REAL BANK, INC., PETITIONER, VS. SAMSUNG MABUHAY CORPORATION, RESPONDENT.

Real Bank versus Samsung Mabuhay

The Case

This is a petition for review filed by Real Bank, Inc. against Samsung Mabuhay Corporation, arising from a complaint for damages that Samsung Mabuhay brought against the bank after three checks intended for Samsung were allegedly credited by the bank to the account of an impostor. The case reaches us not on the merits of that complaint, but on a procedural question: whether the trial court properly dismissed Samsung Mabuhay's complaint for non-suit when it failed to appear at a scheduled mediation conference. The case matters because it fixes the rule on the effect of a counsel's withdrawal with the client's consent, and because it reminds us that dismissal for non-appearance is a harsh sanction reserved for conduct that is truly negligent, irresponsible, contumacious, or dilatory.

Procedural History

Samsung Mabuhay filed a complaint for damages against Real Bank before the Regional Trial Court of Manila, originally raffled to Branch 9. After the case was re-raffled to Branch 20, which had been designated a Family Court, the trial court issued an order dismissing the complaint for non-suit because Samsung Mabuhay failed to appear at the mediation conference. Samsung Mabuhay moved for reconsideration, arguing that it had never been notified of the mediation because the notice had been sent to its former counsel, who had already withdrawn. The trial court denied the motion.

Samsung Mabuhay then filed a petition for certiorari under Rule 65 before the Court of Appeals. The Court of Appeals granted the petition, reversed and set aside the trial court's orders, and held that the trial judge committed grave abuse of discretion in not verifying the records, which would have shown that the former counsel had withdrawn and a new counsel had entered appearance. Real Bank's motion for reconsideration was denied. Real Bank then filed this petition for review under Rule 45 before the Supreme Court.

Facts

Samsung Mabuhay Corporation was a joint venture between a Korean corporation and a Philippine corporation, and it became the exclusive distributor of Samsung products in the Philippines. Sometime in December 1996, Conpinco Trading, a regular dealer in Davao City, issued five postdated checks payable to the order of Samsung Mabuhay Corporation. These checks were picked up by Reynaldo Senson, then the collection supervisor of Samsung Mabuhay for Visayas and Mindanao. Two of the checks were remitted and credited to Samsung Mabuhay's account. The three remaining checks, amounting to one million five hundred sixty-three thousand seven hundred fifty pesos, were never remitted.

Instead, Reynaldo Senson, using the alias Edgardo Bacea, opened an account with Real Bank in Malolos, Bulacan, under the name Mabuhay Electronics Company, a single proprietorship he owned and which was in no way related to Samsung's joint venture partner. Through what Samsung Mabuhay alleged was the bank's negligence, Senson indorsed and deposited the three checks into that account, the bank sent the checks for clearing with its guarantee of all prior endorsements, and the amount was credited to the impostor's account and later withdrawn. Despite demands, Real Bank refused to reimburse the value of the checks, so Samsung Mabuhay sued for damages.

During the proceedings, Samsung Mabuhay's original counsel, the law firm of V.E. Del Rosario and Partners, filed a notice of withdrawal of appearance with the conformity of Samsung Mabuhay. Later, the trial court issued an order requiring the parties to appear at a mediation conference, but the notice was sent to the former counsel. Samsung Mabuhay did not appear, and the mediator reported that no action was taken. A new counsel entered appearance shortly after. The trial court then dismissed the complaint for non-suit, and denied reconsideration.

Issues

• Whether or not the Court of Appeals erred in setting aside the trial court's order dismissing the case for failure of Samsung Mabuhay and its counsel to attend the mediation conference.
• Whether or not the Court of Appeals erred in holding that Samsung Mabuhay was not notified of the mediation conference.
• Whether or not the Court of Appeals erred in holding that the withdrawal of Samsung Mabuhay's counsel was sufficient even though the withdrawal was not approved by the trial court and no new counsel had yet been engaged.
• Whether or not the Court of Appeals erred in not finding Samsung Mabuhay guilty of negligence for failing to inquire about the status of its case and to engage new counsel for almost eight months.

