MISAMIS OCCIDENTAL II G.R. No.

129928
COOPERATIVE, INC.,
Petitioner, Present:

PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
-versus CALLEJO, SR,
TINGA, and
CHICO-NAZARIO, JJ.
VIRGILIO S. DAVID,
Respondent. Promulgated:

August 25, 2005

x ------------------------------------------------------------------x

DECISION

TINGA, J.:

In this Petition for Review[1] under Rule 45 of the 1997 Rules of Civil Procedure, petitioner
Misamis Occidental II Electric Cooperative, Inc. (hereinafter, MOELCI II) seeks the reversal of
the Decision[2] of the Court of Appeals, Former Ninth Division in C.A. G.R. SP No. 41626 and
its Resolution[3] denying MOELCI IIs motion for reconsideration. The questioned Decision
dismissed MOELCI IIs petition for certiorari under Rule 65 and effectively affirmed the trial
courts orders dated 16 November 1995[4] and 13 March 1996[5] which respectively denied
petitioners Motion (For Preliminary Hearing of Affirmative Defenses and Deferment of Pre-Trial
Conference)[6] and Motion for Reconsideration.[7]

The antecedents are as follows:

Private respondent Virgilio S. David (hereinafter, David), a supplier of electrical hardware, [8]
filed a case for specific performance and damages against MOELCI II, a rural electric
cooperative in Misamis Occidental, docketed as Civil Case No. 94-69402 entitled Virgilio David
v. Misamis Occidental II Electric Cooperative, Inc. (MOELCI II). The said case, which was
essentially a collection suit, pending before Judge Felixberto Olalia (hereinafter, Judge Olalia) of
the Regional Trial Court of Manila, Branch 8 (the trial court), was predicated on a document
attached as Annex A to the Amended Complaint[9] that according to David is the contract
pursuant to which he sold to MOELCI II one (1) unit of 10 MVA Transformer.[10]
MOELCI II filed its Answer to Amended Complaint[11] which pleaded, among others,
affirmative defenses which also constitute grounds for dismissal of the complaint. These grounds
were lack of cause of action, there being allegedly no enforceable contract between David and
MOELCI II under the Statute of Frauds pursuant to Section 1 (g) and (i), Rule 16 of the Rules of
Court, and improper venue.[12]

In accordance with Section 5, Rule 16 of the Rules of Court, [13] (now Section 6, Rule 16 of the
1997 Rules of Civil Procedure) MOELCI II filed with the trial court a Motion (For Preliminary
Hearing of Affirmative Defenses and Deferment of Pre-Trial Conference) [14] (hereinafter
referred to as Motion). In said Motion, MOELCI II in essence argued that the document attached
as Annex A to the Amended Complaint was only a quotation letter and not a contract as alleged
by David. Thus, it contends that Davids Amended Complaint is dismissible for failure to state a
cause of action.[15]

In his opposition to MOELCI IIs Motion, David contended in the main that because a motion to
dismiss on the ground of failure to state a cause of action is required to be based only on the
allegations of the complaint, the quotation letter, being merely an attachment to the complaint
and not part of its allegations, cannot be inquired into.[16]

MOELCI II filed a rejoinder to the opposition in which it asserted, citing extensively the ruling
of the Court in World Wide Insurance & Surety Co., Inc. v. Macrohon, [17] that a complaint
cannot be separated from its annexes; hence, the trial court in resolving a motion to dismiss on
the ground of failure to state a cause of action must consider the complaints annexes.[18]

After the parties filed their respective memoranda, Judge Olalia issued an order dated 16
November 1995 denying MOELCI IIs motion for preliminary hearing of affirmative defenses.
MOELCI IIs motion for reconsideration of the said order was likewise denied in another order
issued by Judge Olalia on 13 March 1996.[19]

MOELCI II elevated this incident to the Court of Appeals by way of a special civil action for
certiorari, alleging grave abuse of discretion on the part of Judge Olalia in the issuance of the two
aforesaid orders.

