Sarraga, Sr. vs. Banco Filipino Savings and Mortgage Bank

The negligence of counsel binds the client, but the rule yields where counsel's reckless or gross negligence deprives the client of due process of law, where its application would result in the outright deprivation of the client's liberty or property, or where the interests of justice so require. On the facts, the gross negligence of one of petitioners' two counsel — who failed to inform them of the denial of their motion for reconsideration — deprived them of their right to appeal and threatened the loss of Lot 416-B, bringing the case within the exceptions.

Spouses Dante Sarraga, Sr. and Maria Teresa Sarraga owned three parcels of land in Cagayan de Oro City — Lot 416-B in Poblacion and Lots 1053-A and 1053-B in Lapasan — which they mortgaged to Banco Filipino Savings and Mortgage Bank to secure a loan. The bank was subsequently placed under conservatorship by the Central Bank, then ordered closed and placed under receivership and liquidation, so that dealings over the mortgaged properties were conducted through its receiver and liquidators. This liquidation backdrop frames the parties' subsequent agreement on the repurchase of the foreclosed lots and the bank's later refusal to complete the conveyance.

Spouses Dante Sarraga, Sr. and Maria Teresa Sarraga were the absolute owners of three parcels of land: Lot 416-B in Poblacion, Cagayan de Oro City, and Lots 1053-A and 1053-B in Lapasan, same city. Sometime in the early 1980s, they mortgaged the lots to Banco Filipino Savings and Mortgage Bank as security for a loan of P3,618,714.59. When petitioners defaulted, the bank foreclosed the mortgage.

On June 29, 1984, Banco Filipino was placed in conservatorship by the Central Bank of the Philippines, and on January 25, 1985, it was ordered closed and placed under receivership and liquidation. On April 9, 1985, before the redemption period expired, petitioner Dante P. Sarraga sent a letter to the bank's receiver-liquidator offering to redeem the lots. On July 2, 1985, Deputy Receiver Arnulfo B. Aurellano replied that "at this stage of the liquidation of the bank, we are not yet selling the aforesaid properties." Because petitioners were not allowed to redeem within the period prescribed by law, titles to the lots were consolidated in the name of Banco Filipino. On October 10, 1986, petitioners received a letter from the bank recognizing their intention to redeem, and the bank's liquidators thereafter began negotiating the terms of redemption.

On October 30, 1990, Mr. Renan Santos, then the bank's liquidator, wrote petitioners allowing them to repurchase the lots for P8,506,597.73, with 12% interest per annum, under terms providing, among others, that petitioners could pay by installments, that upon full payment the bank would execute the corresponding deed of sale for the three lots in their favor, and that they were granted the power to manage and administer the building on Lot 416-B. These terms were later embodied in a Memorandum of Agreement signed by the parties. On May 16, 1991, Banco Filipino formally conveyed Lots 1053-A and 1053-B in Lapasan to petitioners. On October 30, 1992, petitioners paid in full the total repurchase price for the three lots, but the bank refused to execute the corresponding deed of sale and to turn over Lot 416-B.

On April 5, 1993, Banco Filipino filed with the Regional Trial Court, Branch 38, Cagayan de Oro City, a complaint against petitioners for quieting of title, recovery of ownership and possession, accounting and damages, docketed as Civil Case No. 93-186. On April 27, 1993, petitioners filed their answer with counterclaim, represented by Atty. Florentino G. Dumlao, Jr., who formally entered his appearance as their counsel of record. Prior to the pre-trial, Atty. Dumlao suffered a mild stroke that incapacitated him from participating actively, prompting petitioners to hire Atty. Rogelio Bagabuyo. Although the latter appeared for petitioners during hearings and signed pleadings for them, Atty. Dumlao remained petitioners' counsel of record, and the trial court continued to serve pleadings, motions, processes, and other documents upon him.

