Week 6 ProvRem

Page 1 of 217 | Receivership – Week 6 | amgisidro
G.R. No. 6305 September 26, 1911

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,
vs.
ROMANA GAUZON and JUAN D. POMAR, defendants.
JUAN D. POMAR, receiver-appellant.
M. Fernandez Yamson, for appellant.
A. P. Seva, for appellee.
JOHNSON, J.:
The present appeal is made by the defendant Juan D. Pomar, as receiver, against the
order of the Hon. Albert e. McCabe, judge of the Province of Occidental Negros,
disallowing certain items in the final account of the said receiver.
It appears from the record that the defendant, Romana Gauzon, on the 10th day of
September, 1904, executed and delivered to the plaintiff (Compañia General de
Tabacos de Filipinas) a mortgage upon an hacienda known as "San Jose," in the
municipality of San Carlos, in the Province of Occidental Negros. The said defendant
(Romana Gauzon) having failed to pay the said mortgage, the plaintiff (Compañia
General de Tabacos de Filipinas), on the 22d day September, 1905, commenced an
action for the foreclosure of said mortgage, and asked, in addition to the foreclosure of
the mortgage, that a receiver be appointed to take change of the property in question,
pending the said action. On the same day (22nd of September, 1905) the Hon. Vicente
Jocson, after hearing the petition filed in said cause, appointed the said defendant,
Juan D. Pomar, an employee of the plaintiff, receiver of the property involved in said
foreclosure proceedings. Said foreclosure proceedings continued to a termination. The
result of said proceedings may be found in two decisions of this court, the cases of La
Compañia General de Tabacos de Filipinas vs. Ganzon (13 Phil. Rep., 472) and La
Compañia General de Tabacos de Filipinas vs. Ganzon (13 Phil. Rep., 481). The facts
relating to the foreclosure proceedings and the judgment therein are not important in
the present cause, further than to show the history of the transactions of the receiver,
the defendant, Juan D. Pomar.
After the termination of the receivership, the court required of the receiver (Juan D.
Pomar) a report and an accounting of his operations as receiver. It appears from the
record that the lower court had a good deal of trouble in securing a final report. The
receiver apparently acted as though his only responsibility was to the plaintiff
(Compañia General de Tabacos de Filipinas); however, finally the lower court secured
what appears to be a final accounting by the receiver, upon the 9th or 10th day of
August, 1909. The report of the receiver contained many items.
After a careful consideration of the various items of the account of the receiver, Judge
McCabe allowed the following items of said account —
1. Care of cane before cutting P1,522.30
2. Cutting and grinding, according to 8,565.97

report of commissioners
3. Fuel 150.00
4. Expenses in Iloilo, according to

receiver's Exhibit B 2,591.28
5. Storage 428.28
6. Insurance 428. 28
7. Selling commission 648. 28
8. Judgment for plaintiff in cause No.

249 9,187.80
9. Receiver's pay 1,000.00
Total 24,522.04
or about the first Tuesday of November, 1909, the sum of P7,883.76, a balance which
he ought to have had in his possession. From the order allowing said items only the
defendant appealed to this court and made the following assignments of error: .
I. The court erred in reducing to P8,565.97 the P22,944.73 spent by the receiver for
cutting, hauling, and manufacture of 8,005.58 piculs of sugar, for packing,
transportation and storage thereof, and insurance and selling commission thereon.
II. The court erred in not allowing the item of P147.86 paid out by the receiver as
interest on money borrowed to cover the first expenses of his receivership.
III. The court erred in not approving the disbursement made by the receiver of the
P3,001.94 delivered to the aparceros as their share of the crop.
IV. The court erred in reducing to P1,000 the P4,860.87 which the receiver claimed as
compensation for his services.
V. The court erred in holding that the order appointing the receiver does not extend his
powers beyond those prescribed in section 175 of Act No. 190.
With reference to the first assignment of error, it will be noted that the receiver
presented an account for cutting, grinding, etc., of the sugar cane upon the hacienda,
over which he had control as receiver, amounting to P22,944.73. Judge McCabe
refused to allow that amount for cutting and grinding, etc., of said sugar cane, upon the
ground that it was an unreasonable charge. The parties in the lower court agreed to the
appointment of three commissioners for the purpose of ascertaining the reasonable
cost of cutting, grinding, etc., of the sugar cane upon the said hacienda. The
commissioners were duly appointed, the plaintiff selecting one, the defendant another
and the court selecting the third. In due time and after due deliberation, the
commissioners etc., of the said sugar cane per pico was P1.07. There were 8,005.58
picos of sugar cane, which calculated at the rate of per pico for cutting, grinding, etc.,
would amount to P8,565.97, which amount the lower court allowed the receiver. The
commissioners appointed by the lower court were men who had experience in the
cutting and grinding of sugar cane. It was the duty of the receiver to harvest the sugar
cane at least possible cost to the owners of the crop. There is much proof in the record
to indicate that the receiver did not harvest the crop of sugar cane as expeditiously as
he should have done. There is no proof in the record which shows that the amount
estimated by the said commissioner for the cutting, grinding, etc., of the sugar cane in
question, was not a reasonable amount for that expense. We find nothing in the record
which justifies us in modifying the decision of the lower court with reference to this first
assignment of error.
With reference to the second assignment of error, it appears that the receiver
attempted to charge P147.86, as interest on money borrowed by him during his
administration as receiver. There is no proof in the record which shows that it was
necessary for him to borrow money to properly conserve the interests of the owners
and creditors interested in the administration of the hacienda. The lower court correctly
said, "a receiver has no authority to borrow money unless the same is expressly given
by the court." We would be inclined, however, to allow this amount (P147.86) had the
necessity been fully demonstrated for borrowing the money. In the absence of authority
expressly given and especially in the absence of proof of the absolute necessity for
incurring this item of expense, we refuse to modify the conclusions of the lower court
with respect to this item.
With reference to the third assignment of error above noted, the receiver included in his
account the item of P3,001.94, being the amount, according to this statement, of
money and effects delivered to "los aparceros de la hacienda" during his
administration. It is a well known custom among sugar growers in the Philippine
Islands, that the aparceros plant and cultivate sugar cane at their own expense,
receiving one-half of the sugar produced and delivering the other half to the owner
land. It is also a well known custom that the owners of the land from time to time
advance money and effects to the aparceros, deducting the value of the same from the
value of the sugar after the same is harvested. In the present case it appears that the
receiver delivered one-half of the sugar to the aparceros without deducting the amount
of money and effects advanced to them. If he, in fact, advanced to the aparceros the
said sum (P3,001.94) he should have deducted it from the amount due said aparceros,
and not have attempted to collect the same from the amount due the owner of the
hacienda, prejudicing the owner of the hacienda thereby. Here again the receiver
exceeded his authority. Nevertheless we would be inclined to allow this amount
(P3,001.94) if it were a just charge against the administration of the hacienda. But, as
was said above, it is not a just charge against the owner of the hacienda. This amount
should have been collected from the aparceros. Judge McCabe committed no error in
disallowing this item in the account of the receiver.
With reference to the fourth assignment of error above noted, it will be seen that the
receiver included in his account the sum of P4,860.87 as compensation for his
administration as receiver. The lower court disallowed that amount but did allow him
the sum of P1,000 as his just compensation as receiver. The lower court, in the
appointment of the receiver, did not fix any sum for his compensation; neither is it
customary for courts in appointing receivers to fix their compensation in advance. Their
compensation is a matter which is always left to the sound discretion of the court, to be
allowed from time to time. The receiver attempted to recover as his compensation 15
per cent of the value of the sugar. The lower court found that the amount of P4,860. 87
was an unreasonable amount to be allowed as compensation for the services of the
receiver in the present case. The court found that the receiver might have done all the
work which he did do in the course of his administration as receiver in one hundred
days. The Code of Procedure in Civil Actions allows administrators of estates of
deceased persons the sum of P4 a day for the time actually employed in the
administration of the estate. The lower court, following this provision of the law,
believing the present case to be somewhat analogous, allowed the receiver P4 a day
for his services. The lower court also allowed an additional amount, the basis of which
does not clearly appear in the record, making the total compensation of the receiver
the sum of P1,000. Against that order the owner of the hacienda did not appeal.
Considering the negligent manner in which the receiver administered the hacienda, as
appears from the record, as well as his negligence in complying with the various orders
of the court with reference to rendering accounts, we are of the opinion that the sum of
P1,000 is, in fact, more than a just compensation for his services. In view, however, of
the fact that the owner of the hacienda did not appeal from the order of the court
allowing said sum (P1,000) we approve the finding of the lower court.
With reference to the fifth assignment of error above noted, the appellant seems to
believe that section 175 of the Code of Procedure in Civil Actions gave him full power
to administer the property placed under his control as receiver as he might deem wise
and necessary, without any intervention on the part of the court or of the interested
parties. The appellant evidently overlooked the phrase of said article which says: "The
receiver shall have, under the control of the court in which the action is pending, power,
etc." The judge of the lower court in his decision goes into detail at length and cites
authorities extensively, for the purpose of showing the general duties, powers and
responsibilities of receivers, evidently for the purpose of instructing receivers in his
district. The receiver is generally defined to be "an indifferent person between the
parties litigant, appointed by the court and on behalf of all the parties, and not of the
plaintiff or defendant only, to receive and hold the thing or property in litigation, pending
the suit (Booth vs. Clark, 17 How. (U. S.),322, 331), to receive the rents, issues or
profits of the land or thing in question (Both vs. Clark, supra), to receive the rents or
other income, to hold possession and control of the property which is the subject
matter of the litigation, and to dispose of the same or deliver it to such person or
persons as may be directed by the court. (Wiswall vs. Kunz, 173 Ill., 110.)" The reports
of the decisions of the courts are filled with decisions supporting the above doctrine.
The receiver is said to be the arm and hand of the court—a part of the machinery of the
court, by which the rights of parties are protected. He is required not only to preserve
the property, but to protect the rights of all of the parties interested. If he is not versed
in the law, he should secure legal advice, with the permission of the court and in case
of doubt should advise with the court and receive direction.
After a full consideration of the above assignments of error, in connection with the facts
contained in the record, we find no reason for changing or modifying the decision of the
lower court, and the same is hereby affirmed, with costs.
Torres, Mapa and Moreland, JJ., concur.
Separate Opinions
CARSON, J., concurring:
I concur. I think it proper, however, to add that the observation of the lower court,
quoted with approval in the opinion of this court, that "a receiver has no authority to
borrow money unless the same is expressly given by the court," while undoubtedly rue,
as a general proposition, must not be understood as absolutely prohibiting the
borrowing of money by a receiver and its repayment with interest as a lawful and
necessary expense incurred by the receiver in the performance of his duty, where it is
impracticable or impossible to secure the prior approbation of the transaction by the
court.
As a rule, consent of court should first be obtained; but as clearly indicated in the
majority opinion, where the necessity for incurring the expense actually exists, and is
fully and clearly established, the transaction will be ratified and approved when all the
facts are shown to the court. The receiver and the lender take the risk that the
transaction may not be ratified by the court, on the ground that in the opinion of the
court there was no necessity therefor; and without the approval of the court previously
obtained or the ratification and approval obtained when the matter is finally reported,
the property in the hands of the receiver is not and can not be bound for the repayment
of the indebtedness.
If it were shown in the case at bar that to save a growing crop from destruction, or to
harvest it at the proper time, it became necessary to borrow money to pay laborers or
the like, and that under all the circumstances it was impracticable to secure the
previous consent of the court to the transaction, it will not be doubted that on a proper
showing the court would ratify and affirm the transaction, and that this subsequent
ratification would bind the property in the hands of the receiver for the repayment of the
money borrowed, together with interest and the expenses necessarily incurred in and
about the making of the loan.
G.R. No. 172843 September 24, 2014
ALFREDO L. VILLAMOR, JR., Petitioner,

vs.
JOHN S. UMALE, in substitution of HERNANDO F. BALMORES, Respondent.
x-----------------------x
G.R. No. 172881
ODIVAL E. REYES, HANS M. PALMA and DOROTEO M. PANGILINAN, Petitioners,

vs.
HERNANDO F. BALMORES, Respondent.
DECISION
LEONEN, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the Rules of Court,
assailing the decision2 of the Court of Appeals dated March 2, 2006 and its resolution3
dated May 29, 2006, denying petitioners’ motions for reconsideration. The Court of
Appeals placed Pasig Printing Corporation (PPC) under receivership and appointed an
interim management committee for the corporation.4
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property
was part of the area owned by Mid-Pasig Development Corporation (Mid-Pasig).5
On March 1, 2004, PPC obtained an option to lease portions of MidPasig’s property,

including the Rockland area.6
On November 11, 2004, PPC’s board of directors issued a resolution7 waiving all its
rights, interests, and participation in the option to lease contract in favor of the law firm
of Atty. Alfredo Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC received no
consideration for this waiver in favor of Villamor’s law firm.8
On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of

agreement (MOA) with MC Home Depot.9 Under the MOA, MC Home Depot would
continue to occupy the area as PPC’s sublessee for four (4) years, renewable for
another four (4) years, at a monthly rental of P4,500,000.00 plus goodwill of
P18,000,000.00.10
In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated
checks representing rentalpayments for one year and the goodwill money. The checks
were given to Villamor who did not turn these or the equivalent amount over to PPC,
upon encashment.11
Hernando Balmores, respondent inG.R. No. 172843 and G.R. No. 172881 and a
stockholder and director of PPC,12 wrote a letter addressed to PPC’s directors,
petitioners inG.R. No. 172881, on April 4, 2005.13 He informed them that Villamor
should bemade to deliver to PPC and account for MC Home Depot’s checks or their
equivalent value.14
Due to the alleged inaction of the directors, respondent Balmores filed with the
Regional Trial Court an intra-corporate controversy complaint under Rule 1, Section
1(a)(1) of the Interim Rules for Intra-Corporate Controversies15 (Interim Rules) against
petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the corporation and its
stockholders."16
Respondent Balmores alleged in his complaint that because of petitioners’ actions,

PPC’s assets were ". . . not only in imminent danger, but have actually been
dissipated,lost, wasted and destroyed."17
Respondent Balmores prayed that a receiver be appointed from his list of nominees.18
He also prayed for petitioners’ prohibition from "selling, encumbering, transferring or
disposing in any manner any of [PPC’s] properties, including the MC Home [Depot]
checks and/or their proceeds."19 He prayed for the accounting and remittance to PPC
of the MC Home Depot checks or their proceeds and for the annulment of the board’s
resolution waiving PPC’s rights in favor of Villamor’s law firm.20
Ruling of the Regional Trial Court
In its resolution21 dated June 15, 2005, the Regional Trial Court denied respondent
Balmores’ prayer for the appointment of a receiver or the creation of a management
committee.The dispositive portion reads:
WHEREFORE, premises considered the appointment of a Receiver and the creation of

a Management Committee applied for by plaintiff Hernando F. Balmores are, as they
are hereby, DENIED.22 (Emphasis in the original)
According to the trial court, PPC’s entitlement to the checks was doubtful. The
resolution issued by PPC’s board of directors, waiving its rights to the option to lease
contract infavor of Villamor’s law firm, must be accorded prima facie validity.23
The trial court also noted that there was a pending case filed by one Leonardo Umale
against Villamor, involving the same checks. Umale was also claiming ownership of the
checks.24 This, according to the trial court, weakened respondent Balmores’ claim that
the checks were properties of PPC.25
The trial court also found that there was "no clear and positive showing of dissipation,
loss, wastage, or destruction of [PPC’s] assets . . . [that was] prejudicial to the
interestof the minority stockholders, partieslitigants or the general public."26 The
board’s failure to recover the disputed amounts was not an indication of
mismanagement resulting in the dissipation of assets.27
The trial court noted that PPC was earning substantial rental income from its other sub-
lessees.28
The trial court added that the failure to implead PPCwas fatal. PPC should have been
impleaded as an indispensable party, without which, there would be no final
determination of the action.29
Ruling of the Court of Appeals
Respondent Balmores filed with the Court of Appeals a petition for certiorari under Rule
65 of the Rules of Court.30 He assailed the decision of the trial court, which denied his
"application for the appointment of a [r]eceiver and the creation ofa [m]anagement
[c]ommittee."31
In the decision promulgated on March 2, 2006, the Court of Appeals gave due course
to respondent Balmores’ petition. It reversed the trial court’s decision, and issued a
new order placing PPC under receivership and creating an interim management
committee.32 The dispositive portion reads:
WHEREFORE, premises considered, the instant petition is hereby GRANTED and

GIVEN DUE COURSE and the June 15, 2005 Order/Resolution of the commercial
court, the Regional Trial Court of Pasig City, Branch 167, in S.E.C. Case No. 05-62, is
hereby REVERSED and SET ASIDE and a NEW ORDER is ISSUED that, during the
pendency of the derivative suit, untiljudgment on the merits is rendered by the
commercial court, in order toprevent dissipation, loss, wastage or destruction of the
assets, in order to prevent paralization of business operations which may be prejudicial
to the interest of stockholders, parties-litigants or the general public, and in order to
prevent violations of the corporation laws: (1) Pasig Printing Corporation (PPC) is
hereby placed under receivership pursuant to the Rules Governing Intra-Corporate
Controversies under R.A. No. 8799;(2) an Interim Management Committee is hereby
created for Pasig Printing Corporation (PPC) composed of Andres Narvasa, Jr., Atty.
Francis Gustilo and Ms Rosemarie Salvio-Leonida; (3) the interim management
committee is hereby directed to forthwith, during the pendency of the derivative suit
until judgment on the merits is rendered by the commercial court, to: (a) take over the
business of Pasig Printing Corporation (PPC), (b) take custody and control of all assets
and properties owned and possessed by Pasig Printing Corporation (PPC), (c) take the
place of the management and the board of directors of Pasig Printing Corporation
(PPC), (d) preserve Pasig Printing Corporation’s assets and properties, (e) stop and
prevent any disposal, in any manner, of any of the properties of Pasig Printing
Corporation (PPC) including the MC Home Depot checks and/or their proceeds; and
(3) [sic] restore the status quo ante prevailing by directing respondents their associates
and agents to account and return to the Interim Management Committee for Pasig
Printing Corporation (PPC) all the money proceeds of the 20 MC Home Depot checks
taken by them and to account and surrender to the Interim Management Committee all
subsequent MC Home Depot checks or proceeds.33 (Citation omitted)
The Court of Appeals characterizedthe assailed order/resolution of the trial court as an

interlocutory order that is not appealable.34 In reversing the trial court order/resolution,
the Court of Appeals considered the danger of dissipation, wastage, and loss of PPC’s
assets if the review of the trial court’s judgment would be delayed.35
The Court of Appeals ruled that the case filed by respondent Balmores with the trial
court "[was] a derivative suit because there were allegations of fraud or ultra vires
acts . . . by [PPC’s directors]."36
According to the Court of Appeals,the trial court abandoned its duty to the stockholders
in a derivative suit when it refused to appoint a receiver or create a management
committee, all during the pendency of the proceedings. The assailed order ofthe trial
court removed from the stockholders their right, in an intra-corporate controversy, to be
allowed the remedy of appointment of a receiverduring the pendency of a derivative
suit, leaving the corporation under the control of an outsider and its assets prone to
dissipation.37 The Court of Appeals also ruled that this amounts to "despotic,
capricious, or whimsicalexercise of judicial power"38 on the part of the trial court.
In justifying its decision to place PPCunder receivership and to create a management

committee, the Court of Appeals stated that the board’s waiver of PPC’s rights in favor
ofVillamor’s law firm without any consideration and its inaction on Villamor’s failure to
turn over the proceeds of rental payments to PPC warrant the creation of a
management committee.39 The circumstances resulted in the imminent danger of loss,
waste, or dissipation of PPC’s assets.40
Petitioners filed separatemotions for reconsideration. Both motions were denied by the
Court of Appeals on May 29, 2006. The dispositive portion of the Court of Appeals’
resolution reads:
WHEREFORE, for lack of merit, respondents’ March 10, 2006 and March 20, 2006
Motions for Reconsideration are hereby DENIED.41
Petitioners filed separatepetitions for review under Rule 45, raising the following
threshold issues:
I. Whether the Court of Appeals correctly characterized respondent Balmores’ action

as a derivative suit
II. Whether the Court of Appeals properly placed PPC under receivership and created
a receiver or management committee
PPC’s directors argued that the Court of Appeals erred in characterizing respondent
Balmores’ suit as a derivative suit because of his failure to implead PPC as party in the
case. Hence, the appellate court did not acquire jurisdiction over the corporation, and
the appointment of a receiver or management committee is not valid.42
The directors further argued that the requirements for the appointment of a receiver or
management committee under Rule 943 of the Interim Rules were not satisfied. The
directors pointed out that respondent Balmores failed to prove that the assets of the
corporation were in imminent danger of being dissipated.44
According to the directors, assuming that a receiver or management committee may be

