Hirakawa vs. Lopzcom Realty Corporation

The nature of an action is determined by the allegations in the body of the complaint and the relief sought, not by its title or denomination. Thus, a complaint denominated as breach of contract may proceed as an action for collection of sum of money if its allegations seek payment of dishonored checks assigned to the plaintiff.

Respondent Lopzcom Realty Corporation is a domestic corporation engaged in realty development, and respondent Atty. Gari Tiongco is its President and Chairman. Petitioner Naoaki Hirakawa is a Japanese national who acquired rights over certain postdated checks issued by respondents to one Takezo Sakai as payment for a subdivision project. Sakai assigned four of these checks to Hirakawa, and respondents subsequently replaced them with new checks payable to Hirakawa. When these checks were dishonored, respondents executed a Deed of Assignment of shares in a golf course project, but no shares were ever delivered.

On December 28, 1995, Takezo Sakai sold a 92-hectare subdivision project known as Windfields Subdivision to respondent Lopzcom Realty Corporation, represented by its President and Chairman, Atty. Gari Tiongco, for P100,000,000.00. Tiongco paid Sakai with nine postdated personal checks. On September 30, 1996, Sakai assigned to petitioner Naoaki Hirakawa four of these checks, totaling P65,000,000.00, representing Sakai's share in the sale proceeds. Lopzcom and Tiongco were informed of and agreed to be bound by the assignment.

Upon encashing the first check, Hirakawa requested respondents to replace the remaining checks with new ones reflecting his name as payee. Respondents acceded and issued PDCP Development Bank postdated checks drawn against Tiongco's personal account. When the first new check became due, Tiongco requested an extension and offered 18% interest per annum, which Hirakawa accepted. However, the subsequent checks were dishonored because Tiongco's account was already closed.

On February 9, 1999, respondents proposed to assign their shares of stock in a golf course project to Hirakawa as full payment of their P40,000,000.00 outstanding obligation. Hirakawa agreed, and a Deed of Assignment was executed. In 2002, Hirakawa discovered that the golf course was never developed and no certificates of stock were issued in his name. Hirakawa demanded payment, prompting Tiongco to issue two PNB postdated checks for P20,000,000.00 each. When these became due, Tiongco again pleaded for an extension, but the checks remained unfunded.

On March 22, 2010, Hirakawa served a final demand. Respondents' total payment over thirteen years was only P28,000,000.00, leaving an indebtedness of P114,027,812.22 as of December 2009. Hirakawa sued for breach of contract and attachment. The trial court issued a writ of preliminary attachment, later discharged upon respondents' posting of a counter-bond. Respondents moved to dismiss, but the trial court denied the motion, noting the complaint also alleged damages from fraud and worthless checks. The Court of Appeals reversed, dismissing the complaint for lack of cause of action because Hirakawa was not a party to the deed of sale.

• Purpose of Rule 65: Petitioner asserted that the purpose of Rule 65 is to correct errors of jurisdiction and not errors of judgment.
• Jurisdiction: Petitioner argued that jurisdiction is determined from the allegations of the complaint, not from its denomination.
• Cause of Action: Petitioner maintained that the cause of action is determined from the allegations in the complaint.

• Lack of Cause of Action: Respondents argued that the petition should be dismissed because Hirakawa had no cause of action against them.
• Not a Party to the Contract: Respondents contended that Hirakawa was not a party to the Deed of Sale dated December 28, 1995, and therefore could not sue for breach of contract based on it.

• Cause of Action: Whether the Court of Appeals gravely erred in dismissing the complaint due to Hirakawa's lack of cause of action against respondents.
• Nature of the Action: Whether the complaint, though denominated as breach of contract, may proceed as an action for collection of sum of money based on its allegations.

