Butuan Development Corporation vs. Court of Appeals

A complaint for declaration of nullity of a real estate mortgage sufficiently states a cause of action when it alleges ownership through a certificate of title issued in the plaintiff's name, even if the corporation was not yet incorporated at the time of the mortgage execution; the defense that the corporation lacked juridical personality at that time constitutes an affirmative defense that does not justify dismissal under Rule 16 for failure to state a cause of action, but should instead be threshed out during trial.

In 1966, while still in the process of incorporation, Butuan Development Corporation purchased a parcel of land in Butuan City through its then President Edmundo Satorre. A Transfer Certificate of Title was subsequently issued in BDC's name in 1969. In 1998, Max Arriola, Jr., representing himself as Chairman of BDC and armed with a purported Board Resolution, mortgaged the property to De Oro Resources, Inc. and its President Louie A. Libarios. BDC was formally incorporated only in 2002. In 2005, BDC discovered that its title was missing and that the property had been mortgaged without its knowledge or consent by individuals who were not connected with the corporation.

• On March 31, 1966, Butuan Development Corporation (BDC), then still in the process of incorporation, through its then President Edmundo Satorre, purchased a 7.6923-hectare parcel of land situated in Butuan City from the Spouses Jose and Socorro Sering.
• 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 duly notarized Resolution of the BDC Board of Directors, mortgaged the subject property to De Oro Resources, Inc. (DORI) and its President Louie A. Libarios.
• On May 23, 2002, the Securities and Exchange Commission approved the Articles of Incorporation of BDC and issued its Certificate of Incorporation.
• On August 23, 2005, BDC filed a complaint for declaration of nullity of real estate mortgage with the Regional Trial Court of Agusan del Norte and Butuan City, alleging that it discovered in 2004 that the owner's duplicate copy of TCT No. RT-4724 was missing and later found that it was in the possession of Libarios pursuant to the REM executed by the Arriolas who misrepresented themselves as owners and directors of BDC.
• Libarios and DORI denied misrepresentation, claiming the Arriolas had possession of the property and the owner's duplicate copy of the title, and that tax declarations indicated Max Arriola, Sr. was the administrator.
• As special and affirmative defense, Libarios and DORI claimed that BDC did not yet exist at the time of the execution of the REM on May 5, 1998, having been incorporated only on May 23, 2002, and hence could not have claimed ownership of the subject property.

• BDC maintains that it has a cause of action against the respondents notwithstanding that it was not yet incorporated at the time of the execution of the REM on May 5, 1998.
• BDC alleges that Libarios and DORI are estopped from questioning the legal personality of BDC because they treated BDC as a corporation at the time of the execution of the REM and may no longer raise the fact that BDC was not yet incorporated at the time they entered into the mortgage.

• The respondents maintain that the petition for certiorari is not the proper remedy to assail the CA's Decision and Resolution; BDC should have filed a petition for review on certiorari under Rule 45 of the Rules of Court instead.
• The respondents claim that the CA did not commit any abuse of discretion when it set aside the RTC's Orders.
• The respondents point out that BDC was not yet incorporated at the time of the execution of the REM and, hence, could not hold title to any property in its own name.

• Procedural Issues:
  • Whether the petition for certiorari under Rule 65 is the proper remedy to assail the Decision and Resolution of the Court of Appeals, or whether BDC should have filed a petition for review on certiorari under Rule 45.
  • Whether the Court of Appeals gravely abused its discretion when it set aside the RTC's Orders ruling that BDC's complaint failed to state a cause of action.
• Substantive Issues:
  • Whether the complaint for declaration of nullity of real estate mortgage sufficiently states a cause of action despite BDC not being incorporated at the time the mortgage was executed.

