fraud), simply because the judgment or final order, being void, may be assailed at any time either
collaterally or by direct action or by resisting such judgment or final order in any action or
proceeding whenever it is invoked, unless the ground of lack of jurisdiction is meanwhile barred by
laches.

The second requirement limits the ground for the action of annulment of judgment to either
extrinsic fraud or lack of jurisdiction.

Not every kind of fraud justifies the action of annulment of judgment. Only extrinsic fraud does.
Fraud is extrinsic, according to Cosmic Lumber Corporation v. Court of Appeals, “where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by
the acts of the plaintiff; or where an attorney fraudulently or without authority connives at his
defeat; these and similar cases which show that there has never been a real contest in the trial or
hearing of the case are reasons for which a new suit may be sustained to set aside and annul the
former judgment and open the case for a new and fair hearing.”

In contrast, intrinsic fraud refers to the acts of a party at a trial that prevented a fair and just
determination of the case, but the difference is that the acts or things, like falsification and false
testimony, could have been litigated and determined at the trial or adjudication of the case. In other
words, intrinsic fraud does not deprive the petitioner of his day in court because he can guard
against that kind of fraud through so many means, including a thorough trial preparation, a skillful
cross-examination, resorting to the modes of discovery, and proper scientific or forensic
applications.

The third requirement sets the time for the filing of the action. The action, if based on extrinsic
fraud, must be filed within four years from the discovery of the extrinsic fraud; and if based on lack
of jurisdiction, must be brought before it is barred by laches or estoppel.

The fourth requirement demands that the petition should be verified, and should allege with
particularity the facts and the law relied upon for annulment, as well as those supporting the
petitioner’s good and substantial cause of action or defense, as the case may be. The need for
particularity cannot be dispensed with because averring the circumstances constituting either fraud
or mistake with particularity is a universal requirement in the rules of pleading. The petition is to be
filed in seven clearly legible copies, together with sufficient copies corresponding to the number of
respondents, and shall contain essential submissions of non-forum shopping.

A review of the dismissal by the CA readily reveals that Pinausukan’s petition for annulment
suffered from procedural and substantive defects.

The procedural defect consisted in Pinausukan’s disregard of the fourth requirement mentioned
earlier consisting in its failure to submit together with the petition the affidavits of witnesses or
documents supporting the cause of action.

Pinausukan’s failure to include the affidavits of witnesses was fatal to its petition for annulment.
Worthy to reiterate is that the objective of the requirements of verification and submission of the
affidavits of witnesses is to bring all the relevant facts that will enable the CA to immediately
determine whether or not the petition has substantial merit.

The substantive defect related to the supposed neglect of Atty. Villaflor to keep track of the case,
and to his failure to apprise Pinausukan of the developments in the case, which the CA did not
accept as constituting extrinsic fraud, because –

Based solely on these allegations, we do not see any basis to give due course to the petition as
these allegations do not speak of the extrinsic fraud contemplated by Rule 47. Notably, the
petition’s own language states that what is involved in this case is mistake and gross negligence of
petitioner’s own counsel. The petition even suggests that the negligence of counsel may constitute
professional misconduct (but this is a matter for lawyer and client to resolve). What is certain, for
purposes of the application of Rule 47, is that mistake and gross negligence cannot be equated to
the extrinsic fraud that Rule 47 requires to be the ground for an annulment of judgment. By its very
nature, extrinsic fraud relates to a cause that is collateral in character, i.e., it relates to any
fraudulent act of the prevailing party in litigation which is committed outside of the trial of the case,
where the defeated party has been prevented from presenting fully his side of the cause, by fraud
or deception practiced on him by his opponent. 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.