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Mindanao Terminal v. Phoenix Assurance (Cause of Action)

Facts:
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow fresh green Philippines Bananas and fresh pineapples belonging to
Del Monte Fresh Produce into the cargo hold of the vessel M/V Mistrau.
Del Monte Produce insured the shipment under an open cargo policy with private respondent Phoenix Assurance
Company of New York (Phoenix), a non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the
underwriting manager/agent of Phoenix.
Upon arrival at the port of Inchon, Korea, it was then discovered upon discharge that some of the cargo was in bad
condition that they no longer had commercial value. Thus, Phoenix and McGee instituted an action for damages against
Mindanao Terminal in the RTC Davao City.
RTC - held that Phoenix and McGee had no cause of action against Mindanao Terminal because the latter, whose services
were contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with the assured Del
Monte Produce.
CA - reversed and set aside RTC’s decision.
Issue:
WON Phoenix and McGee has a cause of action against Mindanao Terminal under Article 2176 of the Civil Code on
quasi-delict.
Held:
Yes.
The present action is based on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes
belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the rights of
Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Court’s consistent ruling that the act that breaks the contract
may be also a tort. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract.
In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte
Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-
delict.
Macaslang v Zamora
Facts: Renato and Melba Zamora, respondents, filed a complaint for unlawful detainer in the MTCC, alleging that
Dolores Macaslang, petitioner, sold to respondents a residential land located in Danao City and that Dolores requested to
be allowed to live in the house with a promise to vacate as soon as she would be able to find a new residence. Respondent
further alleged that despite their demand after a year, the petitioner failed or refused to vacate the premises.
Despite the due service of summons and copy of complaint, petitioner did not file her answer. The MTCC declared her in
default upon the respondents motion to declare her in default, and proceeded to receive the respondents' oral testimony
and documentary evidence.
MTCC: rendered in favor of sps Zamora
RTC: dismissed the complaint of Sps. Zamora for failure to state a cause of action.
CA: reversed and set asidethe RTC's Decision and reinstated the MTCC's decision in favor of Sps. Zamora
Issues: 1) WON RTC committed reersible error in ruling on issues not raised by the petitioner in her appeal
2) WON CA correctly found that the complaint stated a valid cause of action
Held: 1) No. As an appellate court, RTC may rule upon an issue not raised on appeal
In its decision, the CA ruled that the RTC could not resolve issues that were not assigned by the petitioner in her appeal
memorandum, explaining:
Indeed(,) We are rather perplexed why the Regional Trial Court, in arriving at its decision, discussed and ruled on issues
or grounds which were never raised, assigned, or argued on by the Defendant-appellee in her appeal to the former. A
careful reading of the Defendant-appellee’s appeal memorandum clearly shows that it only raised two (2) grounds, namely
(a) alleged extrinsic fraud, (b) meritorious defenses based on nullity of the Deed of Sale Instrument. And yet the Trial
Court, in its decision, ruled on issues not raised such as lack of cause of action and no prior demand to vacate having been
made.
Only errors assigned and properly argued on the brief and those necessarily related thereto, may be considered by the
appellate court in resolving an appeal in a civil case. Based on said clear jurisprudence, the court a quo committed grave
abuse of discretion amounting to lack of jurisdiction when it resolved Defendant-appellee’s appeal based on grounds or
issues not raised before it, much less assigned by Defendant-appellee as an error.
Not only that. It is settled that an issue which was not raised during the Trial in the court below would not be raised for the
first time on appeal as to do so would be offensive to the basic rules of fair play, justice and due process (Victorias
Milling Co., Inc. vs. CA, 333 SCRA 663). We can therefore appreciate Plaintiffs-appellants’ dismay caused by the
Regional Trial Court’s blatant disregard of a basic and fundamental right to due process.
The petitioner disagrees with the CA and contends that the RTC as an appellate courtcould rule on the failure of the
complaint to state a cause of action and the lack of demand to vacate even if not assigned in the appeal.
The Court concur with the petitioner’s contention.
