G.R. No. 87992 October 6, 1994
HOME SAVINGS BANK & TRUST CO., petitioner, vs. HON. COURT OF APPEALS, CESAR D. DE ASIS and DAISY B. DE ASIS, respondents.

FACTS

Private respondents Cesar and Daisy De Asis filed a complaint against Home Savings Bank, several corporations, and members of the Licaros family. They alleged that their loan obligation to the bank had been extinguished by legal compensation through the obligations of the corporate defendants to Cesar De Asis. They sought a declaration of full payment, the nullity of the bank’s foreclosure proceedings for violating Act No. 3135 , and an award of moral, exemplary, and actual damages. The Regional Trial Court dismissed the complaint upon a motion to dismiss filed only by defendants Abelardo and Concepcion Licaros, reasoning that since the complaint sought to pierce the corporate veil and treat all defendants as one, the dismissal benefited all.
The Court of Appeals set aside the dismissal order, ruling the trial court committed grave abuse of discretion. It held that the complaint stated a cause of action and that the dismissal could not motu proprio extend to defendants who did not join the motion. However, the appellate court proceeded to rule that petitioner Home Savings Bank, along with Abelardo and Concepcion Licaros, were “deemed to have admitted” the factual allegations on compensation and the defective foreclosure. It then remanded the case for trial but only to determine any balance due and damages, implicitly treating the issues of compensation and foreclosure validity as already settled against the bank.

ISSUE

Whether the Court of Appeals erred in effectively foreclosing petitioner’s right to present evidence and be heard on the merits of the complaint’s allegations.

RULING

Yes. The Supreme Court modified the decision of the Court of Appeals. While it agreed that the trial court erred in its precipitate dismissal of the complaint, it held that the appellate court likewise erred by denying petitioner its right to due process. The Court clarified the legal effect of a motion to dismiss. The hypothetical admission of facts alleged in the complaint is solely for the purpose of resolving the motion; it is not an actual judicial admission of those facts. If the motion is denied, or if a granted dismissal is reversed on appeal, the defendant retains the full right to present contrary evidence and to be heard on the merits during trial.
The Court distinguished this from a demurrer to evidence under Rule 35, where a grant reversed on appeal bars the movant from presenting further evidence. That rule was inapplicable here, as the case was dismissed at the pleading stage before any evidence was presented. Consequently, the Court of Appeals’ ruling that effectively treated the allegations on compensation and foreclosure as conclusively admitted was incorrect. The case was remanded to the trial court for proceedings allowing all parties, including petitioner Home Savings Bank, to present their evidence fully.