This petition for review on certiorari assails the decision^[1]J. Francisco; Barcelona and Hofileña, J.J. concurring.1 of the Court of Appeals denying the petition for certiorari filed by the San Lorenzo Village Association, Inc. which sought the reversal of the orders dated March 31 and October 15, 1992, of the Regional Trial Court of Makati, Branch 62.^[2] The lower court had denied the motion to dismiss the petition for cancellation of the restrictions annotated in Transfer Certificate of Title No. 47348 of the Registry of Deeds of Makati, Metro Manila.

Petitioner San Lorenzo Village Association, Inc. (SLVAI) and San Lorenzo Company, Inc. were the respondents in the aforesaid petition filed on December 13, 1991 before the lower court by private respondent Almeda Development and Equipment Corporation (ADEC). For clarity, the pertinent portions of that petition in Civil Case No. 91-3450 are hereby quoted as follows:

"3.           The petitioner is the owner of that parcel of land with building and other improvements situated at Pasay Road, San Lorenzo Village, Makati, Metro Manila, embraced in Transfer Certificate of Title No. 47348 of the Registry of Deeds of Makati, Metro Manila, more particularly described as follows:

    x x x x x x x x x x x x.

The petitioner's ownership thereto is evidenced by the Deed of Sale executed by Ponciano L. Almeda, married to Eufemia Perez-Almeda, and the petitioner on September 15, 1991, entered as Doc. No. 218; Page No. 45; Book No. VIII; Series of 1991, evidenced by its copy hereto attached as Annex `A'.

4.            As the owner of the said parcel of land together with the building and other improvements thereon, the petitioner has the right to enjoy and dispose of said property without limitation except those established by law (Art. 428, Civil Code).

    x x x x x x x x x x x x.

5.            In Transfer Certificate of Title No. 47448 (sic), there appears Entry No. 59599, reading in part as follows:

`The owner of this lot or his successor in interest is required to be and is automatically a member of the San Lorenzo Village Association. The lot may not be subdivided. The lot shall only be used for residential purposes. Only one single storey or one (duplex) house may be constructed on a single lot, although separate servant's quarter or garage may be built. The property is subject to an easement of two meters within the lot and adjacent to the rear and sides thereof not fronting a street for the purpose of drainage, sewage, water and other public facilities as may be necessary and desirable.

All buildings on the lot must be of strong materials. Building shall not be higher than 5 meters above the ground directly beneath the point in question. All building plans must be approved by the Association before construction begins. All buildings including garage, servant's quarter (porte cocheres) must be constructed x x x not less than 3 meters from boundary bordering a wall, not including pedestrian paths, and not less than 2 meters from the other boundaries of this lot. Sewage disposal must be by means of septic tank or into a sewage system.

Walls on the perimeter of this property shall not exceed 2 meters in height, except that no restriction as to height applies to walls made of live vegetation."

Evidenced by TCT No. 47348 and Entry NO. 59599 (Memorandum of Encumbrances) thereof marked as Annexes `B' and `B-1', respectively.

6.            The condition prevailing along Pasay Road (San Lorenzo Village) on July 10, 1958, the date when the restrictions were imposed by the San Lorenzo Company, Inc. to lot and house owners in San Lorenzo Village and on July 11, 1958, when the Deed of Restrictions was annotated on TCT No. 60143/T-577 (the certificate of title from where TCT No. 47448 originated), is no longer the same compared today. At that time, houses located along Pasay Road (San Lorenzo Village) were used purely for residential purposes. Today, what are found along Pasay Road (San Lorenzo Village) are commercial/industrial buildings such as the matter of security and garage (sic) collections are taken care of by their buyers. Accordingly, the San Lorenzo Village Association, Inc. is no longer relevant in so far as the building and lot owners along Pasay Road (San Lorenzo Village) are concerned.

7.            The aforementioned annotation in TCT No. 47348 in (sic) an unlawful limitation to the rights of the petitioner protected by the Constitution and prescribed in Art. 428 of the Civil Code.

