Dabuco vs. Court of Appeals

A dismissal for lack of cause of action is premature where the factual issues bearing on the existence vel non of the elements of the cause of action have not been adequately ventilated, and a complaint sufficiently states a cause of action where its material allegations, hypothetically admitted, establish ownership in the plaintiff, unlawful occupation by the defendants, and unjust refusal to vacate.

The Lazarrabal family were the registered owners of agricultural lands located in Gabi, Sudlon, Cebu City. In 1991, on different occasions, the subject properties were sold to various individual buyers. GABI Multi-Purpose Cooperative, a registered non-stock, non-profit cooperative, claimed ownership of the properties and filed suit against numerous individuals found residing on or tilling the lands, who contended that the properties formed part of a forest reserve and could not be privately acquired. The dispute centered on whether GABI, holding only Deeds of Sale from the registered owners but no certificates of title in its name, had the legal capacity to sue for recovery of possession.

The Lazarrabal family were the registered owners of agricultural lands located in Gabi, Sudlon, Cebu City. In 1991, on different occasions, the subject properties were sold to several individual buyers, including Ruben Baculi, Editha Belocura, Lira Puno, Rafael Lapuz, Ladrioro Montealto, Joel Masecampo, Delsa N. Manay, Ilderim Castañares, Maria Theresa Puno, and Jill Mendoza.

On June 27, 1994, GABI Multi-Purpose Cooperative, a registered non-stock, non-profit cooperative, filed a civil complaint against numerous individuals — herein petitioners — who were found residing on and tilling the subject properties. GABI alleged that it was the owner in fee simple of the properties, that the defendants had no authority to occupy or cultivate the lands, and that they refused to vacate despite notice. GABI prayed for the issuance of a preliminary mandatory injunction to require the defendants to remove a barricade they had constructed, and for a writ of injunction to restrain them from preventing GABI's development of the properties.

On July 20, 1994, the trial court issued a Temporary Restraining Order enjoining the defendants from further stopping GABI's development of the properties, and required them to show cause why no writ of preliminary or mandatory injunction should issue. A hearing was conducted on July 27, 1994. At that hearing, the trial court required GABI to produce certificates of title to the lands in its name. GABI admitted it did not have such certificates, possessing only Deeds of Sale from the registered owners in favor of individual persons. The trial court lifted and dissolved the TRO, but allowed the defendants to file a motion to dismiss questioning GABI's legal personality within 15 days.

The defendants had earlier filed their answer on July 29, 1994, alleging that GABI had no personality to sue because it was neither the buyer of the properties nor the holder of title in its name, and that the subject properties were part of a forest reserve which could not be privately acquired. On August 3, 1994, they filed a Motion to Dismiss on grounds of lack of cause of action, lack of personality to sue, and lack of jurisdiction. GABI moved to strike out the motion to dismiss, arguing that the defendants could no longer file it at that stage.

On August 18, 1994, another hearing was conducted in which GABI was again required to show certificates of title to the property in its name. On the basis of GABI's failure to produce such certificates at this second preliminary hearing, the trial court dismissed the complaint, ruling that GABI had no real interest in the case because it was neither the titled owner nor the holder of title to the property. GABI's motion for reconsideration was denied by the trial court on January 9, 1995. GABI appealed to the Court of Appeals, which reversed the dismissal and ordered the reinstatement of the complaint. Petitioners' motion for reconsideration before the appellate court was denied, prompting the instant petition.

• Lack of Cause of Action: Petitioners asserted that the trial court properly dismissed the action below on the ground that GABI had no cause of action, since GABI was not the titled owner of the properties and thus had no real interest in the litigation.
• Failure to State a Cause of Action: Petitioners argued in the alternative that the complaint was properly dismissed for failure to state a cause of action, invoking exceptions to the general rule that inquiry is confined to the four corners of the complaint — particularly where evidence had already been presented during preliminary hearings, as in Tan vs. Director of Forestry.

• Sufficiency of Allegations: Respondent GABI countered that the complaint sufficiently stated a cause of action on its face, alleging the three requisite elements: ownership of the subject properties, the defendants' status as occupants without authority, and their unjust refusal to vacate.
• Rehash of Arguments: GABI dismissed petitioners' contentions as a mere rehash of its arguments already raised before the appellate court.

• Lack of Cause of Action: Whether the trial court properly dismissed the complaint on the ground that GABI had no cause of action, given that it was not the titled owner of the subject properties.
• Failure to State a Cause of Action: Whether the complaint was properly dismissed for failure to state a cause of action, considering the evidence presented during the preliminary hearings on the injunction.

• Lack of Cause of Action: No. The trial court's dismissal was premature because the factual issues pertaining to GABI's title had not been adequately ventilated at the preliminary stage; dismissal for lack of cause of action is ordinarily made only after questions of fact have been resolved on the basis of stipulations, admissions, or evidence presented.
• Failure to State a Cause of Action: No. The complaint, on its face, sufficiently alleged the three elements of a cause of action — ownership, unlawful occupation by defendants, and unjust refusal to vacate — and the exceptions to the general rule of hypothetical admission invoked by petitioners did not apply because GABI was not given sufficient opportunity to present evidence on its allegation of ownership.

