FIRST DIVISION

[G.R. No. 103576. August 22, 1996.]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC ,

petitioners, vs . HON. COURT OF APPEALS, PRODUCERS BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY ,
respondents.

Sotto & Sotto Law Offices for petitioners.

R. C. Domingo, Jr., & Associates for Producers Bank of the Philippines.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; APPEALS; APPEAL FROM JUDGMENT OF LOWER

COURTS, NOT A MATTER OF RIGHT BUT OF SOUND JUDICIAL DISCRETION. — Except in
criminal cases where the penalty of reclusion perpetua or death is imposed which the
Court so reviews as a matter of course, an appeal from judgments of lower courts is not a
matter of right but of sound judicial discretion. The circulars of the Court prescribing
technical and other procedural requirements are meant to weed out unmeritorious
petitions that can unnecessarily clog the docket and needlessly consume the time of the
Court. These technical and procedural rules, however, are intended to help secure, not
suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus
be allowed to attain the prime objective for, after all, the dispensation of justice is the core
reason for the existence of courts.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF SECURITY,
CONSTRUED. — Contracts of security are either personal or real. In contracts of personal
security, such as a guaranty or a suretyship, the faithful performance of the obligation by
the principal debtor is secured by the personal commitment of another (the guarantor or
surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that
ful llment is secured by an encumbrance of property — in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real estate mortgage,
by the execution of a public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor the right to receive the
fruits of an immovable property with the obligation to apply such fruits to the payment of
interest, if owing, and thereafter to the principal of his credit — upon the essential condition
that if the principal obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, but that should the
obligation be duly paid, then the contract is automatically extinguished proceeding from
the accessory character of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void.
3. ID.; ID.; CONTRACTS OF SECURITY; CHATTEL MORTGAGE; COVERS
OBLIGATION EXISTING AT TIME MORTGAGE IS CONSTITUTED; EFFECT OF PROMISE TO
INCLUDE DEBTS THAT ARE TO BE CONTRACTED. — While a pledge, real estate mortgage,
or antichresis may exceptionally secure after-incurred obligations so long as these future
debts are accurately described, a chattel mortgage, however, can only cover obligations
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 existing at the time the mortgage is constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding commitment that
can be compelled upon, the security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly contracted debt is executed
either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of
the borrower to execute the agreement so as to cover the after-incurred obligation can
constitute an act of default on the part of the borrower of the nancing agreement
whereon the promise is written but, of course, the remedy of foreclosure can only cover
the debts extant at the time of constitution and during the life of the chattel mortgage
sought to be foreclosed. In the chattel mortgage here involved, the only obligation
speci ed in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or terminated.
(Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.) The signi cance of
the ruling to the instant problem would be that since the 1978 chattel mortgage had
ceased to exist coincidentally with the full payment of the P3,000,000.00 loan, there no
longer was any chattel mortgage that could cover the new loans that were concluded
thereafter.
4. ID.; CHATTEL MORTGAGE LAW; EXECUTION OF AFFIDAVIT OF GOOD FAITH,
A CLEAR MANIFESTATION THAT DEBT REFERRED TO IS CURRENT. — A chattel mortgage,
as hereinbefore so intimated, must comply substantially with the form prescribed by the
Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an a davit
of good faith. While it is not doubted that if such an a davit is not appended to the
agreement, the chattel mortgage would still be valid between the parties (not against third
persons acting in good faith), the fact, however, that the statute has provided that the
parties to the contract must execute an oath makes it obvious that the debt referred to in
the law is a current, not an obligation that is yet merely contemplated.
5. ID.; DAMAGES; MORAL DAMAGES; NOT RECOVERABLE BY A JURIDICAL
PERSON. — We nd no merit in petitioner corporation's other prayer that the case should
be remanded to the trial court for a speci c nding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it." This
prayer is not re ected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages. In LBC Express, Inc. vs. Court of Appeals, we
have said: "Moral damages are granted in recompense for physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. A corporation, being an arti cial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it
cannot experience physical suffering and mental anguish. Mental suffering can be
experienced only be one having a nervous system and it ows from real ills, sorrows, and
griefs of life — all of which cannot be suffered by respondent bank as an arti cial person."
While Chua Pac is included in the case, the complaint, however, clearly states that he has
merely been so named as a party in representation of petitioner corporation.
6. LEGAL ETHICS; ATTORNEYS; SHOULD BE CIRCUMSPECT IN DEALING WITH
COURTS. — Petitioner corporation's counsel could be commended for his zeal in pursuing
his client's cause. It instead turned out to be, however, a source of disappointment for this
Court to read in petitioner's reply to private respondent's comment on the petition his so-
called "One Final Word;" viz: "In simply quoting in toto the patently erroneous decision of
the trial court, respondent Court of Appeals should be required to justify its decision which
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 completely disregarded the basic laws on obligations and contracts, as well as the clear
provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable
Court; that in the event that its explanation is wholly unacceptable, this Honorable Court
should impose appropriate sanctions on the erring justices. This is one positive step in
ridding our courts of law of incompetent and dishonest magistrates especially members
of a superior court of appellate jurisdiction. The statement is not called for. The Court
invites counsel's attention to the admonition in Guerrero vs. Villamor; thus: "(L)awyers . . .
should bear in mind their basic duty 'to observe and maintain the respect due to the courts
of justice and judical o cers and . . . (to) insist on similar conduct by others.' This
respectful attitude towards the court is to be observed, 'not for the sake of the temporary
incumbent of the judical o ce, but for the maintenance of its supreme importance.' And it
is 'through a scrupulous preference for respectful language that a lawyer best
demonstrates his observance of the respect due to the courts and judicial officers . . .'" The
virtues of humility and of respect and concern for others must still live on even in an age of
materialism. Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be
circumspect in dealing with the courts.

