SPS. EXPEDITO ZEPEDA
and ALICE D. ZEPEDA,
Petitioners,
G.R. No. 172175
October 9, 2006
-versus-
CHINA BANKING CORPORATION,
Respondent.
x ---------------------------------------------------------------- x
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D E C I S I O N
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YNARES-SANTIAGO, J.:
This Petition for Review under Rule 45 of the Rules of Court
assails the January 24, 2006 Decision[1] of the Court of Appeals in
CA-G.R. SP No. 89148 granting respondent China Banking Corporation’s
(Chinabank) petition to annul the Orders dated April 1, 2004[2] and
October 22, 2004[3] of the Regional Trial Court of San Jose, Camarines
Sur, Branch 30,[4] in Civil Case No. T-947. Also assailed is the
March 31, 2006 Resolution[5] denying petitioners’ motion for
reconsideration.
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The facts are as follows.
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On February 18, 2003, spouses Expedito and Alice Zepeda
filed a complaint for nullification of foreclosure proceedings and loan
documents with damages[6] against respondent Chinabank before the
Regional Trial Court of San Jose, Camarines Sur, which was docketed as
Civil Case No. T-947 and raffled to Branch 30. They alleged that
on June 28, 1995, they obtained a loan in the amount of P5,800,000.00
from respondent secured by a Real Estate Mortgage over a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-23136.
Petitioners subsequently encountered difficulties in paying
their loan obligations hence they requested for restructuring which was
allegedly granted by Chinabank. Hence, they were surprised when
respondent bank extrajudicially foreclosed the subject property on
October 9, 2001 where it emerged as the highest bidder.
Respondent bank was issued a Provisional Certificate of Sale and upon
petitioners’ failure to redeem the property, ownership was consolidated
in its favor.
According to petitioners, the foreclosure proceedings should
be annulled for failure to comply with the posting and publication
requirements. They also claimed that they signed the Real Estate
Mortgage and Promissory Note in blank and were not given a copy and the
interest rates thereon were unilaterally fixed by the respondent.
Respondent bank’s motion to dismiss was denied, hence it
filed an answer with special affirmative defenses and
counterclaim. It also filed a set of written interrogatories with
20 questions.
In an Order dated April 1, 2004, the trial court denied
Chinabank’s affirmative defenses for lack of merit as well as its
motion to expunge the complaint for being premature. The trial
court reiterated its denial of Chinabank’s affirmative defenses in its
Order dated October 22, 2004 and directed the Clerk of Court to set the
pre-trial conference for the marking of the parties’ documentary
evidence.
Aggrieved, respondent bank filed a petition for certiorari
under Rule 65 which was granted by the Court of Appeals. It held
that the trial court gravely abused its discretion in issuing the two
assailed Orders. It ruled that compelling reasons warrant the
dismissal of petitioners’ complaint because they acted in bad faith
when they ignored the hearings set by the trial court to determine the
veracity of Chinabank’s affirmative defenses; they failed to answer
Chinabank’s written interrogatories; and the complaint states no cause
of action.
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On March 31, 2006, petitioners’ motion for reconsideration was denied hence, the instant petition raising the following issues:cralaw:red
I.
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT ISSUED THE ASSAILED DECISION DECLARING THAT THE PETITIONER[S’]
COMPLAINT DATED 12 FEBRUARY 2003 HAS NO CAUSE OF ACTION.
II.
CAUSE OF ACTION HAS BEEN SUFFICIENTLY ESTABLISHED IN THE
COMPLAINT AND THE GROUND RELIED UPON BY THE PRIVATE RESPONDENT BANK ARE
MERE EVIDENTIARY MATTERS.[7]
The issues for resolution are: a) whether the complaint
states a cause of action and b) whether the complaint should be
dismissed for failure of petitioners to answer respondent’s written
interrogatories as provided for in Section 3(c), Rule 29 of the Rules
of Court.
The petition is meritorious.
Anent the first issue, the Court of Appeals ruled that the
complaint failed to state a cause of action because petitioners
admitted that they failed to redeem the property and that ownership of
the same was consolidated in the name of Chinabank.
A cause of action is a formal statement of the operative
facts that give rise to a remedial right. The question of whether
the complaint states a cause of action is determined by its averments
regarding the acts committed by the defendant. Thus it “must
contain a concise statement of the ultimate or essential facts
constituting the plaintiff’s cause of action.” Failure to make a
sufficient allegation of a cause of action in the complaint “warrants
its dismissal.”[8]
As defined in Section 2, Rule 2 of the Rules of Court, a
cause of action is the act or omission by which a party violates the
right of another. Its essential elements are as follows:cralaw:red
1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;chanroblesvirtualawlibrary
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.