appointed in the case, it is the Regional Trial Court only and not the Court of Appeals
that must appoint them.45
Meanwhile, Villamor argued that PPC’s entitlement to the checks or their proceeds was
still in dispute. In a separate civil case against Villamor, a certain Leonardo Umale was
claiming ownership of the checks.46
Villamor also argued that the Court of Appeals’ order to place PPC under receivership
and to appoint a management committee does not endanger PPC’s assets because
the MC Home Depot checks were not the only assets of PPC.47 Therefore, it would
not affect the operation of PPC or result in its paralysation.48
In his comment, respondent Balmores argued that Villamor’s and the directors’
petitions raise questions of facts, which cannot be allowed in a petition for review under
Rule 45.49
On the appointment of a receiver or management committee, respondent Balmores

stated that the ". . . very practice of waiving assets and income for no consideration
can in factlead, not only to the paralyzation of business, but to the complete loss or
cessation of business of PPC[.] It is
precisely because of this fraudulent practice that a receiver/management committee

must be appointed to protect the assets of PPC from further fraudulent acts, devices
and schemes."50
The petitions have merit.
Petition for review on

certiorari under Rule 45 was proper
First, we rule on the issue of whether petitioners properly filed a petition for review on
certiorari under Rule 45.
Respondent Balmores argued that the petition raises questions of fact.
Under Rule 45, only questionsof law may be raised.51 There is a question of law
"when there is doubt or controversy as to what the law is on a certain [set] of facts."52
The test is "whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence."53 Meanwhile, there is a question of fact when
there is "doubt . . . as to the truth or falsehood of facts."54 The question must involve
the examination of probative value of the evidence presented.
In this case, petitioners raise issues on the correctness of the Court of Appeals’
conclusions. Specifically, petitioners ask (1) whether respondent Balmores’ failure to
implead PPC in his action with the trial court was fatal; (2) whether the Court of
Appeals correctly characterized respondent Balmores’ action as a derivative suit; (3)
whether the Court of Appeals’ appointment of a management committee was proper;
and (4) whether the Court of Appeals may exercise the power to appoint a
management committee.
These are questions of law that may be determined without looking into the evidence
presented. The question of whether the conclusion drawn by the Court of Appeals from
a set of facts is correct is a question of law, cognizable by this court.55
Petitioners, therefore, properly filed a petition for review under Rule 45.
II
Respondent Balmores’ action

in the trial court is not a derivative suit
A derivative suit is an action filed by stockholders to enforce a corporate action.56 It is

an exception to the general rule that the corporation’s power to sue57 is exercised only
by the board of directors or trustees.58
Individual stockholders may be allowed to sue on behalf of the corporation whenever

the directors or officers of the corporation refuse to sue to vindicate the rights of the
corporation or are the ones to be sued and are in control of the corporation. 59 It is
allowed when the "directors [or officers] are guilty of breach of . . . trust, [and] not of
mere error of judgment."60
In derivative suits, the real party in interest is the corporation, and the suing
stockholder is a mere nominal party.61
Thus, this court noted:
The Court has recognized that a stockholder’s right to institute a derivative suit is not
based on any express provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its stockholders
for violation of their fiduciary duties. In effect, the suit isan action for specific
performance of an obligation, owed by the corporation to the stockholders, to assist its
rights of action when the corporation has been put in default by the wrongful refusal of
the directors or management to adopt suitable measures for its protection.62
Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies
(Interim Rules) provides the five (5) requisites63 for filing derivative suits:
SECTION 1. Derivative action. – A stockholder or member may bring an action in the

name of a corporation or association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, toexhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is
implied in the first paragraph of Rule 8, Section 1 of the Interim Rules: The action
brought by the stockholder or member must be "in the name of [the] corporation or
association. . . ." This requirement has already been settled in jurisprudence.
Thus, in Western Institute of Technology, Inc., et al. v. Salas, et al.,64 this court said
that "[a]mong the basic requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders similarly situated who wish to join
[him]."65 This principle on derivative suits has been repeated in, among other cases,
Tam Wing Tak v. Hon. Makasiar and De Guia66 and in Chua v. Court of Appeals,67
which was cited in Hi-Yield Realty, Incorporated v. Court of
Appeals.68
Moreover, it is important that the corporation be made a party to the case.69
This court explained in Asset Privatization Trust v. Court of Appeals70 why it is a

condition sine qua nonthat the corporation be impleaded as party in derivative suits.
Thus:
Not only is the corporation an indispensible party, but it is also the present rule that it
must be served with process. The reason given is that the judgment must be made
binding upon the corporation inorder that the corporation may get the benefit of the suit
and may not bring a subsequent suit against the same defendants for the same cause
of action. In other words the corporation must be joined as party because it is its cause
of action that is being litigated and because judgment must be a res judicata against
it.71
In the same case, this court enumerated the reasons for disallowing a direct individual
suit.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no

title legal or equitable to the corporate property; that both of these are in the
corporation itself for the benefit of the stockholders." Inother words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme
Court held in the case of Evangelista v. Santos, that ‘the stockholders may not directly
claim those damages for themselves for that would result in the appropriation by, and
the distribution among them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something which cannot be
legally donein view of Section 16 of the Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an

individual on the damages recoverable by the corporation for the same act.72
While it is true that the basis for allowing stockholders to file derivative suits on behalf
of corporations is based on equity, the above legal requisites for its filing must
necessarily be complied with for its institution.73
Respondent Balmores’ action in the trial court failed to satisfy all the requisites of a
derivative suit.
Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he
prayed for. Though he tried to communicate with PPC’s directors about the checks in
Villamor’s possession before he filed an action with the trial court, respondent
Balmores was not able to show that this comprised all the remedies available under the
articles of incorporation, bylaws, laws, or rules governing PPC.
An allegation that appraisal rights were not available for the acts complained of is
another requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim
Rules.
Section 81 of the Corporation Code provides the instances of appraisal right:
SEC. 81. Instances of appraisal right.— Any stockholder of a corporation shall have the
right to dissent and demand payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholders or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class, or of
extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of

all or substantially all of the corporate property and assets as provided in this Code;
and
3. In case of merger or consolidation.
Section 82 of the Corporation Codeprovides that the stockholder may exercise the right
if he or she voted against the proposed corporate action and if he made a written
demand for payment on the corporation within thirty (30) days after the date of voting.
Respondent Balmores complained aboutthe alleged inaction of PPC’s directors in his

letter informing themthat Villamor should be made to deliver to PPC and accountfor MC
Home Depot’s checks or their equivalent value. He alleged that these are devices or
schemes amounting to fraud or misrepresentation detrimental to the corporation’s and
the stockholders’ interests. He also alleged that the directors’ inaction placed PPC’s
assets in imminent and/or actual dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores’ attempt to communicate with the other PPC
directors already comprised all the available remedies that he could have exhausted
and (b) the corporation was under full control of petitioners that exhaustion of remedies
became impossible or futile,74 respondent Balmores failed toallege that appraisal
rights were not available for the acts complained of here.
Neither did respondent Balmores implead PPC as party in the case nor did he allege
that he was filing on behalf of the corporation.
The non-derivative character of respondent Balmores’ action may also be gleaned from
his allegations in the trial court complaint. In the complaint, he described the nature
ofhis action as an action under Rule 1, Section 1(a)(1) of the Interim Rules, and not an
action under Rule 1, Section 1(a)(4) of the Interim Rules, which refers to derivative
suits. Thus, respondent Balmores said:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure
for Intra-corporate Controversies, involving devices or schemes employed by, or acts
of, the defendants as board of directors, business associates and officers of Pasig
Printing Corporation (PPC), amounting to fraud or misrepresentation, which are
detrimental to the interest of the plaintiff as stockholder of PPC.75 (Emphasis supplied)
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board, associates, and
officers, amounting to fraud or misrepresentation, which may be detrimental to the
interest of the stockholders. This is different from a derivative suit.
While devices and schemes of the board of directors, business associates, or officers
amounting to fraud under Rule 1, Section 1(a)(1) of the Interim Rules are causes of a
derivative suit, it is not always the case that derivative suits are limited to such causes
or that they are necessarily derivative suits. Hence, they are separately enumerated in
Rule 1, Section 1(a) of the Interim Rules:
SECTION 1. (a) Cases covered. – These Rules shall govern the procedure to be
observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations,

between and among stockholders, members, or associates; and between, any or all of
them and the corporation, partnership, or association of which they are stockholders,
members, or associates, respectively;
(3) Controversies in the election orappointment of directors, trustees, officers, or

managers ofcorporations, partnerships, or associations;
(4) Derivative suits;and
(5) Inspection of corporate books. (Emphasis supplied)
Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or

officers may also beindividual suits or class suits.
Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and notto the stockholders as a group or to the corporation, e.g., denial of
right to inspection and denial of dividends to a stockholder.76 If the cause of action
belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group.77
In this case, respondent Balmores filed an individual suit. His intent was very clear from
his manner of describing the nature of his action:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure
for Intra-corporate Controversies, involving devices or schemes employed by, or acts
of, the defendants as board of directors, business associates and officers of Pasig
Printing Corporation (PPC),amounting to fraud or misrepresentation, which are
detrimental to the interest of the plaintiff as stockholder of PPC.78
(Emphasis supplied)
His intent was also explicit from his prayer:
WHEREFORE, plaintiff respectfully prays that the Honorable Court –
....
2. After notice and due proceedings –
Declare that the acts of defendant Directorsin allowing defendant VILLAMOR to retain
custody of the MC Home checks and encash them upon maturity, as well as their
refusal or failure to take any action against defendant VILLAMOR to make him account
and deliver the MC Home checks and/or their proceeds to Pasig Printing Corporation
are devices, schemes or acts amounting to fraud that are detrimental to plaintiff’s
interest as a stockholder of PPC;79 (Emphasis supplied)
Respondent Balmores did not bring the action for the benefit of the corporation.
Instead, hewas alleging that the acts of PPC’s directors, specifically the waiver of rights
in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks
from Villamor, were detrimental to his individual interest as a stockholder. In filing an
action, therefore, his intention was to vindicate his individual interest and not PPC’s or
a group of stockholders’.
The essence of a derivative suit is thatit must be filed on behalf of the corporation. This
is because the cause of action belongs, primarily, to the corporation. The stockholder
who sues on behalf of a corporation is merely a nominal party.
Respondent Balmores’ intent to file an individual suit removes it from the coverage of
derivative suits.
III
Respondent Balmores has no cause of action that would

entitle him to the reliefs sought
Corporations have a personality that is separate and distinct from their stockholders
and directors. A wrong tothe corporation does not necessarily create an individual
cause of action. "A cause of action is the act or omission by which a party violates the
right of another."80 A cause of action must pertain to complainant if he or she is to be
entitled to the reliefs sought. Thus, in Cua v. Tan,81 this court emphasized:
. . . where the acts complainedof constitute a wrong to the corporation itself, the cause
of action belongs to the corporation and not to the individual stockholder or member.
Although in most every case of wrong to the corporation, each stockholder is
necessarily affected because the value of his interest therein would beimpaired, this
fact of itself is not sufficient to give him an individual cause of action since the
corporation is a person distinct and separate from him, and can and should itself sue
the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but
there would be multiplicity of suits as well as a violation of the priority rights of
creditors. Furthermore, there is the difficulty of determining the amount of damages
that should be paid to each individual stockholder.82
In this case, respondent Balmores did not allege any cause of action that is personal to
him. His allegations are limited to the facts that PPC’s directors waived their rights to
rental income in favor of Villamor’s law firm without consideration and that they failed to
take action when Villamor refused to turn over the amounts to PPC. These are
wrongsthat pertain to PPC. Therefore, the cause of action belongs to PPC — not to
respondent Balmores or any stockholders as individuals.
For this reason, respondent Balmoresis not entitled to the reliefs sought in the
complaint. Only the corporation, or arguably the stockholders as a group, is entitled to
these reliefs, which should have been sought in a proper derivative suit filed on behalf
of the corporation.
PPC will not be bound by a decision granting the application for the appointment of a
receiver or management committee. Since it was not impleaded in the complaint, the
courtsdid not acquire jurisdiction over it. On this matter, it is an indispensable party,
without which, no final determination can be had.
Hence, it is not only respondent Balmores’ failure to implead PPC that is fatal to his
action, as petitioners point out. It is the fact that he alleged no cause of action that
pertains personally to him that disqualifies him from the reliefs he sought in his
complaint.
On this basis alone, the Court of Appeals erred in giving due course to respondent
Balmores’ petition for certiorari, reversing the trial court’s decision, and issuing a new
order placing PPC under receivership and creating an interim management committee.
IV
Appointment of a management committee was not proper
Assuming that respondent Balmores has an individual cause of action, the Court of
Appeals still erred in placing PPC under receivership and in creating and appointing a
A corporation may be placed under receivership, or management committees may be

created to preserveproperties involved in a suit and to protect the rights of the parties
under the control and supervision of the court.83 Management committees and
receivers are appointed when the corporation is in imminent danger of "(1)
[d]issipation, loss, wastage or destruction of assets or other properties; and (2)
[p]aralysation of its business operations that may be prejudicial to the interest of the
minority stockholders, parties-litigants, or the general public."84
Applicants for the appointment of a receiver or management committee need to

establish the confluence of these two requisites.1âwphi1 This is because appointed
receivers and management committees will immediately take over the management of
the corporation and will have the management powers specified in law.85 This may
have a negative effect on the operations and affairs of the corporation with third
parties,86 as persons who are more familiar with its operations are necessarily
dislodged from their positions in favor of appointees who are strangers to the
corporation’s operations and affairs.
Thus, in Sy Chim v. Sy Siy Ho & Sons, Inc.,87 this court said:

. . . the creation and appointment of a management committee and a receiver is an

extra ordinary and drastic remedy to be exercised with care and caution; and only
when the requirements under the Interim Rules are shown. It is a drastic course for the
benefit of the minority stockholders, the parties-litigants or the general public are
allowed only under pressing circumstances and, when there is inadequacy, ineffectual
or exhaustion of legal or other remedies . . . The powerof the court to continue a
business of a corporation . . . must be exercised with the greatest care and caution.
There should be a full consideration ofall the attendant facts, including the interest of
all the parties concerned.88
PPC waived its rights, without any consideration in favor of Villamor. The checks were
already in Villamor’s possession. Some of the checks may have already been
encashed. This court takes judicial notice that the goodwill money of P18,000,000.00
and the rental payments of P4,500,000.00 every month are not meager amounts only
to be waived without any consideration. It is, therefore, enough to constitute loss or
dissipation of assets under the Interim Rules.
Respondent Balmores, however, failed to show that there was an imminent danger of
paralysis of PPC’s business operations. Apparently, PPC was earning substantial
amounts from its other sub-lessees. Respondent Balmores did not prove otherwise.
He, therefore, failed to show at least one of the requisites for appointment of a receiver
or management committee.
The Court of Appeals had no

jurisdiction to appoint the receiver or management
committee
The Court of Appeals has no power to appoint a receiver or management committee.

The Regional Trial Court has original and exclusive jurisdiction89 to hear and decide
intra-corporate controversies,90 including incidents of such controversies.91 These
incidents include applications for the appointment of receivers or management
committees.
"The receiver and members of the management committee . . . are considered officers
of the court and shall be under its control and supervision."92 They are required to
report tothe court on the status of the corporation within sixty (60) days from their
appointment and every three (3) months after.93
When respondent Balmores filed his petition for certiorari with the Court of Appeals,
there was still a pending action in the trial court. No less than the Court of Appeals
stated that it allowed respondent Balmores’ petition under Rule 65 because the order
or resolution in question was an interlocutory one. This means that jurisdiction over the
main case was still lodged with the trial court.
The court making the appointment controls and supervises the appointed receiver or
management committee.1âwphi1 Thus, the Court of Appeals’ appointment of a
management committee would result in an absurd scenario wherein while the main
case is still pending before the trial court, the receiver or management committee
reports to the Court of Appeals.
WHEREFORE, the petitions are GRANTED. The decision of the Court of Appeals
dated March 2, 2006 and its resolution dated May 29, 2006 are SET ASIDE.
SO ORDERED.
G.R. No. L-25729 November 24, 1926
THE BELGIAN CATHOLIC MISSIONARIES, INC., plaintiff-appellee,

vs.
MAGALLANES PRESS, INC., ET AL., defendants.
JOSE MARIA MEMIJE, appellant.
Antonio M. Opisso, Romualdez Hermanos and Luciano de la Rosa for appellant.

Cavanna, Aboitiz & Agan for appellee.
VILLA-REAL, J.:
This is an appeal by Jose Marie Memije from a judgment of the Court of First Instance
of Manila the dispositive part of which is as follows:
For all the foregoing, the court is of the opinion that the plaintiff has a right to the relief
prayed for in its complaint. Wherefore, judgment is rendered declaring that Exhibits C
and D, that is, the mortgage deeds in question in this proceeding, in so far as they
prejudice the rights of the plaintiff, are null and void; that the preliminary injunction
issued in this case against the defendant Jose Ma. Memije is final and absolute; and
that the plaintiff recover the amount of the fire insurance policies of the defendant
"Magallanes Press, Inc.," which, or the representatives of which, is hereby ordered to
endorse said insurance policies to the plaintiff, with the costs of the proceedings
against the defendants, with the exception of J.P. Heilbronn Co., Inc. It is so ordered.
In support of his appeal, the appellant assigns the following supposed errors as
committed by the lower court in its judgment, to wit: (1) The court erred in overruling
the demurrer filed by this defendant to the complaint in this action; (2) the trial court
erred in giving the plaintiff corporation possession of the property mortgaged to this
appellant without following the necessary proceedings or complying with the provisions
of the law; (3) the trial court erred in issuing the writ of preliminary injunction against
the appellant and E. E. Elser, restraining the former from receiving from the latter, or
the latter from delivering to the former, the amount of the insurance policies covering
the property mortgaged to the appellant, which was damaged by the fire that occurred
in the establishment of the Magallanes Press, Inc; (4) the trial court erred in giving to
the unnecessary intervention of the Magallanes Press, Inc., in the execution of the
deed Exhibit C an interpretation which is neither based upon law nor upon the contract;
(5) the trial court erred in ordering the suspension of the foreclosure of the appellant's
mortgage on the property of the Magallanes Press, Inc.; (6) the trial court erred, under
the facts proven in this case, in applying article 1297 of the Civil Code; (7) the trial
court erred in finding in its decision that the defendant Jose Ma. Memije should not
have executed the documents Exhibits C and D without taking into account the rights
of the plaintiff corporation, The Belgian Catholic Missionaries, Inc; (8) the trial court
erred in declaring Exhibits C and D null and void in so far as they prejudice the rights of
the plaintiff, over whose credit that of the herein appellant is preferential; in declaring
the writ of preliminary injunction issued against the defendant Jose Ma. Memije final
and absolute; in giving judgment for the plaintiff to recover the amount of the fire
insurance policies of the defendant the Magallanes Press, Inc; and (9) the trial court
erred in not making any pronouncement as to the counterclaim and cross-complaint of
the defendant Jose Ma. Memije in this action, nor taking the same into consideration
and rendering judgment thereon in favor of said defendant.
The oral evidence has not been forwarded to this court so that we are compelled to
base our opinion exclusively upon the documentary evidence and the facts found and
stated by the trial court in its judgment.
It appears that on December 1, 1921, the Magallanes Press, through its manager H.
Camena, executed a promissory note in favor of J. P. Heilbronn & Co., Inc., for the
sum of P3,472.92, with interest at 10 per cent per annum, payable at the rate of P250
a month, plus the interest earned on the unpaid balance, until the whole amount of the
indebtedness shall have been paid, the first payment to be made on January 1, 1922,
with the condition that upon the failure to pay any monthly installment or the interest
earned on the unpaid balance, the whole amount of the indebtedness shall become
due, and the maker shall pay the payee an additional sum equivalent to 15 per cent of
the total balance, for attorney's fee and expenses of collection, forfeiting all right of
exemption.
On the same date, December 1, 1921, the said Magallanes Press, through its
managers H. Camena, also executed a promissory note in favor of J. P. Heilbronn &
Co., Inc., for the sum of P10,715.77, with interest at 12 per cent per annum, payable at
the rate of P500 a month, together with the interest earned on the unpaid balance, until
the whole amount of the indebtedness shall have been paid, the first payment to be
made on January 1, 1922, with the condition that upon the failure to pay any monthly
installment or the interest earned on the unpaid balance, the whole amount of the
indebtedness shall become due, and the maker shall pay the payee an additional sum
equal to 15 per cent of the total balance for attorney's fee and expenses of collection,
forfeiting all right of exemption.
To secure the payment of said promissory notes which amounted to a total of