On 14 March 1997, the Court of Appeals dismissed MOELCI IIs petition holding that the
allegations in Davids complaint constitute a cause of action. With regard to MOELCI IIs
contention that Davids Amended Complaint is dismissible as the document, attached thereto as
Annex A, upon which Davids claim is based is not a contract of sale but rather a quotation letter,
the Court of Appeals ruled that the interpretation of the document requires evidence aliunde
which is not allowed in determining whether or not the complaint states a cause of action. The
appellate court further declared that when the trial court is confronted with a motion to dismiss
on the ground of lack of cause of action, it is mandated to confine its examination for the
resolution thereof to the allegations of the complaint and is specifically enjoined from receiving
evidence for that purpose.[20]

With the denial of its Motion for Reconsideration, petitioner is now before this Court seeking a
review of the appellate courts pronouncements. MOELCI II asserts that the Court of Appeals
committed serious error in: (1) ruling that the resolution of its motion to dismiss on the ground of
lack of cause of action necessitated hearings by the trial court with the end in view of
determining whether or not the document attached as Annex A to the Amended Complaint is a
contract as alleged in the body of said pleading; and (2) not ordering the trial court to dismiss the
Amended Complaint on the ground of lack of cause of action.[21] Anent the first ground,
MOELCI II further claims that with the denial of its Petition, the appellate court in effect

exhorted the trial court to defer the resolution of its motion to dismiss until after the hearing of
the case on the merits contrary to Rule 16[22] of the Rules of Court and well-settled
jurisprudence.[23]
In his comment,[24] David counters that a sufficient cause of action exists. He also points out
that he and MOELCI II differ in the interpretation of the construction of the document attached
as Annex A of the Amended Complaint; hence, there is a need to conduct hearings thereon. He
likewise contends that the trial court did not defer the resolution of petitioners motion to dismiss.
On the contrary, the trial court denied squarely the motion to abbreviate the proceedings and for
the parties to proceed to trial and avoid piece meal resolution of issues.[25]

In its Reply,[26] MOELCI II reiterates its position that the document attached as Annex A of the
Amended Complaint clearly is a quotation letter and not a perfected contract of sale as alleged by
David. The absence of doubt or ambiguity of the contents and import of the document leaves no
room for its interpretation.

At issue is whether the Court of Appeals erred in dismissing the petition for certiorari and in
holding that the trial court did not commit grave abuse of discretion in denying petitioners
Motion.

We find no error in the ruling of the Court of Appeals.

In Municipality of Bian, Laguna v. Court of Appeals, [27] decided under the old Rules of Court,
we held that a preliminary hearing permitted under Section 5, Rule 16, is not mandatory even
when the same is prayed for. It rests largely on the sound discretion of the court, thus:

SEC. 5. Pleading grounds as affirmative defenses.- Any of the grounds for

dismissal provided for in this rule, except improper venue, may be pleaded as an
affirmative defense, and a preliminary hearing may be had thereon as if a motion
to dismiss had been filed.

The use of the word may in the aforequoted provision shows that such a hearing is not
mandatory but discretionary. It is an auxiliary verb indicating liberty, opportunity, permission and
possibility.[28]

Such interpretation is now specifically expressed in the 1997 Rules of Civil Procedure. Section 6,
Rule 16 provides that a grant of preliminary hearing rests on the sound discretion of the court, to
wit-

SEC. 6. Pleading grounds as affirmative defenses.- If no motion to dismiss has

been filed, any of the grounds for dismissal provided for in this Rule may be
pleaded as an affirmative defense in the answer and, in the discretion of the court,
a preliminary hearing may be had thereon as if a motion to dismiss had been filed.
Based on the foregoing, a preliminary hearing undeniably is subject to the discretion of
the trial court. Absent any showing that the trial court had acted without jurisdiction or in excess
thereof or with such grave abuse of discretion as would amount to lack of jurisdiction, as in the

present case, the trial courts order granting or dispensing with the need for a preliminary hearing
may not be corrected by certiorari.[29]

Moreover, consistent with our ruling in The Heirs of Juliana Clavano v. Genato, [30] as
MOELCI IIs Motion is anchored on the ground that the Complaint allegedly stated no cause of
action, a preliminary hearing thereon is more than unnecessary as it constitutes an erroneous and
improvident move. No error therefore could be ascribed to the trial court in the denial of such
Motion. The Court ruled in the cited case, thus:

. . . . respondent Judge committed an error in conducting a preliminary

hearing on the private respondents affirmative defenses. It is a well-settled rule
that in a motion to dismiss based on the ground that the complaint fails to state a
cause of action, the question submitted to the court for determination is the
sufficiency of the allegations in the complaint itself. Whether those allegations are
true or not is beside the point, for their truth is hypothetically admitted by the
motion. The issue rather is: admitting them to be true, may the court render a valid
judgment in accordance with the prayer of the complaint? Stated otherwise, the
sufficiency of the cause of action must appear on the face of the complaint in
order to sustain a dismissal on this ground. No extraneous matter may be
considered nor facts not alleged, which would require evidence and therefore
must be raised as defenses and await the trial. In other words, to determine the
sufficiency of the cause of action, only the facts alleged in the complaint, and no
other should be considered.

