China Road and Bridge Corp. vs CA : 137898 : December 15, 2000 : J. Bellosillo : Second Division

SECOND DIVISION

[G.R. No. 137898. December 15, 2000]

CHINA ROAD AND BRIDGE CORPORATION, petitioner, vs. COURT OF APPEALS (Special Seventh Division) and JADE PROGRESSIVE SAVINGS AND MORTGAGE BANK, respondents.

D E C I S I O N

BELLOSILLO, J.:

This is a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure praying for the nullification of the Resolution of the Court of Appeals (Special Seventh Division) dated 29 October 1998 denying petitioner's Motion to Dismiss Appeal, and its Resolution dated 5 February 1999, denying reconsideration thereof and for the dismissal of CA-G.R. CV No. 57375.

CHINA ROAD AND BRIDGE CORPORATION (CRBC), petitioner, is a corporation organized under the laws of the People's Republic of China duly licensed by the Securities and Exchange Commission to do business in the Philippines. It was awarded by the Philippine Government the contract to construct the EDSA Shaw

Boulevard Overpass in Mandaluyong, which it subcontracted to Hi-Quality Builders and Traders, Inc. (HI-QUALITY), a domestic corporation organized under the laws of the Philippines.

On 17 October 1996 Helen Ambrosio, President of HI-QUALITY, executed a Continuing Suretyship in favor of Jade Progressive Savings and Mortgage Bank (JADEBANK) binding herself to pay the "obligations of the Debtor (Hi-Quality) arising from all credit accommodations extended by the Bank to the Debtor x x x x presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank whether direct or indirect x x x x"

On 10 January 1997, in consideration of a loan of P5,000,000.00, HI-QUALITY executed a Deed of Assignment in favor of JADEBANK with the approval of CRBC where it assigned to JADEBANK "(a)ll monthly accomplishment billings, the sums of money, credit, or receivables assigned, be in the position (sic) of or due or to be due from China Road and Bridge Corporation, arising from the subcontract agreement in the construction of the EDSA/Shaw Blvd. Overpass Project x x x x"[1]

On 17 January 1997 JADEBANK released to HI-QUALITY P500,000.00 as part of the loan both parties earlier contracted. As security for the loan, HI-QUALITY executed Promissory Note No. JB BDO 15/97 promising to pay the loan on 3 April 1997. It also indorsed to JADEBANK Check No. 0000270127 issued by CRBC on 31 March 1997 covering the amount released, drawn on United Coconut Planters Bank (UCPB), Mandaluyong Branch.

On 7 April 1997 JADEBANK released P250,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 181/97 payable on 18 April 1997 and indorsed to JADEBANK Check No. 0000126132 issued by Helen Ambrosio on 18 April 1997 covering the amount released, drawn on Allied Banking Corporation, Shaw Boulevard Branch (ALLIEDBANK).

On 21 March 1997 JADEBANK released P250,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 150/97 payable on 5 May 1997 and indorsed to JADEBANK ALLIEDBANK Check No. 0000126131 issued by Ambrosio dated 30 April 1997 for the same amount.

On 25 March 1997 JADEBANK released P400,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 162/97 payable on 5 May 1997 and indorsed to JADEBANK Check No. 214179 issued by Ambrosio dated 30 April 1997 for the same amount, drawn on Security Bank Corporation, Pateros Branch (SECURITYBANK).

On 7 February 1997 JADEBANK released another P400,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 33/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB Check No. 270144 issued by CRBC.

On 17 February 1997 JADEBANK released P350,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 45/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB Check No. 270147 issued by CRBC.

Finally, on 21 February 1997 JADEBANK released P250,000.00 for which HI-QUALITY executed Promissory Note No. JB BDO 75/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB Check No. 270551 issued by CRBC.

All the promissory notes executed by HI-QUALITY provided for twenty-five percent (25%) interest per annum and a five percent (5%) penalty per month in case of default. The amount of each check corresponded to the amount released to HI-QUALITY on the day the check was indorsed to JADEBANK.

