4 Delos Reyes vs. Court of Appeals

4/5/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 504
126 SUPREME COURT REPORTS ANNOTATED

Zepeda vs. China Banking Corporation
*
G.R. No. 172175. October 9, 2006.
SPS. EXPEDITO ZEPEDA AND ALICE D. ZEPEDA,

petitioners, vs. CHINA BANKING CORPORATION,
respondent.
Remedial Law; Actions; Cause of Action; A cause of action is a

formal statement of the operative facts that give rise to a remedial
right; Question of whether the complaint states a cause of action is
determined by its averments regarding the acts committed by the
defendant; Essential elements of a cause of action.—A cause of
action is a formal statement of the operative facts that give rise to
a remedial right. The question of whether the complaint states a
cause of action is determined by its averments regarding the acts
committed
_______________
* FIRST DIVISION.
127
VOL. 504, OCTOBER 9, 2006 127
by the defendant. Thus it “must contain a concise statement of the

ultimate or essential facts constituting the plaintiff’s cause of
action.” Failure to make a sufficient allegation of a cause of action
in the complaint “warrants its dismissal.” As defined in Section 2,
Rule 2 of the Rules of Court, a cause of action is the act or
omission by which a party violates the right of another. Its
essential elements are as follows: 1. A right in favor of the
plaintiff by whatever means and under whatever law it arises or
is created; 2. An obligation on the part of the named defendant to
www.central.com.ph/sfsreader/session/00000169ebafc3d4409be13c003600fb002c009e/t/?o=False 1/11
respect or not to violate such right; and 3. Act or omission on the

part of such defendant in violation of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the
plaintiff for which the latter may maintain an action for recovery
of damages or other appropriate relief.
Same; Same; Same; In determining whether an initiatory

pleading states a cause of action, the test is as follows: admitting
the truth of the facts alleged, can the court render a valid
judgment in accordance with the prayer?; Only the material
allegations in the complaint are to be taken into account,
extraneous facts and circumstances or other matters aliunde are
not considered; Court may consider in addition to the complaint
the appended annexes or documents, other pleadings of the
plaintiff, or admissions in the records.—It is, thus, only upon the
occurrence of the last element that a cause of action arises, giving
the plaintiff the right to maintain an action in court for recovery
of damages or other appropriate relief. In determining whether an
initiatory pleading states a cause of action, “the test is as follows:
admitting the truth of the facts alleged, can the court render a
valid judgment in accordance with the prayer?” To be taken into
account are only the material allegations in the complaint;
extraneous facts and circumstances or other matters aliunde are
not considered. The court may consider in addition to the
complaint the appended annexes or documents, other pleadings of
the plaintiff, or admissions in the records.
Same; Same; Same; Courts finds the allegations in the

complaint sufficient to establish a cause of action for nullifying the
foreclosure of the mortgaged property.—We find the allegations in
the complaint sufficient to establish a cause of action for
nullifying the foreclosure of the mortgaged property. The fact that
petitioners admitted that they failed to redeem the property and
that the title was consolidated in respondent bank’s name did not
preclude them from seeking to nullify the extrajudicial
foreclosure. Precisely, peti-
128
tioners seek to nullify the proceedings based on circumstances

obtaining prior to and during the foreclosure which render it void.
Same; Same; Interrogatories; Consequences enumerated in

Section 3(c) of Rule 29 would only apply where the party upon
whom the written interrogatories is served, refuses to answer a
particular question in the set of written interrogatories and despite
an order compelling him to answer the particular question, still
refuses to obey the order.—As we have explained in Arellano v.
Court of First Instance of Sorsogon, 65 SCRA 46 (1975), the
consequences enumerated in Section 3(c) of Rule 29 would only
apply where the party upon whom the written interrogatories is
served, refuses to answer a particular question in the set of
written interrogatories and despite an order compelling him to
answer the particular question, still refuses to obey the order. In
the instant case, petitioners refused to answer the whole set of
written interrogatories, not just a particular question. Clearly
then, respondent bank should have filed a motion based on
Section 5 and not Section 3(c) of Rule 29.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Tabalingcos & Associates Law Offices for petitioners.
Lim, Vigilia, Alcala, Dumlao & Orencia for
respondent.
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of 1the Rules of Court