7.1 The petitioner does not intend to be a member of the San Lorenzo Village Association, Inc.

7.2    The petitioner has its own security guards and garbage trucks.

7.3    The petitioner can effectively protect its ownership and possession without the assistance and intervention of the San Lorenzo Village Association, Inc.

7.4    The petitioner intends to construct a taller building on the lot.

8. While in Sec. 30, Presidential Decree No. 957, it is provided that -

`SEC. 30. Organization of Homeowners Association. - The owner or developer of a subdivision project or condominium project shall initiate the organization of a homeowners association among the buyers and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development."

there is no law compelling lot and house buyers to be a member of the San Lorenzo Company, Inc. and restricting the petitioner to construct a taller building on its lot.

9.            As stated above, there is compelling reason for the cancellation of the restrictions imposed at the back of TCT No. 47348.

10.          If there is no vested right in existing law which can be repealed or judicial interpretation which can be changed, there is no reason why a Deed of Restrictions annotated in a certificate of title cannot be cancelled.

11.         To cancel the aforementioned annotation in TCT No. 47348 and to enforce its right, the petitioner was compelled to engage the services of a lawyer for a fee and to institute this action incurring and will incur litigation expenses."^[3]

ADEC prayed for the issuance of a temporary restraining order directing the San Lorenzo Company, Inc. and its agents "to cease and desist from making the petitioner a member of the San Lorenzo Village Association, Inc. and prohibiting the petitioner from constructing a taller building on its lot and the San Lorenzo Village Association, Inc. from collecting membership fee and monthly dues and other assessments." It likewise prayed that the Register of Deeds of Makati be ordered to cancel Entry No. 59599 in TCT No. 47348 and that respondents pay actual damages of P30,000.00, attorney's fees of P30,000.00 plus P500 allowance per attendance in court hearings and the costs of suit.

Therein private respondent SLVAI filed a motion to dismiss the petition on the grounds of lack of cause of action and lack of ADEC's personality to sue. It alleged that ADEC was not a registered owner of the parcel of land covered by TCT No. 47348; that the sale of the property by Ponciano L. Almeda to ADEC could not bind third parties; that ADEC had no reason to pray for the cancellation of Entry No. 59599 not being the owner of the land nor a member of SLVAI but simply a stranger that had no demandable right against the SLVAI.^[4]

ADEC opposed the motion to dismiss contending that it had a cause of action against SLVAI because as the (new) owner of the lot involved, it cannot be compelled to become a member of the SLVAI for to do so would unduly limit its use of the property. Citing Philippine Suburban Development Corporation v. Auditor General,^[5] it asserted that it had the capacity and personality to sue because actual notice of the sale was equivalent to registration.^[6]

On March 31, 1992, the lower court issued an Order denying the motion to dismiss, holding as follows:

"This Court agrees with the plaintiff that it has the capacity and legal personality to file this case. Plaintiff has shown its interest in the subject property, basing its claims on a Deed of Sale dated September 11, 1990. As successor in interest of the original registered owner, plaintiff step (sic) into the shoes of the latter, consequently it can sue and be sued."

SLVAI filed a motion for the reconsideration of that Order^[7] alleging that third persons were not bound by the deed of sale of the property entered into between ADEC and Ponciano Almeda, as said deed of sale was not registered. As such, ADEC had no cause of action against it. Furthermore, Almeda, not having paid the association dues and garbage fees, he was sued before the Regional Trial Court of Pasig, Branch 151, where the same deed of sale was presented to prevent the scheduled auction sale through a third-party claim. In quashing the third-party claim, then Judge Eutropio Migriño ruled that the title to the property being still in the name of defendant Almeda, whatever transaction he had entered into would not be binding upon the plaintiff.

