G.R. No. 159590 & 159591; October 18, 2004
Hongkong and Shanghai Banking Corporation Limited and HSBC International Trustee Limited, petitioners, vs. Cecilia Diez Catalan, respondent.

FACTS

Respondent Cecilia Diez Catalan filed a complaint for sum of money against petitioner Hongkong and Shanghai Banking Corporation Limited (HSBANK) before the Regional Trial Court (RTC) of Bacolod City. She alleged that HSBANK wrongfully refused to honor and pay five checks, amounting to HK$3,200,000.00, issued to her by Frederick Arthur Thomson despite the checks being duly funded and despite Thomson’s written instructions to the bank to clear them. HSBANK moved to dismiss the complaint on several grounds, including lack of jurisdiction over its person and the subject matter, and failure to state a cause of action.
While the motion to dismiss was pending, Catalan filed an Amended Complaint, impleading HSBC International Trustee Limited (HSBC TRUSTEE) as a co-defendant. She alleged that after Thomson’s death, she dealt with HSBC TRUSTEE, which, through deceit, required her to submit the original checks to hasten payment, only to later disapprove her claim without returning the checks. The amended complaint anchored the cause of action on Article 19 of the Civil Code (abuse of rights), claiming the banks’ refusal to pay was done in bad faith. The RTC denied the motions to dismiss filed by both petitioners, and the Court of Appeals dismissed their petitions for certiorari, prompting this appeal.

ISSUE

Whether the RTC correctly denied the motions to dismiss, holding that the amended complaint sufficiently states a cause of action under Article 19 of the Civil Code.

RULING

Yes. The Supreme Court affirmed the denial of the motions to dismiss, ruling that the amended complaint adequately alleges a cause of action based on abuse of rights. A motion to dismiss for failure to state a cause of action tests the legal sufficiency of the allegations in the complaint. For such a motion to be granted, it must appear that the claim for relief is not supported by the pleaded facts, assuming them to be true. The Court held that Catalan’s allegations, if proven, could establish a violation of Article 19.
The complaint alleges that the drawer, Thomson, issued funded checks and instructed the bank to honor them. Despite this, HSBANK refused payment. Later, HSBC TRUSTEE, through alleged trickery, obtained the original checks but still refused payment without valid cause. These factual averments, taken as true at this preliminary stage, sufficiently narrate acts of bad faith and an unjust exercise of the banks’ rights, potentially causing damage to Catalan. The cause of action is not based purely on the negotiable instruments law but on the principle that rights must be exercised justly and in good faith. Whether Catalan can ultimately prove these allegations is a matter for trial. Thus, the RTC correctly ordered the case to proceed to allow the presentation of evidence on the alleged abuse of right.