When JADEBANK deposited the aforementioned checks for payment, they were returned unpaid. The checks drawn on UCPB were dishonored due to "Stop Payment" orders from the drawer. The ALLIEDBANK checks were dishonored because the account was closed on 19 February 1997. The SECURITYBANK check was dishonored because the account had been closed since the second quarter of 1996.

On 9 June 1997, after repeated demands for payment which were unheeded, JADEBANK filed a case for collection against HI-QUALITY, Helen Ambrosio and CRBC, with an application for a writ of attachment against their properties. The Complaint included as cause of action the first four (4) checks indorsed by HI-QUALITY to JADEBANK and alleging among others that the defendants conspired to commit fraudulent acts in order to induce JADEBANK to grant the loans to HI-QUALITY. Firstly, CRBC issued to HI-QUALITY the UCPB check for P500,000.00 dated 31 March 1997 without any intention of honoring the check. JADEBANK alleged that CRBC knew fully well that the check was to be used by HI-QUALITY as security for the loan from JADEBANK. However, in violation of the Deed of Assignment, CRBC gave to HI-QUALITY sums of money without notice to or the consent of JADEBANK, thereby releasing funds supposedly already assigned to JADEBANK for the payment of HI-QUALITY's loans. Secondly, Helen Ambrosio, as President of HI-QUALITY, issued the checks drawn on SECURITYBANK and ALLIEDBANK after her accounts with these banks were closed, thus revealing a fraudulent intention not to honor her obligations even from their inception. She also executed the Suretyship Agreement in favor of JADEBANK without any intention of fulfilling her obligations.

On 17 June 1997 the trial court[2] issued a Writ of Preliminary Attachment. On the same day, a Notice of Garnishment was served on UCPB garnishing all the moneys of CRBC in the bank. On 23 June 1997 CRBC filed a Motion for Discharge of Attachment. On the same day a Notice of Levy on Attachment was also served on CRBC. On 27 June 1997 the preliminary attachment was discharged after CRBC posted a counter-bond in the amount of P1,962,458.00. On 30 June 1997 JADEBANK filed an Amended Complaint to include the loans contracted on 7, 17 and 21 February 1997 increasing the total amount collectible to P3,437,424.42.

On 28 July 1997 CRBC filed a Motion to Dismiss the 30 May 1997 Complaint on the ground of lack of cause of action. According to CRBC, the Deed of Assignment upon which JADEBANK based its cause of action against CRBC, was subject to the Sub-Contracting Agreement between CRBC and HI-QUALITY -

Under these circumstances, until such time as Hi-Quality is able to perform its obligations pursuant to the Sub-Contract Agreement thereby entitling it to payment for services rendered, China Roadhas no liability whatsoever in Hi-Quality's favor. Corollarily, until this happens, Hi-Quality has nothing to assign in favor of the plaintiff in the form of collectibles/receivables from China Road pursuant to the Deed of Assignment.[3]

CRBC also denied that the issuance of the checks to HI-QUALITY was for the purpose of facilitating the loans in favor of the latter, claiming that the checks were for the use of HI-QUALITY alone, and not for any other purpose. In support of this claim, CRBC asserted that "(n)owhere on the face of the said check does the name of the plaintiff appear. Neither is it accompanied by any document whatsoever specifically evincing that the same was intended for delivery to plaintiff." CRBC also denied that it had been releasing money to HI-QUALITY, claiming that the latter had failed to comply with its obligations to CRBC.

On 27 August 1997 the lower court granted the Motion to Dismiss the complaint with respect to CRBC. Its Motion for Reconsideration having been denied on 31 June 1997 JADEBANK appealed to the Court of Appeals under Rule 41 of the Rules of Court. On 12 August 1997 CRBC filed with the Court of Appeals a Motion to Dismiss Appeal asserting that "the determination of whether the ultimate facts in a Complaint state a cause of action against the defendant is a pure question of law and does not involve any question of fact."[4] According to CRBC, the proper mode of appeal was not by way of ordinary appeal under Rule 41 but rather by way of a petition for review on certiorari under Rule 45.