The respondent Judge departed from this rule in conducting a hearing and
in receiving evidence in support of the private respondents affirmative defense,
that is, lack of cause of action.[31]

To determine the existence of a cause of action, only the statements in the complaint may
be properly considered. It is error for the court to take cognizance of external facts or hold
preliminary hearings to determine their existence. If the allegations in a complaint furnish

sufficient basis by which the complaint can be maintained, the same should not be dismissed
regardless of the defenses that may be averred by the defendants.[32]

The test of sufficiency of facts alleged in the complaint as constituting a cause of action is
whether or not admitting the facts alleged, the court could render a valid verdict in accordance
with the prayer of said complaint.[33]

In the case at bar, the Amended Complaint states in paragraphs 3, 4, 5, and 6, thus:

FIRST CAUSE OF ACTION

3. On June 8 1992 the parties entered into a contract for the sale by the plaintiff to
the defendant of one (1) unit 10 MVA Power transformer with accessories for a
total price of P5,200,000.00 plus 69 KV Line Accessories for a total price of
P2,169,500.00 under the following relevant terms and conditions:
1. Fifty percent (50%) downpayment upon signing of
contract.
Fifty percent (50%) upon delivery
2. Delivery- Ninety (90) working days upon receipt of your Purchase Order and Downpayment
Copy of the contract is hereto attached as Annex A.
4. Because of the standing relationship between the parties and the urgent need on
the part of the defendant for the power transformer to remedy the electric supply
deficiency in its area of coverage the plaintiff waived the 50% downpayment and
delivered soon thereafter the 10 MVA transformer with accessories evidence (sic)
by a copy of the sales invoice hereto attached as Annex B.
5. Despite demands however, verbal and written, since December 1992, the
defendant has failed to pay the price thereof of P5,200,000.00 plus the custom
duties and incidental expenses of P272,722.27.

SECOND CAUSE OF ACTION

6. Apart from the above transaction, the plaintiff has been, on a regular basis,
delivering various electrical hardware to the defendant which, as of 31 January
1994, despite demands, has an outstanding balance of P281,939.76.[34]
And David prayed as follows:

WHEREFORE, it is respectfully prayed that judgment render ordering the

defendant to pay the plaintiff:

ON THE FIRST CAUSE OF ACTION

1. The total sum of P5,472,722.27 plus the stipulated interest at 24% per annum
from December 1992 until fully paid.
ON THE SECOND CAUSE OF ACTION
2. The balance of P281,939.76 plus the stipulated interest at 24% per annum from
due dates until fully paid.
COMMON PROPER (sic)
3. Attorneys fee at 25% of the foregoing amounts plus expenses of litigation and
not less than P100,000.00 with costs.
4. Other reliefs as may be just and equitable in the premises.[35]

It has been hypothetically admitted that the parties had entered into a contract sale David bound
himself to supply MOELCI II (1) unit 10 MVA Power transformer with accessories for a total

price of P5,200,000.00 plus 69 KV Line Accessories for a total price of P2,169,500.00; that
despite written and verbal demands, MOELCI II has failed to pay the price thereof plus the
custom duties and incidental expenses of P272,722.27; and that apart from the previously stated
contract of sale, David regularly delivered various electrical hardware to MOELCI II which,
despite demands, has an outstanding balance of P281,939.76.

We believe all the foregoing sufficiently lay out a cause of action. Even extending our scrutiny to
Annex A, which is after all deemed a part of the Amended Complaint, will not result to a change
in our conclusion.
Contrary to MOELCI IIs assertion, Annex A is not an undisguised quotation letter.[36] While
Annex A is captioned as such, the presence of the signatures of both the General Manager and
the Chairman of the Committee of Management immediately below the word CONFORME
appearing on the documents last page[37] lends credulity to Davids contention that there was,
or might have been, a meeting of minds on the terms embodied therein. Thus, the appendage of
Annex A does not entirely serve to snuff out Davids claims.

