RULE 9: EFFECT OF FAILURE TO PLEAD

- 188.) Gochangco v. CFI Negros Occidental, G.R. No. L-49396. January 15, 1988 – REJEAN
- 189.) Indiana Aerospace v. Commission on Higher Education, 356 SCRA 367 (2001) - REJEAN
- 190.) Gajudo v. Traders Royal Bank, G.R. No. 151098, March 21, 2006 - REJEAN
- 191.) Monzon v. Sps. Relova, G.R. No. 171827, September 17, 2008 - REJEAN
- 192.) Heirs of Favis, Sr. v. Gonzales, G.R. No. 185922, January 15, 2014 - REJEAN

G.R. No. L-49396 January 15, 1988

JUAN A. GOCHANGCO, HON. FELINO GARCIA, as Presiding Judge of the City Court of Bacolod, Branch I, and DEPUTY
PROVINCIAL SHERIFF JOSUE DE JOSE, petitioners,
vs.
THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL, BRANCH IV, SY HO and MILAGROS MINORIA, respondents.

NARVASA, J.:

Application of no more than quite elementary principles governing the modes of acquisition of jurisdiction by a court over the
person of a defendant, default, substitution of parties plaintiff, judgment on the pleadings, and execution pending appeal in
ejectment cases, is what is chiefly called for in this appeal by certiorari.

These appellate proceedings had their origin in an action of unlawful detainer filed by C.N. Hodges in the City Court of Bacolod,
Branch I, docketed as Civil Case No. 2838. Hodges sought the ejectment from certain parcels of land in Bacolod City titled in his
name, of several persons, namely: Basilicio Macanan, Gertrude Nolan, Alejandro Santiago, Jr., Sy Ho, and Milagros Minoria. 1

Macanan, Nolan and Santiago were duly served with summons. Macanan died afterwards, and since his heirs could not be
located, and hence could not be substituted in his place, the case against him was eventually dismissed without
prejudice. 2 Santiago and Nolan voluntarily vacated the premises; so, the case was also dismissed as against them. 3

Summons was also duly served on Minoria. Although she refused to acknowledge such service, she subsequently filed an
answer to the complaint, thru counsel. 4

Sy Ho also appears to have been served with summons, service being evidenced, it is claimed, by the return to this effect of the
Provincial Sheriff. 5 But, as, will shortly be recounted, Sy Ho would later deny such service.

Plaintiff Hodges died during the pendency of the ejectment suit; and on August 20,1964, the court-appointed Administrator of
his estate, the Philippine Commercial and Industrial Bank (PCIB), was substituted as party plaintiff. 6 PCIB thereafter filed a
motion to declare Sy Ho in default for failure to answer the complaint. This was granted, by Order of the City Court dated
February 18, 1967. Sy Ho filed on March 2, 1967, a verified "Opposition to the Motion for Default." He alleged that he had
never received summons; apparently the summons had been served at the place where he maintained his scrap iron business,
which was not his residence and at which he had no representative authorized to receive court processes and notices; and he
prayed that 'he be allowed to present his answer within ten (10) days and that if ever he has been already declared in default
without due service of the notice to him, the said order be lifted." 7 The City Court overruled his opposition and refused to lift
the order of default against him, these dispositions being contained in an Order dated April 8, 1967. 8 And in a separate Order
issued on the same date, the City Court granted PCIB's motion to require Sy Ho to pay monthly rentals corresponding to the
premises occupied by him directly to it, instead of to his co-defendant, Minoria, who apparently had therefore been acting as
caretaker of the property. 9

At this point all proceedings in this ejectment suit, and another cases involving the late C. H. Hodges, were for the most part
suspended for all intents and purposes by reason of controversies as regards the administration and hereditary rights over his
not inconsiderable estate. Settlement of these controversies did not come until some 16 or 1 7 years later when, in the
decisions of this Court in two (2) cases, dated March 29, 1974, 10 the heirs of C. N. Hodges and their respective counsel were
directed "to work together and conjointly in order to sell and dispose of for adequate consideration, the real properties
composing the intermixed assets of the said estate in favor of Filipinos ..." Among the estate assets sold pursuant to those
decisions were the lots subject of the ejectment suit at bar. They were sold to Juan A. Gochangco for P440,000.00 on December
17, 1975, and he obtained titles over them in his name in due course. 11
Gochangco lost no time in advising Minoria and Sy Ho of his acquisition of the property and demanding their vacation
thereof. 12 He also filed an "Ex-Parte Motion for Substitution of Plaintiff and Reception of Evidence" dated March 26, 1976,
which the City Court granted by Order dated March 26, 1976. 13 Accordingly, Gochangco presented evidence ex-parte on March
30, 1976; this, as regards Sy Ho, who had been declared in default. 14

As regards defendant Minoria, Gochangco filed on March 29, 1976 a motion for judgment on the pleadings. 15 He contended
that Minoria's answer failed to tender any issue because it admitted the material allegations of the complaint; that her answer
also failed to disclose any privity between her and the late Manuel Moreno, whom she claimed to be co-owner of the house
found on the premises in question, or any relationship whatever between Moreno, Hodges and herself so as to substantiate her
theory that she had been properly designated caretaker of the house; that her occupation of the house was thus by tolerance
merely, and she was bound by an implied promise to vacate the same upon demand, and her failure to do so despite demand
rendered her amenable to summary ejectment.

In his turn, Sy Ho filed a motion to set aside order of default on April 5,1976 in which he also prayed to be allowed to present a
written answer to the complaint. 16 To this motion he attached an "Affidavit of Merits" in which he claimed that his failure to
file answer to the complaint was due to the fault of his counsel who, according to him, failed to make the "proper follow-up" of
the case; and he asked to be excused for his mistake or negligence for 'depending too much on his lawyer who formerly
handled his case." 17 What the City Court did was to issue subpoenae for the appearance of Minoria and Sy on May 13, 1976, so
that "they might have their day in Court." 18 But one day before his scheduled appearance, or on May 12, 1976, Sy Ho filed a 15-
page Motion to Dismiss the complaint stating in substance that the complaint stated no cause of action; the case against him
had not been prosecuted for an unreasonably long span of time; and the cause of action was barred by the statute of
limitations under PD No. 20 promulgated on October 12,1972 and G.O. No. 53 promulgated on August 21, 1975. 19 In the same
motion he reiterated that in compliance with the Order of April 8, 1967, he had been paying rentals regularly and faithfully. 20

There followed various attempts by the parties, mostly on the court's initiative, to arrive at an amicable settlement. All failed
Thereafter the City Court finally rendered judgment dated February 18, 1977 ordering Sy Ho and Minoria to vacate the
premises within thirty (30) days, and to pay rentals to Gochangco at the rate of P600.00 and P50.00 a month, respectively,
from date of the decision until they shall have left the property. 21 Motions for reconsideration separately filed by By Ho and
Minoria were denied, as were also, their second motions for reconsideration. 22

On August 29, 1977, Gochangco moved for execution pending appeal. He asserted that the judgment had become final as
against Minoria, no appeal having been perfected by her within the period therefor prescribed by law. And as regards Sy Ho,
whose second motion for reconsideration was still pending, immediate execution was proper since the judgment was
against a defendant, declared by Section 8, Rule 70 of the Rules of Court to be immediately executory. 23 Over the joint
opposition of Sy Ho and Minoria, the Court granted the motion and issued the writ of execution on October 19, 1977. 24 In a
'Manifestation' dated October 25, 1975, Sy Ho stated that he had been "paying a monthly rental of P110.00 monthly directly to
the Clerk of Court" and that "pending the final decision ... all (such payments should be) properly kept by the Clerk of Court. 25

Sy Ho and Minoria thereupon filed a joint petition for certiorari and prohibition with application for preliminary injunction
discretion with the Court of First Instance of Negros Occidental. This was docketed as Civil Case No. 13484. The petition
imputed grave abuse of discretion to the City Court in denying Sy Ho's motion to set aside order of default and motion to
dismiss; in granting Gochangco's ex-parte motion to be substituted as party plaintiff; in receiving Gochangco's evidence ex
parte despite his having Med a motion for judgment on the pleadings; in authorizing immediate execution, and in not declaring
itself to be without jurisdiction in view of P.D. No. 20 and G.O. No. 53.26 In the answer filed by him on requirement of the Court,
Gochangco averred that the immediate execution of the judgment was justified by Section 8, Rule 70 of the Rules of Court and
settled jurisprudence; that any defect in the service of summons on Sy Ho had been cured by his voluntary appearance through
submission of various pleadings, that the motion for judgment on the pleadings was entirely correct because Minorias answer
stated no affirmative defense or otherwise tendered no issue; the declaration of default against Sy Ho was also correct under
the circumstances; that the action for certiorari could not result in an adjudication for the payment of damages since it is
simply meant to cure jurisdictional defects, which are non-existent in the case; and Sy Ho's situation is not covered by PD No.
20 or G.O. No. 53 because he was occupying the premises in question not as a dwelling but for purposes of his scrap iron
business. 27

At the pre-trial held on February 21, 1978, Sy Ho admitted, thru counsel, that he had indeed voluntarily appeared before the
City Court and had thereby submitted himself to its jurisdiction. 28

On August 29, 1978, judgment was rendered by the Court of First Instance granting the writ of certiorari and annulling all the
proceedings in Civil Case No. 2838 of the City Court of Bacolod. 29 The Court said:
 A fundamental tenet of procedural due process has been violated in the case under review. Was the petitioner
Sy Ho properly served with summons and complaint in Civil Case No. 2838? The 2nd Indorsement dated June
3, 1961 signed by Pat. R. Bravo of the Bacolod Police Department reads as follows:

Respectfully returned to the Mun. Court copy with all summons and complaint has delivered
personally to Milagros Minoria but however she refused to sign dated 6-2-61 - 8:30 a.m.

At the bottom of this indorsement a 3rd Indorsement dated June 16, 1961 was made by Deputy Sheriff
Esmalia, which reads:

Respectfully returned to the Municipal Court, Bacolod City, the within summons duly served
as per return of service of the Chief of Police of Bacolod City.

Now, on the basis of this indorsement this Court is not convinced that proper service was made upon
defendant Sy Ho in Civil Case No. 2838. The return of the deputy sheriff to the effect that summons was duly
served is contradicted by the return made by Pat. R. Bravo which is the basis of the 3rd Indorsement to the
effect that summons and complaint has (sic) delivered personally to Milagros Minoria but however she
refused to sign. There is no showing at all in these endorsements that petitioner Sy Ho himself was properly
served with summons.

If petitioner Sy Ho was not properly served with summons there was no basis at all for respondent court to
declare him in default. By declaring Sy Ho in default under the circumstances, the court acted with grave
abuse of discretion. This is elementary law too obvious to need any citation of authorities. If the declaration of
default was null and void all proceedings thereafter would be null and void. Triggered by this illegal
declaration of default, the reception of evidence ex parte before a deputy clerk of court was null and void, not
only because of the previous nullity of the declaration of default but also because under the doctrinal rule laid
down in the recent case of Lim Tan Hu vs. Ramolete, 66 SCRA 430, promulgated on August 29, 1975, a Clerk of
Court is not legally authorized to receive evidence ex-parte. The decision rendered on the basis of the
evidence received ex parte would logically be a nullity. Hence, if only upon this ground alone the proceedings
in the court below would be fatally flawed. ...

The Trial Court erred. Whatever defect might have existed in the return of the service of summons on Sy Ho was rendered
inconsequential by subsequent events, duly entered in the record, demonstrating that service of summons had indeed been
effected and Sy Ho had voluntarily submitted himself to the jurisdiction of the City Court.

Assuming it to be true, as claimed, that summons addressed to Sy Ho had been served not at his residence but at the place
where he maintained his scrap iron business, and at which he had no representative authorized to receive court processes and
notices, this would be of no moment. This is valid service. It is expressly authorized by the Rules. It is substituted service,
allowed when the defendant cannot be served personally within a reasonable time, in which event, service may be effected by
leaving copies of the summons at defendants dwelling house or residence with some person of suitable age and discretion
then residing therein, or at his office or regular place of business with some competent person in charge thereof. 30 Nor is it
necessary that the person in charge of the defendant's regular place of business be specially authorized to receive the
summons. It is enough that he appears to be in charge.

Sy Ho's contention that "substituted service is not allowed in ejectment cases" 31 is absolutely without foundation. Implicit in
that contention however is the acknowledgment that there had in truth been substituted service of summons on him.

Moreover, in the Affidavit of Merits attached to his motion to set a side order of default filed on April 5, 1976, 32 Sy Ho
attributed his failure to the answer seasonably to the fault of his counsel — who he said had failed to make the "proper follow-
up" — and asked to be excused for "depending too much on his lawyer." Here is another clear admission, no less cogent
because merely implied, that the reason for his omission to answer the complaint was not really the failure of service of
summons on him but his lawyer's negligence.