On 29 October 1998 the Court of Appeals (Special Seventh Division) issued the assailed Resolution denying CRBC's Motion to Dismiss, finding the appeal involved both questions of fact and of law. On 5 February 1999 the appellate court denied reconsideration; hence, this petition.

The only issue that needs to be resolved is whether the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction in denying petitioner's Motion to Dismiss. In resolving the issue it is necessary to determine only if private respondent's appeal to the Court of Appeals involved purely questions of law, in which case the proper mode of appeal would be a petition for review on certiorari to the Supreme Court under Rule 45;[5] or questions of fact or mixed questions of fact and law, in which case the proper mode would be by ordinary appeal under Rule 41.

A question of law exists when there is doubt or controversy as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or falsehood of facts,[6] or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole and probabilities of the situation.[7] Ordinarily, the determination of whether an appeal involves only questions of law or both questions of law and fact is best left to the appellate court,[8] and all doubts as to the correctness of such conclusions will be resolved in favor of the Court of Appeals.[9] However, in the instant case, we find that there was grave abuse of discretion on the part of respondent Court of Appeals, hence, we grant the petition.

The ground for dismissal invoked by petitioner is that the complaint of JADEBANK before the trial court stated no cause of action, under Sec. 1, par. (g), Rule 16, the 1997 Revised Rules of Civil Procedure. It is well settled that in a motion to dismiss based on lack of cause of action, the issue is passed upon on the basis of the allegations assuming them to be true.[10] The court does not inquire into the truth of the allegations and declare them to be false, otherwise it would be a procedural error and a denial of due process to the plaintiff. Only the statements in the complaint may be properly considered, and the court cannot take cognizance of external facts or hold preliminary hearings to ascertain their existence.[11] To put it simply, the test for determining whether a complaint states or does not state a cause of action against the defendants is whether or not, admitting hypothetically the truth of the allegations of fact made in the complaint, the judge may validly grant the relief demanded in the complaint.[12]

In a motion to dismiss based on failure to state a cause of action, there cannot be any question of fact or "doubt or difference as to the truth or falsehood of facts," simply because there are no findings of fact in the first place. What the trial court merely does is to apply the law to the facts as alleged in the complaint, assuming such allegations to be true. It follows then that any appeal therefrom could only raise questions of law or "doubt or controversy as to what the law is on a certain state of facts." Therefore, a decision dismissing a complaint based on failure to state a cause of action necessarily precludes a review of the same decision on questions of fact. One is the legal and logical opposite of the other.

In resolving the Motion to Dismiss, the lower court ruled -

As alleged in the complaint, the plaintiff granted a loan to Hi-Quality Builders and Traders, Inc. (HQ); that as security of the payment of the loan, HQ assigned all its receivables from China; that China gave HQ a check for P5,000,000.00 payable to HQ; that in turn HQ gave the check to plaintiff; and that plaintiff deposited said check which was returned for the reason: "stop payment".

It is clear from the foregoing that there is no cause of action of plaintiff against China. While there is a "delict" or "wrong" committed, it was not committed against the rights of plaintiff because it alleged none but against HQ. Therefore, the one that has a cause of action against China is HQ.[13]

The Motion for Reconsideration filed by JADEBANK was resolved by the trial court thuswise -

(T)he plaintiff has a right in the collection of the loan it granted to Hi-Quality Builders but there is no corresponding allegation the (sic) China Road has an obligation to pay such loan. All that is alleged is that China Road agreed that Hi-Quality Builders will assign its receivables from China Road and for that purpose appointed plaintiff as Attorney-in-fact.

