G.R. No. 190432. April 25, 2017.
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ASIA BREWERY, INC. and CHARLIE S. GO, petitioners, vs. EQUITABLE PCI BANK (now BANCO
DE ORO-EPCI, INC.) respondent.
Remedial Law; Civil Procedure; Failure to State Cause of Action; Lack of Cause of Action; Failure to
state a cause of action is not the same as lack of cause of action; the terms are not interchangeable. —
Failure to state a cause of action is not the same as lack of cause of action; the terms are not
interchangeable. It may be observed that lack of cause of action is not among the grounds that may be
raised in a motion to dismiss under Rule 16 of the Rules of Court. The dismissal of a Complaint for lack of
cause of action is based on Section 1 of Rule 33, which provides: Section 1. Demurrer to evidence.—
After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal
on the ground that upon the facts and the law the plaintiff has shown no right to relief. If his motion is
denied he shall have the right to present evidence. If the motion is granted but on appeal the order of
dismissal is reversed he shall be deemed to have waived the right to present evidence. (Emphasis
supplied) If the Complaint fails to state a cause of action, a motion to dismiss must be made before a
responsive pleading is filed; and the issue can be resolved only on the basis of the allegations in the
initiatory pleading. On the other hand, if the Complaint lacks a cause of action, the motion to dismiss
must be filed after the plaintiff has rested its case.
Same; Same; Same; The test to determine whether a complaint states a cause of action against the
defendants is this: admitting hypothetically the truth of the allegations of fact made in the complaint, may
a judge validly grant the relief demanded in the complaint?—The test to determine whether a complaint
states a cause of action against the defendants is this: admitting hypothetically the truth of the allegations
of fact made in the complaint, may a judge validly grant the relief demanded in the complaint? We believe
that petitioner met this test. A cause of action has three elements: 1) the
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* FIRST DIVISION.
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legal right of the plaintiff; 2) the correlative obligation of the defendant not to violate the right; and 3) the
act or omission of the defendant in violation of that legal right.
PETITION for review on certiorari of the orders of the Regional Trial Court of Makati City, Br. 139.
The facts are stated in the opinion of the Court.
Eduardo G. Montenegro for petitioners.
BDO Unibank, Inc. Legal Services Group for respondent.
SERENO, CJ.:
This is a petition for review1 under Rule 45 assailing the Orders2 of the Regional Trial Court (RTC) of
Makati City in Civil Case No. 04-336. The RTC ordered the dismissal of petitioners’ Complaint for lack of
cause of action and denied their motion for reconsideration.
Petitioner Asia Brewery, Inc. (ABI) is a corporation organized and existing under the laws of the
Philippines, while petitioner Charlie S. Go (Go) was, at the time of the filing of this Petition, its assistant
vice president for finance.3 Respondent is a banking institution also organized and existing under the laws
of the Philippines.4
On 23 March 2004, petitioners filed a Complaint5 for payment, reimbursement, or restitution against
respondent be-
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1 Mistakenly labeled “Petition for Certiorari”; Rollo, pp. 9-43.
2 Order dated 30 January 2008 issued by Judge Benjamin T. Pozon as presiding judge of Branch
139 of the RTC-Makati, id., at pp. 168-171; and Order dated 23 November 2009 issued by Judge Winlove
Dumayas as presiding judge of Branch 59 of the RTC-Makati, id., at p. 217.
3 Id., at pp. 10-11.
4 Id., at p. 10.
5 Id., at pp. 44-51.
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fore the RTC. On 7 May 2004, the latter filed its Answer (with Counterclaims), 6 in which it also raised the
special and/or affirmative defense of lack of cause of action, among others.
Records show that after an exchange of pleadings between the parties,7 the RTC issued the assailed
Orders without proceeding to trial. It dismissed the Complaint for lack of cause of action, and also denied
respondent’s counterclaims. Respondent did not appeal from that ruling. Only petitioners moved for
reconsideration, but their motion was likewise denied.