DECISION

VITUG , J : p

Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred? This
question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme
Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the
company, a chattel mortgage in favor of private respondent Producers Bank of the
Philippines. The mortgage stood by way of security for petitioner's corporate loan of three
million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this
effect —
"(c) If the MORTGAGOR, his heirs, executors or administrators shall
well and truly perform the full obligation or obligations above-stated according to
the terms thereof, then this mortgage shall be null and void. . . .
"In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof, or as a new loan,
or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust
Receipts, etc., this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations were existing on
the date thereof. This mortgage shall also stand as security for said obligations
and any and all other obligations of the MORTGAGOR to the MORTGAGEE of
whatever kind and nature, whether such obligations have been contracted before,
during or after the constitution of this mortgage." 1

In due time, the loan of P3,000,000.00 was paid by petitioner corporation.

Subsequently, in 1981, it obtained from respondent bank additional nancial
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 accommodations totalling P2,700,000.00. 2 These borrowings were on due date also fully
paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a
loan of one million pesos (P1,000,000.00) covered by four promissory notes for
P250,000.00 each. Due to nancial constraints, the loan was not settled at maturity. 3
Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel
mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner
corporation to forthwith le an action for injunction, with damages and a prayer for a writ
of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-
12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the
chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of
the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals 4 which, on 14 August 1991,
a rmed, "in all respects," the decision of the court a quo. The motion for reconsideration
was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied on 04
March 1992 by this Court for having been insu cient in form and substance. Private
respondent led a motion to dismiss the petition while petitioner corporation led a
compliance and an opposition to private respondent's motion to dismiss. The Court
denied petitioner's rst motion for reconsideration but granted a second motion for
reconsideration, thereby reinstating the petition and requiring private respondent to
comment thereon. 5
Except in criminal cases where the penalty of reclusion perpetua or death is
imposed 6 which the Court so reviews as a matter of course, an appeal from judgments of
lower courts is not a matter of right but of sound judicial discretion. The circulars of the
Court prescribing technical and other procedural requirements are meant to weed out
unmeritorious petitions that can unnecessarily clog the docket and needlessly consume
the time of the Court. These technical and procedural rules, however, are intended to help
secure, not suppress, substantial justice. A deviation from the rigid enforcement of the
rules may thus be allowed to attain the prime objective for, after all, the dispensation of
justice is the core reason for the existence of courts. In this instance, once again, the Court
is constrained to relax the rules in order to give way to and uphold the paramount and
overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or a suretyship, the faithful performance of the obligation by the
principal debtor is secured by the personal commitment of another (the guarantor or
surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that
ful llment is secured by an encumbrance of property — in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real estate mortgage,
by the execution of a public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor the right to receive the
fruits of an immovable property with the obligation to apply such fruits to the payment of
interest, if owing, and thereafter to the principal of his credit — upon the essential condition
that if the principal obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, 7 but that should the
obligation be duly paid, then the contract is automatically extinguished proceeding from
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 the accessory character 8 of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void. 9
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-
incurred obligations so long as these future debts are accurately described, 1 0 a chattel
mortgage, however, can only cover obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel mortgage to include debts that are
yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by concluding
a fresh chattel mortgage or by amending the old contract conformably with the form
prescribed by the Chattel Mortgage Law. 1 1 Refusal on the part of the borrower to execute
the agreement so as to cover the after-incurred obligation can constitute an act of default
on the part of the borrower of the nancing agreement whereon the promise is written but,
of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under
Section 5 thereof, is an a davit of good faith. While it is not doubted that if such an
a davit is not appended to the agreement, the chattel mortgage would still be valid
between the parties (not against third persons acting in good faith 1 2 ), the fact, however,
that the statute has provided that the parties to the contract must execute an oath that —
". . . (the) mortgage is made for the purpose of securing the obligation
speci ed in the conditions thereof, and for no other purpose, and that the same is
a just and valid obligation, and one not entered into for the purpose of fraud." 13

