Title
Multi-Trans Agency Phils., Inc. vs. Oriental Assurance Corp.
Case
G.R. No. 180817
Decision Date
Jun 23, 2009
Multi-Trans seeks new trial due to former counsel's gross negligence, claiming it was not the agent of the vessel "Tokyo Bay" and deprived of due process. SC remands case.
shipping agency
new trial
default
A

Case Summary (G.R. No. 180817)

Factual Background of the Dispute

Oriental’s predecessor-in-interest, Imrex Enterprises, imported from England seventy-two (72) boxes and one (1) pal/box of various colors of Opacolor, contained in a single container van shipped from Southampton to Manila aboard “Tokyo Bay,” as evidenced by Bill of Lading No. MA-19943/02. The shipment was later transshipped from Singapore aboard “M/V Neptune Beryl,” which arrived at and docked at the Manila International Port on 29 August 1996.

Oriental insured the shipment against loss and/or damage under Marine Insurance Policy No. OAC-M-96/688, for P1,078,012.16. Upon unloading and stripping at the open Container Yard of the Manila North Harbor, the consignee found only 72 boxes. The missing item was one pal/box of Opacolor CC 22932 Yellow, weighing 500 kilos. Oriental relied on Good Order Cargo Receipt No. 1792 issued by Neptune as evidence that the missing item was not delivered or was shortlanded. The 72 boxes were subsequently withdrawn and delivered to Imrex Enterprises’ warehouse in Pasig City.

Oriental alleged that the non-delivery or shortlanding of the one box resulted from the negligence of Multi-Trans and Neptune and/or the vessels’ captain and crew in loading, stowing, taking care of, handling, and unloading the shipment. Imrex Enterprises filed a claim for the value of the missing item. After paying P256,937.03, Oriental invoked the insurance policy’s subrogation provisions and demanded indemnification from Multi-Trans and Neptune. The defendants refused payment, prompting Oriental’s complaint seeking P256,937.03 with legal interest, attorney’s fees, and costs.

Neptune’s Defense and Multi-Trans’s Motion to Dismiss

Neptune denied liability in substantial respects. It asserted that it was only a commercial agent of “M/V Neptune Beryl,” that it did not know the shipment’s contents and quantity because it was carried on “Said to Contain” and “Shipper’s Load and Count” terms. It likewise invoked multiple defenses, including denial of privity and of any demand, claims of limited responsibility after discharge, possible causes such as perils of the sea and inherent vice or defect of the goods, issues on the legal basis of subrogation, limitations of liability under the Bill of Lading, and defenses sounding in prescription and laches, among others. It further invoked the nature of the bill of lading terms and argued that the relevant carriage provisions and applicable law absolved or limited it from liability.

Multi-Trans, through counsel Jose Ma. Q. Austria, filed a Motion to Dismiss on the ground that the complaint failed to state a cause of action. It argued that while the complaint alleged it was operator/ship agent of “Tokyo Bay,” the bill of lading attached to the complaint instead named it as agent of Multimodal Transport Operator, not the vessel “Tokyo Bay.” It also argued that it could not be the operator of “Tokyo Bay” absent any allegation that the vessel was under a bareboat charter to Transtainer Systems, the principal of Multi-Trans. Oriental opposed the motion, and the trial court denied it in an Order dated 25 October 1997.

Trial Court Proceedings: Default and Ex Parte Reception of Oriental’s Evidence

The procedural course that followed became central to the petition. The trial court directed that Multi-Trans receive the Order denying the motion to dismiss because Multi-Trans itself apparently had not been served; the court stated that the period to file an answer had not yet commenced. Despite this, Multi-Trans was later declared in default.

On 17 February 1999, Oriental moved to declare Multi-Trans in default for failure to file its answer. In its Order dated 26 February 1999, the RTC stated that the prior Order denying the motion to dismiss had been sent to Multi-Trans but not to its counsel; thus, the period for filing an answer had not yet started. It directed that a copy be sent to Multi-Trans’ counsel and noted proof of transmittal. When no answer was filed, the RTC, by Order dated 27 March 1999, declared Multi-Trans in default, relying on certification from the Post Office of Makati that counsel had received the denial order on 25 October 1997 and had not yet filed an answer.

The RTC then proceeded with pre-trial among Oriental and Neptune. For Multi-Trans, Oriental later reiterated the motion for default, and the RTC reiterated prior orders. Oriental was allowed to present evidence ex parte when Neptune and its counsel failed to appear at pre-trial. On 17 June 1999, Oriental presented two witnesses and formally offered Exhibits A to O, which the trial court admitted. On 30 August 1999, the RTC rendered its decision ordering Multi-Trans and Neptune to pay P256,937.03 plus legal interest and attorney’s fees, in a dispositive ruling that imposed joint and several liability.