But the petitioner’s appeal herein,being taken from the decision of the MTCC to the RTC, was governed by a by Section
18 of Rule 70 of the Rules of Court, to wit:
Section 18. xxx
xxx
The judgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same on the
basis of the entire record of the proceedings had in the court of origin and such memoranda and/or briefs as may be
submitted by the parties or required by the Regional Trial Court. (7a)
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As such,the RTC, in exercising appellate jurisdiction,was not limited to the errors assigned in the petitioner’s appeal
memorandum, but could decide on the basis of the entire record of the proceedingshad in the trial court and such
memoranda and/or briefs as may be submitted by the parties or required by the RTC.
The Court promulgated the 1997 Rules of Civil Procedure, effective on July 1, 1997, and incorporated in Section 7 of
Rule 40 thereof the directive to the RTC to decide appealed cases"on the basis of the entire record of the proceedings had
in the court of origin and such memoranda as are filed,"viz:
Section 7. Procedure in the Regional Trial Court. –
(a) Upon receipt of the complete record or the record on appeal, the clerk of court of the Regional Trial Court shall notify
the parties of such fact.
(b) Within fifteen (15) days from such notice, it shall be the duty of the appellant to submit a memorandum which shall
briefly discuss the errors imputed to the lower court, a copy of which shall be furnished by him to the adverse party.
Within fifteen (15) days from receipt of the appellant’s memorandum, the appellee may file his memorandum. Failure of
the appellant to file a memorandum shall be a ground for dismissal of the appeal.
(c) Upon the filing of the memorandum of the appellee, or the expiration of the period to do so, the case shall be
considered submitted for decision. The Regional Trial Court shall decide the case on the basis of the entire record of the
proceedings had in the court of origin and such memoranda as are filed. (n)
As a result, the RTC presently decides all appeals from the MTC based on the entire record of the proceedings had in the
court of origin and such memoranda or briefs as are filed in the RTC.
Yet, even without the differentiation in the procedures of deciding appeals, the limitation of the review to only the errors
assigned and properly argued in the appeal brief or memorandum and the errors necessarily related to such assigned error
sought not to have obstructed the CA from resolving the unassigned issues by virtue of their coming under one or several
of the following recognized exceptions to the limitation, namely:
(a) When the question affects jurisdiction over the subject matter;
(b) Matters that are evidently plain or clerical errors within contemplation of law;
(c) Matters whose consideration is necessary in arriving at a just decision and complete resolution of the case or in serving
the interests of justice or avoiding dispensing piecemeal justice;
(d) Matters raised in the trial court and are of record having some bearing on the issue submitted that the parties failed to
raise or that the lower court ignored;
(e) Matters closely related to an error assigned; and
(f) Matters upon which the determination of a question properly assigned is dependent.
Consequently, the CA improperly disallowed the consideration and resolution of the two errors despite their being: (a)
necessary in arriving at a just decision and a complete resolution of the case; and (b) matters of record having some
bearing on the issues submitted that the lower court ignored.
2) CA correctly delved into and determined whether or not complaint stated a cause of action
The RTC opined that the complaint failed to state a cause of action because the evidence showed that there was no
demand to vacate made upon the petitioner.
The CA disagreed, observing in its appealed decision:
But what is worse is that a careful reading of Plaintiffs-appellants’ Complaint would readily reveal that they have
sufficiently established (sic) a cause of action against Defendant-appellee. It is undisputed that as alleged in the complaint
and testified to by Plaintiffs-appellants, a demand to vacate was made before the action for unlawful detainer was
instituted.
A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal is unlawful
without necessarily employing the terminology of the law (Jimenez vs. Patricia, Inc., 340 SCRA 525). In the case at
bench, par. 4 of the Complaint alleges, thus:
"4. After a period of one (1) year living in the aforementioned house, Plaintiff demanded upon defendant to vacate but she
failed and refused;"
From the foregoing allegation, it cannot be disputed that a demand to vacate has not only been made but that the same was
alleged in the complaint. How the Regional Trial Court came to the questionable conclusion that Plaintiffs-appellants had
no cause of action is beyond Us.
