G.R. No. 213230 - Hirakawa vs. Lopzcom Realty Corp.

Case Summary (G.R. No. 213230)

Factual Background

On December 28, 1995, a Deed of Sale purportedly conveyed the ninety-two hectare Windfields Subdivision in Consolacion, Cebu City, from certain corporations and their stockholders to LOPZCOM REALTY CORPORATION, represented by ATTY. GARI M. TIONGCO, for P100,000,000.00. As part of the purchase price, Tiongco delivered nine Westmont Bank postdated personal checks payable to Takezo Sakai. On September 30, 1996, Sakai assigned to Hirakawa four of those nine postdated checks aggregating P65,000,000.00. Respondents were informed of that assignment and allegedly agreed to be bound by it.

Assignments and Subsequent Issuance of Checks

After Hirakawa collected the first assigned Westmont check, he requested that the remaining three be reissued in his name. Respondents acceded and replaced them with PDCP Development Bank postdated checks drawn on Tiongco’s personal PDCP account: Check Nos. 0050992, 0050993 and 0050994. When PDCP Check No. 0050992 became due on October 30, 1997, Tiongco requested that Hirakawa not deposit it and offered to pay eighteen percent interest for the delay, which Hirakawa accepted. The subsequent two PDCP checks were dishonored on their maturity dates for the reason of “ACCOUNT CLOSED.”

Attempts at Settlement and Further Instrumentation

On February 9, 1999, respondents proposed to satisfy the outstanding P40,000,000.00 balance by assigning to Hirakawa shares in a golf course project to be developed through a joint venture with Sta. Lucia Realty Development Corporation, and executed a Deed of Assignment in his favor. Three years later Hirakawa discovered the golf course had not been developed and no certificates of stock had been issued in his name. Thereafter, Tiongco issued two PNB postdated checks for P20,000,000.00 each dated October 30, 2004 and October 30, 2005, both of which remained unfunded when they matured.

Filing of Complaint and Preliminary Attachment

After years of unsuccessful collection efforts and a final Notice of Demand dated March 22, 2010, Hirakawa filed suit on June 22, 2010 against respondents for breach of contract and for attachment, claiming P114,027,812.22 inclusive of interest. The trial court granted an ex parte writ of preliminary attachment on October 1, 2010, subject to bond, and later discharged the writ on October 21, 2010 upon respondents’ posting of a counter-bond.

Trial Court Proceedings and Denial of Motion to Dismiss

Respondents moved to dismiss on grounds that Hirakawa lacked legal capacity and cause of action because he was not a party to the Deed of Sale. The trial court, by Order dated May 15, 2012, denied the motion. The court reasoned that the complaint alleged causes of action beyond breach of contract, including fraud, issuance of worthless checks and other deceits, and that Hirakawa, as a natural person, possessed juridical capacity to sue. Respondents’ motion for reconsideration was likewise denied on August 28, 2012.

Court of Appeals Decision

Respondents sought relief by filing a petition for certiorari under Rule 65, Rules of Court in the Court of Appeals. By Decision dated November 19, 2013, the Court of Appeals reversed the trial court and dismissed the complaint for lack of cause of action on the ground that Hirakawa was not a party to the underlying Deed of Sale. The CA instructed that the dismissal was without prejudice to the filing of an appropriate action in the proper court. The Court of Appeals denied motions for reconsideration by Resolution dated July 8, 2014.

Present Petition and Issue Presented

Petitioner sought review in the Supreme Court, contending that the Court of Appeals gravely erred in dismissing the complaint for lack or excess of jurisdiction. He argued that jurisdiction is determined from the allegations in the complaint, and that the true nature of his claim should be gleaned from the averments in the body of the pleading rather than from its title. Respondents maintained that Hirakawa could not sue on the Deed of Sale to which he was not a party.

Supreme Court Ruling

The Supreme Court agreed that Hirakawa was not a party to the Deed of Sale and that under the principle of the relativity of contracts contracts bind only the contracting parties, their assigns and heirs under Art. 1311. The Court nonetheless held that the Court of Appeals erred in dismissing the complaint outright. The Supreme Court found that the body of the complaint, not its title, determined the nature of the action and that the pleading, although denominated “Breach of Contract,” in substance sought collection of a sum of money and damages for dishonored checks and failure to deliver assigned stock. Applying the settled rule that courts should look beyond form to substance, the Court treated the action as a collection suit and remanded the case to the trial court for resolution on the merits.

Legal Basis and Reasoning

The Court relied on the canonical proposition that the nature of a pleading is determined by its averments and relief sought, not by its caption, citing authority such as Fong v. Duenas, Bank Of Commerce v. Hon. Estela Perlas-Bernabe, Philimare, Inc./Marlow Navigation Co., Ltd. v. Benedicto F. Suganob, and Sps. Pajares v. Remarkable Laundry and Dry Cleaning. The Court emphasized that procedural rules must serve substantive justice and may be relaxed to prevent injustice where noncompliance is not grave. The Court observed uncontested fac

Case Syllabus (G.R. No. 213230)

Parties and Procedural Posture

Naoaki Hirakawa represented by Erica M. Shibamura filed the complaint for collection and damages against Lopzcom Realty Corporation and Atty. Gari M. Tiongco before the trial court.
The Regional Trial Court-Branch 154, Pasig City denied respondents' Motion to Dismiss by Order dated May 15, 2012 and denied respondents' Motion for Reconsideration by Order dated August 28, 2012.
Respondents elevated the denial to the Court of Appeals by a petition under Rule 65, Rules of Court which reversed and dismissed the complaint by Decision dated November 19, 2013.
The Court of Appeals denied motions for reconsideration by Resolution dated July 8, 2014.
Hirakawa moved for review before the Supreme Court on the ground that the Court of Appeals acted with lack or excess of jurisdiction.

Key Factual Allegations

On December 28, 1995, Takezo Sakai sold a 92-hectare property known as Windfields Subdivision to Lopzcom Realty Corporation for P100,000,000.00, with payment partly effected by nine postdated personal checks issued by Atty. Gari M. Tiongco.
On September 30, 1996, Sakai assigned to Hirakawa his rights over four of those postdated checks having an aggregate face value of P65,000,000.00.
Upon encashment of the first assigned check, respondents replaced the remaining Westmont checks with PDCP Development Bank checks drawn on Atty. Tiongco's personal account and made payable to Hirakawa.
PDCP Check No. 0050992 became due on October 30, 1997 and respondents sought an extension and agreed to pay 18% per annum interest, while PDCP Check Nos. 0050993 and 0050994 were dishonored for the reason "ACCOUNT CLOSED".
On February 9, 1999, respondents agreed to assign shares of a proposed golf course project as full payment of the outstanding P40,000,000.00 obligation, but no shares were issued to Hirakawa.
Respondents later issued two PNB postdated checks for P20,000,000.00 each dated October 30, 2004 and October 30, 2005, which also remained unfunded after extensions.
After a final demand dated March 22, 2010, Hirakawa filed suit on June 22, 2010 seeking P114,027,812.22 inclusive of interest and damages and obtained an ex parte writ of preliminary attachment later discharged upon respondents' posting of a counter-bond.

Procedural History

The trial court issued an ex parte writ of preliminary attachment on October 1, 2010 subject to bond and later discharged the writ on October 21, 2010 upon posting of respondents' counter-bond.
Respondents filed a Motion to Dismiss asserting lack of cause of action and lack of legal capacity, which the trial court denied by Order dated May 15, 2012.
Respondents appealed to the Court of Appeals under Rule 65, Rules of Court, and the Court of Appeals rendered a Decision on November 19, 2013 reversing the trial court and dismissing t