Title
Allied Banking Corp. vs. Spouses Madriaga
Case
G.R. No. 196670
Decision Date
Oct 12, 2016
Spouses claimed loan payments, disputed foreclosure; case dismissed for delays, reinstated by CA, but SC upheld dismissal due to lack of diligence.
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Case Digest (G.R. No. 196670)

Facts:

Loan and Mortgage Agreement
Respondent Spouses Rodolfo and Gloria Madriaga obtained a loan of P750,000.00 from Allied Bank, secured by a real estate mortgage on their property. They claimed to have religiously paid the loan from June 1996 to August 1999 through Leo Nolasco, the Bank's Creditor Investigator/Appraiser, totaling P628,953.96. In July 1999, they converted the remaining balance of P380,000.00, including interest, into a term loan, with payments regularly coursed through Nolasco.

Demand Letter and Discovery of Unpaid Obligation
On 25 May 2001, the Bank sent a demand letter for P399,898.56, representing unpaid obligations from June 2000 to May 2001. Respondents claimed to have paid this amount and requested the Bank to provide a copy of their loan ledger, but the Bank ignored their request.

Foreclosure and Legal Action
On 1 January 2002, the Bank filed a petition for extrajudicial foreclosure of the mortgage. Respondents, through Atty. Wilfredo Santos, filed a Complaint for Specific Performance with a prayer for a Writ of Preliminary Injunction to stop the foreclosure and compel the Bank to allow them to examine their loan records. The Bank filed an Answer with Compulsory Counterclaim.

Change of Counsel and Delays
On 22 April 2002, Atty. Eliseo Cruz entered his appearance as respondents' new counsel and requested leave to amend the Complaint. The RTC granted 15 days to file the Amended Complaint, but instead, Atty. Cruz filed a Reply and Answer to the Bank's Counterclaim. Respondents failed to file the Amended Complaint within the given period, and during subsequent hearings, new counsel Atty. Meliton Balagtey requested additional time to study the case. The case was reset multiple times, but no Amended Complaint was filed.

Motion to Dismiss and Withdrawal of Counsel
On 8 October 2002, the Bank filed a Motion to Dismiss due to respondents' failure to comply with court orders. Respondents filed a Comment, apologizing for the delays and blaming their former counsel. Atty. Balagtey later withdrew as counsel and requested the Bank to produce certain documents. The trial court granted the withdrawal and gave respondents 45 days to secure new counsel.

Dismissal of the Case
On 7 August 2003, the trial court dismissed the case for failure to prosecute and comply with court orders. Respondents, through the Public Attorney's Office (PAO), moved for reconsideration, citing successive withdrawals and changes of counsel as reasons for the delay. The trial court denied the motion, ruling that respondents had abused the judicial system.

Appeal to the Court of Appeals
The Court of Appeals reversed the trial court's decision, reinstating the case and remanding it for further proceedings. The appellate court found the dismissal too harsh and noted that the Bank had not objected to previous resettings.

Issue:

The primary issue is whether the trial court correctly dismissed respondents' complaint for failure to prosecute. Alternatively, was the Court of Appeals correct in reinstating the case?

Ruling:

The Supreme Court granted the petition, reversing the Court of Appeals' decision and reinstating the trial court's dismissal of the case. The Court found that respondents failed to prosecute their case with due diligence and employed dilatory tactics, warranting dismissal under Section 3, Rule 17 of the 1997 Rules of Civil Procedure.

Ratio:

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