The record also demonstrates that he was indeed correctly declared in default, and he failed to adduce any tenable grounds for
the setting aside of that declaration. He did fail to answer the complaint within the reglementary period therefor prescribed,
and proof of such failure had in due course been adduced. 33 And even if that failure may in truth be blamed on his lawyer,
there is nothing in the record excusing that negligence, or showing fraud, accident or mistake warranting the Court's setting
aside of the order of default. 34
In any case, Sy Ho never really pressed the issue of the efficacy of service of summons on him with vigor or persistence
Instead, he submitted himself to the Court's jurisdiction. His submission to the Court's jurisdiction is necessarily inferred from
his act of request for leave to present his answer to the complaint, 35 of voluntarily complying with the City Court's Order for
the payment of rentals, and filing various other motions and pleadings. 36There is, too, his counsel's admission already
adverted to, that Sy Ho had really submitted himself to the City Court's jurisdiction. 37 There can thus be no debate about the
proposition that jurisdiction of his person had been acquired by the City court by his voluntary appearance and
acquiescence. 38

The record furthermore discloses that the prejudice to Sy Ho occasioned by the declaration of default against him was nominal
and minimal. For his default notwithstanding, he was in fact able fully and exhaustively to present his side to the Court. He
submitted his defenses to the action to the Court. This he did by filing a Motion to dismiss setting up said defenses, 39 and
presenting two (2) motions for reconsideration of the City Court's decision, urging and arguing those same defenses. 40 And
the record shows that these defenses were duly considered and dealt with in the judgment of the City Court. 41

Withal, an analysis of those defenses reveals their lack of merit. The assertion, for instance, that the complaint falls to state a
cause of action is incorrect; an examination of the complaint shows that it does set out the ultimate facts constituting causes of
action for ejectment. 42 The assertion that the action had not been prosecuted for an unreasonably long period of time is
without merit since as shown by the record, the delay was not due to the fault or negligence of the plaintiff, but to
circumstances beyond control. The claim that the action for ejectment is barred under PD 20 and GO 53 is also untenable, since
it is not disputed that Sy Ho is being ejected, not from his residence but from his place of business. In the light of these
considerations, it would be inutile to set aside the order of default against Sy Ho, assuming there were basis therefor, to give
him opportunity to appropriately plead and present evidence on his aforesaid defenses which cannot be sustained anyway and
are on their face unmeritorious. 43

The substitution of parties plaintiff effected in this case was also proper. Here, the original plaintiff died pending trial. He was
substituted by the administrator of his estate, duly appointed by competent judicial authority. This substitution was entirely
correct, mandated in fact by Section 17, in relation to Section 3, Rule 3 of the Rules of Court. 44 On the other hand, Gochangco's
substitution as party plaintiff in place of the administrator was also appropriate. Gochangco had purchased the property of the
decedent involved in the ejectment suit. He therefore became a real party in interest in that action, replacing the estate, or the
heirs, and his replacement of the latter was fully justified by Section 2, Rule 3 requiring actions to be prosecuted in the name of
the real party in interest, and defining a party plaintiff as one "having an interest in the subject of the action and in obtaining
the relief demanded," 45 as well as Section 20, of the same rule providing that in case of any transfer of interest, the action may
be continued by or against the original party, unless the court upon motion directs the person to whom the interest is
transferred to be substituted in the action or joined with the original party. 46

Also correct was the rendition of judgment on the pleadings as against Minoria. Minoria's answer admitted the material
averments of the complaint and failed to include allegations establishing her claim for compensation as being, supposedly, the
authorized caretaker of the house. Judgment on the pleadings was therefore properly rendered on plaintiff's motion. It is
sanctioned by Section 1, Rule 19 of the Rules of court, which provides that "(w)here an answer fails to tender an issue or
otherwise admits the material allegations or admits the material allegations of the adverse party's pleading, the court may, on
motion of that party, direct judgment on such pleading." 47

The propriety of the order authorizing execution of the ejectment judgment against the defendants also cannot be gainsaid.
The order is squarely within the provisions of Section 8, Rule 70 which declares that "(i)f judgment is rendered against the
defendant, execution shall issue immediately, unless an appeal has been perfected and the defendant, to stay execution, files a
sufficient bond approved by the justice of the peace or municipal court and executed to the plaintiff to enter the action in the
Court of First Instance and to pay the rents, damages, and costs accruing down to the time of the judgment appealed from, and
unless, during the pendency of the appeal, he deposits with the appellate court the amount of rent due from time to time under
the contract, if any, as found by the judgment of the justice of the peace or municipal court to exist. ..." 48 There is no showing
that Sy Ho had taken these requisite steps to stay execution of the judgment.

The respondent Court also declared null and void 'the reception of evidence ex parte before ... (the) deputy clerk of court." It
invoked what it termed 'the doctrinal rule laid down in the recent case of Lim Tan Hu vs. Ramolete, 66 SCRA 430, promulgated
on August 29, 1975 (inter alia declaring that) a Clerk of Court is not legally authorized to receive evidence ex-parte. 49

Now, that declaration does not reflect long observed and established judicial practice with respect to default cases. It is not
quite consistent, too, with the several explicitly authorized instances under the Rules where the function of receiving evidence
and even of making recommendatory findings of facts on the basis thereof may be delegated to commissioners, inclusive of the
Clerk of Court. These instances are set out in Rule 33, treating of presentation of evidence before commissioners, etc., in
particular situations, such as when the trial of an issue of fact requires the examination of a long account, or when the taking of
an account is necessary for the information of the court, or when issues of fact arise otherwise than upon the pleadings or
while carrying a judgment or order into effect; 50Rules 67 and 69, dealing with submission of evidence also before
commissioners in special civil actions of eminent domain and partition, respectively; Rule 86 regarding trials of contested
claims in judicial proceedings for the settlement of a decedent's estate; Rule 136 empowering the clerk of court, when directed
by the judge inter alia to receive evidence relating to the accounts of executors, administrators, guardians, trustees and
receivers, or relative to the settlement of the estates of deceased persons, or to guardianships, trusteeships, or receiverships.
In all these instances, the competence of the clerk of court is assumed. Indeed, there would seem, to be sure, nothing
intrinsically wrong in allowing presentation of evidence ex parte before a Clerk of Court. 51 Such a Procedure certainly does not
foreclose relief to the party adversely affected who, for valid cause and upon appropriate and seasonable application, may
bring about the undoing thereof or the elimination of prejudice thereby caused to him; and it is, after all, the Court itself which
is duty bound and has the ultimate responsibility to pass upon the evidence received in this manner, discarding in the process
such proofs as are incompetent and then declare what facts have thereby been established. in considering and analyzing the
evidence preparatory to rendition of judgment on the merits, it may not unreasonably be assumed that any serious error in
the ex-parte presentation of evidence, prejudicial to any absent party, will be detected and duly remedied by the Court, and/or
may always, in any event; be drawn to its attention by any interested party. As observed by the late Chief Justice Fred Ruiz
Castro — 52

No provision of law or principle of public policy prohibits a court from authorizing its clerk of court to receive
the evidence of a party litigant. After all the reception of evidence by the clerk of court constitutes but a
ministerial task — the taking down of the testimony of the witnesses and the marking of the pieces of
documentary evidence, if any, adduced by the party present. This task of receiving evidence precludes, on the
part of the clerk of court, the exercise of judicial discretion usually called for when the other party who is
present objects to questions propounded and to the admission of the documentary evidence preferred (Wack
Wack Golf and country Club, inc. vs. court of Appeals, 106 Phil. 501). More importantly, the duty to render
judgment on the merits of the case still rests with the judge who is obliged to personally and directly prepare
the decision based upon the evidence reported (Province of Pang vs. Palisoc, 6 SCRA 299).

The underlying philosophy of the doctrine of default is that the defendant's failure to answer the complaint despite receiving
copy thereof together with summons, is attributable to one of two causes: either (a) to his realization that he has no defenses
to the plaintiffs cause and hence resolves not to oppose the complaint, or, (b) having good defenses to the suit, to fraud,
accident, mistake or excusable negligence which prevented him from seasonably filing an answer setting forth those
defenses,. 53 It does make sense for a defendant without defenses, and who accepts the correctness of the specific relief prayed
for in the complaint, to forego the filing of the answer or any sort of intervention in the action at all. For even if he did
intervene, the result would be the same: since he would be unable to establish any good defense, having none in fact, judgment
would inevitably go against him. And this would be an acceptable result, if not being in his power to alter or prevent it,
provided that the judgment did not go beyond or differ from the specific relief stated in the complaint. 54 It would moreover
spare him from the embarrassment of openly appearing to defend the indefensible. On the other hand, if he did have good
defenses, it would be unnatural for him not to set them up properly and timely, and if he did not in fact set them up, it must be
presumed that some insuperable cause prevented him from doing so: fraud, accident, mistake, excusable negligence. In this
event, the law will grant him relief, and the law is in truth quite liberal in the reliefs made available to him: a motion to set
aside the order of default prior to judgment; 55 a motion for new trial to set aside the default judgment; 56 an appeal from the
judgment by default even if no motion to set aside the order of default or motion for new trial had been previously
presented; 57 a special civil action for certiorari impugning the court's jurisdiction. 58

A defendant in default is not and should not be placed in a situation more favorable than a defendant who has answered but
who fails to appear for trial despite notice. In the latter case, as in the former, the trial may proceed ex parte, 59 but is not
invalidated by the fact merely that reception of evidence had been undertaken by the clerk of court on the Court's instructions;
this, despite the fact that the judgment that may be rendered on the basis of such an ex parte trial may award reliefs exceeding
the amount or different from that, prayed for in the complaint, unlike a judgment by default which cannot differ from or go
beyond what is set down in the prayer of the complaint.

It was therefore error for the Court a quo to have declared the judgment by default to be fatally flawed by the fact that the
plaintiffs evidence had been received not by the Judge himself but by the clerk of court.

One last word. The City Court and City Sheriff were impleaded as parties petitioners in the petition at bar. This is incorrect.
They are not proper parties. They do not have — and should not have — any interest in the subject of the instant proceedings,
either in obtaining any relief in respect thereto of any nature whatsoever, or in the success of the petitioner. Only Gochangco is
the proper party petitioner.
WHEREFORE, the judgment of the Court of First Instance of August 29, 1978 is reversed and set aside, and that of the City
Court dated February 18, 1977 reinstated and affirmed in toto. Costs against private respondents.

G.R. No. 139371. April 4, 2001]

INDIANA AEROSPACE UNIVERSITY, petitioner, vs. COMMISSION ON HIGHER EDUCATION (CHED), respondent.

DECISION
PANGANIBAN, J.:

When the delayed filing of an answer causes no prejudice to the plaintiff, default orders should be avoided. Inasmuch as
herein respondent was improvidently declared in default, its Petition for Certiorari to annul its default may be given due
course. The act of the Commission on Higher Education enjoining petitioner from using the word university in it corporate name
and ordering it to revert to its authorized name does not violate its proprietary rights or constitute irreparable damage to the
school. Indeed, petitioner has no vested right to misrepresent itself to the public. An injunction is a remedy in equity and should
not be used to perpetuate a falsehood.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging the July 21, 1999
Decision[1] of the Court of Appeals (CA) in CA-GR SP No. 51346. The appellate court directed the Regional Trial Court (RTC) of
Makati City, Branch 136, to cease and desist from proceeding with Civil Case No. 98-811 and to dismiss the Complaint for
Damages filed by the Indiana Aerospace University against the Commission on Higher Education (CHED). The dispositive
portion of the CA Decision reads as follows:

WHEREFORE, in the light of the foregoing consideration, and pursuant to pertinent existing laws and jurisprudence on the
matter, [the trial court] is hereby DIRECTED to cease and desist from proceeding with Civil case No. 98-811 and to order the
dismissal of [petitioners] Petition dated March 31, 1999 in Civil Case No. 98-911 for lack of merit and valid cause of action.[2]

The Facts

The facts of this case we are summarized by the CA, as follows:

Sometime in October 1996, Dr. Reynaldo B. Vera, Chairman, Technical Panel for Engineering, Architecture, and Maritime
Education (TPRAM) of [CHED], received a letter dated October 18, 1998 (Annex C) from Douglas R. Macias, Chairman, Board of
Aeronautical Engineering, Professional Regulat[ory] Commission (PRC) and Chairman, Technical Committee for Aeronautical
Engineering (TPRAME) inquiring whether [petitioner] had already acquired [u]niversity status in view of the latters
advertisement in [the] Manila Bulletin.

In a letter dated October 24, 1996, Dr. Vera formally referred the aforesaid letter to Chairman Alcala with a request that the
concerned Regional Office of [CHED] be directed to conduct appropriate investigation on the alleged misrepresentation by
[petitioner]. Thereafter, [CHED] referred the matter to its Regional Director in Cebu City, requesting said office to conduct an
investigation and submit its report. The [R]eport submitted in January 1997, stated in substance:

xxx xxx xxx

To recall it was in the month of May 1996, [that] Director Ma. Lilia Gaduyon met the school [p]resident in the regional office
and verbally talked[with] and advised them not to use University when it first came out in an advertisement column of a local
daily newspaper in Cebu City. It was explained that there was a violation [committed by] his institution [when it used] the
term university unless the school ha[d] complied [with] the basic requirement of being a university as prescribed in CHED
Memorandum Order No. 48, s. 1996.

x x x x x x x x x.

As a consequence of said Report, [respondents] Legal Affairs Service was requested to take legal action against
[petitioner]. Subsequently, on February 3, 1997, [respondent] directed [petitioner] to desist from using the term University,
including the use of the same in any of its alleged branches. In the course of it investigation, [respondent] was able to verify
from the Securities and Exchange Commission (SEC) that [petitioner had] filed a proposal to amend its corporate name from
Indiana School of Aeronautics to Indiana Aerospace University, which was supposedly favorably recommended by the
Department of Education, Culture and Sports (DECS) per its Indorsement dated 17 July 1995, and on [that] basis, SEC issued to
[petitioner] Certificate of Registration No. AS-083-002689 dated August 7, 1995. Surprisingly, however, it ought to be noted,
that SEC Chairman Perfecto R. Yasay, Jr. wrote the following letter to the [c]hairman of [respondent]:

Hon. Angel C. Alcala

Chairman
Commission on Higher Education
DAP Bldg., San Miguel Avenue
Ortigas Center, Pasig City

Dear Chairman Alcala:

This refers to your letter dated September 18, 1997 requesting this Commission to make appropriate changes in the Articles of
Incorporation of Indiana School of aeronautics, Inc. due to its unauthorized use of the term University in its corporate name.