P14,188.69, H. Camena, as general manager of the Magallanes Press, executed a
chattel mortgage on all of the printing machinery and its accessories, belonging to the
said Magallanes Press, in favor of J. P. Heilbronn & Co., Inc.
One June 19, 1922, the Magallanes Press Co., Inc., successor to the Magallanes
Press, with all the latter's rights and obligations, through its duly authorized president,
E. F. Clemente, executed a chattel mortgage on the same printing machinery ad its
accessories in favor of the Belgian Catholic Missionaries Co., Inc., which the
Magallanes Press had mortgaged to J. P. Heilbronn & Co., Inc., to secure the payment
of a loan of P30,500, with interest at 12 per cent per annum, which the said
Magallanes Press & Co., Inc., had obtained from the Belgian Catholic Missionaries
Co., Inc., the duration of the mortgage loan being one year from the execution of the
mortgage deed.
In December, 1922 the appellant Jose Ma. Memije made a loan in the sum of P2,000
to E. F. Clemente which was paid on account of the indebtedness of the Magallanes
Press to J. P. Heilbronn & co., Inc., together with the sum of P1,641 which A. F.
Mendoza owed said E. F. Clemente.
On the occasion of the issuance of the writ of attachment in civil cause No. 23818 of
the Court of First Instance of Manila, entitled Jose Ma. Cavanna vs. the Magallanes
Press Co., Inc., the defendant Jose Ma. Memije, on February 21, 1923, filed an
intervention in said case.
All the promissory note executed by the Magallanes Press in favor of J. P. Heilbronn &
Co., Inc., having been overdue for non-payment of the installments as well as the
respective chattel mortgage, the said J. P. Heilbronn & Co., Inc., transferred all its
mortgage credit against the Magallanes Press to Jose Ma. Memije in consideration of
the sum of P8,280.90, the balance of said mortgage credit.
On March 14, 1923, Enrique Clemente, as manager of the Megallane Press Co., Inc.,
executed a deed in favor of Jose Ma. Memije by virtue of which the chattel mortgage
which was given by the Magallanes Press in favor of J. P. Heilbronn & Co., Inc., and
transferred by the latter to Jose Ma. Memije, was made to cover an additional loan of
P5,895.79, which included the sum of P2,000 which said Jose Ma. Memije had
advanced said Enrique Clemente in December, 1922.
On April 21, 1923, a fire occurred in the building where the pointing machinery, its
accessories and other personal property of the Magallanes Press Co., Inc., were
located and which were covered by said chattel mortgages. Said property was insured,
and the insurance policies covering it were endorsed to J. P. Heilbronn & Co., Inc.,
upon the execution of the chattel mortgage thereon in favor of the latter. When J. P.
Heilbronn & Co., Inc., transferred its mortgage credit to Jose Ma. Memije it, in turn,
endorsed said insurance policies to him. The insurance companies were disposed to
pay the respective insurance policies, which amounted to P7,686.45, but due to the
issuance of the above-mentioned writ of preliminary injunction, payment could not be
made.
Due to the filing of the complaint in the present case on May 9, 1923, and the issuance
of the writ of preliminary injunction on May 10th of the same year, Jose Ma. Memije
was unable to collect the amount of the insurance policies, and when he was
summoned under the complaint on May 14, 1923, he made demand on the Magallanes
Press Co., Inc., for the payment of his mortgage credit on the same date the manager
of said corporation, E. F. Clemente, permitted the secretary of the said corporation to
place the property covered by the mortgage into the hands of the said Jose Ma.
Memije in order that the same might be sold, but the sale could not be consummated
due to the issuance of the said writ of preliminary injunction.
The first question raised by the defendant and appellant has reference to the overruling
of the demurrer filed by him to complaint.
One of the grounds of said demurrer was that the complaint in this case did not allege
facts sufficient to constitute a cause of action against the said defendant, in that,
notwithstanding the fact that the said complaint was instituted to annul the document of
transfer of the mortgage credit Exhibit C, it was not alleged in the said complaint that
the defendant Jose Ma. Memije had any intention to defraud the interests of the
plaintiff corporation, which was absolutely impossible due to the nature of the
transaction and the preferential character of the mortgage credit of J. P. Heilbronn &
Co., Inc.
As to this paragraph of the complaint, the plaintiff company having known of the
existence of a chattel mortgage in favor of J. P. Heilbronn & Co., Inc., the latter, either
as the first or as the second mortgage, had a perfect right to transfer its mortgage
credit, without the knowledge or consent of any other mortgagee, inasmuch as
whoever acquired it, would have exactly the same status as the transferor with the
same rights and obligations. The fact, therefore, that the Magallanes Press Co., Inc.,
had consented to the transfer of the mortgage credit of J. P. Heilbronn & Co., Inc., to
Jose Ma. Memije, does not constitute a fraud that an vitiate the said transfer, inasmuch
as the order of preference of the mortgages has not been altered, and its allegations
does not constitute a cause of action to annul the said transfer.
In regard to the allegation contained in the ninth paragraph of the complaint, it is very
clear that the increase made by Jose Ma. Memije in the mortgage credit acquired by
him from J.P. Heilbronn & Co., Inc., and the extension made by the Magallanes Press,
Inc., of the mortgage to said additional credit without the knowledge or consent of the
plaintiff company, as second mortgagee, prejudices the credit of the latter, inasmuch
as the security for the payment of said credit was reduced as to it, and, therefore,
constitute a fraud that vitiates the contract of extension of the mortgage evidence by
the deed Exhibit D, rendering it void.lawphil.net
The facts allege in paragraph 9 of the complaint are sufficient to constitute a cause of
action of nullity, and the lower court did nor err in overruling the demurrer filed by the
defendant Jose Ma. Memije.
In regard to the second assignment of error, it appears that the defendant Jose Ma.
Memije having attempted to foreclose the mortgage, by which the mortgage credit
acquired by him from J. P. Heilbronn & Co., Inc., was secured, in order to recover not
only the original credit but also the increase, the Belgian Catholic Missionaries Co.,
Inc., filed a complaint, with a petition for a writ of preliminary injunction against the
sheriff, in whose hands the foreclosure of the mortgage was placed. The writ of
preliminary injunction having been issued, upon the filing of a bond in the sum of
P15,000, and there being no person more interested in the conservation and custody
of the property covered by the mortgage than said plaintiff company, being the largest
creditor, it applied and obtained from the court the possession of the same.
Contrary to the contention of the appellant, this case is not one of replevin but simply a
proceeding instituted by the plaintiff for the deposit of the property in litigation, upon the
filing of a bond, said plaintiff, acting as a receiver by authority of the court, being the
person most interested in the conservation and care of the same (sec. 174, Act No.
190; 11 C. J., 726).
The lower court, therefore, did not err in authorizing the plaintiff company to take
possession of the personal property in litigation upon the filing of a bond sufficient to
secure the conservation or value thereof.
The third assignment of error raises the question as to the preference of right between
the plaintiff company and the defendant over the mortgaged property and the amount
of the insurance policies covering a part thereof which was destroyed by fire.
As we have seen in the statement of the pertinent facts necessary for the clear and
accurate solution of the questions of law involved in the present appeal, the firm of J.
P. Heilbronn & Co., Inc., had a mortgage credit against the Magallanes Press for the
sum of P14,186.69, secured by a first chattel mortgage. The plaintiff company, the
Belgian Catholic Missionaries Co., Inc., also had a mortgage credit for the amount of
P30,500, secured by a second mortgage on the same personal property. After this
second mortgage had been executed, the payment of the mortgage credit of J.P.
Heilbronn & Co., Inc., became due, which credit had been reduced to the sum of
P8,280,90 through partial payments, and the herein defendant-appellant Jose Ma.
Memije acquired said mortgage credit and increased it by P5,895.59 of which increase
P2,000 was a previous loan.
There is no question but that J. P. Heilbronn & Co., Inc., at the time of the transfer of
this mortgage rights to Jose Ma. Memije, had a preferential right over that of the
Belgian Catholic Missionaries Co., Inc., for the remainder of the amount of the
mortgage credit, that is, P8,280.90. The plaintiff company had a preferential right to the
rest of the value of the mortgaged property after deducting the remaining mortgage
credit of J. P. Heilbronn & Co., Inc.
The increase of P5,895.59 made by the defendant Jose Ma. Memije in favor of the
Magallanes Press Co., Inc., and the extension of the mortgage thereto, are not only
subordinate to the mortgage credit of the plaintiff company, being subsequent in time
and in registration, but said increase in the security is also void. The increase of the
mortgage security becomes a new mortgage in itself, inasmuch as the original
mortgage did not contain any stipulation in regard to the increase of the mortgage
credit, and even if it did, said increase would take effect only from the date of the
increase. A mortgage that contains a stipulation in regard to future advances in the
credit will take effect only from the date the same are made and not from the date of
the mortgage (11 C. J., 448; 5 R. C. L., 420-421). In accordance with the provisions of
section 5 of Act No. 1508, known as the Chattle Mortgage Law, the parties to the
original deeds swore that the same was mortgaged "to secure the obligations specified
therein and for no other purpose." Neither the increase in question, nor the extension
of the mortgage to secure the payment of the same is specified in the deed,
consequently said extension is void. "Where the statute provides that the parties to a
chattel mortgage must make oath that the debt is a just debt, honestly due and owing
from the mortgagor to the mortgagee, it is obvious that a valid mortgage cannot be
made to secure a debt to be thereafter contacted." (11 C. J., 448.)
Briefly, therefore, we have the following:
(a) That Jose Ma. Memije has a preferential right to the value of the chattels mortgage
and the amount of the insurance policies up to the sum of P8,280.90;
(b) That the plaintiff corporation, the Belgian Catholic Missionaries Co., Inc., has a right
to the remainder of the value of said chattels and the insurance policies up to the
amount of P30,500, after deducting the preferential credit of Jose Ma. Memije;
(c) That as to the increase of P5,895.59, the right of the defendant Jose Ma. Memije is
that of an ordinary creditor.
In regard to the damages claimed by the defendant in his counterclaim and which is
the subject-matter of his remaining assignments of error, said defendant has a right to
interest at 12 per cent on the P8,280.90 the amount of the mortgage credit acquired by
him from J. P. Heilbronn & Co., Inc., from February 26, 1923, the date of the
acquisition until fully paid.
For the foregoing reasons, the judgment appealed from is revoked and it is ordered the
another be entered declaring all the mortgages overdue, and the mortgage credit of
Jose Ma. Memije preferential over that of the Belgian Catholic Missionaries Co., Inc.,
up to the amount of P8,280.90, with interest at the rate of 12 per cent per annum from
February 26, 1923, until fully paid; the mortgage credit of the Belgian Catholic
Missionaries Co., Inc., for the sum of P30,500 with interest at the rate of 12 per cent
per annum, from June 19, 1922, until fully paid, plus the sum of P3,000 for attorney's
fees, over the additional credit of Jose Ma. Memije for P5,895.59; and ordering the
foreclosure of the said mortgages by selling the mortgaged property at public auction,
to the proceeds of which shall be added the amount of the insurance policies and the
above-mentioned credits in the order of preference above established, without special
pronouncement as to costs. So ordered.
G.R. No. L-29295 October 22, 1928
J. M. PO PAUCO, plaintiff,
vs.
DOLORES SIGUENZA, ET AL., defendants.
WISE & CO., intervenor-appellant.
Block, Johnston and Greenbaum for the intervenor.

Roman J. Lacson for receiver-appellee National Bank.
ROMUALDEZ, J.:
In this case, J.M. Po Pauco obtained final judgment in his favor against Dolores
Siguenza and Mariano Aguilar for the sum of P72,278.01, both parties agreeing to
deduct therefrom the sum of P13,007.46 which is the net value of the sugar cane
belonging to said defendants and attached by the plaintiff and manufactured by the
Philippine National Bank, the receiver of the said product. By virtue of said judgment
and agreement the court issued a writ of execution for the remaining sum of
P59,270.55 on November 19, 1926.
In another civil case before the same court, No. 6416, Wise & Co., Ltd., had on
October 18, 1926 obtained judgment against the herein plaintiff J. M. Po Pauco for the
sum of P10,572.80 with legal interest thereon, execution of said judgment having been
ordered in those proceedings, which has not yet, even partially, been paid.
On October 23, 1927, Wise & Co., Ltd., intervened in this case praying that the
Philippine National Bank, the receiver of the said sum of P13,007.46, be ordered to
satisfy the judgment in favor of the said petitioner Wise & Co., Ltd., against J.M. Po
Pauco, out of the sum deposited with it, Po Pauco's right and interest in the judgment
of this case now before us having been preliminary attached in civil case No. 6416, on
August 6, 1926.
Opposition was filed to said petition by the Philippine National Bank alleging that said
bank has a preferential right over the surplus of the sale of the sugar delivered to it as
receiver, and also that the Hibila Trading Corporation obtained judgment against the
said J. M. Po Pauco, in civil case No. 3197 of the Court of First Instance of Occidental
Negros, holding that the rights of the Hibila Trading Corporation over the sugar harvest
of 1923-1924 and 1924-1925 of the spouses Dolores Siguenza and Mariano Aguilar in
the San Agustin Estate, are preferential over those of J. M. Po Pauco and, therefor, the
latter is not at all entitled to any of the surplus remaining from the sale of said sugar;
and that said Hibila Trading Corporation is an interested party which must be
summoned before the motion of Wise & Co., Ltd., can be heard, which corporation
must institute an ordinary action to establish whatever right it may have to the surplus
of the sugar in question. 1awph!l.net
The court of First Instance of Iloilo denied the motion of Wise & Co., Ltd., granting it
permission to institute an action against the Philippine National Bank and the Hibila
Trading Corporation in order to determine which has the better right to the net
proceeds of the sale of said sugar.
Wise & Co., Ltd., appeals from said ruling making several assignments of error.
It should not be forgotten that the sum mentioned is in the custody of a receiver and
not of a sheriff. The sheriff is a court officer of a general character who is not appointed
for a certain judicial case; the sheriff is an officer who exercises or can exercise his
functions within the limits of his jurisdicition. A receiver, on the other hand, is a special
officer, appointed in relation to and within a certain case or action, and whose duties
are limited to his sphere of action, and do not extend further than the case in which he
was appointed.
For this reason, while the funds in the custody of a sheriff may be within the reach of
processes coming from other judicial proceedings, such is not the case with respect to
those under the custody of a depositary. From which it follows that those who, as in the
present case, have any claim to property or sum in the possession of a receiver, must
appear in the same proceeding in which said receiver discharges his duties, and there,
by motion or petition, allege and prove their claims.
The order appealed from is reversed and it is ordered that this proceeding be
remanded to the court of origin in order that, without the necessity of commencing a
new action, the interested parties be given an opportunity to set forth and prove their
alleged preferential rights over the sum in controversy.
Without any special pronouncement as to costs. So ordered.
G.R. No. L-2987 February 20, 1951
ERNEST BERG, plaintiff-appellant,

vs.
VALENTIN TEUS, defendant-appellee.
Alva J. Hill for appellant.

J. Perez Cardeñas for appellee.
TUAZON, J.:
This appeal is from an order of the Court of First Instance of Ilocos Sur dismissing the
above-entitled action by reason of Executive Order No. 25, as amended by Executive
Order No. 32, on moratorium.
Ernest Berg brought the action against Valentin Teus to foreclose a real estate and
chattel mortgage executed in November, 1944, to secure six promissory notes of the
aggregate value of P80,000 and payable on demand two years after declaration of
armistice between the United States and Japan. An amended or supplementary
complaint was later admitted against the defendant's objection. The complaints recited
that by stipulations of the parties, the mortgagor had undertaken, among other things,
to insure and pay the taxes on the mortgaged properties; not to alienate, sell, lease,
encumber or in any manner dispose thereof; and to keep and maintain the said
properties in good order and repair; but that, it was alleged, he (defendant) had failed
to keep taxes fully paid; had made material alterations on the premises, and had sold
and conveyed them to Central Azucarera del Norte. It was further alleged that the
mortgagor had agreed that should he fail to perform any of his obligations as
stipulated, "the mortgage shall be deemed to be automatically foreclosed and the
mortgagee may forthwith proceed to foreclose this mortgage either extrajudicially, even
after the death of the mortgagor, in pursuance of the provisions of Act No. 3135, as
amended;" and on the basis of this agreement it was prayed that the mortgage be
declared automatically foreclosed and the plaintiff entitled to immediate possession of
the properties in question. In a separate motion Berg's attorney also asked for the
appointment of a receiver.
Counsel for the defendant having moved for the dismissal of the complaint on the
grounds that plaintiff's cause of action had not accrued by reason of the executive
orders herein before cited, and having opposed the motion for receivership, Judge
Zoilo Hilario entered an order holding that as to the collection of the six notes the suit
had been prematurely brought, but setting the cause for trial on the merits because,
according to His Honor, the reasons alleged in the motion to dismiss were not
"indubitable" with reference to the appointment of a receiver sought by the plaintiff. As
we understand this order, its result was that the moratorium ought not to interfere with
the plaintiff's motion for appointment of receiver.
However that may be, the plaintiff subsequently filed a "complete complaint" in which
the original complaint and the amended or supplementary complaint were
consolidated. This "complete complaint", which was admitted without objection,
apparently was supposed to have restored the case to its original status. Consequently
the attorney for the defendant filed a new motion to dismiss; the Judge Luis Ortega,
who had replaced Judge Hilario, ignoring the latter's order entered the order now on
appeal by which the entire action was quashed on the theory advanced in the motion
to dismiss. The new order was silent on both the application for receivership and the
prayer that the plaintiff be adjudged authorized by the terms of the mortgage to
foreclose it extrajudicially and seize the properties.
Judge Ortega opined that Executive Orders Nos. 25 and 32 were still in force
unaffected by Republic Act No. 342 as to debts contracted during the Japanese
occupation. Plaintiff contended that those executive orders had passed out of
existence by the disappearance of the emergency contemplated thereby, and the
contention is reiterated in his instance. But from the view we take of the case, decision
on this question can be deferred. For the purpose of the present decision, we will
assume that Executive Orders Nos. 25 and 32 are still in full force and effect. This we
do to pave the way for and hasten action on the petition to put the premises and
chattels involved in the hands of a receiver, petition which appears of urgent character.
The constitutionality of Executive Orders Nos. 25 and 32 and Republic Act No. 342 and
allied issues can wait. These issues are delicate and would require prolonged study
and deliberation. Besides, there is a pending bill in Congress repealing those executive
orders and law.
In Medina vs. Santos (78 Phil., 464; 44 Off. Gaz., [No. 10] 3811), it was held that an
action for the recovery of a truck with prayer for payment of its value in case the truck
was not returned, could proceed notwithstanding the moratorium law. The court
observed that the indemnity sought was a subsidiary liability and would not come into
being unless and until decision was rendered against the defendant for such payment.
In Moya vs. Barton (79 Phil., 14; 45 Off Gaz., [No. 1] 237), the court said that when the
cause of action was in part covered by the moratorium and in part not, it was not unjust
to render judgment for the payment of the entire obligation with the understanding that
execution with respect to the amounts that had fallen due before March 10, 1945,
would be stayed.
In the case of Alejo vs. Gomez (83 Phil., 969), the court ruled that suit for unlawful
detainer and rents in arrears was not affected by the moratorium, the recovery of the
unpaid rentals, it was said, being accessory to the main action.
And, lastly, in Realty Investments Inc. et al. vs. Villanueva et al., (84 Phil., 842; 47. Off.
Gaz., 1844), the court, citing the above-mentioned cases decided that the court should
go ahead with the trial of the action on the merits without prejudice to the right of the
defendant to arrest the execution should one for payment of money be issued. In that
case plaintiff, which had sold to the defendant a piece of land on installment basis, was
demanding payment of the installments still unpaid, (installments which the defendant
claimed to have fully settled with the Japanese alien property custodian) or, in default,
restoration of the ownership and possession of the property. In revoking the lower
court's order of dismissal, we pointed out that the De Vencia vs. General, (78 Phil.,
780; 44 Off. Gaz., 4912), and Ma-ao Sugar Central Co., Inc. vs. Barrios, (79 Phil., 666;
45 Off. Gaz., 2444), were distinguishable from Moya vs. Barton, Medina vs. Santos,
and Alejo vs. Gomez, in that the suits in the first two named cases had for their sole
object the enforcement of a monetary obligation.
The case at bar falls within the relaxed rule of this court's later decisions. The alleged
violations of the conditions of the mortgage contract, if true, make it necessary if not
imperative, for the protection of the interest of the plaintiff, that the mortgaged
properties be placed in the custody of the court. The fact that the appointment of a
receiver, as the defendant emphasizes, is an ancillary remedy is precisely one
powerful reason why the case should not be dismissed. Because receivership is an
auxiliary remedy dismissal of the main action would eliminate the only basis for the
appointment or receiver and thus completely bar the door to any relief from mischiefs.
Under the circumstances of the case, the least that should have been done, if that
were feasible as a matter of procedure, was to adopt the steps which Judge Hilario had
proposed to do. Judge Hilario evidently saw the grave injustice to the plaintiff and the
irreparable injury to which his rights would be exposed if an indefinite suspension of the
entire proceeding were decreed.
In suspending the right of creditor to enforce his right the President and Congress had
no idea of depriving him of all means of preventing the destruction or alienation of the
security for the debt, destruction which would virtually write off, in some cases, the
whole credit. If that were the intention, it is doubtful if the orders and the law invoked
could stand the test of constitutionality.
The order appealed from will therefore be reversed and the case remanded to the court
below for further proceeding according to the tenor of this decision. We leave the way
open to the defendant to ask for the arrest or stay of execution in the event of an
adverse monetary judgment, and for the plaintiff to impugn anew, if necessary, the
constitutionality of Executive Orders Nos. 25 and 32 and Republic Act No. 342 and/or
their being still in force. Costs of this appeal will be charged against the appellee.
G.R. No. 203585 July 29, 2013
MILA CABOVERDE TANTANO and ROSELLER CABOVERDE, Petitioners,

vs.
DOMINALDA ESPINA-CABOVERDE, EVE CABOVERDE-YU, FE CABOVERDE-
LABRADOR, and JOSEPHINE E. CABOVERDE, Respondents.
DECISION
VELASCO, JR., J.:
The Case
Assailed in this petition for review under Rule 45 are the Decision and Resolution of the
Court of Appeals (CA) rendered on June 25, 2012 and September 21, 2012,
respectively, in CA-G.R. SP. No. 03834, which effectively affirmed the Resolutions
dated February 8, 20 I 0 and July 19, 2010 of the Regional Trial Court (RTC) of
Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-760, approving
respondent Dominalda Espina-Caboverde's application for receivership and appointing
the receivers over the disputed properties.
The Facts
Petitioners Mila Caboverde Tantano (Mila) and Roseller Caboverde (Roseller) are
children of respondent Dominalda Espina-Caboverde (Dominalda) and siblings of other
respondents in this case, namely: Eve Caboverde-Yu (Eve), Fe Caboverde-Labrador
(Fe), and Josephine E. Caboverde (Josephine).
Petitioners and their siblings, Ferdinand, Jeanny and Laluna, are the registered owners
and in possession of certain parcels of land, identified as Lots 2, 3 and 4 located at
Bantayan, Sindangan and Poblacion, Sindangan in Zamboanga del Norte, having
purchased them from their parents, Maximo and Dominalda Caboverde. 1
The present controversy started when on March 7, 2005, respondents Eve and Fe filed
a complaint before the RTC of Sindangan, Zamboanga del Norte where they prayed for
the annulment of the Deed of Sale purportedly transferring Lots 2, 3 and 4 from their
parents Maximo and Dominalda in favor of petitioners Mila and Roseller and their other
siblings, Jeanny, Laluna and Ferdinand. Docketed as Civil Case No. S-760, the case
was raffled to Branch 11 of the court.
In their verified Answer, the defendants therein, including Maximo and Dominalda,
posited the validity and due execution of the contested Deed of Sale.
During the pendency of Civil Case No. S-760, Maximo died. On May 30, 2007, Eve and
Fe filed an Amended Complaint with Maximo substituted by his eight (8) children and
his wife Dominalda. The Amended Complaint reproduced the allegations in the original
complaint but added eight (8) more real properties of the Caboverde estate in the
original list.
As encouraged by the RTC, the parties executed a Partial Settlement Agreement