The Court concurs with the CA.
A complaint sufficiently alleges a cause of action for unlawful detainer if it states the following:
(a)Initially, the possession of the property by the defendant was by contract with or by tolerance of the plaintiff;
(b)Eventually, such possession became illegal upon notice by the plaintiff to the defendant about the termination of the
latter’s right of possession;
(c)Thereafter, the defendant remained in possession of the property and deprived the plaintiff of its enjoyment; and
(d)Within one year from the making of the last demand to vacate the property on the defendant, the plaintiff instituted the
complaint for ejectment.
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.
To resolve the issue, therefore, a look at the respondents’ complaint is helpful:
2. On September 10, 1997, defendant sold to plaintiffs a residential land located in Sabang, Danao City, covered by Tax
Dec.0312417 RB with an area of 400 square meters, including a residential house where defendant was then living
covered by Tax Dec. 0312417 RB, a copy of the deed of absolute [sale] of these properties is hereto attached as Annex
"A";
3. After the sale, defendant requested to be allowed to live in the house which plaintiff granted on reliance of defendant’s
promise to vacate as soon as she would be able to find a new residence;
4. After a period of one (1) year living in the aforementioned house, plaintiffs demanded upon defendant to vacate but she
failed or refused.
5. Plaintiffs sought the aid of the barangay Lupon of Sabang, Danao City for arbitration but no settlement was reached as
shown by a certification to file action hereto attached as Annex "B";
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6. Plaintiffs were compelled to file this action and hire counsel for ₱10,000 by way of attorney’s fee;
7. Defendant agreed to pay plaintiffs a monthly rental of ₱5,000 for the period of time that the former continued to live in
the said house in question.
WHEREFORE, it is respectfully prayed of this Honorable Court to render judgment ordering the defendant to vacate the
properties in question, ordering the defendant to pay plaintiffs attorney’s fees in the sum of ₱10,000, ordering the
defendant to pay the plaintiffs a monthly rental of ₱5,000 starting in October 1997, until the time that defendant vacates
the properties in question. Plaintiffs pray for such other reliefs consistent with justice and equity.
Based on its allegations, the complaint sufficiently stated a cause of action for unlawful detainer. Firstly, it averred that
the petitioner possessed the property by the mere tolerance of the respondents. Secondly, the respondents demanded that
the petitioner vacate the property, thereby rendering her possession illegal. Thirdly, she remained in possession of the
property despite the demand to vacate. And, fourthly, the respondents instituted the complaint on March 10, 1999, which
was well within a year after the demand to vacate was made around September of 1998 or later.
Failure to state a cause of action and lack of cause of action are really different from each other. On the one hand, 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 action refers to a situation where the evidence does not prove the cause of
action alleged in the pleading.

Chu vs. Cunanan (Cause of action)

FACTS: Spouses Manuel and Catalina Chu executed a deed of sale with assumption of mortgage involving their 5 parcels
of land in Pampanga in favor of Trinidad N. Cunanan for the consideration of ₱5,161,090.00. They also executed a so-
called side agreement. The parties further stipulated that the ownership of the lots would remain with the Chus as the
vendors and would be transferred to Cunanan only upon complete payment of the total consideration and compliance with
the terms of the deed of sale with assumption of mortgage.

Thereafter, the Chus executed a special power of attorney authorizing Cunanan to borrow ₱5,161,090.00 from any
banking institution and to mortgage the 5 lots as security, and then to deliver the proceeds to the Chus net of the balance of
the mortgage obligation and the downpayment.
Cunanan was able to transfer the title of the 5 lots to her name without the knowledge of the Chus, and to borrow money
with the lots as security without paying the balance of the purchase price to the Chus. She later transferred 2 of the lots to
Spouses Amado and Gloria Carlos. As a result, the Chus caused the annotation of an unpaid vendor’s lien on 3 of the lots.
Nonetheless, Cunanan still assigned the remaining 3 lots to Cool Town Realty despite the annotation.
