Gajudo vs. Traders Royal Bank

The mere fact that a defendant is declared in default does not automatically result in the grant of the prayers of the plaintiff; the plaintiff must still present the same quantum of evidence (preponderance of evidence) required if the defendant were present, and the judgment shall not exceed the amount or be different in kind from that prayed for nor award unliquidated damages.

The case involves a dispute over an extrajudicial foreclosure of a real estate mortgage executed by Danilo Chua in favor of Traders Royal Bank to secure a loan of P75,000.00. The mortgage covered a parcel of land owned in common by Chua and his co-petitioners. After the loan remained unpaid, the bank foreclosed the mortgage and purchased the property at a public auction in 1981. Years after the statutory redemption period expired, petitioners claimed entitlement to conventional redemption based on an alleged agreement to repurchase the property. The trial court declared the bank in default and awarded damages to petitioners, but the Court of Appeals reversed, finding that petitioners failed to substantiate their claims with the required quantum of evidence.

• In mid-1977, petitioner Danilo Chua obtained a loan of P75,000.00 from respondent Traders Royal Bank, secured by a real estate mortgage over a parcel of land covered by TCT No. 16711 owned in common by all petitioners.
• When the loan remained unpaid, respondent bank commenced extrajudicial foreclosure proceedings; the auction sale was initially set for June 10, 1981, but was reset to August 31, 1981, upon Chua's request without the knowledge or conformity of the other petitioners.
• On August 31, 1981, the property was sold at public auction to respondent bank, the highest bidder, for P24,911.30; the Certificate of Sale was registered on June 21, 1982, starting the one-year redemption period.
• Petitioners alleged that the auction sale was tainted with irregularities, including an unconscionably low bid price, and that they failed to redeem due to lack of knowledge of their rights and insufficient education.
• After the statutory redemption period expired, Chua offered to repurchase the property; respondent bank allegedly agreed to sell it back for P40,135.53 (the amount paid at auction plus interest), and Chua made an initial payment of P4,000.00 via Interbank Check dated February 16, 1984, which was receipted by the bank.
• Respondent bank subsequently changed its position, writing Chua on February 20, 1984, that repurchase must be at current market value, and on March 22, 1984, inviting him to submit a new offer to counter another buyer's offer.
• The foreclosed property was eventually sold to Ceroferr Realty Corporation; petitioners claimed the notice of lis pendens was cancelled through a falsified letter.
• Respondent bank's answer was erroneously filed with the docket number for Branch 90 instead of Branch 98 due to an honest mistake of the typist; the bank was declared in default after its motion to set aside the default was denied for lack of excusable negligence and failure to attach an affidavit of merit.

• The Court of Appeals erred in applying the rule on preponderance of evidence under Section 1, Rule 133 instead of Section 3, Rule 9 of the Rules of Court, arguing that the quantum of evidence required for judgments flowing from a default order is different and less stringent.
• The appellate court failed to apply the conventional redemption rule under Article 1601 of the New Civil Code, contending that the letters and payment constituted a valid agreement for repurchase after the statutory period expired.
• The Supreme Court should exercise its judicial prerogative to evaluate the findings of fact due to conflicting findings between the trial and appellate courts and the alleged conjectures made by the Court of Appeals.

• The foreclosure sale was conducted in accordance with Act No. 3135, and the bid price was neither unconscionable nor shockingly low; petitioners slept on their rights by failing to redeem within the statutory period.
• The bank's failure to file a timely answer was due to an honest mistake of the typist, but the reasons offered were specious and did not constitute excusable negligence; the motion to set aside default was properly denied for lack of an affidavit of merit.
• There was no valid agreement for conventional redemption; the bank's letters merely invited offers to purchase at market value and expressly rejected redemption due to the lapse of the statutory period.
• Petitioners failed to present competent evidence to establish the market value of the land or the readiness of another buyer to pay a higher price, and thus could not prove inadequacy of price or irregularity in the foreclosure sale.

• Procedural Issues: Whether the Court of Appeals erred in applying Section 1, Rule 133 (preponderance of evidence) instead of Section 3, Rule 9 regarding the quantum of proof required in default proceedings.
• Substantive Issues:
  • Whether petitioners established their right to conventional redemption under Article 1601 of the Civil Code.
  • Whether petitioners were entitled to actual, compensatory, and moral damages.
  • Whether the extrajudicial foreclosure sale was valid and complied with the requirements of Act No. 3135.

