Gajudo v Traders Royal Bank || Gr no 151098 || 14 March 2008

Note: Petitioners here are the 4 Gajudos and 1 Chua and that the property was
owned by them in common. (Thus, Id refer to them as the Gajudos, Chua, or
petitioners (all of them).

Doctrine: The mere fact that a defendant is declared in default does not
automatically result in the grant of the prayers of the plaintiff. To win, the latter
must still present the same quantum of evidence that would be required if the
defendant were still present. A party that defaults is not deprived of its rights,
except the right to be heard and to present evidence to the trial court. If the
evidence presented does not support a judgment for the plaintiff, the complaint
should be dismissed, even if the defendant may not have been heard or allowed
to present any countervailing evidence.

Summary: Chua obtained a loan from TRB secured by a Real Estate Mortgage
of a property owned in common by Chua and the Gajudos. They failed to settle
the loan and thus there was an extrajudicial foreclosure of the property in which
the winning bidder was the bank. The petitioners contend that they were allowed
by the bank to repurchase the property but it was sold to another. The petitioners
state that that said new defendants they included in their amended complaint
conspired with the bank in canceling the notice of lis pendens by falsifying a letter
sent to and filed with the office of the Register of Deeds of Quezon City,
purportedly for the cancellation of said notice so now they are claiming for
damages. Summons were served on the bank but they failed to file their answer.
Thus, the petitioners were allowed to present ex parte to claim for damages. The
petitioners contend that since the bank was declared in default the pieces of
evidence they presented must already be sufficient for them to have a favorable
judgment. But evidence presented not sufficient. Hence, doctrine.

Facts:

In mid 1977 Danilo Chua obtained a loan from the Traders Royal Bank in the
amount of P75,000.00 secured by a real estate mortgage over a parcel of
land.

The loan was not paid and thus the bank commenced extrajudicial foreclosure
proceedings on the property. The auction sale of the property was set on 10 June
1981, but was reset to 31 August 1981, on Chus request, which, however, was
made without the knowledge and conformity of the other petitioners (Gajudos).
On the rescheduled auction sale, the Sheriff of Quezon City sold the property to
the bank, the highest bidder therein, for the sum of P24,911.30.

The other petitioners (Gajudo) assailed this because bid price was shockingly or
unconscionably, low; that the other [petitioners] failed to redeem the property due
to their lack of knowledge of their right of redemption, and want of sufficient
education; that, although the period of redemption had long expired, Chua
offered to buy back, and bank also agreed to sell back the foreclosed property,
on the understanding that Chua would pay the bank the amount of P40,135.53,
representing the sum that the bank paid at the auction sale, plus interest and that
Chua made an initial payment thereon in the amount of P4,000.00 duly receipted
by the bank; that, in a sudden change of position, the bank wrote Chua asking
that he could repurchase the property, but based on the current market value
thereof; and that sometime later, the bank wrote Chua anew, requiring him to
tender a new offer to counter the offer made thereon by another buyer.

The bank, filed its answer with counterclaim, asserting that the foreclosure sale
of the mortgaged property was done in accordance with law; and that the bid
price was neither unconscionable, nor shockingly low; that petitioners slept on
their rights when they failed to redeem the property within the one year statutory
period; and that bank, in offering to sell the property to Chua on the basis of its
current market price, was acting conformably with law, and with legitimate
banking practice and regulations.

A big conflagration hit the City Hall of Quezon City, which destroyed, amongst
other things, the records of the case. After the records were reconstituted, the
petitioners discovered that the foreclosed property was sold by the bank to the
Ceroferr Realty Corporation, and that the notice of lis pendens annotated on the
certificate of title of the foreclosed property, had already been cancelled.
Accordingly, with leave of court, the petitioners amended their complaint, but
the Trial Court dismissed the case without prejudice due to their failure to pay
additional filing fees.The petitioners refiled the complaint impleaded as additional
defendants the Ceroferr Realty Corporation and/or Cesar Roque, and Lorna
Roque, and included an additional cause of action, to wit: that said new
defendants conspired with the bank in canceling the notice of lis pendens
by falsifying a letter sent to and filed with the office of the Register of
Deeds of Quezon City, purportedly for the cancellation of said notice.

Summons was served on the bank. Supposing that all the defendants had
filed their answer, the petitioners filed a motion to set case for pretrial,
which motion was, however, denied by the Trial Court in its Order on the
ground that the bank has not yet filed its answer. The petitioners filed a
motion for reconsideration, thereunder alleging that they received by registered
mail, on 19 October 1990, a copy of the banks answer with counterclaim, dated
04 October 1990, which copy was attached to the motion. The trial Court denied
for lack of merit, the motion for reconsideration, therein holding that the answer
with counterclaim filed by the bank referred to another civil case pending before
Branch 90 of the same Court.

