FACTS:

The spouses James and Maria Rosa Nieves Relova, and the spouses Bienvenido and Eufracia Perez filed a Petition for Injunction against Atty. Ana Liza Luna and Teresita Monzon before the RTC of Tagaytay City. In their petition, respondents alleged that Monzon executed a promissory note in favor of the spouses Perez for the amount of P600,000.00, secured by a 300-square meter lot. Monzon also executed another promissory note in favor of the spouses Relova for the amount of P200,000.00, secured by a 200-square meter lot. The entire 9,967-square meter property, including the portions mortgaged and subsequently sold to respondents, was extrajudicially foreclosed by Coastal Lending Corporation. The winning bidder, Addio Properties, Inc., paid P5,001,127.00, leaving a residue amount of P1,602,393.65, which is in the custody of Atty. Luna. Respondents pray for the delivery of said amounts to them and to restrain Atty. Luna from delivering any amount to Monzon. Monzon argued that the petition should be dismissed and that respondents cannot acquire the funds without a writ of preliminary attachment or a writ of garnishment. RTC granted an oral motion allowing the ex parte presentation of evidence by respondents. RTC rendered a decision in favor of respondents, ordering Atty. Luna to deliver the amount of P1,602,393.65 to respondents. Monzon filed a notice of appeal, claiming violation of her right to due process.

Addio Properties, Inc. filed a Motion for Intervention, which was granted by the trial court. The Court of Appeals dismissed the appeal, stating that Monzon had ample opportunity to defend her interests in the case and cannot claim denial of due process. Monzon filed a Motion for Reconsideration, which was denied. Monzon filed a Petition for Review on Certiorari, claiming a violation of her right to due process because the trial court rendered its decision immediately after the respondents presented their evidence ex parte without giving Monzon a chance to present her evidence. Monzon argues that she was never declared in default and the trial court should have set the case for the reception of the defense's evidence. Monzon claims that she would have proven the novation of mortgage agreements and her lack of obligation towards respondents. The trial court allowed the reception of evidence ex parte despite Monzon not being declared in default, applying the effects of default order upon her.

ISSUES:

1. Whether the defendant can be declared in default for failure to appear in the hearing, despite having filed an answer within the reglementary period.

2. Whether the failure of the defendant to attend the hearing dates for the presentation of the complainant's evidence waives their right to object to the evidence and cross-examine the witnesses.

3. Whether the defendant is entitled to present evidence during the trial dates scheduled for the reception of evidence for the defense.

4. Whether the trial court committed an error in allowing the respondent's Petition for Injunction despite the failure to state a cause of action.

5. Whether junior encumbrancers have the right to receive the balance of the purchase price in an extrajudicial foreclosure sale.

6. Whether Rule 68 of the Rules of Court on judicial foreclosure sales applies to extrajudicial foreclosure sales.

7. Whether respondents have a cause of action against Atty. Ana Liza Luna for the delivery of the subject amounts.

8. Whether the case against Monzon should be dismissed or should proceed as a collection of sum of money case.

9. Whether respondents should manifest whether the Petition for Injunction should be treated as a complaint for the collection of a sum of money.

10. Whether respondents' mortgage contract takes priority over the mortgage contract with Intervenor Addio Properties, Inc.

11. Whether or not respondents are entitled to foreclose the property as first mortgagors.

12. Whether or not respondents are entitled to a right of redemption as second mortgagors.

RULING:

1. No, the defendant cannot be declared in default for failure to appear in the hearing, despite having filed an answer within the reglementary period. 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, except in certain circumstances such as failure to appear at a pre-trial conference or refusal to comply with modes of discovery. The mere non-appearance of defendants at an ordinary hearing and failure to adduce evidence does not constitute default when they have already filed their answer within the reglementary period.

2. The failure of the defendant to attend the hearing dates for the presentation of the complainant's evidence amounts to a waiver of their right to object to the evidence presented during such hearing and to cross-examine the witnesses presented therein.

3. The failure of the defendant to attend hearing dates for the presentation of the complainant's evidence does not amount to a waiver of the defendant's right to present evidence during the trial dates scheduled for the reception of evidence for the defense.

4. The trial court committed an error in allowing the respondent's Petition for Injunction despite the failure to state a cause of action. The applicable law for the case at bar is Act No. 3135, as amended, and not Rule 68 of the Rules of Court which governs judicial foreclosure of mortgages. The trial court should have considered the relevant laws and procedural rules governing extrajudicial foreclosure of mortgages.

5. No, junior encumbrancers do not have the right to receive the balance of the purchase price in an extrajudicial foreclosure sale.

6. No, Rule 68 of the Rules of Court on judicial foreclosure sales does not apply to extrajudicial foreclosure sales.

7. No, respondents do not have a cause of action against Atty. Ana Liza Luna.

8. The case against Atty. Luna should be dismissed, but the case against Monzon may proceed as a collection of sum of money case.

9. Yes, respondents should manifest whether the Petition for Injunction should be treated as a complaint for the collection of a sum of money.

10. The court did not provide a ruling on this issue.

11. If respondents' mortgage contract was executed before the execution of the mortgage contract with Addio Properties, Inc., they would be considered as the first mortgagors. Consequently, they are entitled to foreclose the property as against any subsequent possessor.

12. If respondents' mortgage contract was executed after the execution of the mortgage contract with Addio Properties, Inc., they would be considered as the second mortgagors. As such, they are entitled to a right of redemption.

PRINCIPLES:

• The effects of default are followed only in specific instances, such as the failure to file a responsive pleading within the reglementary period or failure to appear at a pre-trial conference.

• Judgments by default should be allowed only in clear cases of obstinate refusal or inordinate neglect to comply with the orders of the court.

• Trial judges should be cautious in issuing precipitate orders of default as these deny a litigant the chance to be heard and increase the burden of needless litigations.

• Different laws apply to different types of sales under Philippine jurisdiction.

• Different laws apply to different types of sales, namely ordinary execution sale, judicial foreclosure sale, and extrajudicial foreclosure sale.

• Act No. 3135, as amended, and A.M. No. 99-10-05-0 apply to extrajudicial foreclosure sales.

• Rule 68 of the Rules of Court governs judicial foreclosure sales.

• Second mortgagees are not entitled to receive the balance of the purchase price in an extrajudicial foreclosure sale, but they have the right to redeem the foreclosed property.

• A cause of action requires a violation of the right of another, an obligation on the part of the defendant, and an act or omission by the defendant violating the plaintiff's right or breaching the defendant's obligation.

• Prescription, lack of jurisdiction, or failure to state a cause of action may be grounds for dismissal of a case.

• A mortgage creditor may waive their security and bring an ordinary action to recover the indebtedness with the right to execute a judgment on all the properties of the debtor, subject to certain qualifications.

• In cases of double sales, the proper remedy depends on the priority of the mortgage contracts.

• Article 2126 of the Civil Code grants the first mortgagors the right to foreclose the property as against any subsequent possessor.

• Section 6 of Act No. 3135, as amended by Act No. 4118, grants rights of redemption to second mortgagors.