Applicable Provisions

Section 5, Rule 18 of the Rules of Court, on the effect of failure to appear, provides:

Sec. 5. Effect of failure to appear. - The failure of the plaintiff to appear when so required pursuant to the next preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless otherwise ordered by the court. A similar failure on the part of the defendant shall be cause to allow the plaintiff to present his evidence ex parte and the court to render judgment on the basis thereof.

This is the provision the trial court invoked in dismissing the complaint for non-suit, and the Court examines whether that sanction was properly applied.

Section 26, Rule 138 of the Rules of Court, on change of attorneys, provides:

Sec. 26. Change of attorneys. - An attorney may retire at any time from any action or special proceeding, by the written consent of his client filed in court. He may also retire at any time from an action or special proceeding, without the consent of his client, should the court, on notice to the client and attorney, and on hearing, determine that he ought to be allowed to retire. In case of substitution, the name of the attorney newly employed shall be entered on the docket of the court in place of the former one, and written notice of the change shall be given to the adverse party.

This is the provision that governs whether the withdrawal of Samsung Mabuhay's original counsel was effective, and thus whether notice to that counsel was notice to the client.

Ruling

On the first issue, the Court held that the Court of Appeals did not err. While mediation is part of pre-trial and the Rules allow dismissal for failure of the plaintiff to appear, the basic question is whether the non-appearance was justifiable from the records. The Court found that it was.

On the second issue, the Court held that Samsung Mabuhay was not validly notified. Under the first sentence of Section 26 of Rule 138, the withdrawal of counsel with the client's conformity is completed once it is filed in court, and no further action by the court is needed other than the mechanical act of the clerk of court entering the new counsel's name in the docket and giving written notice to the adverse party. Since the notice of mediation was sent to the former counsel after that counsel had already validly withdrawn, the notice was ineffectual, and Samsung Mabuhay's absence was excusable and justified.

On the third issue, the Court held that the withdrawal was sufficient even without the trial court's approval, because a court's approval is indispensable only if the withdrawal is without the client's consent. Here, the withdrawal carried the client's conformity.

On the fourth issue, the Court held that Samsung Mabuhay was not negligent. The records showed that it had been willing and able to prosecute its case, promptly attending hearings and even moving to set the case for pre-trial, while it was Real Bank that twice asked for a resetting. The Court stressed that the substantive right of Samsung Mabuhay to recover a due and demandable obligation cannot be diminished by an unwarranted strictness in the application of a rule of procedure, and that unless a party's conduct is so negligent, irresponsible, contumacious, or dilatory as to provide substantial grounds for dismissal, the court should consider lesser sanctions.

Doctrine

A Bar candidate should retain these rules. First, the withdrawal of counsel with the written consent of the client is complete upon its filing in court; no judicial approval is required, and the court's role is merely mechanical, that is, to enter the new counsel's name in the docket and notify the adverse party. Second, notice sent to a counsel who has already validly withdrawn is not notice to the client, so the client's non-appearance at a pre-trial or mediation conference is excusable. Third, dismissal for non-appearance under Section 5, Rule 18 of the Rules of Court is a harsh sanction that should be imposed only where the party's conduct is so negligent, irresponsible, contumacious, or dilatory as to provide substantial grounds for dismissal; absent a pattern or scheme to delay, courts should decide to dispense rather than wield their authority to dismiss.

Disposition

The Supreme Court denied the petition for lack of merit, affirmed the decision and resolution of the Court of Appeals, and remanded the case to the Regional Trial Court of Manila, Branch 20, for continuation of proceedings until its conclusion with utmost dispatch.

Remember This

The single line worth memorizing is this: a counsel's withdrawal with the client's consent is complete upon filing, so notice to the withdrawn counsel is no notice at all, and dismissal for non-appearance is too harsh a sanction absent clear negligence or delay. Examiners like to use this case on the effect of withdrawal of counsel under Section 26 of Rule 138, and on the proper application of the sanction for failure to appear at pre-trial or mediation under Section 5 of Rule 18.