Asia Brewery, Inc. and Go vs. Equitable PCI Bank

Lack of cause of action is not a ground for dismissal under Rule 16 of the Rules of Court; it can only be raised via a demurrer to evidence under Rule 33 after the plaintiff has completed the presentation of evidence. Failure to state a cause of action is distinct from lack of cause of action—the former is determined by hypothetically admitting the truth of the allegations in the complaint, while the latter requires factual resolution based on evidence presented during trial.

Between September 1996 and July 1998, ten checks and sixteen demand drafts with a total value of P3,785,257.38 were issued in the name of Charlie S. Go, then Assistant Vice President for Finance of Asia Brewery, Inc. These instruments bore the annotation "endorsed by PCI Bank, Ayala Branch, All Prior Endorsement And/Or Lack of Endorsement Guaranteed." The instruments never reached Go; instead, they were intercepted by Raymond U. Keh, an ABI Sales Accounting Manager, who falsely pretended to be Go, opened accounts at Equitable PCI Bank in Go's name, deposited the instruments, and withdrew the proceeds. Keh was subsequently convicted of theft but jumped bail and fled the country without satisfying the civil liability. ABI and Go thereafter demanded payment from the bank, which refused, prompting the filing of the complaint for payment, reimbursement, or restitution.

• Asia Brewery, Inc. (ABI) is a corporation organized under Philippine laws; Charlie S. Go was its Assistant Vice President for Finance at the time of the filing of the Petition.
• Respondent Equitable PCI Bank (now Banco de Oro-EPCI, Inc.) is a banking institution organized under Philippine laws.
• From September 1996 to July 1998, ten checks and sixteen demand drafts were issued in the name of Charlie Go with a total value of P3,785,257.38.
• The instruments bore the annotation: "endorsed by PCI Bank, Ayala Branch, All Prior Endorsement And/Or Lack of Endorsement Guaranteed."
• All demand drafts were crossed except those issued by the Lucena City and Ozamis branches of Allied Bank.
• The instruments never reached the payee, Charlie Go.
• Raymond U. Keh, then a Sales Accounting Manager of ABI, falsely pretended to be Go and succeeded in opening accounts with respondent bank in Go's name.
• Keh deposited the checks and demand drafts into these accounts and withdrew the proceeds.
• Keh was charged with and convicted of theft and ordered to pay the value of the checks, but he jumped bail and left the country without paying a single centavo.
• On November 19, 2003, Go sent a letter to respondent bank demanding payment, reimbursement, or restitution, which was received by the bank on December 17, 2003.
• The bank refused to accede to the demand.

• The trial court seriously erred in dismissing the Complaint for lack of cause of action prior to trial.
• The allegations in the Complaint were sufficient to establish a cause of action in favor of Go.
• The allegation that the instruments were payable to Go was sufficient to establish a cause of action.
• The fact that the instruments never reached the payee did not mean there was no delivery, as delivery can be either actual or constructive.
• Section 16 of the Negotiable Instruments Law provides for a presumption of delivery.
• The defense of lack of delivery is personal to the maker or drawer, and respondent was neither.
• The bank was estopped from claiming nondelivery because all instruments were crossed and bore the guarantee annotation "All Prior Endorsement And/Or Lack of Endorsement Guaranteed."
• Not a single witness or documentary evidence was presented in support of the affirmative defense.
• Reliance on Associated Bank v. CA regarding the bank's liability for moneys had and received when collecting on forged or unauthorized indorsements.

• The Complaint failed to state a cause of action because paragraphs 10 and 11 admitted the instruments were never delivered to the payee.
• ABI was not a party to any of the instruments.
• Go never became the holder or owner of the instruments due to nondelivery and hence did not acquire any right or interest.
• The claims were only enforceable against the drawers of the checks and the purchasers of the demand drafts, not against respondent as a mere "presentor bank."
• Nondelivery to the payee was analogous to payment to a wrong party.
• Cited Development Bank of Rizal v. Sima Wei: the payee of a negotiable instrument acquires no interest until delivery, and without delivery, there can be no liability on the instrument.
• The bank exercised diligence in ascertaining the true identity of Charlie Go, unlike in Associated Bank v. CA where the bank allowed a person clearly not the payee to deposit the checks.

• Procedural Issues:
  • Whether the Regional Trial Court erred in dismissing the Complaint for lack of cause of action prior to trial and without requiring the presentation of evidence.
• Substantive Issues:
  • Whether the Complaint states a cause of action against respondent bank.
  • Whether the defense of nondelivery constitutes a valid basis for dismissal without trial.