In fact, the ambiguity of the import and nature of Annex A which necessitates a resort to its
proper interpretation, fortifies the propriety of the trial courts

denial of MOELCI IIs Motion. The interpretation of a document requires introduction of

evidence which is precisely disallowed in determining whether or not a complaint states a cause
of action. The Court of Appeals therefore correctly dismissed MOELCI IIs petition and upheld
the trial courts ruling.

Now, whether in truth Annex A is, as entitled, a mere quotation letter is a matter that could best
be proven during a full-blown hearing rather than through a preliminary hearing as this may
involve extensive proof. Verily, where a preliminary hearing will not suffice, it is incumbent
upon the trial court to deny a motion for preliminary hearing and go on to trial. The veracity of
the assertions of the parties can be ascertained at the trial of the case on the merits.[38]
Finally, we do not agree with MOELCI IIs contention that the Court of Appeals sanctioned the
trial courts deferment of the resolution of MOELCI IIs Motion. The trial court squarely denied
the Motion and not merely deferred its resolution.[39] Thus, there is no deferment to speak of
that should be enjoined.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated 14
March 1997 and its Resolution dated 14 July 1997 are AFFIRMED. Costs against petitioner.

SO ORDERED.

DANTE O. TINGA Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairman

MA. ALICIA AUSTRIA-MARTINEZ

ROMEO J. CALLEJO, SR.

Associate Justice

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice

[1]Rollo,

pp. 6-18; Dated 6 August 1997.

[2]Id.

at 22-29; Promulgated on 14 March 1997; Penned by Associate Justice Jorge S. Imperial

and concurred in by Associate Justices Buenaventura J. Guerrero and Oswaldo D. Agcaoili.

[3]Id.

at 33; Promulgated on 14 July 1997; Penned by Associate Justice Jorge S. Imperial and
concurred in by Associate Justices Buenaventura J. Guerrero and Oswaldo D. Agcaoili.

[4]Id.

at 34-35.

[5]Id.

at 36.

[6]See

Id. at 34; Filed by MOELCI II on 4 September 1995.

[7]See

Id. at 36.

[8]Id.

at 37.

[9]Id.

at 37-39; Dated 10 March 1995.

[10]Id.

at 8.

[11]Id.

at 40-51; Dated 4 September 1995.

[12]Id.

at 23, 44, 49.

[13]Section

5, Rule 16 reads as follows:

SEC. 5. Pleading grounds as affirmative defenses. Any of the grounds for dismissal provided for
in this rule, except improper venue, may be pleaded as an affirmative defense, and a preliminary
hearing may be had thereon as if a motion to dismiss had been filed.

[14]Rollo,
[15]Id.

pp. 70-75; Dated 4 September 1995.

at 23.

[16]Ibid.

[17]105

Phil. 249 (1959).

[18]Rollo,

p. 23.

[19]Id.

at 24.

[20]Id.

at 26-27.

[21]Id.

at 9-10.

[22]Section

3 thereof mandates the courts not to defer the resolution of the motion for the reason
that the ground relied upon is not indubitable.

[23]Rollo,

pp. 10-11.

[24]Id.

at 82-90; Dated 14 November 1997.

[25]Id.

at 85-86, 34-35.

[26]Id.

at 96-102; Dated 6 August 1998.

[27]G.R.

No. 94733, 17 February 1993, 219 SCRA 69, 76.

[28]Caltex

(Philippines), Inc. v. Court of Appeals, G.R. No. 97753, 10 August 1992, 212 SCRA

448, 463.

[29]Municipality of

[30]No.

[31]Id.

Bian, Laguna v. Court of Appeals, supra note 27 at 77.

L-45837, 28 October 1977, 80 SCRA 217.

at 222-223.

[32]The

Consolidated Bank and Trust Corp. v. Hon. Court of Appeals, et al., 274 Phil. 947, 955

(1991).

[33]A.

U. Valencia & Co. v. Layug, 103 Phil. 747, 749-750 (1958).

[34]Rollo,

pp. 37-38.

[35]Id.

at 38.

[36]Id.

at 12.

[37]Id.

at 67.

[38]Paredes

[39]Rollo,

v. Intermediate Appellate Court, G.R. No. 70717, 8 May 1990, 185 SCRA 134, 139.

pp. 34-35.