SECOND DIVISION

THE MANILA BANKING CORPORATION, Petitioner, - versus -	G.R. No. 159189 Present: Quisumbing, J., Chairperson, Carpio, Carpio Morales, Tinga, and VELASCO, JR., JJ.
UNIVERSITY OF BAGUIO, INC. and GROUP DEVELOPERS, INC., Respondents.	Promulgated: February 21, 2007

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DECISION

QUISUMBING, J.:

On appeal is the Order[1] dated April 11, 2002 of the Regional Trial Court (RTC) of Makati City, Branch 61, in Civil Case No. 90-389, dismissing petitioner’s amended complaint for a sum of money with application for preliminary attachment. In the appeal under Section 2, Rule 41, on a pure question of law, petitioner alleges that the assailed Order of the RTC was manifestly not in accord with law and jurisprudence. Also assailed is the trial court’s June 27, 2003 Order[2] denying the motion for reconsideration.

The facts are culled from the records.

On November 26, 1981, petitioner Manila Banking Corporation granted a P14 million credit line[3] to respondent University of Baguio, Inc. for the construction of additional buildings and purchase of new equipment.[4] On behalf of the university, then Vice-Chairman Fernando C. Bautista, Jr.[5] signed Promissory Note (PN) Nos. 10660, 10672, 10687, and 10708[6] and executed a continuing suretyship agreement.[7] However, Bautista, Jr. diverted the net proceeds of the loan. He endorsed and delivered the four checks representing the net proceeds to respondent Group Developers, Inc. (GDI).[8] The loan was not paid.

On February 12, 1990, the bank filed a complaint for a sum of money with application for preliminary attachment[9] against the university, Bautista, Jr. and his wife Milagros, before the RTC of Makati City. Five years later, on March 31, 1995, the bank amended the complaint and impleaded GDI as additional defendant.

In the amended complaint,[10] the bank alleged that it was unaware and did not approve the diversion of the loan to GDI; that it granted the loan without collateral upon the university’s undertaking that it would construct new buildings; and that GDI connived with the university and Bautista, Jr. in fraudulently contracting the debt.

In its Answer, the university claimed that the bank and GDI approved the diversion. Allegedly, Victor G. Puyat, then GDI’s President, and Vicente G. Puyat, then the bank’s President, decided to use the proceeds of the loan. The university stated that Vicente G. Puyat and Victor G. Puyat even assured the university, in separate letters[11] both dated October 22, 1981, that it would be relieved of any liability from the loan. Consequently, even if the loan was overdue, the bank did not demand payment until February 8, 1989. By way of cross-claim, the university prayed that GDI be ordered to pay the university the amount it would have to pay the bank. In addition, the university filed a third-party complaint against Victor G. Puyat and the heirs of Vicente G. Puyat.

On December 14, 1995, the bank and GDI executed a deed of dacion en pago.[12] As attorney-in-fact of Batulao Bio-Loop Farms, Inc., GDI ceded and transferred to the bank a parcel of land consisting of 210,000 square meters located in Nasugbu, Batangas and covered by Transfer Certificate of Title No. T-70784. The dacion en pago was for a consideration of P78 million and in full settlement of the loan under PN Nos. 10660, 10672, 10687, and 10708, subject of Civil Case No. 90-389.[13]

In an Omnibus Order[14] dated April 21, 1997, the trial court dismissed the third-party complaint against the heirs of Vicente G. Puyat for being premature since the bank’s cause of action was against the university as a “dummy” of GDI. The trial court also dismissed the case as to Fernando Bautista, Jr. and his wife upon Fernando’s death. The trial court further ruled that the university’s motion to implead GDI as third-party defendant, and GDI’s motions to dismiss the amended complaint and cross-claim, had been mooted by the dacion en pago.

On March 19, 1998, the university moved to dismiss the amended complaint on the grounds that: (1) there was “no more cause of action” against it since the loan had been settled by GDI; and (2) the bank “failed to prosecute the action for an unreasonable length of time.”[15] In an Order[16] dated August 17, 1999, the trial court denied the motion since the “matters relied upon by the university were evidentiary in nature.”

On October 14, 1999, the university moved to set the case for pre-trial on December 2, 1999.[17]

On August 3, 2000, the trial court resolved GDI’s motion to resolve the motions to dismiss and defer pre-trial; expunged from the record the deed of dacion en pago; and reinstated GDI’s motions to dismiss the amended complaint and cross-claim on the ground that no compromise agreement was submitted for its approval.[18]

On August 29, 2001, the university filed a manifestation with motion for reconsideration of the August 17, 1999 Order denying the university’s motion to dismiss the amended complaint. The university argued that the grounds for its motion to dismiss were not evidentiary as the deed of dacion en pago and the bank’s judicial admission thereof were on record.

