MULTI-TRANS AGENCY PHILS. INC., PETITIONER, VS. ORIENTAL ASSURANCE CORP., RESPONDENT.

Multi-Trans Agency versus Oriental Assurance

The Case

This is a petition for review on certiorari brought by Multi-Trans Agency Philippines, Incorporated against Oriental Assurance Corporation, arising from a complaint for a sum of money. Oriental, as insurer, paid its assured for one box of cargo that was shortlanded from a shipment carried from England to Manila, and then sued the ship agent to recover what it had paid, invoking subrogation. The case matters to a reviewee because it is the Supreme Court's cleanest recent statement on when the negligence of counsel will be excused so as to reopen a defaulted case — the boundary between the general rule that a client is bound by his lawyer's mistakes and the exception of gross negligence that deprives the client of due process.

Procedural History

Oriental filed its complaint for a sum of money before the Regional Trial Court of Manila, Branch 13, on 22 July 1997, suing both Multi-Trans and Neptune Orient Lines. Multi-Trans moved to dismiss on the ground that the complaint stated no cause of action; the trial court denied the motion. Because the order denying the motion was sent to Multi-Trans itself and not to its counsel, the period to answer had not begun to run; but when a copy finally reached counsel and no answer was filed, the trial court declared Multi-Trans in default. The trial court then allowed Oriental to present its evidence ex parte, and on 30 August 1999 rendered judgment holding Multi-Trans and Neptune solidarily liable. Multi-Trans, through new counsel, moved for a new trial and to admit its answer, blaming the gross negligence of its former lawyer. The trial court denied the motion, ruling that Multi-Trans was not blameless because it had been alerted to its counsel's remissness and did nothing for four months. Multi-Trans appealed. The Court of Appeals affirmed with modification, holding that only Multi-Trans was liable and absolving Neptune. Both sides moved for reconsideration; both were denied. Multi-Trans then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Imrex Enterprises imported from England seventy-two boxes and one pal box of Opacolor paint, contained in one container van and shipped from Southampton to Manila on board the vessel Tokyo Bay under a bill of lading. The shipment was transshipped at Singapore on board the vessel Neptune Beryl, which docked at the Manila International Port on 29 August 1996. Oriental insured the shipment against loss or damage. When the container was unloaded and stripped at the open container yard of the Manila North Harbor, only seventy-two boxes were found; the one pal box of yellow Opacolor weighing five hundred kilos was not delivered, or was shortlanded, as shown by a good order cargo receipt issued by Neptune.

Imrex claimed from Oriental, which paid the value of the missing box under the marine insurance policy. Claiming to be subrogated to the rights of Imrex, Oriental demanded payment from Multi-Trans and Neptune; both refused. Oriental then sued both, pleading that it was uncertain from whom it was entitled to relief, and praying that either or both be ordered to pay the amount paid, with legal interest, attorney's fees, and costs.

Multi-Trans, through its former counsel, filed only a motion to dismiss. After that motion was denied, counsel filed nothing more. He did not file an answer, did not oppose the motion to declare his client in default, and did not move to set aside the order of default. Worse, when his client confronted him after learning of the default, he misrepresented that he had already filed a motion to lift the order. The client relied on that assurance. The case proceeded to judgment without any evidence from Multi-Trans.

Issues

• Whether or not the Court of Appeals erred in disregarding the acts of the petitioner's former counsel as amounting to gross negligence, and in refusing to grant a new trial on that ground.
• Whether or not the Court of Appeals erred in affirming the award of damages despite the petitioner's claim that it was not the agent of the carrier and that the evidence was insufficient.

Applicable Provisions

Section 1 of Rule 37 of the 1997 Revised Rules of Civil Procedure, on the grounds for a new trial, provides:

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; or (b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result.

This is the procedural gateway: a defaulted party must show excusable negligence, and the whole question is whether the lawyer's conduct rose to that level or fell below it into gross negligence.

Ruling

On the first issue, the Court ruled in favor of Multi-Trans. It began with the settled rule that the negligence of counsel binds the client, because any act performed by counsel within the scope of his general or implied authority is regarded as the act of the client. But the Court carved out exceptions: where the reckless or gross negligence of counsel deprives the client of due process of law; where the application of the rule will result in outright deprivation of the client's liberty or property; or where the interests of justice so require and relief ought to be accorded to the client who suffered by reason of the lawyer's gross or palpable mistake or negligence. Gross negligence, the Court explained, is the want or absence of, or failure to exercise, slight care or diligence, or the entire absence of care — a thoughtless disregard of consequences without exerting any effort to avoid them.

Applying that standard, the Court found the negligence of Multi-Trans's former counsel so gross that the client was deprived of its day in court. Counsel filed only a motion to dismiss; after its denial he filed nothing more. He did not oppose the motion for default, did not move to set aside the order of default, did not inform his client of the default, and even misrepresented that a motion to lift had been filed. The Court held that for a claim of counsel's negligence to prosper, nothing short of clear abandonment of the client's cause must be shown — and here that abandonment was shown. It rejected the lower courts' view that Multi-Trans was equally blameworthy: a client may reasonably rely on his lawyer's assurances, and this client had in fact confronted counsel upon learning of the default. The Court quoted its earlier ruling in Sarraga against Banco Filipino that a client may reasonably expect that his counsel will make good his representations, and its ruling in Amil against the Court of Appeals that trial courts should be liberal in setting aside orders of default and granting new trials where the defendant appears to have a meritorious defense.

On the second issue, the Court found the petition meritorious as a whole and ordered a new trial, so that Multi-Trans could be heard on the merits — including its defense that it was a mere freight forwarder and not the owner or operator of the vessel — rather than have judgment stand on evidence it never had the chance to rebut.

Doctrine

Three rules a candidate should be able to write:

• The negligence of counsel binds the client. Any act of counsel within the scope of his general or implied authority is regarded as the act of the client, and counsel's mistake may produce an unfavorable judgment against the client.
• The exceptions. Relief is accorded where the reckless or gross negligence of counsel deprives the client of due process of law; where applying the rule would result in outright deprivation of the client's liberty or property; or where the interests of justice so require and the client suffered by reason of the lawyer's gross or palpable mistake or negligence.
• The threshold is clear abandonment. For a claim of counsel's negligence to prosper, nothing short of clear abandonment of the client's cause must be shown; gross negligence means the want of even slight care, a thoughtless disregard of consequences. These rules operate through Section 1 of Rule 37, which requires excusable negligence as a ground for new trial.

Disposition

The Supreme Court granted the petition, set aside the rulings of the Court of Appeals and the trial court as against Multi-Trans, and ordered that its motion for new trial and to admit its answer be granted so the case could be heard on the merits.

Remember This

Memorize the line: the negligence of counsel binds the client, except where it is so gross that it amounts to clear abandonment of the client's cause and deprives him of due process. Examiners use this case to test the exception to the binding effect of counsel's negligence, and to test whether a defaulted defendant who relied on his lawyer's false assurance of a motion to lift the default is entitled to a new trial under Section 1 of Rule 37.