SPOUSES FERNANDO C. CRUZ AND AMELIA M. CRUZ AND MILLIANS SHOE, INC., PETITIONERS, V. ONSHORE STRATEGIC ASSETS (SPV-AMC), INC., UNITED OVERSEAS BANK PHILIPPINES (FORMERLY WESTMON…

Cruz versus Onshore Strategic Assets

The Case

This is a petition for review on certiorari brought by spouses Fernando and Amelia Cruz and Millians Shoe, Inc. against Onshore Strategic Assets, United Overseas Bank Philippines, and the sheriff and register of deeds of Marikina City. The petitioners had filed a complaint for annulment of extrajudicial foreclosure sale, annulment of loan documents, accounting, and damages. The trial court dismissed that complaint outright because their counsel failed to indicate in the pleading her Mandatory Continuing Legal Education compliance number for the immediately preceding compliance period, as required by Bar Matter Number 1922. The case matters because it fixes the consequences of that omission, the limits of liberal construction of procedural rules, the binding effect of counsel's negligence, and the correct remedy against a dismissal without prejudice.

Procedural History

The Regional Trial Court of Marikina City, Branch 263, granted the motion to dismiss in an order dated September 21, 2011, holding that counsel knowingly ignored Bar Matter Number 1922 and declaring that it would not delve into the issue of forum shopping because the complaint should be dismissed outright. The trial court denied the petitioners' motion for reconsideration in an order dated March 19, 2012. The petitioners appealed to the Court of Appeals, which dismissed the appeal in a decision dated July 25, 2013, agreeing that there was no compliance with the rule and adding that appeal was not the proper remedy because the dismissal was without prejudice. The Court of Appeals denied reconsideration in a resolution dated June 9, 2014. The petitioners then came to the Supreme Court by petition for review on certiorari.

Facts

On March 17, 2011, the petitioners filed their complaint for annulment of extrajudicial foreclosure sale, loan documents, accounting, and damages against the respondents before the Regional Trial Court of Marikina City. Their counsel, Atty. Michelle Martinez, indicated in the complaint her Mandatory Continuing Legal Education certificate number for the second compliance period, not the third. The deadline for the third compliance period had been April 14, 2010, almost a year before the complaint was filed.

Instead of answering, Onshore Strategic Assets moved to dismiss on three grounds: non-compliance with Bar Matter Number 1922, forum shopping, and lack of legal capacity of Millians Shoe, Inc. because its articles of incorporation had been revoked by the Securities and Exchange Commission. The petitioners opposed, admitting that their counsel had a two-hour deficiency for the third compliance period, which they attributed to client calls and trips to Australia, and praying that the complaint not be dismissed for excusable negligence and honest oversight.

The trial court dismissed the complaint and ordered it expunged from the records, refusing to reach the forum shopping issue. On appeal, the Court of Appeals affirmed, noting that no proof of the claimed two-hour deficiency was offered and that appeal was the wrong remedy. The Supreme Court then took up the petition.

Issues

• Whether or not the Court of Appeals erred in dismissing the petition notwithstanding the claim that the petitioners were denied the constitutionally guaranteed right to due process.
• Whether or not the trial court erred in concluding that the negligence and mistake of counsel bind the client.
• Whether or not appeal to the Court of Appeals was the proper remedy from the trial court's orders dismissing the complaint.

Applicable Provisions

Bar Matter Number 1922, on indicating the counsel's Mandatory Continuing Legal Education certificate of compliance or exemption in all pleadings, provides:

The Court further Resolved, upon the recommendation of the Committee on Legal Education and Bar Matters, to REQUIRE practicing members of the bar to INDICATE in all pleadings filed before the courts or quasi-judicial bodies, the number and date of issue of their MCLE Certificate of Compliance or Certificate of Exemption, as may be applicable, for the immediately preceding compliance period. Failure to disclose the required information would cause the dismissal of the case and the expunction of the pleadings from the records.

This is the rule the petitioners' counsel violated, and it supplies the sanction the trial court imposed.

Section 1 of Rule 41 of the 1997 Revised Rules of Civil Procedure, on the subject of appeal, provides:

Section 1. Subject of appeal. — An appeal may be taken from a judgment or final order that completely disposes of the case, or of a particular matter therein when declared by these Rules to be appealable.

The same section lists the orders from which no appeal may be taken, including an order dismissing an action without prejudice, and directs the aggrieved party to file an appropriate special civil action under Rule 65. This determines whether the petitioners chose the right remedy.

Ruling

On the first issue, the Court held that there was no violation of due process. The dismissal was brought about by counsel's non-observance of Bar Matter Number 1922, but it did not prejudice the petitioners' cause because the complaint had not been adjudicated on the merits and could be re-filed with complete compliance. No right was taken away from them.

On the second issue, the Court applied the doctrinal rule that the negligence of counsel binds the client, otherwise there would be no end to a suit so long as a new counsel could be employed to allege that prior counsel had not been sufficiently diligent. The Court recognized exceptions: where reckless or gross negligence of counsel deprives the client of due process, where application of the rule will result in outright deprivation of liberty or property, or where the interests of justice so require. None obtained, since the dismissal was without prejudice and the court had not ruled on the merits. The Court also refused to relax the rule: counsel's busy schedule was not a sufficient justification, no evidence proved the claimed two-unit deficiency, and counsel had more than a year after the promised May 2011 lecture to comply but stubbornly refused. The Court noted that Bar Matter Number 1922 had since been amended so that failure to disclose subjects counsel only to penalty and disciplinary action, and that in Doble versus ABB, Inc. it applied the amendment to a pleading filed before the amendment; but it declined to extend that liberality here because counsel in that case had complied, albeit belatedly, and exerted honest effort to correct the defect.

On the third issue, the Court held that appeal was not proper. The dismissal was without prejudice, and under Section 1 of Rule 41 no appeal may be taken from an order dismissing an action without prejudice; the aggrieved party may file an appropriate special civil action under Rule 65. The Court of Appeals therefore correctly dismissed the appeal for being the wrong remedy.

Doctrine

First, a practicing lawyer must indicate in all pleadings filed before the courts the number and date of issue of the Mandatory Continuing Legal Education certificate of compliance or exemption for the immediately preceding compliance period; under Bar Matter Number 1922 as originally worded, failure to disclose causes the dismissal of the case and the expunction of the pleadings from the records. Second, the negligence of counsel binds the client, subject only to the exceptions of reckless or gross negligence depriving the client of due process, outright deprivation of liberty or property, and the interests of justice. Third, liberal construction of procedural rules is invoked only in proper cases and under justifiable causes; a busy schedule and an unproven claim of substantial compliance will not suffice. Fourth, no appeal lies from an order dismissing an action without prejudice; the remedy is a special civil action under Rule 65, and the complainant may simply re-file.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed; the respondents prevailed.

Remember This

Memorize this line: the negligence of counsel binds the client, and no appeal lies from a dismissal without prejudice, only a special civil action under Rule 65. Examiners use this case to test Bar Matter Number 1922 compliance, the limits of liberal construction, and the correct remedy against a dismissal without prejudice.