23. BUTUAN DEVELOPMENT CORPORATION(BDC) V.
COURT OF
APPEALS (MINDANAO STATION), ET.AL.
|G.R. NO. 197358, APRIL 5, 2017
Facts
Butuan Development Corporation (BDC), which was then still in the process of
incorporation, through its then President Satorre purchased from the Spouses Sering a 7.6923-
hectare parcel of land situated in Butuan City (subject property). Thus, the ROD for Butuan City
issued TCT No. RT-4724 in the name of BDC. In 1998, Max L. Arriola, Jr. (Max Jr.),
representing himself as the Chairman of BDC and armed with a duly notarized Resolution of the
BDC Board of Directors therefor, mortgaged the subject property to De Oro Resources, Inc.
(DORI) and its President Louie A. Libarios (Libarios).
Satorre, together with Ma. Laurisse Satorre-Gabor, Liza Therese Satorre-Balansag,
Edmundo C. Satorre II, and Leslie Mae Satorre-King, executed the Articles of Incorporation of
BDC. The SEC approved the Articles of Incorporation and issued the Certificate of Incorporation
of BDC on May 23, 2002.
In 2005, BDC filed a complaint for declaration of nullity of real estate mortgage (REM)
with the RTC of Agusan del Norte and Butuan City against Max Jr., Libarios, and DORI
(collectively, the respondents), and Casilda L. Arriola, Rebecca J. Arriola, and Joseph L. Arriola.
It alleged that, sometime in 2004, it discovered that the owner’s duplicate copy of TCT No. RT-
4724 was missing and efforts to locate the same proved futile. However, it subsequently
discovered that the owner’s duplicate copy of TCT No. RT-4724 was already in Libario’s
possession, pursuant to the REM executed by the Arriolas who misrepresented themselves as the
owners and directors of BDC. Accordingly, claiming that the said REM was a nullity, BDC
prayed that the same be nullified.
In their answer, Libarios and DORI denied that the Arriolas misrepresented themselves as
the directors of BDC since, at the time of the execution of the REM, the Arriolas had possession
of the subject property and the owner’s duplicate copy of TCT No. RT-4724. Further, the tax
declaration over the subject property filed with the Butuan City Assessor’s Office indicated that
Max Arriola, Sr. (Max Sr.) was the administrator of the subject property.
As special and affirmative defense, Libarios and DORI claimed that the complaint filed by
BDC should be dismissed outright for failing to state a cause of action since at the time of the
execution of the REM in 1998, BDC did not yet exist, having been incorporated only in 2002,
and, hence, could not have claimed ownership of the subject property.
Max Jr., in his Answer, echoed the foregoing contentions set forth by Libarios and DORI
and, additionally, claimed that the owner’s duplicate copy of TCT No. RT-4724, from the time it
was issued in 1969, had been in the possession of their family since it was his father Max Sr.
who actually paid for the acquisition of the subject property.
RTC: the special/affirmative defenses put forward by the defendants cannot be given due
consideration for lack of merit. The respondents then filed a petition for certiorari with the CA,
claiming that the RTC gravely abused its discretion in brushing aside their special and
affirmative defense.
CA: granted the instant petition. It dismissed the Complaint for failure to state a cause of
action.
Issue
Whether the CA gravely abused its discretion when it set aside the RTC's Orders, ruling that
BDC's complaint failed to state a cause of action.
Ruling
Yes. In view of the factual circumstances in this case, the dismissal of the petition for
certiorari would result in the miscarriage of justice. On account of the CA's unwarranted
dismissal of its complaint, BDC was effectively denied due process as it was unduly prevented
from presenting evidence to prove its claim. The CA arbitrarily directed the dismissal of BDC's
complaint on the ground that the complaint failed to state a cause of action.
One of the grounds for the dismissal of a complaint is the failure of the pleading asserting
the claim to state a cause of action. The elements of a cause of action are: (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation
on the part of the named defendant to respect or not to violate such right; and (3) act or omission
on the part of such defendant in violation of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff for which the latter may maintain an action for
recovery of damages or other appropriate relief.
In resolving whether the complaint states a cause of action or not, only the facts alleged in
the complaint are considered. The test is whether the court can render a valid judgment on
the complaint based on the facts alleged and the prayer asked for. Only ultimate facts, not
legal conclusions or evidentiary facts, are considered for purposes of applying the test.
Based on the foregoing allegations, BDC’s complaint sufficiently stated a cause of action
for declaration of nullity of the REM. Basically, BDC alleged in its complaint that it is the owner
of the subject property as evidenced by TCT No. RT-4724, which was issued in its name after it
purchased the subject property, through Satorre, from the Spouses Sering in 1966. It bears
stressing that a certificate of title issued is an absolute and indefeasible evidence of ownership of
the property in favor of the person whose name appears therein. BDC further alleged that the
subject property was mortgaged to DORI and Libarios without their knowledge or consent and
that the Arriolas were not in any way connected with BDC.
The respondents’ affirmative defense that BDC, at the time of the execution of the REM,
had no right to hold the subject property in its name being merely an unincorporated association,
if at all, amounts to an allegation that BDC has no cause of action against the respondents.
However, failure to state a cause of action is different from lack of cause of action. Failure
to state a cause of action refers to the insufficiency of the pleading, and is a ground for dismissal
under Rule 16 of the Rules of Court. On the other hand, lack of cause of action refers to a
situation where the evidence does not prove the cause of action alleged in the pleading. The
remedy in the first is to move for the dismissal of the pleading, while the remedy in the second is
to demur to the evidence.
