SECOND DIVISION

G.R. No. 137898               December 15, 2000

CHINA ROAD AND BRIDGE CORPORATION, petitioner, 

vs.
COURT OF APPEALS (Special Seventh Division) and JADE PROGRESSIVE SAVINGS AND
MORTGAGE BANK, respondents.

DECISION

BELLOSILLO, J.:

This is a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure praying for the
nullification of the Resolution of the Court of Appeals (Special Seventh Division) dated 29 October
1998 denying petitioner's Motion to Dismiss Appeal, and its Resolution dated 5 February 1999,
denying reconsideration thereof and for the dismissal of CA-G.R. CV No. 57375.

CHINA ROAD AND BRIDGE CORPORATION (CRBC), petitioner, is a corporation organized under
the laws of the People's Republic of China duly licensed by the Securities and Exchange
Commission to do business in the Philippines. It was awarded by the Philippine Government the
contract to construct the EDSA Shaw

Boulevard Overpass in Mandaluyong, which it subcontracted to Hi-Quality Builders and Traders, Inc.
(HI-QUALITY), a domestic corporation organized under the laws of the Philippines.

On 17 October 1996 Helen Ambrosio, President of HI-QUALITY, executed a Continuing Suretyship

in favor of Jade Progressive Savings and Mortgage Bank (JADEBANK) binding herself to pay the
"obligations of the Debtor (Hi-Quality) arising from all credit accommodations extended by the Bank
to the Debtor x x x x presently or hereafter owing to the Bank, as appears in the accounts, books
and records of the Bank whether direct or indirect x x x x"

On 10 January 1997, in consideration of a loan of ₱5,000,000.00, HI-QUALITY executed a Deed of

Assignment in favor of JADEBANK with the approval of CRBC where it assigned to JADEBANK "(a)ll
monthly accomplishment billings, the sums of money, credit, or receivables assigned, be in the
position (sic) of or due or to be due from China Road and Bridge Corporation, arising from the
subcontract agreement in the construction of the EDSA/Shaw Blvd. Overpass Project x x x x" 1 

On 17 January 1997 JADEBANK released to HI-QUALITY ₱500,000.00 as part of the loan both
parties earlier contracted. As security for the loan, HI-QUALITY executed Promissory Note No. JB
BDO 15/97 promising to pay the loan on 3 April 1997. It also indorsed to JADEBANK Check No.
0000270127 issued by CRBC on 31 March 1997 covering the amount released, drawn on United
Coconut Planters Bank (UCPB), Mandaluyong Branch.

On 7 April 1997 JADEBANK released ₱250,000.00 for which HI-QUALITY executed Promissory
Note No. JB BDO 181/97 payable on 18 April 1997 and indorsed to JADEBANK Check No.
0000126132 issued by Helen Ambrosio on 18 April 1997 covering the amount released, drawn on
Allied Banking Corporation, Shaw Boulevard Branch (ALLIEDBANK).
On 21 March 1997 JADEBANK released ₱250,000.00 for which HI-QUALITY executed Promissory
Note No. JB BDO 150/97 payable on 5 May 1997 and indorsed to JADEBANK ALLIEDBANK Check
No. 0000126131 issued by Ambrosio dated 30 April 1997 for the same amount.

On 25 March 1997 JADEBANK released ₱400,000.00 for which HI-QUALITY executed Promissory
Note No. JB BDO 162/97 payable on 5 May 1997 and indorsed to JADEBANK Check No. 214179
issued by Ambrosio dated 30 April 1997 for the same amount, drawn on Security Bank Corporation,
Pateros Branch (SECURITYBANK).

On 7 February 1997 JADEBANK released another ₱400,000.00 for which HI-QUALITY executed
Promissory Note No. JB BDO 33/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB
Check No. 270144 issued by CRBC.

On 17 February 1997 JADEBANK released ₱350,000.00 for which HI-QUALITY executed

Promissory Note No. JB BDO 45/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB
Check No. 270147 issued by CRBC.

Finally, on 21 February 1997 JADEBANK released ₱250,000.00 for which HI-QUALITY executed
Promissory Note No. JB BDO 75/97 payable on 5 May 1997 and indorsed to JADEBANK UCPB
Check No. 270551 issued by CRBC.

All the promissory notes executed by HI-QUALITY provided for twenty-five percent (25%) interest
per annum and a five percent (5%) penalty per month in case of default. The amount of each check
corresponded to the amount released to HI-QUALITY on the day the check was indorsed to
JADEBANK.

When JADEBANK deposited the aforementioned checks for payment, they were returned unpaid.
The checks drawn on UCPB were dishonored due to "Stop Payment" orders from the drawer. The
ALLIEDBANK checks were dishonored because the account was closed on 19 February 1997. The
SECURITYBANK check was dishonored because the account had been closed since the second
quarter of 1996.