(PSA) where they fixed the sharing of the uncontroverted properties among
themselves, in particular, the adverted additional eight (8) parcels of land including
their respective products and improvements. Under the PSA, Dominalda’s daughter,
Josephine, shall be appointed as Administrator. The PSA provided that Dominalda
shall be entitled to receive a share of one-half (1/2) of the net income derived from the
uncontroverted properties. The PSA also provided that Josephine shall have special
authority, among others, to provide for the medicine of her mother.
The parties submitted the PSA to the court on or about March 10, 2008 for approval. 2
Before the RTC could act on the PSA, Dominalda, who, despite being impleaded in the
case as defendant, filed a Motion to Intervene separately in the case. Mainly, she
claimed that the verified Answer which she filed with her co-defendants contained
several material averments which were not representative of the true events and facts
of the case. This document, she added, was never explained to her or even read to her
when it was presented to her for her signature.
On May 12, 2008, Dominalda filed a Motion for Leave to Admit Amended Answer,
attaching her Amended Answer where she contradicted the contents of the aforesaid
verified Answer by declaring that there never was a sale of the three (3) contested
parcels of land in favor of Ferdinand, Mila, Laluna, Jeanny and Roseller and that she
and her husband never received any consideration from them. She made it clear that
they intended to divide all their properties equally among all their children without favor.
In sum, Dominalda prayed that the reliefs asked for in the Amended Complaint be
granted with the modification that her conjugal share and share as intestate heir of
Maximo over the contested properties be recognized. 3
The RTC would later issue a Resolution granting the Motion to Admit Amended
Answer.4
On May 13, 2008, the court approved the PSA, leaving three (3) contested properties,
Lots 2, 3, and 4, for further proceedings in the main case.
Fearing that the contested properties would be squandered, Dominalda filed with the
RTC on July 15, 2008 a Verified Urgent Petition/Application to place the controverted
Lots 2, 3 and 4 under receivership. Mainly, she claimed that while she had a legal
interest in the controverted properties and their produce, she could not enjoy them,
since the income derived was solely appropriated by petitioner Mila in connivance with
her selected kin. She alleged that she immediately needs her legal share in the income
of these properties for her daily sustenance and medical expenses. Also, she insisted
that unless a receiver is appointed by the court, the income or produce from these
properties is in grave danger of being totally dissipated, lost and entirely spent solely
by Mila and some of her selected kin. Paragraphs 5, 6, 7, and 8 of the Verified Urgent
Petition/Application for Receivership5 (Application for Receivership) capture
Dominalda’s angst and apprehensions:
5. That all the income of Lot Nos. 2, 3 and 4 are collected by Mila Tantano, thru her
collector Melinda Bajalla, and solely appropriated by Mila Tantano and her selected
kins, presumably with Roseller E. Caboverde, Ferdinand E. Caboverde, Jeanny
Caboverde and Laluna Caboverde, for their personal use and benefit;
6. That defendant Dominalda Espina Caboverde, who is now sickly, in dire need of
constant medication or medical attention, not to mention the check-ups, vitamins and
other basic needs for daily sustenance, yet despite the fact that she is the conjugal
owner of the said land, could not even enjoy the proceeds or income as these are all
appropriated solely by Mila Tantano in connivance with some of her selected kins;
7. That unless a receiver is appointed by the court, the income or produce from these
lands, are in grave danger of being totally dissipated, lost and entirely spent solely by
Mila Tantano in connivance with some of her selected kins, to the great damage and
prejudice of defendant Dominalda Espina Caboverde, hence, there is no other most
feasible, convenient, practicable and easy way to get, collect, preserve, administer and
dispose of the legal share or interest of defendant Dominalda Espina Caboverde
except the appointment of a receiver x x x;
xxxx
9. That insofar as the defendant Dominalda Espina Caboverde is concerned, time is of

the utmost essence. She immediately needs her legal share and legal interest over the
income and produce of these lands so that she can provide and pay for her vitamins,
medicines, constant regular medical check-up and daily sustenance in life. To grant her
share and interest after she may have passed away would render everything that she
had worked for to naught and waste, akin to the saying "aanhin pa ang damo kung
patay na ang kabayo."
On August 27, 2009, the court heard the Application for Receivership and persuaded
the parties to discuss among themselves and agree on how to address the immediate
needs of their mother.6
On October 9, 2009, petitioners and their siblings filed a Manifestation formally

expressing their concurrence to the proposal for receivership on the condition, inter
alia, that Mila be appointed the receiver, and that, after getting the 2/10 share of
Dominalda from the income of the three (3) parcels of land, the remainder shall be
divided only by and among Mila, Roseller, Ferdinand, Laluna and Jeanny. The court,
however, expressed its aversion to a party to the action acting as receiver and
accordingly asked the parties to nominate neutral persons. 7
On February 8, 2010, the trial court issued a Resolution granting Dominalda’s

application for receivership over Lot Nos. 2, 3 and 4. The Resolution reads:
As regards the second motion, the Court notes the urgency of placing Lot 2 situated at
Bantayan, covered by TCT No. 46307; Lot 3 situated at Poblacion, covered by TCT
No. T-8140 and Lot 4 also situated at Poblacion covered by TCT No. T-8140, all of
Sindangan, Zamboanga del Norte under receivership as defendant Dominalda Espina
Caboverde (the old and sickly mother of the rest of the parties) who claims to be the
owner of the one-half portion of the properties under litigation as her conjugal share
and a portion of the estate of her deceased husband Maximo, is in dire need for her
medication and daily sustenance. As agreed by the parties, Dominalda Espina
Caboverde shall be given 2/10 shares of the net monthly income and products of the
said properties.8
In the same Resolution, the trial court again noted that Mila, the nominee of petitioners,
could not discharge the duties of a receiver, she being a party in the case. 9 Thus,
Dominalda nominated her husband’s relative, Annabelle Saldia, while Eve nominated a
former barangay kagawad, Jesus Tan.10
Petitioners thereafter moved for reconsideration raising the arguments that the
concerns raised by Dominalda in her Application for Receivership are not grounds for
placing the properties in the hands of a receiver and that she failed to prove her claim
that the income she has been receiving is insufficient to support her medication and
medical needs. By Resolution11 of July 19, 2010, the trial court denied the motion for
reconsideration and at the same time appointed Annabelle Saldia as the receiver for
Dominalda and Jesus Tan as the receiver for Eve. The trial court stated:
As to the issue of receivership, the Court stands by its ruling in granting the same,
there being no cogent reason to overturn it. As intimated by the movant-defendant
Dominalda Caboverde, Lots 2, 3 and 4 sought to be under receivership are not among
those lots covered by the adverted Partial Amicable Settlement. To the mind of the
Court, the fulfilment or non-fulfilment of the terms and conditions laid therein
nonetheless have no bearing on these three lots. Further, as correctly pointed out by
her, there is possibility that these Lots 2, 3, and 4, of which the applicant has interest,
but are in possession of other defendants who are the ones enjoying the natural and
civil fruits thereof which might be in the danger of being lost, removed or materially
injured. Under this precarious condition, they must be under receivership, pursuant to
Sec. 1 (a) of Rule 59. Also, the purpose of the receivership is to procure money from
the proceeds of these properties to spend for medicines and other needs of the movant
defendant Dominalda Caboverde who is old and sickly. This circumstance falls within
the purview of Sec. 1(d), that is, "Whenever in other cases it appears that the
appointment of a receiver is the most convenient and feasible means of preserving,
administering, or disposing of the property in litigation."
Both Annabelle Saldia and Jesus Tan then took their respective oaths of office and
filed a motion to fix and approve bond which was approved by the trial court over
petitioners’ opposition.
Undaunted, petitioners filed an Urgent Precautionary Motion to Stay Assumption of

Receivers dated August 9, 2010 reiterating what they stated in their motion for
reconsideration and expressing the view that the grant of receivership is not warranted
under the circumstances and is not consistent with applicable rules and jurisprudence.
The RTC, on the postulate that the motion partakes of the nature of a second motion
for reconsideration, thus, a prohibited pleading, denied it via a Resolution dated
October 7, 2011 where it likewise fixed the receiver’s bond at PhP 100,000 each. The
RTC stated:
[1] The appointed receivers, JESUS A. TAN and ANNABELLE DIAMANTE-SALDIA,

are considered duly appointed by this Court, not only because their appointments were
made upon their proper nomination from the parties in this case, but because their
appointments have been duly upheld by the Court of Appeals in its Resolution dated
24 May 2011 denying the herein defendants’ (petitioners therein) application for a writ
of preliminary injunction against the 8 February 2010 Resolution of this Court placing
the properties (Lots 2, 3 and 4) under receivership by the said JESUS A. TAN and
ANNABELLE DIAMANTE-SALDIA, and Resolution dated 29 July 2011 denying the
herein defendants’ (petitioners therein) motion for reconsideration of the 24 May 2011
Resolution, both, for lack of merit. In its latter Resolution, the Court of Appeals states:
A writ of preliminary injunction, as an ancillary or preventive remedy, may only be

resorted to by a litigant to protect or preserve his rights or interests and for no other
purpose during the pendency of the principal action. But before a writ of preliminary
injunction may be issued, there must be a clear showing that there exists a right to be
protected and that the acts against which the writ is to be directed are violative of the
said right and will cause irreparable injury.
Unfortunately, petitioners failed to show that the acts of the receivers in this case are
inimical to their rights as owners of the property. They also failed to show that the non-
issuance of the writ of injunction will cause them irreparable injury. The court-appointed
receivers merely performed their duties as administrators of the disputed lots. It must
be stressed that the trial court specifically appointed these receivers to preserve the
properties and its proceeds to avoid any prejudice to the parties until the main case is
resolved, Hence, there is no urgent need to issue the injunction.
ACCORDINGLY, the motion for reconsideration is DENIED for lack of merit.
SO ORDERED.
xxxx
WHEREFORE, premises considered, this Court RESOLVES, as it is hereby

RESOLVED, that:
1. The defendants’ "Urgent Precautionary Motion to Stay Assumption of Receivers" be

DENIED for lack of merit. Accordingly, it being patently a second motion for
reconsideration, a prohibited pleading, the same is hereby ordered EXPUNGED from
the records;
2. The "Motion to Fix the Bond, Acceptance and Approval of the Oath of Office, and
Bond of the Receiver" of defendant Dominalda Espina Caboverde, be GRANTED with
the receivers’ bond set and fixed at ONE HUNDRED THOUSAND PESOS
(PhP100,000.00) each.12
It should be stated at this juncture that after filing their Urgent Precautionary Motion to
Stay Assumption of Receivers but before the RTC could rule on it, petitioners filed a
petition for certiorari with the CA dated September 29, 2010 seeking to declare null and
void the February 8, 2010 Resolution of the RTC granting the Application for
Receivership and its July 19, 2010 Resolution denying the motion for reconsideration
filed by petitioners and appointing the receivers nominated by respondents. The
petition was anchored on two grounds, namely: (1) non-compliance with the substantial
requirements under Section 2, Rule 59 of the 1997 Rules of Civil
Procedure because the trial court appointed a receiver without requiring the applicant
to file a bond; and (2) lack of factual or legal basis to place the properties under
receivership because the applicant presented support and medication as grounds in
her application which are not valid grounds for receivership under the rules.
On June 25, 2012, the CA rendered the assailed Decision denying the petition on the
strength of the following premises and ratiocination:
Petitioners harp on the fact that the court a quo failed to require Dominalda to post a
bond prior to the issuance of the order appointing a receiver, in violation of Section 2,
Rule 59 of the Rules of court which provides that:
SEC. 2. Bond on appointment of receiver.-- Before issuing the order appointing a

receiver the court shall require the applicant to file a bond executed to the party against
whom the application is presented, in an amount to be fixed by the court, to the effect
that the applicant will pay such party all damages he may sustain by reason of the
appointment of such receiver in case the applicant shall have procured such
appointment without sufficient cause; and the court may, in its discretion, at any time
after the appointment, require an additional bond as further security for such damages.
The Manifestation dated September 30, 2009 filed by petitioners wherein "they formally
manifested their concurrence" to the settlement on the application for receivership
estops them from questioning the sufficiency of the cause for the appointment of the
receiver since they themselves agreed to have the properties placed under
receivership albeit on the condition that the same be placed under the administration of
Mila. Thus, the filing of the bond by Dominalda for this purpose becomes unnecessary.
It must be emphasized that the bond filed by the applicant for receivership answers
only for all damages that the adverse party may sustain by reason of the appointment
of such receiver in case the applicant shall have procured such appointment without
sufficient cause; it does not answer for damages suffered by reason of the failure of the
receiver to discharge his duties faithfully or to obey the orders of the court, inasmuch
as such damages are covered by the bond of the receiver.
As to the second ground, petitioners insist that there is no justification for placing the
properties under receivership since there was neither allegation nor proof that the said
properties, not the fruits thereof, were in danger of being lost or materially injured. They
believe that the public respondent went out of line when he granted the application for
receivership for the purpose of procuring money for the medications and basic needs
of Dominalda despite the income she’s supposed to receive under the Partial
Settlement Agreement.
The court a quo has the discretion to decide whether or not the appointment of a
receiver is necessary. In this case, the public respondent took into consideration that
the applicant is already an octogenarian who may not live up to the day when this
conflict will be finally settled. Thus, We find that he did not act with grave abuse of
discretion amounting to lack or excess of jurisdiction when he granted the application
for receivership based on Section 1(d) of Rule 59 of the Rules of Court.
A final note, a petition for certiorari may be availed of only when there is no appeal, nor
any plain, speedy and adequate remedy in the ordinary course of law. In this case,
petitioners may still avail of the remedy provided in Section 3, Rule 59 of the said Rule
where they can seek for the discharge of the receiver.
FOR REASONS STATED, the petition for certiorari is DENIED.
SO ORDERED.13
Petitioners’ Motion for Reconsideration was also denied by the CA on September 21,
2012.14
Hence, the instant petition, petitioners effectively praying that the approval of
respondent Dominalda’s application for receivership and necessarily the concomitant
appointment of receivers be revoked.
The Issues
Petitioners raise the following issues in their petition:
(1) Whether or not the CA committed grave abuse of discretion in sustaining the
appointment of a receiver despite clear showing that the reasons advanced by the
applicant are not any of those enumerated by the rules; and
(2) Whether or not the CA committed grave abuse of discretion in upholding the
Resolution of the RTC and ruling that the receivership bond is not required prior to
appointment despite clear dictates of the rules.
The Court’s Ruling
The petition is impressed with merit.
We have repeatedly held that receivership is a harsh remedy to be granted with utmost
circumspection and only in extreme situations. The doctrinal pronouncement in
Velasco & Co. v. Gochico & Co is instructive:
The power to appoint a receiver is a delicate one and should be exercised with
extreme caution and only under circumstances requiring summary relief or where the
court is satisfied that there is imminent danger of loss, lest the injury thereby caused be
far greater than the injury sought to be averted. The court should consider the
consequences to all of the parties and the power should not be exercised when it is
likely to produce irreparable injustice or injury to private rights or the facts demonstrate
that the appointment will injure the interests of others whose rights are entitled to as
much consideration from the court as those of the complainant. 15
To recall, the RTC approved the application for receivership on the stated rationale that
receivership was the most convenient and feasible means to preserve and administer
the disputed properties. As a corollary, the RTC, agreeing with the applicant
Dominalda, held that placing the disputed properties under receivership would ensure
that she would receive her share in the income which she supposedly needed in order
to pay for her vitamins, medicines, her regular check-ups and daily sustenance.
Considering that, as the CA put it, the applicant was already an octogenarian who may
not live up to the day when the conflict will be finally settled, the RTC did not act with
grave abuse of discretion amounting to lack or excess of jurisdiction when it granted
the application for receivership since it was justified under Sec. 1(d), Rule 59 of the
Rules of Court, which states:
Section 1. Appointment of a receiver. – Upon a verified application, one or more

receivers of the property subject of the action or proceeding may be appointed by the
court where the action is pending, or by the Court of Appeals or by the Supreme Court,
or a member thereof, in the following cases:
xxxx
(d) Whenever in other cases it appears that the appointment of a receiver is the most
convenient and feasible means of preserving, administering, or disposing of the
property in litigation. (Emphasis supplied.)
Indeed, Sec. 1(d) above is couched in general terms and broad in scope,
encompassing instances not covered by the other grounds enumerated under the said
section.16 However, in granting applications for receivership on the basis of this section,
courts must remain mindful of the basic principle that receivership may be granted only
when the circumstances so demand, either because the property sought to be placed
in the hands of a receiver is in danger of being lost or because they run the risk of
being impaired,17 and that being a drastic and harsh remedy, receivership must be
granted only when there is a clear showing of necessity for it in order to save the
plaintiff from grave and immediate loss or damage. 18
Before appointing a receiver, courts should consider: (1) whether or not the injury
resulting from such appointment would probably be greater than the injury ensuing if
the status quo is left undisturbed; and (2) whether or not the appointment will imperil
the interest of others whose rights deserve as much a consideration from the court as
those of the person requesting for receivership. 19
Moreover, this Court has consistently ruled that where the effect of the appointment of
a receiver is to take real estate out of the possession of the defendant before the final
adjudication of the rights of the parties, the appointment should be made only in
extreme cases.20
After carefully considering the foregoing principles and the facts and circumstances of
this case, We find that the grant of Dominalda’s Application for Receivership has no leg
to stand on for reasons discussed below.
First, Dominalda’s alleged need for income to defray her medical expenses and
support is not a valid justification for the appointment of a receiver. The approval of an
application for receivership merely on this ground is not only unwarranted but also an
arbitrary exercise of discretion because financial need and like reasons are not found
in Sec. 1 of Rule 59 which prescribes specific grounds or reasons for granting
receivership. The RTC’s insistence that the approval of the receivership is justified
under Sec. 1(d) of Rule 59, which seems to be a catch-all provision, is far from
convincing. To be clear, even in cases falling under such provision, it is essential that
there is a clear showing that there is imminent danger that the properties sought to be
placed under receivership will be lost, wasted or injured.
Second, there is no clear showing that the disputed properties are in danger of being
lost or materially impaired and that placing them under receivership is most convenient
and feasible means to preserve, administer or dispose of them.
Based on the allegations in her application, it appears that Dominalda sought