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It is, thus, only upon the occurrence of the last element
that a cause of action arises, giving the plaintiff the right to
maintain an action in court for recovery of damages or other
appropriate relief.[9] In determining whether an initiatory
pleading states a cause of action, “the test is as follows: admitting
the truth of the facts alleged, can the court render a valid judgment
in accordance with the prayer?” To be taken into account are only
the material allegations in the complaint; extraneous facts and
circumstances or other matters aliunde are not considered. The
court may consider in addition to the complaint the appended annexes or
documents, other pleadings of the plaintiff, or admissions in the
records.[10]
In the instant case, petitioners specifically alleged that
respondent bank acted in bad faith when it extrajudicially foreclosed
the mortgaged property notwithstanding the approval of the
restructuring of their loan obligation. They claimed that with
such approval, respondent bank made them believe that foreclosure would
be held in abeyance. They also alleged that the proceeding was
conducted without complying with the posting and publication
requirements.
Assuming these allegations to be true, petitioners can
validly seek the nullification of the foreclosure since the alleged
restructuring of their debt would effectively modify the terms of the
original loan obligations and accordingly supersede the original
mortgage thus making the subsequent foreclosure void. Similarly,
the allegation of lack of notice if subsequently proven renders the
foreclosure a nullity in line with prevailing jurisprudence.[11]
We find the allegations in the complaint sufficient to
establish a cause of action for nullifying the foreclosure of the
mortgaged property. The fact that petitioners admitted that they
failed to redeem the property and that the title was consolidated in
respondent bank’s name did not preclude them from seeking to nullify
the extrajudicial foreclosure. Precisely, petitioners seek to
nullify the proceedings based on circumstances obtaining prior to and
during the foreclosure which render it void.
Anent the second issue, we do not agree with the Court of
Appeals’ ruling that the complaint should be dismissed for failure of
petitioners to answer respondent bank’s written interrogatories.
It should be noted that respondent bank filed a motion to expunge the complaint based on Section 3(c) of Rule 29 which states:cralaw:red
Sec. 3. Other
consequences. – If any party or an officer or managing agent of a party
refuses to obey an order made under section 1[12] of this Rule
requiring him to answer designated questions, or an order under Rule 27
to produce any document or other thing for inspection, copying, or
photographing or to permit it to be done, or to permit entry upon land
or other property, or an order made under Rule 28 requiring him to
submit to a physical or mental examination, the court may make such
orders in regard to the refusal as are just, and among others the
following:
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x x x
(c) An order striking out pleadings or parts thereof, or
staying further proceedings until the order is obeyed, or dismissing
the action or proceeding or any part thereof, or rendering a judgment
by default against the disobedient party; and
x x x.[13]
As we have explained in Arellano v. Court of First Instance
of Sorsogon,[14] the consequences enumerated in Section 3(c) of Rule 29
would only apply where the party upon whom the written interrogatories
is served, refuses to answer a particular question in the set of
written interrogatories and despite an order compelling him to answer
the particular question, still refuses to obey the order.
In the instant case, petitioners refused to answer the whole
set of written interrogatories, not just a particular question.
Clearly then, respondent bank should have filed a motion based on
Section 5 and not Section 3(c) of Rule 29. Section 5 of Rule 29
reads:cralaw:red
Sec. 5. Failure of
party to attend or serve answers. – If a party or an officer or
managing agent of a party willfully fails to appear before the officer
who is to take his deposition, after being served with a proper notice,
or fails to serve answers to interrogatories submitted under Rule 25
after proper service of such interrogatories, the court on motion and
notice, may strike out all or any part of any pleading of that party,
or dismiss the action or proceeding or any part thereof, or enter a
judgment by default against that party, and in its discretion, order
him to pay reasonable expenses incurred by the other, including
attorney’s fees.
Due to respondent bank’s filing of an erroneous motion, the
trial court cannot be faulted for ruling that the motion to expunge was
premature for lack of a prior application to compel compliance based on
Section 3.
