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 Anthony Sy. Sy subsequently sold it to 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.
Goodyear moved to dismiss the third-party complaint for failure to state a cause of action, arguing it contained no allegation of any act or omission by Goodyear that violated Sy’s rights. The Regional Trial Court granted the motion, finding that the PNP’s failure to lift the alarm did not negate Goodyear’s ownership or constitute a breach of warranty. The Court of Appeals reversed, holding that the third-party complaint did state a cause of action, as the unresolved stolen vehicle status constituted a legal impediment in breach of Goodyear’s warranty.

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.
Sy’s third-party complaint alleged that Goodyear sold him the vehicle and executed a Deed of Sale warranting the property to be free from all liens and encumbrances. It further alleged that because the PNP alarm, initiated by Goodyear’s report, was not lifted, the vehicle was impounded and Lee could not register it, causing Sy to be sued by Lee. These factual allegations, if hypothetically admitted, establish a possible breach of the vendor’s warranty against eviction or hidden encumbrances under the Civil Code. The legal impediment (the active police alarm) directly relates to Goodyear’s prior act of reporting the hijacking and its subsequent failure to ensure the alarm’s clearance, which impaired Sy’s title. Therefore, the complaint contained a concise statement of ultimate facts constituting a cause of action for breach of warranty. The trial court’s dismissal was premature, as the existence of the breach and any defenses thereto are matters of evidence to be threshed out during trial.