G.R. No. 149468 ; October 23, 2006
MARIE IOLE NACUA-JAO, petitioner, vs. CHINA BANKING CORPORATION, respondent.

FACTS

Petitioner Marie Iole Nacua-Jao filed a complaint for Recovery of Property, Declaration of Nullity of Deeds and Title, and Damages against Spouses Jackson and Jennerie Gan, Lee Ching Hsien, and respondent China Banking Corporation (CBC). Jao alleged she was the registered owner of a parcel of land in Cavite. She entrusted the owner’s duplicate certificate of title to Hsien before leaving Cebu. Later, she discovered Hsien had sold the property to the Spouses Gan, who then mortgaged it to CBC to secure a loan. Jao demanded reconveyance from the Spouses Gan and CBC, but her demands were unheeded. Her complaint sought the nullification of the title issued to the Spouses Gan, the cancellation of the mortgage in favor of CBC, and damages.
CBC filed a Motion to Dismiss the complaint on the ground of lack of cause of action. The Regional Trial Court (RTC) granted the motion. Jao’s motion for reconsideration was denied, with the RTC noting her failure to particularize the circumstances of fraud on CBC’s part. The Court of Appeals affirmed the dismissal, ruling that the complaint’s allegations of connivance and conspiracy against CBC were mere conclusions of law without specific factual averments, and that CBC appeared to be a mortgagee in good faith.

ISSUE

Whether the Court of Appeals erred in affirming the dismissal of the complaint against CBC for failure to state a cause of action.

RULING

Yes. The Supreme Court reversed the rulings of the lower courts and reinstated the complaint against CBC. The test for a motion to dismiss based on failure to state a cause of action is whether, admitting the truth of the facts alleged in the complaint, the court can render a valid judgment in accordance with the prayer. The Court held that Jao’s complaint, read in its entirety, sufficiently alleged a cause of action against CBC. The complaint detailed the sequence of events: the entrustment of the title, the fraudulent sale by Hsien to the Spouses Gan, and the subsequent mortgage to CBC. It specifically alleged that the defendants, including CBC, “connived and conspired” to effect the sale and mortgage. While the allegation of conspiracy was a conclusion, the preceding factual narrations provided the context from which CBC’s possible participation or knowledge could be inferred.
The Court emphasized that in resolving a motion to dismiss, only the material allegations in the complaint, its annexes, and the plaintiff’s pleadings are considered. The lower courts erred by prematurely concluding that CBC was a mortgagee in good faith based on extraneous assumptions not evident from the face of the complaint. The determination of good faith involves an examination of evidence, which is improper at the motion to dismiss stage. The complaint’s allegations, if proven, could establish a cause for the nullification of the mortgage. Therefore, the case was remanded to the trial court for a full trial on the merits.