The bank opposed the motion on the ground that the motion for reconsideration of the August 17, 1999 Order was filed after more than two years. The bank noted that it was the university which moved to set the case for pre-trial; thus, its claim of not seeking reconsideration of the August 17, 1999 Order because of the scheduled pre-trial was preposterous. The bank concluded that the motion to dismiss lacked basis since the deed of dacion en pago had already been expunged.

In the appealed Order of April 11, 2002, the trial court ruled that the bank had no cause of action against the defendants because its claim for a sum of money had been paid through the dacion en pago. The trial court noted that the bank even admitted the settlement. It disposed of the case as follows:

WHEREFORE, in view of the foregoing, defendant [respondent herein] University of Baguio’s Motion to Dismiss Amended Complaint is herein GRANTED and this complaint for collection of sum of money is herein DISMISSED.

Defendant UBI [respondent university] shall file the appropriate Manifestation in Court specifying the dates in June when it will be available to present evidence on its counterclaim.

SO ORDERED.[19]

Hence, this appeal where petitioner alleges:

I.

The RTC seriously erred in granting the Motion to Dismiss of respondent UBI on the basis of a document that has already been indisputably stricken off from (sic) the records of the case.

ii.

The RTC seriously erred in granting ubi’s Motion to Dismiss when the issues raised therein are evidentiary in nature and did not refer to the allegations in the complaint.

iii.

The RTC seriously erred in ruling, without trial, that the Deed of Dacion en Pago between petitioner and respondent ubI [Should be gdi] has not been rescinded.

iv.

The RTC should have denied ubi’s Manifestation (with Motion for Reconsideration) as the filing of the Motion to Dismiss after respondent ubi filed its Answer violated the Rules of Court.

V.

The RTC, without justifiable nor legal basis, adopted different policies to parties similarly situated.

vi.

The RTC, without justifiable nor legal basis, resolved for the second time a Motion to Dismiss which it has earlier denied instead of resolving the Manifestation (with Motion for Reconsideration of said denial) which it was being asked to resolve.[20]

In essence, the issue for our resolution is, did the trial court err in dismissing the amended complaint, without trial, upon motion of respondent university?

Petitioner argues that the university’s motion to dismiss on alleged lack of cause of action because of the deed of dacion en pago, an evidence aliunde, was improper since petitioner has yet to present its evidence. Petitioner also argues that the April 11, 2002 appealed Order was flawed because it was based on evidence expunged from the record.

Respondent university counters that the amended complaint deserved dismissal because petitioner admitted the dacion en pago and stated its lack of interest to pursue the case against respondent university. The university contends that petitioner’s acceptance of the Batangas property, as equivalent of performance, extinguished the obligation under the four promissory notes. Thus, the university concludes that no more cause of action lies against it.

For its part, respondent GDI maintains that the dacion en pago has no “legal effect” but also avers that the dacion en pago effectively paid the loan warranting dismissal of the complaint, cross-claim and counterclaim against it.

Prefatorily, we note the trial court’s inconsistent rulings in this case. To recall, the Omnibus Order dated April 21, 1997 appeared to have considered the dacion en pago as full settlement of the case. The trial court thus ruled that the dacion en pago mooted the motion to implead GDI as third-party defendant, and GDI’s motions to dismiss amended complaint and third-party cross-claim.[21] Yet, in the same order, the trial court dismissed the case against the heirs of Vicente G. Puyat on the ground of prematurity, since petitioner’s cause of action was against respondent university as “dummy” of GDI, implying that the case was not yet actually settled. Recall also that the August 17, 1999 Order ruled that the payment of the loan through the dacion en pago was “evidentiary”[22] or had to be proved. The order was silent on whether it reversed the trial court’s earlier statement that the dacion en pago settled the loan and the case.

A year later, on August 3, 2000, the trial court expunged the deed of dacion en pago and reinstated GDI’s motions to dismiss the amended complaint and cross-claim.[23] Then, the appealed Order of April 11, 2002 ruled that petitioner had “no cause of action” against the defendants since the loan was settled by the dacion en pago,[24] despite the order which expunged the deed.

In Domondon v. Lopez,[25] we distinguished a motion to dismiss for failure of the complaint to state a cause of action from a motion to dismiss based on lack of cause of action. The first is governed by Section 1 (g),[26] Rule 16, while the second by Rule 33,[27] of the Rules of Court, to wit:

. . . The first [situation where the complaint does not allege a sufficient cause of action] 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 from evidentiary or other matters aliunde. The second [situation where the evidence does not sustain the cause of action alleged] 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. 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.

Hence, a motion to dismiss based on lack of cause of action is filed by the defendant after the plaintiff has presented his evidence on the ground that the latter has shown no right to the relief sought. While a motion to dismiss under Rule 16 is based on preliminary objections which can be ventilated before the beginning of the trial, a motion to dismiss under Rule 33 is in the nature of a demurrer to evidence on the ground of insufficiency of evidence and is presented only after the plaintiff has rested his case.[28] (Emphasis supplied.)