makes it obvious that the debt referred to in the law is a current, not an obligation that
is yet merely contemplated. In the chattel mortgage here involved, the only obligation
speci ed in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al. , 14
the Court said—
". . . A mortgage that contains a stipulation in regard to future advances in
the credit will take effect only from the date the same are made and not from the
date of the mortgage." 1 5

The signi cance of the ruling to the instant problem would be that since the 1978
chattel mortgage had ceased to exist coincidentally with the full payment of the
P3,000,000.00 loan, 1 6 there no longer was any chattel mortgage that could cover the new
loans that were concluded thereafter.
We nd no merit in petitioner corporation's other prayer that the case should be
remanded to the trial court for a speci c nding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it." 1 7
This prayer is not re ected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages. 1 8 In LBC Express, Inc. vs. Court of Appeals,
1 9 we have said:

"Moral damages are granted in recompense for physical suffering, mental

anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
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 shock, social humiliation, and similar injury. A corporation, being an arti cial
person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and
mental anguish. Mental suffering can be experienced only by one having a
nervous system and it ows from real ills, sorrows, and griefs of life — all of
which cannot be suffered by respondent bank as an artificial person." 20

While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his
client's cause. It instead turned out to be, however, a source of disappointment for this
Court to read in petitioner's reply to private respondent's comment on the petition his so-
called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial court,
respondent Court of Appeals should be required to justify its decision which
completely disregarded the basic laws on obligations and contracts, as well as
the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of
this Honorable Court; that in the event that its explanation is wholly unacceptable,
this Honorable Court should impose appropriate sanctions on the erring justices.
This is one positive step in ridding our courts of law of incompetent and
dishonest magistrates especially members of a superior court of appellate
jurisdiction." 2 1 (Emphasis supplied.)
The statement is not called for. The Court invites counsel's attention to the
admonition in Guerrero vs. Villamor; 2 2 thus:
"(L)awyers . . . should bear in mind their basic duty 'to observe and
maintain the respect due to the courts of justice and judicial o cers and . . . (to)
insist on similar conduct by others.' This respectful attitude towards the court is
to be observed, 'not for the sake of the temporary incumbent of the judicial o ce,
but for the maintenance of its supreme importance.' And it is 'through a
scrupulous preference for respectful language that a lawyer best demonstrates
his observance of the respect due to the courts and judicial officers . . ..'" 2 3

The virtues of humility and of respect and concern for others must still live on even
in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court
are set aside without prejudice to the appropriate legal recourse by private respondent as
may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in
dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ ., concur.
Padilla, J ., took no part.
Bellosillo, J ., is on leave.