In its opposition to the motion for reconsideration, ADEC contended that said motion was pro forma as it merely reiterated the arguments in the motion to dismiss. Citing Article 709 of the Civil Code which states that "(t)he titles of ownership, or other rights over immovable property, which are not duly inscribed or annotated in the Registry of Property shall not prejudice third persons," ADEC averred that within the context of that law, the SLVAI was not a "third person" because it "merely caused the annotation on the title of a property of certain restraints or impositions on the exercise of ownership by the registered owner." It added that SLVAI had no interest in the property in question "except to compel the owner thereof to be automatically a member of the San Lorenzo Village Association and to pay the consequential dues or fees and other expenses therefor." As such, SLVAI and San Lorenzo Village Company, Inc., were included in the case "only as parties who had caused the annotation or inscription of the entry in question which limits or restricts the exercise of ownership over the aforesaid land, and who may be affected thereby, directly or indirectly, by its cancellation, in the same manner that the Register of Deeds of Makati has also been impleaded as the public official who is charged with the duty of registering or canceling the subject annotation or inscription."^[8]

In its reply to the opposition, SLVAI countered that the motion for reconsideration was not pro forma as the lower court failed to consider the provisions of Article 709 of the Civil Code and Section 50 of the Land Registration Act. It alleged that the term "third persons" in Article 709 was broad enough to cover "everybody" who did not participate in the disputed act, contract or deed. It asserted that, while it had a lien over unpaid association dues and garbage fees, ADEC was not the real party in interest in the suit for cancellation of restrictions on the title that was still in the name of Almeda and therefore the case should have been dismissed outright for lack of cause of action. Moreover, while ADEC claimed to be the owner of the property, it had not explained why it had not registered the deed of sale and secured a separate title to the property.^[9]

On October 15, 1992, the lower court issued the Order denying the motion for reconsideration as follows:

"Article 709 of the New Civil Code x x x as the basis of this Motion for Reconsideration finds no application in this case. As correctly pointed out by petitioner the `third persons' mentioned in Article 709, are those persons who may have adverse interests in the property itself either in the concept of an owner, or a vendee or a mortgagee, or otherwise, but definitely not that of one who has merely caused the annotation on the title of the property of certain restraints or impositions on the exercise of ownership by the registered owner. Moreover, when respondent San Lorenzo Village Association, Inc. convey (sic) the property to Ponciano Almeda, the original owner, the latter has all the rights as an owner, including the right to sell, which he did in favor of the petitioner.

As successor in interest, petitioner can validly exercise the right to sue which the original owner could lawfully do for the protection of the right as an attribute of ownership."^[10]

SLVAI questioned the lower court's Orders before the Court of Appeals through a petition for certiorari with prayer for the issuance of a temporary restraining order. It presented before said appellate court the issue of whether or not the petition filed below by ADEC stated a cause of action or that ADEC was the real party in interest.^[11]

On June 22, 1994, the Court of Appeals promulgated a Decision denying the petition for certiorari. The Court of Appeals noted that the petition sought to "discredit the material allegation of ADEC that it is the owner of the property covered by the subject transfer certificate of title. It asserts that such allegation is merely a conclusion or inference of ADEC and does not grant to the latter the personality to sue the petitioner nor does such become the source of the right to institute proceedings in the court below." It held that:

"We resolve to deny the petition, reiterating the ruling made by the Supreme Court in Galeon versus Galeon, 49 SCRA 516, 520:

`It is well settled that in a motion to dismiss a complaint based on lack of cause of action, "the question submitted to the court for determination is the sufficiency of the allegations of fact made in the complaint to constitute a cause of action, and not whether these allegations of fact are true, for said motion must hypothetically admit the truth of the facts alleged in the complaint; x x x" The test of the sufficiency of the facts is whether or not, accepting the veracity of the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the complaint.'

As such, the allegation of ADEC that it is the owner of the property on the strength of the deed of sale should be deemed hypothetically admitted, giving it capacity to file the proceedings below. The trial court was correct in saying that `[p]laintiff has shown its interest in the subject property, . . . As successor in interest of the registered owner, plaintiff step (sic) into the shoes of the latter, consequently, it can sue and be sued.' (Order, March 31, 1992; Rollo, page 36).