On June 1, 1998, the trial court rendered its decision declaring the sale and conveyance of the two Lapasan lots valid with title pertaining to the Sarragas, declaring Banco Filipino the true and lawful owner of Lot 416-B and the building thereon (formerly the Lucar Building, now the Executive Centrum), ordering the Sarragas to immediately relinquish and surrender possession of Lot 416-B and the building to the bank, and dismissing all other claims and counterclaims, with no pronouncement as to costs. On July 1, 1998, petitioners filed a motion for reconsideration signed by both Attys. Dumlao and Bagabuyo. On September 3, 1998, the trial court issued an order denying the motion. That order was received on September 10, 1998 by Ms. Llerna Guligado, a newly hired clerk at the office of Atty. Bagabuyo; owing to her lack of work experience in a law office, she merely left the court order on her desk and it was eventually misplaced, and she failed to bring the matter to Atty. Bagabuyo's attention when she resigned on September 15, 1998. The day before, or on September 14, 1998, Atty. Bagabuyo was appointed Senior State Prosecutor in the Department of Justice and, due to his excitement and relocation to Manila, failed to apprise Atty. Dumlao of the status of the case.

Concerned that no action had been taken on their motion for reconsideration, petitioners on December 7, 1998 verified its status and found that the records of the case had already been transmitted to the Court of Appeals due to a partial appeal interposed by Banco Filipino. This prompted petitioners to file with the trial court a notice of appeal, which was denied for being late, and they eventually filed a petition for relief from judgment. During the hearing, they learned that the order dated September 3, 1998 denying their motion for reconsideration had been served upon Atty. Bagabuyo only. On February 12, 1999, the trial court dismissed the petition for relief on the ground that it was filed out of time, and petitioners' motion for reconsideration was denied. In the proceedings below, both the trial court and the Court of Appeals found that Atty. Bagabuyo had actively handled the case for petitioners since the pre-trial stage — filing pleadings alone as "counsel for the defendants," presenting witnesses, terminating the presentation of petitioners' evidence, and signing the motion for reconsideration as lead counsel — and that he had been negligent in failing to inform petitioners of the denial of their motion for reconsideration.

• Invalid Service on Atty. Bagabuyo: Petitioners maintained that Atty. Bagabuyo was not their counsel of record because he did not file with the trial court a formal appearance, and that consequently the service upon him of the trial court's order denying their motion for reconsideration was not valid.

• Validity of Service: Whether there was a valid service of the trial court's order denying petitioners' motion for reconsideration upon Atty. Bagabuyo.
• Negligence of Counsel: Whether Atty. Bagabuyo was negligent in a manner that prevented petitioners from filing a timely notice of appeal.
• Binding Effect of Counsel's Negligence: If so, whether such negligence is binding upon petitioners.

• Validity of Service: Yes. Under Section 2, Rule 13 of the 1997 Rules of Civil Procedure, where a party is represented by more than one lawyer, service of pleadings, judgments, and other papers may be made upon any one of them.
• Negligence of Counsel: Yes. Atty. Bagabuyo was negligent; he knew his clerk had no work experience in a law office yet failed to supervise her closely, and the negligence of clerks that adversely affects cases handled by lawyers binds the latter.
• Binding Effect of Counsel's Negligence: No. Although the negligence of counsel generally binds the client, the case falls within the recognized exceptions because Atty. Bagabuyo's gross negligence deprived petitioners of their right to appeal and would result in the deprivation of their property.

• Validity of Service: Section 2, Rule 13 of the 1997 Rules of Civil Procedure provides that if any party has appeared by counsel, service upon him shall be made upon his counsel or one of them, and that where one counsel appears for several parties he shall be entitled to only one copy of any paper served upon him by the opposite side. The rule's obvious meaning is that if a party is represented by more than one lawyer, service of pleadings, judgments, and other papers may be made on any one of them. It was undisputed that petitioners were represented by two lawyers, Attys. Dumlao and Bagabuyo. The records showed that Atty. Bagabuyo did not merely enter his appearance orally; he filed several pleadings as "counsel for the defendants," signed them alone, indicated his address, presented the defendant Dante Sarraga and the witness Gaudencio Beduya at trial, terminated the presentation of the defense evidence, and signed as lead counsel the motion for reconsideration and the rejoinder, without ever intimating that he had to defer to Atty. Dumlao. Given these circumstances and the trial court's observation that Atty. Bagabuyo had been the one actively handling the case since the pre-trial stage, it was absurd for petitioners to suggest that service upon him of the order denying their motion for reconsideration was ineffective or did not bind them.

