G.R. No. 111478 - Salonga vs. Court of Appeals

Case Summary (G.R. No. 111478)

Factual Background

Astra Realty owned premises at No. 32 Jupiter Street, Bel‑Air Village, Makati, then leased to Alelie Montojima, who had opened a restaurant. Montojima entered into a Joint Venture Agreement with Paul Geneve Entertainment Corporation (private respondent) purportedly transferring her leasehold rights for P3,000,000, of which P1,000,000 was paid and possession was delivered. Disputes with the homeowners association and a demand to vacate ensued. Private respondent sought judicial relief and obtained a TRO and, later, a writ of preliminary injunction. Through a friend, private respondent’s president introduced petitioner George F. Salonga to a transaction whereby Salonga and his company Solid Intertain Corporation would form a new corporation with private respondent; multiple draft copies of a memorandum of agreement were prepared but remained unsigned and unnotarized in Salonga’s possession. Notwithstanding that the memorandum remained unexecuted and no new corporation was registered, Salonga transferred substantial equipment to the premises and opened Club Ibiza under Solid Intertain Corporation, and private respondent alleged wrongful interference and sought specific performance and damages.

Trial Court Proceedings and Default Judgment

Private respondent filed Civil Case No. 91‑3261 for specific performance with prayer for injunctive relief on November 26, 1991. The trial court issued a TRO on November 29, 1991 and, after hearings in which petitioners and their counsel intermittently appeared, granted a writ of preliminary injunction on December 12, 1991 and later rendered a comprehensive judgment dated April 14, 1992 making the injunction permanent and ordering defendants, jointly and severally, to execute the Memorandum of Agreement, organize and register a joint venture corporation under the name Solidisque, Inc., contribute specified equipment valued at approximately P7,000,000, pay actual damages of P500,000 with legal interest, exemplary damages of P100,000, attorney’s fees of P100,000, and costs. Petitioners were declared in default after private respondent’s third ex parte motion to declare default, and the trial court proceeded in accordance with Rule 18, Rules of Court.

Contempt Proceedings and Post‑Judgment Orders

Private respondent moved to cite petitioner Salonga for indirect contempt for disobeying the restraining order. On September 25, 1992 the trial court adjudged Salonga guilty of indirect contempt and ordered a fine of P2,000 a day from November 1991 until compliance, with a warrant of arrest to issue for noncompliance. The trial court thereafter issued a writ of execution. The Court of Appeals enjoined enforcement of the trial court’s Decision and contempt order by issuing a Temporary Restraining Order on October 13, 1992 and later a writ of preliminary injunction upon bond approval on November 3, 1992.

Court of Appeals Decision

In CA‑G.R. SP No. 29138, the Court of Appeals denied petitioners’ request to annul the default judgment and contempt order. The appellate court found that petitioners’ former counsel’s lapses amounted to simple negligence only, that petitioners had been afforded reasonable opportunities to be heard, and that no extrinsic fraud had been shown because no collusion by private respondent with petitioners’ counsel was alleged or established. The appellate court set aside its own preliminary injunctive relief previously issued and reduced the contempt fine in accordance with Section 6, Rule 71, Rules of Court.

Issues Presented to the Supreme Court

Petitioners presented two principal contentions: (I) that the Court of Appeals erred in denying annulment of the default judgment because counsel’s professional lapses amounted to extrinsic fraud and deprived petitioners of due process; and (II) that the Court of Appeals committed reversible error in reducing the contempt fine instead of nullifying the contempt proceedings as procedurally infirm and void for lack of jurisdiction.

Petitioners’ Contentions

Petitioners alleged that their former counsel Atty. Onofre G. Garlitos committed a series of professional lapses — late arrival to hearings, failures to appear on critical dates, and failure to file a timely answer — which they characterized as equivalent to extrinsic fraud or conduct that connived at their defeat and thereby deprived them of their day in court. Petitioners argued that the contempt proceedings against Salonga were improperly initiated and that criminal contempts rules and safeguards should have applied, thereby vitiating the trial court’s jurisdiction to impose the sanction levied.

Respondents’ Position and Trial Record

Private respondent and the trial court demonstrated that petitioners and their counsel repeatedly received notices, participated in several hearings, presented testimony opposing injunctive relief, filed motions including a verified motion to dissolve the injunction and a motion for reconsideration, and were afforded opportunities to be heard. The record showed that petitioners were declared in default only after procedural allowances and after private respondent’s repeated motions, and that no evidence was offered to show collusion or that private respondent caused counsel’s neglect.

Supreme Court Ruling and Disposition

The Supreme Court denied the petition for lack of merit and affirmed the Court of Appeals’ Decision in toto. The Court held that petitioners failed to prove either that the judgment was void for want of jurisdiction or lack of due process, or that the judgment was obtained by extrinsic fraud. The Court further concluded that the trial court acquired jurisdiction to punish for indirect contempt upon filing of a written charge or its functional equivalent in the form of a motion, and that the contempt sanction as remediary in nature was permissible and subject to review with the final judgment.

