Home Bankers Savings and Trust Company vs. Court of Appeals

The Court held that a party to a pending arbitration proceeding may file a separate court action to obtain conservatory relief, such as a writ of preliminary attachment, to safeguard the subject matter of the dispute, pursuant to Section 14 of the Arbitration Law. Such an action does not violate the agreement to arbitrate or constitute litis pendentia, as the court action is merely ancillary to the arbitration and intended to preserve the status quo pending the arbitral award.

Victor Tancuan issued a Home Bankers Savings and Trust Company (HBSTC) check for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) checks totaling P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. HBSTC dishonored Tancuan's check for insufficient funds. FEBTC dishonored Arriesgado's checks for the same reason, returning them to HBSTC via the Philippine Clearing House Corporation (PCHC) as "Beyond Reglementary Period" after HBSTC had allowed the withdrawal of the proceeds. FEBTC demanded reimbursement and information from HBSTC, which refused.

• The Check Exchange: Victor Tancuan issued an HBSTC check for P25,250,000.00, and Eugene Arriesgado issued FEBTC checks totaling P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection.
• Dishonor and Return: HBSTC dishonored Tancuan's check for insufficient funds. FEBTC dishonored Arriesgado's checks for the same reason, returning them to HBSTC via the PCHC as "Beyond Reglementary Period" because HBSTC had already allowed the withdrawal of the proceeds.
• Demand and Refusal: FEBTC demanded reimbursement and information regarding the withdrawal from HBSTC. HBSTC refused both demands.
• Arbitration and Court Action: FEBTC filed for arbitration with the PCHC on December 12, 1991. On January 17, 1992, while arbitration was pending, FEBTC filed a complaint for sum of money and damages with preliminary attachment in the RTC against HBSTC and the individual defendants.

• Petitioner maintained that no complaint can be filed in court over a subject undergoing arbitration, rendering the civil suit barred by litis pendentia because arbitration is a special proceeding.
• Petitioner argued that when arbitration is agreed upon, a suit filed before arbitration terminates must be dismissed, citing Associated Bank, Puromines, and Ledesma. Petitioner insisted that the Court of Appeals erred in not following Puromines, which should prevail as the latest pronouncement.
• Petitioner asserted that the writ of preliminary attachment was void because the underlying action could not exist. Petitioner further contended that the automatic debit/credit procedure under PCHC rules served as sufficient security, and the allegations against HBSTC constituted only incidental, not causal, fraud.

• Respondent countered that the cause of action for collection can coexist in the civil suit and the arbitration proceeding under Section 7 of the Arbitration Law, which stays the civil action until arbitration is had.
• Respondent argued that Puromines does not overturn National Union Fire Insurance and Bengson, where the prevailing doctrine is that civil actions must be stayed rather than dismissed pending arbitration.

• Procedural Issues:
  • Whether the filing of a separate civil action while arbitration is pending is barred by litis pendentia.
• Substantive Issues:
  • Whether a party that commenced arbitration proceedings may subsequently file a separate court action over the same subject matter to obtain the provisional remedy of attachment.

• Procedural: The Court ruled that the civil action is not barred by litis pendentia. The action is merely suspended or stayed pending arbitration, not dismissed. The court action serves an ancillary purpose—safeguarding the subject matter of the dispute—which does not infringe upon the arbitration agreement.
• Substantive: The Court held that FEBTC validly filed the separate court action to obtain a writ of preliminary attachment. Section 14 of the Arbitration Law expressly allows a party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. The cases cited by petitioner (Associated Bank, Puromines, Ledesma) were distinguished: those cases involved parties bypassing the arbitration process entirely by going straight to court, whereas FEBTC properly initiated arbitration and only went to court for conservatory relief pending the arbitration.

• Conservatory Relief in Arbitration — Under Section 14 of the Arbitration Law (R.A. 876), a party to a pending arbitration proceeding may seek court intervention to safeguard or conserve the subject matter of the dispute. The arbitrator's power to issue subpoenas is without prejudice to the right of a party to file a petition in court for conservatory measures.
• Stay of Civil Action Pending Arbitration — When parties agree to arbitrate, the proper remedy when a court action is filed without prior arbitration is to suspend or stay the court action, not to dismiss it, especially when the court action is sought for provisional remedies to protect the subject matter of the arbitration.

• "The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration." — Quoting Section 14 of the Arbitration Law, the Court used this provision as the statutory basis allowing a party to seek a writ of preliminary attachment from the trial court while arbitration is pending.
• "At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes." — The Court articulated the policy favoring arbitration, reinforcing that court intervention is limited to great reluctance, except where necessary to safeguard the subject matter of the dispute.

• Associated Bank vs. Court of Appeals, 233 SCRA 137 (1994) — Distinguished. The Court explained that in Associated Bank, the party bypassed the PCHC arbitration process entirely by filing a third-party complaint directly in court, whereas FEBTC properly initiated arbitration and only sought conservatory relief from the court.
• Puromines, Inc. vs. Court of Appeals, 220 SCRA 281 (1993) — Distinguished. In Puromines, the party filed a breach of contract action in court without resorting first to the agreed-upon arbitration, unlike FEBTC which initiated arbitration and used the court action only for a provisional remedy.
• Ledesma vs. Court of Appeals, 211 SCRA 753 (1992) — Distinguished. The case involved the Katarungang Pambarangay Law and was deemed not in point regarding the arbitration issue at hand.
• National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 184 SCRA 682 (1990) — Followed. The Court affirmed the ruling that when a condition requires prior submission to arbitration, the complaint should be suspended, not dismissed.
• Bengson vs. Chan, 78 SCRA 113 (1977) — Followed. Similar to National Union Fire Insurance, the rule is suspension of the court action pending arbitration.

• Section 14, Republic Act No. 876 (Arbitration Law) — Applied to authorize FEBTC to seek a writ of preliminary attachment from the trial court to safeguard the subject matter of the pending arbitration.
• Section 7, Republic Act No. 876 (Arbitration Law) — Cited by the Court of Appeals and respondent to support the stay of the civil action pending arbitration.
• Article VIII, Section 4(3), 1987 Constitution — Cited by respondent regarding the modification or reversal of doctrines by the Supreme Court en banc.

Bellosillo, Mendoza, Quisumbing, and De Leon, Jr.