Thereafter, the Chus commenced Civil Case No. G-1936 in the RTC to recover the unpaid balance from the Cunanan
spouses. 5 years later, the Chus amended the complaint to seek the annulment of the deed of sale with assumption of
mortgage and of the TCTs issued pursuant to the deed, and to recover damages. They impleaded Cool Town Realty and
Development Corporation and the Office of the Registry of Deeds of Pampanga as defendants in addition to the
Cunanans.
Then, the Chus, the Cunanans, and Cool Town Realty entered into a compromise agreement, whereby the Cunanans
transferred to the Chus their 50% share in "all the parcels of land situated in Pampanga" registered in the name of Cool
Town Realty "for and in consideration of the full settlement of their case." The RTC approved the compromise agreement
in a partial decision.
Thereafter, petitioners herein (i.e., Catalina Chu and her children) brought another suit in Civil Case No.12251 against the
Carloses and Benelda Estate, seeking the cancellation of the TCTs of the two lots in the name of Benelda Estate, and the
issuance of new TCTs in their favor, plus damages.
The Cunanans moved to dismiss the amended complaint based on two grounds, namely: (a) bar by prior judgment, and (b)
the claim or demand had been paid, waived, and abandoned.
Benelda Estate likewise moved to dismiss the amended complaint, citing as grounds: (a) forum shopping; (b) bar by prior
judgment, and (c) failure to state a cause of action.
On their part, the Carloses raised affirmative defenses in their answer, namely: (a) the failure to state a cause of action; (b)
res judicata or bar by prior judgment; and (c) bar by statute of limitations.
The RTC denied both motions to dismiss. The Cunanans sought reconsideration, but their motion was denied.
Then, the Cunanans filed a petition for certiorari in the CA. It rendered a decision granting the petition for certiorari and
nullifying the challenged orders of the RTC. Hence, this appeal.
ISSUE: WON Civil Case No. 12251 is barred by res judicata although the compromise agreement did not expressly
include Benelda Estate as a party and although the compromise agreement made no reference to the lots now registered in
Benelda Estate’s name?
HELD: YES. A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. It encompasses the objects specifically stated therein, although it may
include other objects by necessary implication, and is binding on the contracting parties, being expressly acknowledged as
a juridical agreement between them. It has the effect and authority of res judicata upon the parties.
In the construction or interpretation of a compromise agreement, the intention of the parties is to be ascertained from the
agreement itself, and effect should be given to that intention. Thus, the compromise agreement must be read as a whole.
The following pertinent portions of the compromise agreement indicate that the parties intended to thereby settle all their
claims against each other, to wit:
1. That the defendants SPOUSES TRINIDAD N.CUNANAN and FERNANDO C.CUNANAN for and in consideration
of the full settlement of their case in the above-entitled case, hereby TRANSFER, DELIVER, and CONVEY unto the
plaintiffs all their rights, interest, benefits, participation, possession and ownership which consists of FIFTY (50%)
percent share on all the parcels of land situated in Saguin, San Fernando Pampanga now registered in the name of
defendant, COOL TOWN REALTY & DEVELOPMENT CORPORATION, as particularly evidenced by the
corresponding Transfer Certificates of Titles xxx
xxxx
6. That the plaintiffs and the defendant herein are waiving, abandoning, surrendering, quitclaiming, releasing,
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relinquishing any and all their respective claims against each other as alleged in the pleadings they respectively
filed in connection with this case.
To limit the compromise agreement only to the three lots mentioned therein would contravene the avowed objective of
Civil Case No. G-1936 to enforce or to rescind the entire deed of sale with assumption of mortgage. Such interpretation is
akin to saying that the Cunanans separately sold the five lots, which is not the truth. For one, Civil Case No. G-1936 did
not demand separate amounts for each of the purchased lots. Also, the compromise agreement did not state that the value
being thereby transferred to the petitioners by the Cunanans corresponded only to that of the 3 lots.
