G.R. No. 148211 - Villanueva vs. Nite

Case Summary (G.R. No. 148211)

Factual Background

The respondent allegedly obtained a loan of P409,000 from petitioner. To secure the loan, respondent issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount of P325,500, dated February 8, 1994. The date on the check was later changed to June 8, 1994, with petitioner’s consent and concurrence. When petitioner deposited the check on its due date, the check was dishonored due to a material alteration.

On August 24, 1994, respondent, through her representative Emily P. Abojada, remitted P235,000 to petitioner as partial payment. The remaining balance of P174,000 was due on or before December 8, 1994. Despite this, on August 24, 1994, petitioner filed Civil Case No. Q-94-21495 for a sum of money and damages against ABC for the full amount of the dishonored check. On May 23, 1997, the RTC ruled in petitioner’s favor in that case and ordered ABC to pay the value of the dishonored check.

After the RTC judgment, when respondent attempted to withdraw funds from her ABC account on June 30, 1997, she was unable to do so because the trial court had ordered ABC to pay petitioner the value of respondent’s check. On August 25, 1997, ABC remitted to the sheriff a manager’s check amounting to P325,500, drawn on respondent’s account, which was received by petitioner on the same date.

Annulment Proceedings Before the Court of Appeals

Following the RTC decision, respondent filed a petition in the Court of Appeals seeking to annul and set aside the trial court’s judgment ordering ABC to pay petitioner the value of the check. The Court of Appeals granted the petition and held that the RTC decision should be annulled for extrinsic fraud. The CA also ordered petitioner to pay respondent P146,500 as actual damages with interest at 12% per annum from August 25, 1997 until full payment, plus P75,000 as moral damages, P50,000 as exemplary damages, and P50,000 as attorney’s fees and costs.

Petitioner then filed the present Rule 45 petition, arguing that the Court of Appeals erred in annulling the RTC decision on the ground of extrinsic fraud.

Issues Raised and Parties’ Positions

The Supreme Court framed the core controversy around whether the Court of Appeals correctly annulled the RTC judgment. The petition essentially challenged the CA’s determination that respondent was entitled to annulment for extrinsic fraud. Respondent, in turn, relied on Rule 47, asserting that annulment was proper because ordinary remedies were no longer available through no fault of her own and because the case fell within the recognized grounds for annulment—namely extrinsic fraud and, additionally, lack of jurisdiction.

Legal Framework on Annulment of Judgment

The Court held that annulment of judgment is a remedy in law independent of the case where the assailed judgment was promulgated. The Court explained that the remedy under Rule 47 may be filed by one who was not a party to the case in which the judgment sought to be annulled was rendered. Under Section 1 of Rule 47, the rule governs annulment by the Court of Appeals of RTC judgments in civil actions when the ordinary remedies of new trial, appeal, petition for relief, or other appropriate remedies are no longer available through no fault of the petitioner.

The Court further explained that annulment may be based only on extrinsic fraud and lack of jurisdiction. It reiterated that extrinsic or collateral fraud refers to fraud that prevents the aggrieved party from having a trial or presenting her case to the court, or fraud used to procure a judgment without fair submission of the controversy. The Court also elaborated that extrinsic fraud covers acts intended to keep the unsuccessful party away from the courts, such as when there is a false promise of compromise or when one is kept in ignorance of the suit.

Supreme Court’s Evaluation of Extrinsic Fraud

The Supreme Court upheld the appellate court’s finding of extrinsic fraud. The Court observed that petitioner filed his complaint merely six days after receiving P235,000 in partial payment and agreeing that the balance of P174,000 would be paid on or before December 8, 1994. The complaint was filed against ABC for the full amount of the dishonored check, yet petitioner did not implead respondent.

The Court reasoned that the apparent haste with which petitioner filed the action and his failure to include respondent reflected an intent to prevent respondent from opposing the claim. It noted that news of respondent leaving the country was widespread, appearing in print media as early as May 1994. Respondent paid the P235,000 partial amount through a representative on August 18, 1994. Yet petitioner instituted an action for collection with damages for the entire amount of the issued check six days later, on August 24, 1994.

The Court emphasized that petitioner did not deny knowledge of the payment or the agreement settling the balance on December 8, 1994. The Court treated petitioner’s acts as demonstrating bad faith and a fraudulent intention to exclude respondent from the proceedings in the RTC. It concluded that petitioner’s conduct prevented the trial court from fully appreciating the particulars of the case.