assails the January 24, 2006 Decision of the Court of
Appeals in CA-G.R. SP No. 89148 granting respondent
China Banking Corporation’s (Chinabank) 2
petition to
annul3 the Orders dated April 1, 2004 and October 22,
2004 of the Regional Trial
_______________
1 Rollo, pp. 26-36. Penned by Associate Justice Andres B. Reyes, Jr. and
concurred in by Associate Justices Rosmari D. Carandang and Monina
Arevalo-Zenarosa.
2 Id., at pp. 40-42.
3 Id., at pp. 43-44.
129
VOL. 504, OCTOBER 9, 2006 129

4
Court of San Jose, Camarines Sur, Branch 30, in Civil
Case No. T-947. Also assailed is the March 31, 2006
5
5
Resolution denying petitioners’ motion for reconsideration.
The facts are as follows.
On February 18, 2003, spouses Expedito and Alice
Zepeda filed a complaint for nullification of foreclosure
6
proceedings and loan documents with damages against
respondent Chinabank before the Regional Trial Court of
San Jose, Camarines Sur, which was docketed as Civil
Case No. T-947 and raffled to Branch 30. They alleged that
on June 28, 1995, they obtained a loan in the amount of
P5,800,000.00 from respondent secured by a Real Estate
Mortgage over a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-23136.
Petitioners subsequently encountered difficulties in
paying their loan obligations hence they requested for
restructuring which was allegedly granted by Chinabank.
Hence, they were surprised when respondent bank
extrajudicially foreclosed the subject property on October 9,
2001 where it emerged as the highest bidder. Respondent
bank was issued a Provisional Certificate of Sale and upon
petitioners’ failure to redeem the property, ownership was
consolidated in its favor.
According to petitioners, the foreclosure proceedings
should be annulled for failure to comply with the posting
and publication requirements. They also claimed that they
signed the Real Estate Mortgage and Promissory Note in
blank and were not given a copy and the interest rates
thereon were unilaterally fixed by the respondent.
Respondent bank’s motion to dismiss was denied, hence
it filed an answer with special affirmative defenses and
counterclaim. It also filed a set of written interrogatories
with 20 questions.
_______________
4 Penned by Judge Alfredo A. Cabral.

5 Rollo, p. 38.
6 Id., at pp. 63-69.
130

In an Order dated April 1, 2004, the trial court denied

Chinabank’s affirmative defenses for lack of merit as well
as its motion to expunge the complaint for being
premature. The trial court reiterated its denial of
Chinabank’s affirmative defenses in its Order dated
October 22, 2004 and directed the Clerk of Court to set the
pre-trial conference for the marking of the parties’
documentary evidence.
Aggrieved, respondent bank filed a petition for
certiorari under Rule 65 which was granted by the Court of
Appeals. It held that the trial court gravely abused its
discretion in issuing the two assailed Orders. It ruled that
compelling reasons warrant the dismissal of petitioners’
complaint because they acted in bad faith when they
ignored the hearings set by the trial court to determine the
veracity of Chinabank’s affirmative defenses; they failed to
answer Chinabank’s written in-terrogatories; and the
complaint states no cause of action.
On March 31, 2006, petitioners’ motion for
reconsideration was denied hence, the instant petition
raising the following issues:
I. THE HONORABLE COURT OF APPEALS

COMMITTED REVERSIBLE ERROR WHEN IT
ISSUED THE ASSAILED DECISION
DECLARING THAT THE PETITIONER[S’]
COMPLAINT DATED 12 FEBRUARY 2003 HAS
NO CAUSE OF ACTION.
II. CAUSE OF ACTION HAS BEEN SUFFICIENTLY
ESTABLISHED IN THE COMPLAINT AND THE
GROUND RELIED UPON BY THE PRIVATE
RESPONDENT BANK7 ARE MERE
EVIDENTIARY MATTERS.
The issues for resolution are: a) whether the complaint

states a cause of action and b) whether the complaint
should be dismissed for failure of petitioners to answer
respondent’s written interrogatories as provided for in
Section 3(c), Rule 29 of the Rules of Court.
The petition is meritorious.
_______________
7 Id., at p. 12.
131
VOL. 504, OCTOBER 9, 2006 131