Relative thereto, please be informed that our records show that the above-mentioned corporation has not filed any amended
articles of incorporation that changed its corporate name to include the term University.

In the case the corporation submit[s] an application for change of name, your Cease and Desist Order shall be considered
accordingly.

Very truly yours,

(SGD.) PERFECTO R. YASAY, JR.

Chairman

In reaction to [respondents] order for [petitioner] to desist from using the word University, Jovenal Toring, [c]hairman and
[f]ounder of [petitioner] wrote a letter dated February 24, 1997 (Annex G) appealing for reconsideration of [respondents]
Order, with a promise to follow the provisions of CMO No. 48, pertinent portions of which have been quoted in the Petition, to
wit:

On 07 August 1995, in line with the call of the government to go for global competitiveness and our vision to help in the
development of aerospace technology, the Board of Directors applied with the SEC for the amendment of Article I of the
Articles of Incorporation to read as Indiana Aerospace University instead of Indiana School of Aeronautics, Inc.

xxxxxxxxx

In view thereof, we would like to appeal to you Fr. Delagoza to please reconsider your order of February 3, 1997, otherwise
the school will encounter financial difficulties and suffer damages which will eventually result in the mass dislocation of xxx
thousand[s] of students. The undersigned, being the [c]hairman and [f]ounder, will try our very best to follow the provisions of
CHED MEMO No. 48, series of 1996 that took effect last June 18, 1996.

xxxxxxxxx

Thank you very much for giving me a copy of said CHED MEMO order No. 48. More power and God Bless You.

x x x x x x x x x.
The appeal of [petitioner] was however rejected by [respondent] in its decision dated July 30, 1998 and the [the latter]
ordered the former to cease and desist from using the word University. However, prior to said date, on April 2, 1998,
[petitioner] filed a Complaint for Damages with prayer for Writ of preliminary and Mandatory Injunction and Temporary
Restraining Order against [respondent], docketed as Civil Case No. 98-811 before public respondent judge.

On April 7, 1998, [respondent] filed a Special Appearance with Motion to Dismiss, based on 1) improper venue; 2) lack of
authority of the person instituting the action; and 3) lack of cause of action. On April 17, 1998, [petitioner] filed its Opposition
to the Motion to Dismiss [on] grounds stated therein, to which [respondent] filed a Reply on April 21, 1998, reiterating the
same arguments in its Motion to Dismiss.After due hearing, [petitioner] formally offered its evidence on July 23, 1998 while
[respondent] made a formal offer of evidence on July 28, 1998 to which [petitioner] filed its Comments/Objections and finally,
[respondent] submitted its Memorandum relative thereto on October 1, 1998.

Public respondent judge, in an Order dated August 14, 1998, denied [respondents] Motion to Dismiss and at the same time,
issued a Writ of preliminary Injunction in favor of [petitioner]. [Respondent], in the same Order, was directed to file its Answer
within fifteen (15)days from receipt of said Order, which was August 15, 1998.

xxxxxxxxx

WHEREFORE, and in consideration of all the foregoing [respondents] Motion to Dismiss is hereby denied, and the
[respondent] is directed to file its [A]nswer to the [C]omplaint within fifteen (15) days from receipt of this Order.

In the meantime, [respondent], its officials, employees and all parties acting under its authority are hereby enjoined to observe
the following during the pendency of this case.

1. Not to publish or circulate any announcement in the newspaper, radio or television regarding its Cease and Desist Order
against xxx [petitioner];

2. Not to enforce the Cease and Desist Order issued against xxx [petitioner];

3. To maintain the status quo by not withholding the issuance of yearly school permits and special order to all graduates.

Let a writ of preliminary Injunction to that effect issue upon posting by [petitioner] of an injunction bond in the amount of One
Hundred Thousand Pesos (P100,000.00), and subject to the approval of the Court.

SO ORDERED.

On September 22, 1998, [petitioner] filed before public respondent a Motion To Declare [Respondent] in [D]efault pursuant to
Section 3, Rule 9 in relation to Section 4, Rule 16 of the Rules of Court, as amended, and at the same time praying [for] the
Motion to [S]et for [H]earing on October 30, 1998 at 8:30 a.m. On the same date, [respondent] filed a Motion For Extension of
Time to File its Answer, x x x until November 18, 1998. On November 17, 1998, [respondent] filed its [A]nswer.

[Petitioner], on November 11, 1998 filed its Opposition to the Motion for Extension of Time to File [Respondents] Answer and
on November 9, 1998, a Motion to Expunge [Respondents] answer and at the same time praying that its [M]otion be heard on
November 27, 1998 at 9:00 a.m. On even date, public respondent judge issued an Order directing the Office of the Solicitor
General to file within a period of ten (10) days from date its written Opposition to the Motion to Expunge [Respondents]
answer and within the same period to file a written [N]otice of [A]ppearance in the case. Unable to file their written
Opposition to the Motion to Expunge within the period given by public respondent, the OSG filed a Motion to Admit Written
Opposition stating the reasons for the same, attaching thereto the Opposition with [F]ormal [E]ntry of [A]ppearance.

In an Order dated December 9, 1998, (Annex A), public respondent judge ruled on [Petitioners ] Motion to Declare
[Respondent in Default], to wit:

WHEREFORE, and in view of all the foregoing, the present motion is granted. [Petitioner] is hereby directed to present its
evidence ex-parte before the [b]ranch [c]lerk of [c]ourt, who is designated as [c]ommissioner for the purpose, within ten (10)
days from receipt of this [O]rder, and for the latter to submit his report within twenty (20) days from the date the case is
submitted for decision.

SO ORDERED.[3]
 On February 23, 1999, respondent filed with the CA a Petition for certiorari, arguing that the RTC had committed grave
abuse of discretion (a) in denying the formers Motion to Dismiss, (b) in issuing a Writ of Preliminary Injunction, and (c) in
declaring respondent in default despite its filing an Answer.

Ruling of the Court of Appeals

The CA ruled that petitioner had no cause of action against respondent. Petitioner failed to show any evidence that it had
been granted university status by respondent as required under existing law and CHED rules and regulations. A certificate of
incorporation under an Unauthorized name does not confer upon petitioner the right to use the word university in its name. The
evidence submitted by respondent showed that the Securities and Exchange Commission (SEC) had denied that petitioner had
ever amended its Articles of Incorporation to include university in its corporate name. For its part, the Department of Education,
Culture and Sports (DECS) denied having issued the alleged Certification dated May 18, 1998, indorsing the change in petitioners
corporate name. Besides, neither the Corporation Code nor the SEC Charter vests the latter with the authority to confer
university status on a corporation that it regulates.
For the same reason, the appellate court also ruled that the Writ of Preliminary Injunction had improvidently been
issued. The doubtful right claimed by petitioner is subordinate to the public interest to protect unsuspecting students and their
parents from the unauthorized operation and misrepresentation of an educational institution.
Respondent should not have been declared in default, because its answer had been filed long before the RTC ruled upon
petitioners Motion to declare respondent in default. Thus, respondent had not obstinately refused to file an Answer; on the
contrary, its failure to do so on time was due to excusable negligence. Declaring it in default did not serve the ends of justice, but
only prevented it from pursuing the merits of its case.
Hence, this Petition.[4]

Issues

Petitioner alleges that the appellate court committed the following reversible errors:
A. In giving due course to respondent CHEDs Petition for Certiorari filed way beyond the 60-day reglementary period
prescribed by Section 4, Rule 65 of the Rules of Court;
B. In not requiring Respondent CHED to first file a motion to Set Aside the Order of Default dated December 9, 1998;
and
C. In ordering the dismissal of Civil Case No. 98-811.[5]
In its Memorandum, petitioner adds that the CA erred in dissolving the Writ of Preliminary Injunction issued by the
RTC. We shall take up these issues in the following order: (1) timeliness of the certiorari petition, (2) validity of the default order,
(3) validity of the preliminary injunction, and (4) dismissal of the Complaint.

This Courts Ruling

The Petition is partly meritorious.

First Issue: Timeliness of Certiorari

Petitioner claims that the Petition for certiorari of respondent should have been dismissed by the CA, because it was filed
out of time and was not preceded by a motion for reconsideration in the RTC.The copy of the Order of August 14, 1998 had been
served at respondents office on August 15, 1998, but its Answer was filed only after 180 days which, according to petitioner,
could not be considered a reasonable period. On the other hand, the Office of the Solicitor General (OSG) argues that the Order
is null and void and, hence, may be assailed at any time.
 We hold that respondents Petition for Certiorari was seasonably filed. In computing its timeliness, what should have been
considered was not the Order of August 14, 1998, but the date when respondent received the December 9, 1998 Order declaring
it in default. Since it received this Order only on January 13, 1999, and filed its Petition for Certiorari on February 23, 1999, it
obviously complied with the sixty-day reglementary period stated in Section 4, Rule 65 of the 1997 Rules of Court. Moreover,
the August 14, 1998 Order was not a proper subject of certiorari or appeal, since it was merely an interlocutory order.

Exhaustion of Available Remedies

Petitioner also contends that certiorari cannot prosper in this case, because respondent did not file a motion for
reconsideration before filing its Petition for Certiorari with the CA. Respondent counters that reconsideration should be
dispensed with, because the December 9, 1998 Order is a patent nullity.
The general rule is that, in order to give the lower court the opportunity to correct itself, a motion for reconsideration is a
prerequisite to certiorari. It also basic that petitioner must exhaust all other available remedies before resorting to
certiorari. This rule, however, is subject to certain exceptions such as any of the following: (1) the issues raised are purely legal
in nature, (2) public interest is involved, (3) extreme urgency is obvious or (4) special circumstances warrant immediate or
more direct action.[6] It is patently clear that the regulation or administration of educational institutions, especially on the
tertiary level, is invested with public interest. Hence, the haste with which the solicitor general raised these issues before the
appellate court is understandable. For the reason mentioned, we rule that respondents Petition for Certiorari did not require
prior resort to a motion for reconsideration.

Second Issue: Validity of the Default Order

Petitioner avers the RTC was justified in declaring respondent in default, because the August 14, 1998 Order directing the
filing of an answer had been served on August 25, 1998. And as late as October 30, 1998, respondent could only file a Motion for
Extension of Time, which the trial court denied because of the expiry of the fifteen-day period. Petitioner adds that respondents
proper remedy would have been a Motion to Set Aside the Order of Default, pursuant to Section 3(b), Rule 9 of the Rules of Court.
Respondent, in turn, avers that certiorari was the only plain, speedy and adequate remedy in the ordinary course of law,
because the default Order had improvidently been issued.
We agree with respondent. Lina v. Court of Appeals[7] discussed the remedies available to a defendant declared in default,
as follows: (1) a motion to set aside the order of default under Section 3(b), Rule 9 of the Rules of Court, if the default was
discovered before judgment could be rendered; (2) a motion for new trial under Section 1(a) of Rule 37, if the default was
discovered after judgment but while appeal is still available; (3) a petition for relief under Rule 38, if judgment has become final
and executory; and (4) an appeal from the judgment under Section 1, Rule 41, even if no petition to set aside the order of default
has been resorted to.
These remedies, however, are available only to a defendant who has been validly declared in default. Such defendant
irreparably loses the right to participate in the trial. On the other hand, a defendant improvidently declared in default may retain
and exercise such right after the order of default and the subsequent judgment by default are annulled, and the case remanded
to the court of origin. The former is limited to the remedy set forth in section 2, paragraph 3 of Rule 41 of the pre 1997 Rules of
Court, and can therefore contest only the judgment by default on the designated ground that it is contrary to evidence or law. The
latter, however, has the following options: to resort to this same remedy; to interpose a petition for certiorari seeking the
nullification of the order of default, even before the promulgation of a judgment by default; or in the event that judgment has
been rendered, to have such order and judgment declared void.
In prohibiting appeals from interlocutory orders, the law does not intend to accord executory force to such writs,
particularly when the effect would be to cause irreparable damage. If in the course of trial, a judge proceeds without or in excess
of jurisdiction, this rule prohibiting an appeal does not leave the aggrieved party without any remedy. [8] In a case like this, a
special civil action of certiorari is the plain, speedy and adequate remedy.
Herein respondent controverts the judgment by default, not on the ground that it is unsubstantiated by evidence or that it
is contrary to law, but on the ground that it is intrinsically void for having been rendered pursuant to a patently invalid order of
default.[9]