Footnotes
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 1. Rollo, p. 45.
2. Ibid., p. 34.
3. Ibid.
4. Associate Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo
L. Pronove, Jr. and Nicolas P. Lapeña, Jr., concurring.
5. In the Court's resolution, dated 27 May 1992, Rollo, p. 91.
6. Sec. 5 (2)(d), Art. VIII, 1987 Constitution.
7. See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.

8. See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.
9. See Sec. 3, Act 1508.
10. See Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil. 703.
11. Act No. 1508.
12. See Philippine Refining Co. vs. Jarque, 61 Phil. 229.

13. Civil Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Griño-Aquino, pp.
610-611.

14. 49 Phil. 647.

15. At p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company , 113 SCRA
107.
16. Being merely accessory in nature, it cannot exist independently of the principal
obligation.

17. Petitioner's Memorandum, p. 5; Rollo, p. 119.

18. Complaint, p. 6; Record, p. 9.
19. 236 SCRA 602.
20. At p. 607.

21. Rollo, p. 113.

22. 179 SCRA 355, 362.
23. At p. 362.

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 FIRST DIVISION

[G.R. No. 59255. December 29, 1995.]

OLIVIA M. NAVOA and ERNESTO NAVOA , petitioners, vs. COURT OF

APPEALS, TERESITA DOMDOMA and EDUARDO DOMDOMA ,
respondents.

People's Law Office for petitioners.

Abelardo L. Esplana for private respondents.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; ESTOPPEL; PARTY WHO ACTIVELY

PARTICIPATED IN PROCEEDING, ESTOPPED FROM ASSAILING JURISDICTION OF
APPELLATE COURT AFTER RECEIVING AN ADVERSE JUDGMENT THEREFROM. — We
cannot sustain the petition. Petitioners are now estopped from assailing the appellate
jurisdiction of the Court of Appeals after receiving an adverse judgment therefrom. Having
participated actively in the proceedings before the appellate court, petitioners can no
longer question its authority.
2. ID.; ID.; CAUSE OF ACTION; REQUISITES. — A cause of action is the fact or
combination of facts which affords a party a right to judicial interference in his behalf. The
requisites for a cause of action are: (a) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created, (b) an obligation on the part of the
defendant to respect and not to violate such right; and, (c) an act or omission on the part
of the defendant constituting a violation of the plaintiff's right or breach of the obligation
of the defendant to the plaintiff. Brie y stated, it is the reason why the litigation has come
about; it is the act or omission of defendant resulting in the violation of someone's right. ASIDTa

3. ID.; ID.; ID.; ID.; CASE AT BAR. — In their rst cause of action private
respondents Eduardo and Teresita Domdoma alleged that petitioner Olivia Navoa obtained
from the latter a ring valued at P15,000.00 and issued as security therefor a check for the
same amount dated 15 August 1977 with the condition that if the ring was not returned
within fifteen (15) days the ring would be considered sold. The ring was considered sold to
the petitioner Olivia Navoa 15 days from 15 August 1977 and despite the sale the latter
failed to pay the price therefor even as she was given ample time to pay the agreed
amount covered by a check. Clearly, respondent Teresita Domdoma's right under the
agreement with petitioner Olivia Navoa was violated by the latter. In the second to the sixth
causes of action it was alleged that private respondents granted loans to petitioners in
different amounts on different dates. All these loans were secured by separate checks
intended for each amount of loan obtained and dated one month after the contracts of
loan were executed. That when these checks were deposited on their due dates they were
all dishonored by the bank. As a consequence, private respondents prayed that petitioners
be ordered to pay the amounts of the loans granted to them plus one percent interest
monthly from the dates the checks were dishonored until fully paid. Petitioners failed to
make good the checks on their due dates for the payment of their obligations. Hence,
private respondents led the action with the trial court precisely to compel petitioners to
pay their due and demandable obligations. Art. 1169 of the Civil Code is explicit — those
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 obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the ful llment of their obligation. The continuing refusal
of petitioners to heed the demand of private respondents stated in their complaint
unmistakably shows the existence of a cause of action on the part of the latter against the
former. Quite obviously, the trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in remanding the case
to the trial court for the filing of an answer by petitioners and to try the case on the merits.
4. ID.; ID.; MOTION TO DISMISS; LACK OF CAUSE OF ACTION; EXISTENCE MAY
BE DETERMINED ONLY BY THE ALLEGATIONS IN THE COMPLAINT. — In determining the
existence of a cause of action, only the statements in the complaint may properly be
considered. Lack of cause of action must appear on the face of the complaint and its
existence may be determined only by the allegations of the complaint, consideration of
other facts being proscribed and any attempt to prove extraneous circumstances not
being allowed. From the allegations in the complaint there is no other fair inference than
that the loans were payable one month after they were contracted and the checks issued
by petitioners were drawn to answer for their debts to private respondents. HCITcA