• Negligence of Counsel: Atty. Bagabuyo was negligent. He knew that his clerk had no work experience in a law firm and should have supervised her office performance very closely considering the importance of his legal calling. The Court has repeatedly admonished law offices to adopt a system of distributing and receiving pleadings and notices so that lawyers will be promptly informed of the status of their cases; thus, the negligence of clerks which adversely affects the cases handled by lawyers is binding upon the latter. Atty. Bagabuyo likewise failed to inform petitioners immediately of the denial of their motion for reconsideration.

• Binding Effect of Counsel's Negligence: While it is settled that the negligence of counsel binds the client, the application of the general rule must be examined according to the surrounding circumstances. The Court has recognized exceptions: (1) where reckless or gross negligence of counsel deprives the client of due process of law; (2) when its application will result in the outright deprivation of the client's liberty or property; or (3) where the interests of justice so require. In such cases, courts must step in and accord relief to a client who suffered thereby. Atty. Bagabuyo committed gross negligence: petitioners were deprived of their right to appeal when he failed to inform them immediately of the denial of their motion for reconsideration, and this would ultimately result in the deprivation of their property, specifically Lot 416-B. Relying on Apex Mining, Inc. vs. Court of Appeals, the Court held that where counsel is guilty of gross ignorance, negligence, and dereliction of duty resulting in the client's being held liable, the client is deprived of his day in court and the judgment may be set aside on that ground; higher interests of justice and equity demand that petitioners be allowed to present evidence on their defense. Petitioners could not be faulted for failing to verify the status of their case, since a client may reasonably expect that his counsel will protect his interests during the trial. The trial court therefore gravely abused its discretion in denying the petition for relief. The period within which to file the petition for relief should be reckoned from petitioners' actual receipt of the order denying their motion for reconsideration on December 7, 1998; accordingly, the petition for relief filed on December 16, 1998 was well within the sixty-day period prescribed in Section 3, Rule 38 of the 1997 Rules of Civil Procedure. Both lower courts sacrificed justice for technicality. The fundamental purpose of procedural rules is to afford each litigant every opportunity to present evidence in his behalf so that substantial justice is achieved; court litigations are primarily for the search of truth, and a liberal interpretation of the rules is the best way to ferret out that truth. Dismissal of appeals on purely technical grounds is frowned upon, and the Court, in the exercise of its equity jurisdiction, may stay such dismissal, especially where the appeal appears prima facie worthy of the Court of Appeals' full consideration on the merits.

• Negligence of counsel binds the client — As a general rule, a client is bound by the negligence or mistakes of his counsel in the conduct of litigation. The Court reaffirmed this rule but held that it is not absolute and must be applied in light of the surrounding circumstances.

• Exceptions to the rule on negligence of counsel — The general rule yields in three instances: (1) where reckless or gross negligence of counsel deprives the client of due process of law; (2) where its application will result in the outright deprivation of the client's liberty or property; or (3) where the interests of justice so require. In such cases, courts must step in and accord relief to the client. The Court applied the first and second exceptions, finding that Atty. Bagabuyo's gross negligence deprived petitioners of their right to appeal and would result in the deprivation of Lot 416-B.

• Service upon one of several counsel — Under Section 2, Rule 13 of the 1997 Rules of Civil Procedure, if a party has appeared by counsel, service upon him shall be made upon his counsel or one of them; where a party is represented by more than one lawyer, service of pleadings, judgments, and other papers may be made on any one of them. The Court held that service of the order denying the motion for reconsideration upon Atty. Bagabuyo, one of petitioners' two counsel, was valid and binding.

