Westmont Bank vs.

Funai Philippines CRIMPRO: Rule 16 – Motion to Dismiss

119
GR. No. 175733 July 8, 2015 Perlas-Bernabe, J. Grace
Petitioners: Respondents:
[GR No. 175733] [GR No. 175733]
Westmont Bank (now Original Defendants: Funai Philippines Corp., Sps. Antonio & Sylvia
United Overseas Bank) Yutingco
Additional Defendants: Panamax Corp., Pepito Ong Ngo, Richard N. Yu,
Aimee R. Alba, Annabelle Baesa, Nenita Resane, Maria Ortiz
[GR No. 180162] [GR No. 180162]
Carmelo v. Cachero (Sheriff) Westmont Bank (now United Overseas Bank)
Recit Ready Summary
Funai Philippines Corp. (Funai) and Sps. Yutingco obtained a PHP 10 Mil loan from Westmont Bank.
Because of Funai & Sps. Yutingco’s failure to pay the loan, Westmont Bank filed with RTC Manila a
complaint for sum of money and a writ of preliminary attachment to recover the loan from them.

Subsequently, Westmont filed 2 Amended Complaints to implead as Additional Defendants: Panamax

Corp., Ngo, Yu, Alba, Baesa, Resane, and Ortiz. Westmont alleges that these Additional Defendants are
mere alter egos, dummies, and conduits of Sps. Yutingco to defraud their creditors, such as Westmont.

The Additional Defendants moved to dismiss the complaint, alleging that Westmont’s complaint has no
cause of action against them and they were not parties-in-interest absent any proof linking them to the
transaction between Westmont and Funai & Sps. Yutingco.

RTC eventually adjudged Funai & Sps. Yutico solidarily liable for the PHP 10 Million with Westmont, but
dismissed the Amended Complaints (impleading the Additional Defendants) for failure to state a
cause of action as Westmont’s allegations were mere inferences of fact (and are not ultimate facts).

When Westmont appealed with the CA, the CA affirmed the RTC decision dismissing the Amended
Complaints, ruling that Westmont had no cause of action against the Additional Defendants as they had
no participation in Funai & Sps. Yutingco’s execution of the PNs. Hence, this petition.

Issue: Is CA correct in holding that the Additional Defendants are not necessary parties to the case, thus
warranting the dismissal of the Amendment Complaint? – Yes

RTC & CA both dismissed Westmont’s Amended Complaints to implead the Additional Defendants, but
differed on the grounds:
RTC: failure to state a cause of action CA: lack of cause of action
- Refers to insufficiency of the allegations in - Refers to insufficiency of the factual basis
the pleading for the action
- Dismissal: may be raised at the earliest - Dismissal: may be raised any time after the
stages of the proceedings through a questions of fact have been resolved on
Motion to Dismiss under Rule 16, Rules of the basis of stipulations, admissions, or
Court evidence presented by the plaintiff
The CA’s ground of lack of cause of action of the Amended Complaints cannot be the basis for dismissal
as there has yet no stipulations, admission or evidence that has been presented in this case. But anyway,
the Amended Complaints are still dismissible on the ground of failure to state a cause of action, as
the RTC correctly held. A complaint that states a sufficient cause of action when it complies with all
these 3 essential elements:
✓ A right in favor of the plaintiff, by whatever means and under whatever law it arises
✓ An obligation on the part of the defendant to respect/not to violate such right
✓ An act/omission by the defendant violating the right of the plaintiff or constituting a breach of the
obligation of the defendant for which the plaintiff may maintain an action for recovery of damages
→ If these elements do not concur, the complaint becomes vulnerable to a Motion to Dismiss
on the ground of failure to state a cause of action.

Westmont’s Amended Complaints readily show their failure to state a cause of action as the allegations do
not offer ultimate facts (as required by Sec. 5, Rule 8 of the RoC) which would warrant an action against
the Additional Defendants for the collection of the amount due on the PNs. In the absence of specific
averments, the complaints present no basis upon which the SC should act or for the defendant to
meet the complaint with an intelligent answer. Thus, the complaint must be dismissed for failure to
state a cause of action, as what the RTC did. 1
The SC also further held that while facts alleged in a complaint are hypothetically admitted by the
defendant who moves to dismiss the complaint on the ground of failure to state a cause of action, it should
be remembered that the hypothetical admission extends only to the relevant and material facts well
pleaded in the complaint, as well as inferences fairly deductible therefrom.