• Procedural:
  • The RTC gravely erred in dismissing the Complaint for lack of cause of action prior to trial.
  • Lack of cause of action is not a ground for dismissal under Rule 16 (Motion to Dismiss); it must be raised under Rule 33 (Demurrer to Evidence) after the plaintiff has completed the presentation of evidence.
  • The RTC erroneously relied on Development Bank v. Sima Wei without first establishing the facts of the case through evidence; the documents submitted were mere photocopies not yet examined, proven, authenticated, or admitted.
  • The case had not even reached the pretrial stage when the dismissal was ordered.
  • Even assuming the RTC merely used the wrong terminology and intended to dismiss for failure to state a cause of action, the Complaint would still have to be reinstated because the allegations met the test for stating a cause of action.
• Substantive:
  • The Complaint states a cause of action against the respondent.
  • The test is whether, admitting hypothetically the truth of the allegations of fact in the complaint, a judge may validly grant the relief demanded.
  • The three elements of a cause of action are present: (1) legal right of the plaintiff to be paid for the value of the instruments; (2) correlative obligation of the defendant to pay having guaranteed all prior endorsements; and (3) act or omission of the defendant in violation of that right (refusal to pay despite demand).
  • Whether there was "delivery" in the legal sense is a matter of defense that requires presentation of evidence during trial; it cannot be resolved on a motion to dismiss.
  • Under Section 16 of the Negotiable Instruments Law, a valid and intentional delivery is presumed until the contrary is proved when the instrument is no longer in the possession of the party whose signature appears thereon.
  • An affirmative defense raising the ground that there is no cause of action poses a question of fact that should be resolved after the conduct of the trial on the merits.

• Distinction Between Failure to State and Lack of Cause of Action — "Failure to state a cause of action" is determined solely from the allegations in the complaint and is a ground for motion to dismiss under Rule 16, while "lack of cause of action" requires the resolution of factual questions based on evidence presented by the plaintiff and can only be raised via demurrer to evidence under Rule 33 after the plaintiff rests.
• Presumption of Delivery Under the Negotiable Instruments Law — Section 16 of the NIL provides that where an instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved; this presumption can only be overcome by evidence presented during trial, not on a motion to dismiss.
• Test for Determining Existence of Cause of Action — The test is whether, admitting hypothetically the truth of the allegations of fact made in the complaint, a judge may validly grant the relief demanded; the inquiry is confined to the four corners of the complaint, and defenses are not considered.

• "Failure to state a cause of action is not the same as lack of cause of action; the terms are not interchangeable."
• "Lack or absence of cause of action is not a ground for the dismissal of a complaint; and that the issue may only be raised after questions of fact have been resolved on the basis of stipulations, admissions, or evidence presented."
• "The test to determine whether a complaint states a cause of action against the defendants is this: admitting hypothetically the truth of the allegations of fact made in the complaint, may a judge validly grant the relief demanded in the complaint?"
• "An affirmative defense, raising the ground that there is no cause of action as against the defendants poses a question of fact that should be resolved after the conduct of the trial on the merits."

• Associated Bank v. CA — Cited by petitioners to establish that possession of a check on a forged or unauthorized indorsement is wrongful, and when money is collected on the check, the bank can be held for moneys had and received; the proceeds are held for the rightful owner.
• Development Bank of Rizal v. Sima Wei — Cited by respondent and relied upon by the RTC to argue that a payee acquires no interest in an instrument until delivery; the Supreme Court distinguished this case and held it was erroneously applied because the dismissal was made without trial and evidence.
• Bank of America NT&SA v. CA — Cited to emphasize that lack of cause of action is not a ground for dismissal of a complaint and may only be raised after questions of fact have been resolved.
• Pamaran v. Bank of Commerce — Cited to support the principle that arguments requiring examination of evidence cannot be resolved in a mere motion to dismiss but require a full-blown trial.
• PNB v. Spouses Rivera — Cited to uphold the principle that dismissal due to lack of cause of action may be raised only after questions of fact have been resolved on the basis of stipulations, admissions, or evidence presented.
• Aquino v. Quiazon — Cited to establish that if the allegations in a complaint furnish sufficient basis on which the suit may be maintained, the complaint should not be dismissed regardless of the defenses that may be raised.

• Section 16 of the Negotiable Instruments Law (Act No. 2031) — Provides for the rules on delivery of negotiable instruments, including the presumption of valid and intentional delivery when the instrument is no longer in the possession of the signatory; cited to show that delivery is a factual issue requiring evidence.
• Rule 16 of the Rules of Court — Grounds for Motion to Dismiss; cited to show that lack of cause of action is not among the grounds listed therein.
• Rule 33, Section 1 of the Rules of Court — Provision on Demurrer to Evidence; cited as the proper procedural vehicle for raising lack of cause of action after the plaintiff has completed the presentation of evidence.