receivership mainly because she considers this the best remedy to ensure that she
would receive her share in the income of the disputed properties. Much emphasis has
been placed on the fact that she needed this income for her medical expenses and
daily sustenance. But it can be gleaned from her application that, aside from her bare
assertion that petitioner Mila solely appropriated the fruits and rentals earned from the
disputed properties in connivance with some of her siblings, Dominalda has not
presented or alleged anything else to prove that the disputed properties were in danger
of being wasted or materially injured and that the appointment of a receiver was the
most convenient and feasible means to preserve their integrity.
Further, there is nothing in the RTC’s February 8 and July 19, 2010 Resolutions that
says why the disputed properties might be in danger of being lost, removed or
materially injured while in the hands of the defendants a quo. Neither did the RTC
explain the reasons which compelled it to have them placed under receivership. The
RTC simply declared that placing the disputed properties under receivership was
urgent and merely anchored its approval on the fact that Dominalda was an elderly in
need of funds for her medication and sustenance. The RTC plainly concluded that
since the purpose of the receivership is to procure money from the proceeds of these
properties to spend for medicines and other needs of the Dominalda, who is old and
sickly, this circumstance falls within the purview of Sec. 1(d), that is, "Whenever in
other cases it appears that the appointment of a receiver is the most convenient and
feasible means of preserving, administering, or disposing of the property in litigation."
Verily, the RTC’s purported determination that the appointment of a receiver is the
most convenient and feasible means of preserving, administering or disposing of the
properties is nothing but a hollow conclusion drawn from inexistent factual
considerations.
Third, placing the disputed properties under receivership is not necessary to save
Dominalda from grave and immediate loss or irremediable damage. Contrary to her
assertions, Dominalda is assured of receiving income under the PSA approved by the
RTC providing that she was entitled to receive a share of one-half (1/2) of the net
income derived from the uncontroverted properties. Pursuant to the PSA, Josephine,
the daughter of Dominalda, was appointed by the court as administrator of the eight (8)
uncontested lots with special authority to provide for the medicine of her mother. Thus,
it was patently erroneous for the RTC to grant the Application for Receivership in order
to ensure Dominalda of income to support herself because precisely, the PSA already
provided for that. It cannot be over-emphasized that the parties in Civil Case No. S-760
were willing to make arrangements to ensure that Dominalda was provided with
sufficient income. In fact, the RTC, in its February 8, 2010 Resolution granting the
Application for Receivership, noted the agreement of the parties that "Dominalda
Espina Caboverde shall be given 2/10 shares of the net monthly income and products
of said properties."21
Finally, it must be noted that the defendants in Civil Case No. S-760 are the registered
owners of the disputed properties that were in their possession. In cases such as this,
it is settled jurisprudence that the appointment should be made only in extreme cases
and on a clear showing of necessity in order to save the plaintiff from grave and
irremediable loss or damage.22
This Court has held that a receiver should not be appointed to deprive a party who is in
possession of the property in litigation, just as a writ of preliminary injunction should not
be issued to transfer property in litigation from the possession of one party to another
where the legal title is in dispute and the party having possession asserts ownership in
himself, except in a very clear case of evident usurpation. 23
Furthermore, this Court has declared that the appointment of a receiver is not proper
when the rights of the parties, one of whom is in possession of the property, depend on
the determination of their respective claims to the title of such property 24 unless such
property is in danger of being materially injured or lost, as by the prospective
foreclosure of a mortgage on it or its portions are being occupied by third persons
claiming adverse title.25
It must be underscored that in this case, Dominalda’s claim to the disputed properties
and her share in the properties’ income and produce is at best speculative precisely
because the ownership of the disputed properties is yet to be determined in Civil Case
No. S-760. Also, except for Dominalda’s claim that she has an interest in the disputed
properties, Dominalda has no relation to their produce or income.1âwphi1
By placing the disputed properties and their income under receivership, it is as if the
applicant has obtained indirectly what she could not obtain directly, which is to deprive
the other parties of the possession of the property until the controversy between them
in the main case is finally settled.26 This Court cannot countenance this arrangement.
To reiterate, the RTC’s approval of the application for receivership and the deprivation
of petitioners of possession over the disputed properties would be justified only if
compelling reasons exist. Unfortunately, no such reasons were alleged, much less
proved in this case.
In any event, Dominalda’s rights may be amply protected during the pendency of Civil
Case No. S-760 by causing her adverse claim to be annotated on the certificates of
title covering the disputed properties.27
As regards the issue of whether or not the CA was correct in ruling that a bond was not
required prior to the appointment of the receivers in this case, We rule in the negative.
Respondents Eve and Fe claim that there are sufficient grounds for the appointment of
receivers in this case and that in fact, petitioners agreed with them on the existence of
these grounds when they acquiesced to Dominalda’s Application for Receivership.
Thus, respondents insist that where there is sufficient cause to appoint a receiver,
there is no need for an applicant’s bond because under Sec. 2 of Rule 59, the very
purpose of the bond is to answer for all damages that may be sustained by a party by
reason of the appointment of a receiver in case the applicant shall have procured such
appointment without sufficient cause. Thus, they further argue that what is needed is
the receiver’s bond which was already fixed and approved by the RTC. 28 Also, the CA
found that there was no need for Dominalda to file a bond considering that petitioners
filed a Manifestation where they formally consented to the receivership. Hence, it was
as if petitioners agreed that there was sufficient cause to place the disputed properties
under receivership; thus, the CA declared that petitioners were estopped from
challenging the sufficiency of such cause.
The foregoing arguments are misplaced. Sec. 2 of Rule 59 is very clear in that before
issuing the order appointing a receiver the court shall require the applicant to file a
bond executed to the party against whom the application is presented. The use of the
word "shall" denotes its mandatory nature; thus, the consent of the other party, or as in
this case, the consent of petitioners, is of no moment. Hence, the filing of an
applicant’s bond is required at all times. On the other hand, the requirement of a
receiver’s bond rests upon the discretion of the court. Sec. 2 of Rule 59 clearly states
that the court may, in its discretion, at any time after the appointment, require an
additional bond as further security for such damages.
WHEREFORE, upon the foregoing considerations, this petition is GRANTED. The

assailed CA June 25, 2012 Decision and September 21, 2012 Resolution in CA-G.R.
SP No. 03834 are hereby REVERSED and SET ASIDE. The Resolutions dated
February 8, 2010 and July 19, 2010 of the RTC, Branch 11 in Sindangan, Zamboanga
del Norte, in Civil Case No. S-760, approving respondent Dominalda Espina-
Caboverde’s application for receivership and appointing the receivers over the disputed
properties are likewise SET ASIDE.
SO ORDERED.
G.R. No. 155408 February 13, 2008
JULIO A. VIVARES and MILA G. IGNALING, petitioners,

vs.
ENGR. JOSE J. REYES, respondent.
DECISION
VELASCO, JR., J.:
The Case
The kernel dispute in this petition under Rule 45 is the legality of the May 22, 2001
Resolution1 of the Camiguin Regional Trial Court (RTC), Branch 28 in Civil Case No.
517, which placed the estate of Severino Reyes under receivership. The Court of
Appeals (CA) saw it differently in CA-G.R. SP No. 67492—its June 18, 2002 Decision 2
recalled the RTC directive on the appointment of the receiver, prompting Julio Vivares
and Mila Ignaling to file the petition at bar to convince the Court to reinstate the
receivership.
The Facts
Severino Reyes was the father of respondent Jose Reyes and Torcuato Reyes. Upon
the death of Severino, respondent and Torcuato came upon their inheritance
consisting of several properties. They had an oral partition of the properties and
separately appropriated to themselves said properties.
On May 12, 1992, Torcuato died with a last will and testament executed on January 3,
1992. In Reyes v. Court of Appeals,3 we affirmed the November 29, 1995 CA Decision,
admitting the will for probate.
Petitioner Vivares was the designated executor of Torcuato’s last will and testament,
while petitioner Ignaling was declared a lawful heir of Torcuato.
Believing that Torcuato did not receive his full share in the estate of Severino,
petitioners instituted an action for Partition and Recovery of Real Estate before the
Camiguin RTC, Branch 28 entitled Julio A. Vivares, as executor of the estate of
Torcuato J. Reyes and Mila R. Ignaling, as heir v. Engr. Jose J. Reyes and docketed
as Civil Case No. 517. With the approval of the trial court, the parties agreed that
properties from the estate of Severino, which were already transferred in the names of
respondent and Torcuato prior to the latter’s death on May 12, 1992, shall be excluded
from litigation. In short, what was being contested were the properties that were still in
the name of Severino.
On November 24, 1997, for the purpose of collating the common properties that were
disputed, the trial court directed the formation of a three-man commission with due
representation from both parties, and the third member, appointed by the trial court,
shall act as chairperson. The disputed properties were then annotated with notices of
lis pendens upon the instance of petitioners.
On March 15, 2000, petitioners filed a Motion to Place Properties in Litigation under
Receivership4 before the trial court alleging that to their prejudice respondent had,
without prior court approval and without petitioners’ knowledge, sold to third parties and
transferred in his own name several common properties. Petitioners also averred that
respondent fraudulently antedated, prior to May 12, 1992, some conveyances and
transfers to make it appear that these were no longer part of the estate of Severino
under litigation. They further claimed that respondent was and is in possession of the
common properties in the estate of Severino, and exclusively enjoying the fruits and
income of said properties and without rendering an accounting on them and turning
over the share pertaining to Torcuato. Thus, petitioners prayed to place the entire
disputed estate of Severino under receivership. They nominated a certain Lope
Salantin to be appointed as receiver.
On March 23, 2000, respondent filed his Opposition to Place the Estate of Severino
Reyes under Receivership,5 denying that he had fraudulently transferred any property
of the estate of Severino and asserting that any transfer in his name of said properties
was a result of the oral partition between him and Torcuato that enabled the latter as
well to transfer several common properties in his own name.
On May 24, 2000, petitioners filed their Offer of Exhibits in support of their motion for
receivership. On the same date, the trial court issued an Order 6 granting petitioners’
motion and appointed Salantin as receiver conditioned on the filing of a PhP 50,000
bond. Respondent filed a motion for reconsideration, contending that the appointment
of a receiver was unduly precipitate considering that he was not represented by
counsel and thus was deprived of due process.
On August 4, 2000, the trial court allowed respondent to present his evidence to
contest petitioners’ grounds for the appointment of a receiver, and the trial court set the
reception of respondent’s evidence for September 4, 2000. However, on August 24,
2000, respondent filed a motion for postponement of the September 4, 2000 scheduled
hearing on the ground that he was in the United States as early as July 23, 2000 for
medical examination. On September 5, 2000, the trial court denied respondent’s
motion for postponement and reinstated its May 24, 2000 Order.
On September 19, 2000, respondent filed a Manifestation with Motion to Discharge

Receiver, reiterating the circumstances which prevented him from attending the
September 4, 2000 hearing and praying for the discharge of the receiver upon the filing
of a counterbond in an amount to be fixed by the court in accordance with Section 3,
Rule 59 of the 1997 Revised Rules on Civil Procedure. On October 10, 2000,
petitioners filed their undated Opposition to Motion to Discharge Receiver.
Subsequently, respondent filed a Motion to Cancel Notice of Lis Pendens which was
annotated on Tax Declaration (TD) No. 112 covering Lot No. 33 allegedly belonging
exclusively to him. Respondent asserted in the motion that an adjacent property to Lot
No. 33, particularly a portion of Lot No. 35, which is owned by a certain Elena
Unchuan, was erroneously included in Lot No. 33 and, consequently, was subjected to
the notice of lis pendens. Petitioners filed their Opposition to the Motion to Cancel Lis
Pendens.
Consequently, on May 22, 2001, the trial court issued a Resolution, denying
respondent’s motions to discharge receiver and cancel the notice of lis pendens in TD
No. 112. Respondent seasonably filed a partial motion for reconsideration of the May
22, 2001 Resolution, attaching copies of deeds of sale executed by Torcuato covering
several common properties of the estate of Severino to prove that he and Torcuato had
indeed made an oral partition of the estate of their father, Severino, and thus allowing
him and Torcuato to convey their respective shares in the estate of Severino to third
persons.
On October 19, 2001, the trial court heard respondent’s motion for partial
reconsideration, and on the same date issued an Order denying the motion for partial
reconsideration on the ground that respondent failed to raise new matters in the motion
but merely reiterated the arguments raised in previous pleadings.
Aggrieved, respondent filed a Petition for Certiorari before the CA, assailing the May
22, 2001 Resolution and October 19, 2001 Order of the RTC.
The Ruling of the Court of Appeals
On June 18, 2002, the CA rendered the assailed Decision, sustaining respondent’s
position and granted relief, thus:
WHEREFORE, premises considered, the Petition is hereby GRANTED. The

Resolution dated 22 May 2001 of the Regional Trial Court of Camiguin, Branch 28 in
Civil Case No. 517 is hereby reversed and set aside. The court-appointed receiver,
Lope Salantin, is discharged upon the posting by petitioner of a counterbond in the
amount of P100,000.00. The notice of lis pendens in Tax Declaration 112, in so far as
it covers the property of Elena Unchuan, is cancelled. Let this case be remanded to the
court a quo for further proceedings.7
In reversing the trial court, the CA reasoned that the court a quo failed to observe the
well-settled rule that allows the grant of the harsh judicial remedy of receivership only
in extreme cases when there is an imperative necessity for it. The CA thus held that it
is proper that the appointed receiver be discharged on the filing of a counterbond
pursuant to Sec. 3, Rule 59 of the 1997 Revised Rules on Civil Procedure.
Moreover, the CA ratiocinated that respondent has adequately demonstrated that the
appointment of the receiver has no sufficient basis, and further held that the rights of
petitioners over the properties in litigation are doubly protected through the notices of
lis pendens annotated on the titles of the subject properties. In fine, the appellate court
pointed out that the appointment of a receiver is a delicate one, requiring the exercise
of discretion, and not an absolute right of a party but subject to the attendant facts of
each case. The CA found that the trial court abused its discretion in appointing the
receiver and in denying the cancellation of the notice of lis pendens on TD No. 112,
insofar as it pertains to the portion owned by Unchuan.
Aggrieved, petitioners in turn interposed a Motion for Reconsideration that was denied
through the assailed September 24, 2002 CA Resolution.
Thus, this petition for review on certiorari is before us, presenting the following issues
for consideration:
WHETHER OR NOT THE ANNOTATION OF A NOTICE OF LIS PENDENS

PRECLUDES THE APPOINTMENT OF A RECEIVER WHEN THERE IS A NEED TO
SAFEGUARD THE PROPERTIES IN LITIGATION.
II
WHETHER OR NOT A DULY APPOINTED RECEIVER OF PROPERTIES IN

LITIGATION SHOULD BE DISCHARGED SIMPLY BECAUSE THE ADVERSE PARTY
OFFERS TO POST A COUNTERBOND.
III
WHETHER OR NOT THE CANCELLATION OF A NOTICE OF LIS PENDENS

ANNOTATED ON TAX DECLARATION NO. 112 IS CONTRARY TO LAW. 8

The petition must be denied. Being closely related, we discuss the first and second
issues together.
Receivership not justified
We sustain the CA ruling that the trial court acted arbitrarily in granting the petition for
appointment of a receiver as "there was no sufficient cause or reason to justify placing
the disputed properties under receivership."
First, petitioners asseverate that respondent alienated several common properties of

Severino without court approval and without their knowledge and consent. The
fraudulent transfers, they claim, were antedated prior to May 12, 1992, the date of
Torcuato’s death, to make it appear that these properties no longer form part of the
assets of the estate under litigation in Civil Case No. 517.
Petitioners’ position is bereft of any factual mooring.
Petitioners miserably failed to adduce clear, convincing, and hard evidence to show the
alleged fraud in the transfers and the antedating of said transfers. The fact that the
transfers were dated prior to the demise of Torcuato on May 12, 1992 does not
necessarily mean the transfers were attended by fraud. He who alleges fraud has the
burden to prove it.
Moreover, respondent has adduced documentary proof that Torcuato himself similarly
conveyed several lots in the estate of Severino based on the oral partition between the
siblings. To lend credence to the transfers executed by Torcuato but distrust to those
made by respondent would be highly inequitable as correctly opined by the court a
quo.
Indeed, receivership is a harsh remedy to be granted only in extreme situations. As

early as 1914, the Court already enunciated the doctrinal pronouncement in Velasco &
Co. v. Gochuico & Co. that courts must use utmost circumspection in allowing
receivership, thus:
The power to appoint a receiver is a delicate one and should be exercised with
extreme caution and only under circumstances requiring summary relief or where the
court is satisfied that there is imminent danger of loss, lest the injury thereby caused be
far greater than the injury sought to be averted. The court should consider the
consequences to all of the parties and the power should not be exercised when it is
likely to produce irreparable injustice or injury to private rights or the facts demonstrate
that the appointment will injure the interests of others whose rights are entitled to as
much consideration from the court as those of the complainant. 9
Petitioners cannot now impugn the oral partition entered into by Torcuato and
respondent and hence cannot also assail the transfers made by respondent of the lots
which were subject of said agreement, considering that Torcuato also sold properties
based on said verbal arrangement. Indeed, the parties agreed that the civil action does
not encompass the properties covered by the oral partition. In this factual setting,
petitioners cannot convince the Court that the alleged fraudulent transfers of the lots
made by respondent, which purportedly form part of his share in Severino’s estate
based on the partition, can provide a strong basis to grant the receivership.
Second, petitioner is willing to post a counterbond in the amount to be fixed by the

court based on Sec. 3, Rule 59 of the 1997 Rules of Civil Procedure, which reads:
Sec. 3. Denial of application or discharge of receiver.—The application may be denied,

or the receiver discharged, when the adverse party files a bond executed to the
applicant, in an amount to be fixed by the court, to the effect that such party will pay
the applicant all damages he may suffer by reason of the acts, omissions, or other
matter specified in the application as ground for such appointment. The receiver may
also be discharged if it is shown that his appointment was obtained without sufficient
cause.
Anchored on this rule, the trial court should have dispensed with the services of the
receiver, more so considering that the alleged fraud put forward to justify the
receivership was not at all established.
Petitioners advance the issue that the receivership should not be recalled simply
because the adverse party offers to post a counterbond. At the outset, we find that this
issue was not raised before the CA and therefore proscribed by the doctrine that an
issue raised for the first time on appeal and not timely raised in the proceedings in the
lower court is barred by estoppel. 10 Even if we entertain the issue, the contention is
nevertheless devoid of merit. The assailed CA decision supported the discharge of the
receiver with several reasons including the posting of the counterbond. While the CA
made a statement that the trial court should have discharged the appointed receiver on
the basis of the proposed counterbond, such opinion does not jibe with the import of
Sec. 3, Rule 59. The rule states that the "application may be denied or the receiver
discharged." In statutory construction, the word "may" has always been construed as
permissive. If the intent is to make it mandatory or ministerial for the trial court to order
the recall of the receiver upon the offer to post a counterbond, then the court should
have used the word "shall." Thus, the trial court has to consider the posting of the
counterbond in addition to other reasons presented by the offeror why the receivership
has to be set aside.
Third, since a notice of lis pendens has been annotated on the titles of the disputed
properties, the rights of petitioners are amply safeguarded and preserved since "there
can be no risk of losing the property or any part of it as a result of any conveyance of
the land or any encumbrance that may be made thereon posterior to the filing of the
notice of lis pendens."11 Once the annotation is made, any subsequent conveyance of
the lot by the respondent would be subject to the outcome of the litigation since the fact
that the properties are under custodia legis is made known to all and sundry by
operation of law. Hence, there is no need for a receiver to look after the disputed
properties.
On the issue of lis pendens, petitioners argue that the mere fact that a notice of lis
pendens was annotated on the titles of the disputed properties does not preclude the
appointment of a receiver. It is true that the notice alone will not preclude the transfer of
the property pendente lite, for the title to be issued to the transferee will merely carry
the annotation that the lot is under litigation. Hence, the notice of lis pendens, by itself,
may not be the "most convenient and feasible means of preserving or administering
the property in litigation." However, the situation is different in the case at bar. A
counterbond will also be posted by the respondent to answer for all damages
petitioners may suffer by reason of any transfer of the disputed properties in the future.
As a matter of fact, petitioners can also ask for the issuance of an injunctive writ to
foreclose any transfer, mortgage, or encumbrance on the disputed properties. These
considerations, plus the finding that the appointment of the receiver was without
sufficient cause, have demonstrated the vulnerability of petitioners’ postulation.
Fourth, it is undisputed that respondent has actual possession over some of the
disputed properties which are entitled to protection. Between the possessor of a
subject property and the party asserting contrary rights to the properties, the former is
accorded better rights. In litigation, except for exceptional and extreme cases, the
possessor ought not to be deprived of possession over subject property. Article 539 of
the New Civil Code provides that "every possessor has a right to be respected in his
possession; and should he be disturbed therein he shall be protected in or restored to
said possession by the means established by the laws and the Rules of Court." In
Descallar v. Court of Appeals, we ruled that the appointment of a receiver is not proper
where the rights of the parties, one of whom is in possession of the property, are still to
be determined by the trial court.12
In view of the foregoing reasons, we uphold the CA ruling that the grant of the
receivership was without sufficient justification nor strong basis.
Anent the third issue that the cancellation of the notice of lis pendens on TD No. 112 is
irregular as Lot No. 33 is one of the disputed properties in the partition case,
petitioners’ position is correct.
The CA made a factual finding that the property of Unchuan was erroneously included
in Lot No. 33, one of the disputed properties in Civil Case No. 517. It then ruled that the
annotation of lis pendens should be lifted.
This ruling is bereft of factual basis.
The determination whether the property of Unchuan is a part of Lot No. 33 and whether
that portion really belongs to Unchuan are matters to be determined by the trial court.
Consequently, the notice of lis pendens on TD No. 112 stays until the final ruling on
said issues is made.
WHEREFORE, the petition is PARTLY GRANTED. The June 18, 2002 CA Decision in
CA-G.R. SP No. 67492 is AFFIRMED with MODIFICATION insofar as it ordered the
cancellation of the notice of lis pendens in TD No. 112. As thus modified, the appealed
CA Decision should read as follows:
WHEREFORE, premises considered, the Petition is hereby PARTLY GRANTED. The