• Procedural: The Supreme Court held that there is no incompatibility between Section 3, Rule 9 and Section 1, Rule 133. While Section 3, Rule 9 governs the procedure when a defendant is declared in default and allows the court to render judgment granting the relief prayed for, it does not dispense with the fundamental requirement under Section 1, Rule 133 that the claimant must establish its case by preponderance of evidence. A party in default is not deprived of its substantive rights; it only loses the right to be heard and to present evidence during the trial. Therefore, the plaintiff must still prove its allegations by preponderant evidence, and the court must ensure that only legal evidence is considered and that the relief granted does not exceed what is prayed for or award unliquidated damages without sufficient proof.
• Substantive:
  • Conventional redemption was not established because petitioners failed to prove the two requisites: (a) a voluntary agreement of the parties to extend the redemption period, and (b) the debtor's commitment to pay the redemption price on a fixed date. The letters from the bank merely invited offers to purchase at market value and expressly rejected the redemption request due to the lapse of the statutory period; the P4,000 check was marked "for deposit only" and did not establish a firm commitment to pay the balance on a specific date.
  • Damages were not warranted because petitioners were not deprived of their property without cause—the foreclosure was valid, and there was no proof of inadequacy of price or violation of notice requirements under Act No. 3135. Moreover, unliquidated damages cannot be awarded in a default judgment under Section 3(d), Rule 9.
  • The foreclosure sale was valid as there was no allegation or proof of noncompliance with the publication and posting requirements of Act No. 3135, and inadequacy of price alone is not a ground to invalidate the sale unless coupled with fraud or irregularity.

• Quantum of Evidence in Default Judgments — A plaintiff must establish its case by preponderance of evidence even when the defendant is declared in default; the declaration of default does not automatically entitle the plaintiff to the relief prayed for, and the court must ascertain that the relief is warranted by the evidence offered.
• Effect of Declaration of Default — A party declared in default is not deprived of its substantive rights; it only loses the right to be heard and to present evidence during the trial, and any judgment against it must be in accordance with law based on legal evidence.
• Conventional Redemption — For legal redemption to be converted into conventional redemption, two requisites must concur: (1) voluntary agreement of the parties to extend the redemption period; and (2) the debtor's commitment to pay the redemption price on a fixed date.
• Extrajudicial Foreclosure under Act No. 3135 — Personal notice to the mortgagor is not required; compliance with publication and posting requirements is sufficient, and mere inadequacy of price is not a ground to invalidate the sale unless coupled with fraud or irregularity.

• "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."
• "Being declared in default does not constitute a waiver of rights except that of being heard and of presenting evidence in the trial court."
• "If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from what is prayed for in the complaint."

• Pascua v. Florendo — Controlling precedent establishing that complainants are not automatically entitled to relief once defendants are declared in default, and that requiring presentation of evidence would be meaningless if default automatically resulted in judgment for the plaintiff.
• Lim Tanhu v. Ramolete — Cited for the principle that being declared in default does not waive rights except the right to be heard and present evidence, and that the court must ensure only legal evidence is considered against the defaulted party.
• Saguid v. Court of Appeals — Cited for the rule that the party making allegations has the burden of proving them by preponderance of evidence and must rely on the strength of their own evidence, not the weakness of the opponent's defense.
• Ibaan Rural Bank, Inc. v. Court of Appeals and Lazo v. Republic Surety & Insurance Co., Inc. — Cited for the requisites of conventional redemption.
• Landrito v. Court of Appeals — Cited for the principle that conventional redemption requires a voluntary agreement to extend the period and a commitment to pay on a fixed date.

• Section 3, Rule 9, Rules of Court — Governs the declaration of default, its effects, and the extent of relief that may be awarded, specifically the prohibition against awarding unliquidated damages in default judgments.
• Section 1, Rule 133, Rules of Court — Establishes preponderance of evidence as the quantum of proof required in civil cases.
• Article 1601, Civil Code — Defines conventional redemption as when the vendor reserves the right to repurchase the thing sold with the obligation to comply with Article 1616.
• Article 1256, Civil Code — Provides for tender of payment and consignation as remedies when the creditor unjustly refuses to accept payment.
• Section 3, Act No. 3135, as amended — Specifies notice requirements for extrajudicial foreclosure (posting in three public places and publication), clarifying that personal notice to the mortgagor is not required.
• Section 1, Rule 45, Rules of Court — Limits petitions for review to questions of law.