Case Summary (G.R. No. 197358)
Petitioner’s Background and Transactions
BDC, while alleged to have been “in the process of incorporation,” purchased the subject parcel from the Spouses Jose and Socorro Sering on March 31, 1966. TCT No. RT-4724 was issued in BDC’s name on January 28, 1969. BDC’s Articles of Incorporation were executed on May 13, 2002 and the Certificate of Incorporation was issued by the SEC on May 23, 2002. On May 5, 1998, Max Jr., representing himself as Chairman of BDC and armed with a purported board resolution, executed a real estate mortgage (REM) over the subject property in favor of DORI and its president, Libarios.
Respondents’ Assertions and Defenses
Respondents asserted that at the time of the 1998 REM, BDC did not exist as a juridical person because formal incorporation occurred only in 2002; consequently, BDC could not hold title or maintain an action regarding the property. They further averred that the owner’s duplicate copy of TCT No. RT-4724 and physical possession of the property were with the Arriola family, and that tax declarations named Max Arriola, Sr. as administrator. Max Jr. maintained family possession of the owner’s duplicate since issuance in 1969.
Initial Pleading and RTC Rulings
BDC filed a complaint for declaration of nullity of the REM on August 23, 2005, alleging that the REM was executed by the Arriolas who misrepresented themselves as owners and directors of BDC, and that the owner’s duplicate title ended up in Libarios’ possession. The Regional Trial Court (RTC) heard respondents’ special and affirmative defenses and, by order dated August 11, 2006, denied those defenses for lack of merit. A motion for reconsideration was denied on November 24, 2006, maintaining the RTC’s view that BDC’s allegations warranted trial.
Court of Appeals Disposition
The respondents filed certiorari with the Court of Appeals (CA) alleging grave abuse of discretion by the RTC. The CA, however, set aside the RTC’s orders and dismissed BDC’s complaint for failure to state a cause of action, reasoning that corporate existence begins only upon issuance of a certificate of incorporation and that BDC had no corporate existence or right over the property in 1998 when the REM was executed. The CA denied BDC’s motion for reconsideration.
Supreme Court: Procedural Remedy and Jurisdictional Question
BDC filed a Rule 65 petition for certiorari with the Supreme Court instead of a petition for review on certiorari under Rule 45. The Supreme Court recognized that a petition under Rule 45 was the proper remedy for a final CA judgment and that certiorari under Rule 65 is not a substitute for appeal where an adequate remedy by appeal exists. The Court nonetheless noted that acceptance of a Rule 65 petition is discretionary and that exceptions to strict remedy rules exist where public policy, broader justice, nullity of writs, or oppressive judicial exercise are implicated.
Supreme Court’s Exercise of Discretion to Hear Merits
The Supreme Court exercised its discretion to entertain the Rule 65 petition, concluding that dismissal on procedural grounds would produce a miscarriage of justice. The CA’s dismissal deprived BDC of the opportunity to present evidence at trial to substantiate its allegations that the REM was void and that title was held in BDC’s name.
Legal Standard on Failure to State a Cause of Action
The Court restated the controlling test for dismissal for failure to state a cause of action: only the ultimate facts alleged in the complaint are considered, and the question is whether a valid judgment can be rendered on those allegations and the relief prayed for. The elements of a cause of action—plaintiff’s right, defendant’s duty, and defendant’s act or omission infringing the right—were reiterated.
Application to BDC’s Complaint
BDC’s complaint alleged (inter alia) that it purchased the land while in the process of incorporation; that TCT No. RT-4724 was issued in its name; that it paid real estate taxes; that the owner’s duplicate title later went missing and surfaced in Libarios’ possession; and that the Arriolas mortgaged the property while misrepresenting themselves as BDC’s owners and directors. On these plead facts, the Court held that BDC had adequately alleged a cause of action for declaration of nullity of the REM such that dismissal under Rule 16 for failure to state a cause of action was inappropriate.
Title as Prima Facie Evidence and Burden at Trial
The Court emphasized that a certificate of title is “an absolute and indefeasible evidence of ownership” in favor of the named owner. Given that the TCT was alleged to be in BDC’s name, BDC’s averments sufficed to place at issue the validity of the REM and to require resolution of factual disputes at trial rather than by pretrial dismissal.
Distinction Between Failure to State a Cause of Action and Lack
...continue readingCase Syllabus (G.R. No. 197358)
Procedural Posture and Relief Sought
- Petition for certiorari under Rule 65 of the Rules of Court filed with the Supreme Court, seeking annulment and setting aside of the Court of Appeals Decision dated January 14, 2011 and Resolution dated May 24, 2011 in CA-G.R. SP No. 01473.
- The petition contests the CA's disposition which set aside Regional Trial Court (RTC) Orders dated August 11, 2006 and November 24, 2006 and dismissed BDC’s complaint for failure to state a cause of action.
- The Supreme Court rendered a decision reversing the CA, reinstating the RTC Orders, and remanding the case for further proceedings.