SC affirms the CA decision and dismissed the Amended Complaints impleading the Additional Defendants
in the case.
Facts
1. Around April to May 1997, Funal Philippines Corp. (Funai) and Sps. Antonio & Sylvia Yutingco
(Sps. Yutingco) obtained several loans amounting to PHP 10 Million loan from Westmont Bank.
2. The Promissory Notes (PNs) covering the loans all commonly provide that in case these PNs are
referred to an attorney-at-law or a collection agency, or a suit is instituted in court for collection, Sps.
Yutingco shall be liable to pay 20% of the total amount due as attorney’s fees, exclusive of costs of
suit and other expenses.
3. Funai and Sps. Yutingco were not able to pay the loans when it fell due despite Westmont’s demands.
So, Westmont filed a Complaint for sum of money with prayer for the issuance of a writ of preliminary
attachment (WOPA) before the RTC Manila Br. 49 on 16 Jan. 1998 [Civil Case No. 98-86853]
Procedural History
A. RTC Proceedings
1. 19 Feb. 1998: RTC issued a WOPA after an ex parte hearing and ordered the attachment of real and
personal properties of Funai and Sps. Yutingco. (no mention of what the properties were levied)
2. 24 Mar. 1998: RTC issued an Order directing the attachment of properties under the names of
other persons but are under the control of Funai and Sps. Yutingco. RTC ordered Sheriff Gerry
Duncan and Sheriff Carmelo Cachero to levy and seize the the following properties:
a. No. 9 Northpark Avenue, Bellevue, Grace Village, Quezon City
b. 2nd Level, Phase III, Sta. Lucia East Grand Mall, Cainta, Rizal (Sta. Lucia)
3. Pepito Ong Ngo (Ngo), Acting President of Panamax Corp. (Panamax) filed with the RTC a 3rd Party
Claim over the Sta. Lucia Property, claiming that Panamax is the true and lawful owner of Sta. Lucia
4. [IMPORTANT] 20 Apr. 1998: Westmont filed an Amended Complaint to implead as Additional
Defendants Panamax, Ngo, Aimee Alba, Richard Yu, Annabelle Baesa, Nenita Resane, and praying
that they be declared as mere alter egos, conduits, dummies, or nominees of Sps. Yutingco to
defraud their creditors, including Westmont. A 2nd Amended Complaint (Aug. 6, 1998) was submitted
by Westmont to include Maria Ortiz to the roster of additional defendants. [Amended Complaints]
5. 14 Aug. 1998: Funai & Sps. Yutingco filed an Answer with Counterclaim saying that nonpayment
of the loan was due to circumstances beyond their control and occasioned by Westmont’s sudden
treacherous manipulation leaving them with no room to make arrangements for payment. They also
asked for attorney’s fees, actual & moral damages for the irregular levy of their properties.
a. Additional Defendants moved to Dismiss the complaint and also filed an Answer, alleging
that the Westmont’s complaint (a) stated no cause of action against them, considering the
lack of legal tie with Westmont, and (b) that they were not parties-in-interest absent any proof
linking them to the transaction between Westmont and Funai & Sps. Yutingco.
6. 11 Dec. 1998: Westmont moved for a judgment on the pleadings. During its pendency, a public
auction sale of the Yutingco properties, conducted on 16 Mar. 2001, realized an amount of PHP 1.03
Million
7. 20 June 2001 [RTC Decision]: RTC adjudged Funai & Sps. Yutingco jointly and severally liable for
the PHP 10 Million loan, less PHP 1.03 Million realized from the public auction sale, and 19% legal
interest.
a. [IMPORTANT] RTC dismissed the Amended Complaints (impleading the additional
defendants) for failure to state a cause of action in Westmont’s complaint as its allegations
were mere inferences of fact (not ultimate facts). Thus, RTC ordered the return of the wrongfully
seized Sta. Lucia property to Panamax.
b. Westmont’s partial motion for reconsideration (MR) was also denied. So, Westmont filed a
notice of partial appeal with the CA [CA GR CV No. 71933].
8. 6 July 2001: Additional Defendants filed a Motion for Execution Pending Appeal with the RTC
for the return of the wrongfully seized items. RTC Granted this motion in 17 July 2001 [RTC
Execution Order 17 July 2001].
a. 23 July 2001: Westmont refused to release the seized properties so RTC issued another
Order [RTC Execution Order 23 July 2001] enjoining Westmont to comply with the order of
execution, otherwise a Break-Open Order shall be issued.
b. Aggrieved, Westmont filed with the CA a petition for certiorari with a prayer for a TRO or Writ of
Preliminary Injunction (WOPI) to prevent the RTC and additional defendants from implementing 2
 the July 17 & 23, 2001 Execution Orders. [CA GR SP No. 65785]
9. 25 July 2001: Westmont still refused to release the seized properties, so RTC issued a Break-Open
Order on 25 July 2001 to enforce the execution orders.
a. 26 July 2001: CA issued a TRO enjoining Sheriffs Duncan and Cachero from enforcing the
execution orders.
i. 2:30 PM – CA Process Server Alfredo Obrence, Jr. (Obrence) duly served a copy of the
TRO to the RTC Clerk of Court and also informed Sheriff Cachero of such TRO over the
phone. But bad ass Sheriff Cachero still proceeded with implementing the writ of
execution.
ii. 3:00 PM – Westmont’s representative was able to secure a fax copy of the TRO. This fax
copy was shown to Sheriff Cachero, but bad ass Sheriff Cachero merely ignored it.
Various audio, video, and electrical appliances were taken out from warehouse and were
loaded into a truck. (there was no mention whose warehouse the items were taken out
from, but this should refer to one of the additional defendant’s properties)
iii. 4:15 PM – CA Process Server Obrence arrived at the site and served Sheriff Cachero a
duplicate original copy of the TRO. Nonetheless, the items on the truck were not unloaded
and the truck was allowed to leave the premises.
10. Westmont filed a case for indirect contempt against Sheriffs Cachero & Duncan, and Ngo which was
docketed as CA GR SP No. 66410. This was consolidated with CA GR SP No. 65785.

