G.R. No. 94457, October 16, 1997
VICTORIA LEGARDA, PETITIONER, VS. THE HONORABLE COURT OF APPEALS, NEW CATHAY HOUSE, INC., THE HONORABLE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 94, RESPONDENTS.

FACTS

Petitioner Victoria Legarda owned a property in Quezon City. Private respondent New Cathay House, Inc. filed a complaint for specific performance, alleging a perfected five-year lease agreement over the property. Legarda, represented by Dean Antonio Coronel, was granted an extension to file an answer but her counsel inexplicably failed to do so. Consequently, the trial court declared Legarda in default, allowed ex-parte presentation of evidence, and rendered a judgment by default ordering her to execute the lease contract and pay substantial damages totaling over P300,000.00. Counsel received the decision but took no action, leading to its finality.
A writ of execution was issued. At public auction, the subject property was sold to Roberto V. Cabrera, Jr., a director of the private respondent corporation, for P376,500.00 to satisfy the judgment. Uninformed by her counsel, Legarda failed to redeem the property. Upon learning of the sale and consolidation of title, Legarda, through counsel, filed a petition with the Court of Appeals for annulment of judgment, alleging it was obtained through fraud and unsupported by evidence. The Court of Appeals dismissed the petition.

ISSUE

Whether the Court of Appeals erred in dismissing the petition for annulment of judgment.

RULING

Justice Hermosisima, in his dissenting opinion, argued that the petition for annulment should be granted. The legal logic centers on the presence of extrinsic fraud, which prevented Legarda from presenting her case. The fraud did not pertain to the trial itself but to the execution proceedings. The sheriff’s sale of the property for a grossly inadequate price (P376,500.00 for a property later sold for P4,000,000.00) to the very director of the opposing corporation constituted a fraudulent execution. This sale, coupled with the failure of Legarda’s counsel to inform her of the default judgment and the execution sale, deprived her of any opportunity to protect her property rights. This confluence of events—gross inadequacy of price, sale to an insider, and counsel’s neglect—constitutes extrinsic fraud that warrants the annulment of the judgment’s execution phase to prevent a grave miscarriage of justice. The dissent emphasizes that the law abhors forfeiture and aims to prevent the unjust enrichment of one party at the expense of another who was deprived of her day in court due to circumstances beyond her control.