Anent the first issue, the Court of Appeals ruled that the
complaint failed to state a cause of action because
petitioners admitted that they failed to redeem the
property and that ownership of the same was consolidated

in the name of Chinabank.
A cause of action is a formal statement of the operative
facts that give rise to a remedial right. The question of
whether the complaint states a cause of action is
determined by its averments regarding the acts committed
by the defendant. Thus it “must contain a concise
statement of the ultimate or essential facts constituting the
plaintiff’s cause of action.” Failure to make a sufficient
allegation of a8 cause of action in the complaint “warrants
its dismissal.”
As defined in Section 2, Rule 2 of the Rules of Court, a
cause of action is the act or omission by which a party
violates the right of another. Its essential elements are as
follows:
1. A right in favor of the plaintiff by whatever means

and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to
respect or not to violate such right; and
3. Act or omission on the part of such defendant in
violation of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the
plaintiff for which the latter may maintain an
action for recovery of damages or other appropriate
relief.
It is, thus, only upon the occurrence of the last element

that a cause of action arises, giving the plaintiff the right to
maintain an action in court 9
for recovery of damages or
other appropriate relief. In determining whether an
initiatory pleading states a cause of action, “the test is as
follows: admitting the truth of the facts alleged, can the
court render a
_______________
8 Goodyear Philippines, Inc. v. Sy, G.R. No. 154554, November 9, 2005,

474 SCRA 427, 434.
9 Swagman Hotels and Travel, Inc. v. Court of Appeals, G.R. No.
161135, April 8, 2005, 455 SCRA 175, 183.
132

valid judgment in accordance with the prayer?” To be taken

into account are only the material allegations in the
complaint; extraneous facts and circumstances or other
matters aliunde are not considered. The court may consider
in addition to the complaint the appended annexes or
documents, other10
pleadings of the plaintiff, or admissions
in the records.
In the instant case, petitioners specifically alleged that
respondent bank acted in bad faith when it extrajudicially
foreclosed the mortgaged property notwithstanding the
approval of the restructuring of their loan obligation. They
claimed that with such approval, respondent bank made
them believe that foreclosure would be held in abeyance.
They also alleged that the proceeding was conducted
without complying with the posting and publication
requirements.
Assuming these allegations to be true, petitioners can
validly seek the nullification of the foreclosure since the
alleged restructuring of their debt would effectively modify
the terms of the original loan obligations and accordingly
supersede the original mortgage thus making the
subsequent foreclosure void. Similarly, the allegation of
lack of notice if subsequently proven renders the 11
foreclosure a nullity in line with prevailing jurisprudence.
We find the allegations in the complaint sufficient to
establish a cause of action for nullifying the foreclosure of
the mortgaged property. The fact that petitioners admitted
that they failed to redeem the property and that the title
was consolidated in respondent bank’s name did not
preclude them from seeking to nullify the extrajudicial
foreclosure. Precisely, petitioners seek to nullify the
proceedings based on circumstances obtaining prior to and
during the foreclosure which render it void.
_______________
10 Goodyear Philippines, Inc. v. Sy, supra at p. 435.

11 Ardiente v. Provincial Sheriff, G.R. No. 148448, August 17, 2004, 436
SCRA 655, 665.
133
VOL. 504, OCTOBER 9, 2006 133

Anent the second issue, we do not agree with the Court of

Appeals’ ruling that the complaint should be dismissed for
failure of petitioners to answer respondent bank’s written

interrogatories.
It should be noted that respondent bank filed a motion
to expunge the complaint based on Section 3(c) of Rule 29
which states:
“SEC. 3. Other consequences.—If any party or an officer or

managing12 agent of a party refuses to obey an order made under
section 1 of this Rule requiring him to answer designated
questions, or an order under Rule 27 to produce any document or
other thing for inspection, copying, or photographing or to permit
it to be done, or to permit entry upon land or other property, or an
order made under Rule 28 requiring him to submit to a physical
or mental examination, the court may make such orders in regard
to the refusal as are just, and among others the following:
_______________
12 SECTION 1. Refusal to answer.—If a party or other deponent refuses

