G.R. No. 159189; February 21, 2007
THE MANILA BANKING CORPORATION, Petitioner, vs. UNIVERSITY OF BAGUIO, INC. and GROUP DEVELOPERS, INC., Respondents.
FACTS
Petitioner Manila Banking Corporation granted a loan to respondent University of Baguio, Inc. (UBI). The loan proceeds were diverted by UBI’s officer to respondent Group Developers, Inc. (GDI). The bank filed a collection suit. During the pendency of the case, the bank and GDI executed a Deed of Dacion en Pago, wherein GDI transferred a property to the bank in purported settlement of the loan. The trial court initially expunged this deed from the records for lack of court approval.
Subsequently, UBI moved to dismiss the amended complaint, arguing the bank had no cause of action since the loan was already settled by the dacion en pago. The trial court initially denied this motion, ruling the issue was evidentiary. Later, however, the trial court reversed itself and granted UBI’s motion to dismiss, ruling that the bank’s cause of action was extinguished by the dacion en pago, which the bank had judicially admitted.
ISSUE
Whether the Regional Trial Court erred in granting the motion to dismiss the amended complaint on the ground of lack of cause of action based on the Deed of Dacion en Pago.
RULING
Yes, the trial court erred. A motion to dismiss based on lack of cause of action tests the legal sufficiency of the allegations in the complaint. The court must limit its examination to the four corners of the complaint and must hypothetically admit the truth of its material allegations. In this case, the bank’s amended complaint sufficiently alleged a cause of action against UBI for collection of a sum of money based on a loan and promissory notes.
The existence and validity of the dacion en pago, and whether it effectively extinguished UBI’s obligation, are matters of defense that involve evidentiary disputes. These issues go beyond the allegations of the complaint and require a full trial on the merits for proper adjudication. The trial court’s reliance on the deed to dismiss the case was a premature evaluation of evidence, which is prohibited in a ruling on a motion to dismiss under Rule 16 of the Rules of Court. The proper procedural recourse for UBI, if it wished to assert the deed as extinguishment of the obligation, was to raise it as an affirmative defense in its answer and prove it during trial, or to file a demurrer to evidence after the bank completed its presentation. The Supreme Court set aside the dismissal orders and remanded the case for pre-trial and trial.
