Asian Surety and Insurance Co., Inc. v. Island Steel, Inc.
REITERATIONFacts
The Antecedents: Asian Surety and Insurance Co., Inc. (Asian Surety) filed a complaint (Civil Case No. 64849) to annul a judgment rendered in Civil Case No. 51586. Civil Case No. 51586 was an action by Island Steel, Inc. against Asian Surety to recover P20,000.00 plus interest, based on ASIC Bond No. 005-MB/SB-108. This bond guaranteed the performance of Leonor C. Villanueva's obligation under a contract to sell GI iron sheets worth P20,000.00 with Island Steel. Villanueva failed to pay, and Island Steel demanded payment from Asian Surety. Asian Surety alleged that the contract was fictitious and no delivery was made, but the trial court found otherwise and ruled against Asian Surety. The Court of Appeals affirmed this decision. Asian Surety failed to file a petition for review within the extended period, leading to a resolution by the Supreme Court allowing execution of the judgment. Procedural History: Asian Surety instituted Civil Case No. 64849 to annul the judgment in Civil Case No. 51586 and enjoin its execution. The trial court dismissed Asian Surety's complaint, holding that the action was in substance a petition for relief from judgment under Rule 38, Section 2 of the Rules of Court, and should have been filed in the original case (Civil Case No. 51586). The Court of Appeals certified the case to the Supreme Court as it involved pure questions of law. The Petition: Asian Surety assails the order of dismissal, arguing that the judgment in Civil Case No. 51586 was obtained through fraudulent and collusive acts by Island Steel, which rendered the judgment void ab initio. These alleged fraudulent acts included entering into a simulated contract with Villanueva, inducing Asian Surety to issue the bond, making fictitious deliveries, failing to genuinely attempt collection from Villanueva, and misleading the court by suing Asian Surety instead of the principal debtor.
Issue(s)
Whether the trial court erred in dismissing Asian Surety's complaint for annulment of judgment, which was essentially a petition for relief from judgment. Whether the alleged fraudulent acts of Island Steel constituted extrinsic fraud warranting annulment of the judgment in Civil Case No. 51586, and whether these allegations constitute intrinsic fraud subject to res judicata.
Ruling
The Supreme Court affirmed the order of dismissal. The Court held that the fraud alleged by Asian Surety was intrinsic, not extrinsic, and therefore not a ground for annulment of judgment. The issues of the alleged fictitious contract and non-delivery were raised and passed upon in the original case and its appeal, and to allow their revival in an annulment action would violate the rule of res judicata.
Ratio Decidendi
On the dismissal of the complaint for annulment of judgment: The Court affirmed the trial court's dismissal, agreeing that the action was essentially a petition for relief from judgment, which should have been filed in the original case. The trial court correctly noted that the substance of the action was to seek relief from a judgment, governed by Rule 38 of the Rules of Court, and that such a petition must be filed in the same proceeding where the judgment was rendered. The dismissal was without prejudice to filing the appropriate petition in Civil Case No. 51586. On whether the alleged fraudulent acts constituted extrinsic fraud: The Court reiterated the established rule that an action to annul a final judgment on the ground of fraud will lie only if the fraud is extrinsic or collateral. Extrinsic fraud is defined as fraud that prevented a party from having a trial or from presenting all of his case to the court, as illustrated in cases where a party was kept away from court or kept in ignorance of the suit. The fraud alleged by Asian Surety, such as the simulated contract, fictitious delivery, and collusion between Island Steel and Villanueva, were issues that were raised or could have been raised during the trial of Civil Case No. 51586. Asian Surety attempted to prove its allegations of non-delivery and a fictitious contract during the original trial, and these issues were considered and resolved by the trial court and affirmed by the Court of Appeals. Therefore, the alleged fraud was intrinsic to the litigation, pertaining to the evidence and issues presented during the trial, and not extrinsic fraud that prevented a fair hearing. Allowing Asian Surety to revive these issues through an annulment action would violate the principle of res judicata and encourage endless litigation.
Main Doctrine
An action to annul a final judgment on the ground of fraud will lie only if the fraud is extrinsic or collateral, meaning it prevented a party from having a trial or from presenting all of his case to the court. Allegations of fraud that were or could have been raised during the trial of the original case constitute intrinsic fraud and are not grounds for annulment of judgment.