Antecedent Facts
The antecedent facts, as alleged by petitioners, are as follows:
Within the period of September 1996 to July 1998, 10 checks and 16 demand drafts (collectively,
“instruments”) were issued in the name of Charlie Go.8 The instruments, with a total value of
P3,785,257.38, bore the annotation “endorsed by PCI Bank, Ayala Branch, All Prior Endorsement
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6 Id., at pp. 97-120.
7 On 18 May 2004, petitioners filed their Answer to Counterclaims (see Records, pp. 103-105). On 25
May 2004, the RTC issued a Notice setting the affirmative defenses for hearing (see Records, p. 106). On
the date of the scheduled hearing, counsel for petitioner was given 15 days to file a Comment/Opposition
to the affirmative defenses, and counsel for respondent was likewise given the same period from receipt
to file a Reply; thereafter the matter will be considered submitted for resolution (see Minutes of the
session held on 25 June 2004, Records, p. 107; Order dated 25 June 2004, p. 108). Hence on 8 July
2004, petitioners filed their Comment/Opposition (see Records, pp. 109-118). Respondent then filed a
Reply, to which petitioners filed a Rejoinder dated 4 August 2004 (seeRecords, pp. 119-129, 132-140).
8 Id., at p. 11.
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And/Or Lack of Endorsement Guaranteed.”9 All the demand drafts, except those issued by the Lucena
City and Ozamis branches of Allied Bank, were crossed.10
In their Complaint, petitioners narrate:
10. None of the above checks and demand drafts set out under the First, Second, Third, Fourth, Fifth
and Sixth Causes of Action reached payee, co-plaintiff Charlie S. Go.
11. All of the above checks and demand drafts fell into the hands of a certain Raymond U. Keh, then a
Sales Accounting Manager of plaintiff Asia Brewery, Inc., who falsely, willfully, and maliciously
pretending to be the payee, co-plaintiff Charlie S. Go, succeeded in opening accounts with defendant
Equitable PCI Bank in the name of Charlie Go and thereafter deposited the said checks and demand
drafts in said accounts and withdrew the proceeds thereof to the damage and prejudice of plaintiff
Asia Brewery, Inc.11
Raymond Keh was allegedly charged with and convicted of theft and ordered to pay the value of the
checks, but not a single centavo was collected, because he jumped bail and left the country while the
cases were still being tried.12
In demanding payment from respondent, petitioners relied on Associated Bank v. CA,13 in which this
Court held “the possession of check on a forged or unauthorized indorsement is wrongful, and when the
money is collected on the check, the bank can be held for moneys had and received.”14
In its Answer, respondent interpreted paragraphs 10 and 11 of the Complaint as an admission that the
instruments
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9 Id.
10 Id.
11 Id., at p. 47.
12 Id., at pp. 47-48.
13 284 Phil. 615; 208 SCRA 465 (1992).
14 Rollo, p. 48.
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had not been delivered to the payee, petitioner Go.15 It argued that the Complaint failed to state a cause
of action and that petitioners had no cause of action against it, because 1) the Complaint failed to
indicate that ABI was a party to any of the instruments;16and 2) Go never became the holder or owner
of the instruments due to nondelivery and, hence, did not acquire any right or interest. 17Respondent also
opined that the claims were only enforceable against the drawers of the checks and the purchasers of the
demand drafts, and not against it as a mere “presentor bank,” because the nondelivery to Go was
analogous to payment to a wrong party.18
Respondent argued that Development Bank of Rizal v. Sima Wei 19 was squarely applicable to the
case and cited these portions of the Decision therein:20
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to
another. Without the initial delivery of the instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks.
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein and
cannot therefore assert any cause of action, founded on said checks, whether
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15 Id., at p. 102.