• Liberal construction of procedural rules — Procedural rules are adopted to help secure, not override, substantial justice. Dismissal of appeals on purely technical grounds is frowned upon, and courts may excuse a technical lapse to afford a review of the case on the merits, especially where the appeal appears prima facie worthy of consideration.

• Reckoning of the period for a petition for relief from judgment — Where a party is deprived of notice of a denial order through the gross negligence of counsel, the sixty-day period under Section 3, Rule 38 of the 1997 Rules of Civil Procedure is reckoned from the party's actual receipt of the order.

• "Thus, exceptions to the said rule have been recognized by this Court: (1) where reckless or gross negligence of counsel deprives the client of due process of law; (2) when its application will result in outright deprivation of the client's liberty or property; or (3) where the interests of justice so require." — This passage states the canonical formulation of the exceptions to the rule that the negligence of counsel binds the client, the ratio on which the petition was granted.

• "If the incompetence, ignorance or inexperience of counsel is so great and the error committed as a result thereof is so serious that the client, who otherwise has a good cause, is prejudiced and denied his day in court, the litigation may be reopened to give the client another chance to present his case." — Quoted from Apex Mining, Inc. vs. Court of Appeals, this passage supplies the controlling standard for reopening litigation on the ground of counsel's gross negligence.

• "The fundamental purpose of procedural rules is to afford each litigant every opportunity to present evidence in their behalf in order that substantial justice is achieved." — This passage articulates the policy of liberal construction that justified excusing the technical lapse and allowing petitioners' appeal to proceed.

• "The obvious meaning of said rule is that if a party is represented by more than one lawyer, service of pleadings, judgments and other papers may be made on any one of them." — This passage construes Section 2, Rule 13 of the 1997 Rules of Civil Procedure and disposes of petitioners' argument that service on Atty. Bagabuyo was invalid.

• Apex Mining, Inc. vs. Court of Appeals, 319 SCRA 456 (1999) — Controlling precedent relied upon and quoted at length for the rule that litigation may be reopened where counsel's gross ignorance, negligence, and dereliction of duty deprived the client of his day in court.
• Sublay vs. NLRC, 324 SCRA 188 (2000) — Cited for the rule that service upon one of several counsel is valid.
• Negros Stevedoring, Inc. vs. Court of Appeals, 162 SCRA 371 (1988) — Cited for the rule that the negligence of clerks which adversely affects the cases handled by lawyers is binding upon the latter.
• Gacutana-Fraile vs. Domingo, 348 SCRA 414 (2000) — Cited among the authorities recognizing the exceptions to the rule that the negligence of counsel binds the client.
• Salazar vs. Court of Appeals, G.R. No. 142920 (February 6, 2002) — Cited for the liberal interpretation of procedural rules and the policy of affording parties the fullest opportunity to adduce proofs.
• Piglas-Kamao (Sari-Sari Chapter) vs. NLRC, 357 SCRA 640 (2001) — Cited for the principle that dismissal of appeals purely on technical grounds is frowned upon.

• Section 2, Rule 13, 1997 Rules of Civil Procedure — Provides that if any party has appeared by counsel, service upon him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the court, and that where one counsel appears for several parties he shall be entitled to only one copy of any paper served upon him by the opposite side. Applied to hold that service of the order denying petitioners' motion for reconsideration upon Atty. Bagabuyo, one of their two counsel, was valid.
• Section 3, Rule 38, 1997 Rules of Civil Procedure — Prescribes the sixty-day period for filing a petition for relief from judgment. The Court reckoned the period from petitioners' actual receipt of the denial order on December 7, 1998, rendering the December 16, 1998 petition timely.

Puno (Chairman), Corona, and Carpio-Morales, JJ., concur. Panganiban, J., no part, he being a former counsel of a party.