Apparently, the petitioners were guilty of splitting their single cause of action to enforce or rescind the deed of sale with
assumption of mortgage. Splitting a single cause of action is the act of dividing a single or indivisible cause of action into
several parts or claims and instituting two or more actions upon them. A single cause of action or entire claim or demand
cannot be split up or divided in order to be made the subject of two or more different actions. Thus, Section 4, Rule 2 of
the Rules of Court expressly prohibits splitting of a single cause of action, viz:
Section 4. Splitting a single cause of action; effect of. — If two or more suits are instituted on the basis of the same cause
of action, the filing of one or a judgment upon the merits in any one is available as a ground for the dismissal of the
others.
The petitioners were not at liberty to split their demand to enforce or rescind the deed of sale with assumption of mortgage
and to prosecute piecemeal or present only a portion of the grounds upon which a special relief was sought under the deed
of sale with assumption of mortgage, and then to leave the rest to be presented in another suit; otherwise, there would be
no end to litigation. Their splitting violated the policy against multiplicity of suits, whose primary objective was to avoid
unduly burdening the dockets of the courts. Their contravention of the policy merited the dismissal of Civil Case No.
12251 on the ground of bar by res judicata.
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment. Yet,
in order that res judicata may bar the institution of a subsequent action, the following requisites must concur:– (a) the
former judgment must be final; (b) it must have been rendered by a court having jurisdiction of the subject matter and the
parties; (c) it must be a judgment on the merits; and (d) there must be between the first and second actions (i) identity of
parties, (ii) identity of the subject matter, and (iii) identity of cause of action.
The first requisite was attendant. Civil Case No. G-1936 was already terminated under the compromise agreement, for the
judgment, being upon a compromise, was immediately final and unappealable. As to the second requisite, the RTC had
jurisdiction over the cause of action in Civil Case No. G-1936 for the enforcement or rescission of the deed of sale with
assumption of mortgage, which was an action whose subject matter was not capable of pecuniary estimation. That the
compromise agreement explicitly settled the entirety of Civil Case No. G-1936 by resolving all the claims of the parties
against each other indicated that the third requisite was also satisfied.
There is identity of parties when the parties in both actions are the same, or there is privity between them, or they are
successors-in-interest by title subsequent to the commencement of the action litigating for the same thing and under the
same title and in the same capacity. The requirement of the identity of parties was fully met, because the Chus, on the one
hand, and the Cunanans, on the other hand, were the parties in both cases along with their respective privies. The fact that
the Carloses and Benelda Estate, defendants in Civil Case No. 12251, were not parties in the compromise agreement was
inconsequential, for they were also the privies of the Cunanans as transferees and successors-in-interest. It is settled that
the absolute identity of parties was not a condition sine qua non for res judicata to apply, because a shared identity of
interest sufficed. Mere substantial identity of parties, or even community of interests between parties in the prior and
subsequent cases, even if the latter were not impleaded in the first case, was sufficient.
As to identity of the subject matter, both actions dealt with the properties involved in the deed of sale with assumption of
mortgage. Identity of the causes of action was also met, because Case No. G-1936 and Civil Case No. 12251 were rooted
in one and the same cause of action – the failure of Cunanan to pay in full the purchase price of the five lots subject of the
deed of sale with assumption of mortgage. In other words, Civil Case No. 12251 reprised Civil Case No. G-1936, the only
difference between them being that the petitioners alleged in the former that Benelda Estate was "not also a purchaser for
value and in good faith."
In fine, the rights and obligations of the parties vis-à-vis the five lots were all defined and governed by the deed of sale
with assumption of mortgage, the only contract between them.
The Court denied the petition for review on certiorari, and affirm the decision promulgated by the CA.
NM ROTHSCHILD & SONS (AUSTRALIA) LIMITED vs.
LEPANTO CONSOLIDATED MINING COMPANY.

FACTS: Respondent Lepanto Consolidated Mining Company filed with the RTC a Complaint against petitioner NM
Rothschild & Sons praying for a judgment declaring the loan and hedging contracts between the parties void for being
contrary to Article 2018 of the Civil Code of the Philippines and for damages. Petitioner filed a Special Appearance With
Motion to Dismiss praying for the dismissal of the Complaint for it failed to state a cause of action.
