City of Dagupan vs. Maramba

A petition for relief from judgment under Rule 38 may be granted when counsel's mistake or negligence is so gross and prejudicial as to border on extrinsic fraud, particularly where the negligence deprives the client of property through an unsubstantiated damages award, and the adverse party was afforded the opportunity to be heard on the substantive issues through an opposition to the defective motion.

Respondent Ester F. Maramba was a grantee of a Department of Environment and Natural Resources (DENR) miscellaneous lease contract covering a 284-square-meter property in Poblacion, Dagupan City, for a period of 25 years. Sometime in 1974, she caused the construction of a commercial fish center on the leased property. The renewal lease agreement between Maramba and the DENR stipulated that the appraised value of the improvements existing on the land was ₱75,000.00. The City of Dagupan, through its then mayor Benjamin S. Lim, is the petitioner, while Maramba is represented by her attorney-in-fact, Johnny Ferrer.

Respondent Ester F. Maramba was a grantee of a DENR miscellaneous lease contract over a 284-square-meter property in Poblacion, Dagupan City, for a period of 25 years. Sometime in 1974, she caused the construction of a commercial fish center on the property. On December 20, 2003, the City of Dagupan demolished the commercial fish center, allegedly without giving direct notice to Maramba and with threat of taking over the property.

Maramba, through her attorney-in-fact Johnny Ferrer, filed a complaint for injunction and damages with prayer for a writ of preliminary injunction and/or temporary restraining order. The complaint alleged that the demolition was unlawful and that the complete demolition and destruction of the commercial fish center was valued at "Five Million (₱10,000,000.00) pesos," with the word "ten" handwritten over "five." In the prayer, Maramba asked for "Ten Thousand (₱10,000.00) pesos" for the actual and present value of the demolished fish center, with "million" handwritten over "thousand" and an additional zero handwritten at the end of the numerical figure. The handwritten intercalations were never explained in any part of the records or proceedings. She also prayed for ₱5 million as moral damages and ₱500,000.00 as attorney's fees.

On July 30, 2004, the RTC (Judge Laron) ruled in favor of Maramba, awarding ₱10 million as actual damages for the value of the demolished fish center, ₱500,000.00 as moral damages, ₱500,000.00 as attorney's fees, and costs of suit, and making the writ of preliminary injunction permanent. The trial court's decision merely summarized Maramba's testimony — that the actual cost of the building through continuous improvement was "Five Million (5M) more or less," that her husband spent $1,760 for a business class round trip fare and ₱10,000.00 for accommodation and car rental — without referring to any documentary evidence substantiating these amounts. Notably, the body of the decision mentioned ₱1 million as moral damages, which was inconsistent with the dispositive portion awarding ₱500,000.00.

On August 26, 2004, the city filed a motion for reconsideration, but it lacked the required notice of hearing. Maramba filed an opposition on the ground that the motion was not set for hearing, praying that it be stricken off the records. On October 21, 2004, the trial court denied the motion for lack of notice of time and place of hearing, stating it was "not entitled to judicial cognizance." In a separate order on the same date, the trial court granted Maramba's motion for execution. The city then filed a petition for relief from judgment on October 29, 2004, with an affidavit of merit signed by then Mayor Benjamin S. Lim, detailing the "mistakes, negligence, incompetence and suspicious acts/omissions" of city legal officer Atty. Roy S. Laforteza — including his failure to present testimonial evidence for the defense, filing the motion for reconsideration on the last day without attacking the decision's baseless awards, omitting the required notice of hearing, and concealing the adverse decision and orders from the mayor.

On November 18, 2004, the trial court denied the petition for relief, stressing that the negligence of counsel binds the client. On reconsideration, however, Acting Judge Silverio Q. Castillo granted the petition for relief on August 25, 2005, reducing actual damages from ₱10 million to ₱75,000.00 — the appraised value of the improvements stated in the miscellaneous lease agreement — moral damages from ₱500,000.00 to ₱20,000.00, and attorney's fees from ₱500,000.00 to ₱20,000.00, and recalling the writ of execution. Maramba's motion for reconsideration was denied on November 30, 2005. She then filed a petition for certiorari before the Court of Appeals, which granted it on June 15, 2006, holding that the motion for reconsideration was a mere scrap of paper that did not toll the period to appeal, rendering the July 30, 2004 decision final and executory. The Court of Appeals denied reconsideration on August 14, 2006, prompting the city to elevate the case to the Supreme Court.

