G.R. No. 143783 - Sps. Sarraga vs. Banco Filipino Savings and Mortgage Bank

Case Summary (G.R. No. 143783)

Factual Background: Mortgage, Foreclosure, and Repurchase Undertakings

Petitioners were the absolute owners of Lot 416-B and Lots 1053-A and 1053-B. They mortgaged these lots to Banco Filipino in the early 1980s as security for the loan of P3,618,714.59. When petitioners failed to pay, Banco Filipino foreclosed the mortgage.

After Banco Filipino was placed in conservatorship on June 29, 1984, and later closed and placed under receivership and liquidation on January 25, 1985, petitioners sought redemption. On April 9, 1985, Dante Sarraga wrote the receiver-liquidator offering to redeem the lots. On July 2, 1985, Deputy Receiver Arnulfo B. Aurellano replied that, at that stage of liquidation, the bank was not yet selling the properties. Because petitioners were not allowed to redeem within the period prescribed by law, titles were consolidated in the name of Banco Filipino.

Subsequently, on October 10, 1986, Banco Filipino recognized petitioners’ intention to redeem, and liquidation negotiations followed. Finally, on October 30, 1990, Renan Santos, then a liquidator of Banco Filipino, wrote petitioners allowing them to repurchase the three lots for P8,506,597.73, payable under terms that included 12% interest per annum and the option to pay by installments. Upon full payment, Banco Filipino would execute the corresponding deed of sale for the three lots. The agreement also granted petitioners the power to manage and administer the building on Lot 416-B. These terms were embodied in a Memorandum of Agreement (MOA) signed by the parties.

Banco Filipino later conveyed Lots 1053-A and 1053-B to petitioners through a formal conveyance dated May 16, 1991. On October 30, 1992, petitioners paid in full the total repurchase price for the three lots. Despite full payment, Banco Filipino refused to execute the deed of sale and to turn over Lot 416-B to petitioners.

RTC Civil Case: Quieting of Title and the Denial of the Motion for Reconsideration

Banco Filipino filed a complaint on April 5, 1993 in the RTC, Branch 38, Cagayan de Oro City. The complaint sought to quiet title and recover ownership and possession, along with accounting and damages, docketed as Civil Case No. 93-186. Petitioners filed an answer with counterclaim on April 27, 1993.

Petitioners were represented by Atty. Florentino G. Dumlao, Jr., who entered his appearance as counsel of record. Before pre-trial, Atty. Dumlao suffered a mild stroke, which incapacitated him from actively participating. Petitioners then engaged Atty. Rogelio Bagabuyo, who appeared during hearings and signed pleadings. Even so, Atty. Dumlao remained counsel of record. The RTC continued serving pleadings and court processes upon Atty. Dumlao.

On June 1, 1998, the RTC rendered its decision. It declared the sale and conveyance of the two Lapasan lots as valid and awarded title to petitioners, while declaring Banco Filipino as true and lawful owner of Lot 416-B and the building thereon. The RTC ordered petitioners to relinquish possession of Lot 416-B and the building to Banco Filipino, and dismissed other claims and counterclaims.

On July 1, 1998, petitioners filed a motion for reconsideration signed by both Atty. Dumlao and Atty. Bagabuyo. The RTC denied the motion through an order dated September 3, 1998.

Service of the Denial Order and the Subsequent Procedural Misstep

Petitioners received the September 10, 1998 order denying reconsideration. The RTC order was received by Ms. Llerna Guligado, a newly hired clerk in Atty. Bagabuyo’s office. Due to lack of experience, she left the order on her desk and it was misplaced. She did not bring the situation to Atty. Bagabuyo’s attention when she resigned on September 15, 1998.

Atty. Bagabuyo was appointed Senior State Prosecutor in the Department of Justice on September 14, 1998. Due to excitement and his relocation to Manila, he did not apprise Atty. Dumlao regarding the case status. This led petitioners to believe that no action had been taken on their motion for reconsideration. When petitioners later checked the case status on December 7, 1998, they learned that the records had already been transmitted to the Court of Appeals due to a partial appeal interposed by Banco Filipino. Petitioners attempted to file a notice of appeal, but the RTC denied it for being late.