to answer any question upon oral examination, the examination may be
completed on other matters or adjourned as the proponent of the question
may prefer. The proponent may thereafter apply to the proper court of the
place where the deposition is being taken, for an order to compel an
answer. The same procedure may be availed of when a party or a witness
refuses to answer any interrogatory submitted under Rules 23 or 25.
If the application is granted, the court shall require the refusing party
or deponent to answer the question or interrogatory and if it also finds
that the refusal to answer was without substantial justification, it may
require the refusing party or deponent or the counsel advising the refusal,
or both of them, to pay the proponent the amount of the reasonable
expenses incurred in obtaining the order including attorney’s fees.
If the application is denied and the court finds that it was filed without
substantial justification, the court may require the proponent or the
counsel advising the filing of the application, or both of them, to pay to the
refusing party or deponent the amount of the reasonable expenses
incurred in opposing the application, including attorney’s fees.
134

xxxx
(c) An order striking out pleadings or parts thereof, or staying
further proceedings until the order is obeyed, or dismissing the
action or proceeding or any part thereof, or rendering a judgment
by default against
13
the disobedient party; and
x x x x.”
As we have explained
14
in Arellano v. Court of First Instance
of Sorsogon, the consequences enumerated in Section 3(c)
of Rule 29 would only apply where the party upon whom
the written interrogatories is served, refuses to answer a
particular question in the set of written interrogatories and
despite an order compelling him to answer the particular
question, still refuses to obey the order.
In the instant case, petitioners refused to answer the
whole set of written interrogatories, not just a particular
question. Clearly then, respondent bank should have filed
a motion based on Section 5 and not Section 3(c) of Rule 29.
Section 5 of Rule 29 reads:
“SEC. 5. Failure of party to attend or serve answers.—If a party or

an officer or managing agent of a party willfully fails to appear
before the officer who is to take his deposition, after being served
with a proper notice, or fails to serve answers to interrogatories
submitted under Rule 25 after proper service of such
interrogatories, the court on motion and notice, may strike out all
or any part of any pleading of that party, or dismiss the action or
proceeding or any part thereof, or enter a judgment by default
against that party, and in its discretion, order him to pay
reasonable expenses incurred by the other, including attorney’s
fees.”
Due to respondent bank’s filing of an erroneous motion,

the trial court cannot be faulted for ruling that the motion
to expunge was premature for lack of a prior application to
compel compliance based on Section 3.
_______________
13 See Rollo, p. 41.

14 G.R. No. L-34897, July 15, 1975, 65 SCRA 46, 63.
135
VOL. 504, OCTOBER 9, 2006 135

This Court has long encouraged the availment of the

various modes or instruments of discovery
15
as embodied in
Rules 24 to 29 of the Rules of Court. In the case of Hyatt
Industrial Manufacturing Corporation
16
v. Ley Construction
and Development Corporation, we declared:
“Indeed, the importance of discovery procedures is well recognized

by the Court. It approved A.M. No. 03-1-09-SC on July 13, 2004
which provided for the guidelines to be observed by trial court
judges and clerks of court in the conduct of pre-trial and use of

deposition-discovery measures. Under A.M. No. 03-1-09-SC, trial
courts are directed to issue orders requiring parties to avail of
interrogatories to parties under Rule 45 and request for
admission of adverse party under Rule 26 or at their discretion
make use of depositions under Rule 23 or other measures under
Rule 27 and 28 within 5 days from the filing of the answer. The
parties are likewise required to submit, at least 3 days before the
pre-trial, pre-trial briefs, containing among others a
manifestation of the parties of their having availed or their
intention to avail themselves of discovery procedures or referral to
commissioners.”
The imposition of sanctions under Section 5 is within the

sound discretion of the trial court. Thus,
17
in Insular Life
Assurance Co., Ltd. v. Court of Appeals, we held:
“The matter of how, and when, the above sanctions should be

applied is one that primarily rests on the sound discretion of the
court where the case pends, having always in mind the
paramount and overriding interest of justice. For while the modes
of discovery are intended to attain the resolution of litigations
with great expediency, they are not contemplated, however, to be
ultimate causes of injustice. It behooves trial courts to examine
well the circumstances of each case and to make their considered
determination thereafter. x x x”
_______________
15 Ong v. Mazo, G.R. No. 145542, June 4, 2004, 431 SCRA 56, 63.
16 G.R. No. 147143, March 10, 2006, 484 SCRA 286, 301-302.
17 G.R. No. 97654, November 14, 1994, 238 SCRA 88, 93.
136