16 Id., at p. 100.
17 Id., at p. 103.
18 Id., at pp. 104-109.
19 G.R. No. 85419, 9 March 1993, 219 SCRA 736.
20 Id., at pp. 740-742.
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against the drawer Sima Wei or against the Producers Bank or any of the other respondents.
x x x x
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said respondents, it
never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the
respondents may have done with respect to said checks could not have prejudiced petitioner Bank. It had
no right or interest in the checks which could have been violated by said respondents. Petitioner Bank has
therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima
Wei, the drawer, who would have a cause of action against her corespondents, if the allegations in the
complaint are found to be true.
The RTC agreed with respondent that Development Bank v. Sima Wei was applicable.21 It ruled that
petitioners could not have any cause of action against respondent, because the instruments had never
been delivered; and that the cause of action pertained to the drawers of the checks and the purchasers of
the demand drafts.22 As to the propriety of a direct suit against respondent, the trial court found that the
former exercised diligence in ascertaining the true identity of Charlie Go, although he later turned out to
be an impostor. This was unlike the finding in Associated Bank v. CA23 where the collecting bank allowed
a person who was clearly not the payee to deposit the checks and withdraw the amounts.24
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21 Rollo, p. 168.
22 Id., at p. 170.
23 Associated Bank v. Court of Appeals, supra note 13.
24 Rollo, pp. 170-171.
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Issues
Petitioners argue that the trial court seriously erred in dismissing their Complaint for lack of cause of
action. They maintain that the allegations were sufficient to establish a cause of action in favor of
Go.25 They insist that the allegation that the instruments were payable to Go was sufficient to establish a
cause of action.26 According to them, the fact that the instruments never reached the payee did not mean
that there was no delivery, because delivery can be either actual or constructive. 27 They point out that
Section 16 of the Negotiable Instruments Law even provides for a presumption of delivery.28 They further
argue that the defense of lack of delivery is personal to the maker or drawer, and that respondent was
neither.29Petitioners emphasize that all the instruments were crossed (except those issued by the Lucena
and Ozamis branches of Allied Bank) and bore the annotation by respondent that: “[A]ll prior endorsement
and/or lack of endorsement guaranteed.” In this light, the bank was allegedly estopped from claiming
nondelivery.30
Petitioners observe that there was no other reason given for the dismissal of the case aside from lack
of cause of action. They stress that not a single witness or documentary evidence was presented in
support of the affirmative defense.31
Court’s Ruling
A reading of the Order dated 30 January 2008 reveals that the RTC dismissed the Complaint for lack
of cause of action
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25 Id., at p. 22.
26 Id., at p. 23.
27 Id., at p. 25.
28 Id.
29 Id., at p. 32.
30 Id., at p. 33.
31 Id., at p. 22.
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prior to trial. At that time, this Court, in the 2003 case Bank of America NT&SA v. CA,32 had already
emphasized that lack or absence of cause of action is not a ground for the dismissal of a complaint; and
that the issue may only be raised after questions of fact have been resolved on the basis of stipulations,
admissions, or evidence presented.
In this case, the trial court proceeded to rule in favor of the dismissal simply because it believed that
the facts of another case were “[o]n all fours [with] the instant controversy.” 33 It was gravely erroneous,
and deeply alarming, for the RTC to have reached such a conclusion without first establishing the facts of
the case pending before it. It must be noted that the documents submitted to it were mere photocopies
that had yet to be examined, proven, authenticated, and admitted.
We are compelled to correct this glaring and serious error committed by the trial court. Accordingly,
we grant the petition.
Failure to state a cause of action is not the same as lack of cause of action; the terms are not
interchangeable. It may be observed that lack of cause of action is not among the grounds that may be
raised in a motion to dismiss under Rule 16 of the Rules of Court. The dismissal of a Complaint for lack of
cause of action is based on Section 1 of Rule 33, which provides:
Section 1. Demurrer to evidence.—After the plaintiff has completed the presentation of his evidence,
the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has
shown no right to relief. If his motion is denied he shall have the right to present evidence. If the motion is
granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to
present evidence. (Emphasis supplied)
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32 448 Phil. 181; 400 SCRA 156 (2003).