ISSUE:
Whether the Complaint should be dismissed for failing to state a cause of action
HELD: No.
(The alleged absence of a cause of action (as opposed to the failure to state a cause of action), is not a ground in a Motion
to Dismiss as enumerated in Section 1, Rule 16 of the Rules of Court. )

As regards the allegation of failure to state a cause of action, while the same is usually available as a ground in a
Motion to Dismiss, said ground cannot be ruled upon in the present Petition without going into the very merits of the main
case.

It is basic that cause of action is the act or omission by which a party violates a right of another. Its elements are
the following:
(1) a right existing in favor of the plaintiff,
(2) a duty on the part of the defendant to respect the plaintiff's right, and
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(3) an act or omission of the defendant in violation of such right.

We have held that to sustain a Motion to Dismiss for lack of cause of action, the complaint must show that the
claim for relief does not exist and not only that the claim was defectively stated or is ambiguous, indefinite or uncertain.
The trial court held that the Complaint in the case at bar contains all the three elements of a cause of action, i.e., it
alleges that:
(1) plaintiff has the right to ask for the declaration of nullity of the Hedging Contracts for being null and void and
contrary to Article 2018 of the Civil Code of the Philippines;
(2) defendant has the corresponding obligation not to enforce the Hedging Contracts because they are in the nature
of wagering or gambling agreements and therefore the transactions implementing those contracts are null and void under
Philippine laws; and
(3) defendant ignored the advice and intends to enforce the Hedging Contracts by demanding financial payments
due there from.
In the case at bar, respondent asserts in the Complaint that the Hedging Contracts are void for being contrary to
Article 2018 of the Civil Code. Respondent claims that under the Hedging Contracts, despite the express stipulation for
deliveries of gold, the intention of the parties was allegedly merely to compel each other to pay the difference between the
value of the gold at the forward price stated in the contract and its market price at the supposed time of delivery.

Whether such an agreement is void is a mere allegation of a conclusion of law, which therefore cannot be
hypothetically admitted. Quite properly, the relevant portions of the contracts sought to be nullified, as well as a copy of
the contract itself, are incorporated in the Complaint. The determination of whether or not the Complaint stated a cause of
action would therefore involve an inquiry into whether or not the assailed contracts are void under Philippine laws.

PETITION DENIED. CA AFFIRMED.

Pua v. Citibank
Facts: Petitioners Jose and Benjamin Pua filed before the RTC a Complaint for declaration of nullity of contract and sums
of money with damages against respondent Citibank. In their complaint, petitioners alleged that they had been depositors
of Citibank Binondo Branch (Citibank Binondo) since 1996.
Sometime in 1999, Guada Ang, Citibank Binondo’s Branch Manager, invited Jose to a dinner party at the Manila Hotel
where he was introduced to several officers and employees of Citibank Hongkong Branch (Citibank Hongkong).
A few months after, Chingyee Yau (Yau), Vice-President of Citibank Hongkong, came to the Philippines to sell securities
to Jose. They averred that Yau required Jose to open an account with Citibank Hongkong as it is one of the conditions for
the sale of the aforementioned securities. After opening such account, Yau offered and sold to petitioners’ numerous
securities issued by various public limited companies established in Jersey, Channel I sands. The offer, sale, and signing
of the subscription agreements of said securities were all made and perfected at Citibank Binondo in the presence of its
officers and employees.
Later on, petitioners discovered that the securities sold to them were not registered with the Securities and Exchange
Commission (SEC)and that the terms and conditions covering the subscription were not likewise submitted to the SEC for
evaluation, approval, and registration. Asserting that respondent’s actions are in violation of Republic Act No.8799,
entitled the "Securities Regulation Code" (SRC), they assailed the validity of the subscription agreements and the terms
and conditions thereof for being contrary to law and/or public policy.