Grave Abuse of Discretion

 Petitioner claims that in issuing the default Order, the RTC did not act with grave abuse of discretion, because respondent
had failed to file its answer within fifteen days after receiving the August 14, 1998 Order.
We disagree. Quite the contrary, the trial court gravely abused its discretion when it declared respondent in default despite
the latters filing of an Answer.[10] Placing respondent in default thereafter served no practical purpose.
Petitioner was lax in calling the attention of the Court to the fifteen-day period for filing an answer. It moved to declare
respondent in default only on September 20, 1998, when the filing period had expired on August 30, 1998. The only conclusion
in this case is that petitioner has not been prejudiced by the delay. The same leniency can also be accorded to the RTC, which
declared respondent in default only on December 9, 1998, or twenty-two days after the latter had filed its Answer on November
17, 1998. Defendants Answer should be admitted, because it had been filed before it was declared in default, and no prejudice
was caused to plaintiff. The hornbook rule is that default judgments are generally disfavored. [11]
While there are instances when a party may be properly declared in default, these cases should be deemed exceptions to
the rule and should be resorted to only in clear cases of obstinate refusal or inordinate neglect in complying with the orders of
the court.[12] In the present case, however, no such refusal or neglect can be attributed to respondent.
It appears that respondent failed to file its Answer because of excusable negligence. Atty. Joel Voltaire Mayo, director of the
Legal Affairs Services of CHED, had to relinquish his position in accordance with the Memorandum dated July 7, 1998, requiring
all non-CESO eligibles holding non-career positions to vacate their respective offices. It was only on September 25, 1998, after
CHED Special Order No. 63 had been issued, when he resumed his former position. Respondent also presented a meritorious
defense in its Answer -- that it was duty-bound to pursue that state policy of protecting, fostering and promoting the right of all
citizens to affordable quality education at all levels. In stark contrast, petitioner neither qualified for nor was ever conferred
university status by respondent.
Judges, as a rule, should avoid issuing default orders that deny litigants the chance to be heard. Instead, the former should
give the latter every opportunity to present their conflicting claims on the merits of the controversy, as much as possible
avoiding any resort to procedural technicalities.[13]

Third Issue: Preliminary Injunction

Petitioner contends that the RTC validly issued the Writ of Preliminary Injunction. According to the trial court, respondents
actions adversely affected petitioners interests, faculty and students. In fact, the very existence of petitioner as a business
concern would have been jeopardized had its proprietary rights not been protected.
We disagree. We concur with the CA that the trial court acted with grave abuse of discretion in issuing the Writ of
Preliminary Injunction against respondent. Petitioner failed to establish a clear right to continue representing itself to the public
as a university. Indeed, it has no vested right to misrepresent itself. Before an injunction can be issued, it is essential that (1)
there must be a right in esse to be protected, and (2) the act against which the injunction is to be directed must have violated
such right.[14] The establishment and the operation of schools are subject to prior authorization from the government.No school
may claim to be a university unless it has first complied with the prerequisites provided in Section 34 of the Manual of
Regulations for Private Schools. Section 3, Rule 58 of the Rules of Court, limits the grant of preliminary injunction to cases in
which the plaintiff is clearly entitled to the relief prayed for.
We also agree with the finding of the CA that the act sought to be enjoined by petitioner is not violative of the latters
rights. Respondents Cease and Desist Order of July 30, 1997 merely restrained petitioner from using the term university in its
name. It was not ordered to close, but merely to revert to its authorized name; hence, its proprietary rights were not violated.

Fourth Issue: Dismissal of the Complaint

Petitioner claims that the CA went beyond its limited jurisdiction under Rule 65 when it reversed the trial court and
dismissed the Complaint on the ground that petitioner had failed to state a cause of action. The RTC had yet to conduct trial, but
the CA already determined the factual issue regarding petitioners acquisition of university status, a determination that is not
permitted in certiorari proceedings.
The CA ruled that the trial court gravely abused its discretion in denying respondents Motion to dismiss on the ground of
lack of cause of action because of petitioners lack of legal authority or right to use the word university. Said appellate court:
x x x. No matter how we interpret the Corporation Code and the law granting the Securities and Exchange Commission its
powers and duties, there is nothing there which grants it the power or authority to confer University Status to an educational
institution. Fundamental is the rule that when there is no power granted, none exist[s], not even implied ones for there is none
from where to infer. The mere fact of securing an alleged Certificate of Incorporation under an unauthorized name does not
confer the right to use such name.

But what makes the conclusion of [the trial court] even anomalous, to say the least, is that no less than the Chairman of the SEC
in his letter to the [respondent] (Exh. J) expressly said that [petitioner] never filed any Amended Articles of Incorporation so
as to have a change of corporate name to include the term university. Worse, the records officer of DECS issued a Certification
dated May 18, 1998 (Annex AA) to the effect that there was no Indorsement made by that office addressed to the SEC or the
Proposed Amended Article of Incorporation of Indiana Aeronautics. x x x.

Under such clear pattern of deceitful maneuvering to circumvent the requirement for acquiring University Status, it is [a]
patently reversible error for [the trial court] to hold that [petitioner] has a right to use the word University which must be
protected. Dismissal of [petitioners] Complaint for lack of a valid cause of action should have been the proper action taken by
[the trial court] judge.[15]

An order denying a motion to dismiss is interlocutory, and so the proper remedy in such a case is to appeal after a decision
has been rendered. A writ of certiorari is not intended to correct every controversial interlocutory ruling; it is resorted to only
to correct a grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of jurisdiction. Its function is limited
to keeping an inferior court within its jurisdiction and to relieve persons from arbitrary acts -- acts which courts or judges have
no power or authority in law to perform. It is not designed to correct erroneous findings and conclusions made by the court.[16]
In the case at bar, we find no grave abuse of discretion in the RTCs denial of the Motion to Dismiss, as contained in the
August 14, 1998 Order. The CA erred in ruling other wise. The trial court stated in its Decision that petitioner was an educational
institution, originally registered with the Securities and Exchange Commission as the Indiana School of Aeronautics, Inc. That
name was subsequently changed to Indiana Aerospace University after the Department of Education, Culture and Sports had
interposed no objection to such change.[17]
Respondent issued a formal Cease and Desist Order directing petitioner to stop using the word university in its corporate
name. The former also published an announcement in the March 21, 1998 issue of Freeman, a local newspaper in Cebu City, that
there was no institution of learning by that name. The counsel of respondent was quoted as saying in the March 28, 1998 issue
of the newspaper Today that petitioner had been ordered closed by the respondent for illegal advertisement, fraud and
misrepresentation of itself as a university. Such acts, according to the RTC undermined the publics confidence in petitioner as
an educational institution.[18] This was a clear statement of a sufficient cause of action.
When a motion to dismiss is grounded on the failure to state a cause of action, a ruling thereon should be based only on the
facts alleged in the complaint.[19] The court must pass upon this issue based solely on such allegations, assuming them to be
true. For it to do otherwise would be a procedural error and a denial of plaintiffs right to due process.[20]
WHEREFORE, the Petition is hereby GRANTED IN PART, and the assailed Decision MODIFIED. The trial court
is DIRECTED to SET ASIDE the Order of default of December 9, 1998; to ADMIT the Answer dated November 5, 1998; to LIFT the
preliminary injunction; and to CONTINUE, with all deliberate speed, the proceedings in Civil Case No. 98-811.
SO ORDERED.

ERLINDA GAJUDO, FERNANDO G.R. No. 151098

GAJUDO, JR., ESTELITA GAJUDO,
BALTAZAR GAJUDO and DANILO Present:
ARAHAN CHUA,
Petitioners, Panganiban, CJ,
Chairman,
Ynares-Santiago,
- versus - Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
 Promulgated:
TRADERS ROYAL BANK,[1]

Respondent. March 21, 2006

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- x

DECISION

PANGANIBAN, CJ:

he 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
T

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.

The Case

Before us is a Petition for Review[2] under Rule 45 of the Rules of Court, assailing the June 29,

2001 Decision[3] and December 6, 2001 Resolution[4] of the Court of Appeals (CA) in CA-GR CV No. 43889. The CA disposed as

follows:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed from, must be, as it
hereby is, VACATED and SET ASIDE, and another one entered DISMISSING the complaint at bench. Without
costs.[5]

The assailed Resolution denied petitioners Motion for Reconsideration[6] for lack of merit.
 The Facts

The CA narrated the facts as follows:

[Petitioners] filed a complaint before the Regional Trial Court of Quezon City, Branch 90, against
[respondent] Traders Royal Bank, the City Sheriff of Quezon City and the Register of Deeds of Quezon
City. Docketed thereat as Civil Case No. Q-41203, the complaint sought the annulment of the extra-judicial
foreclosure and auction sale made by [the] city sheriff of Quezon City of a parcel of land covered by TCT No.
16711 of the Register of Deeds of Quezon City, the conventional redemption thereof, and prayed for damages
and the issuance of a writ of preliminary injunction.

The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan from [respondent]
bank in the amount of P75,000.00 secured by a real estate mortgage over a parcel of land covered by TCT No.
16711, and owned in common by the [petitioners]; that when the loan was not paid, [respondent] bank
commenced extra-judicial foreclosure proceedings on the property; that the auction sale of the property was
set on 10 June 1981, but was reset to 31 August 1981, on [Petitioner Chuas] request, which, however, was
made without the knowledge and conformity of the other [petitioners]; that on the re-scheduled auction sale,
[the] Sheriff of Quezon City sold the property to the [respondent] bank, the highest bidder therein, for the sum
of P24,911.30; that the auction sale was tainted with irregularity because, amongst others, the 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, [Petitioner] Chua offered to buy back, and [respondent] bank also agreed to sell
back, the foreclosed property, on the understanding that Chua would pay [respondent] bank the amount
of P40,135.53, representing the sum that the bank paid at the auction sale, plus interest; that [Petitioner] Chua
made an initial payment thereon in the amount of P4,000.00, covered by Interbank Check No. 09173938, dated
16 February 1984, duly receipted by [respondent] bank; that, in a sudden change of position, [respondent]
bank wrote Chua, on 20 February 1984, asking that he could repurchase the property, but based on the current
market value thereof; and that sometime later, or on 22 March 1984, [respondent] bank wrote Chua anew,
requiring him to tender a new offer to counter the offer made thereon by another buyer.

Traversing [petitioners] complaint, [respondent] bank, upon 05 July 1984, filed its answer with
counterclaim, thereunder 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
[respondent] bank, in offering to sell the property to [Petitioner] Chua on the basis of its current market price,
was acting conformably with law, and with legitimate banking practice and regulations.

Pre-trial having been concluded, the parties entered upon trial, which dragged/lengthened to several
months due to postponements. Upon 11 June 1988, however, 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,
[petitioners] discovered that the foreclosed property was sold by [respondent] 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, [petitioners], with leave of court, amended their complaint, but the
Trial Court dismissed the case without prejudice due to [petitioners] failure to pay additional filing fees.

So, upon 11 June 1990, [petitioners] re-filed the complaint with the same Court, whereat it was
docketed as Civil Case No. 90-5749, and assigned to Branch 98: the amended complaint substantially
reproduced the allegations of the original complaint. But [petitioners] this time 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 [respondent] 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 [respondent] bank on 26 September 1990, per Sheriffs Return dated 08
October 1990. Supposing that all the defendants had filed their answer, [petitioners] filed, on 23 October 1991,
a motion to set case for pre-trial, which motion was, however, denied by the Trial Court in its Order of25
 October 1991, on the ground that [respondent] bank has not yet filed its answer. On 13 November 1991[,
petitioners] filed a motion for reconsideration, thereunder alleging that they received by registered mail, on
19 October 1990, a copy of [respondent] banks answer with counterclaim, dated 04 October 1990, which copy
was attached to the motion. In its Order of 14 November 1991, the trial Court denied for lack of merit, the
motion for reconsideration, therein holding that the answer with counterclaim filed by [respondent] bank
referred to another civil case pending before Branch 90 of the same Court.

For this reason, [petitioners] filed on 02 December 1991 a motion to declare [respondent] bank in
default, thereunder alleging that no answer has been filed despite the service of summons on it on 26
September 1990.

On 13 December 1991, the Trial Court declared the motion submitted for resolution upon submission
by [petitioners] of proof of service of the motion on [respondent] bank.

Thus, on 16 January 1992, upon proof that [petitioners] had indeed served [respondent] bank with a
copy of said motion, the Trial Court issued an Order of default against [respondent] bank.

Upon 01 December 1992, on [petitioners] motion, they were by the Court allowed to present evidence
ex parte on 07 January 1993, insofar as [respondent] bank was concerned.

Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned partial decision. [7]
Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by default against
Traders Royal Bank and admit [respondent] Traders Royal Banks x x x 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 [trial court] thumbed down the motion in its Order of 26 July 1993.[8]

Respondent bank appealed the Partial Decision[9] to the CA. During the pendency of that appeal, Ceroferr Realty

Corporation and/or Cesar and/or Lorna Roque filed a Manifestation with Motion [10] asking the CA to discharge them as parties,

because the case against them had already been dismissed on the basis of their Compromise Agreement[11] with

petitioners. On May 14, 1996, the CA issued a Resolution[12] granting Ceroferr et al.s Manifestation with Motion to discharge

movants as parties to the appeal. The Court, though, deferred resolution of the matters raised in the Comment[13] of respondent

bank. The latter contended that the Partial Decision had been novated by the Compromise Agreement, whose effect of res

judicata had rendered that Decision functus officio.

Ruling of the Court of Appeals

The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky ground was the latters Motion to

Set Aside Partial Decision by Default Against Traders Royal Bank and Admit Defendant Traders Royal Banks Answer.[14] The
reasons offered by the bank for failing to file an answer were considered by the appellate court to be at once specious, shallow

and sophistical and can hardly be dignified as a mistake or excusable negligence, which ordinary prudence could not have

guarded against.[15]

In particular, the CA ruled that the erroneous docket number placed on the Answer filed before the trial court was not

an excusable negligence by the banks counsel. The latter had a bounden duty to be scrupulously careful in reviewing

pleadings. Also, there were several opportunities to discover and rectify the mistake, but these were not taken. Moreover, the

banks Motion to Set Aside the Partial Decision and to Admit [the] Answer was not accompanied by an affidavit of merit. These

mistakes and the inexcusable negligence committed by respondents lawyer were binding on the bank.