• Timeliness of Motion for Reconsideration: Petitioner city argued that its motion for reconsideration of the July 30, 2004 decision was timely filed within the 15-day period, tolling the prescriptive period to appeal, and that since the decision was not yet final, its subsequent modification by the trial court was proper.
• Excusable Negligence / Extrinsic Fraud: Petitioner city contended that the lack of notice of hearing was due to counsel's oversight, and that counsel's mistake amounted to extrinsic fraud, depriving the city of its property without due process. It argued that denying the motion on this ground alone sacrificed substantial rights for mere technicalities.
• Suspension of Procedural Rules: Petitioner city cited jurisprudence on the suspension of procedural rules when strict application would result in grave injustice, and argued that Rule 38 provides for relief from judgments, orders, and other proceedings.
• Excessive Damages: Petitioner city maintained that only duly proven pecuniary loss may be awarded as actual damages, and that Maramba was only able to prove ₱75,000.00 as the appraised value of the improvements per the Miscellaneous Lease Agreement. It argued that the proper amount of damages should not be ₱5 million as alleged in the complaint, nor ₱10 million as requested in the prayer, but only ₱75,000.00 as embodied in the contract. It also noted that the fish center was made of G.I. sheets and light metal bars constructed around 1998, and its value would have depreciated over time.
• Timeliness of Petition for Relief: Petitioner city argued that its petition for relief was filed on time, reckoning the 60-day period from receipt of the October 21, 2004 denial of its motion for reconsideration on October 25, 2004, and filing the petition four days later on October 29, 2004.

• Negligence of Counsel Binds the Client: Respondent Maramba maintained that petitioner city is bound by the mistake of its counsel in failing to include a notice of hearing in its motion for reconsideration, and that this is not excusable negligence warranting relaxation of the rules.
• Finality of Judgment: Respondent argued that the July 30, 2004 decision was final and executory and cannot be amended even if the court later discovers that its decision was erroneous, citing jurisprudence that courts have no legal power to amend or correct a final judgment.
• Only Questions of Law in Rule 45: Respondent contended that the Court of Appeals correctly sustained the award of damages, and since a special civil action for certiorari was brought before the Court of Appeals, it correctly refrained from resolving factual questions. She added that petitioner city elevated the case on Rule 45, thus only questions of law may be raised.
• Failure to Cross-Examine: Respondent argued that petitioner city "failed to nail down in the cross-examination, during the trial of private respondent and her witness on the witness stand after their direct testimony on the damages sustained."
• Alternative Procedure for Grant of Petition for Relief: Respondent argued that instead of merely amending the July 30, 2004 decision, the acting judge should have proceeded as if a motion for new trial had been granted, so that evidence of damages would have to be taken anew and offered by both parties.
• Due Process Violation: Respondent argued that she was equally deprived of due process when the acting judge granted petitioner city's petition for relief without conducting a hearing.

• Notice of Hearing in Motion for Reconsideration: Whether the lack of notice of hearing in a motion for reconsideration is excusable negligence that allows the filing of a petition for relief from judgment.
• Period to File Petition for Relief: Whether the 60-day period to file a petition for relief from judgment, when reckoned from receipt of the denial of the motion for reconsideration, is considered filed on time.
• Amendment of Final Judgment: Whether the Court of Appeals erred in ruling that courts have no legal power to amend or correct a final judgment even if it later finds that its decision is erroneous.
• Substantiation of Actual Damages: Whether actual damages must be substantiated in order to be awarded.

• Notice of Hearing in Motion for Reconsideration: Yes. The lack of notice of hearing did not bar relief where the purpose behind the requirement — providing the adverse party the opportunity to be heard — was satisfied by the filing of an opposition, and where counsel's omission was so glaring and prejudicial as to border on extrinsic fraud.
• Period to File Petition for Relief: Yes. The petition for relief was filed within the 60-day reglementary period reckoned from receipt of the denial of the motion for reconsideration, the city having received the denial on October 25, 2004 and filed the petition on October 29, 2004.
• Amendment of Final Judgment: The Court of Appeals erred. While judgments must become final at some definite date, the broader interests of justice and equity justify setting aside procedural rules, particularly where the original award was entirely unsubstantiated and counsel's mistake bordered on extrinsic fraud.
• Substantiation of Actual Damages: Yes. Actual damages must be duly proven with a reasonable degree of certainty; courts cannot rely on speculation, conjecture, or guesswork, and competent proof such as receipts is required. Maramba was only able to prove ₱75,000.00 as the appraised value of the improvements per the lease agreement.

