Title
Dela Cruz vs. Sison
Case
G.R. No. 142464
Decision Date
Sep 26, 2005
A depositor sued Metrobank for unauthorized withdrawal of funds; default judgment was annulled due to procedural errors, remanding for fair proceedings.
default judgment
trial court
appeal

Case Summary (G.R. No. 142464)

Factual Background

GUILLERMO DELA CRUZ sued METROBANK for accounting, sum of money and damages seeking the return of PHP 730,000 allegedly deposited with the bank under Certificates of Time Deposit Nos. 4900683 and 490891, and claimed that those certificates had been declared lost by Adelina Dela Cruz, that replacement Certificates Nos. 7532 and 7531 were issued on July 7, 1986, and that the funds were withdrawn on August 11, 1986 by Cashier’s Check No. 7448 without petitioner’s knowledge or consent. The complaint also prayed for moral damages of PHP 1,000,000, exemplary damages of PHP 200,000, attorney’s fees of PHP 50,000, litigation expenses of PHP 30,000, and costs of suit. The bank answered that Adelina Dela Cruz, the principal account holder, had withdrawn the funds and averred that petitioner and Adelina procured a loan from the bank in the amount of PHP 730,000 on August 11, 1986, secured by assignment of the deposits under a Deed of Assignment, with proceeds released by Cashier’s Check No. 7448.

Trial Court Proceedings

Summons was served on METROBANK on April 2, 1998; the bank sought an extension and filed its Answer on April 28, 1998. Petitioner moved to declare the bank in default on the ground that the Answer was filed beyond the reglementary period. The trial court granted the motion and declared the bank in default in an Order dated June 10, 1998, permitting petitioner to present evidence ex parte. The bank’s motion for reconsideration of the default order was denied on October 28, 1998. The trial court entered judgment for petitioner on November 5, 1998, ordering the bank to pay PHP 730,000 with interest from 1986, PHP 1,000,000 as moral damages, PHP 200,000 as exemplary damages, PHP 50,000 as attorney’s fees, and PHP 30,000 as litigation expenses.

Postjudgment Motions and Enforcement Incidents

Without appealing, METROBANK filed a motion for inhibition and a petition for relief from judgment in December 1998 while petitioner sought execution. The trial court granted execution by Order dated December 11, 1998. The bank moved to quash the writ of execution and for injunctive relief, which the trial court denied in successive orders dated December 23 and December 28, 1998. The bank’s motion to cancel notice of levy was denied by order dated January 11, 1998 as reflected in the record. Petitioner moved to proceed with the auction sale of the levied property while the bank, through new counsel, opposed the sale. Thereafter METROBANK filed a petition before the Court of Appeals for annulment of the trial court judgment with a prayer for temporary restraining order and writ of preliminary injunction, alleging extrinsic fraud and denial of due process due to its former counsel’s mishandling of the case.

Proceedings Before the Court of Appeals

The Court of Appeals found prima facie merit in METROBANK’s petition, issued injunctive relief enjoining enforcement of the trial court decision and writ of execution, and, after full briefing, rendered the assailed Decision dated October 28, 1999 annulling and setting aside the trial court judgment. The CA ordered the trial court to admit the bank’s Answer and to try the case as if a timely motion for new trial had been granted. The CA denied petitioner’s motion for reconsideration in its Resolution dated March 17, 2000.

The Parties’ Contentions Before the Supreme Court

Petitioner urged that the trial court’s judgment could not be annulled on the basis of counsel error because mere negligence of counsel binds the client and does not constitute extrinsic fraud absent exceptional circumstances. Petitioner further argued that the bank had adequate in-house and retained counsel resources and failed to show that it was prevented from presenting its defense. METROBANK maintained that its former counsel’s omissions and dilatory acts—enumerated in the record—constituted denial of effective legal representation amounting to extrinsic fraud and that the bank had a meritorious defense because petitioner knew or acquiesced to the disposition of the funds and the bank’s Answer was filed only one day late.

Issues Presented

The dispositive questions were whether the negligence or mishandling of litigation by METROBANK’s former counsel amounted to extrinsic fraud warranting annulment of the trial court’s judgment, and whether the Court of Appeals correctly annulled the judgment and ordered the trial court to admit the late Answer and proceed with trial.

Court’s Analysis and Legal Reasoning

The Supreme Court held that, as a general rule, a client is bound by the negligence or mistake of his counsel and mere negligence does not ordinarily constitute extrinsic fraud sufficient to annul an otherwise final judgment. The Court recognized, however, that exceptions exist when the purposes of justice require relaxation of the rule to avoid a miscarriage of justice, citing the reasoning in Elcee Farms, Inc. vs. Semillano and other precedents. On the particular facts, the Court concluded that the acts and omissions of METROBANK’s former counsel did not rise to the level of gross or reckless negligence constituting extrinsic fraud. Despite that conclusion, the Court agreed with the Court of Appeals’ remedial disposition. The CA had correctly observed that the bank’s Answer raised substantial defenses that, if proven, could bar petitioner’s claims, and that strict adherence to the one-day delay technicality produced an inequitable deprivation of the bank’s property rights and of a fair opportunity to be heard. The Supreme Court endorsed the CA’s view that the trial court ought to have liberally applied the Rules of Court and admitted the Answer, particularly given the substantial amounts involved and the trial court’s own procedural deficiencies. The Cou

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