• Cause of Action: No. The Court of Appeals erred in outrightly dismissing the complaint solely because Hirakawa was not a party to the deed of sale. While he cannot sue for breach of that contract, he has a cause of action for collection of sum of money based on the assigned checks.
• Nature of the Action: Yes. The nature of an action is determined by the allegations in the body of the complaint and the relief sought, not by its title. The complaint's allegations and prayer clearly seek payment of dishonored checks and damages, constituting a collection suit.

• Cause of Action: Under the civil law principle of relativity of contracts, contracts only bind the parties who entered into them. Sakai assigned to Hirakawa only his rights and interests over the four postdated checks, not his interest in the deed of sale. Thus, Hirakawa cannot sue for breach of contract insofar as the deed of sale is concerned. However, this does not warrant the outright dismissal of the complaint, because the allegations support a different cause of action.
• Nature of the Action: The allegations in the body of the complaint, not its title or nomenclature, determine the nature of an action. Hirakawa's complaint, though denominated as breach of contract, alleged the assignment of checks, the replacement of these checks with new ones payable to Hirakawa, the dishonor of these checks, and the failed Deed of Assignment of golf course shares. The prayer sought payment of the value of the checks, accrued interests, and damages. It did not seek rescission of the deed of sale or delivery of the subdivision. Therefore, the complaint is a simple collection suit. Dismissing it after more than a decade of waiting would be unjust, as rules of procedure are intended to promote, not defeat, substantial justice.

• Relativity of Contracts — Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns, and heirs. The Court applied this to clarify that Hirakawa, as an assignee of checks and not of the deed of sale, could not sue for breach of the sale contract, but could sue on the checks.
• Nature of Action Determined by Allegations — The nature of an action is determined by the allegations in the body of the pleading or complaint, and not by its title or denomination. The Court applied this to treat the complaint, though labeled as breach of contract, as one for collection of sum of money and damages.
• Liberal Construction of Procedural Rules — Rules of procedure are intended to promote and not defeat substantial justice. The Court relaxed the technical rules to remand the case, preventing injustice to Hirakawa who had waited fourteen years for payment.

• "Indeed, allegations in the body of the pleading or the complaint, and not its title or nomenclature, determine the nature of an action, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted." — This passage articulates the controlling rule that the substance of the allegations dictates the nature of the action, overriding the formal title of the pleading.
• "Rules of procedure should not be applied in a very technical sense when it defeats the purpose for which it had been enacted, i.e., to ensure the orderly, just and speedy dispensation of cases." — This underscores the doctrine of liberal construction of procedural rules to advance substantial justice, justifying the remand of the case.

• Metropolitan Bank and Trust Co. vs. Chiok, 748 Phil. 392 (2014) — Cited to support the principle of relativity of contracts under Article 1311 of the Civil Code.
• Sps. Pajares vs. Remarkable Laundry and Dry Cleaning, 806 Phil. 39 (2017) — Cited to explain the different causes of action that may arise from a breach of contract, distinguishing specific performance, rescission, and damages.
• Bank of Commerce vs. Hon. Estela Perlas-Bernabe, 648 Phil. 326 (2010) — Cited as precedent that the nature of a pleading is determined by its averments, not its title.
• Philimare, Inc./Marlow Navigation Co., Ltd. vs. Suganob, 579 Phil. 706 (2008) — Cited to show that procedural rules may be relaxed to relieve a party of injustice, and that averments control over the title.
• Fong vs. Dueñas, 759 Phil. 373 (2015) — Cited as precedent where a complaint for sum of money and damages was treated as one for rescission based on its allegations.
• Trajano vs. Uniwide Sales Warehouse Club, G.R. No. 190253 (2014) — Cited for the principle that rules of procedure should not be applied in a very technical sense when they defeat substantial justice.

• Article 1311, Civil Code — Contracts take effect only between the parties, their assigns, and heirs. Applied to determine that Hirakawa was an assignee of the checks, not the deed of sale, and thus could not sue for breach of contract but could sue on the checks.

Peralta, C.J. (Chairperson), Caguioa, J. Reyes, Jr., and Inting, JJ., concur.