5. ID.; ID.; ID.; ID.; DEFENDANT DEEMED TO HAVE ADMITTED ALL THE
AVERMENTS IN THE COMPLAINT. — If a defendant moves to dismiss the complaint on the
ground of lack of cause of action, such as what petitioners did in the case at bar, he is
regarded as having hypothetically admitted all the averments thereof. The test of
su ciency of the facts found in a complaint as constituting a cause of action is whether or
not admitting the facts alleged the court can render a valid judgment upon the same in
accordance with the prayers thereof. The hypothetical admission extends to the relevant
and material facts well pleaded in the complaint and inferences fairly deducible therefrom.
Hence, if the allegations in a complaint furnish su cient basis by which the complaint can
be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SECURITY, DEFINED. — The
term security is de ned as a means of ensuring the enforcement of an obligation or of
protecting some interest in property. It may be personal, as when an individual becomes a
surety or a guarantor; or a property security, as when a mortgage, pledge, charge, lien, or
other device is used to have property held, out of which the person to be made secure can
be compensated for loss. Security is something to answer for as a promissory note. That
is why a secured creditor is one who holds a security from his debtor for payment of a
debt. DHACES

DECISION

BELLOSILLO , J : p

Petitioners Olivia M. Navoa and Ernesto Navoa seek reversal of the decision of the
Court of Appeals 1 which "modi ed" the order of the trial court dismissing the complaint
for lack of cause of action. The appellate court remanded the case to the court a quo for
private respondents to file their responsive pleading and for trial on the merits.
On 17 December 1977 private respondents led with the Regional Trial Court of
Manila an action against petitioners for collection of various sums of money based on
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 loans obtained by the latter. On 3 January 1978 petitioners led a motion to dismiss the
complaint on the ground that the complaint stated no cause of action and that plaintiffs
had no capacity to sue.
After private respondents submitted their opposition to the motion to dismiss on 9
January 1978 the trial court dismissed the case. A motion to reconsider the dismissal was
denied.
On 27 March 1978 private respondents appealed to the Court of Appeals which on
11 December 1980 modi ed the order of dismissal "by returning the records of this case
for trial on the merits, upon ling of an answer subject to the provisions of Articles 1182
and 1197 of the Civil Code for the rst cause of action. The other causes of action should
be tried on the merits subject to the defenses the defendants may allege in their answer."
The instant petition alleges that respondent court erred: (a) in not dismissing the
appeal for lack of appellate jurisdiction over the case which involves merely a question of
law; (b) in not a rming the order of dismissal for lack of cause of action; and, (c) in
holding that private respondents have a cause of action under the second to the sixth
causes of action of the complaint. 2
We cannot sustain the petition. Petitioners are now estopped from assailing the
appellate jurisdiction of the Court of Appeals after receiving an adverse judgment
therefrom. 3 Having participated actively in the proceedings before the appellate court,
petitioners can no longer question its authority.
Petitioners submit that private respondents failed to specify in their complaint a
xed period within which petitioners should pay their obligations; that instead of stating
that petitioners failed to discharge their obligations upon maturity private respondents
sought to collect on the checks which were issued to them merely as security for the
loans; and, that private respondents failed to make a formal demand on petitioners to
satisfy their obligations before filing the action.
For a proper determination of whether the complaint led by private respondents
su ciently stated a cause of action, we shall examine the relevant allegations in the
complaint, to wit:
Allegations Common To All Causes of Actions
xxx xxx xxx
3. That sometime in . . . February, 1977, when the Reycard Duet was in
Manila, plaintiff Teresita got acquainted with defendant Olivia in the jewelry
business, the former selling the jewelries of the latter; that to the Reycard Duet
alone, plaintiff Teresita sold jewelries worth no less than ONE HUNDRED TWENTY
THOUSAND (P120,000.00) PESOS in no less than twenty (20) transactions; that
even when the Reycards have already left, their association continued, and up to
the month of August, 1977, plaintiff Teresita sold for defendant Olivia jewelries
worth no less than TWENTY THOUSAND (P20,000.00) PESOS, in ten (10)
transactions more or less;
xxx xxx xxx