On 9 June 1997, after repeated demands for payment which were unheeded, JADEBANK filed a
case for collection against HI-QUALITY, Helen Ambrosio and CRBC, with an application for a writ of
attachment against their properties. The Complaint included as cause of action the first four (4)
checks indorsed by HI-QUALITY to JADEBANK and alleging among others that the defendants
conspired to commit fraudulent acts in order to induce JADEBANK to grant the loans to HI-
QUALITY. Firstly, CRBC issued to HI-QUALITY the UCPB check for ₱500,000.00 dated 31 March
1997 without any intention of honoring the check. JADEBANK alleged that CRBC knew fully well that
the check was to be used by HI-QUALITY as security for the loan from JADEBANK. However, in
violation of the Deed of Assignment, CRBC gave to HI-QUALITY sums of money without notice to or
the consent of JADEBANK, thereby releasing funds supposedly already assigned to JADEBANK for
the payment of HI-QUALITY's loans. Secondly, Helen Ambrosio, as President of HI-QUALITY,
issued the checks drawn on SECURITYBANK and ALLIEDBANK after her accounts with these
banks were closed, thus revealing a fraudulent intention not to honor her obligations even from their
inception. She also executed the Suretyship Agreement in favor of JADEBANK without any intention
of fulfilling her obligations.

On 17 June 1997 the trial court issued a Writ of Preliminary Attachment. On the same day, a Notice
2 

of Garnishmentwas served on UCPB garnishing all the moneys of CRBC in the bank. On 23 June
1997 CRBC filed a Motion for Discharge of Attachment. On the same day a Notice of Levy on
Attachment was also served on CRBC. On 27 June 1997 the preliminary attachment was discharged
after CRBC posted a counter-bond in the amount of ₱1,962,458.00. On 30 June 1997 JADEBANK
filed an Amended Complaint to include the loans contracted on 7, 17 and 21 February 1997
increasing the total amount collectible to ₱3,437,424.42.

On 28 July 1997 CRBC filed a Motion to Dismiss the 30 May 1997 Complaint on the ground of lack
of cause of action. According to CRBC, the Deed of Assignment upon which JADEBANK based its
cause of action against CRBC, was subject to the Sub-Contracting Agreement between CRBC and
HI-QUALITY -

Under these circumstances, until such time as Hi-Quality is able to perform its obligations pursuant
to the Sub-Contract Agreement thereby entitling it to payment for services rendered, China Roadhas
no liability whatsoever in Hi-Quality's favor. Corollarily, until this happens, Hi-Quality has nothing to
assign in favor of the plaintiff in the form of collectibles/receivables from China Road pursuant to the
Deed of Assignment. 3 

CRBC also denied that the issuance of the checks to HI-QUALITY was for the purpose of facilitating
the loans in favor of the latter, claiming that the checks were for the use of HI-QUALITY alone, and
not for any other purpose. In support of this claim, CRBC asserted that "(n)owhere on the face of the
said check does the name of the plaintiff appear. Neither is it accompanied by any document
whatsoever specifically evincing that the same was intended for delivery to plaintiff." CRBC also
denied that it had been releasing money to HI-QUALITY, claiming that the latter had failed to comply
with its obligations to CRBC.

On 27 August 1997 the lower court granted the Motion to Dismiss the complaint with respect to
CRBC. Its Motion for Reconsideration having been denied on 31 June 1997 JADEBANK appealed to
the Court of Appeals under Rule 41 of the Rules of Court. On 12 August 1997 CRBC filed with the
Court of Appeals a Motion to Dismiss Appealasserting that "the determination of whether the
ultimate facts in a Complaint state a cause of action against the defendant is a pure question of law
and does not involve any question of fact." According to CRBC, the proper mode of appeal was not
4 

by way of ordinary appeal under Rule 41 but rather by way of a petition for review on certiorari under
Rule 45.

On 29 October 1998 the Court of Appeals (Special Seventh Division) issued the
assailed Resolution denying CRBC's Motion to Dismiss, finding the appeal involved both questions
of fact and of law. On 5 February 1999 the appellate court denied reconsideration; hence, this
petition.

The only issue that needs to be resolved is whether the Court of Appeals committed grave abuse of
discretion amounting to lack or excess of jurisdiction in denying petitioner's Motion to Dismiss. In
resolving the issue it is necessary to determine only if private respondent's appeal to the Court of
Appeals involved purely questions of law, in which case the proper mode of appeal would be a
petition for review on certiorari to the Supreme Court under Rule 45; or questions of fact or mixed
5 

questions of fact and law, in which case the proper mode would be by ordinary appeal under Rule
41.