Petitioners eventually filed a petition for relief from judgment. During the hearing, they learned that the September 3, 1998 denial order was served only upon Atty. Bagabuyo.

On February 12, 1999, the RTC dismissed the petition for relief from judgment on the ground that it was filed out of time. Petitioners filed a motion for reconsideration, which the RTC denied.

Court of Appeals Disposition on Certiorari

Petitioners then filed a petition for certiorari with the Court of Appeals, docketed as CA GR-SP No. 53765, asserting that the RTC committed grave abuse of discretion when it dismissed their petition for relief from judgment.

On June 20, 2000, the Court of Appeals dismissed the petition. It held that the RTC did not commit the claimed grave abuse of discretion. In doing so, it resolved the principal issues raised by petitioners: first, whether service of the September 3, 1998 order denying reconsideration was valid upon Atty. Bagabuyo; second, whether Atty. Bagabuyo was negligent in a manner that prevented a timely notice of appeal; and third, if so, whether such negligence was binding on petitioners.

The Parties’ Contentions Before the Supreme Court

Before the Supreme Court, petitioners argued that Atty. Bagabuyo was not their counsel of record because he did not formally appear. They contended that service of the RTC order upon him was therefore invalid.

The Court of Appeals rejected this view. The appellate court found that petitioners had, in fact, been represented by two lawyers, Atty. Dumlao and Atty. Bagabuyo. It relied on Section 2, Rule 13 of the 1997 Rules of Civil Procedure, as amended, which provides that where a party has appeared by counsel, service shall be made upon the counsel or one of them, unless service upon the party himself is ordered by the court.

The Court of Appeals also concluded that Atty. Bagabuyo was not a mere occasional participant. It found that he actively handled the case from the pre-trial stage and signed multiple pleadings, indicated his address in submissions, attended hearings, signed the motion for reconsideration, and conducted parts of the proceedings without deferring to Atty. Dumlao. It thus treated service upon him as compliance with Rule 13.

Legal Basis and Reasoning: Counsel’s Negligence, Exceptions, and Relief from Judgment

The Supreme Court addressed the doctrine on negligence. It recognized that the negligence of counsel generally binds the client, but it also noted that the application of that general rule depends on the circumstances. It reiterated that exceptions exist where reckless or gross negligence of counsel deprives the client of due process, where application would result in deprivation of liberty or property, or where interests of justice so require.

Here, the Court found that Atty. Bagabuyo’s negligence amounted to gross negligence. It held that the failure to inform petitioners immediately about the denial of their motion for reconsideration deprived them of the opportunity to appeal and ultimately exposed them to deprivation of property, particularly Lot 416-B.

In support, the Court cited Apex Mining, Inc. vs. Court of Appeals, explaining that when a party is prejudiced and denied a day in court due to counsel’s professional delinquency or gross negligence, litigation may be reopened to give the client another opportunity to present the case.

The Court

Case Syllabus (G.R. No. 143783)

Parties and Procedural Posture

Spouses Dante Sarraga, Sr. and Maria Teresa Sarraga sought review of the dismissal of their petition for relief from judgment by the Regional Trial Court, Branch 38, Cagayan de Oro City, in Civil Case No. 93-186.
Banco Filipino Savings and Mortgage Bank initiated Civil Case No. 93-186 for quieting of title, recovery of ownership and possession, accounting and damages against the spouses after the bank refused to execute a deed of sale for one of the mortgaged lots.
The Regional Trial Court rendered a decision partly adverse to the spouses by declaring the bank the true owner of Lot 416-B and ordering the spouses to surrender possession of Lot 416-B and the building thereon.
The spouses filed a motion for reconsideration, which the trial court denied, and later filed a petition for relief from judgment after their counsel failed to timely act.
The Court of Appeals dismissed the spouses petition for certiorari for alleged lack of grave abuse of discretion.
The spouses elevated the controversy to the Supreme Court via petition for review on certiorari, raising issues on service, counsel negligence, and the binding effect of such negligence.