Multi-Trans’s counsel later withdrew appearance and new counsel appeared. However, the principal harm to Multi-Trans’s opportunity to defend had already occurred, because the trial court had received evidence while Multi-Trans remained in default and had not presented its own evidence.

Multi-Trans’s Motion for New Trial and the RTC’s Denial

After a new counsel entered appearance for Multi-Trans on 27 September 1999, counsel filed a Motion for New Trial and a request to admit an attached answer. Multi-Trans argued that it should be excused from the consequences of default due to counsel’s negligence or incompetence. It maintained that its former counsel, Atty. Jose Ma. Q. Austria, had not filed a motion to lift the order of default despite assurances and despite receipt of the default order. In the affidavit of merit, Multi-Trans stated that it was surprised by the default because counsel allegedly led it to believe that relief proceedings were being taken. It asserted that counsel’s actions deprived Multi-Trans of the chance to present evidence and contest the suit. Multi-Trans also professed a potentially meritorious defense by characterizing itself as a mere freight forwarding firm, disavowing any ownership or operator status over “Tokyo Bay,” and disclaiming participation in filing up, packing, storing, and loading of the shipment.

In an Order dated 29 November 1999, the RTC denied the motion for new trial. The court reasoned that Multi-Trans was not a true victim of counsel’s misconduct because Multi-Trans had been furnished copies of relevant papers, including the order declaring it in default. The RTC emphasized that after Multi-Trans received notice in March 1999, it took no effective action for about four months before the decision was rendered on 30 August 1999. The RTC concluded that Multi-Trans did not show excusable negligence under Section 1, Rule 37 and held that Oriental had presented sufficient evidence that the bill of lading pointed to Multi-Trans as the ship agent of the vessel on which the cargo was loaded.

Neptune’s motion for reconsideration was also denied on 1 December 1999.

Court of Appeals Proceedings and Ruling

Both defendants pursued appellate review via notices of appeal. The Court of Appeals decided the appeal on 4 December 2006. It denied Multi-Trans’ appeal while granting Oriental’s. Although it affirmed with modification the RTC ruling, it ruled that Multi-Trans was liable, and it rejected Multi-Trans’ challenge premised on the alleged excusability of its failure to answer and its entitlement to a new trial. The Court of Appeals denied Multi-Trans’ motion for reconsideration on 10 December 2007.

Issues Raised in the Petition

In its petition before the Supreme Court, Multi-Trans assigned as errors that the Court of Appeals disregarded significant and uncontested acts of its former counsel amounting to a “betrayal” of the client’s interest, and that the appellate court affirmed the award despite alleged lack or insufficiency of evidence and the alleged absence of any agency relationship over the vessel “Tokyo Bay.” Multi-Trans contended that the failure of counsel to file an answer and to take action after default should not be treated as mere simple negligence. It invoked recognized exceptions to the rule that negligence of counsel binds the client. It asserted that the negligence of counsel was reckless or gross and deprived it of due process, thus warranting a new trial, consistent with jurisprudence such as Tan v. Court of Appeals.

Multi-Trans disputed the Court of Appeals’ observation that it was not entirely blameless and argued that it had done more than the appellate court credited. It maintained that it relied on counsel’s assurance that a motion to lift the order of default had been filed.

The Supreme Court’s Reasoning: Gross Negligence and Deprivation of Due Process

The Supreme Court found merit in the petition and treated the request for a new trial as anchored on excusable negligence under Section 1, Rule 37 of the 1997 Revised Rules of Civil Procedure. The Court acknowledged the general rule that the negligence of counsel binds the client because counsel’s acts within the scope of authority are deemed acts of the client. Nonetheless, it reiterated exceptions: when counsel’s reckless or gross negligence deprives the client of due process of law, when the application of the general rule results in outright deprivation of liberty or property, or when the interests of justice require relief from a client prejudiced by gross or palpable mistake or negligence of counsel.

Applying these exceptions, the Court held that Multi-Trans’ former counsel’s negligence was so gross as to deprive Multi-Trans of its day in court. It noted that Multi-Trans was declared in default because counsel failed to file an answer after the trial court denied the motion to dismiss. The Court emphasized that counsel did not oppose the motion to declare Multi-Trans in default despite notice, did not file a motion to set aside the default order despite being apprised, did not inform Multi-Trans of the failure to file an answer and of the order declaring default and a

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