A.M. No. 07-9-454-RTC, 05-2-108-RTC - Re: Judicial Audit Conducted in the RTC, Branch 20, Cagayan de Oro City, Misamis Oriental

Petitioner: Excel Agro-Industrial Corporation, acting as plaintiff.
Respondents: Juan T. Gochangco (private respondent) and the Court of Appeals, as part of the appellate process.
On October 3, 1983, petitioner filed a complaint (Civil Case No. 1038) in the Regional Trial Court of Silay City, Negros Occidental, Branch XL, seeking:

To compel respondent to accept Republic Bank Check No. 21334067 in the amount of P100,000.00 as full payment for a secured loan.
To declare the Deed of Assignment (covering nine parcels of land) as of no further force and effect.
To restrain the respondent from disposing of said real properties.

The complaint failed to state a cause of action because the creditor assignee was not legally bound to accept the check, alleging that the check was not legal tender.
There was no defect or illegality in the Deed of Assignment that would render it ineffective.

This affirmative defense directly challenged the sufficiency of the allegations in the complaint.

On November 15, 1983, the private respondent filed a motion to dismiss the complaint.
The motion reiterated arguments similar to those in his answer, particularly emphasizing:

Lack of cause of action on the part of the petitioner.
The improper nature and non-legal tender status of the check tendered as payment.

On February 20, 1984, the trial court issued an order dismissing the complaint against private respondent.
A subsequent motion for reconsideration filed by the petitioner was denied on March 16, 1984, thereby affirming the dismissal without awarding an opportunity for a hearing on the motion to dismiss.

The Court of Appeals, in its decision dated November 27, 1986, affirmed the trial court’s orders.
It equated the respondent’s motion to dismiss with a motion for a preliminary hearing on his affirmative defense.
The appellate court held that:

No additional hearing was necessary because the allegations in the complaint were treated as hypothetical admissions.
The sufficiency of the complaint rested solely on whether the court could render a judgment based on its allegations, notably discounting the tendered check’s validity as legal tender.

The motion to dismiss was improperly filed after the answer rather than within the prescribed period for filing an answer.
Even though the motion and the affirmative defense raised in the answer were identical (i.e., lack of cause of action), the petitioner's right to a hearing should have been respected to allow the presentation of evidence.

Petitioner highlighted the material significance of a stipulation in the Deed of Assignment, which provided for the immediate forfeiture of the nine parcels of land if the loan remained unpaid as of October 1, 1983—the same day the petitioner allegedly tendered the check.
Additionally, petitioner argued that the respondent’s alleged intentional refusal to accept a valid check was aimed at causing the petitioner’s default, thereby depriving it of substantial property rights.

Whether the filing of a motion to dismiss (after the answer) that reiterates the affirmative defense of lack of cause of action was proper and within the trial court’s discretion.

Whether the trial court erred in dismissing the complaint without affording the petitioner an opportunity to be heard, especially in light of the mandatory hearing requirement under Section 3, Rule 16 of the Revised Rules of Court.
Whether the failure to conduct a hearing undermines due process when the allegations involve material facts regarding the legal tender status of the check and the forfeiture clause in the Deed of Assignment.

Whether the quick dismissal unjustly curtailed the petitioner’s right to present evidence and contest the validity of the tendered check.
The adequacy of allowing a motion to dismiss to substitute for a preliminary hearing when substantial property interests are at stake.