FACTS:

In this case, the petitioners alleged that several checks and demand drafts issued in the name of Charlie Go were never received by him and instead fell into the hands of Raymond Keh. Keh deposited these instruments in accounts opened in Go's name with the respondent bank and withdrew the proceeds. The petitioners relied on the case of Associated Bank v. CA to demand payment from the respondent bank. However, the respondent bank raised the defense of lack of cause of action in its Answer, arguing that the instruments had not been delivered to Go and that the claims should be enforced against the drawers and purchasers, not the bank. The RTC agreed with the respondent and dismissed the Complaint on the grounds that the instruments had never been delivered and that the cause of action belonged to the drawers and purchasers. The petitioners argued that the allegations were enough to establish a cause of action, and delivery can be either actual or constructive. They also claimed that the respondent was estopped from asserting non-delivery due to the crossings and the annotation made by the bank. Furthermore, they contended that the defense of lack of delivery is personal to the drawer or maker, and the respondent was not the drawer or maker. However, no evidence was presented to support the defense of lack of delivery.

ISSUES:

1. Whether the trial court erred in dismissing the Complaint for lack of cause of action

2. Whether the Complaint lacked a cause of action.

3. Whether the petitioners met the test to determine whether a complaint states a cause of action against the defendants.

RULING:

1. Yes, the trial court erred in dismissing the Complaint for lack of cause of action. Lack of cause of action is not a ground for dismissal under Rule 16 of the Rules of Court. The dismissal of a complaint for lack of cause of action should only be made after the plaintiff has completed the presentation of evidence and the judge has determined the veracity of the allegations based on the evidence presented. In this case, the action has not even reached the pretrial stage and no evidence has been presented. Therefore, the trial court prematurely dismissed the Complaint.

2. The Court held that the trial court erred in dismissing the Complaint on the ground of lack of cause of action. It was emphasized that in a motion to dismiss, the test to determine whether a complaint lacks a cause of action is whether the allegations, if hypothetically true, would entitle the plaintiff to the relief demanded in the complaint.

3. The Court found that the petitioners met the test to determine whether a complaint states a cause of action against the defendants. The Complaint alleged that the petitioners had a legal right to be paid for the value of the instruments, that the respondent had a correlative obligation to pay, and that the respondent refused to pay despite demand. The Court held that the inquiry is confined to the four corners of the complaint, and even if some of the allegations are in the form of conclusions of law, the elements of a cause of action may still be present.

PRINCIPLES:

• Lack of cause of action is not a ground for dismissal under Rule 16 of the Rules of Court.

• Dismissal for lack of cause of action can only be made after the plaintiff has completed the presentation of evidence and the judge has determined the veracity of the allegations based on the evidence presented.

• In a motion to dismiss, the test to determine whether a complaint lacks a cause of action is whether the allegations, if hypothetically true, would entitle the plaintiff to the relief demanded in the complaint.

• In determining the presence of the elements of a cause of action, the inquiry is confined to the four corners of the complaint.

• Even if some of the allegations in the complaint are in the form of conclusions of law, the elements of a cause of action may still be present.