On the issue of whether petitioners had convincingly established their right to relief, the appellate court held that there

was no ground to invalidate the foreclosure sale of the mortgaged property. First, under Section 3 of Act No. 3135, an

extrajudicial foreclosure sale did not require personal notice to the mortgagor. Second, there was no allegation or proof of

noncompliance with the publication requirement and the public posting of the notice of sale, provided under Act No. 3135, as

amended. Third, 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; and that Petitioner Chua was

requested to make an offer to repurchase the property, because another buyer had already made an offer to buy it. On the other

hand, respondent noted that the Interbank check for P4,000 was for deposit only. Thus, there was no showing that the check

had been issued to cover part of the repurchase price.

 The appellate court also held that the Compromise Agreement had not resulted in the novation of the Partial Decision,

because the two were not incompatible. In fact, the bank was not even a party to the Agreement. Petitioners recognition of

Ceroferrs title to the mortgaged property was intended to preclude future litigation against it.

Hence this Petition.[16]

Issues

In their Memorandum, petitioners raise the following issues:

1. Whether or not the Respondent Court of Appeals erred in failing to apply the provisions of Section 3,
Rule 9 of the 1997 Rules of Civil Procedure [and in applying instead] the rule on preponderance of evidence
under Section 1, Rule 133 of the Rules of Court.

2. Whether or not the respondent appellate court failed to apply the conventional redemption rule
provided for under Article 1601 of the New Civil Code.

3. Whether or not this Honorable Court can exercise its judicial prerogative to evaluate the findings of
facts.[17]

The first issue is one of law and may be taken up by the Court without hindrance, pursuant to Section 1 of Rule 45 of the Rules

of Court.[18] The second and the third issues, however, would entail an evaluation of the factual findings of the appellate court, a

function ordinarily not assumed by this Court, unless in some excepted cases. The Court will thus rule on the first issue before

addressing the second and the third issues jointly.

The Courts Ruling

The Petition has no merit.

First Issue:
 Quantum of Proof

Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of Court, rather than Section 1 of Rule 133 of

the same Rules. In essence, 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.

For ease of discussion, these two rules will be reproduced below, starting with Section 3 of Rule 9 of the Rules of Court:

Sec. 3. Default; declaration of. If the defending party fails to answer within the time allowed therefor,
the court shall, upon motion of the claiming party with notice to the defending party, and proof of such failure,
declare the defending party in default. Thereupon, the court shall proceed to render judgment granting the
claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant to submit
evidence. Such reception of evidence may be delegated to the clerk of court.

(a) Effect of order of default. A party in default shall be entitled to notice of subsequent proceedings but
not to take part in the trial.

(b) Relief from order of default. A party declared in default may at any time after notice thereof and
before judgment file a motion under oath to set aside the order of default upon proper showing that his failure
to answer was due to fraud, accident, mistake or excusable negligence and that he has a meritorious defense.In
such case, the order of default may be set aside on such terms and conditions as the judge may impose in the
interest of justice.

(c) Effect of partial default. When a pleading asserting a claim states a common cause of action against
several defending parties, some of whom answer and the others fail to do so, the court shall try the case against
all upon the answers thus filed and render judgment upon the evidence presented.

(d) Extent of relief to be awarded. A judgment rendered against a party in default shall not exceed the
amount or be different in kind from that prayed for nor award unliquidated damages.

(e) Where no defaults allowed. If the defending party in an action for annulment or declaration of nullity
of marriage or for legal separation fails to answer, the court shall order the prosecuting attorney to investigate
whether or nor a collusion between the parties exists, and if there is no collusion, to intervene for the State in
order to see to it that the evidence submitted is not fabricated.

We now quote Section 1 of Rule 133:

SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having the burden of
proof must establish his case by a preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances
of the case, the witnesses manner of testifying, their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of
their testimony, their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
 Between the two rules, there is no incompatibility that would preclude the application of either one of them. To begin

with, Section 3 of Rule 9 governs the procedure which 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. In particular, the courts judgment shall not

exceed the amount or be different in kind from that prayed for nor award unliquidated damages.

As in other civil cases, basic is the rule that the party making allegations has the burden of proving them by a

preponderance of evidence.[19] Moreover, parties must rely on the strength of their own evidence, not upon the weakness of the

defense offered by their opponent.[20] 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[21] with preponderant evidence required under Section 1 of Rule 133.

Regarding judgments by default, it was explained in Pascua v. Florendo[22] that 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. In Pascua, this

Court ruled that x x x it would be meaningless to require presentation of evidence if every time the other party is declared in

default, a decision would automatically be rendered in favor of the non-defaulting party and exactly according to the tenor of

his prayer. This is not contemplated by the Rules nor is it sanctioned by the due process clause. [23]
 The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete.[24] The following disquisition is most

instructive:

Unequivocal, in the literal sense, as these provisions [referring to the subject of default then under Rule
18 of the old Rules of Civil Procedure] are, they do not readily convey the full import of what they contemplate. To
begin with, contrary to the immediate notion that can be drawn from their language, these provisions are not to
be understood as meaning that default or the failure of the defendant to answer should be interpreted as an
admission by the said defendant that the plaintiffs cause of action find support in the law or that plaintiff is
entitled to the relief prayed for. x x x.

xxxxxxxxx

Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. x x x.

In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be
said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any judgment against
him must be in accordance with law. The evidence to support the plaintiffs cause is, of course, presented in his
absence, but the court is not supposed to admit that which is basically incompetent. Although the defendant
would not be in a position to object, elementary justice requires that only legal evidence should be considered
against him. 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.[25]

In sum, 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. Stated differently,

any advantage they may have gained from the ex parte presentation of evidence does not lower the degree of proof

required. Clearly then, there is no incompatibility between the two rules.

Second and Third Issues:

Review of the Evidence

Petitioners urge this Court to depart from the general rule that the lower courts findings of fact are not reviewable in a petition

for review.[26] In support of their plea, they cite the conflicting findings of the trial and the appellate courts, as well as the alleged

conjectures and surmises made by the CA in arriving at its Decision.

Indeed, the differences between the findings of the two courts a quo, leading to entirely disparate dispositions, is reason enough

for this Court to review the evidence in this case.[27] Whether the CA indulged in surmises and conjectures when it issued the

assailed Decision will thus be determined.

At the outset, it behooves this Court to clarify the CAs impression that no evidence was presented in the case which might have

contributed to petitioners challenge to its Decision. The appellate courts observation was based on the notation by the lower

courts clerk of court that there were no separate folders for exhibits and transcripts, because there was no actual hearing

conducted in this case.[28]

True, there was no hearing conducted between petitioners and respondent, precisely because the latter had been declared

in default, and petitioners had therefore been ordered to present their evidence ex parte. But the absence of a hearing did not

mean that no evidence was presented. The Partial Decision dated February 8, 1993, in fact clearly enumerated the pieces of

evidence adduced by petitioners during the ex parte presentation on January 7, 1993. The documentary evidence they

presented consisted of the following:

1. A copy of respondent banks Petition for the extrajudicial foreclosure and auction sale of the mortgaged parcel of

land[29]

2. The Certificate of Sale that was a consequence of the foreclosure sale[30]

3. A Statement of Account dated February 15, 1984, showing Petitioner Chuas outstanding debt in the amount

of P40,135.53[31]
 4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,000[32]

5. The Official Receipt issued by the bank acknowledging the check [33]

6. The banks letter dated February 20, 1984, advising Petitioner Chua of the sale of the property at an extrajudicial

public auction; the lapse of the period of redemption; and an invitation to purchase the property at its current market price[34]

7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit, within five days, an offer to

buy the same property, which another buyer had offered to buy[35]

8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the Amended Complaint[36]

9. A copy of the title showing the inscription of the Notice of Lis Pendens[37]

10. A copy of the Absolute Deed of Sale to Cerrofer[38]

11. A copy of a letter dated August 29, 1986, made and signed by petitioners counsel, requesting the cancellation of the

Notice of Lis Pendens[39]

12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341) 7778/T-39[40]
Having clarified this matter, we proceed to review the facts.

Petitioners do not deny that the one-year period for legal redemption had already lapsed when respondent bank supposedly

offered to sell the property in question. The records clearly show that the Certificate of Sale following the extrajudicial public

auction of the property was registered on June 21, 1982, the date from which the legal redemption period was to be

reckoned.[41] Petitioners insist, though, that they had the right to repurchase the property through conventional redemption, as

provided under Article 1601 of the Civil Code, worded as follows:

ART. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which
may have been agreed upon.

It is true that the one-year period of redemption provided in Act No. 3135, as amended -- the law under which the

property here was sold in a foreclosure sale -- is only directory and, as such can be extended by agreement of the

parties.[42] However, it has also been held that for legal redemption to be converted into conventional redemption, two requisites

must be established: 1) voluntary agreement of the parties to extend the redemption period; and 2) the debtors commitment to

pay the redemption price on a fixed date.[43] Thus, assuming that an offer was made to Petitioner Chua to buy back the property

after the lapse of the period of legal redemption, petitioners needed to show that the parties had agreed to extend the period,

and that Petitioner Chua had committed to pay the redemption price on a fixed date.

The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do not convincingly show that the parties

arrived at a firm agreement for the repurchase of the property. What can be gleaned from the February 20 letter is that Petitioner

Chua proposed to pay the redemption price for the property, but that the bank refused to accede to his request, because the one-

year redemption period had already lapsed.[44] The bank, though, had offered to sell back the property to him at the current

market value. Indeed, an examination of his earlier letter of February 17, 1984, readily reveals that he expressed willingness to

settle his account with the bank, but that his present financial situation precludes [him] from effecting an immediate settlement

x x x.[45]
 On the other hand, the letter dated March 22, 1984, clearly states that x x x the Bank rejected [his] request to redeem

said property due to [the] lapse of [the] one (1) year legal redemption period.[46] Nonetheless, he was [invited] to submit an offer

to buy the same property in five (5) days from receipt [of the letter]. [47] Petitioner Chua was also informed that the bank had

received an offer to purchase the foreclosed property. As to the P4,000 check enclosed in his proposal dated February 17, 1984,

as a token of his good faith, he was advised that the amount was still outstanding in the books of the bank and could be claimed

by him if he thought the invitation was not feasible.

More important, there was no showing that petitioners had committed to pay the redemption price on a fixed

date. True, Petitioner Chua had attempted to establish a previous agreement to repurchase the property for less than its fair

market value. He had submitted in evidence a Statement of Account [48] dated February 15, 1984, showing a balance

of P40,135.53; the Interbank check dated February 16, 1984 , for P4,000, which was deposited to the account of respondent

bank;[49] and the Official Receipt for the check.[50]

Granting that these documents evinced an agreement, petitioners were still unable to establish a firm commitment on

their part to pay the redemption price on a fixed date. On the contrary, the February 17 letter of Petitioner Chua to the bank

clearly manifested that he was not capable of paying the account immediately. For this reason, he proposed to pay in three or

four installments without a specification of dates for the payments, but with a plea for a reduction of the interest charges. That

proposal was rejected.

Indeed, other than the Interbank check marked for deposit by respondent bank, no other evidence was presented to

establish that petitioners had offered to pay the alleged redemption price of P40,135.53 on a fixed date. For that matter,

petitioners have not shown that they tendered payment of the balance and/or consigned the payment to the court, in order to

fulfill their part of the purported agreement. These remedies are available to an aggrieved debtor under Article 1256 of the Civil

Code,[51] when the creditor unjustly refuses to accept the payment of an obligation.

The next question that presents itself for resolution is the propriety of the CAs ruling vacating the Partial Decision of the regional

trial court (RTC) and dismissing the case. To recall, the RTC had resolved to withhold a ruling on petitioners right to redeem
conventionally and/or order the reconveyance of the property in question, pending a determination of the validity of the sale

to Cerrofer Realty Corporation and Spouses Cesar and Lorna Roque. The trial court, however, granted the prayer for damages

against respondent bank. The RTC ruled as follows:

The evidence presented by [petitioners] in so far as the cause of action against [respondent] Traders
Royal Bank is concerned are preponderant to support the claims of the [petitioners]. However, in view of the
fact that the property subject matter of this case has already been conveyed to defendant Cerrofer Realty
Corporation thus the issue as to whether or not the said conveyance or sale is valid is sill pending between the
[petitioners] and [respondents] Cerrofer Realty Corporation and Cesar Roque and Lorna Roque. Hence, this
Court resolves to grant the prayer for damages against Traders Royal Bank.

The claims of the [petitioners] as against [respondent] Traders Royal Bank having been established and
proved by evidence, judgment is hereby rendered ordering [respondent] Traders Royal Bank to pay
[petitioners] actual damage or the market value of the land in question in the sum of P500,000.00; the sum
of P70,000.00 as compensatory damages; the sum of P200,000.00 to the heirs of [petitioner] Danilo Chua; and
attorneys fees in the sum of P30,000.00.[52]

In the light of the pending issue as to the validity of the sale of the property to the third parties (Cerrofer Realty

Corporation and Spouses Roque), the trial court properly withheld judgment on the matter and thus left the prayer for damages

as the sole issue for resolution.

To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides that a judgment against a party

in default shall not exceed the amount or be different in kind from that prayed for nor award unliquidated damages. The

proscription against the award of unliquidated damages is significant, because it means that the damages to be awarded must

be proved convincingly, in accordance with the quantum of evidence required in civil cases.

