ZEPEDA vs. CHINA BANKING CORPORATION

ZEPEDA vs.
CHINA BANKING CORPORATION

G.R. No. 172175. October 9, 2006.
PETITIONER/s: Sps. Expedito Zepada and Alice D. Zepeda

RESPONDENT/s: China Banking Corporation
PONENTE: J. Ynares-Santiago
FACTS:
 On February 18, 2003, spouses Expedito and Alice Zepeda (ZEPEDA) filed a
complaint a complaint for nullification of foreclosure proceedings and loan
documents with damages against respondent China Banking Corporation
(CHINABANK) before the RTC of San Jose, Camarines Sur.
o The claim is based on the fact that the foreclosure proceedings failed to
comply with the posting and publication requirements.
o They also claimed the Real Estate Mortgage and Promissory note in blank and
were not given a copy and the interest rates thereon were unilaterally fixed by
respondent.
 In their complaint, spouses Zepeda claimed that they obtained a loan of P5.8M from
respondent secured by a Real Estate Mortgage.
 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.
 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.
 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 Clerk of Court was directed to set the pre-trial conference.
 Chinabank’s petition for certiorari under Rule 65 was granted by the CA.
o 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.
 Petitioners’ motion for reconsideration was denied.
ISSUE/s:
1. Whether the complaint states a cause of action?
2. 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?
HELD:
1. YES. 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.
2. NO. Chinabank filed the wrong opposition which lead to the dismissal of its motion to
dismiss and expunge. Chinabank should have filed a motion based on Section 5 and not
Section 3(c) of Rule 29 for the petitioner’s refusal to answer the whole set of written
interrogatories, not just a particular question.. 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 [or her] 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 [or her] to pay
reasonable expenses incurred by the other, including attorney’s fees.”
 Due to respondent bankÊs 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.
RULING:
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 CorporationÊs
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 petitionersÊ 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.
DOCTRINE/s:
 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 a cause of action in the complaint “warrants its
dismissal.”
 Essential elements of a cause of action 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.
 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?”
o 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.
 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.

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ZEPEDA vs.

CHINA BANKING CORPORATION

PETITIONER/s: Sps. Expedito Zepada and Alice D. Zepeda

“SEC. 5. Failure of party to attend or serve answers.·

 In determining whether an initiatory pleading states a cause of action, „the test is as

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