A question of law exists when there is doubt or controversy as to what the law is on a certain state of
facts, and there is a question of fact when the doubt or difference arises as to the truth or falsehood
of facts, or when the query necessarily invites calibration of the whole evidence considering mainly
6 

the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their
relation to each other and to the whole and probabilities of the situation. Ordinarily, the determination
7 

of whether an appeal involves only questions of law or both questions of law and fact is best left to
the appellate court, and all doubts as to the correctness of such conclusions will be resolved in favor
8 

of the Court of Appeals. However, in the instant case, we find that there was grave abuse of
9 

discretion on the part of respondent Court of Appeals, hence, we grant the petition.

The ground for dismissal invoked by petitioner is that the complaint of JADEBANK before the trial
court stated no cause of action, under Sec. 1, par. (g), Rule 16, the 1997 Revised Rules of Civil
Procedure. It is well settled that in a motion to dismiss based on lack of cause of action, the issue is
passed upon on the basis of the allegations assuming them to be true. The court does not inquire
10 

into the truth of the allegations and declare them to be false, otherwise it would be a procedural error
and a denial of due process to the plaintiff. Only the statements in the complaint may be properly
considered, and the court cannot take cognizance of external facts or hold preliminary hearings to
ascertain their existence. To put it simply, the test for determining whether a complaint states or
11 

does not state a cause of action against the defendants is whether or not, admitting hypothetically
the truth of the allegations of fact made in the complaint, the judge may validly grant the relief
demanded in the complaint. 12 

In a motion to dismiss based on failure to state a cause of action, there cannot be any question of
fact or "doubt or difference as to the truth or falsehood of facts," simply because there are no
findings of fact in the first place. What the trial court merely does is to apply the law to the facts as
alleged in the complaint, assuming such allegations to be true. It follows then that any appeal
therefrom could only raise questions of law or "doubt or controversy as to what the law is on a
certain state of facts." Therefore, a decision dismissing a complaint based on failure to state a cause
of action necessarily precludes a review of the same decision on questions of fact. One is the legal
and logical opposite of the other.
In resolving the Motion to Dismiss, the lower court ruled -

As alleged in the complaint, the plaintiff granted a loan to Hi-Quality Builders and Traders, Inc. (HQ);
that as security of the payment of the loan, HQ assigned all its receivables from China; that China
gave HQ a check for ₱5,000,000.00 payable to HQ; that in turn HQ gave the check to plaintiff; and
that plaintiff deposited said check which was returned for the reason: "stop payment".

It is clear from the foregoing that there is no cause of action of plaintiff against China. While there is
a "delict" or "wrong" committed, it was not committed against the rights of plaintiff because it alleged
none but against HQ. Therefore, the one that has a cause of action against China is HQ. 13 

The Motion for Reconsideration filed by JADEBANK was resolved by the trial court thuswise -

(T)he plaintiff has a right in the collection of the loan it granted to Hi-Quality Builders but there is no
corresponding allegation the (sic) China Road has an obligation to pay such loan. All that is alleged
is that China Road agreed that Hi-Quality Builders will assign its receivables from China Road and
for that purpose appointed plaintiff as Attorney-in-fact.

Had there been allegation to the effect that plaintiff, as Attorney-in-fact, of Hi-Quality Builders
collected from China Road and that China Road refused to deliver the money due Hi-Quality
Builders then a cause of action would have arisen. 14 

It is clear from the foregoing that the lower court did not make any finding of fact; rather, as was
proper in a motion to dismiss for this particular ground, it merely assumed the plaintiff's allegations to
be true. It did not evaluate the evidence of the plaintiff nor did it pass upon the truth or falsity of the
plaintiff's allegations. What the lower court did was simply to apply the law as to the facts borne out
by the allegations in the complaint. And it found that even assuming that all the allegations of
JADEBANK were true, it would still not be able to collect from CRBC because based on the same
allegations, CRBC did not have any duty whatsoever to remit money to JADEBANK. Whether this
conclusion is correct or not is a totally separate issue and is not before us for review at this time.
What is evident, however, is that such a conclusion could only raise pure questions of law. It is
perplexing to this Court then why respondent appellate court found that there were questions of fact
to be answered in the appeal. It taxes the imagination how a question of fact can arise from a
controversy that does not involve findings of fact.

JADEBANK in its Appellant's Brief raised the following questions, which it erroneously designated as

questions of fact, in an attempt to place its appeal within the jurisdiction of the Court of Appeals:

4.1.1. Whether or not the amended complaint together with the Annexes attached and forming an
integral part thereof, states a sufficient cause of action against the defendant-appellee;

4.1.2. Whether or not there was an unwarranted reversal of the Honorable Regional Trial Court's
Orders stating that the complaint states a sufficient cause of action;

4.2.1. Whether or not the Motion to Dismiss the complaint can be considered also as a Motion to
Dismiss the Amended Complaint. 15 

We fail to see how these issues raised by JADEBANK could be properly denominated questions of
fact.  The test of whether a question is one of law or of fact is not the appellation given to such
1âwphi1

question by the party raising the same; rather, it is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case, it is a question of law;
otherwise, it is a question of fact. Applying the test to the instant case, it is clear that private
16 

respondent raises pure questions of law which are not proper in an ordinary appeal under Rule 41,
but should be raised by way of a petition for review on certiorari under Rule 45.