5. That sometime in the months of June and July of 1977, defendant

Olivia, on two occasions, asked for a loan from plaintiff Teresita, for the purpose
of investing the same in the purchase of jewelries, which loan were secured by
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 personal checks of the former; that in connection with these loans, defendant
promised plaintiff a participation in an amount equivalent to one half (1/2) of the
pro t to be realized; that on these loans, plaintiff was given a share in the amount
of P1,200.00 in the rst transaction, and in the second transaction, the sum of
P950.00;
First Cause of Action
6. That on August 15, 1977, defendant Olivia got from plaintiff
Teresita, one diamond ring, one and one half (1-1/2) karats, heart shape, valued in
the amount of Fifteen thousand (P15,000.00) Pesos; that as a security for the
said ring, Olivia issued a Philippine Commercial and Industrial Bank Check, San
Sebastian Branch, dated August 15, 1977, No. 13894, copy of which is hereto
attached and made a part hereof as Annex "A";
7. That the condition of the issuance of the check was — if the ring is
not returned within fteen (15) days from August 15, 1977, the ring is considered
sold; that after fteen days, plaintiff Teresita asked defendant Olivia if she could
deposit the check, and the answer of defendant Olivia was — hold it for sometime,
until I tell you to deposit the same; that the check was held until the month of
November, 1977, and when deposited, it was dishonored for lack of su cient
funds; that for the reason that the aforementioned check was not honored when
deposited, defendant Olivia should be held liable for interest at the rate of one
percent a month, from date of issue, until the same is fully paid;
Second Cause of Action
8. That on August 25, 1977, plaintiff Teresita extended a loan to the
herein defendant Olivia in the amount of TEN THOUSAND (P10,000.00) PESOS,
secured by a Philippine Commercial and Industrial Bank Check, PCIBANK
Singalong Branch, No. 14307, dated Sept. 25, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "B";

9. That this loan was extended upon representation of defendant

Olivia that she needed money to pay for jewelries which she can resell for a big
pro t; that having established her goodwill, by reason of the transaction
mentioned in par. "5" hereof, the loan was extended by plaintiff;

10. That this check, Annex "B", when deposited was dishonored; that
for the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) per month, from
the date of issue until fully paid;
Third Cause of Action
11. That on August 27, 1977, plaintiff extended to defendant Olivia a
loan in the amount of FIVE THOUSAND PESOS (P5,000.00), secured by a
Philippine Commercial & Industrial Bank check, PCIBANK Singalong Branch, No.
14308, dated Sept. 27, 1977, photo copy of which is hereto attached and made a
part hereof as Annex "C";
12. That this loan was extended on the same representation made by
defendant Olivia, stated in par. "9", under the terms and conditions stated in par.
"5" hereof;
13. That the check Annex "C", has not as yet been paid up to now,
hence, defendant Olivia should be held liable for interest at the rate of one percent
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 (1%) monthly, from date of issue, until fully paid;
Fourth Cause of Action
14. That on August 30, 1977, plaintiff Teresita, extended a loan in
favor of defendant Olivia, in the amount of Five Thousand (P5,000.00) Pesos,
secured by a Philippine Commercial and Industrial Bank Check, PCIBANK
Singalong Branch, No. 14311, dated Sept. 30, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "D";

15. That this loan was extended on the same representation made by
defendant Olivia, as stated in par. "9" hereof, under the terms and conditions
stated in par. "5" hereof;

