G.R. No. L-21957 October 14, 1968
LAURO ADAMOS, ORO ADAMOS, DOMINGO ALMEDA, BENITA ALTO, ADELAIDA BERNARDO, SIMPLICIO BELISARIO, BERNARDINO CUSTODIO, AMADO DOMINGUEZ, GREGORIO SAN DIEGO, FELICISIMO G. FAUSTO, ANGELA GATMAYTAN, BENITA ILAYA, LEONCIO LISING, MARGARITA V. LISING, EMELING P. LAHOM, ROSALINA MAGNO, FELICIANO MISERICORDIA, AUREA MISERICORDIA, ANA PASCUAL, JOSE PADILLA, ABUNDO PORTO, CARMEN REYTAS, LILY SANTOS, ELISA B. SISON, INES VITUG, FLORENTINA VERGARA, now deceased, represented by her heirs Nicanor Vergara, Hilarion Vergara, Miguel Vergara, Dolores Vergara and Margarita V. Lising, EMILIA MENDOZA, CARIDAD B. SISON, ESTER M. SISON, AUGUSTO M. SISON, MARIA M. DE SISON, alias MARIA DE LEON, ALEJANDRO SISON and CESAR M. SISON, plaintiffs-appellants, vs. J. M. TUASON & CO., INC. and GREGORIO ARANETA, INC., defendants-appellees.

FACTS

The plaintiffs-appellants, numbering thirty-three, filed an action for “Specific Performance and Damages” against J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. They alleged they were in possession of residential lots in Quezon City, which they purchased in 1949 from persons collectively called the “Deudors.” These lots were part of a larger parcel registered under the Torrens title of J.M. Tuason & Co., Inc. The lots were the subject of prior civil cases between the Deudors and J.M. Tuason & Co., Inc., which were settled by a compromise agreement dated March 16, 1953, approved by the court. Under this agreement, legitimate purchasers from the Deudors, including the plaintiffs, who elected to continue buying their lots from the defendants, were to be credited for payments already made and were to be given new purchase contracts at the current price at the time of the agreement. The plaintiffs alleged they were willing to buy and sign new contracts, but the defendants refused to execute them despite demands. The complaint sought an order for the defendants to make new purchase contracts at the specified price and claimed damages.
The defendants filed motions to dismiss on grounds including improper venue and failure to state a cause of action. The lower court dismissed the complaint solely on the ground of failure to state a cause of action. In its order, the court considered facts outside the complaint, specifically referencing two orders from the Court of First Instance of Rizal (dated February 28, 1957, and January 10, 1958) and subsequent Supreme Court decisions (G.R. L-13768, May 30, 1961, and G.R. L-16886, January 30, 1962). The lower court concluded that the compromise agreement had been “validly rescinded and set aside” due to the Deudors’ failure to deliver possession of a portion of the land (30 quiñones) as required, thus releasing the defendants from further obligations under it. The plaintiffs moved for reconsideration, were denied, and appealed directly to the Supreme Court.

ISSUE

Whether the lower court correctly dismissed the complaint on the ground of failure to state a cause of action.

RULING

No. The Supreme Court set aside the order of dismissal and remanded the case for further proceedings.
The Supreme Court held that in a motion to dismiss based on failure to state a cause of action, the court must limit its examination to the sufficiency of the allegations in the complaint itself, hypothetically admitting their truth. The issue is whether, assuming the allegations are true, a valid judgment can be rendered in accordance with the prayer. The lower court erred by considering extraneous facts—specifically, the alleged rescission of the compromise agreement as discussed in other court orders and decisions—which were not alleged in the complaint. These matters pertain to the defendants’ defenses and should be properly raised in an answer, not resolved in a motion to dismiss. The Court emphasized that if there is any doubt about the facts averred, the court should not dismiss but require an answer and proceed to trial.
The Supreme Court also addressed the alternative ground of improper venue raised by the defendants but not ruled upon by the lower court. It held that venue was properly laid because the action was personal, not real. The plaintiffs did not claim ownership or seek delivery of possession (as they alleged they were already in possession); they sought to compel the execution of purchase contracts and payment of damages. Therefore, the rule requiring real actions to be filed where the property is located did not apply.
The case was remanded to the lower court for further proceedings.