A preliminary hearing on affirmative defenses pleaded in an answer, as provided under Section 5, Rule 16 of the old Rules of Court (now Section 6, Rule 16 of the 1997 Rules), is not mandatory but rests upon the sound discretion of the trial court; its denial is not correctible by certiorari absent grave abuse of discretion amounting to lack or excess of jurisdiction.

Respondent Virgilio S. David, a supplier of electrical hardware, entered into a transaction with petitioner Misamis Occidental II Electric Cooperative, Inc. (MOELCI II) concerning the supply of a 10 MVA Power Transformer. A dispute arose regarding the nature of the document governing the transaction and MOELCI II's alleged failure to pay the agreed price, leading David to file a suit for specific performance and damages.

• Virgilio S. David filed a complaint for specific performance and damages against MOELCI II before the RTC Manila, seeking payment for a 10 MVA Power Transformer allegedly sold under a contract attached as Annex "A" to the Amended Complaint.
• MOELCI II filed an Answer to the Amended Complaint, raising affirmative defenses including lack of cause of action (arguing Annex "A" was merely a quotation letter, not a binding contract, thus unenforceable under the Statute of Frauds) and improper venue.
• Pursuant to Section 5, Rule 16 of the then-applicable Rules of Court, MOELCI II filed a Motion for Preliminary Hearing of its affirmative defenses, focusing on the lack of cause of action, and sought deferment of the pre-trial conference.
• The RTC denied MOELCI II's motion for preliminary hearing and its subsequent motion for reconsideration.
• MOELCI II challenged the RTC's orders via a petition for certiorari before the Court of Appeals, alleging grave abuse of discretion.
• The Court of Appeals dismissed the petition, ruling that the complaint sufficiently stated a cause of action and that interpreting Annex "A" required evidence aliunde, which is impermissible when resolving a motion to dismiss based on failure to state a cause of action.
• The Court of Appeals also denied MOELCI II's motion for reconsideration.

• The Court of Appeals erred in ruling that resolving the motion to dismiss required hearings to determine the nature of Annex "A", as this contradicts the rule that only the complaint's allegations should be considered for failure to state a cause of action.
• The Court of Appeals should have ordered the trial court to dismiss the Amended Complaint because Annex "A," attached to the complaint, is clearly a quotation letter and not a contract, thus failing to establish a cause of action.
• The trial court's denial of the preliminary hearing effectively deferred resolution of the motion, contrary to procedural rules and jurisprudence mandating prompt resolution.
• Annex "A" is unambiguously a quotation letter, leaving no room for interpretation requiring extrinsic evidence.

• The Amended Complaint sufficiently states a cause of action based on its allegations.
• The interpretation of Annex "A," on which the parties differ, necessitates hearings and cannot be resolved solely based on the pleading itself in a motion challenging the cause of action.
• The trial court did not defer the resolution but squarely denied the motion for preliminary hearing, which is a discretionary power of the court.
• Annex "A", despite being captioned as a quotation, bears signatures indicating "CONFORME," suggesting a possible meeting of minds requiring further evidence.

• Whether the Court of Appeals erred in affirming the trial court's denial of the petitioner's Motion for Preliminary Hearing of Affirmative Defenses, specifically the ground of failure to state a cause of action.
• Whether the determination of failure to state a cause of action requires consideration only of the complaint's allegations and its annexes, or if it allows for the reception of evidence when an annexed document's nature is disputed.

• The Supreme Court denied the petition and affirmed the Court of Appeals' decision.
• The Court held that a preliminary hearing under Section 5, Rule 16 (old Rules) or Section 6, Rule 16 (1997 Rules) is discretionary, not mandatory, upon the trial court. The use of the word "may" indicates permission and possibility, not obligation.
• The denial of a motion for preliminary hearing is not correctible by certiorari unless there is a clear showing of grave abuse of discretion amounting to lack or excess of jurisdiction, which was not present in this case.
• Consistent with established jurisprudence, determining the sufficiency of a cause of action requires the court to examine only the facts alleged in the complaint and its annexes, hypothetically admitting them as true. No extraneous matter or evidence aliunde should be considered.
• The Court found that the allegations in David's Amended Complaint, hypothetically admitted, were sufficient to constitute a cause of action.
• Even considering Annex "A," its ambiguity (captioned as a quotation but bearing "CONFORME" signatures) prevents a definitive conclusion at this stage that no contract existed; this ambiguity reinforces the need for trial rather than dismissal via preliminary hearing.
• The trial court did not defer the motion's resolution; it squarely denied it, which was within its discretion.

