G.R. No. 151098 - Gajudo vs. Traders Royal Bank

Case Summary (G.R. No. 151098)

Factual Background

The petitioners, co-owners of a parcel of land covered by TCT No. 16711, alleged that petitioner Danilo Chua obtained a P75,000.00 loan from TRADERS ROYAL BANK in 1977 secured by a real estate mortgage over the parcel, that the bank initiated extrajudicial foreclosure for nonpayment, and that the property was sold at sheriff’s auction initially set for June 10, 1981 and later reset to August 31, 1981. Petitioners alleged that the auction was irregular, that the bank purchased the property at a shockingly low price (Certificate of Sale reflecting P24,911.30), and that other co-owners failed to redeem because of lack of knowledge. They further alleged that after the redemption period lapsed the bank agreed to sell the property back to Chua for P40,135.53, that Chua made an initial payment by Interbank check for P4,000 dated February 16, 1984, and that the bank later required higher offers and treated the P4,000 as a deposit only.

Procedural History in the Trial Court

Petitioners filed suit in the RTC of Quezon City docketed originally as Civil Case No. Q-41203 and, after reconstitution of records following a fire, refiled on June 11, 1990 as Civil Case No. 90-5749 and added Cerrofer Realty Corporation and spouses Cesar and Lorna Roque as additional defendants. The bank was served on September 26, 1990. After an apparently misplaced Answer, petitioners moved to declare TRADERS ROYAL BANK in default on December 2, 1991, and the RTC issued an order of default on January 16, 1992. The RTC allowed petitioners to present evidence ex parte on January 7, 1993 and thereafter rendered a Partial Decision dated February 8, 1993 awarding damages against the bank totaling P800,000.00 in various items plus attorney’s fees of P30,000.00, while withholding determination on reconveyance because of the sale to Cerrofer and the pending issues against Cerrofer and the Roces.

Evidence Presented by Petitioners at Trial

Although no adversary hearing occurred because of the default, the Partial Decision recited documentary evidence introduced ex parte by petitioners. The documents included the bank’s petition for extrajudicial foreclosure; the Certificate of Sale; a Statement of Account dated February 15, 1984 showing a balance of P40,135.53; the Interbank check dated February 16, 1984 for P4,000 and its official receipt; bank letters of February 20 and March 22, 1984 regarding repurchase and invitation to bid; a copy of the Notice of Lis Pendens and title entries; an Absolute Deed of Sale to Cerrofer; and correspondence requesting cancellation of the lis pendens.

Appeals and Court of Appeals Ruling

TRADERS ROYAL BANK appealed the Partial Decision to the CA. While the appeal was pending the RTC recognized a Compromise Agreement between petitioners and Cerrofer and spouses Roque and those parties moved to be discharged from the appeal. The CA granted discharge of Cerrofer et al. on May 14, 1996 and thereafter addressed the bank’s appeal. The CA denied the bank’s motion to set aside the default and admit its Answer, finding the asserted typist’s error in the docket number and counsel’s inadvertence inexcusable and not amounting to excusable negligence. The CA further found that petitioners failed to establish grounds to annul the foreclosure sale under Act No. 3135, as amended, failed to prove inadequacy of the sale price, and failed to prove a binding conventional redemption agreement. On these bases the CA vacated the Partial Decision and dismissed the complaint.

Issues Presented to the Supreme Court

Petitioners raised three issues: whether the CA erred in applying Section 3, Rule 9 rather than Section 1, Rule 133 regarding the applicable quantum of proof; whether the CA failed to apply Article 1601 of the Civil Code on conventional redemption; and whether the Supreme Court could reexamine the appellate courts’ factual findings. The Court treated the first as pure law and reserved the second and third as fact-bound questions normally not disturbed on Rule 45 review.

Supreme Court’s Analysis — Quantum of Proof

The Supreme Court held that there is no incompatibility between Section 3, Rule 9 and Section 1, Rule 133. Section 3, Rule 9 prescribes the procedure when a defendant defaults, permits the court, in its discretion, to require the claimant to present evidence ex parte, and limits the nature and extent of relief. Section 1, Rule 133 prescribes that the party bearing the burden must prove the case by a preponderance of evidence. The Court recalled binding doctrine from Pascua v. Florendo and Lim Tanhu v. Ramolete that a default does not automatically entitle the plaintiff to the relief prayed for and that the plaintiff must still sustain the allegations by competent evidence. The Court concluded that ex parte presentation under Section 3, Rule 9 does not lessen the quantum of proof required under Section 1, Rule 133.