16. That this check, Annex "D" has not as yet been paid up to now,
hence, she should be held liable for interest thereon at the rate of one percent (1%)
per month, from date of issue, until fully paid;
Fifth Cause of Action
17. That on Sept. 15, 1977, plaintiff Teresita extended a loan in favor
of defendant Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS,
secured by a Philippine Commercial & Industrial Bank check, PCIBANK Singalong
Branch, No. 14320, dated October 15, 1977, photo copy of which is hereto
attached and made a part hereof as Annex "E";

18. That this loan was given on the same representation made by
defendant Olivia, stated on par. "9" hereof, and under the terms and conditions
stated in par. "5" hereof;
19. That this check Annex "E" when deposited was dishonored; that for
the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest at the rate of one percent (1%) monthly, from
date of issue, until fully paid;

Sixth Cause of Action

20. That on Sept. 27, 1977, plaintiff Teresita extended a loan to
defendant Olivia, in the amount of TEN THOUSAND (P10,000.00) PESOS, secured
by a Philippine Commercial & Industrial Bank check, No. 14325, dated October 27,
1977, photo copy of which is hereto attached and made a part hereof as Annex
"F";

21. That this loan was given on the same representation made by
defendant Olivia, stated in par. "9" hereof, and under the terms and conditions
stated in par. "5" hereof;

22. That this check, Annex F, when deposited was dishonored; that for
the reason that the check was dishonored when deposited, defendant Olivia
should be held liable for interest thereon, at the rate of one percent (1%) monthly,
from date of issue, until fully paid;

Seventh Cause of Action

23. That plaintiff, by reason of the two transactions in par. "5" hereof,
reposed trust and con dence on defendant Olivia, however, by virtue of these
trust and con dence, she availed of the same in securing the loans
aforementioned by misrepresentations, and as a direct consequence thereof, the
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 loans have not as yet been settled up to now, for which plaintiff Teresita suffered
sleepless nights, mental torture and wounded feelings, for the reason that the
money used in said transactions do all belong to her; that this situation is further
aggravated by the malicious act of defendant Olivia, by having led a complaint
with the Manila Police, to the effect that she (Teresita) stole the checks involved
in this case; that as a consequence thereof, she was investigated and she
suffered besmirched reputation, social humiliation, wounded feelings, moral
shock and similar injuries, for which defendant Olivia should be held liable, as
and by way of moral damages in the amount of EIGHTY THOUSAND
(P80,000.00)PESOS;

Eight Cause of Action

24. That as and by way of exemplary or corrective damages, to serve
as an example or correction for the public good, defendant Olivia should be held
liable to pay to the herein plaintiff Teresita, the amount of Ten Thousand Pesos,
as exemplary damages;
Ninth Cause of Action
25. That plaintiff, in order to protect her rights and interests, engaged
the services of the undersigned, and she committed herself to pay the following:
a. The amount of P200.00 for every appearance in the trial of this
case.
b. The amount of P2,000.00 as retainers fees.
c. An amount equivalent to ten percent of any recovery from
defendant.