Property and Mortgage Background

The spouses were the absolute owners of three parcels of land in Cagayan de Oro City, namely Lot 416-B in Poblacion and Lots 1053-A and 1053-B in Lapasan.
In the early 1980s, the spouses mortgaged the three parcels to Banco Filipino Savings and Mortgage Bank as security for a loan of P3,618,714.59.
The spouses defaulted, prompting the bank to foreclose the mortgage.
The bank was placed in conservatorship by the Central Bank of the Philippines on June 29, 1984, and was later ordered closed and placed under receivership and liquidation on January 25, 1985.

Foreclosure Liquidation and Redemption Efforts

Before the expiration of the redemption period, Dante P. Sarraga sent a letter on April 9, 1985 to the receiver-liquidator, offering to redeem the properties.
A deputy receiver responded on July 2, 1985 that the bank, at that liquidation stage, was not yet selling the properties.
The spouses were not allowed to redeem within the statutory period, leading to consolidation of titles in the name of Banco Filipino.
On October 10, 1986, the bank recognized the spouses’ intention to redeem, and negotiations later proceeded for repurchase under terms offered by the bank.
On October 30, 1990, the bank’s liquidator Renan Santos allowed repurchase of the three lots for P8,506,597.73 with 12% interest per annum, permitting payment by installments and requiring execution of a deed of sale upon full payment.
The repurchase terms also granted the spouses power to manage and administer the building on Lot 416-B.
The terms were embodied in a Memorandum of Agreement (MOA) signed by the parties, and the bank formally conveyed Lots 1053-A and 1053-B to the spouses on May 16, 1991.

Payment and Refusal to Convey Lot 416-B

On October 30, 1992, the spouses paid in full the total repurchase price for the three lots.
Despite full payment, the bank refused to execute the corresponding deed of sale and refused to turn over Lot 416-B to the spouses.
The bank’s refusal to convey Lot 416-B became the basis for the bank’s subsequent civil action against the spouses.

Civil Action in the Trial Court

On April 5, 1993, the bank filed with the Regional Trial Court, Branch 38, Cagayan de Oro City a complaint for quieting of title, recovery of ownership and possession, accounting and damages docketed as Civil Case No. 93-186.
On April 27, 1993, the spouses filed their answer with counterclaim.
The spouses were represented by Atty. Florentino G. Dumlao, Jr., and Atty. Rogelio Bagabuyo was engaged after Atty. Dumlao suffered a mild stroke that incapacitated him from actively participating.
Despite Bagabuyo’s active participation and signing of pleadings, Atty. Dumlao remained counsel of record, and the trial court continued serving court processes and documents upon Dumlao.
On June 1, 1998, the trial court rendered a decision declaring the conveyance of the two Lapasan parcels valid and ordering the bank to be recognized as true owner of Lot 416-B and its building, with an order for the spouses to surrender possession to the bank.
The trial court dismissed all other claims and counterclaims, and made no pronouncement as to costs.

Motion for Reconsideration and Service Issue

On July 1, 1998, the spouses filed a motion for reconsideration signed by both Attys. Dumlao and Bagabuyo.
On September 3, 1998, the trial court issued an order denying the motion for reconsideration.
The order was received on September 10, 1998 by Ms. Llerna Guligado, a newly hired clerk in Bagabuyo’s office, who misplaced the order and failed to inform Bagabuyo before she resigned on September 15, 1998.
Bagabuyo was appointed Senior State Prosecutor on September 14, 1998, relocated to Manila, and did not apprise Dumlao about the case status, so no timely appeal was taken.
The spouses later learned that the denial order had been served only upon Atty. Bagabuyo and not upon them directly.

Petition for Relief and Lower Court Rulings

Because the spouses discovered that the records had already been transmitted to the Court of Appeals due to a partial appeal interposed by the bank, they filed a n