GR 179756; (October, 2009) (Digest)
G.R. No. 179756 ; October 2, 2009
Rizal Commercial Banking Corporation, Petitioner, vs. Royal Cargo Corporation, Respondent.
FACTS
Terrymanila, Inc. was declared insolvent by the Bataan RTC. Among its creditors were petitioner RCBC, which held a chattel mortgage over Terrymanila’s properties, and respondent Royal Cargo, which had obtained a money judgment against Terrymanila from the Manila RTC and had preliminarily attached some of its properties. In the insolvency proceedings, the Bataan RTC granted RCBC permission to extrajudicially foreclose its chattel mortgage. The foreclosure sale proceeded, with RCBC as the winning bidder. Royal Cargo then filed a petition for annulment of the auction sale before the Manila RTC, alleging it was not given the 10-day notice required by Section 14 of the Chattel Mortgage Law, as its counsel received notice only on the day of the sale.
ISSUE
Whether the Manila RTC had jurisdiction to annul the foreclosure sale conducted pursuant to an order issued by the Bataan RTC in the insolvency proceedings, and whether the failure to notify a judgment creditor of the foreclosure sale constitutes a valid cause of action for annulment.
RULING
The Supreme Court ruled that the Manila RTC had no jurisdiction over the annulment case. The legal logic is anchored on the doctrine of exclusive jurisdiction. Upon the declaration of insolvency, the insolvency court (Bataan RTC) acquires exclusive jurisdiction over all assets of the insolvent and all claims against it to ensure an orderly and centralized administration of the estate. Any action that would interfere with this jurisdiction, such as a collateral attack on an order of the insolvency court permitting foreclosure, must be dismissed. The proper remedy for Royal Cargo was to seek relief within the insolvency proceedings itself, not via a separate action in another court. Consequently, the Court reversed the appellate decision and ordered the dismissal of the annulment case for lack of jurisdiction. The Court clarified that while the notice issue raised by Royal Cargo pertained to the conduct of the foreclosure sale, the fundamental jurisdictional defect rendered a ruling on the sufficiency of notice unnecessary. The insolvency court’s order granting leave to foreclose was the operative act, and its validity could not be collaterally impeached in a separate proceeding.