Hernandez v. Rural Bank of Lucena, Inc.
REITERATIONFacts
The Antecedents: Spouses Francisco S. Hernandez and Josefa U. Atienza obtained a P6,000 loan from Rural Bank of Lucena, Inc. (Lucena Bank) secured by a mortgage on their Quezon City lots. Approximately three months after the loan, Lucena Bank became a distressed bank, with the Central Bank (CB) finding anomalies and unsound banking practices, leading to directives to suspend operations and reorganize. Procedural History: The Hernandez spouses attempted to pay the loan using a check from San Pablo Colleges drawn against Lucena Bank. The bank, citing its distressed status and suspension of operations due to a run and CB directives, refused to honor the check. Despite repeated attempts by the Hernandez spouses to pay via check and inquiries, the bank consistently refused, citing its inability to honor withdrawals without CB approval. Meanwhile, the Monetary Board decided to liquidate Lucena Bank, and the CB filed a petition for assistance and supervision in liquidation. The Hernandez spouses filed a separate action in the Court of First Instance (CFI) of Lipa City to compel acceptance of the check and cancellation of the mortgage, also claiming damages. The CB moved to dismiss, citing improper venue and lack of jurisdiction, arguing the claim should be ventilated in the liquidation proceeding in Manila. The CFI denied the motion and later ordered the bank to accept the check, cancel the mortgage, and pay damages. The bank, CB, and receiver appealed. The Petition: The defendants-appellants (Lucena Bank, CB, and receiver) contended that the trial court erred in not holding that the venue was improperly laid, that it lacked jurisdiction because the claim should have been in the liquidation proceeding, that there was no valid consignation, and in awarding moral damages and attorney's fees.
Issue(s)
Whether the venue was improperly laid in the Court of First Instance of Lipa City. Whether the Court of First Instance of Lipa City had jurisdiction to entertain a separate action for acceptance of a check and cancellation of a mortgage, or if such claim should have been filed in the liquidation proceeding pending before the Court of First Instance of Manila. Whether the tender of payment by check constituted a valid consignation. Whether the award of moral damages and attorney's fees was proper.
Ruling
The Supreme Court reversed and set aside the trial court's judgment, dismissing the case without prejudice to the right of the Hernandez spouses to take up their claim with the liquidation court. The Court held that the liquidation court has exclusive jurisdiction over all claims against the insolvent bank.
Ratio Decidendi
On the Issue of Venue: The Court held that the action to compel acceptance of a check and cancellation of a mortgage is a personal action, not a real action affecting title to property. Therefore, venue could be laid in the place of residence of the plaintiff or defendant. However, the Court found that the plaintiffs' chosen venue in Lipa City was improper. While they claimed residence in San Juan, Batangas, their actual place of abode and residence, as indicated in the loan documents and Torrens title, was Quezon City, where the mortgaged lots were located. Thus, if venue were to be based on residence, it should have been Quezon City. The Court cited previous rulings emphasizing that 'resides' refers to actual residence or domicile. On the Issue of Jurisdiction: The Court ruled that the liquidation court (CFI of Manila) has exclusive jurisdiction over the claim of the Hernandez spouses. It reasoned that once a bank is under liquidation, all claims against it, including those for redemption or cancellation of obligations, must be filed within the liquidation proceeding to prevent multiplicity of actions and ensure orderly administration of assets. The outstanding loan account of the Hernandez spouses was listed as an asset in the inventory of the Lucena Bank's properties turned over to the receiver. Therefore, any claim affecting this asset, such as payment and cancellation of the mortgage, falls squarely within the exclusive competence of the liquidation court. The Court emphasized that judicial liquidation is a pragmatic arrangement to establish due process and orderliness, obviating the proliferation of litigations. On the Issue of Consignation: While the Court did not squarely rule on the validity of consignation, its dismissal of the case on jurisdictional grounds rendered this issue moot. The Court noted that the Hernandez spouses' attempt to deposit the check with the clerk of court was not a formal consignation complaint. Furthermore, the bank's refusal to accept the check was based on its distressed status and suspension of operations, and the subsequent liquidation meant that claims had to be processed through the liquidation court. On the Issue of Damages and Attorney's Fees: Since the case was dismissed for lack of jurisdiction, the award of moral damages and attorney's fees by the trial court was also set aside. The Court pointed out that the Hernandez spouses' objective of obtaining a judgment for moral damages, which they surmised would not be granted by the Manila liquidation court, was achieved in the lower court, but this was based on a flawed jurisdictional premise. The Court also noted that the trial court granted execution pending appeal, which could not be enforced against assets in custodia legis, forcing the spouses to file a claim in the liquidation court anyway.
Main Doctrine
A separate action to compel a distressed rural bank under judicial liquidation to accept a check in payment of a mortgage debt, or to seek cancellation of the mortgage, must be filed in the liquidation court, not in a separate action in another court, as all claims against the insolvent bank fall under the exclusive jurisdiction of the liquidation court to prevent multiplicity of actions and ensure orderly liquidation.