The petitioners filed a motion to declare the bank in default, thereunder

alleging that no answer has been filed despite the service of summons on it
on 26 September 1990. The Trial Court declared the motion submitted for
resolution upon submission by petitioners of proof of service of the motion on the
bank. Upon proof that petitioners had indeed served the bank with a copy
of said motion, the Trial Court issued an Order of default against the bank.
On petitioners motion, they were by the Court allowed to present evidence
ex parte. Thereafter, the Trial Court rendered the new questioned partial
decision.

Aggrieved, the bank filed a motion to set aside the partial decision by default
against Traders Royal Bank and admit their Answer with counterclaim:
thereunder it averred, amongst others, that the erroneous filing of said answer
was due to an honest mistake of the typist and inadvertence of its counsel.

The CA ruled in favor of respondent bank. Even if the CA stated that the
erroneous docket number placed on the Answer filed before the trial court was
not an excusable negligence by the banks counsel and that these were binding
on the bank, the petitioners had not convincingly established their right to
relief as there was no ground to invalidate the foreclosure sale of the
mortgaged property. They stated that an extrajudicial foreclosure sale did not
require personal notice to the mortgagor, that there was no allegation or proof of
noncompliance with the publication requirement and the public posting of the
notice of sale, and that there was no showing of inadequacy of price as no
competent evidence was presented to show the real market value of the land
sold or the readiness of another buyer to offer a price higher than that at which
the property had been sold. Moreover, petitioners failed to prove that the bank
had agreed to sell the property back to them. After pointing out that the
redemption period had long expired, respondents written communications to
Petitioner Chua only showed, at most, that the former had made a proposal for
the latter to buy back the property at the current market price.

The petitioners argue that the quantum of evidence for judgments flowing
from a default order under Section 3 of Rule 9 is not the same as that
provided for in Section 1 of Rule 133 (Preponderance of Evidence rule -
which basically states that the party having the burden of proof must
establish his case by a preponderance of evidence)

Issues: Whether or not the CA erred in failing to apply the provisions of Sec 3,
Rule 9 ([and in applying instead] the rule on preponderance of evidence under
Section 1, Rule 133 of the Rules of Court.) - No

Held: No, the CA did not err. Between the two rules, there is no incompatibility
that would preclude the application of either one of them. Section 3 of Rule 9
governs the procedure the trial court is directed to take when a defendant fails to
file an answer. According to this provision, the court "shall proceed to render
judgment granting the claimant such relief as his pleading may warrant," subject
to the courts discretion on whether to require the presentation of evidence ex
parte. The same provision also sets down guidelines on the nature and extent of
the relief that may be granted.

Basic is the rule that the party making allegations has the burden of
proving them by a preponderance of evidence. Moreover, parties must rely
on the strength of their own evidence, not upon the weakness of the
defense offered by their opponent. This principle holds true, especially
when the latter has had no opportunity to present evidence because of a
default order. Needless to say, the extent of the relief that may be
granted can only be as much as has been alleged and proved with preponderant
evidence required under Section 1 of Rule 133.

Complainants are not automatically entitled to the relief prayed for, once
the defendants are declared in default. Favorable relief can be granted only
after the court has ascertained that the relief is warranted by the evidence
offered and the facts proven by the presenting party. Being declared in
default does not constitute a waiver of rights except that of being heard
and of presenting evidence in the trial court. Although the defendant would
not be in a position to object, if the evidence presented should not be sufficient to
justify a judgment for the plaintiff, the complaint must be dismissed.

While petitioners were allowed to present evidence ex parte under Section 3 of

Rule 9, they were not excused from establishing their claims for damages by the
required quantum of proof under Section 1 of Rule 133.

Moreover, the grant of damages was not sufficiently supported by the evidence
for the following reasons.

1. The petitioners were not deprived of their property without cause. There
has been no allegation or proof of noncompliance with the requirement of
publication and public posting of the notice of sale. Neither has there been
competent evidence to show that the price paid at the foreclosure sale
was inadequate. Thus, there was no ground to invalidate the sale.
2. The petitioners have not convincingly established their right to damages
on the basis of the purported agreement to repurchase. Without reiterating
our prior discussion on this point, we stress that entitlement to actual and
compensatory damages must be proved even under Section 3 of Rule 9.

In sum, the petitioners have failed to convince this Court of the strength of
their position, notwithstanding the advantage they enjoyed in presenting
their evidence ex parte. Not in every case of default by the defendant is the
complainant entitled to win automatically.

Hence, the petition is denied.