AIR PHILIPPINES CORPORATION, PETITIONER, VS. INTERNATIONAL BUSINESS AVIATION SERVICES PHILS., INC., RESPONDENT.

Air Philippines versus International Business Aviation Services

The Case

This is a petition for review filed by Air Philippines Corporation against International Business Aviation Services Philippines, Incorporated, arising from a complaint for collection of a sum of money. Air Philippines had engaged the services of International Business Aviation to arrange the ferry flight of one of its aircraft from the United States to the Philippines, and when the foreign service provider's bill went unpaid, International Business Aviation advanced the amount and then sued to recover it. The case matters to a reviewee because it is the Supreme Court's cleanest statement of the rule that the simple negligence of counsel binds the client, together with the recognized exceptions to that rule, and because it shows how the Court treats a corporation that sleeps on its own litigation while blaming its lawyer.

Procedural History

International Business Aviation filed its complaint for collection before the Regional Trial Court of Pasay City. Air Philippines failed to file its pre-trial brief despite being given an extension, and its counsel did not appear at the reset pre-trial conference. The trial court denied the motions for extension and reconsideration, allowed the plaintiff to present evidence ex parte before the branch clerk of court as commissioner, and thereafter rendered judgment in favor of International Business Aviation, ordering payment of the principal amount in dollars, an intermediary's commission, attorney's fees, and costs. Air Philippines moved for a new trial on the ground of gross negligence of its former counsel, and the trial court denied the motion. Air Philippines appealed to the Court of Appeals, which affirmed the trial court's decision with the modification that the award of a broker's fee or commission was deleted for lack of the requisite quantum of evidence. The Court of Appeals held that counsel was guilty of only simple, not gross, negligence, and that the client was equally negligent. Air Philippines then filed a petition for review under Rule 45 before the Supreme Court.

Facts

Air Philippines needed a business establishment to ferry its Boeing 737 aircraft from the United States to the Philippines by way of the Subic Bay International Airport. Through its Vice-President for Operations, Captain Alex Villacampa, it engaged International Business Aviation as its agent to find and engage an enterprise to ferry the airplane. International Business Aviation in turn engaged Universal Weather and Aviation, Incorporated, which performed the ferry service, and Air Philippines took delivery of the plane at Subic.

Universal Weather sent its billings to Air Philippines through International Business Aviation in the total amount of 65,131.55 dollars. Air Philippines failed to pay. International Business Aviation wrote demanding payment, and when Air Philippines refused, Universal Weather pressured International Business Aviation, which advanced and paid the full amount to Universal Weather for Air Philippines' account. Air Philippines was informed of that payment. International Business Aviation then demanded reimbursement. Air Philippines' own president and chief executive officer recommended paying only 27,730.60 dollars and required supporting billings for the difference, but no payment was made despite repeated demands.

On February 26, 1998, Air Philippines drew a check for 200,000 pesos payable to International Business Aviation as partial first payment of its account, and the parties executed a Receipt and Agreement in which Air Philippines, through the officer-in-charge of its Legal Department, Atty. Manolito Manalo, obliged itself to pay the balance and waived demand. Air Philippines still refused to pay the balance, so International Business Aviation sued. At pre-trial, Air Philippines' counsel appeared without a special power of attorney, failed to file the pre-trial brief despite an extension, and did not appear at the reset conference. The trial court allowed the plaintiff to present evidence ex parte and rendered judgment for it.

Issues

• Whether or not the Court of Appeals erred in upholding the denial of the motion for new trial despite the alleged gross negligence, incompetence, and dishonesty of Air Philippines' former counsel, which supposedly deprived it of its day in court.
• Whether or not the Court of Appeals erred in giving credence to the memorandum, the billings, and the supporting documents despite the claim that they are hearsay and were not authenticated by the lone witness.
• Whether or not the Court of Appeals erred in giving credence to the Receipt and Agreement despite the claim that counsel was not authorized to execute it for the corporation.
• Whether or not the Court of Appeals erred in holding Air Philippines liable to reimburse International Business Aviation despite the claim that the billings were baseless and unsubstantiated.
• Whether or not the Court of Appeals erred in holding that International Business Aviation is entitled to legal interest and attorney's fees.

Applicable Provisions

Rule 37 of the Rules of Court, on new trial, provides the ground of excusable negligence relied upon by the petitioner:

Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party: (a) Fraud, accident, mistake or excusable negligence which ordinary prudence could have guarded against and by reason of which such aggrieved party has probably been impaired in his rights.

This provision frames the first issue, because the Court measures counsel's conduct against the standard of excusable negligence that ordinary prudence could have guarded against.

On the authority of an agent, the Civil Code provides:

No person may be compelled to accept the agency except when it arises from a bilateral act or is imposed by law.

This provision, together with the rules on agency, governs whether the Receipt and Agreement signed by the corporation's counsel bound the corporation.

Ruling

On the first issue, the Court held that a new trial was not warranted. The rule is that the negligence of counsel binds the client, because an act performed by counsel within the scope of a general or implied authority is regarded as the act of the client. The Court recognized only three exceptions: where reckless or gross negligence of counsel deprives the client of due process, where the application of the rule would result in outright deprivation of the client's liberty or property, and where the interests of justice so require. None applied. Counsel's conduct, consisting of repeated motions for extension, non-appearance at pre-trial, and failure to file the pre-trial brief, was simple negligence, a plain disregard of a duty imposed by law, not gross negligence. The Court also found the client equally negligent: a corporation acts only through its officers and agents, counsel was an employee and the officer-in-charge of its Legal Department, and the corporation could not simply sit back and await the outcome without inquiring into the status of its case. There was no denial of due process, because the essence of due process is the reasonable opportunity to be heard, and judgment was rendered only after the trial court carefully weighed the evidence. Nor was there an outright deprivation of property, since the corporation's assets were not reduced and its fleet even increased. Equity never contravenes the law.

On the second issue, the Court held that the monetary awards were sufficiently established by a preponderance of evidence. The Receipt and Agreement validated the earlier memorandum and billings. The corporation may act through its officers or agents in the normal course of business, and the general principles of agency govern that relationship. Even assuming counsel exceeded his authority, the corporation would be solidarily liable if it allowed him to act as though he had full powers, and the principal is bound where there is express or tacit ratification. Estoppel likewise applied, because the respondent relied in good faith on the corporation's conduct. The Court also held that a special power of attorney is necessary to a compromise, but the Receipt and Agreement was not a compromise. The award of the broker's fee, however, was properly deleted for want of evidence.

Doctrine

The negligence of counsel binds the client, because acts of counsel within the scope of a general or implied authority are deemed the acts of the client. The rule admits only three exceptions: reckless or gross negligence of counsel that deprives the client of due process, application of the rule that would result in outright deprivation of the client's liberty or property, and situations where the interests of justice so require. Negligence, to be excusable under the rule on new trial, must be one that ordinary diligence and prudence could not have guarded against. A corporation acts only through its officers and agents, and it cannot escape the consequences of its counsel's simple negligence by feigning ignorance of the progress of its own case. A Receipt and Agreement acknowledging a balance is not a compromise and does not require a special power of attorney.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, with costs against Air Philippines.

Remember This

Memorize the line: simple negligence of counsel binds the client, and only gross negligence, outright deprivation of liberty or property, or the interests of justice will relieve the client. Examiners use this case to test the exceptions to the binding effect of counsel's negligence and the liability of a corporation for the acts of its counsel-employee.