• Procedural:
  • While a petition for certiorari under Rule 65 is generally not a substitute for an appeal under Rule 45, and the existence of the right of appeal precludes the availability of certiorari, the Court may relax technical rules in exceptional situations to prevent miscarriage of justice.
  • The dismissal of the petition for certiorari would result in miscarriage of justice because the CA's unwarranted dismissal of the complaint effectively denied BDC due process by preventing it from presenting evidence to prove its claim.
  • The Court exercised its discretion to accept the petition to serve the broader interest of justice.
• Substantive:
  • The complaint sufficiently stated a cause of action. BDC alleged that it is the owner of the subject property as evidenced by TCT No. RT-4724 issued in its name after it purchased the property in 1966.
  • A certificate of title issued is an absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears therein.
  • The respondents' affirmative defense that BDC had no corporate existence at the time of the execution of the REM, if at all, amounts to an allegation that BDC has no cause of action. However, failure to state a cause of action (insufficiency of pleading) is different from lack of cause of action (insufficiency of evidence).
  • Failure to state a cause of action is a ground for dismissal under Rule 16, while lack of cause of action is addressed through a demurrer to evidence.
  • The defense that BDC was merely an unincorporated association at the time of the mortgage execution is an affirmative defense that should be threshed out during trial, not a ground for dismissal under Rule 16.

• Failure to State Cause of Action vs. Lack of Cause of Action — Failure to state a cause of action refers to the insufficiency of the pleading and is a ground for dismissal under Rule 16 of the Rules of Court, while lack of cause of action refers to a situation where the evidence does not prove the cause of action alleged in the pleading, which is addressed through a demurrer to evidence.
• Elements of Cause of Action — The elements are: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff.
• Certificate of Title as Evidence of Ownership — A certificate of title issued is an absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears therein.
• Certiorari as Substitute for Appeal — A party cannot substitute the special civil action of certiorari under Rule 65 for the remedy of appeal. The existence and availability of the right of appeal are antithetical to the availability of the special civil action of certiorari. However, exceptions exist when: (a) public welfare and the advancement of public policy dictates; (b) the broader interest of justice so requires; (c) the writs issued are null and void; or (d) the questioned order amounts to an oppressive exercise of judicial authority.

• "A party cannot substitute the special civil action of certiorari under Rule 65 of the Rules of Court for the remedy of appeal. The existence and availability of the right of appeal are antithetical to the availability of the special civil action of certiorari."
• "Remedies of appeal (including petitions for review) and certiorari are mutually exclusive, not alternative or successive. Hence, certiorari is not and cannot be a substitute for an appeal, especially if one's own negligence or error in one's choice of remedy occasioned such loss or lapse."
• "Failure to state a cause of action refers to the insufficiency of the pleading, and is a ground for dismissal under Rule 16 of the Rules of Court. On the other hand, lack of cause action refers to a situation where the evidence does not prove the cause of action alleged in the pleading."
• "It bears stressing that a certificate of title issued is an absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears therein."

• Heirs of Placido Miranda v. CA — Cited for the principle that certiorari is not a substitute for appeal.
• Spouses Leynes v. Former Tenth Division of the Court of Appeals — Cited for the principle that remedies of appeal and certiorari are mutually exclusive, not alternative or successive.
• Tanenglian v. Lorenzo — Cited for the exceptions to the rule that certiorari cannot be used as a substitute for appeal.
• Philippine Daily Inquirer, et al. v. Judge Alameda, et al. — Cited for the elements of a cause of action.
• Macaslang v. Spouses Zamora — Cited for the distinction between failure to state a cause of action and lack of cause of action.
• Serrano v. Spouses Gutierrez — Cited for the principle that a certificate of title is absolute and indefeasible evidence of ownership.

• Rule 65 of the Rules of Court — Governs the special civil action of certiorari, which BDC improperly availed of instead of the remedy of appeal.
• Rule 45 of the Rules of Court — Governs appeals by certiorari from the Court of Appeals to the Supreme Court, which was the proper remedy that BDC failed to file within the prescribed period.
• Rule 16, Section 1(g) of the Rules of Court — Provides that failure to state a cause of action is a ground for the dismissal of a complaint.