Monzon v. Relova
REITERATIONFacts
The Antecedents: The underlying dispute involves Teresita Monzon's execution of promissory notes and deeds of sale for two parcels of land to secure loans from respondents, spouses James and Maria Rosa Nieves Relova and spouses Bienvenido and Eufracia Perez. Monzon obtained loans of P600,000.00 from the Perezes, secured by a 300-square meter lot, and P200,000.00 from the Relovas, secured by a 200-square meter lot. Subsequently, the entire 9,967-square meter property, including the portions sold to the respondents, was extrajudicially foreclosed by Coastal Lending Corporation due to Monzon's substantial debt. The winning bidder, Addio Properties Inc., paid P5,001,127.00, leaving a residue of P1,602,393.65, which was in the custody of the Branch Clerk of Court, Atty. Ana Liza Luna. Procedural History: The respondents filed a Petition for Injunction against Atty. Luna and Teresita Monzon, seeking the turnover of the residue from the foreclosure sale to satisfy Monzon's obligations. The Regional Trial Court (RTC) initially granted an order for ex parte presentation of evidence due to Monzon's absence and subsequently rendered a decision in favor of the respondents, ordering Atty. Luna to deliver the residue. Monzon appealed, arguing a violation of due process for not being allowed to present her evidence. The Court of Appeals affirmed the RTC's decision, finding Monzon showed a lack of diligence. Monzon then filed the instant Petition for Review on Certiorari. The Petition: Petitioner Teresita Monzon seeks review of the Court of Appeals' decision via a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Monzon contends that the RTC gravely erred by rendering a decision based on ex parte evidence without affording her the opportunity to present her defense, thereby violating her right to due process. She argues that she was never declared in default and that her failure to appear at hearings did not constitute a waiver of her right to present evidence. Monzon asserts that had she been allowed to present evidence, she could have proven novation of the obligations and that she no longer owed the respondents. She also raises the issue that the respondents' petition failed to state a cause of action, particularly concerning the application of Rule 68 to extrajudicial foreclosure sales.
Issue(s)
Whether the RTC gravely erred in rendering judgment ex parte without giving petitioner Monzon the opportunity to present her evidence, thereby violating her right to due process. Whether respondents have a cause of action for the delivery of the residue of the extrajudicial foreclosure sale proceeds based on Section 4, Rule 68 of the Rules of Court. Whether the Petition for Injunction should be treated as a complaint for collection of a sum of money.
Ruling
The Supreme Court reversed and set aside the Decision of the Court of Appeals and its Resolution. The Petition for Injunction was ordered dismissed with respect to Atty. Ana Liza Luna. The case was remanded to the RTC for further proceedings concerning Teresita Monzon, with the RTC directed to order respondents to manifest whether the Petition for Injunction should be treated as a complaint for the collection of a sum of money. If respondents answer affirmatively, the case will proceed with the presentation of defense evidence. If negatively, the case will be dismissed without prejudice to respondents' rights as mortgage creditors.
Ratio Decidendi
On Issue 1 (Due Process and Ex Parte Proceedings): The Court found that the RTC erred in rendering judgment ex parte without a formal declaration of default. While Monzon failed to appear at hearings, she had filed an Answer, and the effects of default were applied without her being declared in default. The Court emphasized that mere non-appearance at ordinary hearings after filing an answer does not constitute default and violates due process, as it denies the litigant the chance to be heard. The policy of the law is to have cases tried on the merits. Therefore, the case was remanded for the reception of defense evidence. On Issue 2 (Cause of Action under Rule 68): The Court ruled that respondents do not have a cause of action against Atty. Luna for the delivery of the foreclosure sale residue based on Section 4, Rule 68 of the Rules of Court. This rule applies only to judicial foreclosure sales, not to extrajudicial foreclosure sales governed by Act No. 3135. In extrajudicial foreclosures, junior encumbrancers do not have a statutory right to the balance of the purchase price; their remedy is the right of redemption. Consequently, the petition was dismissed as against Atty. Luna. On Issue 3 (Treatment of Petition for Injunction): The Court acknowledged Monzon's argument that the petition might fail to state a cause of action. However, it also recognized that the prayer for judgment declaring Monzon liable could constitute a cause of action for collection of a sum of money. To resolve this, the Court ordered the remand of the case to the RTC, directing respondents to manifest whether they wished to treat the Petition for Injunction as a complaint for collection of a sum of money. This would entail a waiver of their security, and if they affirm this, the case would proceed with the presentation of defense evidence. If they decline, the case would be dismissed, preserving their rights as mortgage creditors.
Main Doctrine
The Supreme Court clarified that Section 4 of Rule 68 of the Rules of Court, which outlines the disposition of proceeds from a foreclosure sale and mandates payment to junior encumbrancers, applies exclusively to judicial foreclosure sales. This rule does not extend to extrajudicial foreclosure sales, which are governed by Act No. 3135, as amended. In extrajudicial foreclosures, junior encumbrancers are not granted a right to the residue of the purchase price; their primary recourse is the right of redemption provided under Section 6 of Act No. 3135. Furthermore, the Court reiterated that rendering judgment ex parte without a formal declaration of default, solely based on the defendant's failure to appear at hearings after filing an answer, violates due process. Such failure to appear at hearings does not automatically equate to a waiver of the right to present evidence, especially when the defendant has not been declared in default.