On the basis of the allegations under the heading Allegations Common to all Causes
of Action above stated as well as those found under the First Cause of Action to the Ninth
Cause of Action, should the complaint be dismissed for want of cause of action?
A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created, (b)
an obligation on the part of the defendant to respect and not to violate such right; and, (c)
an act or omission on the part of the defendant constituting a violation of the plaintiff's
right or breach of the obligation of the defendant to the plaintiff. 4 Brie y stated, it is the
reason why the litigation has come about; it is the act or omission of defendant resulting in
the violation of someone's right. 5
In determining the existence of a cause of action, only the statements in the
complaint may properly be considered. Lack of cause of action must appear on the face of
the complaint and its existence may be determined only by the allegations of the
complaint, consideration of other facts being proscribed and any attempt to prove
extraneous circumstances not being allowed.
If a defendant moves to dismiss the complaint on the ground of lack of cause of
action, such as what petitioners did in the case at bar, he is regarded as having
hypothetically admitted all the averments thereof. The test of su ciency of the facts
found in a complaint as constituting a cause of action is whether or not admitting the facts
alleged the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well
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 pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the
allegations in a complaint furnish su cient basis by which the complaint can be
maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants. 6
In their rst cause of action private respondents Eduardo and Teresita Domdoma
alleged that petitioner Olivia Navoa obtained from the latter a ring valued at P15,000.00
and issued as security therefor a check for the same amount dated 15 August 1977 with
the condition that if the ring was not returned within fteen (15) days the ring would be
considered sold; and, after the lapse of the period, private respondent Teresita Domdoma
asked to deposit the check but petitioner Olivia Navoa requested the former not to deposit
it in the meantime; that when Teresita Domdoma deposited the check after holding it for
sometime the same was dishonored for lack of funds. Private respondent Teresita
Domdoma sought to collect the amount of P15,000.00 plus interest from 15 August 1977
until fully paid.
From these facts the ring was considered sold to petitioner Olivia Navoa 15 days
from 15 August 1977 and despite the sale the latter failed to pay the price therefor even as
the former was given ample time to pay the agreed amount covered by a check. Clearly,
respondent Teresita Domdoma's right under the agreement with petitioner Olivia Navoa
was violated by the latter.
In the second to the sixth causes of action it was alleged that private respondents
granted loans to petitioners in different amounts on different dates. All these loans were
secured by separate checks intended for each amount of loan obtained and dated one
month after the contracts of loan were executed. That when these checks were deposited
on their due dates they were all dishonored by the bank. As a consequence, private
respondents prayed that petitioners be ordered to pay the amounts of the loans granted
to them plus one percent interest monthly from the dates the checks were dishonored
until fully paid.
Culled from the above, the right of private respondents to recover the amounts
loaned to petitioners is clear. Moreover, the corresponding duty of petitioners to pay
private respondents is undisputed. The question now is whether petitioners committed an
act or omission constituting a violation of the right of private respondents.
All the loans granted to petitioners are secured by corresponding checks dated a
month after each loan was obtained. In this regard, the term security is de ned as a means
of ensuring the enforcement of an obligation or of protecting some interest in property. It
may be personal, as when an individual becomes a surety or a guarantor; or a property
security, as when a mortgage, pledge, charge, lien, or other device is used to have property
held, out of which the person to be made secure can be compensated for loss. 7 Security
is something to answer for as a promissory note. 8 That is why a secured creditor is one
who holds a security from his debtor for payment of a debt. 9 From the allegations in the
complaint there is no other fair inference than that the loans were payable one month after
they were contracted and the checks issued by petitioners were drawn to answer for their
debts to private respondents.
Petitioners failed to make good the checks on their due dates for the payment of
their obligations. Hence, private respondents led the action with the trial court precisely
to compel petitioners to pay their due and demandable obligations. Art. 1169 of the Civil
Code is explicit — those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the ful llment of their
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 obligation. The continuing refusal of petitioners to heed the demand of private
respondents stated in their complaint unmistakably shows the existence of a cause of
action on the part of the latter against the former.
Quite obviously, the trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in remanding the case
to the trial court for the filing of an answer by petitioners and to try the case on the merits.
WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11
December 1980 remanding the case to the trial court for the ling of petitioners' answer
and thereafter for trial on the merits is AFFIRMED. Costs against petitioners.
SO ORDERED
Padilla, Davide, Jr., Kapunan and Hermosisima, JJ., concur.

Footnotes
1. Penned by Associate Justice Jorge R. Coquia, concurred in by Associate Justices
Samuel F. Reyes and Mariano A. Zosa.
2. Rollo, pp. 10-13.
3. Summit Guaranty and Insurance Company, Inc. v. Court of Appeals, G.R. No. 51539, 14
December 1981, 110 SCRA 241.
4. Rava Development Corporation v. Court of Appeals, G.R. No. 96825, 3 July 1992, 211
SCRA 114.
5. Paras, Edgar L., Rules of Court Annotated, 1989 Ed., Vol. I, p. 44.
6. See Note 4.

7. Sibal, Jose Agaton R., Philippine Legal Encyclopedia, 1986 Ed., p. 928.
8. Moreno, Federico B., Philippine Law Dictionary , 1988 Ed., p. 868.
9. See Note 8.

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