The arguments advanced by petitioner as to whether or not ADEC validly acquired title to the property is one which is a matter more by way of defense and which may be properly threshed out during the trial. What the Supreme Court likewise espoused in the Galeon case, page 520 is apropos on this issue:

`The uniform ruling of this Court is that the trial court "may not inquire into the truth of the allegations, and find them to be false before a hearing is had on the merits of the cause". If the court finds the allegations to be sufficient but doubts their veracity, it is incumbent upon said court to deny the motion to dismiss and require the defendant to answer. The veracity of the assertions could be asserted at the trial on the merits.'"^[12]

SLVAI filed a motion for the reconsideration of that Decision but it was denied on August 26, 1994. Hence, it is now before this Court on a petition for review on certiorari raising the following issues:

"1.           THE COURT OF APPEALS ERRED IN FINDING THAT THE ALLEGATION IN THE COMPLAINT OF PRIVATE RESPONDENT THAT IT IS THE `OWNER' OF THE SUBJECT PROPERTY ON THE BASIS OF A DEED OF ABSOLUTE SALE `IS DEEMED HYPOTHETICALLY ADMITTED GIVING IT CAPACITY TO FILE THE PROCEEDINGS BELOW', CITING GALEON VS. GALEON, 49 SCRA 516, BECAUSE HYPOTHETICAL ADMISSION OF FACT DOES NOT EXTEND TO INFERENCES OR CONCLUSIONS DRAWN FROM SUCH FACT EVEN ALLEGED IN THE COMPLAINT AS HELD IN DE DIOS V. BRISTOL, L-25530, JANUARY 12, 1974.

2.            ASSUMING ARGUENDO THAT PRIVATE RESPONDENT IS THE `OWNER' OF THE SUBJECT PROPERTY, THE SAME IS STILL INSUFFICIENT TO MAKE OUT A CAUSE OF ACTION BECAUSE THE DEED OF RESTRICTIONS SOUGHT TO BE CANCELLED BY PRIVATE RESPONDENT REQUIRES THAT THE CANCELLATION THEREOF BE INITIATED BY `MEMBERS' WHO ARE THE REGISTERED OWNERS OF THE LOTS IN THE VILLAGE AND BY THEIR TWO THIRDS VOTE.

3.            THE COURT OF APPEALS ERRED IN NOT FINDING THAT PRIVATE RESPONDENT IS NOT THE REAL PARTY-IN-INTEREST."

These contentions boil down to the sole issue of whether or not the petition below alleges a cause of action against petitioner that the lower court may be deemed to have correctly denied the motion to dismiss the same petition.

The Rules of Court requires that the complaint must make a concise statement of the ultimate facts or the essential facts constituting the plaintiff's cause of action. A fact is essential if it cannot be stricken out without leaving the statement of the cause of action insufficient.^[13] A complaint states a cause of action where it contains the three (3) essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. If the allegations are vague, indefinite, or in the form of conclusions, the defendant's recourse is not a motion to dismiss but a bill of particulars.^[14]

A motion to dismiss on the ground of failure to state a cause of action in the complaint hypothetically admits the truth of the facts alleged therein. However, the hypothetical admission is limited to the "relevant and material facts well pleaded in the complaint and inferences fairly deductible therefrom. The admission does not extend to conclusions or interpretations of law; nor does it cover allegations of fact the falsity of which is subject to judicial notice."^[15] As this Court held in De Dios v. Bristol Laboratories (Phils.), Inc.:

"x x x. For the purpose, the motion to dismiss must hypothetically admit the truth of the facts alleged in the complaint. The admission, however, is limited only to all material and relevant facts which are well pleaded in the complaint. Thus, it has been ruled that a demurrer admits only such matters of fact as are sufficiently pleaded; that the demurrer does not admit the truth of mere epithets charging fraud; nor allegations of legal conclusions; nor an erroneous statement of law. The admission of the truth of material and relevant facts well pleaded does not extend to render a demurrer an admission of inferences or conclusions drawn therefrom, even if alleged in the pleading; nor mere inferences or conclusions from facts not stated; nor conclusions of law; nor matters of evidence; nor surplusage and irrelevant matter. x x x."^[16]

