Allied Banking Corp. vs. Court of Appeals

G.R. No. 95223 (July 26, 1996)

SC reversed CA's dismissal of Allied Bank's certiorari vs. Ekman, consolidating cases for efficiency.

Facts:

This case involves a dispute between Allied Banking Corporation (petitioner) and Ekman & Company, Inc. (respondent) regarding a loan transaction. On October 8, 1981, Ekman & Co. secured a loan of P5,700,000.00 from Allied Bank, backed by a US$750,000.00 deposit in the Hongkong and Shanghai Bank. The loan was structured as a back-to-back loan.

On December 15, 1982, Allied Bank filed a complaint for a sum of money against Ekman & Co. in the Court of First Instance of Pasig, Rizal, which was later transferred to the Regional Trial Court (RTC) of Makati and assigned as Civil Case No. 649. Allied Bank claimed that after applying the dollar deposit to the loan, a balance of P387,936.08 remained unpaid despite demands for payment.

The case was initially dismissed for failure to prosecute but was reinstated after Allied Bank explained it was unaware of the transfer of the case. However, attempts to serve summons to Ekman & Co. were unsuccessful due to the latter's change of address. Eventually, summons was successfully served on August 24, 1984.

On June 6, 1984, Ekman & Co. filed its own complaint against Allied Bank for accounting, which was assigned as Civil Case No. 7500 in the RTC of Makati. Ekman & Co. sought an updated statement of account and the return of its dollar deposit, claiming that Allied Bank had refused to provide the requested information.

Allied Bank moved to dismiss Civil Case No. 7500, citing the pendency of Civil Case No. 649. The RTC denied this motion, leading Allied Bank to file a petition for certiorari with the Court of Appeals, which ultimately dismissed the petition and ordered the trial court to proceed with Civil Case No. 7500.

Legal Issues:

  1. Whether the pendency of Civil Case No. 649 should result in the dismissal of Civil Case No. 7500 based on the principle of litis pendentia.
  2. Whether the actions of Allied Bank constituted bad faith and whether it was estopped from questioning the trial court's order after participating in the proceedings.

Arguments:

  • Petitioner (Allied Bank): Allied Bank argued that the existence of Civil Case No. 649, which involved the same parties and cause of action, warranted the dismissal of Civil Case No. 7500 to prevent multiplicity of suits. It contended that the earlier case should take precedence and that the two cases should be consolidated.

  • Respondent (Ekman & Co.): Ekman & Co. countered that it was unaware of the earlier case when it filed its complaint and that dismissing its case would be inequitable, especially since it had already incurred costs and participated in pre-trial proceedings. It also argued that Allied Bank acted in bad faith by not informing it of the earlier case.

Court's Decision and Legal Reasoning:

The Court of Appeals dismissed Allied Bank's petition for certiorari, affirming the trial court's decision to deny the motion to dismiss Civil Case No. 7500. The Supreme Court reversed this decision, ordering the consolidation of the two cases.

The Court reasoned that while the general rule favors the dismissal of the later case when two actions are pending, this rule is not absolute. The Court noted that the earlier case (Civil Case No. 649) was primarily for the collection of a sum of money, while the later case (Civil Case No. 7500) was more of a defensive action seeking an accounting. The Court emphasized that the later case was more appropriate for addressing the issues raised by Ekman & Co.

Moreover, the Court found that the trial court's denial of the motion to dismiss was equitable given that a pre-trial had already occurred and hearings had begun. The Court highlighted the importance of judicial efficiency and the avoidance of redundant proceedings, thus favoring consolidation over dismissal.

The Court also addressed the issue of estoppel, concluding that Allied Bank's participation in the proceedings did not waive its right to question the denial of its motion to dismiss, as it was compelled to file an answer to avoid default.

Significant Legal Principles Established:

  1. The principle of litis pendentia allows for the dismissal of a later case when there is a prior pending action involving the same parties and cause of action, but this is not an absolute rule.
  2. The court may consolidate cases rather than dismiss one when it serves the interests of justice and judicial efficiency, especially when significant proceedings have already taken place in the later case.
  3. Participation in proceedings does not necessarily equate to a waiver of the right to question prior orders, particularly when the party was compelled to act to avoid default.