Resolution dated 22 May 2001 of the Regional Trial Court of Camiguin, Branch 28 in
Civil Case No. 517 is hereby reversed and set aside. The court-appointed receiver,
Lope Salantin, is discharged upon the posting by petitioner of a counterbond in the
amount of PhP 100,000. The notice of lis pendens in TD No. 112, including the
portion allegedly belonging to Elena Unchuan, remains valid and effective. Let
this case be remanded to the court a quo for further proceedings in Civil Case No. 517.
No costs.
SO ORDERED.
G.R. No. 174356 January 20, 2010
EVELINA G. CHAVEZ and AIDA CHAVEZ-DELES, Petitioners,

vs.
COURT OF APPEALS and ATTY. FIDELA Y. VARGAS, Respondents.
DECISION
ABAD, J.:
This case is about the propriety of the Court of Appeals (CA), which hears the case on
appeal, placing the property in dispute under receivership upon a claim that the
defendant has been remiss in making an accounting to the plaintiff of the fruits of such
property.
The Facts and the Case
Respondent Fidela Y. Vargas owned a five-hectare mixed coconut land and rice fields
in Sorsogon. Petitioner Evelina G. Chavez had been staying in a remote portion of the
land with her family, planting coconut seedlings on the land and supervising the
harvest of coconut and palay. Fidela and Evelina agreed to divide the gross sales of all
products from the land between themselves. Since Fidela was busy with her law
practice, Evelina undertook to hold in trust for Fidela her half of the profits.
But Fidela claimed that Evelina had failed to remit her share of the profits and, despite
demand to turn over the administration of the property to Fidela, had refused to do so.
Consequently, Fidela filed a complaint against Evelina and her daughter, Aida C.
Deles, who was assisting her mother, for recovery of possession, rent, and damages
with prayer for the immediate appointment of a receiver before the Regional Trial Court
(RTC) of Bulan, Sorsogon.1 In their answer, Evelina and Aida claimed that the RTC did
not have jurisdiction over the subject matter of the case since it actually involved an
agrarian dispute.
After hearing, the RTC dismissed the complaint for lack of jurisdiction based on
Fidela’s admission that Evelina and Aida were tenants who helped plant coconut
seedlings on the land and supervised the harvest of coconut and palay. As tenants, the
defendants also shared in the gross sales of the harvest. The court threw out Fidela’s
claim that, since Evelina and her family received the land already planted with fruit-
bearing trees, they could not be regarded as tenants. Cultivation, said the court,
included the tending and caring of the trees. The court also regarded as relevant
Fidela’s pending application for a five-hectare retention and Evelina’s pending protest
relative to her three-hectare beneficiary share. 2
Dissatisfied, Fidela appealed to the CA. She also filed with that court a motion for the
appointment of a receiver. On April 12, 2006 the CA granted the motion and ordained
receivership of the land, noting that there appeared to be a need to preserve the
property and its fruits in light of Fidela’s allegation that Evelina and Aida failed to
account for her share of such fruits.3
Parenthetically, Fidela also filed three estafa cases with the RTC of Olongapo City and
a complaint for dispossession with the Department of Agrarian Reform Adjudication
Board (DARAB) against Evelina and Aida. In all these cases, Fidela asked for the
immediate appointment of a receiver for the property.
The Issues Presented
Petitioners present the following issues:
1. Whether or not respondent Fidela is guilty of forum shopping considering that she
had earlier filed identical applications for receivership over the subject properties in the
criminal cases she filed with the RTC of Olongapo City against petitioners Evelina and
Aida and in the administrative case that she filed against them before the DARAB; and
2. Whether or not the CA erred in granting respondent Fidela’s application for

receivership.
One. By forum shopping, a party initiates two or more actions in separate tribunals,
grounded on the same cause, trusting that one or the other tribunal would favorably
dispose of the matter.4 The elements of forum shopping are the same as in litis
pendentia where the final judgment in one case will amount to res judicata in the other.
The elements of forum shopping are: (1) identity of parties, or at least such parties as
would represent the same interest in both actions; (2) identity of rights asserted and
relief prayed for, the relief being founded on the same facts; and (3) identity of the two
preceding particulars such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the action under
consideration.5
Here, however, the various suits Fidela initiated against Evelina and Aida involved
different causes of action and sought different reliefs. The present civil action that she
filed with the RTC sought to recover possession of the property based on Evelina and
Aida’s failure to account for its fruits. The estafa cases she filed with the RTC accused
the two of misappropriating and converting her share in the harvests for their own
benefit. Her complaint for dispossession under Republic Act 8048 with the DARAB
sought to dispossess the two for allegedly cutting coconut trees without the prior
authority of Fidela or of the Philippine Coconut Authority.
The above cases are similar only in that they involved the same parties and Fidela
sought the placing of the properties under receivership in all of them. But receivership
is not an action. It is but an auxiliary remedy, a mere incident of the suit to help achieve
its purpose. Consequently, it cannot be said that the grant of receivership in one case
will amount to res judicata on the merits of the other cases. The grant or denial of this
provisional remedy will still depend on the need for it in the particular action.
Two. In any event, we hold that the CA erred in granting receivership over the property
in dispute in this case. For one thing, a petition for receivership under Section 1(b),
Rule 59 of the Rules of Civil Procedure requires that the property or fund subject of the
action is in danger of being lost, removed, or materially injured, necessitating its
protection or preservation. Its object is the prevention of imminent danger to the
property. If the action does not require such protection or preservation, the remedy is
not receivership.6
Here Fidela’s main gripe is that Evelina and Aida deprived her of her share of the
land’s produce. She does not claim that the land or its productive capacity would
disappear or be wasted if not entrusted to a receiver. Nor does Fidela claim that the
land has been materially injured, necessitating its protection and preservation.
Because receivership is a harsh remedy that can be granted only in extreme
situations,7 Fidela must prove a clear right to its issuance. But she has not. Indeed, in
none of the other cases she filed against Evelina and Aida has that remedy been
granted her.8
Besides, the RTC dismissed Fidela’s action for lack of jurisdiction over the case,
holding that the issues it raised properly belong to the DARAB. The case before the CA
is but an offshoot of that RTC case. Given that the RTC has found that it had no
jurisdiction over the case, it would seem more prudent for the CA to first provisionally
determine that the RTC had jurisdiction before granting receivership which is but an
incident of the main action.1 a vv p h i 1
WHEREFORE, the Court GRANTS the petition. The Resolutions dated April 12, 2006
and July 7, 2006 of the Court of Appeals in CA-G.R. CV 85552, are REVERSED and
SET ASIDE.
The receivership is LIFTED and the Court of Appeals is directed to resolve CA-G.R.
CV 85552 with utmost dispatch.
SO ORDERED.
G.R. No. 106473 July 12, 1993
ANTONIETTA O. DESCALLAR, petitioner,

vs.
THE HON. COURT OF APPEALS and CAMILO F. BORROMEO, respondents.
Gilberto C. Alfafara for petitioner.
Bernadito A. Florido for private respondent.
GRIÑO-AQUINO, J.:
Assailed in this petition for review on certiorari is the decision dated July 29, 1992 of
the Court of Appeals in CA-G.R. SP No. 27977, affirming the orders dated March 17,
1992 and April 27, 1992 of the trial court in Civil Case No. MAN-1148, granting
respondent's petition for receivership and denying petitioner's motion for
reconsideration thereof.
On August 9, 1991, respondent Camilo Borromeo, a realtor, filed against petitioner a

civil complaint for the recovery of three (3) parcels of land and the house built thereon
in the possession of the petitioner and registered in her name under Transfer
Certificates of Title Nos. 24790, 24791 and 24792 of the Registry of Deeds for the City
of Mandaue. The case was docketed as Civil Case No. MAN-1148 of the Regional Trial
Court, Branch 28, Mandaue City.
In his complaint, Borromeo alleged that he purchased the property on July 11, 1991
from Wilhelm Jambrich, an Austrian national and former lover of the petitioner for many
years until he deserted her in 1991 for the favors of another woman. Based on the
deed of sale which the Austrian made in his favor, Borromeo filed an action to recover
the ownership and possession of the house and lots from Descallar and asked for the
issuance of new transfer certificates of title in his name.
In her answer to the complaint, Descallar alleged that the property belongs to her as
the registered owner thereof; that Borromeo's vendor, Wilhelm Jambrich, is an
Austrian, hence, not qualified to acquire or own real property in the Philippines. He has
no title, right or interest whatsoever in the property which he may transfer to Borromeo.
On March 5, 1992, Borromeo asked the trial court to appoint a receiver for the property
during the pendency of the case. Despite the petitioner's opposition, Judge Mercedes
Golo-Dadole granted the application for receivership and appointed her clerk of court
as receiver with a bond of P250,000.00.
Petitioner filed a motion for reconsideration of the court's order, but it was denied.
Petitioner sought relief in the Court of Appeals by a petition for certiorari (CA-G.R. SP
No. 27977 "Antonietta O. Descallar vs. Hon. Mercedes G. Dadole, as Judge, RTC of
Mandaue City, Branch 28, and Camilo F. Borromeo").
On July 29, 1992, the Court of Appeals dismissed the petition for certiorari.
In due time, she appealed the Appellate Court's decision to this Court by a petition for
certiorari under Rule 45 of the Rules of Court.
In a nutshell, the issue in this appeal is whether the trial court gravely abused its
discretion in appointing a receiver for real property registered in the name of the
petitioner in order to transfer its possession from the petitioner to the court-appointed
receiver. The answer to that question is yes.
The Court is amazed that the trial court and the Court of Appeals appear to have given
no importance to the fact that the petitioner herein, besides being the actual possessor
of the disputed property, is also the registered owner thereof, as evidenced by TCTs
Nos. 24790, 24791, and 24792 issued in her name by the Register of Deeds of
Mandaue City on December 3, 1987. Her title and possession cannot be defeated by
mere verbal allegations that although she appears in the deed of sale as vendee of the
property, it was her Austrian lover, Jambrich, who paid the price of the sale of the
property (Sinoan vs. Soroñgan, 136 SCRA 407). Her Torrens certificates of title are
indefeasible or incontrovertible (Sec. 32, P.D. 1529).
Even if it were true that an impecunious former waitress, like Descallar, did not have
the means to purchase the property, and that it was her Austrian lover who provided
her with the money to pay for it, that circumstance did not make her any less the
owner, since the sale was made to her, not to the open-handed alien who was, and still
is, disqualified under our laws to own real property in this country (Sec. 7, Art. XII, 1987
Constitution). The deed of sale was duly registered in the Registry of Deeds and new
titles were issued in her name. The source of the purchase money is immaterial for
there is no allegation, nor proof, that she bought the property as trustee or dummy for
the monied Austrian, and not for her own benefit and enjoyment.
There is no law which declares null and void a sale where the vendee to whom the title
of the thing sold is transferred or conveyed, paid the price with money obtained from a
third person. If that were so, a bank would be the owner of whatever is purchased with
funds borrowed from it by the vendee. The holding of the trial court and the Court of
Appeals that Jambrich, notwithstanding his legal incapacity to acquire real property in
the Philippines, is the owner of the house and lot which his erstwhile mistress,
Antonietta, purchased with money she obtained from him, is a legal heresy.
In view of the above circumstances, we find the order of receivership tainted with grave
abuse of discretion. The appointment of a receiver is not proper where the rights of the
parties (one of whom is in possession of the property), are still to be determined by the
trial court.
Relief by way of receivership is equitable in nature, and a court of equity will not
ordinarily appoint a receiver where the rights of the parties depend on the
determination of adverse claims of legal title to real property and one party is in
possession. (Calo, et al. vs. Roldan, 76 Phil., 445).
Only when the property is in danger of being materially injured or lost, as by the
prospective foreclosure of a mortgage thereon for non-payment of the mortgage loans
despite the considerable income derived from the property, or if portions thereof are
being occupied by third persons claiming adverse title thereto, may the appointment of
a receiver be justified (Motoomul vs. Arrieta, 8 SCRA 172).
In this case, there is no showing that grave or irremediable damage may result to
respondent Borromeo unless a receiver is appointed. The property in question is real
property, hence, it is neither perishable or consummable. Even though it is mortgaged
to a third person, there is no evidence that payment of the mortgage obligation is being
neglected. In any event, the private respondent's rights and interests, may be
adequately protected during the pendency of the case by causing his adverse claim to
be annotated on the petitioner's certificates of title.
Another flaw in the order of receivership is that the person whom the trial judge
appointed as receiver is her own clerk of court. This practice has been frowned upon
by this Court:
The respondent judge committed grave abuse of discretion in connection with the
appointment of a receiver. . . . The instant case is similar to Paranete vs. Tan, 87 Phil.
678 (1950) so that what was there said can well apply to the actuations of the
respondent judge. . . . "We hold that the respondent judge has acted in excess of his
jurisdiction when he issued the order above adverted to. That order, in effect, made the
clerk of court a sort of a receiver charged with the duty of receiving the proceeds of
sale and the harvest of every year during the pendency of the case with the
disadvantage that the clerk of court has not filed any bond to guarantee the faithful
discharge of his duties as depositary; and considering that in actions involving title real
property, the appointment of a receiver cannot be entertained because its effect would
be to take the property out of the possession of the defendant, except in extreme
cases when there is clear proof of its necessity to save the plaintiff from grave and
irremediable loss of damage, it is evident that the action of the respondent judge is
unwarranted and unfair to the defendants. (Mendoza vs. Arellano, 36 Phil. 59; Agonoy
vs. Ruiz, 11 Phil. 204; Aquino vs. Angeles David, 77 Phil. 1087; Ylarde vs. Enriquez,
78 Phil. 527; Arcega vs. Pecson, 44 Off. Gaz., [No. 12], 4884, 78 Phil. 743; De la Cruz
vs. Guinto, 45 Off. Gaz. pp. 1309, 1311; 79 Phil. 304). (Abrigo vs. Kayanan, 121 SCRA
20).
During the pendency of this appeal, Judge Dadole rendered a decision in Civil Case
No. MAN-1148 upholding Borromeo's claim to Descallar's property, annulling the
latter's TCTs Nos. 24790, 24791 and 24792 and ordering the Register of Deeds of
Mandaue City to issue new ones in the name of Borromeo. This circumstance does not
retroactively validate the receivership until the decision (presumably now pending
appeal) shall have attained finality.
WHEREFORE, finding grave abuse of discretion in the order of receiver which the
respondent Court of Appeals affirmed in its decision of July 29, 1992 in CA-G.R. SP
No. 27977, the petition for certiorari is hereby GRANTED and the decision of the
appellate court, as well as the order dated March 17, 1992 of the Regional Trial Court
of Mandaue City, Branch 28, in Civil Case No. MAN-1148, are hereby ANNULLED and
SET ASIDE. Costs against the private respondent.
SO ORDERED.
G.R. No. 152239 August 17, 2011
MAKING ENTERPRISES, INC. AND SPOUSES JOAQUIN TAMANO AND

ANGELITA TAMANO, Petitioners,
vs.
JOSE MARFORI AND EMERENCIANA MARFORI, Respondents.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the July 24, 2000 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 43076. The CA had ordered the issuance
of writs of certiorari and prohibition permanently enjoining the prosecution of Jose
Marfori in Criminal Case Nos. 170660 to 170676 before the Metropolitan Trial Court
(MeTC) of Caloocan City, and ordered the appointment of a receiver in Civil Case No.
94-70092, pending before the Regional Trial Court (RTC) of Manila. Likewise assailed
is the appellate court’s Resolution 2 dated February 12, 2002, denying petitioners’
motion for reconsideration.
The antecedent facts follow:

On June 4, 1984, Jose F. Marfori acquired a five-storey commercial building, known as

the Marsman Building, from the Development Bank of the Philippines. As the land on
which the building stood was owned by the Philippine Ports Authority (PPA), Marfori
entered into a contract of lease of the said lot with the PPA. The contract was for a
period of twenty-five (25) years, renewable for a similar period, and was subject to the
condition that upon the expiration of lease, the building and all other improvements
found on the leased premises shall become the PPA’s sole property. Marfori then
incurred huge expenses for the rehabilitation of the building and leased some portions
of the building to the PPA.
Thereafter, on April 10, 1987, Marfori executed a dacion en pago and assignment of
rights transferring the ownership of the Marsman Building to Making Enterprises, Inc.
(Making), on the condition that Making would assume all of Marfori’s obligations. 3
Making was represented by its General Manager, Cristina Lee, and Executive Vice-
President, Angelita Ma. Tamano, in the said transaction.
Marfori’s wife, Emerenciana, alleged that she did not consent to the transfer of the
Marsman Building to Making. She claimed that the building is part of their conjugal
property as it was acquired during their marriage. 4 On April 12, 1994, she filed with the
RTC of Manila a complaint against Making, the spouses Joaquin and Angelita Tamano,
the spouses Lester and Cristina Lee, and the PPA for Recovery of Ownership,
Annulment of Contract with Damages, Receivership, Accounting and Preliminary
Injunction with Prayer for Restraining Order. 5 She sought, among others, to annul the
dacion en pago and assignment of rights and prayed for the appointment of a receiver
to preserve the rentals of the building. She also prayed for the issuance of a writ of
preliminary injunction to enjoin the PPA from paying its rentals to Making and from
approving the transfer of the Marsman Building.
In an Order6 dated October 18, 1995, Judge Catalino Castañeda, Jr. of the RTC,
Branch 17, of Manila denied the prayer for the issuance of a writ of preliminary
injunction and the application for receivership.
The RTC noted that in 1987, Emerenciana’s complaint for the same cause of action
was dismissed by the RTC, Branch 51, of Manila for improper venue. 7 The RTC was
not convinced that she would indeed suffer grave injustice and irreparable damages if
a writ of injunction enjoining the PPA from paying rentals to Making and approving the
transfer of the Marsman Building is not issued considering that she re-filed her
complaint only on April 12, 1994, or more than six years after her first complaint was
dismissed. As regards her prayer for the appointment of a receiver, the RTC held that
the appointment of a receiver is an equitable relief and a court of equity will not
possession.
Emerenciana moved for reconsideration of the order. However, the RTC denied the
motion.8
Not satisfied, Emerenciana filed before the CA a petition for certiorari and receivership
with prayer for preliminary injunction, which was docketed as CA-G.R. SP No. 39161.
On March 29, 1996, however, the CA dismissed the petition for being insufficient in
form and substance.9 Reconsideration of the dismissal was likewise denied in a
Resolution dated November 29, 1996.10
Meanwhile, with regard to the criminal cases mentioned at the outset, records show
that in 1987, Marfori issued twenty-two (22) checks in favor of Cristina Lee. Lee
deposited the checks to her account with the Philippine Bank of Communications, but
the same were dishonored for the reason of "Account Closed." Thus, she filed
complaints against Marfori for estafa and violation of Batas Pambansa Blg. 22 with the
Prosecutor's Office of Caloocan City.11
Before he could be arraigned, Marfori sought reinvestigation of the criminal cases

against him, arguing that he was not given the opportunity to present controverting
evidence to prove that the checks were already paid or liquidated. 12 The RTC granted
Marfori’s motion and ordered the Office of the City Prosecutor to conduct a
reinvestigation. Upon reinvestigation, Assistant City Prosecutor Afable E. Cajigal
rendered a joint resolution,13 which was later approved by City Prosecutor Gabriel N.
Dela Cruz, finding cause to dismiss the criminal complaints against Marfori. On August
11, 1995, Asst. City Prosecutor Cajigal filed a motion to dismiss before the RTC of
Caloocan City, which motion was granted by Judge Emilio L. Leachon, Jr. on the same
date.14
Claiming that she was not notified of the order for reinvestigation, Angelita Ma. Tamano
moved to set aside the joint resolution. 15 Prosecutor Cajigal then reversed his previous
findings and recommended the setting aside of the joint resolution and dismissal
order.16 Said resolution was approved by 1st Assistant City Prosecutor Rosauro
Silverio. Thus, Asst. City Prosecutor Cajigal filed seventeen (17) informations for
violation of B.P. 22 against Marfori before the MeTC of Caloocan City. 17 Warrants for
Marfori’s arrest were also issued by Judge Marcelino L. Sayo.
Aggrieved, Marfori filed with the Caloocan City RTC a petition 18 for certiorari and
injunction with prayer for temporary restraining order against Judge Sayo; Asst. City
Prosecutors Cajigal, Silverio and Dela Cruz; and Making, who was represented by
Tamano. Marfori maintained that all the checks were drawn in favor of Cristina Lee, but
the prosecutors deliberately made it appear in the new informations that the checks
were drawn in favor of Making. He prayed that Judge Sayo be enjoined from
proceeding with the trial of the criminal cases and that the informations for violation of
B.P. 22, as well as the warrants of arrest, be declared void.
Making, represented by Tamano, filed a motion to dismiss arguing that the general rule
is that a criminal prosecution may not be restrained by injunction. 19
In an Order dated April 18, 1997, the RTC granted Making’s motion and dismissed
Marfori's petition.20
Meanwhile, on November 27, 1996, Marfori and his wife had filed with this Court a
Consolidated Petition21 docketed as G.R. No. 126841 asking among others, for the
appointment of a receiver to preserve the rentals collected from the Marsman Building
and the issuance of an injunction to enjoin the implementation of the warrants of arrest
issued against him. Respondents argued that the filing of the criminal cases against
Marfori had no factual and legal justification and hence, should be enjoined.
The Court, after finding no special and important reasons for it to take cognizance of
the case in the first instance, referred the petition to the CA for consideration and
adjudication on the merits.22
On February 16, 1998, respondents filed an Amended Consolidated Petition 23 with the
CA. They added that Judge Castañeda, Jr. likewise erred in denying in Civil Case No.
94-70092 their motion to present crucial documents wherein Tamano allegedly made a
declaration against her interest. They likewise reiterated in their amended petition their
prayer for the appointment of a receiver to take over, manage, and administer the
Marsman Building.
In their Comment, petitioners countered that respondents had lost all their rights to the
building after they ceded it to Making in 1987. Petitioners also charged respondents
with forum shopping.24 They argued that when Emerenciana’s application for a writ of
preliminary injunction and receivership was denied by the RTC, she appealed the
denial to the CA. When she failed to obtain a favorable action, she and her husband
filed a petition with the Supreme Court involving the same subject matter and the same
issues as in Emerenciana’s earlier petition in CA-G.R. SP No. 39161. Petitioners
alleged that respondents hid the real purpose of their action by cleverly lumping
together the civil and the criminal cases in their Consolidated Petition.
On July 24, 2000, the CA rendered the assailed Decision, to wit:
WHEREFORE, premises considered, the petition filed by petitioners Jose and