However, it should be pointed out at the outset that it is not "lack or absence of cause of action" that is a ground for dismissal of the complaint, but rather, that "the complaint states no cause of action".^[17]

De Dios did indeed hold that a movant to dismiss on the ground of failure of the complaint to state a cause of action is burdened with the implied admission of the truth of "all material and relevant facts which are well pleaded in the complaint," but not of "mere epithets charging fraud," or legal conclusions, or mere inferences, or matters of evidence. Said case gave examples of allegations not within the hypothetical-admission rule, to wit: "malicious and unjustified" institution of an action; acting maliciously and for the purpose of political persecution and vengeance, with intent of circumventing a constitutional provision; usurping the office of Senator of the Philippines; that the master had breached the contract, or discharged an employee in a wrongful, illegal, unlawful, unjust manner, etc.

The above ruling, however, does not apply to the case at bar. In the instant case, the complaint asserts that plaintiff purchased the property in question from the person admittedly holding title thereto. It then infers that by this mode, it became the successor-in-interest of the vendor, if not indeed the owner of the property. Hence, the restrictions in the title should be nullified not only because it is contrary to law but also because the conditions under which they were imposed had ceased to exist.

In fact, the averments in the complaint like the title of ADEC's vendor, the execution of the sale by said vendor to ADEC, the latter's status as the vendor's successor-in-interest, and the altered physical environment along Pasay Road, are allegations well within the hypothetical-admission principle. These averments satisfy the three (3) elements of a cause of action. In other words, the complaint did state a cause of action.

In view of such, SLVAI cannot successfully invoke the ground that the complaint "fails to state a cause of action" in its motion to dismiss.

Putting it differently, what SLVAI essentially puts at issue is whether substantively, ADEC, as plaintiff in the case below, possesses a tenable right of action. As discussed, said issue is not a ground for a motion to dismiss. As a matter of law, neither are the efficacy of the sale to pass title to the property, and consequently, ADEC's acquisition of the status of successor-in-interest, specific mandatory modes to challenge the restrictions in question, or the change in the physical environment along Pasay Road, grounds for a motion to dismiss under Rule 16 of the Rules of Court. Instead, the aforementioned issues may be properly raised in the Answer.

Regarding the third issue of whether ADEC is a real party in interest, said issue is likewise not a proper ground for a motion to dismiss. Certainly, as successor-in-interest of the original vendor, who is the unquestioned title holder, ADEC has the prerogative to assert all the latter's rights, including the impugnation of the restrictions on the title. The tenability of the grounds for that impugnation, while proper under the pleadings, should be threshed out at the trial on the merits.

The only other issue raised is that even assuming ADEC became owner of the property, it cannot seek cancellation because, under SLVAI's rules, the cancellation process can only be initiated by "members" of the SLVAI who are the registered owners of the lots in the village and by their two-thirds vote. However, those rules were not dealt with in the complaint at all. They may thus be raised only by way of defense in the Answer, but not as ground for a motion to dismiss available as cause for dismissal of the action at this early stage.

Finally, even assuming that the allegation of the facts constituting ADEC's cause of action is not as clear and categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into the merits of the action. Such a course would preclude that multiplicity of suits which the law abhors, and conduce to the definitive determination and termination of the dispute. On the other hand, the abortion of the action on account of the alleged fatal flaws of the complaint would obviously be indecisive; it would not end the controversy, since the institution of another action upon a revised complaint would not be foreclosed.

WHEREFORE, the petition should be DISMISSED and the challenged decision of the Court of Appeals should be AFFIRMED.

SO ORDERED.

Narvasa, C.J. (chairman), Kapunan, andPurisima, JJ., concur.

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