Legal Basis and Reasoning on Extrinsic Fraud

The Court reiterated the settled rule that a judgment may be annulled only where it is void for want of jurisdiction or obtained by fraud, and that fraud warranting annulment must be extrinsic in character. The Court explained that extrinsic fraud denotes fraudulent acts of the prevailing party committed outside the trial that prevent the defeated party from fully presenting its case, and distinguished this from intrinsic fraud, which involves matters occurring at trial and which the aggrieved party could have litigated. The Court found no evidence that private respondent or any prevailing party engaged in fraudulent collusion with petitioners’ counsel. The prior case relied upon by petitioners, Laxamana vs. Court of Appeals, was distinguishable because in Laxamana the client proved that his lawyer purposely failed to appear after receiving payment from the opposing party. Here no such showing of connivance or corrupt arrangement was made. Consequently, counsel’s negligent acts were not extrinsic fraud attributable to the opposing party and could not, by themselves, annul the judgment.

Legal Basis and Reasoning on Negligence of Counsel and Due Process

The Court applied the principle that the negligence of counsel binds the client because acts performed by an attorney within the scope of his authority are regarded as acts of the client. The Court recognized exceptions where counsel’s conduct amounts to gross or reckless negligence that deprives a client of due process or causes the outright loss of property through technicality. Relying on precedent including Legarda vs. Court of Appeals, the Court found that the lapses of Atty. Garlitos amounted to simple negligence rather than gross negligence; counsel had made tangible, if inadequate, efforts to defend petitioners by presenting testimony, filing motions to dissolve the injunction, and seeking reconsideration. The Court held that the constitutional guarantee that “no person shall be deprived of life, liberty, or property without due process of law” — Section 1, Article III, Constitution — is satisfied when a party is given a reasonable opportunity to be heard, whether by oral argument or pleadings. The record established th

Case Syllabus (G.R. No. 111478)

Parties and Posture

George F. Salonga and Solid Intertain Corporation, Petitioner, sought relief from this Court assailing the Decision of the Court of Appeals in CA-G.R. SP No. 29138 affirming the trial court's default judgment with slight modification.
Paul Geneve Entertainment Corporation, Respondent, obtained the trial court judgment declaring specific contractual rights and damages and pursued enforcement and contempt sanctions against Petitioner.
The trial court below was the Regional Trial Court of Makati, Branch 63, presided by Hon. Julio R. Logarta, which rendered the April 14, 1992 decision that was the subject of appellate review.
The relief sought by Petitioners was annulment of the default judgment and nullification of contempt proceedings on the ground of counsel's alleged misconduct and deprivation of due process.

Key Facts

Astra Realty Development Corporation owned the leased premises at No. 32 Jupiter St., Bel-Air Village, which was held by Alelie A. Montojima under lease and operated as Aquatic Chef Seafoods Restaurant.
Alelie Montojima and Paul Geneve Entertainment Corporation executed a Joint Venture Agreement dated September 1, 1989, under which Montojima allegedly sold her rights for P3,000,000 and Paul Geneve paid P1,000,000 and took possession.
George F. Salonga and Solid Intertain Corporation moved equipment into the premises and opened Club Ibiza following negotiation for a different buy-out and a proposed joint venture to form a corporation styled Solidisque Inc., which was never registered with the SEC.
A Temporary Restraining Order was issued on March 22, 1990 and a writ of preliminary injunction was granted in the course of the litigation which culminated in the April 14, 1992 decision enforcing the alleged Memorandum of Agreement and awarding damages and attorney's fees.
Petitioners’ former counsel is referenced in the record as Atty. Onofre G. Garlito, Jr. (also referred to as Atty. Garlitos), whose late arrivals, nonappearances, and failures to file pleadings are alleged by Petitioners to have led to the default judgment.

Procedural History

Paul Geneve filed a complaint for specific performance with prayer for temporary restraining order and preliminary injunction on November 26, 1991, and copies of the complaint and restraining order were served on Petitioners.
Hearings were conducted on December 4, 1991 and subsequent dates during which Petitioners and their counsel had intermittent attendance and late appearances according to the record.
Private respondent moved ex parte three times to declare Petitioners in default; the third ex parte motion was acted upon and default was declared on March 10, 1992.
The trial court rendered judgment on April 14, 1992 making the writ of preliminary injunction permanent and ordering specific performance, damages, exemplary damages, and attorney's fees.
A Motion for Reconsideration was filed July 28, 1992 and Petitioner Salonga was adjudged guilty of indirect contempt on September 25, 1992 with a fine and warrant of arrest ordered.
The Court of Appeals issued a Temporary Restraining Order on October 13, 1992 and later a writ of preliminary injunction on November 3, 1992, and ultimately denied Petitioners' petition for annulment while reducing the contempt fine.

Issues Presented

Whether the professional lapses, inefficiency, carelessness and negligence of Petitioners' counsel constitute extrinsic fraud justifying annulment of the default judgment.
Whether counsel's alleged negligence amounted to deprivation of due process sufficient to void the judgment.
Whether a motion (as distinguished from an independent petition) is sufficient to vest the trial court with jurisdiction to adjudicate indirect contempt.
Whether the contempt proceedings should be nullified rather than the fine merely reduced.

Contentions of the Parties