Emerenciana Marfori is hereby GRANTED, and judgment rendered as follows:
1) That writs of certiorari and prohibition be issued permanently enjoining the further
prosecution of Criminal Case Nos. 170660 to 170676, inclusive, against petitioner Jose
Marfori; and
2) That, after posting of a bond in an amount to be determined by the Trial Court, let a
receiver be appointed in Civil Case No. 94-70092, to take custody, manage, and
administer the Marsman Building and all rents collected therefrom, during the
pendency of the proceedings.
SO ORDERED.25
The CA brushed aside petitioners' argument that respondents were guilty of forum
shopping, holding that technical rules of procedure must be relaxed in the interest of
substantial justice.
As to the order granting the prayer for the appointment of a receiver, the CA ruled that
respondents have sufficiently proven their interest in the Marsman Building. The CA
found that unless a receiver is appointed, there is a danger of loss or material injury
considering that petitioners possess absolute control of the building.
Meanwhile, as to the criminal cases, the CA ruled that the public prosecutors gravely
abused their discretion when they set aside the earlier resolution recommending the
dismissal of the criminal cases against Marfori based solely on the ground that Tamano
was not given the chance to comment on Marfori’s motion for reinvestigation. The CA
noted that in the joint resolution, the prosecutors thoroughly studied the case and
concluded that the checks subject of the criminal cases were not issued with valuable
consideration since it was impossible for Marfori to have been indebted or for
petitioners to lend the amount of P4,051,518.08 stated in the checks because the
complainants/Making Enterprises only earned P49,352.95 in 1987.
Petitioners filed motions for reconsideration questioning the appointment of a receiver 26

and the order permanently enjoining the further prosecution of Marfori in Criminal Case
Nos. 170660 to 170676.27 However, the CA denied both motions in its Resolution of
February 12, 2002 as follows:
WHEREFORE, the motions are hereby DENIED. However, in order to ensure that the
objectives of Sec. 1 (a) Rule 59, the basis of Our decision, will be carried out
effectively, the trial court is DIRECTED to appoint [as] a receiver, after compliance of
the bond requirement, a private banking institution which shall exercise…powers as
such pursuant to Sec. 6, Rule 59 of the Rules of Court.
SO ORDERED.28
Hence, the present petition.
Essentially, petitioners present the following issues: (1) Whether the CA erred in
granting the application for the appointment of a receiver for the Marsman Building;
and (2) Whether the CA erred in permanently enjoining the criminal prosecution of
Jose Marfori.
We grant the petition.

At the outset, we note that the CA erred in taking cognizance of respondents’

consolidated petition as respondents are guilty of deliberate forum shopping. We note
that the petition for appointment of a receiver for the Marsman Building was originally
filed by Emerenciana before the RTC of Manila in Civil Case No. 94-70092. The RTC
denied the prayer for the issuance of a writ of preliminary injunction and the application
for receivership. Emerenciana filed a motion for reconsideration, which was denied by
the RTC. She then filed a petition for certiorari and receivership with prayer for
preliminary injunction before the CA docketed as CA-G.R. SP No. 39161. In a
Resolution dated March 29, 1996, the petition was dismissed for being insufficient in
form and substance. She sought reconsideration of the dismissal, and her motion was
likewise denied by the CA on November 29, 1996.
However, records show that two days earlier, or on November 27, 1996, while her
motion for reconsideration of the CA resolution dismissing her petition was still pending
resolution before the CA, she and her husband filed with this Court a consolidated
petition, praying for the appointment of a receiver over the Marsman Building. Clearly,
CA-G.R. SP No. 39161 was still pending with the CA when respondents filed their
consolidated petition with this Court.
Moreover, we note that respondents were not candid when they stated in their
certification of non-forum shopping that there is no other action or proceeding involving
the same issues that is pending before this Court, the CA, or any other tribunal or
agency.29
There is forum-shopping when as a result of an adverse decision in one forum, or in

anticipation thereof, a party seeks a favorable opinion in another forum through means
other than appeal or certiorari. Forum-shopping exists when two or more actions
involve the same transactions, essential facts, and circumstances; and raise identical
causes of action, subject matter, and issues. Forum-shopping exists when the
elements of litis pendentia are present or where a final judgment in one case will
amount to res judicata in the other.30 Thus, there is forum-shopping when, between an
action pending before this Court and another one, there exist: (1) identity of parties, or
at least such parties as represent the same interests in both actions, (2) identity of
rights asserted and relief prayed for, the relief being founded on the same facts, and
(3) the identity of the two preceding particulars is such that any judgment rendered in
the other action will, regardless of which party is successful, amount to res judicata in
the action under consideration; said requisites also constitutive of the requisites for
auter action pendant or lis pendens.31
Applying the above test, there is no question that there is identity of parties, cause of
action and reliefs sought between the consolidated petition in G.R. No. 126841 and the
petition in CA-G.R. SP No. 39161. For resorting to forum shopping, the consolidated
petition of the spouses Marfori should have been dismissed with prejudice.
But even on the merits, the application for an appointment of a receiver must be
denied.
An application for the appointment of a receiver under Section 1(a), Rule 59 of the
1997 Rules of Civil Procedure, as amended, requires that the property or fund subject
of the action is in danger of being lost, removed, or materially injured, necessitating its
protection or preservation. Section 1 provides,
SECTION 1. Appointment of receiver.—Upon a verified application, one or more

receivers of the property subject of the action or proceeding may be appointed by the
court where the action is pending, or by the Court of Appeals or by the Supreme Court,
or a member thereof, in the following cases:
(a) When it appears from the verified application, and such other proof as the court
may require, that the party applying for the appointment of a receiver has an interest in
the property or fund which is the subject of the action or proceeding, and that such
property or fund is in danger of being lost, removed, or materially injured unless a
receiver be appointed to administer and preserve it;
xxxx
Here, respondents submit that they have satisfactorily established their legal right over
the Marsman Building. They alleged that the building and the income and rentals
thereof are in danger of being lost, removed or materially injured by the apathy, neglect
and fraudulent design of petitioners thereby rendering the appointment of a receiver
both urgent and imperative.32 However, they failed to show how the building as well as
the income thereof would disappear or be wasted if not entrusted to a receiver. They
were not able to prove that the property has been materially injured, necessitating its
protection and preservation. Because receivership is a harsh remedy that can be
granted only in extreme situations, 33 respondents must prove a clear right to its
issuance. This they failed to do.
We furthermore observe that in granting the appointment of a receiver, the CA merely

concluded that respondents have sufficiently proven that they have an interest in the
Marsman Building. It further held that unless a receiver is appointed, there is a danger
of loss or material injury, considering that petitioners presently possess absolute
control of the building and the rentals accruing thereof. However, there was no
justification on how the CA arrived at its conclusion.
It must be stressed that the issue of the validity of the dacion en pago and assignment
of rights executed by Marfori in favor of Making still has to be resolved in Civil Case
No. 94-70092. Until the contract is rescinded or nullified, the same remains to be valid
and binding. Thus, we agree with the RTC when it held that courts of equity will not
possession.
As regards the second issue, the Court finds no longer necessary to pass upon the
correctness of the order of the CA permanently enjoining the prosecution of Jose
Marfori in Criminal Case Nos. 170660 to 170676 before the MeTC of Caloocan City.
The Court notes that during the pendency of this petition, Jose Marfori passed away on
October 2, 2004.34 Pursuant to Article 89, paragraph 1 35 of the Revised Penal Code, as
amended, the death of Marfori totally extinguished his criminal liability. Because Marfori
died even before arraignment and trial, there is no relevance in declaring the extinction
as well of civil liability that was based exclusively on the crime for which an accused is
convicted (i.e., ex delicto). Only civil liability predicated on a source of obligation other
than the delict, if any, survived the death of the accused, which the offended party can
recover by means of a separate civil action.36 1avvphi1
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The July 24,
2000 Decision and February 12, 2002 Resolution of the Court of Appeals in CA-G.R.
SP No. 43076, insofar as they ordered the appointment of a receiver in Civil Case No.
94-70092, are hereby REVERSED and SET ASIDE. In view of the death of Jose
Marfori, Criminal Case Nos. 170660 to 170676 before the Metropolitan Trial Court of
Caloocan City are hereby ordered DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 1278 August 1, 1903
EUGENIO BONAPLATA, petitioner,

vs.
BYRON S. AMBLER, judge of the Court of First Instance of Manila, and J.
MCMICKING, clerk of the Court of First Instance of Manila, respondents.
Augustus A. Montagne for petitioner.

Frederick Garfield Waite for respondents.
MCDONOUGH, J.:
This was a motion for judgment on the pleadings in a proceeding in which the plaintiff
prays that a peremptory order be issued by this court against Judge Ambler,
commanding him, as judge of the Court of First Instance of Manila, to immediately
cause to be issued and subscribed a writ of execution for the enforcement of plaintiff's
judgment against Fulgencio Tan Tonco for the sum of 1,541 pesos, Mexican currency,
which judgment was recovered January 13, 1903, and against the defendant J.
McMicking, as clerk of the said Court of First Instance of Manila, commanding him to
issue and subscribe a writ of execution, sealed with the seal of the Court of First
Instance of Manila, for the enforcement of plaintiff's said judgment.
The facts upon which this application is based are undisputed. The plaintiff, on January
13, 1903, recovered a judgment in the Court of First Instance of Manila, in an action for
debt against Fulgencio Tan Tonco, amounting to 1,541 pesos, Mexican currency. No
exceptions were taken or filed against said judgment, nor was a motion for a new trial
made; and the judgment is now in full force and effect.
After the rendition and entry of said judgment the plaintiff repeatedly requested the
defendants above named to duly issue a writ of execution to satisfy the judgment of the
plaintiff against said Fulgencio Tan Tonco, which request was refused. The
defendants, by their attorney, state, as their reason for such refusal, that on the 18th
day of December, 1902, one Sergia Reyes instituted a suit against said Fulgencio Tan
Tonco, in the Court of First Instance of Manila, for an indebtedness amounting to the
sum of $1,500, Mexican currency, and in the complaint alleged that the said defendant
was insolvent; that several creditors had sued him; that the assets of his business
consisted of real estate, contracts for buildings (many partly completed), equities in real
estate, and other property of the value of about $200,000, Mexican currency; that said
property was in good condition and that it was in the interest of creditors to retain the
actual status of the business; that under proper management the business could be
conducted at a good and satisfactory profit, and pay a greater portion of said
defendant's creditors, if not all; that the management of the said business was in the
hands of the defendant, who was unable to give it necessary care and attention; that
for various causes the business had been loosing money; that the debts of the said
defendant amounted to $250,000, Mexican currency; that the assets of the business
were then more than enough to pay the indebtedness, but if said business were
managed by the said defendant it will be dissipated and wasted, and therefore the
plaintiff in that action prayed for the appointment of a receiver to take charge of the
said business and conduct the same subject to the order of the court.
The said Fulgencio Tan Tonco, personally and by his attorney, appeared in court, on
the said 18th day of December, 1902, and accepted service of the complaint in said
cause, and thereafter and on the 19th day of December, 1902, Antonio Torres was
appointed receiver of the business, property, rights, and credits of said Tan Tonco; and
thereafter, having given a sufficient bond and of all the property of said Tan Tonco, and
under the direction of and pursuant to an order of said Byron S. Ambler, as judge of the
Court of First Instance of Manila, undertook to care for, run, manage, and operate said
business the same as therefore run and operated by said defendant, and to employ
such persons and make such payments and disbursements as needed. It was further
ordered that the said defendant and other persons be restrained and enjoined from
interfering with said property; and the said Tan Tonco was and still continued to be
enjoined from taking possession of or in any way interfering with said property, and
said J. McMicking, as such clerk, was and is restrained from issuing an execution upon
the said judgment of Tan Tonco.
As a general rule the appointment of a receiver is an equitable remedy, and before

such remedy is resorted to, except in certain prescribed cases hereinafter mentioned,
the legal remedy must be exhausted. Courts of equity do not encourage proceedings
or actions which are not in conformity with the usual practice, which are necessary and
at the same time are calculated to swell costs and expenses. (Hart vs. Times, 3
Edwards, Chancery, 226; Congden vs. Lee, 3 Edwards, Chancery, 304.)
In the Congden case the plaintiff sought equitable relief in an action for debt after an
execution had been returned unsatisfied; but the plaintiff and the sheriff knew that the
debtor had real estate which was subject to levy and sale. The court held that it was
the duty of the plaintiff to exhaust his legal remedy by selling the real estate on the
execution, and it not appearing that there would be a deficiency on the sale, the court
had no jurisdiction to appoint a receiver of the rents.
It may be that very special circumstances may exist, in a given case, involving great
danger of loss, such as may be caused by a debtor's nonresidence, which will justify
the appointment of a receiver, but the case at bar is not one of that character; the claim
of the plaintiff, Sergia Reyes, amounted to only $1,500, Mexican currency, whereas the
property of Tan Tonco was valued at $200,000, Mexican currency, and it does not
appear that there were any judgments against him having priority to that of said
plaintiff, or that the plaintiff's judgment could not be collected in full. Under these
conditions, the allegation in the complaint that the defendant, Tan Tonco, could not
give his business "necessary care and attention," that he was "losing money," and that
if the business was to be continued under his management it would be "dissipated and
wasted," might be cause for applying for an appointment of a committee, but it certainly
is not good cause for turning over to a receiver $200,000 worth of property in an action
to recover a debt of $1,500. What was undertaken, in this action, amounts practically to
a bankruptcy proceeding — the placing by the court of the property of the defendant in
the hands of a receiver for the purpose, after paying costs, fees, and expenses, of
disturbing that property among creditors.
Bankruptcy proceedings, however, are forbidden until a law shall be enacted for these
Islands. (Sec. 524 of the Code of Civil Procedure.)
The learned counsel for the defendants in this mandamus proceeding claims that
section 174 of this Code makes provision for the appointment of a receiver in this case.
That section authorizes the appointment of a receiver (1) in certain corporation cases;
(2) where the plaintiff has an interest in the property of fund which is the subject of the
action, etc; (3) in an action to foreclose a mortgage; (4) and, finally, whenever in other
cases it shall appear to the court that the appointment of a receiver is the most feasible
means of preserving and administering the property which is the subject of the
litigation during the pendency of the action.
The subject of the action of the plaintiff Sergia Reyes was an indebtedness of $1,500
due to her by the defendant, and the legitimate object was the collection of that debt.
Until after judgment and execution, which was not issued, the plaintiff could not have
had interest in any property or fund of the defendant; nor until after the return of the
execution unsatisfied could she have had any interest in the preservation of the
defendant's property — property which was not the subject of the litigation. The plaintiff
in this mandamus proceeding was not a party to the action of Reyes vs. Tan Tonco,
and he is not, therefore, bound by the order appointing a receiver made therein.
It is not necessary in this proceeding to determine the further effect of that order, or to
decide what its effect may be on all those creditors who consented to the appointment
of the receiver, who acquiesced in his control, management, and disposition of the
defendant's property, or on other persons who dealt with him as such receiver.
This court simply decides that the plaintiff, Eugenio Bonaplata, is entitled to have an
execution issue on his said judgment. The motion for judgment on the pleadings is
granted, and judgment for the plaintiff will be entered accordingly, with costs against
the respondents.
Arellano, C.J., Torres, Cooper, Willard, and Mapa, JJ., concur.
G.R. No. L-2349 October 22, 1948
FRED M. HARDEN, petitioner,

