G.R. No. L-52008 March 25, 1988
LEONOR GUZMAN CASTILLO and FEDERICO T. CASTILLO, JR., petitioners, vs. THE COURT OF APPEALS and THE DEVELOPMENT BANK OF THE PHILIPPINES and ANSELMO P. SEVILLA, respondents.

FACTS

Petitioners Leonor Guzman Castillo and Federico T. Castillo, Jr. obtained an industrial loan from respondent Development Bank of the Philippines (DBP), secured by real estate and chattel mortgages. They executed a promissory note for P33,000.00, but only P31,000.00 was released. DBP subsequently modified the note, altering the principal amount, maturity date, and amortization schedule. The petitioners alleged they were only advised of these alterations in 1974. They filed a complaint seeking to declare the promissory note and the mortgages null and void due to material alteration under the Negotiable Instruments Law, and to enjoin DBP’s foreclosure proceedings.
Instead of filing an answer, DBP moved to dismiss the complaint for failure to state a cause of action. The trial court, prior to resolving the motion, granted petitioners one week to amend their complaint. However, before the week expired, the court motu proprio issued an order dismissing the original complaint. It ruled that even if the promissory note was void, the underlying loan obligation remained, and DBP could enforce it via foreclosure. The petitioners subsequently filed an amended complaint, which the trial court refused to admit. The Court of Appeals affirmed the trial court’s actions.

ISSUE

Whether the trial court’s summary dismissal of the original and amended complaints motu proprio was improper and violated the petitioners’ procedural rights.

RULING

The Supreme Court ruled the dismissal was proper and did not violate procedural rights. On the dismissal of the original complaint, the Court held that a hearing on a motion to dismiss based on failure to state a cause of action is not always mandatory. The issue is resolved based on the facts alleged in the pleading. Since DBP’s motion and the petitioners’ opposition fully discussed the legal issue, an oral hearing became an unnecessary formality. The trial court correctly held that the nullity of a promissory note as a negotiable instrument does not extinguish the underlying loan obligation. DBP’s right to foreclose the mortgage, which secured that loan, remained enforceable.
Regarding the amended complaint, the Court found its rejection was correct. Under the Rules, a party may amend its pleading once as a matter of right before a responsive pleading is served. However, this right is lost if the amendment alters the cause of action or is inconsistent with the original complaint. Here, the original complaint sought the “nullification” of the mortgages, while the amended complaint prayed for their “reformation.” These remedies are legally inconsistent, as annulment voids the contract while reformation corrects and affirms it. Consequently, the amendment altered the cause of action, and the trial court properly refused to admit it. The petition was dismissed for lack of merit.