• Discretionary Nature of Preliminary Hearings on Affirmative Defenses: Defined as the principle under Rule 16 that holding a preliminary hearing on affirmative defenses pleaded in the answer is not mandatory but subject to the trial court's sound discretion. Applied here to uphold the trial court's denial of MOELCI II's motion for such a hearing.
• Sufficiency of Cause of Action (Test): Defined as the test where, hypothetically admitting the facts alleged in the complaint, the court could render a valid judgment according to the complaint's prayer. Applied here by examining David's complaint allegations and finding them sufficient, without considering MOELCI II's defenses or external facts.
• Hypothetical Admission Rule: Defined as the rule applicable to motions to dismiss based on failure to state a cause of action, where the court assumes the truthfulness of the factual allegations in the complaint for the purpose of resolving the motion. Applied here to evaluate David's complaint without determining the actual truth of his claims at this stage.
• Incorporation of Annexes: Defined as the principle that documents attached to a complaint as annexes are considered part of the pleading for all purposes, including assessing the sufficiency of the cause of action. Applied here by considering Annex "A" alongside the complaint's allegations but concluding its ambiguity did not negate the stated cause of action.
• Grave Abuse of Discretion: Defined as capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, necessary to warrant correction via certiorari. Applied here by finding the trial court did not commit grave abuse of discretion in denying the preliminary hearing.

• Municipality of Biñan, Laguna v. Court of Appeals (1993): Cited to establish that preliminary hearings under Section 5, Rule 16 (Old Rules) are discretionary, not mandatory, and their denial is not correctible by certiorari without grave abuse of discretion.
• The Heirs of Juliana Clavano v. Genato (1977): Cited to emphasize that conducting a preliminary hearing on the ground of failure to state a cause of action is improper, as determination must be based solely on the complaint's allegations without receiving evidence.
• World Wide Insurance & Surety Co., Inc. v. Macrohon (1959): Referenced by petitioner (and implicitly acknowledged by the Court) for the principle that annexes are part of the complaint, although the Court distinguished its application here.
• Caltex (Philippines), Inc. v. Court of Appeals (1992): Cited in relation to the interpretation of the word "may" as indicating discretion.
• The Consolidated Bank and Trust Corp. v. Hon. Court of Appeals (1991): Cited for the rule that determination of cause of action excludes external facts and defenses.
• A. U. Valencia & Co. v. Layug (1958): Cited for the definition of the test for sufficiency of cause of action (hypothetical admission).
• Paredes v. Intermediate Appellate Court (1990): Cited for the point that where a preliminary hearing will not suffice (e.g., involves extensive proof), the court should deny it and proceed to trial on the merits.

• Rules of Court (1997):
  • Rule 45 (Petition for Review on Certiorari): The procedural basis for MOELCI II's petition to the Supreme Court.
  • Rule 65 (Certiorari, Prohibition and Mandamus): The procedural basis for MOELCI II's petition to the Court of Appeals challenging the RTC orders for grave abuse of discretion.
  • Rule 16, Section 6 (Pleading grounds as affirmative defenses): Cited as the current rule expressly stating the discretionary nature of preliminary hearings on affirmative defenses.
• Rules of Court (Old, pre-1997):
  • Rule 16, Section 1(g) (Failure to state a cause of action): The specific ground invoked by MOELCI II for dismissal/preliminary hearing.
  • Rule 16, Section 1(i) (Statute of Frauds): Another affirmative defense raised by MOELCI II related to the alleged unenforceability of the contract.
  • Rule 16, Section 5 (Pleading grounds as affirmative defenses): The rule governing MOELCI II's motion for preliminary hearing at the time it was filed, interpreted by the Court as discretionary.