For its part, respondent filed a motion to dismiss alleging, inter alia, that petitioners’ complaint should be dismissed
outright for violation of the doctrine of primary jurisdiction. It pointed out that the merits of the case would largely depend
on the issue of whether or not there was a violation of the SRC, in particular, whether or not there was a sale of
unregistered securities. In this regard, respondent contended that the SRC conferred upon the SEC jurisdiction to
investigate compliance with its provisions and thus, petitioners’ complaint should be first filed with the SEC and not
directly before the RTC.
Petitioners opposed respondent’s motion to dismiss, maintaining that the RTC has jurisdiction over their complaint.
RTC - Denied respondent’s motion to dismiss.
CA - Reversed and set aside the RTC’s Orders.
Issue: WON petitioners’ action falls within the primary jurisdiction of the SEC.
Held: No. At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to support its position
that all complaints involving purported violations of the SRC should be first referred to the SEC. A careful reading of the
Baviera case would reveal that the same involves a criminal prosecution of a purported violator of the SRC, and not a civil
suit such as the case at bar.
Under the said ruling, all complaints for any violation of the Code and its implementing rules and regulations should be
filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution.
Records show that petitioners’ complaint constitutes a civil suit for declaration of nullity of contract and sums of money
with damages, which stemmed from respondent’s alleged sale of unregistered securities, in violation of the various
provisions of the SRC and not a criminal case such as that involved in Baviera.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; it cannot be inferred but must be
explicitly stated therein. Thus, when Congress confers exclusive jurisdiction to a judicial or quasi-judicial entity over
certain matters by law, this, absent any other indication to the contrary, evinces its intent to exclude other bodies from
exercising the same.
Lastly, it is clear that cases falling under Section 57of the SRC, which pertain to civil liabilities arising from violations of
the requirements for offers to sell or the sale of securities, as well as other civil suits under Sections 56, 58, 59, 60, and 61
of the SRC shall be exclusively brought before the regional trial courts. It is a well-settled rule in statutory construction
that the term "shall" is a word of command, and one which has always or which must be given a compulsory meaning, and
it is generally imperative or mandatory. Likewise, it is equally revelatory that no SRC provision of similar import is found
in its sections governing criminal suits; quite the contrary, the SRC states that criminal cases arising from violations of its
provisions should be first referred to the SEC.
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Aquino et.al vs. Quiazon et.al

Facts:
A complaint for Annulment and Quieting of Title was filed before the RTC by the petitioners. They alleged that they were
the heirs of the late Epifanio Makam and Severina Bautista, who acquired a house and lot by virtue of deed of sale. They
and their predecessors-in-interest had been in open, continuous, adverse, and notorious possession for more than a
hundred years, constructing houses and paying real estate taxes on the property.
On June 2005, they received various demand letters from the respondents claiming ownership over the subject property
and demanding that they vacate the same. Upon inquiry with the Register of Deeds of Pampanga, they confirmed that the
property had been titled in the name of respondents.
The petitioners alleged that the said title was invalid, ineffective, voidable or unenforceable, and that they were the true
owners of the property. Hence, they prayed that the title be cancelled and a new title be issued in their favor.
In reply, respondents denied the allegations in the complaint and proffered affirmative defenses with counterclaims. They
argued that: First, the petitioners "have no valid, legal and sufficient cause of action" against them, because their deed of
sale was spurious and could not prevail over Land Registration Decree. Second, the action was barred by prescription and
that petitioners were guilty of laches in asserting their interest over the subject lot. Third, the action was also barred by res
judicata and violated the prohibition against forum shopping, considering that petitioners had earlier filed a similar case
for quieting of title against respondents.
Anent the alleged lack of cause of action due to the spurious deed of sale, petitioners argued that this contention was a
matter of evidence which might only be resolved in a full-blown trial. They insisted that the deed of sale was genuine and
authentic and was issued and certified by the Deputy Clerk of Court of the RTC. They added that the settled rule was that
to determine the sufficiency of the cause of action, only the facts alleged in the complaint should be considered, and that
the allegations in their complaint sufficiently stated a cause of action.
