HERMOSA SAVINGS AND LOAN BANK, INC., REPRESENTED BY ITS STATUTORY LIQUIDATOR, PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), PETITIONER, VS. DEVELOPMENT BANK OF THE PHILIPPINE…

Hermosa Savings and Loan Bank versus Development Bank of the Philippines

The Case

This is a case about where a creditor must sue a closed bank. Hermosa Savings and Loan Bank, through its statutory liquidator the Philippine Deposit Insurance Corporation, asks the Supreme Court to reconsider its earlier decision, which had dismissed the money claim of the Development Bank of the Philippines and sent it to the liquidation court. The Development Bank of the Philippines argues that a later amendment to the law removed the liquidation court's exclusive jurisdiction and that its long-pending suit should be allowed to continue. The case matters because it settles the boundary between an ordinary civil court and a liquidation court over the assets of a bank placed under receivership and liquidation.

Procedural History

The Development Bank of the Philippines filed a complaint for sum of money and damages against Hermosa Bank and its officers before the Regional Trial Court of Makati City, initially raffled to Branch 136. After Hermosa Bank was closed and placed under receivership, the defendants moved to dismiss on the ground that jurisdiction lay with the liquidation court. Branch 136 first granted the dismissal, then reinstated the complaint, and finally, in its order dated April 30, 2010, dismissed the complaint again for lack of jurisdiction and discharged the writ of attachment. The case was re-raffled to Branch 57, which, in its order dated October 18, 2011, denied reconsideration and affirmed the dismissal, holding that the bank's assets are in custodia legis in the hands of the receiver.

The Court of Appeals reversed both orders. It held that jurisdiction once acquired is not lost, that dismissing the case against the bank would also defeat the action against the officers, and that the dismissal would be unjust given the expenses already incurred. It also reinstated the writ of attachment. The appellate court denied reconsideration, and Hermosa Bank elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45. The Supreme Court, in its decision dated February 10, 2021, granted the petition, reversed the Court of Appeals, reinstated the dismissal orders, and dissolved the writ of preliminary attachment. The Development Bank of the Philippines then filed the present motion for reconsideration, which the Court now resolves.

Facts

The Development Bank of the Philippines obtained funds through the Industrial Guarantee and Loan Fund and made them available to participating financial institutions, including Hermosa Bank, by way of subsidiary loans. Hermosa Bank applied for and was granted loans under this facility, but it failed to remit the amortizations due despite demands, and the loans were declared in default. The Bangko Sentral ng Pilipinas examined the bank and notified the Development Bank of the Philippines of possible tampering and alteration of loan documents and certificates of title. The Development Bank of the Philippines conducted its own investigation and discovered fraudulent acts in the preparation and execution of the loan and collateral documents. As of June 30, 2001, the outstanding balance stood at 438,235,392.60 pesos.

On September 25, 2001, the Development Bank of the Philippines filed a complaint for sum of money and damages against Hermosa Bank and its officers. A writ of preliminary attachment was issued, later lifted at the instance of Hermosa Bank, and then reinstated by the Court of Appeals. The parties filed their answers and the case was set for preliminary conference.

On February 5, 2005, the Monetary Board ordered the closure of Hermosa Bank and placed it under receivership, designating the Philippine Deposit Insurance Corporation as receiver. The receiver then filed a petition for assistance in the liquidation of the bank before the Regional Trial Court of Dinalupihan, Bataan, which took cognizance of it as the liquidation court. The defendants moved to dismiss the civil case for lack of jurisdiction, and the trial court ultimately dismissed it, holding that the subject matter fell within the exclusive jurisdiction of the liquidation court.

Issues

• Whether or not the liquidation court exercises exclusive jurisdiction over all claims against a closed bank, including those that are the subject of cases already pending before another court.
• Whether or not the liquidation court can pass upon the personal liabilities of the bank's officers arising from a criminal offense.
• Whether or not the writ of attachment issued in favor of the Development Bank of the Philippines should be reinstated.

Applicable Provisions

Section 30 of the New Central Bank Act, prior to its amendment, provided in its pertinent portion:

Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and decide on other issues as may be material to implement the liquidation plan adopted.

This is the provision the Court applied in its earlier decision to hold that the liquidation court has exclusive jurisdiction over disputed claims against a closed bank.

Section 30 of the New Central Bank Act, as amended by Republic Act No. 11211, now provides in its pertinent portion:

The Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver in the case of banks and direct the Philippine Deposit Insurance Corporation to proceed with the liquidation of the closed bank pursuant to this section and the relevant provisions of Republic Act No. 3591, as amended.

This amendment is the basis of the argument that the exclusive jurisdiction of the liquidation court has been removed and that the rules on liquidation are now found in the Philippine Deposit Insurance Corporation Charter.

Section 13 of the Philippine Deposit Insurance Corporation Charter, as amended, provides in its pertinent portion:

The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution.

This provision bears on whether the writ of attachment may continue against the assets of the closed bank.

Ruling

On the first issue, the Court denies reconsideration and holds that the liquidation court retains exclusive jurisdiction over disputed claims against Hermosa Bank, including those already pending in another court. The Court reasons that the amendment introduced by Republic Act No. 11211 did not divest the liquidation court of that jurisdiction. The timing of the complaint is immaterial; what is crucial is that any execution of judgment would prejudice the bank's other depositors and creditors, who stand on equal footing over its assets.

On the second issue, the Court holds that the liquidation court may pass upon the claims against the officers, even though they were sued in their personal capacities, because the dismissal of the case against the bank would necessarily affect the action against them.

On the third issue, the Court holds that the writ of preliminary attachment must be dissolved, because the assets of the bank under liquidation are deemed in custodia legis and are exempt from attachment.

Doctrine

A Bar candidate should retain these rules. First, the liquidation court has exclusive jurisdiction to adjudicate disputed claims against a closed bank, and this jurisdiction is not lost by the mere fact that a creditor filed its suit before the bank was placed under liquidation. Second, the assets of a bank under receivership or liquidation are deemed in custodia legis in the hands of the receiver and are exempt from garnishment, levy, attachment, or execution from the moment the bank is placed under receivership or liquidation. Third, all creditors of a closed bank stand on equal footing, and no single creditor may obtain an undue advantage over the others through an attachment.

Disposition

The Court denied the motion for reconsideration and upheld its earlier decision dismissing the complaint, without prejudice to the Development Bank of the Philippines filing its claim before the liquidation court.

Remember This

Memorize this line: the assets of a closed bank are in custodia legis and exempt from attachment, and all disputed claims must be lodged with the liquidation court. Examiners use this case to test the exclusive jurisdiction of the liquidation court and the equal footing of creditors of a closed bank.