• Lack of Cause of Action: Dismissal for lack of cause of action involves a declaration that one or more elements of the plaintiff's cause of action do not exist in fact, which entails resolution of questions of fact. Courts hesitate to declare a plaintiff as lacking in cause of action until the insufficiency is apparent from a preponderance of evidence, typically only after the parties have been given the opportunity to present all relevant evidence. Here, the trial court dismissed the case after two preliminary hearings focused on the propriety of lifting the TRO, at which GABI was required to produce certificates of title in its name. GABI offered to present documentary evidence of its ownership in the ordinary course of trial but was not afforded that opportunity. The conclusion that GABI had no title and thus no cause of action was therefore premature, as the factual issues bearing on GABI's title had not been adequately ventilated.

• Failure to State a Cause of Action: The test for failure to state a cause of action is whether the material allegations, hypothetically admitted as true, state ultimate facts constituting a cause of action such that the plaintiff is entitled to a favorable judgment as a matter of law. The general rule confines inquiry to the four corners of the complaint. The Court of Appeals correctly applied this rule and found that the complaint alleged the three elements: (1) GABI's ownership of the subject properties, (2) the defendants' status as occupants without authority, and (3) their unjust refusal to vacate. Petitioners invoked recognized exceptions — where evidence has been presented by stipulation or in the course of hearings related to the case — relying on Tan vs. Director of Forestry. However, Tan was distinguished: in that case, the parties were given ample opportunity at the preliminary hearing to present evidence on their contentions, whereas GABI was not given sufficient chance to prove its allegation of ownership. The conclusion that GABI's allegation of ownership was false and that its complaint stated no cause of action was thus without basis. Petitioners' reliance on Drilon vs. Court of Appeals was also unavailing, as that case applied the general rule that inquiry is confined to the face of the complaint.

• Distinction Between Lack of Cause of Action and Failure to State a Cause of Action — Failure to state a cause of action refers to the insufficiency of allegations in the pleading, while lack of cause of action refers to the insufficiency of the factual basis for the action. Failure to state a cause may be raised in a Motion to Dismiss under Rule 16, while lack of cause may be raised any time. Dismissal for failure to state a cause can be made at the earliest stages of an action; dismissal for lack of cause is usually made only after questions of fact have been resolved on the basis of stipulations, admissions, or evidence presented. The Court applied this distinction to hold that the trial court's dismissal was premature as a ruling on lack of cause of action, and incorrect as a ruling on failure to state a cause of action.

• Hypothetical Admission of Allegations — In testing whether a complaint states a cause of action, the material allegations are hypothetically admitted as true, and inquiry is confined to the four corners of the complaint. The test is whether, assuming the allegations to be true, they state ultimate facts constituting a cause of action entitling the plaintiff to a favorable judgment as a matter of law. Recognized exceptions exist: (a) when the falsity of allegations is subject to judicial notice, (b) when the allegations are legally impossible, (c) when they refer to facts inadmissible in evidence, (d) when by the record or documents included in the pleading the allegations appear unfounded, (e) when evidence has been presented by stipulation of the parties, or (f) when evidence has been presented in the course of hearings related to the case. The Court found none of these exceptions applicable because GABI was not given sufficient opportunity to present evidence on its ownership claim.

• "The former refers to the insufficiency of allegation in the pleading, the latter to the insufficiency of factual basis for the action." — This passage articulates the canonical distinction between failure to state a cause of action and lack of cause of action, a fundamental concept in remedial law frequently tested on the bar examinations.

• "Because questions of fact are involved, courts hesitate to declare a plaintiff as lacking in cause of action. Such declaration is postponed until the insufficiency of cause is apparent from a preponderance of evidence." — This states the rationale for why dismissal on the ground of lack of cause of action should not be made prematurely at the preliminary stage, before factual issues have been fully ventilated.

• "The test is whether the material allegations, assuming these to be true, state ultimate facts which constitute plaintiff's cause of action, such that plaintiff is entitled to a favorable judgment as a matter of law." — This defines the controlling test for determining whether a complaint states a cause of action, confining inquiry to the face of the pleading under the general rule.

• Tan vs. Director of Forestry, 125 SCRA 302 (1983) — Distinguished. In Tan, the trial court properly considered evidence already presented at a preliminary hearing in resolving a motion to dismiss for failure to state a cause of action, because the parties were given ample opportunity to present evidence. The Court found Tan inapplicable because GABI was not given sufficient chance to prove its allegation of ownership.
• Drilon vs. Court of Appeals, 270 SCRA 211 (1997) — Discussed and found unavailing to petitioners' position. Drilon applied the general rule that inquiry into the sufficiency of a cause of action is confined to the face of the complaint, which weakened rather than strengthened petitioners' contention.
• Quiaoit vs. Consolacion, 73 SCRA 208 (1976) — Cited for the proposition that lack of cause of action may be raised at any time, as distinguished from failure to state a cause of action which must be raised in a motion to dismiss under Rule 16.
• Ventura vs. Bernabe, 38 SCRA 587 (1971) — Cited for the principle that in dismissal for failure to state a cause of action, the inquiry is into the sufficiency, not the veracity, of the material allegations.

• Rule 16, Section 1(g), Rules of Court — Provides that a motion to dismiss may be made on the ground that the pleading asserting the claim states no cause of action. The Court cited this provision to distinguish failure to state a cause of action (raised via motion to dismiss under Rule 16) from lack of cause of action (which may be raised any time).

Davide, Jr., C.J., Puno, Pardo, and Ynares-Santiago, JJ., concurred.