Parties and Titles
- Petitioner: Butuan Development Corporation (BDC).
- Respondents: The Twenty-First Division of the Court of Appeals (Mindanao Station), Max Arriola, Jr.; De Oro Resources, Inc. (DORI); and Louie A. Libarios.
- Other named defendants in the RTC complaint: Casilda L. Arriola, Rebecca J. Arriola, and Joseph L. Arriola.
Factual Background
- On March 31, 1966, while BDC was still in the process of incorporation, Edmundo Satorre (then President) purchased from Spouses Jose and Socorro Sering a 7.6923-hectare parcel in Butuan City (the subject property).
- On January 28, 1969, the Registry of Deeds for Butuan City issued Transfer Certificate of Title (TCT) No. RT-4724 in the name of BDC.
- On May 5, 1998, Max L. Arriola, Jr., representing himself as Chairman of BDC and armed with a notarized Board Resolution of BDC, executed a real estate mortgage (REM) of the subject property in favor of De Oro Resources, Inc. (DORI) and its President Louie A. Libarios.
- On May 13, 2002, Satorre and others executed Articles of Incorporation for BDC; the Securities and Exchange Commission approved and issued a Certificate of Incorporation on May 23, 2002.
- Sometime in 2004, BDC discovered that the owner’s duplicate copy of TCT No. RT-4724 was missing; subsequent inquiries allegedly revealed that the duplicate title was in Libarios’ possession as a result of the REM executed by the Arriolas who allegedly misrepresented themselves as owners and directors of BDC.
RTC Proceedings and Ruling
- BDC filed a complaint for declaration of nullity of real estate mortgage (SP Civil Case No. 1259) with the RTC of Agusan del Norte and Butuan City on August 23, 2005 against Max Jr., Libarios, DORI, and the Arriolas.
- Defendants raised as a special and affirmative defense that BDC did not exist as a corporation at the time of the REM (May 5, 1998) because incorporation only occurred on May 23, 2002; therefore BDC could not hold title or maintain the complaint.
- The RTC heard the special and affirmative defenses on February 22, 2006 and directed memoranda from the parties.
- RTC Order dated August 11, 2006 denied consideration of the defendants’ special/affirmative defenses for lack of merit, reasoning that BDC alleged it purchased the property while in the process of incorporation and obtained title in its name, and that alienation of corporate property by persons other than the corporation through its Board would violate BDC’s rights.
- The RTC denied the defendants’ motion for reconsideration in Order dated November 24, 2006.
Petition to the Court of Appeals and CA Ruling
- The respondents filed a petition for certiorari with the Court of Appeals, asserting grave abuse of discretion by the RTC in disregarding their special and affirmative defense and seeking injunctive relief.
- The Court of Appeals, in a Decision dated January 14, 2011, granted the petition, set aside the RTC Orders, and issued a new order dismissing BDC’s complaint for failure to state a cause of action. The CA held that corporate existence begins only upon issuance of a certificate of incorporation; since BDC was not yet incorporated at the time of the purchase and at the time of the REM, it had no juridical personality or right over the subject property, and therefore no cause of action accrued.
- BDC’s motion for reconsideration of the CA Decision was denied in the CA Resolution dated May 24, 2011.
Parties’ Contentions Before the Supreme Court
- BDC’s contentions:
- It has a cause of action despite not being incorporated at the time of the REM (May 5, 1998).
- DORI and Libarios are estopped from questioning BDC’s legal personality because at the time of the REM they treated BDC as a corporation and may no longer raise non-incorporation as a defense.
- Respondents’ contentions:
- The proper remedy to challenge the CA’s Decision and Resolution was a petition for review on certiorari under Rule 45, not a petition for certiorari under Rule 65; BDC lost its right to invoke appellate remedy by failing to file within the Rule 45 time.
- The CA committed no abuse of discretion because BDC was not incorporated at the time of the REM and could not hold title.
Procedural Issue: Rule 45 vs Rule 65
- The CA’s disposition was treated as a final judgment for Rule 45 purposes; a petition for review on certiorari under Rule 45 should have been filed within 15 days from notice of the CA’s resolution.
- BDC’s counsel received notice of the CA’s denial of reconsideration on May 31, 2011; the deadline to file under Rule 45 was June 15, 2011.
- BDC failed to file a Rule 45 petition and instead filed a Rule 65 certiorari petition with the Supreme Court on July 4, 2011.
- The Supreme Court recognized that certiorari under Rule 65 cannot generally substitute for an appeal where an appeal is available; remedies of appeal and certiorari are mutually exclusive and certiorari will not prosper where an appeal is available.
- The Court noted, however, that acceptance of a Rule 65 petition is discretionary and that technical rules may be relaxed in exceptional situations; it listed recognized exceptions where certiorari may be entertained despite availability of appeal: public welfare/public policy, broader interest of justice, null/void writs, or oppressive exercise of judicial authority (citing precedents).