Title
Monzon vs. Spouses Relova
Case
G.R. No. 171827
Decision Date
Sep 17, 2008
Teresita Monzon executed promissory notes and sold lands to respondents, later foreclosed by Coastal Lending Corp. Respondents sought residue from foreclosure; RTC ruled in their favor ex parte. Monzon appealed, claiming due process violation. Supreme Court reversed, remanding for further proceedings, citing due process breach and Rule 68 inapplicability.
promissory note
foreclosure
default

Case Summary (G.R. No. 171827)

Factual Background

On December 28, 1998, Teresita Monzon executed a promissory note for P600,000 with five percent per month interest due December 28, 1999, secured by a 300-square meter parcel denominated Lot No. 2A, a portion of Psu-232001, Tax Declaration No. 98-008-1793, in favor of Sps. Bienvenido & Eufracia Perez. On December 31, 1998, Monzon executed a Deed of Absolute Sale over that parcel in favor of the same spouses. On March 29, 1999, Monzon executed a promissory note for P200,000 with five percent per month interest due December 31, 1999, secured by a 200-square meter parcel denominated Lot No. 2B, another portion of Psu-232001, in favor of Sps. James & Maria Rosa Nieves Relova; on December 27, 1999, Monzon executed a Deed of Conditional Sale covering that parcel in favor of the Relovas.

Extrajudicial Foreclosure and Custody of Proceeds

On October 23, 1999, Coastal Lending Corporation extrajudicially foreclosed the entire 9,967-square meter property covered by Psu-232001, which included the portions mortgaged or sold to respondents. Coastal Lending Corporation was allegedly owed P3,398,832.35 by Monzon. The winning bidder at the extrajudicial sale, Addio Properties, Inc., paid P5,001,127.00, leaving a residue of P1,602,393.65. That residue amount was placed in the custody of Atty. Ana Liza Luna, then Clerk of Court of Branch 18, RTC Tagaytay City.

Procedural History at Trial Court

On October 18, 2000, Sps. Relova and Sps. Perez filed a Petition for Injunction docketed as Civil Case No. TG-2069 before Branch 18 of the RTC, praying that Monzon be declared liable in specified sums and that Atty. Ana Liza Luna deliver the residue in her custody to the respondents and be restrained from delivering any amounts to Monzon. Monzon answered, asserting that the petition failed to state a cause of action and that she had already performed obligations by dacion en pago as evidenced by the deeds of sale, and contending that the respondents could only obtain the funds in custody by writs of preliminary attachment or garnishment under Rule 57 and Section 9(c), Rule 39. Due to petitioner’s repeated absences, the trial court granted an oral motion on December 5, 2001 allowing the reception of respondents’ evidence ex parte before the clerk of court. On April 1, 2002, the RTC rendered judgment for respondents ordering Atty. Ana Liza Luna to deliver P1,602,393.65 to them, with an allocation stating that the Relovas were to receive P400,000 and the Perez spouses the balance.

Appeal to the Court of Appeals

Monzon filed a Notice of Appeal that was approved by the trial court. Addio Properties, Inc. moved to intervene and was permitted. The Court of Appeals, in a decision dated September 27, 2005, affirmed the RTC. The Court of Appeals found that Monzon had shown tepid interest in the prosecution of her defense and thus could not complain of denial of due process, stressing that what the law proscribes is lack of reasonable opportunity to be heard.

Issues Presented Before the Supreme Court

The central issues presented were: whether the trial court violated Monzon’s right to due process by receiving respondents’ evidence ex parte and rendering judgment without providing Monzon an opportunity to present her defense; and whether respondents had a cause of action entitling them to the residue held by the Clerk of Court under Section 4, Rule 68, Rules of Court, given that the foreclosure was extrajudicial.

Parties’ Contentions

Monzon contended that she was never declared in default and that the trial court should have set the case for the reception of defense evidence; she insisted she had not waived her right to present evidence and that she would have proven dacion en pago, thereby extinguishing her obligation to respondents. Respondents maintained entitlement to the residue under Section 4, Rule 68, and relied on the RTC’s exercise of discretion to receive evidence ex parte given Monzon’s absences. Addio Properties, Inc., as intervenor, asserted its interests as the purchaser at the extrajudicial sale.

Supreme Court Ruling and Disposition

The Supreme Court reversed and set aside the Court of Appeals decision and the RTC judgment insofar as Atty. Ana Liza Luna was concerned, and remanded the case to the RTC for further proceedings in respect of Monzon. The Court ordered the Petition for Injunction dismissed as to Atty. Ana Liza Luna. The Court directed that upon remand the trial court shall require respondents to manifest whether they elect to treat their Petition for Injunction as a complaint for collection of a sum of money; if respondents elect so, the trial court shall set the case for hearing for the presentation of evidence for the defense; if respondents decline, the petition shall be dismissed without prejudice to respondents’ rights as mortgage creditors. The Court imposed no costs.

Legal Basis and Reasoning: Due Process and Effects of Default

The Court held that the RTC improperly applied the effects of an order of default under Section 3, Rule 9, Rules of Court without declaring Monzon in default. The Court explained that failure to file a responsive pleading within the reglementary period, and not mere failure to appear at hearings, is the sole ground for an order of default except in limited instances such as failure to appear at a pretrial conference or refusal to comply with discovery under specified provisions. The Court emphasized that a party who has filed an answer is not to be defaulted for mere nonappearance at an ordinary hearing, and that ex parte reception of evidence is permitted only in the narrow circumstances provided by the Rules. The Court further recognized that failure to attend a hearing for the presentation of the plaintiff’s evidence may bar a defendant from objecting to those particular pieces of evidence or from cross-examining the witnesses, but it does not waive the defendant’s right to present evidence during the defense’s reception of evidence. Accordingly, the Court remanded for the reception of defense evidence.

Legal Basis and Reasoning: Applicability of Section 4, Rule 68 and Extrajudicial Foreclosure Law

The Court concluded that respondents lacked a cause of action against Atty. Ana Liza Luna under Section 4, Rule 68, Rules of Court, because Rule 68 governs judicial foreclosure sales and does not apply to extrajudicial foreclosure sales. The Court surveyed the statutory framework governing extrajudicial foreclosure, notably Act No. 3135 as amended by Act No. 4118, and related legislation and administrative issuances, including A.M. No. 99-10-05-0, and explained that those laws do not grant junior encumbrancers the right to receive the balance of the purchase price. Instead, the statutory remedy for junior encumbrancers is a right of redemption as provided in Section 6, Act No. 3135. The Court therefore found that the respondents failed to state a cause of action against the Clerk of Court for turnover of the residue under Section 4, Rule 68.

Remand Instructions and Consequences of Election

The Court instructed the trial court, on remand, to requi

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms