G.R. No. 135468 - Angelia vs. Commission on Elections

Case Summary (G.R. No. 135468)

Procedural History — lower courts and remedies invoked

Lasala’s employees filed and prevailed in an NLRC action against both Lasala and the NFA, prompting garnishment of NFA funds. The NFA filed a sum of money complaint against Lasala in the RTC and sought preliminary attachment. Lasala filed an answer with a counterclaim. The RTC ultimately dismissed the NFA’s complaint for counsel’s failure to present evidence, but granted Lasala’s counterclaim in a September 2, 2002 decision awarding P52,788,970.50. The NFA did not timely appeal; it filed a petition for relief from judgment in the RTC (denied for insufficiency). Thereafter the NFA filed a petition for annulment of judgment in the CA on grounds of extrinsic fraud and lack of jurisdiction; the CA annulled the RTC decision. Lasala sought review in the Supreme Court.

Factual background relevant to the remedy sought

PSF/Lasala had previously provided security services to the NFA; employees of PSF obtained an NLRC award against both PSF and NFA. At the RTC, Lasala’s counterclaim sought various damages and unpaid wage differentials totaling P3,550,000.00; the RTC granted far more (P52,788,970.50). Key factual allegations supporting annulment: (1) Atty. Mendoza repeatedly failed to present NFA’s evidence-in-chief causing dismissal of NFA’s complaint; (2) Atty. Cahucom presented no controverting evidence, waived cross-examination, and failed to file a motion for reconsideration or appeal from the adverse RTC decision; (3) NFA management later discovered these failures during a legal audit under new administration.

RTC judgment and its peculiarities

The RTC awarded Lasala P52,788,970.50, largely composed of (a) actual and compensatory damages (including massive interest accumulation on a wage adjustment claim which multiplied the principal), (b) loss of business credit, moral and exemplary damages, litigation expenses, and a wage adjustment claim with 12% per annum interest. Lasala did not pay docket fees claiming his counterclaim was compulsory; the award substantially exceeded the amount initially claimed.

CA ruling and its rationale

The CA annulled the RTC judgment, reasoning that the RTC acted without jurisdiction because the award lacked concrete and convincing evidence: Lasala’s proof consisted largely of self-serving testimony unsupported by corroborating documentary evidence. The CA treated the absence of evidentiary support and the RTC’s reliance on uncorroborated testimony as tantamount to lack of jurisdiction and therefore a proper ground for annulment under Rule 47.

Issues presented to the Supreme Court

Primary issues: (1) Whether the NFA’s prior petition for relief from judgment in the RTC bars its later petition for annulment before the CA (res judicata or waiver); (2) Whether extrinsic fraud and/or lack of jurisdiction were properly alleged and proven such that annulment was appropriate; (3) Whether the CA erred in treating judicial error or grave abuse of discretion as lack of jurisdiction; and (4) Whether Lasala’s counterclaim was compulsory (no docket fees required) or permissive (docket fees required) and whether it had prescribed.

Governing legal standard for annulment of judgment (Rule 47)

A petition for annulment of judgment is an exceptional equitable remedy available only when ordinary remedies (motion for new trial, appeal, petition for relief) are no longer available through no fault of the petitioner. Rule 47, Section 2 limits annulment to two grounds: extrinsic fraud and lack of jurisdiction; extrinsic fraud is not a valid ground if it was availed of, or could have been availed of, in a motion for new trial or petition for relief. Section 3 prescribes filing periods: extrinsic fraud actions must be filed within four years from discovery, while lack of jurisdiction is subject to laches or estoppel limitations.

Res judicata and the prior petition for relief

The Court found no res judicata between the NFA’s petition for relief (based on excusable negligence) and its petition for annulment (based on extrinsic fraud and lack of jurisdiction). Res judicata requires identity of parties, subject matter, and cause of action; the two petitions raised different grounds and required different evidence (identity of evidence test). Thus the dismissal of the petition for relief did not preclude the later annulment petition.

Restrictive application of Rule 47 and CA’s error regarding grave abuse

The Supreme Court emphasized the restrictive application of Rule 47: only extrinsic fraud and true lack of jurisdiction (i.e., total absence of jurisdiction over person or subject matter) justify annulment. Grave abuse of discretion or errors in exercise of jurisdiction are generally matters for appeal or for certiorari under Rule 65, not for annulment. The CA erred insofar as it expanded “lack of jurisdiction” to include grave abuse of discretion due to evidentiary insufficiency alone.