Unfortunately for petitioners, the grant of damages was not sufficiently supported by the evidence for the following

reasons.
 First, petitioners were not deprived of their property without cause. As correctly pointed out by the CA, Act No. 3135,

as amended, does not require personal notice to the mortgagor.[53] In the present case, there has been no allegation -- much less,

proof -- of noncompliance with the requirement of publication and public posting of the notice of sale, as required by ct No.

3135. Neither has there been competent evidence to show that the price paid at the foreclosure sale was inadequate.[54] To be

sure, there was no ground to invalidate the sale.

Second, as previously stated, 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 of the Rules of Court. The same is true with regard

to awards for moral damages and attorneys fees, which were also granted by the trial court.

In sum, petitioners have failed to convince this Court of the cogency 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.

WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. Costs against

petitioners.

SO ORDERED.
 TERESITA MONZON, G.R. No. 171827
Petitioner,
Present:
- versus -
YNARES-SANTIAGO, J.,
SPS. JAMES & MARIA ROSA NIEVES RELOVA Chairperson,
and SPS. BIENVENIDO & EUFRACIA PEREZ, AUSTRIA-MARTINEZ,
Respondents. CHICO-NAZARIO,
NACHURA, and
- versus - REYES, JJ.

ADDIO PROPERTIES, INC.,

Intervenor. Promulgated:

September 17, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari assailing the Decision[1] of the Court of Appeals dated 27 September 2005 and
its Resolution dated 7 March 2006 in CA-G.R. CV No. 83507 affirming the Decision of the Regional Trial Court (RTC)
of Tagaytay City, Branch 18.

The factual and procedural antecedents of this case are as follows:

On 18 October 2000, the spouses James and Maria Rosa Nieves Relova and the spouses Bienvenido and Eufracia Perez,
respondents before this Court, filed against Atty. Ana Liza Luna, Clerk of Court of Branch 18 of the RTC of Tagaytay City, and
herein petitioner Teresita Monzon an initiatory pleading captioned as a Petition for Injunction. The case, which was filed before
the same Branch 18 of the RTC of Tagaytay City, was docketed as Civil Case No. TG-2069.

In their Petition for Injunction, respondents alleged that on 28 December 1998, Monzon executed a promissory note in
favor of the spouses Perez for the amount of P600,000.00, with interest of five percent per month, payable on or before 28
December 1999. This was secured by a 300-square meter lot in Barangay Kaybagal, Tagaytay City.Denominated as Lot No. 2A,
this lot is a portion of Psu-232001, covered by Tax Declaration No. 98-008-1793. On 31 December 1998, Monzon executed a
Deed of Absolute Sale over the said parcel of land in favor of the spouses Perez.

Respondents also claim in their Petition for Injunction that on 29 March 1999, Monzon executed another promissory
note, this time in favor of the spouses Relova for the amount of P200,000.00 with interest of five percent per month payable on
or before 31 December 1999. This loan was secured by a 200 square meter lot, denominated as Lot No. 2B, another portion of
the aforementioned Psu-232001 covered by Tax Declaration No. 98-008-1793. On 27 December 1999, Monzon executed a Deed
of Conditional Sale over said parcel of land in favor of the spouses Relova.

On 23 October 1999, the Coastal Lending Corporation extrajudicially foreclosed the entire 9,967-square meter property
covered by Psu-232001, including the portions mortgaged and subsequently sold to respondents. According to the Petition for
Injunction, Monzon was indebted to the Coastal Lending Corporation in the total amount of P3,398,832.35. The winning bidder
in the extrajudicial foreclosure, Addio Properties Inc., paid the amount of P5,001,127.00, thus leaving a P1,602,393.65
residue. According to respondents, this residue amount, which is in the custody of Atty. Luna as Branch Clerk of Court, should
be turned over to them pursuant to Section 4, Rule 68 of the Revised Rules of Civil Procedure. Thus, respondents pray in their
Petition for Injunction for a judgment (1) finding Monzon liable to the spouses Perez in the amount of P1,215,000.00 and to the
spouses Relova in the amount of P385,000.00; (2) ordering Atty. Luna to deliver said amounts to respondents; and (3)
restraining Atty. Luna from delivering any amount to Monzon pending such delivery in number (2).

Monzon, in her Answer, claimed that the Petition for Injunction should be dismissed for failure to state a cause of action.

Monzon likewise claimed that respondents could no longer ask for the enforcement of the two promissory notes
because she had already performed her obligation to them by dacion en pago as evidenced by the Deed of Conditional Sale and
the Deed of Absolute Sale. She claimed that petitioners could still claim the portions sold to them if they would only file the
proper civil cases. As regards the fund in the custody of Atty. Luna, respondents cannot acquire the same without a writ of
preliminary attachment or a writ of garnishment in accordance with the provisions of Rule 57 and Section 9(c), Rule 39 of the
Revised Rules of Civil Procedure.

On 5 December 2001, the RTC, citing the absence of petitioner and her counsel on said hearing date despite due notice,
granted an oral Motion by the respondents by issuing an Order allowing the ex parte presentation of evidence by respondents.[2]

On 1 April 2002, the RTC rendered a Decision in favor of respondents. The pertinent portions of the Decision are as
follows:

That [petitioner] Teresita Monzon owes [herein respondents] certain sums of money is
indisputable. Even [Monzon] have admitted to this in her Answer. [Respondents] therefore are given every right
to get back and collect whatever amount they gave [Monzon] together with the stipulated rate of interest.

Likewise, it has been established that [petitioner] Teresita Monzon has the amount of P1,602,393.65 in
the possession of the Clerk of Court, Atty. Ana Liza M. Luna. This amount, as is heretofore stated, represented
the balance of the foreclosure sale of [Monzons] properties.

By way of this petition, [respondents] would want to get said amount so that the same can be applied
as full payment of [petitioners] obligation. That the amount should be divided between the [respondents] in the
amount they have agreed between themselves; [respondent] spouses Relova to receive the amount
of P400.00.00, while the spouses Perez shall get the rest.

WHEREFORE, judgment is hereby rendered ordering the x x x Clerk of Court, Atty. Ana Liza M. Luna, to
deliver unto [herein respondents] the amount of P1,602,393.65 plus whatever interest she may received if and
when the said amount has been deposited in any banking institution.[3]

The Decision also mentioned that the Order allowing the ex parte presentation of evidence by respondents was due to
the continuous and incessant absences of petitioner and counsel.[4]

On 25 April 2002, Monzon filed a Notice of Appeal, which was approved by the trial court. Monzon claims that the RTC
gravely erred in rendering its Decision immediately after respondents presented their evidence ex parte without giving her a
chance to present her evidence, thereby violating her right to due process of law.

On 14 June 2002, Addio Properties, Inc. filed before the trial court a Motion for Intervention, which was granted by the same
court on 12 July 2002.

On 27 September 2005, the Court of Appeals rendered the assailed Decision dismissing the appeal. According to the
Court of Appeals, Monzon showed tepid interest in having the case resolved with dispatch. She, thus, cannot now complain that
she was denied due process when she was given ample opportunity to defend and assert her interests in the case. The Court of
Appeals reminded Monzon that the essence of due process is reasonable opportunity to be heard and submit evidence in support
of ones defense. What the law proscribes is lack of opportunity to be heard. Monzons Motion for Reconsideration was denied in
a Resolution dated 7 March 2006.

On 27 March 2006, Monzon filed the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court.

Monzon claims anew that it was a violation of her right to due process of law for the RTC to render its Decision
immediately after respondents presented their evidence ex parte without giving her a chance to present her evidence. Monzon
stresses that she was never declared in default by the trial court. The trial court should have, thus, set the case for hearing for
the reception of the evidence of the defense. She claims that she never waived her right to present evidence.

Monzon argues that had she been given the opportunity to present her evidence, she would have proven that (1)
respondents Exhibit A (mortgage of land to the spouses Relova) had been novated by respondents Exhibit B (sale of the mortgage
land to the spouses Relova); (2) respondents Exhibit C (mortgage of land to the spouses Perez) had been novated by respondents
Exhibit B (sale of the mortgage land to the spouses Perez); and (3) having executed Exhibits B and D, Monzon no longer had any
obligation towards respondents.

The Order by the trial court which allowed respondents to present their evidence ex parte states:

In view of the absence of [Monzon] as well as her counsel despite due notice, as prayed for by counsel
for by [respondents herein], let the reception of [respondents] evidence in this case be held ex-parte before a
commissioner who is the clerk of court of this Court, with orders upon her to submit her report immediately
upon completion thereof.[5]

It can be seen that despite the fact that Monzon was not declared in default by the RTC, the RTC nevertheless applied
the effects of a default order upon petitioner under Section 3, Rule 9 of the Rules of Court:

SEC. 3. Default; declaration of.If the defending party fails to answer within the time allowed therefor,
the court shall, upon motion of the claiming party with notice to the defending party, and proof of such failure,
declare the defending party in default. Thereupon, the court shall proceed to render judgment granting the
claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant
to submit evidence. Such reception of evidence may be delegated to the clerk of court.

(a) Effect of order of default.A party in default shall be entitled to notice of subsequent proceedings
but not to take part in the trial.

In his book on remedial law, former Justice Florenz D. Regalado writes that failure to appear in hearings is not a ground
for the declaration of a defendant in default:

Failure to file a responsive pleading within the reglementary period, and not failure to appear at the
hearing, is the sole ground for an order of default (Rosario, et al. vs. Alonzo, et al., L-17320, June 29, 1963), except
the failure to appear at a pre-trial conference wherein the effects of a default on the part of the defendant
are followed, that is, the plaintiff shall be allowed to present evidence ex parte and a judgment based thereon
may be rendered against the defendant (Section 5, Rule 18). [6] Also, a default judgment may be rendered, even
if the defendant had filed his answer, under the circumstance in Sec. 3(c), Rule 29. [7]

Hence, according to Justice Regalado, the effects of default are followed only in three instances: (1) when there is an
actual default for failure to file a responsive pleading; (2) failure to appear in the pre-trial conference; and (3) refusal to comply
with modes of discovery under the circumstance in Sec. 3(c), Rule 29.
 In Philippine National Bank v. De Leon,[8] we held:

We have in the past admonished trial judges against issuing precipitate orders of default as these have the effect
of denying a litigant the chance to be heard, and increase the burden of needless litigations in the appellate
courts where time is needed for more important or complicated cases. While there are instances when a party
may be properly defaulted, these should be the exception rather than the rule, and should be allowed
only in clear cases of obstinate refusal or inordinate neglect to comply with the orders of the
court (Leyte vs. Cusi, Jr., 152 SCRA 496; Tropical Homes, Inc. vs. Hon. Villaluz, et al., G.R. No. L-40628, February
24, 1989).

It is even worse when the court issues an order not denominated as an order of default, but provides for the application
of effects of default. Such amounts to the circumvention of the rigid requirements of a default order, to wit: (1) the court must
have validly acquired jurisdiction over the person of the defendant either by service of summons or voluntary appearance; (2)
the defendant failed to file his answer within the time allowed therefor; and (3) there must be a motion to declare the defendant
in default with notice to the latter.[9] In the case at bar, petitioner had not failed to file her answer. Neither was notice sent to
petitioner that she would be defaulted, or that the effects of default shall be imposed upon her. Mere non-appearance of
defendants at an ordinary hearing and to adduce evidence does not constitute default, when they have already filed their answer
to the complaint within the reglementary period. It is error to default a defendant after the answer had already been filed. It
should be borne in mind that the policy of the law is to have every litigants case tried on the merits as much as possible; it is for
this reason that judgments by default are frowned upon.[10]

Does this mean that defendants can get away with failing to attend hearings despite due notice? No, it will not. We agree
with petitioner that such failure to attend, when committed during hearing dates for the presentation of the complainants
evidence, would amount to the waiver of such defendants right to object to the evidence presented during such hearing, and to
cross-examine the witnesses presented therein. However, it would not amount to a waiver of the defendants right to present
evidence during the trial dates scheduled for the reception of evidence for the defense. It would be an entirely different issue if
the failure to attend of the defendant was on a hearing date set for the presentation of the evidence of the defense, but such did
not occur in the case at bar.

In view of the foregoing, we are, therefore, inclined to remand the case to the trial court for reception of evidence for
the defense. Before we do so, however, we need to point out that the trial court had committed another error which we should
address to put the remand in its proper perspective. We refer to Monzons argument as early as the Answer stage that
respondents Petition for Injunction had failed to state a cause of action.

Section 4, Rule 68 of the Rules of Court, which is the basis of respondents alleged cause of action entitling them to the
residue of the amount paid in the foreclosure sale, provides as follows:

SEC. 4. Disposition of proceeds of sale.The amount realized from the foreclosure sale of the mortgaged
property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when
there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to
junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.

However, Rule 68 governs the judicial foreclosure of mortgages. Extra-judicial foreclosure of mortgages, which was
what transpired in the case at bar, is governed by Act No. 3135,[11] as amended by Act No. 4118,[12] Section 6 of Republic Act No.
7353, Section 18 of Republic Act No. 7906, and Section 47 of Republic Act No. 8791. A.M. No. 99-10-05-0, issued on 14 December
1999, provides for the procedure to be observed in the conduct of an extrajudicial foreclosure sale. Thus, we clarified the
different types of sales in Supena v. Dela Rosa, [13] to wit:
 Any judge, worthy of the robe he dons, or any lawyer, for that matter, worth his salt, ought to know that
different laws apply to different kinds of sales under our jurisdiction. We have three different types of sales,
namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale. An ordinary
execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court on Execution, Satisfaction
and Effect of Judgments. Rule 68 of the Rules, captioned Foreclosure of Mortgage, governs judicial foreclosure
sales. On the other hand, Act No. 3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate
the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages," applies in cases of
extrajudicial foreclosure sales of real estate mortgages.