B. CA Proceedings regarding the MR on Additional Defendants [CA GR CV No. 71933]

11. [IMPORTANT] 8 Nov. 2006: CA affirmed RTC decision that dismissed the Amended Complaints
impleading the additional defendants. Westmont had no cause of action against the Additional
Defendants as they had no participation in Funai & Sps. Yutingco’s execution of the PNs.
12. It also struck down the writ of attachment over the properties of the Additional Defendants (see
no. 2 of procedural history) considering that the said writ was implemented before the RTC acquired
jurisdiction over their persons.
13. Westmont is entitled to attorney’s fees on the ground that it was expressly stipulated in the PN, but
CA reduced the amount to 5%.
14. Westmont filed with the SC a partial review on certiorari [GR No. 175733]

C. CA Proceedings regarding the MR on Additional Defendants [CA GR SP No. 65785]

15. 23 Apr. 2007: CA nullified the RTC Execution Orders (which granted the Additional Defendant’s
Motion for Execution Pending Appeal) and enjoined Westmont to comply with the Execution Orders.
16. CA also ruled that Sheriff Cachero is guilty of indirect contempt, ordered him to pay a fine of PHP
30,000. This is because Sheriff Cachero had prior knowledge of the TRO, even before he broke the
warehouse’s padlock, warranting the inference that he had the intention to defy the TRO. As to Sheriff
Duncan and Ngo, contempt case is dismissed as to them as there is no evidence to hold them liable.
17. Sheriff Cachero’s MR was denied, hence this petition [GR No. 180162] which was consolidated with
GR No. 175733.
** During the pendency of the SC case, Westmont assigned the accounts involved to PHL Deposit
Insurance Corp. (PDIC).
Issues Ruling
1. GR No. 175733: Was the CA wrong in not considering the additional 1. No
defendants as necessary parties to the case?
2. GR No. 180162: Was the CA wrong in adjudging Sheriff Cachero as guilty 2. No, CA correctly
of indirect contempt in implementing the writ of execution and Break-Open held him guilty of
Order despite the want of proper, timely, and adequate notice of the TRO? indirect contempt.
Rationale – Petitions lack merit.
1. GR No. 175733: CA is correct in holding that Additional Defendants are not necessary parties
to the case.
- RTC & CA both dismissed Westmont’s Amended Complaints, but differed on the grounds:
o RTC: Amended Complaints failed to state a cause of action
o CA: No cause of action as to the additional defendants
- Note that (a) failure to state a cause of action and (b) lack of cause of action are distinct grounds to
dismiss a particular action:
(a) failure to state a cause of action (b) lack of cause of action
- Refers to insufficiency of the allegations in - Refers to insufficiency of the factual basis
the pleading for the action
- Dismissal: may be raised at the earliest - Dismissal: may be raised any time after the
stages of the proceedings through a Motion questions of fact have been resolved on
to Dismiss under Rule 16, Rules of Court the basis of stipulations, admissions, or3
 evidence presented by the plaintiff
- Considering that in this case, there has been no stipulations, admissions, or evidence that has been
presented, the ground of lack of cause of action (CA) could not be the basis for the dismissal of this
present action.
- But anyway, the Amended Complaints (1st and 2nd, see no. 4 of procedural history) are still
dismissible on the ground of failure to state a cause of action, as correctly held by the RTC. A
complaint that states a sufficient cause of action complies with all these 3 essential elements:
✓ A right in favor of the plaintiff, by whatever means and under whatever law it arises
✓ An obligation on the part of the defendant to respect/not to violate such right
✓ An act/omission by the defendant violating the right of the plaintiff or constituting a
breach of the obligation of the defendant for which the plaintiff may maintain an action for
recovery of damages
→ If these elements do not concur, the complaint becomes vulnerable to a Motion to
Dismiss on the ground of failure to state a cause of action.
- In this case, Westmont’s Amended Complaints readily show their failure to state a cause of action as
the allegations do not offer ultimate facts which would warrant an action against the Additional
Defendants for the collection of the amount due on the PNs.
o Second Amended Complaint Allegation: “Panamax, Ngo, xxx Maria Ortiz are impleaded herein
for being mere alter egos, conduits, dummies, or nominees of Sps. Yutingco to defraud creditors,
including here plaintiff Westmont”
o SC: the allegations partake of the nature of mere conclusions of law, with no explanation
of facts that would disclose why the Additional Defendants are mere alter egos, etc. of
Funai and Sps. Yutingco, contrary to the requirement of Sec. 5, Rule 8 of the RoC that
circumstances constituting fraud must be stated with particularity.
o In the absence of specific averments, the complaints present no basis upon which the SC
should act or for the defendant to meet the complaint with an intelligent answer. Thus, the
complaint must be dismissed for failure to state a cause of action, as what the RTC did.
- While facts alleged in a complaint are hypothetically admitted by the defendant who moves to dismiss
the complaint on the ground of failure to state a cause of action, it should be remembered that the
hypothetical admission extends only to the relevant and material facts well pleaded in the
complaint, as well as inferences fairly deductible therefrom. Verily, the filing of the motion to dismiss
assailing the sufficiency of the complaint does not admit the truth of mere description of fraud nor
allegations of legal conclusions, etc.