33 Rollo, p. 168.
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If the Complaint fails to state a cause of action, a motion to dismiss must be made before a
responsive pleading is filed; and the issue can be resolved only on the basis of the allegations in the
initiatory pleading.34 On the other hand, if the Complaint lacks a cause of action, the motion to dismiss
must be filed after the plaintiff has rested its case.35
In the first situation, the veracity of the allegations is immaterial; however, in the second situation, the
judge must determine the veracity of the allegations based on the evidence presented.36
In PNB v. Spouses Rivera,37 this Court upheld the CA ruling that the trial court therein erred in
dismissing the Complaint on the ground of lack of cause of action. We said that “dismissal due to lack of
cause of action may be raised any time after the questions of fact have been resolved on the basis of
stipulations, admissions, or evidence presented by the plaintiff.”38 In the case at bar, the action has not
even reached the pretrial stage.
In Pamaran v. Bank of Commerce,39 petitioners came directly to this Court and raised the issue of
whether the trial court had erred in dismissing its Complaint only upon a motion to dismiss by way of
affirmative defenses raised in the Answer of the defendant therein. The Court ruled then:
Not only did the RTC Olongapo disregard the allegations in the Complaint, it also failed to consider that
the Bankcom’s arguments necessitate the examination
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34 See Pamaran v. Bank of Commerce, G.R. No. 205753, 4 July 2016, 795 SCRA 430.
35 Id.
36 Id., citing Manila Banking Corporation v. University of Baguio, Inc., 545 Phil. 268, 275; 516 SCRA
371, 379-380 (2007).
37 G.R. No. 189577, 20 April 2016, 790 SCRA 688.
38 Id., citing Macaslang v. Zamora, 664 Phil. 337; 649 SCRA 92 (2011).
39 Pamaran v. Bank of Commerce, supra.
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of the evidence that can be done through a full-blown trial. The determination of whether Rosa has a
right over the subject house and of whether Bankcom violated this right cannot be addressed in a mere
motion to dismiss. Such determination requires the contravention of the allegations in the Complaint and
the full adjudication of the merits of the case based on all the evidence adduced by the parties. (Emphasis
supplied)
In the same manner, the arguments raised by both of the parties to this case require an
examination of evidence. Even a determination of whether there was “delivery” in the legal sense
necessitates a presentation of evidence. It was erroneous for the RTC to have concluded that there was
no delivery, just because the checks did not reach the payee. It failed to consider Section 16 of the
Negotiable Instruments Law, which envisions instances when instruments may have been delivered to a
person other than the payee. The provision states:
Sec. 16. Delivery; when effectual; when presumed.—Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to
have been conditional, or for a special purpose only, and not for the purpose of transferring the property
in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery
thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where
the instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved. (Emphasis supplied)
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Hence, in order to resolve whether the Complaint lacked a cause of action, respondent must have
presented evidence to dispute the presumption that the signatories validly and intentionally delivered the
instrument.
Even assuming that the trial court merely used the wrong terminology, that it intended to dismiss the
Complaint on the ground of failure to state a cause of action, the Complaint would still have to be
reinstated.
The test to determine whether a complaint states a cause of action against the defendants is this:
admitting hypothetically the truth of the allegations of fact made in the complaint, may a judge validly
grant the relief demanded in the complaint?40
We believe that petitioner met this test.
A cause of action has three elements: 1) the legal right of the plaintiff; 2) the correlative obligation of
the defendant not to violate the right; and 3) the act or omission of the defendant in violation of that legal
right.41 In the case at bar, petitioners alleged in their Complaint as follows:
1) They have a legal right to be paid for the value of the instruments.
18. In the said case of Associated Bank v. Court of Appeals, it was held that the “weight of authority is to
the effect that ‘the possession of a check on a forged or unauthorized indorsement is wrongful, and when
the money is collected on the check, the bank can be held for moneys had and received.’ The proceeds
are held for the rightful owner of the payment and may be recovered by him. The
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40 See Aquino v. Quiazon, G.R. No. 201248, 11 March 2015, 753 SCRA 98.