We agree with private respondent that in a motion to dismiss due to failure to state a cause of action,
the trial court can consider all the pleadings filed, including annexes, motions and the evidence on
record. However in so doing, the trial court does not rule on the truth or falsity of such documents. It
17 

merely includes such documents in the hypothetical admission. Any review of a finding of lack of
cause of action based on these documents would not involve a calibration of the probative value of
such pieces of evidence but would only limit itself to the inquiry of whether the law was properly
applied given the facts and these supporting documents. Therefore, what would inevitably arise from
such a review are pure questions of law, and not questions of fact.
It is apparent that JADEBANK, as well as respondent appellate court, confused situations where the
complaint does not allege a sufficient cause of action and where the evidence does not sustain the
cause of action alleged. The first is raised in a motion to dismiss under Rule 16 before a responsive
pleading is filed and can be determined only from the allegations in the initiatory pleading and not
fromevidentiary or other matters aliunde. The second is raised in a demurrer to evidence under Rule
33 after the plaintiff has rested his case and can be resolved only on the basis of the evidence he
has presented in support of his claim. The first does not concern itself with the truth and falsity of the
18 

allegations while the second arises precisely because the judge has determined the truth and falsity
of the allegations and has found the evidence wanting.

This is not to say that we automatically agree with the trial court that private respondent failed to
allege a sufficient cause of action. However, the question of whether JADEBANK failed to state a
sufficient cause of action is not before us for review; it may only be resolved when the appropriate
mode of review is availed of JADEBANK's appeal having been improperly brought before the Court
of Appeals, it should be dismissed outright pursuant to Sec. 2 of Rule 50 of the Rules of Court, which
provides:

Sec. 2. Dismissal of improper appeal to the Court of Appeals. -- An appeal under Rule 41 taken from
the Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed,
issues purely of law not being reviewable by the said court x x x x

WHEREFORE, the petition for certiorari is GRANTED. The assailed Resolutions of the Court of
Appeals dated 29 October 1998 and 5 February 1999 are REVERSED and SET ASIDE for having
been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.

Accordingly, the appeal in CA-G.R. CV No. 57375, "Jade Progressive Savings and Mortgage Bank
v. China Road and Bridge Corporation," is DISMISSED.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Footnotes

Rollo, p. 86.
1 

RTC-Br. 46, Manila, with Judge Artemio S. Tipon, presiding.

2 

Rollo, p. 90.
3 

Id., p. 13.
4 

Sec. 2, par. (c), Rule 41, of the 1997 Rules of Civil Procedure provides: "Sec. 2. Modes of
5 

Appeal. x x x x (c) Appeal by certiorari. - In all cases where only questions of law are raised
or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45."

Ramos v. Pepsi-Cola Bottling Co., No. L-22533, 9 February 1967, 19 SCRA 289; Pilar
6 

Development Corp. v. IAC, G.R. No. 72283, 12 December 1986, 146 SCRA 215.

Bernardo v. Court of Appeals, G.R. No. 101680, 7 December 1992, 216 SCRA 224.
7 

PNB v. Romillo, G.R. No. 70681, 16 Oct 1985, 139 SCRA 320.
8 

Pilar Dev. Corp. v. IAC; see Note 6.

9 

Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. Nos. 84588 and 84659, 29
10 

May, 1991, 197 SCRA 663; Rava Development Corporation v. Court of Appeals, G.R. No.
96825, 3 July 1992, 211 SCRA 144; Perpetual Savings Bank v. Fajardo, G.R. No. 79760, 28
June 1993, 223 SCRA 720;

11 
D.C. Crystal Incorporation v. Laya, G.R. No. 53597, 28 February 1989, 170 SCRA 734.

12 
Perpetual Savings Bank v. Fajardo; see Note 10.

13 
Rollo, p. 106.

14 
Id., p. 127.

15 
Id., p. 153.

See Vda. de Arroyo v. El Beaterio del Santissimo Rosario de Molo, No. L-22005, 3 May
16 

1968, 23 SCRA 525 and cases cited therein.

Fil-Estate Golf and Development, Inc. v. Court of Appeals, G.R. No. 120958, 16 December
17 

1996, 265 SCRA 614; Marcopper Mining Corp. v. Garcia, G.R. No. 55935, 20 July 1986, 143
SCRA 178.

Enojas, Jr. v. Commission on Elections, G.R. No. 129938, 12 December 1997, 283 SCRA
18 

229.