G.R. No. 154554 November 9, 2005
Goodyear Philippines, Inc., Petitioner, vs. Anthony Sy and Jose L. Lee, Respondents.

FACTS

Goodyear Philippines, Inc. owned a vehicle that was hijacked in 1986 but later recovered. In 1996, Goodyear sold the vehicle to respondent Anthony Sy. Sy subsequently sold it to respondent Jose L. Lee in 1997. Lee, however, could not register the vehicle because the Philippine National Police (PNP) records still listed it under an active “stolen vehicle” alarm from the 1986 hijacking, leading to its impoundment. Lee sued Sy for rescission of contract. Sy, in turn, filed a third-party complaint against Goodyear, alleging a breach of warranty.
Goodyear moved to dismiss the third-party complaint for failure to state a cause of action. The Regional Trial Court (RTC) granted the motion, reasoning that the complaint did not allege any act or omission by Goodyear that violated Sy’s rights, as Goodyear was the undisputed owner at the time of sale and had even requested the PNP to lift the alarm. The Court of Appeals (CA) reversed the RTC, holding that the third-party complaint did state a cause of action because the continued PNP alarm constituted a legal impediment, breaching Goodyear’s warranty to convey the vehicle free from encumbrances.

ISSUE

Whether the Court of Appeals erred in ruling that the third-party complaint filed by Anthony Sy against Goodyear Philippines, Inc. stated a cause of action.

RULING

No, the Court of Appeals did not err. The Supreme Court affirmed the CA’s decision, ruling that the third-party complaint sufficiently alleged a cause of action. The test for determining the existence of a cause of action is whether, admitting the truth of the facts alleged in the complaint, a valid judgment can be rendered in accordance with the prayer. The complaint need only state the ultimate facts; the plaintiff is not required to present evidence at this preliminary stage.
Here, Sy’s third-party complaint alleged that Goodyear sold him the vehicle and warranted it to be free from all liens and encumbrances. It further alleged that, due to Goodyear’s failure to secure the lifting of the PNP’s stolen vehicle alarm—an impediment originating from Goodyear’s own report—the vehicle could not be registered by the subsequent buyer, Lee, leading Lee to sue Sy. These allegations, if hypothetically admitted, establish a possible breach of the vendor’s warranty against eviction. Goodyear’s obligation as a seller included conveying a title free from hidden burdens or claims that would impair the buyer’s peaceful possession. The unresolved PNP alarm constitutes such a burden or “cloud” on the title. Therefore, the complaint contains a concise statement of ultimate facts showing that Sy has a right (enforcement of warranty), that Goodyear has a correlative duty, and that there was an alleged breach of that duty by failing to clear the title. The RTC’s dismissal was premature, as the factual issue of whether Goodyear indeed breached its warranty is a matter for trial, not for resolution in a motion to dismiss. The case was correctly remanded for further proceedings.