G.R. No. 165767 November 29, 2005
SPS. WILLIAM G. FRIEND and MARIA RENEE FRIEND, Petitioners, vs. UNION BANK OF THE PHILIPPINES, Respondent.

FACTS

Spouses William and Maria Renee Friend obtained a loan from Union Bank to purchase a Hyundai Starex van, executing a promissory note secured by a chattel mortgage on the vehicle. They subsequently defaulted on their payments. Despite demands, they failed to pay or surrender the vehicle, prompting the bank to file an action for sum of money with a prayer for a writ of replevin. The writ was issued but could not be implemented as the sheriff found the vehicle was no longer in the spouses’ possession; William Friend admitted to having returned it to the dealer, Drive Motors, Inc.
The spouses failed to file their answer within the reglementary period. The Regional Trial Court declared them in default upon Union Bank’s motion and, after ex parte presentation of evidence, rendered judgment ordering the spouses to pay the outstanding loan balance, attorney’s fees, and liquidated damages. They appealed to the Court of Appeals, which affirmed the liability but modified the awards by deleting the attorney’s fees and reducing the liquidated damages.

ISSUE

The core issues are: (1) whether the petitioners were denied due process when declared in default due to their counsel’s negligence, and (2) whether they are liable under the loan agreement despite having returned the vehicle to the dealer.

RULING

The Supreme Court denied the petition, affirming the appellate court’s decision. On the first issue, the Court held that the general rule—that the negligence of counsel binds the client—applies. The exceptions, such as when gross negligence deprives a client of due process, were not present. Due process is satisfied by a reasonable opportunity to be heard. Here, while their former counsel failed to file an answer, he seasonably filed a notice of appeal. This opened the case for comprehensive review by the Court of Appeals, where the spouses could raise their defenses. Allowing a party to invalidate proceedings simply by alleging counsel’s negligence would undermine judicial stability.
On the second issue, the Court ruled that the spouses remain liable for the loan. The action was based on the promissory note, a distinct contract that creates a direct obligation to pay, independent of the chattel mortgage. The mortgage is merely an accessory security. Therefore, the fact that they had relinquished the vehicle to the dealer does not extinguish their primary monetary obligation to the bank. Their arrangement with Drive Motors, which acted merely as an intermediary for payments, did not relieve them of their direct liability to Union Bank as the principal debtors under the note. Prudence dictated that they should have verified the loan status directly with the bank, especially after learning the dealer’s checks had bounced.