• Notice of Hearing in Motion for Reconsideration: The Court applied the principle articulated in Jehan Shipping Corporation vs. National Food Authority that the test for the notice-of-hearing requirement is the presence of the opportunity to be heard and to have time to study and meaningfully oppose the motion. Maramba filed an opposition to the city's motion for reconsideration, albeit on the procedural ground that it was not set for hearing. While she did not address the substantive issues raised by the city — such as the excessive award of actual damages — the opposition nonetheless constituted an opportunity to be heard. The Court further invoked Sy vs. Local Government of Quezon City and Samala vs. Court of Appeals for the proposition that procedural rules may be relaxed when their rigid application would hinder substantial justice. The city's motion was filed within the 15-day reglementary period, and the purposes behind the notice requirement were satisfied.

• Period to File Petition for Relief: Under Section 3, Rule 38, a petition for relief must be filed within 60 days after the petitioner learns of the judgment and not more than six months after entry. The 60-day period is reckoned from actual receipt of the denial of the motion for reconsideration when one is filed. The city received the July 30, 2004 decision on August 11, 2004, filed its motion for reconsideration on August 26, 2004, received the October 21, 2004 denial on October 25, 2004, and filed its petition for relief on October 29, 2004 — four days later. The petition was therefore filed within the reglementary period.

• Amendment of Final Judgment: The Court of Appeals held that the city's motion for reconsideration was a mere scrap of paper that did not toll the period to appeal, rendering the July 30, 2004 decision final and executory. The Supreme Court found this erroneous. The city legal officer's omission of the notice of hearing, combined with his failure to present testimonial evidence for the defense, his filing of the motion for reconsideration on the last day without attacking the decision's baseless awards, and his concealment of the adverse decision and orders from the mayor, constituted mistake bordering on extrinsic fraud. Extrinsic fraud, as defined in Sy Bang vs. Sy, is fraud that prevents the unsuccessful party from fully and fairly presenting his case or defense — such as when a lawyer connives to defeat or corruptly sells out his client's interest. The gross disparity between the ₱10 million actual damages awarded and the ₱75,000.00 actually proved, the magnitude of the award, and the fact that the negligence did not personally affect the legal officer all contributed to the conclusion that the mistake bordered on extrinsic fraud. The Court also noted that while the doctrine of immutability of judgments generally applies, it has set aside procedural rules in the broader interests of justice and equity.

• Substantiation of Actual Damages: Although the issue of damages is a factual question that the Court may not resolve in a Rule 45 petition, recognized exceptions apply — including when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record, and when the judgment is based on a misapprehension of facts. The July 30, 2004 decision awarded ₱10 million as actual damages based solely on Maramba's testimony, without reference to any documentary evidence. The amounts she testified on did not even add up to ₱10 million. In contrast, the August 25, 2005 order found that Maramba was only able to prove ₱75,000.00 as the appraised value of the improvements, as stated in the miscellaneous lease agreement. Under Article 2199 of the Civil Code, actual damages require adequate compensation for pecuniary loss duly proven. Competent proof — such as receipts — is required; courts cannot rely on speculation, conjecture, or guesswork. Maramba did not show any receipt for her traveling expenses or car rental, nor any proof of the ₱5 million in improvements she claimed. The reduction of actual damages to ₱75,000.00, moral damages to ₱20,000.00, and attorney's fees to ₱20,000.00 was therefore proper.

• Petition for Relief from Judgment (Rule 38) — An equitable remedy allowed in exceptional cases when there is no other available or adequate remedy, permitting courts to set aside final and executory judgments entered through fraud, accident, mistake, or excusable negligence. The grounds — fraud, accident, mistake, or excusable negligence — must be assessed from the circumstances of the case. The double period for filing (60 days from learning of the judgment, and not more than six months from entry) is jurisdictional and must be strictly complied with. The 60-day period is reckoned from actual receipt of the denial of the motion for reconsideration when one is filed. In this case, the Court held that the city legal officer's mistake — omitting the notice of hearing from the motion for reconsideration, combined with his other acts of negligence and concealment — bordered on extrinsic fraud, justifying the grant of the petition for relief.