Unlike Rule 68, which governs judicial foreclosure sales, neither Act No. 3135 as amended, nor A.M. No. 99-10-05-
0 grants to junior encumbrancers the right to receive the balance of the purchase price. The only right given to second
mortgagees in said issuances is the right to redeem the foreclosed property pursuant to Section 6 of Act No. 3135, as amended
by Act No. 4118, which provides:

Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of the sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty- six,[14] inclusive, of the Code of Civil Procedure, in so far as
these are not inconsistent with this Act.

Even if, for the sake of argument, Rule 68 is to be applied to extrajudicial foreclosure of mortgages, such right can only
be given to second mortgagees who are made parties to the (judicial) foreclosure. While a second mortgagee is a proper and in
a sense even a necessary party to a proceeding to foreclose a first mortgage on real property, he is not an indispensable party,
because a valid decree may be made, as between the mortgagor and the first mortgagee, without regard to the second mortgage;
but the consequence of a failure to make the second mortgagee a party to the proceeding is that the lien of the second mortgagee
on the equity of redemption is not affected by the decree of foreclosure.[15]

A cause of action is the act or omission by which a party violates the right of another. [16] A cause of action exists if the
following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission
on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the
plaintiff for which the latter may maintain an action for recovery of damages.[17] In view of the foregoing discussions, we find
that respondents do not have a cause of action against Atty. Ana Liza Luna for the delivery of the subject amounts on the basis
of Section 4, Rule 68 of the Rules of Court, for the reason that the foregoing Rule does not apply to extrajudicial foreclosure of
mortgages.

In Katon v. Palanca, Jr.,[18] we held that where prescription, lack of jurisdiction or failure to state a cause of action clearly
appears from the complaint filed with the trial court, the action may be dismissed motu proprio, even if the case has been
elevated for review on different grounds. However, while the case should indeed be dismissed insofar as Atty. Luna is concerned,
the same is not necessarily true with respect to Monzon. Other than respondents prayer that the amount due to respondents be
delivered by Atty. Luna to them, they also pray for a judgment declaring Monzon liable for such amounts. Said prayer, as argued
by Monzon herself, may constitute a cause of action for collection of sum of money against Monzon.

The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action
to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor including the subject
matter of the mortgage, subject to the qualification that if he fails in the remedy elected by him, he cannot pursue further the
remedy he has waived.[19]
 However, due to the fact that construing respondents Petition for Injunction to be one for a collection of sum of money
would entail a waiver by the respondents of the mortgage executed over the subject properties, we should proceed with caution
before making such construction. We, therefore, resolve that upon the remand of this case to the trial court, respondents should
be ordered to manifest whether the Petition for Injunction should be treated as a complaint for the collection of a sum of money.

If respondents answer in the affirmative, then the case shall proceed with the presentation of the evidence for the
defense. If Monzon would be successful in proving her defense of dacion en pago, there would, in effect, be a double sale of the
mortgaged properties: the same properties were sold to both respondents and to herein intervenor Addio Properties, Inc. If,
pursuant to the rules on double sales, respondents are entitled to the properties, their remedy is to file the proper action to
recover possession. If, pursuant to said rules, Addio Properties, Inc. is entitled to the properties, respondents remedy is to file
an action for damages against Monzon.

If respondents answer in the negative, the case shall be dismissed, without prejudice to the exercise of respondents
rights as mortgage creditors. If respondents mortgage contract was executed before the execution of the mortgage contract with
Addio Properties, Inc., respondents would be the first mortgagors. Pursuant to Article 2126[20] of the Civil Code, they would be
entitled to foreclose the property as against any subsequent possessor thereof. If respondents mortgage contract was executed
after the execution of the mortgage contract with Addio Properties, Inc., respondents would be the second mortgagors. As such,
they are entitled to a right of redemption pursuant to Section 6 of Act No. 3135, as amended by Act No. 4118.

WHEREFORE, the Decision of the Court of Appeals dated 27 September 2005 and its Resolution dated 7 March
2006 are REVERSED and SET ASIDE. The Petition for Injunction in Civil Case No. TG-2069 is hereby
ordered DISMISSED insofar as Atty. Ana Liza Luna is concerned. The Petition for Injunction in Civil Case No. TG-2069, insofar
as petitioner Teresita Monzon is concerned, is ordered REMANDED to the Regional Trial Court of Tagaytay City for further
proceedings. Upon such remand, the Regional Trial Court of Tagaytay City shall issue an Order to respondents, the spouses
James and Maria Rosa Nieves Relova and the spouses Bienvenido and Eufracia Perez, to manifest whether the Petition for
Injunction should be treated as a complaint for the collection of a sum of money.
If respondents answer in the affirmative, the Regional Trial Court shall set the case for hearing for the presentation of
the evidence for the defense. If respondents answer in the negative, the case shall be dismissed, without prejudice to the exercise
of respondents rights as mortgage creditors. No costs.

SO ORDERED.

G.R. No. 185922 January 15, 2014

HEIRS OF DR. MARIANO FAVIS SR. represented by their co-heirs and Attorneys-in-Fact MERCEDES A. FAVIS and NELLY
FAVIS- VILLAFUERTE, Petitioners,
vs.
JUANA GONZALES, her son MARIANO G. FAVIS, MA. THERESA JOANA D. FAVIS, JAMES MARK D. FAVIS, all minors
represented herein by their parents SPS. MARIANO FAVIS and LARCELITA D. FAVIS,Respondents.

DECISION

PEREZ, J.:

Before this Court is a petition for review assailing the 10 April 2008 Decision1 and 7 January 2009 Resolution2 of the Court of
Appeals in CA-G.R. CV No. 86497 dismissing petitioners’ complaint for annulment of the Deed of Donation for failure to exert
earnest efforts towards a compromise.
Dr. Mariano Favis, Sr. (Dr. Favis) was married to Capitolina Aguilar (Capitolina) with whom he had seven children named
Purita A. Favis, Reynaldo Favis, Consolacion Favis-Queliza, Mariano A. Favis, Jr., Esther F. Filart, Mercedes A. Favis, and Nelly
Favis-Villafuerte. When Capitolina died in March 1944, Dr. Favis took Juana Gonzales (Juana) as his common-law wife with
whom he sired one child, Mariano G. Favis (Mariano). When Dr. Favis and Juana got married in 1974, Dr. Favis executed an
affidavit acknowledging Mariano as one of his legitimate children. Mariano is married to Larcelita D. Favis (Larcelita), with
whom he has four children, named Ma. Theresa Joana D. Favis, Ma. Cristina D. Favis, James Mark D. Favis and Ma. Thea D. Favis.

Dr. Favis died intestate on 29 July 1995 leaving the following properties:

1. A parcel of residential land located at Bonifacio St. Brgy. 1, Vigan, Ilocos Sur, consisting an area of 898 square
meters, more or less, bounded on the north by Salvador Rivero; on the East by Eleutera Pena; on the South by
Bonifacio St., and on the West by Carmen Giron; x x x;

2. A commercial building erected on the aforesaid parcel of land with an assessed value of ₱126,000.00; x x x;

3. A parcel of residential land located in Brgy. VII, Vigan, Ilocos Sur, containing an area of 154 sq. ms., more or less,
bounded on the North by the High School Site; on the East by Gomez St., on the South by Domingo [G]o; and on the
West by Domingo Go; x x x;

4. A house with an assessed value of ₱17,600.00 x x x;

5. A parcel of orchard land located in Brgy. VI, Vigan, Ilocos Sur, containing an area of 2,257 sq. ma. (sic) more or less,
bounded on the North by Lot 1208; on the East by Mestizo River; on the South by Lot 1217 and on the West by Lot
1211-B, 1212 and 1215 x x x.3

Beginning 1992 until his death in 1995, Dr. Favis was beset by various illnesses, such as kidney trouble, hiatal hernia,
congestive heart failure, Parkinson’s disease and pneumonia. He died of "cardiopulmonary arrest secondary to multi-
organ/system failure secondary to sepsis secondary to pneumonia." 4

On 16 October 1994, he allegedly executed a Deed of Donation5 transferring and conveying properties described in (1) and (2)
in favor of his grandchildren with Juana.

Claiming that said donation prejudiced their legitime, Dr. Favis’ children with Capitolina, petitioners herein, filed an action for
annulment of the Deed of Donation, inventory, liquidation and partition of property before the Regional Trial Court (RTC) of
Vigan, Ilocos Sur, Branch 20 against Juana, Spouses Mariano and Larcelita and their grandchildren as respondents.

In their Answer with Counterclaim, respondents assert that the properties donated do not form part of the estate of the late
Dr. Favis because said donation was made inter vivos, hence petitioners have no stake over said properties. 6

The RTC, in its Pre-Trial Order, limited the issues to the validity of the deed of donation and whether or not respondent Juana
and Mariano are compulsory heirs of Dr. Favis.7

In a Decision dated 14 November 2005, the RTC nullified the Deed of Donation and cancelled the corresponding tax
declarations. The trial court found that Dr. Favis, at the age of 92 and plagued with illnesses, could not have had full control of
his mental capacities to execute a valid Deed of Donation. Holding that the subsequent marriage of Dr. Favis and Juana
legitimated the status of Mariano, the trial court also declared Juana and Mariano as compulsory heirs of Dr. Favis. The
dispositive portion reads:WHEREFORE, in view of all the foregoing considerations, the Deed of Donation dated October 16,
1994 is hereby annulled and the corresponding tax declarations issued on the basis thereof cancelled. Dr. Mariano Favis, Sr.
having died without a will, his estate would result to intestacy. Consequently, plaintiffs Heirs of Dr. Mariano Favis, Sr., namely
Purita A. Favis, Reynaldo A. Favis, Consolacion F. Queliza, Mariano A. Favis, Jr., Esther F. Filart, Mercedes A. Favis, Nelly F.
Villafuerte and the defendants Juana Gonzales now deceased and Mariano G. Favis, Jr. shall inherit in equal shares in the estate
of the late Dr. Mariano Favis, Sr. which consists of the following:

1. A parcel of residential land located at Bonifacio St. Brgy. 1, Vigan City, Ilocos Sur, consisting an area of 89 sq. meters
more or less, bounded on the north by Salvador Rivero; on the East by Eleutera Pena; on the South by Bonifacio St.,
and on the West by Carmen Giron;

2. A commercial building erected on the aforesaid parcel of land with an assessed value of ₱126,000.00;
 3. One-half (1/2) of the house located in Brgy. VI, Vigan City, Ilocos Sur[,] containing an area of 2,257 sq. meters more
or less, bounded on the north by Lot 1208; on the east by Mestizo River; on the South by Lot 1217 and on the West by
Lot 1211-B, 1212 and 1215.

4. The accumulated rentals of the new Vigan Coliseum in the amount of One Hundred Thirty [Thousand]
(₱130,000.00) pesos per annum from the death of Dr. Mariano Favis, Sr.8

Respondents interposed an appeal before the Court of Appeals challenging the trial court’s nullification, on the ground of
vitiated consent, of the Deed of Donation in favor of herein respondents. The Court of Appeals ordered the dismissal of the
petitioners’ nullification case. However, it did so not on the grounds invoked by herein respondents as appellant.

The Court of Appeals motu proprio ordered the dismissal of the complaint for failure of petitioners to make an averment that
earnest efforts toward a compromise have been made, as mandated by Article 151 of the Family Code. The appellate court
justified its order of dismissal by invoking its authority to review rulings of the trial court even if they are not assigned as
errors in the appeal.

Petitioners filed a motion for reconsideration contending that the case is not subject to compromise as it involves future
legitime.

The Court of Appeals rejected petitioners’ contention when it ruled that the prohibited compromise is that which is entered
between the decedent while alive and compulsory heirs. In the instant case, the appellate court observed that while the
present action is between members of the same family it does not involve a testator and a compulsory heir. Moreover, the
appellate court pointed out that the subject properties cannot be considered as "future legitime" but are in fact, legitime, as the
instant complaint was filed after the death of the decedent.

Undaunted by this legal setback, petitioners filed the instant petition raising the following arguments:

1. The Honorable Court of Appeals GRAVELY and SERIOUSLY ERRED in DISMISSING the COMPLAINT.

2. Contrary to the finding of the Honorable Court of Appeals, the verification of the complaint or petition is not a
mandatory requirement.

3. The Honorable Court of Appeals seriously failed to appreciate that the filing of an intervention by Edward Favis had
placed the case beyond the scope of Article 151 of the Family Code.

4. Even assuming arguendo without admitting that the filing of intervention by Edward Favis had no positive effect to
the complaint filed by petitioners, it is still a serious error for the Honorable Court of Appeals to utterly disregard the
fact that petitioners had substantially complied with the requirements of Article 151 of the Family Code.

5. Assuming arguendo that petitioners cannot be construed as complying substantially with Article 151 of the Family
Code, still, the same should be considered as a non-issue considering that private respondents are in estoppel.

6. The dismissal of the complaint by the Honorable Court of Appeals amounts to grave abuse of discretion amounting
to lack and excess of jurisdiction and a complete defiance of the doctrine of primacy of substantive justice over strict
application of technical rules.