Extrinsic fraud: standards and application to the case

Extrinsic fraud is a fraudulent act by the prevailing party or by colluding counsel that prevents the defeated party from fully presenting its case (e.g., attorney collusion, keeping party away from court). Generally, mere negligence of counsel does not constitute extrinsic fraud because negligence binds the client, but gross, unconscionable negligence that amounts to connivance can qualify. The Court found extraordinary circumstances akin to Bayog v. Natino: (1) NFA, as a government agency, relied on its own lawyers to protect its interests; (2) repeated and egregious failures by Atty. Mendoza (repeated absences leading to dismissal; prior pattern of similar neglect) and Atty. Cahucom (no cross-examination, no controverting evidence, failure to appeal or file reconsideration) amounted to conduct deliberate or so gross as to effectively connive with Lasala. The Court concluded these acts prevented NFA from fully exhibiting its side and therefore constituted extrinsic fraud.

Waiver argument and why extrinsic fraud was not deemed waived

Lasala argued NFA waived extrinsic fraud by not asserting it in the earlier petition for relief. The Court rejected this: the petition for relief was drafted and filed by Atty. Cahucom, whose own conduct formed part of the extrinsic fraud; it was unreasonable to expect him to incriminate himself. Moreover, the NFA only discovered the full extent of counsel’s mishandling after a 2002 legal audit. Under these circumstances, NFA was fraudulently precluded from raising extrinsic fraud earlier, so the Rule 47 prohibition against raising a ground previously available does not apply.

Lack of jurisdiction over the wage-adjustment counterclaim (compulsory vs permissive)

The Court analyzed whether Lasala’s wage-adjustment claim was a compulsory counterclaim (no docket fees required) or a permissive counterclaim (docket fees required). Applying the four-factor test (issues of fact and law, res judicata bar, common evidence, logical relation), the Court found the wage-adjustment claim was permissive: it arose from a distinct contractual cause of action existing before the NFA’s complaint and was not necessarily connected to the NFA’s claim. Because Lasala did not pay docket fees and did not do so within a reasonable time before prescription ran, the RTC never acquired jurisdiction over that permissive counterclaim.

Prescription and the effect of annulment

Case Syllabus (G.R. No. 135468)

Procedural History

Petition for review on certiorari to the Supreme Court from the Court of Appeals (CA) rulings dated June 14, 2005 (Decision) and February 15, 2006 (Resolution) in CA-G.R. SP No. 73235, which annulled the Regional Trial Court (RTC), Quezon City, Branch 220, Decision of September 2, 2002 that had granted petitioner Lasala’s counterclaim.
Underlying events began with an NLRC decision in favor of Lasala’s employees (circa 1994), followed by garnishment of NFA deposits, the filing by NFA of a complaint for sum of money with damages and application for preliminary attachment against Lasala, Lasala’s answer with counterclaim, and subsequent trial proceedings.
Trial court initially granted NFA’s prayer for preliminary attachment but that writ was later nullified in CA-G.R. SP No. 41124.
On May 2, 1997, the trial court dismissed NFA’s complaint for failure of its deputized OGCC counsel (Atty. Rogelio B. Mendoza) to present evidence-in-chief due to repeated absences.
NFA replaced counsel with Atty. Ernesto D. Cahucom. Lasala’s counterclaim remained and was tried; the RTC rendered judgment on September 2, 2002 awarding Lasala P52,788,970.50.
NFA failed to appeal the RTC decision because counsel did not inform management; the NFA filed a petition for relief from judgment (grounded on excusable negligence) which the trial court denied for insufficiency in substance.
After a legal audit ordered by new NFA Administrator Arthur C. Yap revealed mishandling and a large adverse liability, NFA, through OGCC, filed with the CA a petition and amended petition for annulment of judgment on grounds of lack of jurisdiction and extrinsic fraud.
The CA granted the petition and annulled the RTC decision. Lasala petitioned the Supreme Court; the Supreme Court denied the petition and affirmed with modification the CA’s annulment.

Factual Antecedents

Lasala, operating as PSF Security Agency, provided security guard services to the NFA.
In about 1994, Lasala’s employees deployed at NFA filed an NLRC complaint for underpayment of wages and nonpayment of other monetary benefits; NLRC ruled for the employees and held Lasala and NFA solidarily liable.
Sheriff garnished NFA bank deposits amounting to P383,572.90 at the Development Bank of the Philippines.
NFA believed it had no liability and sued Lasala in the RTC for sum of money with damages and sought preliminary attachment.
Lasala filed an answer with counterclaim and opposition to preliminary attachment; his counterclaim originally prayed for a total of P3,550,000.00 (breakdown: moral damages P1,000,000; exemplary damages P500,000; attorney’s fees P300,000; compensatory damages P250,000; unpaid wage differential P1,500,000).
Atty. Mendoza (OGCC deputized counsel) repeatedly failed to present NFA’s evidence-in-chief, resulting in dismissal of NFA’s complaint on May 2, 1997.
NFA administratively charged Atty. Mendoza for dishonesty, grave misconduct, conduct grossly prejudicial to the service, and gross neglect of duty.
Atty. Cahucom, who succeeded Mendoza, did not present controverting evidence nor cross-examine Lasala’s witnesses, waived cross-examination, and did not file a motion for reconsideration or appeal from the adverse RTC decision.
RTC awarded Lasala P52,788,970.50 on September 2, 2002 — far exceeding his original prayer.

Trial Court Award: Detailed Breakdown

Total award: P52,788,970.50
Components as found by the RTC:
- Actual and compensatory damages: P35,165,370.50
- Loss of business credit: P10,000,000.00
- Moral damages: P5,000,000.00
- Exemplary damages: P500,000.00
- Litigation expenses: P500,000.00
- Lasala’s claim for wage adjustment: P1,623,600.00 plus 12% per annum from 2000 until full payment
Noted discrepancy: The awarded amount is substantially higher than Lasala’s original P3,550,000.00 prayer.

Court of Appeals Ruling (CA)

The CA granted NFA’s petition for annulment and annulled RTC’s September 2, 2002 decision.
CA’s rationale: RTC’s decision was rendered without jurisdiction because it was not supported by concrete and convincing evidence — the award rested on Lasala’s self-serving testimony and lacked corroborating documentary evidence.
CA Associate Justice Rosmari Carandang concurred and stressed that the RTC acted beyond its lawful jurisdiction when it relied solely on such testimony, effectively amounting to grave abuse of discretion that ousted jurisdiction.

Issues Presented to the Supreme Court

Whether the prior filing and dismissal of a petition for relief (grounded on excusable negligence) in the trial court constitutes res judicata that bars an ensuing petition for annulment of judgment in the CA.
Whether extrinsic fraud as a ground for annulment was waived by NFA for not having raised it in the petition for relief.
Whether Lasala’s counterclaim was compulsory (thus requiring no docket fees) or permissive (thus requiring docket fees), and the jurisdictional consequences of nonpayment of docket fees.
Whether the CA erred by treating grave abuse of discretion as equivalent to lack of jurisdiction in the context of Rule 47 annulment relief.
Whether the facts establish extrinsic fraud and/or absolute lack of jurisdiction that would justify annulment under Rule 47.

Petitioner (Lasala) Arguments

The NFA’s filing of a petition for relief at the trial court level should bar the NFA from filing an annulment petition in the CA by operation of res judicata.
The NFA waived extrinsic fraud as a ground for annulment by not raising it in its petition for relief; therefore, extrinsic fraud is no longer available.
Lasala’s counterclaim was compulsory and thus required no docket fees; the trial court had jurisdiction over it.
Grave abuse of discretion is not a recognized ground for annulment under Rule 47; only extrinsic fraud and lack of jurisdiction are proper grounds, so CA’s annulment lacked basis.

Respondent (NFA) Arguments

No res judicata: petition for relief (excusable negligence) and petition for annulment (extrinsic fraud and lack of jurisdiction) are based on different grounds and require different evidence; thus both may be filed.
Extrinsic fraud occurred: NFA’s counsel negligently and repeatedly failed to present evidence and later failed to move for reconsideration or appeal, effectively permitting an unconscionable result; counsel’s acts connived with Lasala’s success.
Trial court lacked jurisdiction over Lasala’s counterclaim because Lasala failed to pay docket fees for what the NFA contends was a permissive counterclaim.
CA correctly annulled the RTC decision because the RTC’s award was unsupported except by Lasala’s self-serving testimony.

Legal Principles and Rules Applied

Finality of judgment: final judgments ordinarily cannot be modified; annulment of judgment is an extraordinary, equitable remedy allowed only in exceptional cases (citations: Antonino v. Register of Deeds of Makati; Rule 47