G.R. No. 174669 ; September 19, 2012
BELLE CORPORATION, Petitioner, vs. ERLINDA DE LEON-BANKS, RHODORA DE LEON-TIATCO, BETTY DE LEON-TORRES, GREGORIO DE LEON, ALBERTO DE LEON, EUFRONIO DE LEON, and MARIA ELIZA DE LEON-DE GRANO, Respondents.

FACTS

The disputed property is a 13.29-hectare unregistered land originally owned by the late spouses Eufronio and Josefa De Leon. In 1979, the spouses executed a Deed of Absolute Sale conveying the property to Nelfred Properties Corporation (Nelfred), represented by their daughter Nelia De Leon-Alleje, for ₱60,000. The respondents, who are the other heirs of the spouses, filed a complaint in 1998 against Nelfred, the Allejes, and petitioner Belle Corporation. They alleged the 1979 deed was simulated, that Nelfred paid no consideration, and that Nelia/Nelfred held the property under an implied trust for the equal benefit of all eight siblings. They sought to annul a subsequent 1997 Contract to Sell and a 1998 Deed of Absolute Sale where Nelfred sold the property to Belle Corporation for over ₱53 million.
The Regional Trial Court (RTC) initially dismissed the complaint against Belle for failure to state a cause of action, citing the lack of an allegation that Belle was a purchaser in bad faith. The respondents filed an Amended Complaint, specifically alleging that Belle purchased the land with knowledge of their claim, as the Complaint had already been filed before the 1998 deed was executed, and that the land remained unregistered. The RTC subsequently dismissed the Amended Complaint.

ISSUE

Whether the Amended Complaint sufficiently stated a cause of action against Belle Corporation to survive a motion to dismiss.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ reversal of the RTC’s dismissal order. In a motion to dismiss based on failure to state a cause of action, the test is the sufficiency of the allegations in the complaint. The court must assume the alleged facts to be true and determine whether these facts, if proven, would entitle the plaintiff to relief. The Amended Complaint alleged that Belle Corporation purchased the unregistered land with knowledge of the respondents’ adverse claim, as a lawsuit had already been filed. For unregistered land, the principle of “buyer beware” applies, and a purchaser is charged with notice of all claims and interests that a reasonable investigation or inquiry would reveal. The allegation that Belle bought the property after the complaint was filed sufficiently pleads knowledge of an existing dispute, which, if proven, could support a finding of bad faith. At the preliminary stage of a motion to dismiss, it is not the court’s function to determine the truth of these allegations but merely to ascertain their legal sufficiency. The ultimate validity of the implied trust and the defense of being a purchaser in good faith are evidentiary matters to be threshed out during a full trial on the merits. Therefore, the Amended Complaint stated a valid cause of action, and the RTC erred in dismissing it.