• Extrinsic or Collateral Fraud — Fraud that prevents the unsuccessful party from fully and fairly presenting his case or defense, or that prevents the losing party from having an adversarial trial of the issue. Extrinsic fraud can be committed by counsel against his client when the latter is prevented from presenting his case to the court — as when the lawyer connives to defeat or corruptly sells out his client's interest. The Court found that the city legal officer's series of omissions and failures, culminating in the fatal omission of the notice of hearing, constituted mistake bordering on extrinsic fraud because it effectively prevented the city from presenting its defense against an unsubstantiated ₱11 million award.

• Excusable Negligence — Negligence so gross that ordinary diligence and prudence could not have guarded against it. As a ground for petition for relief, excusable negligence must be imputable to the party-litigant and not to counsel, whose negligence generally binds the client. However, the Court has relaxed this rule where: (1) reckless or gross negligence of counsel deprives the client of due process; (2) application of the rule will result in outright deprivation of the client's liberty or property; or (3) the interests of justice so require.

• Notice of Hearing Requirement (Rule 15, Sections 4 and 5) — A motion without a notice of hearing is considered pro forma and does not toll the reglementary period for appeal. The three-day notice is intended for the benefit of the adverse party, to avoid surprises and provide time to study and meet the arguments. The test is the presence of the opportunity to be heard and to have time to meaningfully oppose the motion. When the adverse party has actually had the opportunity to be heard through pleadings filed in opposition, the purpose behind the rule is deemed served, justifying a departure from literal application.

• Substantiation of Actual Damages (Article 2199, Civil Code) — Actual damages must be capable of proof and must actually be proved with a reasonable degree of certainty. Courts cannot rely on speculation, conjecture, or guesswork. Competent proof of the actual amount of loss is required, and credence can be given only to claims duly supported by receipts. In this case, Maramba failed to present any documentary evidence substantiating her claim for ₱10 million in actual damages; the only proved amount was ₱75,000.00, the appraised value of improvements stated in the lease agreement.

• Relaxation of Procedural Rules in the Interest of Justice — Procedural rules are mere tools designed to facilitate the attainment of justice; their strict and rigid application, especially on technical matters that tends to frustrate rather than promote substantial justice, must be avoided. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration. The Court relaxed the notice-of-hearing requirement because the adverse party had filed an opposition and the city's motion was filed within the reglementary period, and because the original damages award was entirely unsubstantiated.

• "The test is the presence of the opportunity to be heard, as well as to have time to study the motion and meaningfully oppose or controvert the grounds upon which it is based." — This passage, quoted from Jehan Shipping Corporation vs. National Food Authority, articulates the controlling standard for the notice-of-hearing requirement: the purpose is satisfied when the adverse party has actually been heard, justifying departure from literal application of the rule.

• "Where fraud is the ground, the fraud must be extrinsic or collateral. The extrinsic or collateral fraud that invalidates a final judgment must be such that it prevented the unsuccessful party from fully and fairly presenting his case or defense and the losing party from having an adversarial trial of the issue." — This defines the type of fraud that warrants a petition for relief from judgment under Rule 38, distinguishing it from intrinsic fraud or mere judicial error correctable by appeal.

• "Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a reasonable degree of certainty. Courts cannot simply rely on speculation, conjecture or guesswork in determining the fact and amount of damages." — This states the canonical formulation of the requirement for substantiating actual damages, frequently cited in subsequent jurisprudence.

• "The gross disparity between the award of actual damages and the amount actually proved, the magnitude of the award, the nature of the 'mistake' made, and that such negligence did not personally affect the legal officer of the city all contributed to a conclusion that the mistake or negligence committed by counsel bordered on extrinsic fraud." — This passage articulates the ratio decidendi for treating counsel's omission as mistake bordering on extrinsic fraud, synthesizing the factors that elevated ordinary negligence to a ground for relief under Rule 38.

• Jehan Shipping Corporation vs. National Food Authority, 514 Phil. 166 (2005) — Followed. The Court applied its ruling that the notice-of-hearing requirement is satisfied when the adverse party has actually had the opportunity to be heard through pleadings filed in opposition, justifying a departure from literal application of the rule.