In this case, the university’s March 19, 1998 motion to dismiss the amended complaint was improper under Rule 16 because it was filed after respondent university filed its responsive pleading, its Answer. Also, the motion’s merit could not be determined based solely on the allegations of the initiatory pleading, the amended complaint, since the motion was based on the deed of dacion en pago, which was not even alleged in the complaint. And since the deed of dacion en pago had been expunged from the record, the trial court erred in its finding of payment and lack of cause of action based on the deed. In fact, on January 11, 2002 or just three months before it dismissed the amended complaint, the trial court had even noted petitioner counsel’s manifestation regarding the parties’ initial efforts to enter into a “dacion en pago but not based on the previous offer made but on a new proposal involving new properties”[29] and urged them to pursue further settlement discussions.[30]

In addition, the motion alleged that petitioner had “no more cause of action” or lacked a cause of action against the university. Following Domondon, that motion was a motion to dismiss under Rule 33 in the nature of demurrer to evidence and would be proper only after petitioner had presented its evidence and rested its case. In the case at bar, there had been no presentation of evidence yet and petitioner had not rested its case. Therefore, the August 17, 1999 Order properly denied the motion to dismiss for being improper under either Rule 16 or 33.

The trial court had also made a premature statement in its Omnibus Order dated April 21, 1997 that the dacion en pago settled the loan and the case, even as it also stated that respondent university was used as a “dummy” of GDI. If indeed there was fraud, considering the uncollateralized loan, its diversion, nonpayment, absence of demand although overdue, and the dacion en pago where title of the property accepted as payment cannot be transferred, the fraud should be uncovered to determine who are liable to pay the loan. We note too that the April 11, 2002 Order was unclear if it ruled again on the university’s March 19, 1998 motion to dismiss or acted on its August 29, 2001 manifestation with motion for reconsideration of the two-year old August 17, 1999 Order. To reiterate, the August 17, 1999 Order aptly denied the motion. Thus, we reverse the April 11, 2002 and June 27, 2003 assailed Orders.

Lastly, it must be pointed out that while the Court allows a relaxation in the application of procedural rules in some instances, courts and litigants are enjoined to follow rules strictly because they are designed to facilitate the adjudication of cases.[31] Instead of rules being followed, however, we find their misapplication in this case resulting to inconsistent rulings, confusion and delay. Had the trial court exercised its inherent power to control its proceedings,[32] it would not have taken this long to reach pre-trial, which had been first set on December 2, 1999 through respondent university’s motion. Significantly, even the trial court had tentatively set the pre-trial on June 7, 2002[33] but erroneously dismissed the amended complaint on April 11, 2002.

WHEREFORE, we GRANT the petition and SET ASIDE the trial court’s April 11, 2002 and June 27, 2003 Orders. The trial court is ORDERED to proceed with the pre-trial and hear this case with dispatch. No pronouncement as to costs.

SO ORDERED.

LEONARDO A. QUISUMBING

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO Associate Justice
CONCHITA CARPIO MORALES Associate Justice	DANTE O. TINGA Associate Justice
PRESBITERO J. VELASCO, JR. Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING

Associate Justice

Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice

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^[1] Rollo, pp. 33-36.

^[2] Records, p. 1843.

[3] Rollo, pp. 43-44.

^[4] Id. at 63, 77.

^[5] Id. at 46.

^[6] Id. at 49-56.

^[7] Id. at 47-48.

^[8] Id. at 65, 77.

^[9] Id. at 38-42.

^[10] Id. at 63-69.

^[11] Id. at 94-95.

^[12] Id. at 120-122.

^[13] Id.

^[14] Id. at 108-110.

^[15] Id. at 124, 127.

^[16] Id. at 152-154.

[17] Id. at 155-157.

^[18] Id. at 161-162.

^[19] Id. at 36.

[20] Id. at 341-342.

^[21] Id. at 109.

[22] Id. at 154.

^[23] Id. at 161.

^[24] Id. at 34.

^[25] A.M. No. RTJ-02-1696, June 20, 2002, 383 SCRA 376.

^[26] 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:

x x x x

(g) That the pleading asserting the claim states no cause of action;

x x x x

^[27] SECTION 1. Demurrer to evidence. - After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to present evidence.

[28] Supra note 25, at 385-386, citing China Road and Bridge Corporation v. Court of Appeals, G.R. No. 137898, December 15, 2000, 348 SCRA 401, 412 and Enojas, Jr. v. Commission on Elections, G.R. No. 129938, December 12, 1997, 283 SCRA 229.

[29] Records, p. 1626 (Underscoring omitted).

[30] Id.

[31] Asian Spirit Airlines (Airline Employees Cooperative) v. Bautista, G.R. No. 164668, February 14, 2005, 451 SCRA 294, 300-301, citing Garbo v. Court of Appeals, G.R. No. 107698, July 5, 1996, 258 SCRA 159, 163.

[32] Rules of Court, Rule 135, Section 5.

[33] Records, p. 1627.