HEIRS OF ANTONIO PAEL AND ANDREA ALCANTARA AND CRISANTO PAEL, PETITIONERS, VS. COURT OF APPEALS, JORGE H. CHIN AND RENATO B. MALLARI, RESPONDENTS.

Heirs of Pael versus Court of Appeals

The Case

This is a petition for review brought by the Heirs of Antonio Pael and Andrea Alcantara, together with Crisanto Pael, against the Court of Appeals, Jorge Chin, and Renato Mallari. The dispute concerns two parcels of land in Barrio Culiat, Quezon City, covered by two transfer certificates of title registered in the names of Chin and Mallari. The case matters because it pits those private titles against the title of the University of the Philippines over its Diliman Campus, and because it tests the rule on when a final judgment may be annulled for extrinsic fraud, and the rule that the title of the University of the Philippines over its Diliman Campus is indefeasible and beyond dispute.

Procedural History

Maria Destura filed a complaint before the Regional Trial Court of Quezon City against her husband Pedro Destura, Jorge Chin, and Renato Mallari, seeking annulment of a memorandum of agreement and of the two transfer certificates of title. The case against Pedro Destura was dismissed after an amicable settlement. Chin and Mallari were declared in default for failure to file their answer. The trial court rendered a judgment by default, nullifying the memorandum of agreement and the two titles, and ordering the reinstatement of the earlier title in the names of the Paels.

Chin and Mallari, through counsel, filed a notice of appeal, which the trial court approved. A week later their counsel filed a motion for new trial. The trial court denied the motion for lack of merit, dismissed the appeal on the ground of abandonment, and declared its decision final and executory. Chin and Mallari, through new counsel, then filed before the Court of Appeals a petition for annulment of judgment, claiming extrinsic fraud arising from the gross negligence of their former counsel. The Court of Appeals annulled the trial court decision, declared the memorandum of agreement valid, voided the cancellation of the Chin and Mallari titles, and declared them the true and absolute owners.

The case reached the Supreme Court through separate petitions for review filed by the Heirs of Pael and by Maria Destura. The Supreme Court denied both petitions and affirmed the title of Chin and Mallari. On motion for reconsideration, the University of the Philippines intervened, claiming that the properties form part of its Diliman Campus. The Supreme Court granted the intervention and remanded the case to the Court of Appeals for reception of evidence on the conflicting claims. The Court of Appeals submitted a report recommending that the rights of Chin and Mallari be recognized over those of the University of the Philippines. The Supreme Court then ruled in favor of the University of the Philippines.

Facts

Chin and Mallari and the Desturas trace their claim of ownership to the Paels. The Desturas allegedly purchased the property from the Paels through an agent. Chin and Mallari claim they bought seventy percent of the property from the spouses Luis and Leony Menor, and thirty percent directly from the Paels, who in turn allegedly acquired the seventy percent from the Paels themselves. In 1992, Chin and Mallari executed a memorandum of agreement with Pedro Destura and Jaime Lumansag, Junior, promising to pay Destura one hundred million pesos upon finality of a sale, but the sale did not materialize.

The disputed property, however, is part of the Diliman Campus of the University of the Philippines, covered by its own transfer certificate of title. A survey conducted by the Department of Environment and Natural Resources, National Capital Region, established that the property claimed by Chin and Mallari overlaps the property covered by the title of the University of the Philippines.

The superiority of the title of the University of the Philippines over that of the Paels had already been recognized in an earlier case filed by Roberto Pael and others against the University of the Philippines. The Court of Appeals enjoined the trial court from proceeding, and the Supreme Court denied the petition for review for late filing, so that judgment became final and bound the Paels and all their successors in interest, including Chin and Mallari.

Issues

• Whether or not the annulment of judgment was proper, there being no extrinsic fraud or gross negligence committed by the former counsel of Chin and Mallari.
• Whether or not Chin and Mallari are bound by the negligence of their former counsel.
• Whether or not the Court of Appeals erred in adjudicating the case on the merits instead of merely remanding it.
• Whether or not the rights of Chin and Mallari over the disputed property prevail over the claim of the University of the Philippines.

Applicable Provisions

Article 1181 of the Civil Code provides:

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

The trial court used this provision to hold that, since the sale on which the promised payment depended did not materialize, the obligation under the memorandum of agreement did not take effect.

Section 7 of Rule 47 of the Rules of Court provides:

If the judgment is annulled, the court may, in the same proceeding, order a new trial or direct the parties to file their respective pleadings and thereafter proceed with the trial of the case.

This provision bears on the question whether the Court of Appeals could adjudicate the merits after annulling the judgment, rather than merely ordering a new trial.

Ruling

On the first three issues, the Court denied the petitions and affirmed the ruling of the Court of Appeals. The Court held that the gross and reckless negligence of the former counsel, which caused Chin and Mallari to be declared in default and later led to the dismissal of their appeal and the finality of the judgment, amounted to extrinsic fraud. It rejected the argument that the clients were bound by their counsel's negligence, and it sustained the adjudication on the merits.

On the issue of the conflicting claims, however, the Court ruled in favor of the University of the Philippines. The Court held that the property claimed by Chin and Mallari overlaps the property covered by the title of the University of the Philippines, as established by the survey of the Department of Environment and Natural Resources. The Court stressed that the superiority of the title of the University of the Philippines over that of the Paels had already been settled in the earlier case filed by Roberto Pael, which became final and bound the Paels and all their successors in interest, including Chin and Mallari. The Court declared that the legitimacy of the title of the University of the Philippines has been settled in several other cases, and that its title over its Diliman Campus is indefeasible and beyond dispute.

Doctrine

A Bar candidate must retain these rules. First, the gross and reckless negligence of counsel, which causes a party to be declared in default and leads to the dismissal of the appeal and the finality of the judgment, amounts to extrinsic fraud that justifies the annulment of judgment. Second, the title of the University of the Philippines over its Diliman Campus is indefeasible and beyond dispute, and a final judgment recognizing that superiority binds the Paels and all their successors in interest. Third, under Article 1181 of the Civil Code, in a conditional obligation the acquisition of rights depends upon the happening of the condition, so that where the sale on which payment depended did not materialize, the obligation did not take effect.

Disposition

The Court ruled in favor of the University of the Philippines, recognizing its title over the disputed property as against the claim of Chin and Mallari.

Remember This

The single line worth memorizing is that the title of the University of the Philippines over its Diliman Campus is indefeasible and beyond dispute, and that gross negligence of counsel amounting to extrinsic fraud can annul a judgment. Examiners use this case to test the doctrine of indefeasibility of the title of the University of the Philippines and the requisites of extrinsic fraud in annulment of judgment.