• Preysler, Jr. vs. Manila Southcoast Development Corporation, G.R. No. 171872, June 28, 2010, 621 SCRA 636 — Followed. Quoted with approval the Jehan ruling that liberal construction of procedural rules is proper where the lapse has not prejudiced the adverse party and has not deprived the court of its authority.

• Sy vs. Local Government of Quezon City, G.R. No. 202690, June 5, 2013, 697 SCRA 621 — Followed. The Court applied its ruling that procedural rules may be relaxed to relieve a litigant of injustice not commensurate with the degree of thoughtlessness in non-compliance, and that the rule binding the client to counsel's mistakes may not be strictly followed where observance would result in outright deprivation of property.

• Samala vs. Court of Appeals, 416 Phil. 1 (2001) — Followed. Cited for the principle that procedural rules are mere tools designed to facilitate justice, and that technicality, when it becomes a hindrance to justice, deserves scant consideration.

• United Airlines vs. Uy, 376 Phil. 689 (1999) — Followed. Cited for the proposition that technicality deserves scant consideration and that appeals may be given due course despite procedural lapses due to unique facts and serious questions of law.

• Sy Bang vs. Sy, 604 Phil. 606 (2009) — Followed. Cited for the definition of extrinsic or collateral fraud as fraud that prevents the unsuccessful party from fully and fairly presenting his case or defense.

• Land Bank vs. Natividad, 497 Phil. 738 (2005) — Distinguished. In Land Bank, counsel's failure to include a notice of hearing was not considered excusable negligence. In the present case, however, the Court found that the cumulative acts of the city legal officer constituted mistake bordering on extrinsic fraud, warranting relief.

• Spouses Que vs. Court of Appeals, 504 Phil. 616 (2005) — Followed. Cited for the rule that counsel's negligence binds the client, and for the recognized exceptions: (1) reckless or gross negligence depriving the client of due process; (2) outright deprivation of liberty or property; (3) interests of justice so requiring.

• Tan vs. OMC Carriers, Inc., G.R. No. 190521, January 12, 2011, 639 SCRA 471 — Followed. Cited for the recognized exceptions to the rule that factual questions may not be resolved in a Rule 45 petition, and for the requirement that actual damages must be proved with a reasonable degree of certainty.

• Rule 38, Section 1, Rules of Court — Provides the grounds for a petition for relief from judgment: fraud, accident, mistake, or excusable negligence that resulted in a judgment or final order being entered against a party. Applied to hold that the city legal officer's mistake bordered on extrinsic fraud, justifying the grant of the petition for relief.

• Rule 38, Section 3, Rules of Court — Requires that a petition for relief be filed within 60 days after the petitioner learns of the judgment and not more than six months after entry, with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon. Applied to hold that the city's petition, filed four days after receipt of the denial of its motion for reconsideration, was filed within the reglementary period.

• Rule 38, Section 4, Rules of Court — Requires that if the petition is sufficient in form and substance, the court shall issue an order requiring the adverse party to answer within 15 days. Applied to confirm that the requirement was satisfied when Maramba filed an answer with motion to dismiss, which the court considered in resolving the petition for relief.

• Rule 15, Sections 4 and 5, Rules of Court — Mandate the notice-of-hearing requirement for motions; a motion without notice of hearing is considered pro forma and does not toll the reglementary period for appeal. Applied through the Jehan test: the purpose was satisfied because the adverse party filed an opposition and was thereby afforded the opportunity to be heard.

• Rule 45, Section 1, Rules of Court — Limits petitions for review on certiorari to the Supreme Court to questions of law. Applied with recognized exceptions to allow resolution of the damages issue, which was factual in nature but fell under exceptions for findings premised on supposed absence of evidence and contradicted by the evidence on record.

• Article 2199, Civil Code — Defines actual damages as adequate compensation only for such pecuniary loss as has been duly proven. Applied to reduce the award of actual damages from ₱10 million to ₱75,000.00, the only amount duly proven by competent evidence in the lease agreement.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Martin S. Villarama, Jr. (designated as Acting Member per Special Order No. 1691 dated May 22, 2014 in view of the vacancy in the Third Division), and Jose Catral Mendoza concurred.