41 See supra note 34; Philippine National Bank v. Rivera, supra note 37; Bank of America NT&SA v.
Court of Appeals, supra note 32, citing San Lorenzo Village Association, Inc. v. Court of Appeals, 351
Phil. 353; 288 SCRA 115 (1998).
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position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had
taken the check and collected without indorsement at all. The act of the bank amounts to conversion of
the check.”42
2) Respondent has a correlative obligation to pay, having guaranteed all prior endorsements.
15. All of the commercial checks and demand drafts mentioned in the First, Second, Third, Fourth, Fifth
and Sixth Causes of Action were endorsed by PCI-Bank-Ayala Branch All Prior Endorsement And/Or
Lack of Endorsement Guaranteed.43
3) Respondent refused to pay despite demand.
17. In a letter dated 19 November 2003 which was duly received by defendant Equitable PCI Bank,
Legal Services Division, on December 17, 2003, plaintiff Charlie S. Go, relying on the decision
in Associated Bank v. Court of Appeals, 208 SCRA 465, demanded from defendant Equitable PCI Bank
payment, reimbursement or restitution of the value of the commercial checks and demand drafts
mentioned in the First, Second, Third, Fourth, Fifth and Sixth Causes of Action. x x x
x x x x
19. Instead of acceding to plaintiffs’ valid and justifiable demand, defendant Equitable PCI Bank refused
x x x.44
It is of no moment that respondent denies that it has any obligation to pay. In determining the
presence of the elements, the inquiry is confined to the four corners of the complaint.45 In fact, even if
some of the allegations are in the form
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42 Rollo, p. 48.
43 Id.
44 Id., at pp. 48-49.
45 See Ilano v. Español, 514 Phil. 553; 478 SCRA 365 (2005).
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of conclusions of law, the elements of a cause of action may still be present.46
The Court believes that it need not delve into the issue of whether the instruments have been
delivered, because it is a matter of defense that would have to be proven during trial on the merits.
In Aquino v. Quiazon,47 we held that if the allegations in a complaint furnish sufficient basis on which the
suit may be maintained, the complaint should not be dismissed regardless of the defenses that may be
raised by the defendants.48 In other words, “[a]n affirmative defense, raising the ground that there is no
cause of action as against the defendants poses a question of fact that should be resolved after the
conduct of the trial on the merits.”49
WHEREFORE, the petition is GRANTED. The Order dated 30 January 2008 issued by Judge
Benjamin T. Pozon and the Order dated 23 November 2009 issued by Judge Winlove Dumayas in Civil
Case No. 04-336 are REVERSED and SET ASIDE. The Complaint is REINSTATED, and the case is
ordered REMANDED to the Regional Trial Court of Makati City for further proceedings. Let the records of
the case be likewise remanded to the court a quo.
SO ORDERED.
Leonardo-De Castro, Del Castillo, Perlas-Bernabe and Caguioa, JJ., concur.
Petition granted, orders dated 30 January 2008 and 23 November 2009 reversed and set aside.
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46 Id.
47 Supra note 40.
48 Id., citing Insular Investment and Trust Corporation v. Capital One Equities Corp., 686 Phil. 819;
671 SCRA 112 (2012).
49 Id., citing Heirs of Nepomucena Paez v. Torres, 381 Phil. 393, 402; 324 SCRA 403, 411-412
(2000).
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Notes.—When a motion to dismiss is grounded on the failure to state a cause of action, a ruling
thereon should, as a rule, be based only on the facts alleged in the complaint. (Philippine National Bank
vs. Rivera, 790 SCRA 688 [2016])
Dismissal due to lack of cause of action may be raised any time after the questions of fact have been
resolved on the basis of stipulations, admissions or evidence presented by the plaintiff. (Id.)
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