THE MANILA BANKING CORPORATION, vs.

UNIVERSITY OF BAGUIO, INC. and GROUP DEVELOPERS, INC.,

G.R. No. 159189

February 21, 2007

PONENTE: LEONARDO A. QUISUMBING

FACTS:

On Manila Banking Corporation granted a P14 million credit line to respondent

University of Baguio, Inc. for the construction of additional buildings and purchase
of new equipment. On behalf of the university, then Vice-Chairman Fernando C.
Bautista, Jr. signed Promissory Note and executed a continuing suretyship
agreement. However, Bautista, Jr. diverted the net proceeds of the loan. He
endorsed and delivered the four checks representing the net proceeds to respondent
Group Developers, Inc. (GDI). The loan was not paid.

The bank filed a complaint for a sum of money with application for preliminary
attachment against the university, Bautista, Jr. and his wife Milagros, before the
RTC of Makati City. Five years later, the bank amended the complaint and
impleaded GDI as additional defendant. In its Answer, the university claimed that
the bank and GDI approved the diversion. Consequently, even if the loan was
overdue, the bank did not demand payment. By way of cross-claim, the university
prayed that GDI be ordered to pay the university the amount it would have to pay
the bank. The bank and GDI executed a deed of dacion en pago. The university
moved to dismiss the amended complaint on the grounds that: (1) there was "no
more cause of action" against it since the loan had been settled by GDI; and (2) the
bank "failed to prosecute the action for an unreasonable length of time." The trial
court ruled that the bank had no cause of action against the defendants because its
claim for a sum of money had been paid through the dacion en pago.

ISSUE:

Whether the trial court err in dismissing the amended complaint, without trial,
upon motion of respondent university.
HELD:

We distinguished a motion to dismiss for failure of the complaint to state a cause

of action from a motion to dismiss based on lack of cause of action. The first is
governed by Section 1 (g), Rule 16, while the second by Rule 33, of the Rules of
Court. Hence, a motion to dismiss based on lack of cause of action is filed by the
defendant after the plaintiff has presented his evidence on the ground that the latter
has shown no right to the relief sought. While a motion to dismiss under Rule 16 is
based on preliminary objections which can be ventilated before the beginning of
the trial, a motion to dismiss under Rule 33 is in the nature of a demurrer to
evidence on the ground of insufficiency of evidence and is presented only after the
plaintiff has rested his case.

In this case, the universitys motion to dismiss the amended complaint was
improper under Rule 16 because it was filed after respondent university filed its
responsive pleading, its Answer. Also, the motions merit could not be determined
based solely on the allegations of the initiatory pleading, the amended complaint,
since the motion was based on the deed of dacion en pago, which was not even
alleged in the complaint. And since the deed of dacion en pago had been expunged
from the record, the trial court erred in its finding of payment and lack of cause of
action based on the deed. In addition, the motion alleged that petitioner had "no
more cause of action" or lacked a cause of action against the university. In the case
at bar, there had been no presentation of evidence yet and petitioner had not rested
its case. Therefore, the Order properly denied the motion to dismiss for being
improper under either Rule 16 or 33.

The petition is granted and SET ASIDE the trial courts April 11, 2002 and
June 27, 2003 Orders. The trial court is ORDERED to proceed with the pre-
trial and hear this case with dispatch. No pronouncement as to costs.