WHEREFORE, the petition is GRANTED. The January 24,

2006 Decision and the March 31, 2006 Resolution of the
Court of Appeals in CA-G.R. SP No. 89148, which granted
respondent China Banking Corporation’s petition to annul
the April 1, 2004 and October 22, 2004 Orders of the
Regional Trial Court of San Jose, Camarines Sur, Branch
30 denying respondent bank’s affirmative defenses without
a hearing as well as its motion to expunge the complaint
because of petitioners’ failure to answer the written
interrogatories are REVERSED and SET ASIDE. The
instant case is REMANDED to the Regional Trial Court of

San Jose, Camarines Sur, Branch 30, for further
proceedings.
SO ORDERED.
Panganiban (C.J., Chairperson), Austria-Martinez,

Callejo, Sr. and Chico-Nazario, JJ., concur.
Petition granted, judgment and resolution reversed and

set aside. Case remanded to trial court.
Note.—In determining whether a complaint fails to

state a cause of action, only the allegations therein may be
properly considered. (Mondragon Leisure and Resorts
Corporation vs. United Coconut Planters Bank, 427 SCRA
585 [2004])
——o0o——
137
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4/5/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 504

126 SUPREME COURT REPORTS ANNOTATED

SPS. EXPEDITO ZEPEDA AND ALICE D. ZEPEDA,

Remedial Law; Actions; Cause of Action; A cause of action is a

VOL. 504, OCTOBER 9, 2006 127

Zepeda vs. China Banking Corporation

by the defendant. Thus it “must contain a concise statement of the

respect or not to violate such right; and 3. Act or omission on the

Same; Same; Same; In determining whether an initiatory

Same; Same; Same; Courts finds the allegations in the

128 SUPREME COURT REPORTS ANNOTATED

Zepeda vs. China Banking Corporation

tioners seek to nullify the proceedings based on circumstances

Same; Same; Interrogatories; Consequences enumerated in

PETITION for review on certiorari of the decision and

This petition for review under Rule 45 of 1the Rules of Court

VOL. 504, OCTOBER 9, 2006 129

4 Penned by Judge Alfredo A. Cabral.

130 SUPREME COURT REPORTS ANNOTATED

In an Order dated April 1, 2004, the trial court denied

I. THE HONORABLE COURT OF APPEALS

The issues for resolution are: a) whether the complaint

VOL. 504, OCTOBER 9, 2006 131

property and that ownership of the same was consolidated

1. A right in favor of the plaintiff by whatever means

It is, thus, only upon the occurrence of the last element

8 Goodyear Philippines, Inc. v. Sy, G.R. No. 154554, November 9, 2005,

132 SUPREME COURT REPORTS ANNOTATED

valid judgment in accordance with the prayer?” To be taken

10 Goodyear Philippines, Inc. v. Sy, supra at p. 435.

VOL. 504, OCTOBER 9, 2006 133

Anent the second issue, we do not agree with the Court of

failure of petitioners to answer respondent bank’s written

“SEC. 3. Other consequences.—If any party or an officer or

12 SECTION 1. Refusal to answer.—If a party or other deponent refuses

134 SUPREME COURT REPORTS ANNOTATED

“SEC. 5. Failure of party to attend or serve answers.—If a party or

Due to respondent bank’s filing of an erroneous motion,

13 See Rollo, p. 41.

VOL. 504, OCTOBER 9, 2006 135

This Court has long encouraged the availment of the

“Indeed, the importance of discovery procedures is well recognized

judges and clerks of court in the conduct of pre-trial and use of

The imposition of sanctions under Section 5 is within the

“The matter of how, and when, the above sanctions should be

136 SUPREME COURT REPORTS ANNOTATED

WHEREFORE, the petition is GRANTED. The January 24,

instant case is REMANDED to the Regional Trial Court of

Panganiban (C.J., Chairperson), Austria-Martinez,

Petition granted, judgment and resolution reversed and

Note.—In determining whether a complaint fails to

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

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