QUEDAN AND RURAL CREDIT GUARANTEE CORPORATION, (NO. 34, PANAY AVENUE, 1100 QUEZON CITY) PLAINTIFF-APPELLANT, VS. CAPITOL CITY BANK, INC., A RURAL BANK (FORMER CAPITOL RURAL BANK…

Quedan and Rural Credit Guarantee Corporation versus Capitol City Bank

The Case

This is a civil action for a sum of money. Quedan and Rural Credit Guarantee Corporation, the plaintiff, sued Capitol City Bank, a rural bank, to collect what it says is an unpaid obligation of more than one hundred two million pesos, inclusive of interest, penalties, and surcharges, as of June 2010. The bank answered that it had already paid and that the complaint stated no cause of action. The case matters not for the debt itself but for a single remedial question: when may a defendant still move to dismiss after it has already filed its answer, and may the trial court grant that motion on the strength of photocopied documents that the plaintiff contests, without any hearing at all? The Supreme Court answers both questions against the trial court.

Procedural History

Quedan filed its complaint for a sum of money with damages before the Regional Trial Court of Quezon City, Branch 96. Capitol City Bank filed its answer, raising no cause of action and payment. Quedan replied. The bank then filed a motion to dismiss with leave of court, repeating payment and adding that the plaintiff's counsel lacked authority to file the case. After an exchange of pleadings, the trial court granted the motion to dismiss on the ground of payment and denied Quedan's motion for reconsideration. Quedan appealed. The Court of Appeals reversed the trial court, and it is that reversal, elevated on appeal, that the Supreme Court now reviews.

Facts

In July 2010, Quedan sued Capitol City Bank to recover its total outstanding obligation, which it computed at one hundred two million, nine hundred forty four thousand, one hundred sixty nine pesos and eighty four centavos as of June 2010, inclusive of interest, penalties, and surcharges.

The bank answered in September 2010, raising two defenses: that the complaint stated no cause of action, and that the obligation had been paid. Quedan filed a reply. In October 2010, the bank filed a motion to dismiss with leave of court. It again invoked payment, and it added that the plaintiff's counsel had no personality or authority to represent the plaintiff.

The trial court granted the motion to dismiss on the ground of payment and denied reconsideration. In doing so, it relied on photocopies of a certification and of releases of mortgage that the bank had attached to its answer. Quedan had seriously contested those photocopies in its reply. The record showed no formal hearing to receive evidence on the factual question of payment.

Issues

• Whether or not the trial court erred in granting the bank's motion to dismiss, which was filed after the answer and rested on grounds outside the recognized exceptions to the rule against a second motion to dismiss.
• Whether or not the trial court erred in dismissing the complaint by giving evidentiary weight to photocopies of the certification and releases of mortgage attached to the answer, without a hearing and without trial.

Applicable Provisions

Section 1 of Rule 9 of the Rules of Court, the Omnibus Motion Rule, fixes when a motion to dismiss may come after the answer:

Section 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.

This is the saving clause the Court measures the bank's motion against, and the bank's grounds of payment and lack of counsel's authority fall outside it.

Section 2 of Rule 16 of the Rules of Court governs the hearing of a motion to dismiss:

Section 2. Hearing of Motion. At the hearing of the motion, the parties shall submit their arguments on the questions of law and their evidence on the questions of fact involved except those not available at that time. Should the case go to trial, the evidence presented during the hearing shall automatically be part of the evidence of the party presenting the same.

This provision requires a trial type hearing on the factual grounds of a motion to dismiss, and the Court finds the record silent on any such hearing.

Ruling

On the first issue, the Court holds that the appeal has merit. It states the basic norm: a motion to dismiss is filed within the time allowed but before the answer is filed. As a general rule, a motion to dismiss filed after the answer is filed is considered filed out of time, and the defending party is estopped from filing it. The Court recognizes only a few saving exceptions, drawn from the Omnibus Motion Rule: lack of jurisdiction over the subject matter, another action pending between the same parties for the same cause, the action being barred by a prior judgment, and the action being barred by the statute of limitations. It also notes the prospect of dismissal even after the answer upon discovery during trial of evidence that would constitute a ground for dismissal. Here, the motion to dismiss was undeniably filed after the answer. Its twin grounds, payment and the lawyer's alleged lack of authority, are beyond those exceptions. The motion was therefore filed out of time.

On the second issue, the Court holds that the trial court could not dismiss the complaint on the strength of photocopies that the plaintiff seriously contested in its reply. The record was silent as to any formal hearing to determine whether the issues raised in the motion were appreciated after receiving facts and evidence, rather than on bare allegations. The Court repeats its teaching that the issues raised in a motion to dismiss have to be determined in accordance with the evidence and facts presented, not on the basis of unsubstantiated allegations, and that courts could not afford to dismiss a litigant's complaint on the basis of half baked conclusions with no evidence to show for it. The demand for a clear factual finding to justify the grant or denial of a motion to dismiss cannot be dispensed with. The hearings on the motion should give the parties a full forum to present their evidence and to rebut the opposing party's evidence.

Doctrine

First, a motion to dismiss must be filed before the answer. One filed after the answer is filed out of time, and the defendant is estopped from filing it, unless the ground appears from the pleadings or the evidence on record and is one of the four saving exceptions under Section 1 of Rule 9: lack of jurisdiction over the subject matter, another action pending between the same parties for the same cause, the action barred by a prior judgment, or the action barred by the statute of limitations.

Second, when a motion to dismiss raises questions of fact, the court must hold a hearing under Section 2 of Rule 16, where the parties submit their arguments on questions of law and their evidence on questions of fact. The court may not dismiss a complaint on the basis of unsubstantiated allegations, contested photocopies, or half baked conclusions with no evidence to show for it.

Disposition

The appeal was granted. The resolutions of the trial court dismissing the complaint and denying reconsideration were reversed, and the case was ordered remanded for further proceedings.

Remember This

Memorize this line: a motion to dismiss filed after the answer is filed out of time unless it rests on one of the four saving exceptions, and a dismissal on factual grounds requires a hearing and evidence, not contested photocopies. Examiners use this case on the Omnibus Motion Rule, on the timing of a motion to dismiss, and on the mandatory hearing under Section 2 of Rule 16.