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This Court has long encouraged the availment of the various modes or instruments of discovery as embodied in Rules 24 to 29 of the Rules of Court.[15] In the case of Hyatt Industrial Manufacturing Corporation v. Ley Construction and Development Corporation,[16] we declared:cralaw:red
Indeed, the importance of discovery procedures is well
recognized by the Court. It approved A.M. No. 03-1-09-SC on July
13, 2004 which provided for the guidelines to be observed by trial
court judges and clerks of court in the conduct of pre-trial and use of
deposition-discovery measures. Under A.M. No. 03-1-09-SC, trial courts
are directed to issue orders requiring parties to avail of
interrogatories to parties under Rule 45 and request for admission of
adverse party under Rule 26 or at their discretion make use of
depositions under Rule 23 or other measures under Rule 27 and 28 within
5 days from the filing of the answer. The parties are likewise required
to submit, at least 3 days before the pre-trial, pre-trial briefs,
containing among others a manifestation of the parties of their having
availed or their intention to avail themselves of discovery procedures
or referral to commissioners.
The imposition of sanctions under Section 5 is within the sound discretion of the trial court. Thus, in Insular Life Assurance Co., Ltd. v. Court of Appeals,[17] we held:cralaw:red
The matter of how, and when, the above sanctions should be
applied is one that primarily rests on the sound discretion of the
court where the case pends, having always in mind the paramount and
overriding interest of justice. For while the modes of discovery
are intended to attain the resolution of litigations with great
expediency, they are not contemplated, however, to be ultimate causes
of injustice. It behooves trial courts to examine well the
circumstances of each case and to make their considered determination
thereafter. x x x
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WHEREFORE, the petition is GRANTED.
The January 24, 2006 Decision and the March 31, 2006 Resolution of the
Court of Appeals in CA-G.R. SP No. 89148, which granted respondent
China Banking Corporation’s petition to annul the April 1, 2004 and
October 22, 2004 Orders of the Regional Trial Court of San Jose,
Camarines Sur, Branch 30 denying respondent bank’s affirmative defenses
without a hearing as well as its motion to expunge the complaint
because of petitioners’ failure to answer the written interrogatories
are REVERSED and SET ASIDE. The instant case is REMANDED to the Regional Trial Court of San Jose, Camarines Sur, Branch 30, for further proceedings.
SO ORDERED.
Panganiban, C.J., (Chairperson),
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ., concur.
[1] Rollo, pp. 26-36. Penned by Associate Justice Andres B.
Reyes, Jr. and concurred in by Associate Justices Rosmari D. Carandang
and Monina Arevalo-Zenarosa.
[2] Id. at 40-42.
[3] Id. at 43-44.
[4] Penned by Judge Alfredo A. Cabral.
[5] Rollo, p. 38.
[6] Id. at 63-69.
[7] Id. at 12.
[8] Goodyear Philippines, Inc. v. Sy, G.R. No. 154554, November 9, 2005, 474 SCRA 427, 434.
[9] Swagman Hotels and Travel, Inc. v. Court of Appeals, G.R. No. 161135, April 8, 2005, 455 SCRA 175, 183.
[10] Goodyear Philippines, Inc. v. Sy, supra at 435.
[11] Ardiente v. Provincial Sheriff, G.R. No. 148448, August 17, 2004, 436 SCRA 655, 665.
[12] SECTION 1. Refusal to answer. – If a party or other deponent
refuses to answer any question upon oral examination, the examination
may be completed on other matters or adjourned as the proponent of the
question may prefer. The proponent may thereafter apply to the
proper court of the place where the deposition is being taken, for an
order to compel an answer. The same procedure may be availed of
when a party or a witness refuses to answer any interrogatory submitted
under Rules 23 or 25.
If the application is granted, the court shall require the refusing
party or deponent to answer the question or interrogatory and if it
also finds that the refusal to answer was without substantial
justification, it may require the refusing party or deponent or the
counsel advising the refusal, or both of them, to pay the proponent the
amount of the reasonable expenses incurred in obtaining the order
including attorney’s fees.
If the application is denied and the court finds that it was filed
without substantial justification, the court may require the proponent
or the counsel advising the filing of the application, or both of them,
to pay to the refusing party or deponent the amount of the reasonable
expenses incurred in opposing the application, including attorney’s
fees. chanroblesvirtualawlibrary
[13] See Rollo, p. 41.
[14] G.R. No. L-34897, July 15, 1975, 65 SCRA 46, 63.
[15] Ong v. Mazo, G.R. No. 145542, June 4, 2004, 431 SCRA 56, 63.
[16] G.R. No. 147143, March 10, 2006, 484 SCRA 286, 301-302.
[17] G.R. No. 97654, November 14, 1994, 238 SCRA 88, 93.
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