Supreme Court’s Analysis — Conventional Redemption and Review of Evidence

On the question of conventional redemption under Article 1601 of the Civil Code, the Court reiterated the two requisites for converting legal redemption into conventional redemption: voluntary agreement to extend the redemption period, and the debtor’s commitment to pay the redemption price on a fixed date. The Court found that the bank’s letters of February 20 and March 22, 1984 did not establish a firm agreement to extend the redemption period nor a commitment by Chua to pay on a fixed date. The February 17, 1984 correspondence by Chua showed inability to pay immediately and proposed installment payments without fixed dates. The P4,000 check had been marked and treated as a deposit only. Petitioners did not show tender, consignment, or other acts evidencing payment on a fixed date. Consequently, petitioners failed to prove the essential elements of Article 1601.

Supreme Court’s Analysis — Sufficiency of Proof for Damages and Annulment of Sale

The Supreme Court examined the RTC’s award of damages rendered after withholding reconveyance issues and emphasized the limits of Section 3, Rule 9, which forbids awards exceeding amounts prayed for or awarding unliquidated damages without proof. The Court found that petitioners did not prove deprivation of property without cause because Act No. 3135, as amended, does not require personal notice to the mortgagor and petitioners presented no proof of noncompliance with the publication and posting requirements. Petitioners also showed no competent evidence demonstrating inadequacy of the auction price or that another bidder had been ready to pay a higher price. The purported agreement to repurchase was not convincingly proved. The quantum of proof for actual, compensat

Case Syllabus (G.R. No. 151098)

Parties and Posture

Petitioners were owners in common of the parcel of land covered by TCT No. 16711 and plaintiffs below who sought annulment of an extrajudicial foreclosure and reconveyance, conventional redemption, damages, and injunctive relief.
Traders Royal Bank was the mortgagee, purchaser at the extrajudicial auction, and respondent in the petition for review under Rule 45 of the Rules of Court.
The petition assailed the Court of Appeals' June 29, 2001 Decision and December 6, 2001 Resolution that vacated the RTC partial decision and dismissed the complaint.
The petition reached the Supreme Court on questions of law and contested factual findings, with the petition being deemed submitted upon memoranda filed by the parties.

Key Factual Allegations

Petitioner Danilo Chua obtained a loan of P75,000.00 in mid-1977 secured by a real estate mortgage over the subject land owned in common by the petitioners.
An extrajudicial foreclosure was initiated and the property was publicly auctioned, with the sheriff selling the property to Traders Royal Bank as highest bidder for P24,911.30 after a rescheduling from June 10, 1981 to August 31, 1981.
The legal redemption period expired after the Certificate of Sale was registered on June 21, 1982.
Petitioner Chua later sought to repurchase the property and submitted an Interbank check for P4,000.00 dated February 16, 1984, while a Statement of Account purportedly showed a balance of P40,135.53.
Traders Royal Bank sent letters dated February 20, 1984 and March 22, 1984 inviting Chua to purchase at current market price and asking him to submit an offer because another buyer had made an offer.
The property was ultimately sold to Ceroferr Realty Corporation, and a Notice of Lis Pendens annotated on the title was later canceled.

Procedural History

The complaint was originally filed in RTC Branch 90 and, after destruction and reconstitution of records following a fire, refiled on June 11, 1990 as Civil Case No. 90-5749 in Branch 98 with additional parties Ceroferr Realty Corporation and spouses Roque.
Summons was served on Traders Royal Bank on September 26, 1990, and after alleged nonfiling of an answer the trial court declared the bank in default by Order dated January 16, 1992.
The trial court allowed petitioners to present evidence ex parte on January 7, 1993 and rendered a Partial Decision dated February 8, 1993 granting damages and attorney’s fees against Traders Royal Bank.
Traders Royal Bank filed a motion to set aside the default and admit its answer which the trial court denied by Order dated July 26, 1993.
The bank appealed to the Court of Appeals, which granted the bank relief by vacating the Partial Decision, dismissing the complaint, and denying the bank’s excuses for default as inexcusable negligence.
Petitioners filed a petition for review under Rule 45 in the Supreme Court challenging the CA’s application of the rules on quantum of proof and other factual determinations.

Issues Presented

Whether the Court of Appeals erred in applying Section 3, Rule 9 of the Rules of Court rather than Section 1, Rule 133 in determining the quantum of proof required of petitioners after a defendant’s default.
Whether the appellate court failed to apply the conventional redemption rule under Article 1601 of the New Civil Code in finding no agreement to repurchase the property.
Whether the Supreme Court could exercise its prerogative to re-evaluate the appellate court’s findings of fact.

Court of Appeals Ruling

The Court of Appeals found the bank’s motion to set aside t