G.R. No. 94457 ; March 18, 1991
Victoria Legarda, petitioner, vs. The Honorable Court of Appeals, New Cathay House, Inc., The Honorable Regional Trial Court of Quezon City, Branch 94, respondents.

FACTS

Petitioner Victoria Legarda was sued by private respondent New Cathay House, Inc. for specific performance to enforce a purported five-year lease contract over her property. Legarda engaged counsel, who filed a motion for extension to file an answer but then utterly failed to submit the pleading. Consequently, the trial court declared Legarda in default, allowed ex-parte presentation of evidence, and rendered a judgment against her. The decision ordered her to execute the lease contract and awarded substantial damages exceeding P300,000.
Counsel took no action on the received decision, allowing it to become final and executory. A writ of execution was issued, and Legarda’s property, valued at millions, was sold at a public auction for only P376,500 to satisfy the judgment. The buyer, Roberto V. Cabrera, Jr. (associated with the private respondent), consolidated ownership after the redemption period. Upon discovering these events, Legarda, through the same counsel, belatedly filed a petition for annulment of judgment with the Court of Appeals, which was dismissed.

ISSUE

Whether the gross negligence of petitioner’s counsel warrants the annulment of the trial court’s judgment and the subsequent auction sale.

RULING

Yes. The Supreme Court granted the petition, annulling all assailed proceedings and orders. While the general rule is that a client is bound by the mistakes of counsel, a recognized exception exists in cases of gross or palpable negligence. Here, counsel’s negligence was egregious and repeated: he failed to file an answer after securing an extension, took no action to set aside the default order or appeal the adverse judgment, and allowed the execution and auction of a highly valuable property for a grossly inadequate price to satisfy a questionable monetary award. This series of omissions effectively deprived Legarda of her day in court and resulted in the loss of her property worth millions to the lessee-claimant.
The Court found that such gross negligence amounted to a deprivation of due process, justifying equitable relief to prevent a grave miscarriage of justice and unjust enrichment. Consequently, the trial court’s decision, the Court of Appeals’ dismissal, and all certificates of sale were declared null and void. The private respondent was ordered to reconvey the property to Legarda. The Court also required the negligent counsel to show cause why he should not be held administratively liable.