Alternative Ground: Lack of Jurisdiction Over the Person

The Court then addressed an additional basis for annulling the RTC decision: lack of jurisdiction over the person of respondent. The Court relied on the Negotiable Instruments Law to clarify the proper parties and the legal effect of a check. It cited Section 185 defining a check as a bill of exchange payable on demand and stated that the provisions applicable to a bill of exchange payable on demand generally apply to a check. It also cited Section 189, explaining that a check by itself does not operate as an assignment of funds to the credit of the drawer with the bank, and that the bank is not liable to the holder unless and until it accepts or certifies the check.

From these provisions, the Court reasoned that if a bank refuses to pay a check (notwithstanding sufficient funds), the payee-holder cannot sue the bank, absent acceptance or certification. Instead, the payee must sue the drawer, who may then sue the bank. The Court stressed that there was no privity of contract between ABC and petitioner. It added that petitioner should not have sued ABC because of the operation of the relativity of contracts under Civil Code, Art. 1311, and because the contract of loan was between petitioner and respondent. Under the Court’s analysis, no collection suit could prosper without respondent as an indispensable party.

Indispensable Party and Voidness of Proceeding Without Her Presence

The Court reinforced this point by invoking Rule 3, Sec. 7 of the Rules of Court on the compulsory joinder of indispensable parties. It stated that parties in interest without whom no final determination can be had must be joined either as plaintiffs or defendants. It explained that an indispensable party is one whose interest in the cont

Case Syllabus (G.R. No. 148211)

The case arose from a petition for review on certiorari under Rule 45 challenging the Court of Appeals (CA) decision that annulled and set aside an RTC decision on the ground of extrinsic fraud.
The petitioner argued that the CA erred in annulling the RTC judgment and in finding the factual and legal bases for such annulment.

Parties and Procedural Posture

The petitioner was Sincere Z. Villanueva, who sought reversal of the CA ruling.
The respondent was Marlyn P. Nite, who invoked the annulment of judgment remedy before the CA.
The respondent had filed a petition in the CA to annul and set aside the RTC decision that had ordered ABC to pay the value of an dishonored check to the petitioner.
The CA granted the respondent’s petition and annulled the RTC decision for extrinsic fraud, and awarded damages and attorney’s fees to the respondent (as reflected in the CA dispositive portion).
The petitioner then filed the present Rule 45 petition, which the Court denied, affirming the CA decision in toto.

Key Factual Allegations

The respondent allegedly obtained a loan of P409,000 from the petitioner.
To secure the loan, the respondent issued an ABC check (Check No. AYA 020195) in the amount of P325,500, dated February 8, 1994.
The check date was later changed to June 8, 1994 with the petitioner’s consent and concurrence.
The check was dishonored due to a material alteration when the petitioner deposited it on the due date.
On August 24, 1994, the respondent—through her representative Emily P. Abojada—remitted P235,000 as partial payment.
The balance of P174,000 was due on or before December 8, 1994.
On August 24, 1994, the petitioner filed Civil Case No. Q-94-21495 for sum of money and damages against ABC for the full amount of the dishonored check, without impleading the respondent as a party.
On May 23, 1997, the RTC of Quezon City, Branch 101 ruled in the petitioner’s favor and ordered ABC to pay the value of the dishonored check to the petitioner.
After learning of the RTC judgment, the respondent attempted to withdraw funds from her account at ABC Salcedo Village Branch on June 30, 1997, but was unable to do so because the trial court had ordered ABC to pay the petitioner.
On August 25, 1997, ABC remitted to the sheriff a manager’s check in the amount of P325,500 drawn on the respondent’s account, which the petitioner received on the same date.
Thereafter, the respondent filed a CA petition seeking to annul and set aside the RTC decision ordering ABC to pay the petitioner.

CA Annulment Rationale

The CA ruled that the RTC decision should be annulled and set aside for extrinsic fraud.
The CA found that the petitioner’s procedural conduct prevented the respondent from having a fair opportunity to participate in the case.
The CA ordered the petitioner to pay the respondent actual damages, moral damages, exemplary damages, and attorney’s fees and cost of suit, as reflected in its dispositive portion.

Governing Remedy: Rule 47

The Court held that annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled was promulgated.
The Court applied Rule 47, Section 1, which governs annulment by the CA of RTC judgments when ordinary remedies like new trial, appeal, petition for relief, or other appropriate remedies are no longer available through no fault of the petitioner.
The Court concluded that the respondent could avail herself of annulment because the ordinary remedies were unavailable to her without fault, since she was not made a party in the original suit.
The Court reasoned that the respondent was neither able to participate in the RTC proceedings nor to avail of other remedies because the case wa