7. The Honorable Court of Appeals gravely and seriuosly erred in not affirming the decision of the Court a quo that the
Deed of Donation is void.9

In their Comment, respondents chose not to touch upon the merits of the case, which is the validity of the deed of donation.
Instead, respondents defended the ruling the Court of Appeals that the complaint is dismissible for failure of petitioners to
allege in their complaint that earnest efforts towards a compromise have been exerted.

The base issue is whether or not the appellate court may dismiss the order of dismissal of the complaint for failure to allege
therein that earnest efforts towards a compromise have been made. The appellate court committed egregious error in
dismissing the complaint. The appellate courts’ decision hinged on Article 151 of the Family Code, viz:
Art. 151. No suit between members of the same family shall prosper unless it should appear from the verified complaint or
petition that earnest efforts toward a compromise have been made, but that the same have failed. If it is shown that no such
efforts were in fact made, the case must be dismissed.

This rule shall not apply to cases which may not be the subject of compromise under the Civil Code.

The appellate court correlated this provision with Section 1, par. (j), Rule 16 of the 1997 Rules of Civil Procedure, which
provides:

Section 1. Grounds. — Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion
to dismiss may be made on any of the following grounds:

xxxx

(j) That a condition precedent for filing the claim has not been complied with.

The appellate court’s reliance on this provision is misplaced. Rule 16 treats of the grounds for a motion to dismiss the
complaint. It must be distinguished from the grounds provided under Section 1, Rule 9 which specifically deals with dismissal
of the claim by the court motu proprio. Section 1, Rule 9 of the 1997 Rules of Civil Procedure provides:

Section 1. Defenses and objections not pleaded. − Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that
the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.

Section 1, Rule 9 provides for only four instances when the court may motu proprio dismiss the claim, namely: (a) lack of
jurisdiction over the subject matter; (b) litis pendentia ; (c) res judicata ; and (d) prescription of action. 10Specifically in
Gumabon v. Larin,11 cited in Katon v. Palanca, Jr.,12 the Court held:

x x x [T]he motu proprio dismissal of a case was traditionally limited to instances when the court clearly had no jurisdiction
over the subject matter and when the plaintiff did not appear during trial, failed to prosecute his action for an unreasonable
length of time or neglected to comply with the rules or with any order of the court. Outside of these instances, any motu
proprio dismissal would amount to a violation of the right of the plaintiff to be heard. Except for qualifying and expanding
Section 2, Rule 9, and Section 3, Rule 17, of the Revised Rules of Court, the amendatory 1997 Rules of Civil Procedure brought
about no radical change. Under the new rules, a court may motu proprio dismiss a claim when it appears from the pleadings or
evidence on record that it has no jurisdiction over the subject matter; when there is another cause of action pending between
the same parties for the same cause, or where the action is barred by a prior judgment or by statute of limitations. x x x. 13

The error of the Court of Appeals is evident even if the consideration of the issue is kept within the confines of the language of
Section 1(j) of Rule 16 and Section 1 of Rule 9. That a condition precedent for filing the claim has not been complied with, a
ground for a motion to dismiss emanating from the law that no suit between members from the same family shall prosper
unless it should appear from the verified complaint that earnest efforts toward a compromise have been made but had failed,
is, as the Rule so words, a ground for a motion to dismiss. Significantly, the Rule requires that such a motion should be filed
"within the time for but before filing the answer to the complaint or pleading asserting a claim." The time frame indicates that
thereafter, the motion to dismiss based on the absence of the condition precedent is barred. It is so inferable from the opening
sentence of Section 1 of Rule 9 stating that defense and objections not pleaded either in a motion to dismiss or in the answer
are deemed waived. There are, as just noted, only four exceptions to this Rule, namely, lack of jurisdiction over the subject
matter; litis pendentia ; res judicata ; and prescription of action. Failure to allege in the complaint that earnest efforts at a
compromise has been made but had failed is not one of the exceptions. Upon such failure, the defense is deemed waived.

It was in Heirs of Domingo Valientes v. Ramas14 cited in P.L. Uy Realty Corporation v. ALS Management and Development
Corporation15 where we noted that the second sentence of Section 1 of Rule 9 does not only supply exceptions to the rule that
defenses not pleaded either in a motion to dismiss or in the answer are deemed waived, it also allows courts to dismiss cases
motu propio on any of the enumerated grounds. The tenor of the second sentence of the Rule is that the allowance of a motu
propio dismissal can proceed only from the exemption from the rule on waiver; which is but logical because there can be no
ruling on a waived ground.

Why the objection of failure to allege a failed attempt at a compromise in a suit among members of the same family is waivable
was earlier explained in the case of Versoza v. Versoza,16 a case for future support which was dismissed by the trial court upon
the ground that there was no such allegation of infringement of Article 222 of the Civil Code, the origin of Article 151 of the
Family Code. While the Court ruled that a complaint for future support cannot be the subject of a compromise and as such the
absence of the required allegation in the complaint cannot be a ground for objection against the suit, the decision went on to
state thus:

The alleged defect is that the present complaint does not state a cause of action. The proposed amendment seeks to complete
it. An amendment to the effect that the requirements of Article 222 have been complied with does not confer jurisdiction upon
the lower court. With or without this amendment, the subject-matter of the action remains as one for support, custody of
children, and damages, cognizable by the court below.

To illustrate, Tamayo v. San Miguel Brewery, Inc.,17 allowed an amendment which " merely corrected a defect in the allegation
of plaintiff-appellant’s cause of action, because as it then stood, the original complaint stated no cause of action." We there
ruled out as inapplicable the holding in Campos Rueda Corporation v. Bautista,18 that an amendment cannot be made so as to
confer jurisdiction on the court x x x. (Italics supplied).

Thus was it made clear that a failure to allege earnest but failed efforts at a compromise in a complaint among members of the
same family, is not a jurisdictional defect but merely a defect in the statement of a cause of action. Versoza was cited in a later
case as an instance analogous to one where the conciliation process at the barangay level was not priorly resorted to. Both
were described as a "condition precedent for the filing of a complaint in Court." 19 In such instances, the consequence is
precisely what is stated in the present Rule. Thus:

x x x The defect may however be waived by failing to make seasonable objection, in a motion to dismiss or answer, the defect
being a mere procedural imperfection which does not affect the jurisdiction of the court. 20 (Underscoring supplied).

In the case at hand, the proceedings before the trial court ran the full course. The complaint of petitioners was answered by
respondents without a prior motion to dismiss having been filed. The decision in favor of the petitioners was appealed by
respondents on the basis of the alleged error in the ruling on the merits, no mention having been made about any defect in the
statement of a cause of action. In other words, no motion to dismiss the complaint based on the failure to comply with a
condition precedent was filed in the trial court; neither was such failure assigned as error in the appeal that respondent
brought before the Court of Appeals.

Therefore, the rule on deemed waiver of the non-jurisdictional defense or objection is wholly applicable to
respondent.1âwphi1 If the respondents as parties-defendants could not, and did not, after filing their answer to petitioner’s
complaint, invoke the objection of absence of the required allegation on earnest efforts at a compromise, the appellate court
unquestionably did not have any authority or basis to motu propio order the dismissal of petitioner’s complaint.

Indeed, even if we go by the reason behind Article 151 of the Family Code, which provision as then Article 222 of the New Civil
Code was described as "having been given more teeth" 21 by Section 1(j), Rule 16 of the Rule of Court, it is safe to say that the
purpose of making sure that there is no longer any possibility of a compromise, has been served. As cited in commentaries on
Article 151 of the Family Code –

This rule is introduced because it is difficult to imagine a sudden and more tragic spectacle than a litigation between members
of the same family. It is necessary that every effort should be made towards a compromise before a litigation is allowed to
breed hate and passion in the family. It is known that a lawsuit between close relatives generates deeper bitterness than
between strangers.22

The facts of the case show that compromise was never an option insofar as the respondents were concerned. The impossibility
of compromise instead of litigation was shown not alone by the absence of a motion to dismiss but on the respondents’
insistence on the validity of the donation in their favor of the subject properties. Nor could it have been otherwise because the
Pre-trial Order specifically limited the issues to the validity of the deed and whether or not respondent Juana and Mariano are
compulsory heirs of Dr. Favis. Respondents not only confined their arguments within the pre-trial order; after losing their
case, their appeal was based on the proposition that it was error for the trial court to have relied on the ground of vitiated
consent on the part of Dr. Favis.

The Court of Appeals ignored the facts of the case that clearly demonstrated the refusal by the respondents to compromise.
Instead it ordered the dismissal of petitioner’s complaint on the ground that it did not allege what in fact was shown during
the trial. The error of the Court of Appeals is patent.
Unfortunately for respondents, they relied completely on the erroneous ruling of the Court of Appeals even when petitioners
came to us for review not just on the basis of such defective motu propio action but also on the proposition that the trial court
correctly found that the donation in question is flawed because of vitiated consent. Respondents did not answer this argument.
The trial court stated that the facts are:

x x x To determine the intrinsic validity of the deed of donation subject of the action for annulment, the mental state/condition
of the donor Dr. Mariano Favis, Sr. at the time of its execution must be taken into account. Factors such as his age, health and
environment among others should be considered. As testified to by Dr. Mercedes Favis, corroborated by Dr. Edgardo Alday
and Dra. Ofelia Adapon, who were all presented as expert witnesses, Dr. Mariano Favis, Sr. had long been suffering from Hiatal
Hernia and Parkinson’s disease and had been taking medications for years. That a person with Parkinson’s disease for a long
time may not have a good functioning brain because in the later stage of the disease, 1/3 of death develop from this kind of
disease, and or dementia. With respect to Hiatal Hernia, this is a state wherein organs in the abdominal cavity would go up to
the chest cavity, thereby occupying the space for the lungs causing the lungs to be compromised. Once the lungs are affected,
there is less oxygenation to the brain. The Hernia would cause the heart not to pump enough oxygen to the brain and the effect
would be chronic, meaning, longer lack of oxygenation to the brain will make a person not in full control of his faculties. Dr.
Alday further testified that during his stay with the house of Dr. Mariano Favis, Sr. (1992-1994), he noticed that the latter
when he goes up and down the stairs will stop after few seconds, and he called this pulmonary cripple – a very advanced stage
wherein the lungs not only one lung, but both lungs are compromised. That at the time he operated on the deceased, the left
and right lung were functioning but the left lung is practically not even five (5%) percent functioning since it was occupied by
abdominal organ. x x x.

Dr. Mariano Favis, Sr. during the execution of the Deed of Donation was already 92 years old; living with the defendants and
those years from 1993 to 1995 were the critical years when he was sick most of the time. In short, he’s dependent on the care
of his housemates particularly the members of his family. It is the contention of the defendants though that Dr. Mariano Favis,
Sr. had full control of his mind during the execution of the Deed of Donation because at that time, he could go on with the
regular way of life or could perform his daily routine without the aid of anybody like taking a bath, eating his meals, reading
the newspaper, watching television, go to the church on Sundays, walking down the plaza to exercise and most importantly go
to the cockpit arena and bet. Dr. Ofelia Adapon, a neurology expert however, testified that a person suffering from Parkinson’s
disease when he goes to the cockpit does not necessarily mean that such person has in full control of his mental faculties
because anyone, even a retarded person, a person who has not studied and have no intellect can go to the cockpit and bet. One
can do everything but do not have control of his mind. x x x That Hiatal Hernia creeps in very insidiously, one is not sure
especially if the person has not complained and no examination was done. It could be there for the last time and no one will
know. x x x.

The Deed of Donation in favor of the defendants Ma. Theresa, Joana D. Favis, Maria Cristina D. Favis, James Mark D. Favis and
Maria Thea D. Favis, all of whom are the children of Mariano G. Favis, Jr. was executed on [16 October] 1994, seven (7) months
after Dra. Mercedes Favis left the house of Dr. Favis, Sr. at Bonifacio St., Vigan City, Ilocos Sur, where she resided with the latter
and the defendants.

Putting together the circumstances mentioned, that at the time of the execution of the Deed of Donation, Dr. Mariano Favis, Sr.
was already at an advanced age of 92, afflicted with different illnesses like Hiatal hernia, Parkinsons’ disease and pneumonia,
to name few, which illnesses had the effects of impairing his brain or mental faculties and the deed being executed only when
Dra. Mercedes Favis had already left his father’s residence when Dr. Mariano Favis, Sr. could have done so earlier or even in
the presence of Dra. Mercedes Favis, at the time he executed the Deed of Donation was not in full control of his mental
faculties. That although age of senility varies from one person to another, to reach the age of 92 with all those medications and
treatment one have received for those illnesses, yet claim that his mind remains unimpaired, would be unusual. The fact that
the Deed of Donation was only executed after Dra. Mercedes Favis left his father's house necessarily indicates that they don't
want the same to be known by the first family, which is an indicia of bad faith on the part of the defendant, who at that time
had influence over the donor.23

The correctness of the finding was not touched by the Court of Appeals. The respondents opted to rely only on what the
appellate court considered, erroneously though, was a procedural infirmity. The trial court's factual finding, therefore, stands
unreversed; and respondents did not provide us with any argument to have it reversed.

The issue of the validity of donation was fully litigated and discussed by the trial court. Indeed, the trial court's findings were
placed at issue before the Court of Appeals but the appellate court chose to confine its review to the procedural aspect. The
judgment of the Court of Appeals, even if it dealt only with procedure, is deemed to have covered all issues including the
correctness of the factual findings of the trial court. Moreover, remanding the case to the Court of Appeals would only
constitute unwarranted delay in the final disposition of the case.
WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE and the Judgment of the Regional Trial Court
of Vigan, Ilocos Sur, Branch 20 is AFFIRMED.

SO ORDERED.