RTC - issued an order dismissing petitioner’s complaint.
CA - issued petitioner’s appeal.
Hence, this petition.
Issue:
WON petitioner has failed to state a cause of action in his complaint.
Held:
No.
Respondents’ arguments made no assertion that the complaint failed to state a cause of action. The ground of "lack of
cause of action" has been frequently confused with the ground of "failure to state a cause of action," and this is the
situation prevailing in the present case. The terms were, in fact, used interchangeably by both the respondents and the
lower courts.
In Dabuco vs. CA, the Supreme Court made a distinction between the grounds of "failure to state a cause of action" and
"lack of cause of action. “As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal
of an action: failure to state a cause of action, on the one hand, and lack of cause of action, on the other hand. The
former refers to the insufficiency of allegation in the pleading, the latter to the insufficiency of factual basis for the action.
Failure to state a cause may be raised in a Motion to Dismiss under Rule 16, while lack of cause may be raised any time.
Dismissal for failure to state a cause can be made at the earliest stages of an action. Dismissal for lack of cause is usually
made after questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.”
Although the two grounds were used interchangeably, it can be gleaned from the decisions of both the trial court and the
CA that respondents’ defense of "lack of cause of action" was actually treated as a "failure to state a cause of action,"
which is a ground for a motion to dismiss under Rule 16. This is apparent from their reliance on Section 6 of Rule 16,
which pertains to grounds of a motion to dismiss raised as affirmative defenses; as well as the doctrines cited in resolving
the case. The CA even referred to both as one and the same ground for a motion to dismiss when it stated that:
"Indubitably, lack of cause of action or failure to state a cause of action, being one of the grounds for a motion to dismiss,
is included thereby."
Also confused, respondents, on their part, asserted that "it is within the discretion of the Court a quo to conduct a
preliminary hearing on the affirmative defense of lack of cause of action or failure to state a cause of action,"the very
basis of their argument being hinged on the application of Section 6. They also insisted on the applicability of the
exceptions to the general rule that only averments in the complaint must be considered, which pertains to the ground of
"failure to state a cause of action."
The trial court held a preliminary hearing resolving the ground of "lack of cause of action" pursuant to Section 6 of Rule
16, which allows the court to hold a preliminary hearing on grounds for dismissal provided in the same rule that have been
raised as an affirmative defense in the answer. The ground of "lack of cause of action," as already explained, however, is
not one of the grounds for a motion to dismiss under Rule 16, and hence, not proper for resolution during a preliminary
hearing held pursuant to Section 6. On this point alone, the trial court clearly erred in receiving evidence on the ground of
"lack of cause of action" during the preliminary hearing. The factual matters raised by respondents in their affirmative
defense arguing the non-existence of a cause of action, should have been duly resolved during a trial on the merits of the
case.
In any case, even if the Court were to treat respondents’ argument as a "failure to state a cause of action," their defense
would still fail. Court limited to averments in the complaint.
In Insular Investment and Trust Corporation v. Capital One Equities Corporation, the familiar test for determining
whether a complaint did or did not state a cause of action against the defendants is whether or not, admitting
hypothetically the truth of the allegations of fact made in the complaint, a judge may validly grant the relief demanded in
the complaint.
In Consolidated Bank and Trust Corp. v. Court of Appeals, in determining the existence of a cause of action, only the
statements in the complaint may properly be considered. It is error for the court to take cognizance of external facts or
hold preliminary hearings to determine their existence. If the allegation in a complaint furnish sufficient basis by which
the complaint may be maintained, the same should not be dismissed regardless of the defenses that may be assessed by the
defendants. Thus, in determining the existence of a cause of action, only the allegations in the complaint may properly be
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considered. For the court to do otherwise would be a procedural error and a denial of the plaintiff’s right to due process
the allegation.
In sum, the trial court and CA erred in dismissing the complaint on the ground of failure to state a cause of action.
Evidence should have been received not during a preliminary hearing under Section 6 of Rule 16, but should have been
presented during the course of the trial.