Had there been allegation to the effect that plaintiff, as Attorney-in-fact, of Hi-Quality Builders collected from China Road and that China Road refused to deliver the money due Hi-Quality Builders then a cause of action would have arisen.[14]

It is clear from the foregoing that the lower court did not make any finding of fact; rather, as was proper in a motion to dismiss for this particular ground, it merely assumed the plaintiff's allegations to be true. It did not evaluate the evidence of the plaintiff nor did it pass upon the truth or falsity of the plaintiff's allegations. What the lower court did was simply to apply the law as to the facts borne out by the allegations in the complaint. And it found that even assuming that all the allegations of JADEBANK were true, it would still not be able to collect from CRBC because based on the same allegations, CRBC did not have any duty whatsoever to remit money to JADEBANK. Whether this conclusion is correct or not is a totally separate issue and is not before us for review at this time. What is evident, however, is that such a conclusion could only raise pure questions of law. It is perplexing to this Court then why respondent appellate court found that there were questions of fact to be answered in the appeal. It taxes the imagination how a question of fact can arise from a controversy that does not involve findings of fact.

JADEBANK in its Appellant's Brief raised the following questions, which it erroneously designated as questions of fact, in an attempt to place its appeal within the jurisdiction of the Court of Appeals:

4.1.1. Whether or not the amended complaint together with the Annexes attached and forming an integral part thereof, states a sufficient cause of action against the defendant-appellee;

4.1.2. Whether or not there was an unwarranted reversal of the Honorable Regional Trial Court's Orders stating that the complaint states a sufficient cause of action;

4.2.1. Whether or not the Motion to Dismiss the complaint can be considered also as a Motion to Dismiss the Amended Complaint.[15]

We fail to see how these issues raised by JADEBANK could be properly denominated questions of fact. The test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of fact.[16] Applying the test to the instant case, it is clear that private respondent raises pure questions of law which are not proper in an ordinary appeal under Rule 41, but should be raised by way of a petition for review on certiorari under Rule 45.

We agree with private respondent that in a motion to dismiss due to failure to state a cause of action, the trial court can consider all the pleadings filed, including annexes, motions and the evidence on record.[17] However in so doing, the trial court does not rule on the truth or falsity of such documents. It merely includes such documents in the hypothetical admission. Any review of a finding of lack of cause of action based on these documents would not involve a calibration of the probative value of such pieces of evidence but would only limit itself to the inquiry of whether the law was properly applied given the facts and these supporting documents. Therefore, what would inevitably arise from such a review are pure questions of law, and not questions of fact.

It is apparent that JADEBANK, as well as respondent appellate court, confused situations where the complaint does not allege a sufficient cause of action and where the evidence does not sustain the cause of action alleged. The first is raised in a motion to dismiss under Rule 16 before a responsive pleading is filed and can be determined only from the allegations in the initiatory pleading and not fromevidentiary or other matters aliunde. The second is raised in a demurrer to evidence under Rule 33 after the plaintiff has rested his case and can be resolved only on the basis of the evidence he has presented in support of his claim.[18] The first does not concern itself with the truth and falsity of the allegations while the second arises precisely because the judge has determined the truth and falsity of the allegations and has found the evidence wanting.

This is not to say that we automatically agree with the trial court that private respondent failed to allege a sufficient cause of action. However, the question of whether JADEBANK failed to state a sufficient cause of action is not before us for review; it may only be resolved when the appropriate mode of review is availed of JADEBANK's appeal having been improperly brought before the Court of Appeals, it should be dismissed outright pursuant to Sec. 2 of Rule 50 of the Rules of Court, which provides:

Sec. 2. Dismissal of improper appeal to the Court of Appeals. -- An appeal under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues purely of law not being reviewable by the said court x x x x

WHEREFORE, the petition for certiorari is GRANTED. The assailed Resolutions of the Court of Appeals dated 29 October 1998 and 5 February 1999 are REVERSED and SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.

Accordingly, the appeal in CA-G.R. CV No. 57375, "Jade Progressive Savings and Mortgage Bank v. China Road and Bridge Corporation," is DISMISSED.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.