2. GR No. 180162: CA was correct in finding Sheriff Cachero guilty of indirect contempt.
- A sheriff is duty-bound to know the basic rules in the implementation of a writ of execution and should
be vigilant in the exercise of that authority. While it is the sheriff’s ministerial duty to implement the
writ of execution promptly, they are bound to discharge their duties with prudence and caution, which
careful men usually exercise in the management of their affairs.
- Sheriff Cachero, being an officer of the court, should have exercised prudence by verifying whether
there was really a TRO issued so as to avoid committing an act that would result in the thwarting of
this Court’s order.
- Assuming that his testimony that the loading of the items was completed at 4:00 PM, and that the CA
Process Server Obrence was 15 minutes late in serving the TRO, the phone call and the
presentation of the fax copy of the TRO sufficiently notified him of the Court’s order which
enjoined them from carrying out the writ of execution. The fact of his prior actual knowledge was
never refuted by him. It was also undisputed that he already knew of the existence of the TRO even
before he broke the padlock of the warehouse.
- Settled is the rule that where a party has actual notice, no matter how acquired, of an injunction
clearly informing him from what he must abstain, he is legally bound from that time to desist
from what he is restrained and inhibited from doing, and will be punished for a violation
thereof, even though it may not have served, or may have been served on him defectively.

On award of attorney’s fees:

- The award of attorney’s fees is in the nature of a penalty in the form of liquidated damages in
accordance with the contract between Wesmont and Funai & Sps. Yutingco. Although stipulations like
this are binding between the parties as long as they don't contravene the law or public policy, the
courts still have the power to reduce the amount of attorney’s fees if it is unconscionable. Applied to
this case, since an attorney’s fees rate of 20% would incur a cost of about 8.4 Mil (from total amount
due of PHP 42 Million, including interest + PHP 10 Mil principal), the amount therefore is manifestly
exorbitant. 5% of principal debt is reasonable for attorney’s fees.
4
On claim for exemplary damages
- No legal basis for the award. Complaints filed by Westmont failed to disclose specific averments that
will show wanton, fraudulent, reckless, oppressive, or malevolent acts committed by Funai & Sps.
Yutingco with respect to the loan which will entitle them to the damages.
Disposition
Petitions DENIED. The Court hereby AFFIRMS:
a) CA 8 Nov. 2006 Decision [CA GR CV No. 71933]
a. Dismissing the Amended and Second Amended Complaints against the Additional
Defendants, namely, Panamax Corporation, Pepito Ong Ngo, Aimee R. Alba, Richard N. Yu,
Annabelle Baesa, Nenita Resane and Maria Ortiz in Civil Case No. 98 -86853 before the Regional
Trial Court of Manila, Branch 49 (RTC), and
b. Directing the Original Defendants, namely, Funai Phils. Corp. and Spouses Antonio and Sylvia
Yutingco to pay attorney’s fees in the amount of five percent (5%) of the principal amount;
b) CA 23 Apr. 2007 Decision [CA GR SP Nos. 65785 and 66410]
a. Nullified the Execution Orders dated July 17, 2001 and July 23, 2001 of the RTC in Civil Case No.
98-86853, and
b. Adjudged Sheriff Carmelo V. Cachero guilty of indirect contempt with the penalty of fine in
the amount of P30,000.00.