G.R. No. 193398 - Presidential Commission on Good Government vs. Gutierrez

Case Digest (G.R. No. 193398)
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Facts:

Background of the Transaction

In November 1981, petitioner Manila Banking Corporation (the bank) granted a credit line of P14 million to respondent University of Baguio, Inc. (the university) for the purpose of constructing additional buildings and purchasing new equipment.
On behalf of the university, then Vice-Chairman Fernando C. Bautista, Jr. executed several promissory notes (PN Nos. 10660, 10672, 10687, and 10708) and a continuing suretyship agreement.
Instead of using the funds as intended, Bautista, Jr. diverted the net proceeds of the loan by endorsing and delivering the four checks to respondent Group Developers, Inc. (GDI).

Initiation of Legal Proceedings

On February 12, 1990, the bank filed a complaint for a sum of money with an application for preliminary attachment against the university, Bautista, Jr. and his wife Milagros, before the RTC of Makati City.
On March 31, 1995, the bank amended the complaint, impleading GDI as an additional defendant, alleging:

The bank was unaware of and did not approve the diversion of the funds to GDI.
The loan was granted without collateral on the undertaking that the university would construct new buildings.
GDI, in connivance with the university and Bautista, Jr., fraudulently contracted the debt.

The university, in its Answer, countered that the diversion had been approved by the bank and GDI, citing assurances given in separate letters by Vicente G. Puyat (then the bank’s President) and Victor G. Puyat (then GDI’s President).

The Dacion en Pago and Subsequent Proceedings

On December 14, 1995, the bank and GDI executed a deed of dacion en pago, whereby:

GDI, acting as attorney-in-fact for Batulao Bio-Loop Farms, Inc., transferred a parcel of land (210,000 square meters in Nasugbu, Batangas, covered by TCT No. T-70784) to the bank.
The deed was for a consideration of P78 million and purported to settle the loan under the promissory notes.

The trial court in its Omnibus Order dated April 21, 1997, dismissed the third-party complaint and other motions on the ground that the dacion en pago had mooted claims against both the university and GDI.
Later, on March 19, 1998, the university moved to dismiss the amended complaint, arguing:

The loan had been fully settled through the dacion en pago, leaving no remaining cause of action.
The bank had delayed prosecution for an unreasonable period.

On August 17, 1999, the trial court denied the university’s motion to dismiss, distinguishing the evidentiary nature of the issues raised.
On October 14, 1999, the university set the case for pre-trial, and on August 3, 2000, the trial court reinstated GDI’s motions to dismiss the amended complaint and cross-claim, after expunging the deed of dacion en pago from the record.
On August 29, 2001, the university filed a manifestation with a motion for reconsideration regarding the earlier August 17, 1999 ruling.
The trial court, in its Order dated April 11, 2002, dismissed the amended complaint on the premise that the bank’s claim for a sum of money was already settled by the dacion en pago.
Petitioner (the bank) appealed, alleging multiple errors in the trial court’s handling of the motions, dismissal, and reliance on evidence later expunged from the record.

Procedural and Substantive Controversies

The petitioner argued that the dismissal was based on evidence now removed from the record and that the motion to dismiss was improperly premised, particularly because:

It was filed after the responsive pleading.
It relied on the deed of dacion en pago which was not contained in the complaint.
It improperly substituted a motion for dismissal under Rule 33 (demurrer to evidence) when no evidence had yet been presented by the petitioner.

The respondents maintained that:

The acceptance of the dacion en pago by the bank constituted an equivalent performance, thereby extinguishing the loan obligation.
The various motions, including those raised on evidentiary issues, were proper given the facts that emerged in the record.

Issues:

Whether the trial court erred in dismissing the amended complaint without trial on respondent university’s motion, which was premised on the alleged payment via the dacion en pago.

Was the dismissal proper given that the deed of dacion en pago had been expunged from the record before the decision?
Did reliance on evidence not contained in the complaint (i.e., the deed of dacion en pago) amount to a reversible error?

Whether the motion to dismiss filed by the university was improperly characterized under the Rules of Court.

Should the motion have been addressed as a Rule 16 objection (failure to state a cause of action) based solely on the allegations in the complaint?
Or was it improperly presented as a Rule 33 demurrer to evidence since the petitioner had not yet rested its case and no evidentiary presentation had been made?

Whether the trial court’s inconsistent rulings and misapplication of procedural rules resulted in undue delay and confusion, thereby affecting the parties’ right to a fair adjudication.

Did the trial court err in its handling of multiple motions and orders, including the premature setting of pre-trial dates and the conflicting positions on the significance of the dacion en pago?
Was the motion for reconsideration (filed after two years) rightly denied on the basis of procedural timeliness?

Ruling:

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Ratio:

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Doctrine:

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