vs.
THE DIRECTOR OF PRISONS, respondent.
Vicente J. Francisco for petitioner.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Felix V. Makasiar for
respondent.
Claro M. Recto for the intervenor.
TUASON, J.:
The petitioner, Fred M. Harden, is being confined in prison for contempt of court by
virtue of an order of the following tenor:
It appearing that the defendant Fred M. Harden has not up to this date complied with
the orders of this court of October 7, 1947 and March 27, 1948;
As prayed for, the court orders the arrest of the defendant Fred M. Harden as well as
his confinement at the New Bilibid Prisons, Muntinlupa, Rizal, until he complies with the
aforementioned orders.
The proceedings for contempt arose in a civil case between Mrs. Harden as plaintiff
and the petitioner and another person as defendants, commenced on July 12, 1941,
and involving the administration of a conjugal partnership, payment of alimony, and
accounting. In that case, a receiver was appointed and a preliminary injunction was
issued restraining Fred M. Harden and his codefendant, Jose Salumbides, from
transferring or alienating, except for a valuable consideration and with the consent of
the court first had and obtained, moneys, shares of stock, and other properties and
assets, real or personal, belonging to the aforesaid partnership, and which might be
found in the names of said defendants or either of them.
On various dates in 1946, Fred M. Harden transferred to the Hongkong & Shanghai
Banking Corporation and the Chartered Bank of India, Australia & China, both in
Hongkong, over P1,000,000 in drafts or cash; to Virginia Recreation Center, Long
Beach, California, P20,196.80, and to an unknown person, P50,000.
On September 9, 1947, Mrs. Harden moved the court to order Harden to return all
these amounts and to redeposit them with the Manila branch of the Chartered Bank of
India, Australia & China. On October 7, 1947, Judge Peña granted the motion in an
order worded as follows:
Wherefore, finding the motion of the plaintiff of September 9, 1947, to be well founded,
for the purpose of preserving the status quo and in order that the amounts above
referred to may stand ready to answer for any legitimate claims of the Government in
the form of taxes, the aforementioned motion is hereby ordered to return, within a
period of 15 days from the receipt of a copy hereof, the amount of P1,000,608.66 to
the Philippines and to redeposit the same with the accounts of the Plaza Lunch at the
Manila Branch of the Chartered Bank of India, Australia and China, with the
understanding that upon failure to comply with this order he will be declared in
contempt of court.
After a petition for certiorari was instituted by Harden in the Supreme Court and
decided, and after various motions were filed and heard, Judge Peña, on March 27,
1948, entered an order, which was a modification of that of October 7, 1947, directing
Harden "to deposit with the Manila Branch of the Chartered Bank of India, Australia &
China within five days from receipt of a copy of this order the money and drafts that he
has actually in Hongkong, without prejudice to passing upon later on the different
amounts that the defendant has spent according to his attorney, after he has submitted
to the court an itemized account of those expenses.
In the same order there was this decree:
With respect to the plaintiff's motion filed on March 16, 1948 praying that Fred M.
Harden be ordered to deliver the certificate covering the 368,553 Balatoc Mining
Company shares either to the Clerk of this Court or to the receiver in this case for
safekeeping after his compliance with the order of January 17, 1948, the Court, after
considering the different pleadings filed, denies defendant's motion for extension of
time to register the said certificate of stock, thereby maintaining its order of January 17,
1948. The said defendant is further ordered, after the registration of the said certificate,
to deposit the same with the Manila Branch of the Chartered Bank of India, Australia
and China.
The last part of the order was the culmination of another series of motions with their
corresponding hearings. The facts taken from the pleading were in brief as follows:
In a motion dated May 28, 1947, the receiver appointed in the main case prayed that
the certificates of stock of the conjugal partnership, among them 368,553 shares of the
Balatoc Mining Co., alleged to be in the possession of defendant Harden, be ordered
turned over to him (receiver) so that he might have them registered in pursuance of the
provisions of Republic Act No. 62. On June 7, 1947, the court "authorized" Harden "to
register not later than June 30, 1947 the stock certificates in his possession, notifying
the court afterwards of such action.
On July 28, 1947, Mrs. Harden complained that her husband failed to comply with the
above order and prayed that he be ordered to show cause why he should not be
declared in contempt. On August 1, 1947, Harden filed a perfunctory compliance, and
in order dated August 2, 1947, he was required to "make a detailed report of the stock
certificates which have been duly registered in accordance with Republic Act No. 62."
In his "compliance" dated August 7, 1947, Harden stated that he had been granted an
extension until December 31, 1947, within which to register the Balatoc Mining Co.
shares under Republic Act No. 62.
In a motion dated January 7, 1948, the receiver informed the court that,
notwithstanding the expiration on December 31, 1947, of Harden's extended time to
comply with Republic Act No. 62, the records of the Balatoc Mining Co. showed that
the certificate had not been registered as of January 7, 1948; and upon his request, an
order dated January 17, 1948, was issued giving Harden "an extension until March 31,
1948 within which to comply with the Order dated June 7, 1947."
In a motion dated March 15, 1948, Mrs. Harden prayed for the reasons therein stated,
that defendant Harden "be ordered to deliver the certificates covering the 368,553
Balatoc Mining Co. shares either to the Clerk of this Court or to the Receiver herein for
safekeeping, immediately after registering them pursuant to Republic Act No. 62." On
March 24, 1948, Harden filed a motion stating that the registration of shares of stock
under Republic Act No. 62 had been extended until June 30, 1948, and prayed that he
"be allowed to register the stock certificates in question within such period as by law or
regulations is or may be provided."
It was at this stage of the case that the present petitioner was committed to jail.
Broadly speaking, the grounds for relief by habeas corpus are only (1) deprivation of
any fundamental or constitutional rights, (2) lack of jurisdiction of the court to impose
the sentence, or (3) excessive penalty. (Santiago vs. Director of Prisons, 1 L-1083, Jan.
30, 1947, 44 Off. Gaz., 1231.)
The fact that the property is in a foreign country is said to deprive the court of
jurisdiction, the remedy in such case being, it is contended, ancillary receivership. We
can not agree with this view.
While a court can not give its receiver authority to act in another state without the
assistance of the courts thereof (53 C. J., 390-391), yet it may act directly upon the
parties before it with respect to property beyond the territorial limits of its jurisdiction,
and hold them in contempt if they resist the court's orders with reference to its custody
or disposition (Id. 118)
Whether the property was removed before or after the appointment of the receiver is
likewise immaterial.
In Sercomb vs. Catlin, 21 N. E., 606-608, the Supreme Court of Illinois said:
It is true that the property attached is beyond the jurisdiction of the courts of this state,
but the appellant, who caused it to be attached, is in this state, and within the
jurisdiction of its courts. If the superior court had no power to reach the goods in
Newton's hands, it had the power to reach appellant, who sought to prevent its receiver
from getting possession of the goods. It makes no difference that the property was in a
foreign jurisdiction.
The facts of that case as stated in the decision were as follows:
On April 14, 1887, in the case of Ada S. Havens et al. vs. Caleb Clapp et al. then
pending in said superior court, the appellee was appointed receiver of all the property
and effects, real and personal, of the defendants therein, Caleb Clapp and Thomas
Davies. Prior to that date Clapp and Davies had forwarded, on consignment, to Elijah
E. Newton, an auctioneer and commission merchant in Washington city, in the District
of Columbia, a lot of jewelry, watches and silverware, to be by him disposed of for their
benefit. So far as appears to the contrary, the goods so consigned were still in the
possession of Newton at Washington when the order was entered on April 7, 1887, for
the commitment of appellant for contempt. Within a week or 10 days after his
appointment as receiver, appellee gave notice of such appointment to Newton, and
demanded a return of the goods. On May 18, 1887, the Meriden Britannia Company, a
corporation organized under the laws of the state of Connecticut, being a creditor of
Clapp and Davies, commenced an attachment suit against them for the amount of its
claim in the Supreme Court of the District of Columbia, and attached the goods in the
hands of Newton.
The penalty complained of is neither cruel, unjust nor excessive. In Ex-parte Kemmler,
136 U. S., 436, the United States Supreme Court said that "punishments are cruel
when they involve torture or a lingering death, but the punishment of death is not cruel,
within the meaning of that word as used in the constitution. It implies there something
inhuman and barbarous, something more than the mere extinguishment of life.
The punishment meted out to the petitioner is not excessive. It is suitable and adapted
to its objective; and it accords with section 7, Rule 64, of the Rules of Court which
provides that "when the contempt consists in the omission to do an act which is yet in
the power of the accused to perform, he may be imprisoned by order of a superior
court until he performs it.
If the term of imprisonment in this case is indefinite and might last through the natural
life of the petitioner, yet by the terms of the sentence the way is left open for him to
avoid serving any part of it by complying with the orders of the court, and in this
manner put an end to his incarceration. In these circumstances, the judgment can not
be said to be excessive or unjust. (Davis vs. Murphy [1947] 188 P., 2nd, 229-231.) As
stated in a more recent case (De Wees [1948], 210 S.W., 2d, 145-147), "to order that
one be imprisoned for an indefinite period in civil contempt is purely a remedial
measure. Its purpose is to coerce the contender to do an act within his or her power to
perform. He must have the means by which he may purge himself of the contempt."
The latter decision cites Stanley vs. South Jersey Realty Co., 83 N.J. Eq. 300, 90 A.,
1042, 1043, in which the theory is expressed in this language:
In a "civil contempt" the proceeding is remedial, it is a step in the case the object of
which is to coerce one party for the benefit of the other party to do or to refrain from
doing some act specified in the order of the court. Hence, if imprisonment be ordered, it
is remedial in purpose and coercive in character, and to that end must relate to
something to be done by the defendant by the doing of which he many discharge
himself. As quaintly expressed, the imprisoned man "carries the keys to his prison in
his own pocket."
The failure of the order of commitment to state that the acts which the contemner fails
to do are still in his power to perform, does not void the order of imprisonment. Section
7 of Rule 64 does not require such finding to appear in the order, unlike section 1219
of the Code of Civil Procedure of California on which the petitioner's contention is
rested. Petitioner is in error in saying that section 237 of the former Philippine Code of
Civil Procedure, from which section 7 of Rule 64, supra, has been copied, was of
California origin. Former Justice Fisher is authority for the statement that section 237 of
Act No. 190 was borrowed from section 1456 of the Ohio Code of Civil Procedure.
(Fisher's Code of Civil Procedure, 3rd ed., p. 136.) The exact similarity in substance
though not in language between the two provisions is a confirmation of this statement.
At any rate, the order of commitment contains the alleged missing element if it is taken,
as it should be taken, in connection with the orders of October 7, 1947, and March 27,
1948, and with the charges for contempt. It expressly gives non-compliance with the
two last mentioned orders as the grounds for the warrant of commitment, and thus by
reference makes them part of it. The orders of October 7, 1947, and March 27, 1948, in
turn clearly specify the acts with the petitioner was commanded to fulfill. It is equally
clear from these orders that in the opinion of the court the petitioner is in a position to
bring back to the Philippines from Hongkong part of the cash and the Balatoc shares
he had remitted to that colony.
Whether or not in truth the court's findings are supported by sufficient evidence is a
different matter; it is a matter of fact which can not be reviewed by habeas corpus.
In a long line of decisions, this Court has steadfastly held that habeas corpus does not
lie to correct errors of fact or law. (Slade Perkins vs. Director of Prisons, 58 Phil., 271;
Quintos vs. Director of Prisons, 55 Phil., 304; Toronto Felipe vs. Director of Prisons, 24
Phil., 121; Gutierrez Repide vs. Peterson, 3 Phil., 276; Santiago vs. Director of Prisons,
L-1083, 1 44 Off. Gaz., 1231; McMicking vs. Schields, 238 U.S. 99. 41 Phil., 971;
Tinsley vs. Anderson, 43 Law. ed., 91.) When a court has jurisdiction of the offense
charged and of the party who is so charged, its judgment, order or decree is not
subject to collateral attack by habeas corpus. the writ of habeas corpus can not be
made to perform the function of a writ of error; and this holds true even if the judgment,
orders or decree was erroneous, provided it is within the jurisdiction of the court which
rendered such judgment or issued such an order or decree. (Slade Perkins vs. Director
of Prisons, supra; Santiago vs. Director of Prisons, supra.) So whether the act charged
has been committed or can still be performed is conclusively determined by the order
or judgment of the trial court in the proceeding wherein the petitioner for habeas
corpus is adjudged in contempt. (Ex-parte Fisher, 206 S.W. 2d. 1000.).
The petition is denied with costs.
Moran, C.J., Ozaeta, Paras, Feria, Pablo, Bengzon, Briones and Montemayor, JJ.,
concur.
Separate Opinions
PERFECTO, J., dissenting:
Since May 4, 1948, Fred M. Harden has been placed under arrest and confined at the
Bilibid Prisons, Muntinglupa, under the charge of the Director of Prisons.
Respondent's authority for confining petitioner is based on the order of Judge Emilio
Pena, of the Court of First Instance of Manila, issued on April 28, 1948, which reads as
follows:
It appearing that the defendant Fred M. Harden of the defendant to this date complied
with the orders of this court of October 7, 1947, and March 27, 1948;
As prayed for, the court orders the arrest of the defendant Fred M. Harden as well as
his confinement at the New Bilibid Prisons, Muntinlupa, Rizal, until he complies with the
aforementioned orders.
The order of October 7, 1947, requires Harden to return from abroad within a period of
15 days, the amount of P1,000,608.66 to the Philippines and to redeposit the same
with the accounts of the Plaza Lunch of the Manila branch of the Chartered Bank of
India, Australia and China.
The order of March 27, 1948, requires Harden to deposit with the same bank the
money and drafts that he has actually in Hongkong and the certificate covering
368,553 Balatoc Mining Company shares, after registering them, as required in the
order of January 18, 1948.
The trial court ordered petitioner's confinement of an indefinite period of time which
means that it may last until his death, in virtue of the provisions of section 7 of Rule 64
which reads as follows:
SEC. 7. Imprisonment until ordered obeyed. — When the contempt consists in the
omission to do an act which is yet in the power of the accused to perform, he may be
imprisoned by order of a superior court until he performs it.
The reglementary provision is null and void per se and, therefore, should be denied
compliance. Perhaps, there is no other provision in our statute books more revolting to
conscience, more shocking to the most elemental sense of justice, and most
unreasonably Draconian.
The provision is characterized by such an extreme of arbitrariness that is

comprehensible only under a dictatorial system of government.
Petitioner has been and is claiming that he has no means of complying with the orders
for non-compliance of which he is committed to imprisonment for an indefinite period of
time. The trial court does not believe him, and we presume that said court was justified
by evidence.
But our presumption cannot take the place of absolute infallibility. When there are
conflicting claims as to facts, courts decide the issue sometimes on a mere
preponderance of evidence and sometimes, as in criminal cases, on evidence carrying
conviction beyond all reasonable doubt.
A decision based on a preponderance of evidence does not carry absolute certainty. A

decision based on a conclusion of fact beyond all reasonable doubt is stronger, yet no
one is too crazy to believe that it carries absolute certainly or the mark of infallibility.
Judicial history is full of bloody pages about many individuals who have been burned,
decapitated by guillotine, hanged or shot, killed by garrote or electrocuted, because
tribunals found them guilty beyond all reasonable doubt, but later on found to be
absolutely innocent. Some of them have been and are loved and enshrined as martyrs,
heroes, and among them are counted the greatest moral figures humanity has ever
produced.
Because in petitioner's case the lower court had to act only and must have acted on a
mere preponderance of evidence, the possibility of error is greater in criminal cases
where conviction beyond all reasonable doubt is required. Therefore, although the
preponderance of evidence may militate against petitioner, such legal situation does
not preclude the possibility that truth, as an absolute, may after all support petitioner's
claim. In such case, unless a miracle should supervene to rescue him from his plight,
he will remain confined for the rest of his days, an imprisonment more perpetual than
reclusion perpetua, the longest imprisonment allowed by law for the worst criminals,
kidnapers, robbers, parriciders, traitors.
Should petitioner have embezzled or stolen the money and certificate of shares
required of him to be deposited in a bank he can be punished with years of
imprisonment but not nearing even reclusion perpetua. There is no offense or crime for
mere disobedience that is punished by reclusion perpetua or by many years of
imprisonment.
But petitioner, for a mere disobedience, which ultimately may not be disobedience at
all, is exposed to suffer imprisonment for life. This, certainly, is a flagrant violation of
the constitutional inhibition that no cruel and unusual punishment shall be inflicted.
(Section 1 [19], Article III of the Constitution.) This is also a denial to petitioner of the
equal protection of the laws which is the first guarantee in our Bill of Rights. (Section 1
[1], Article III of the Constitution.)
The authors of the rules could not have conceived or imagined any contempt of court
of such perversity that would require a heavier punishment than a fine of P1,000 and
six months imprisonment, the maximum penalty provided by section 6 of Rule 64. In
the present case, petitioner has already suffered the maximum imprisonment of six
months , and is exposed to remain in prison for many more years. Is there a
conscience too callous to fail to see the unbearable discrimination of the law against
petitioner? Punishments are cruel when they involve torture or a lingering death or
when they employ something inhuman or barbarous, as stated in the Kemmler case
(136 U. S. 436), an authority invoked in the majority decision. But there is anything
more inhuman, barbarous, more torturing, giving the feeling of lingering death, than to
compel a person to unjustly endure an indefinite number of years of imprisonment,
when the only offense that he has committed is that of contempt and the most serious
case of contempt cannot be punished with imprisonment longer than six months? We
have to be blind to fail to see this.
The argument that the incarceration is not cruel because the sentence left the doors
open for petitioner to avoid serving any part of it by complying with the orders of the
court has absolutely no merit, because there is absolutely no reasonable ground in the
philosophy of law that would leave to the offender's discretion the length of his
imprisonment or the measures of his punishment. Aside from the unscientific view
revealed by the argument, it has the short-sightedness of failing to see the possibilities
of error of judgment on the question as to whether the accused is yet in a position to
actually perform the acts ordered.
The allegation that the imprisonment or an indefinite period is purely a remedial

measure which assumes that the offender must have the means by which he may
purge himself with the contempt is pure rhetoric that has no ground in fact as can be
seen by any reasonable man. It fails to understand the true situation of a simple
disobedience punished with imprisonment that has no possible end except death.
We held that the lower court erred in issuing the order of April 28, 1948, in so far as it
orders that petitioner be confined for an indefinite period of time.
We disagree with the pronouncement in the majority opinion, limiting the scope of the
writ of habeas corpus and issuing in favor of the lower court in patent of infallibility on
the factual question of whether or not the act ordered to be performed is still in the
hands of petitioner to perform. Such pronouncement are not supported by law nor by
any principle of substantial justice. Regardless of the length of the chain of erroneous
decisions supporting such pronouncements, the errors shall continue to be errors. The
length of the chain may only emphasize the amount of injustices perpetrated under
such pronouncements.
Assuming that the lower court found petitioner guilty of contempt, it could have
punished petitioner up to the maximum penalties provided by section 6 of Rule 64 but
never more. Considering that petitioner has already undergone the maximum of six
months imprisonment, even on the assumption that he is guilty, he is entitled to be
released from confinement.
We vote to grant the petition and to immediately release Fred M. Harden from
confinement and from the custody of respondent Director of Prisons.
G.R. No. 125008 June 19, 1997
COMMODITIES STORAGE & ICE PLANT CORPORATION, SPOUSES VICTOR &

JOHANNAH TRINIDAD, petitioners,
vs.
COURT OF APPEALS, JUSTICE PEDRO A.. RAMIREZ, CHAIRMAN and FAR EAST
BANK & TRUST COMPANY, respondents.

PUNO, J.:
In this petition for certiorari, petitioner seeks to annul and set aside the decision and
resolution of the Court of Appeals 1 in CA-G.R. SP No. 36032 dismissing the complaint
in Civil Case No. 94-72076 before the Regional Trial Court, Branch 9, Manila.
The facts show that in 1990, petitioner spouses Victor and Johannah Trinidad obtained
a loan of P31,000,000.00 from respondent Far East Bank & Trust Company to finance
the purchase of the Sta. Maria Ice Plant & Cold Storage in Sta. Maria, Bulacan. The
loan was secured by a mortgage over the ice plant and the land on which the ice plant
stands. Petitioner spouses failed to pay their loan. The bank extrajudicially foreclosed
the mortgage and the ice plant was sold by public bidding on March 22, 1993.
Respondent bank was the highest bidder. It registered the certificate of sale on
September 22, 1993 and later took possession of the property.
On November 22, 1993, petitioner spouses filed Civil Case No. 956-M-93 against
respondent bank before the Regional Trial Court, Malolos, Bulacan for reformation of
the loan agreement, annulment of the foreclosure sale and damages. 2 The trial court
dismissed the complaint for petitioners' failure to pay the docket fees. The dismissal
was without prejudice to refiling of the complaint. 3
On October 28, 1994, petitioners filed Civil Case No. 94-72076 against respondent
bank before the Regional Trial Court, Branch 9, Manila for damages, accounting and
fixing of redemption period. 4 As a provisional remedy, petitioners filed on November
16, 1994 an "Urgent Petition for Receivership." They alleged that respondent bank took
possession of the ice plant forcibly and without notice to them; that their occupation
resulted in the destruction of petitioners' financial and accounting records making it
impossible for them to pay their employees and creditors; the bank has failed to take
care of the ice plant with due diligence such that the plant has started emitting
ammonia and other toxic refrigerant chemicals into the atmosphere and was posing a
hazard to the health of the people in the community; the spouses' attention had been
called by several people in the barangay who threatened to inform the Department of
Environment and Natural Resources should they fail to take action. Petitioners thus
prayed for the appointment of a receiver to save the ice plant, conduct its affairs and
safeguard its records during the pendency of the case. 5
Instead of an answer, respondent bank filed on November 25, 1994 a "Motion to

Dismiss and Opposition to Plaintiff's Petition for Receivership." It alleged that the
complaint states no cause of action and that venue had been improperly laid. It also
alleged that petitioners failed to pay the proper docket fees and violated the rule on
forum-shopping. 6
In an order dated December 13, 1994, the trial court granted the petition for
receivership and appointed petitioners' nominee, Ricardo Pesquera, as receiver. The
order disposed as follows:
WHEREFORE, premises considered the Urgent Petition for Receivership is GRANTED

and Mr. Ricardo Pesquera to whose appointment no opposition was raised by the
defendant and who is an ice plant contractor, maintainer and installer is appointed
receiver. Accordingly, upon the filing and approval of the bond of TWO MILLION
(P2,000,000.00) pesos which shall answer for all damages defendant may sustain by
reason of the receivership, said Ricardo Pesquera is authorized to assume the powers
of a receiver as well as the obligation as provided for in Rule 59 of the Rules of Court
after taking his oath as such receiver.
SO ORDERED. 7
Respondent bank assailed this order before the Court of Appeals on a petition for
certiorari. On January 11, 1996, the Court of Appeals annulled the order for
receivership and dismissed petitioners' complaint for improper venue and lack of cause
of action. The dispositive portion of the decision reads:
WHEREFORE, the petition for certiorari is GRANTED. Accordingly, the assailed order
dated December 13, 1994 (Annex A, petition) is ANNULLED and SET ASIDE and
respondent's complaint in Civil Case No. 94-72076 in the respondent court (Annexes
F, petition; 4, comment), is DISMISSED. Costs against respondents except the court.
SO ORDERED.
Reconsideration was denied on May 23, 1996. 8 Hence, this petition.
Section 1 of Rule 59 of the Revised Rules of Court provides that:
Sec. 1. When and by whom receiver appointed. — One or more receivers of the
property, real or personal, which is the subject of the action, may be appointed by the
judge of the Court of First Instance in which the action is pending, or by a Justice of the
Court of Appeals or of the Supreme Court, in the following cases:
(a) When the corporation has been dissolved, or is insolvent, or is in imminent danger
of insolvency, or has forfeited its corporate rights;
(b) When it appears from the complaint or answer, and such other proof as the judge
may require, that the party applying for the appointment of receiver has an interest in
the property or fund which is the subject of the action, and that such property or fund is
in danger of being lost, removed or materially injured unless a receiver be appointed to
guard and preserve it;
(c) When it appears in an action by the mortgagee for the foreclosure of a mortgage
that the property is in danger of being wasted or materially injured, and that its value is
probably insufficient to discharge the mortgage debt, or that the parties have so
stipulated in the contract of mortgage;
(d) After judgment, to preserve the property during the pendency of the appeal, or to
dispose of it according to the judgment, or to aid execution when the execution has
been returned unsatisfied or the judgment debtor refuses to apply his property in
satisfaction of the judgment, or otherwise carry the judgment into effect;
(e) Whenever in other cases it appears that the appointment of a receiver is the most
convenient and feasible means of preserving, administering, or disposing of the
property in litigation.
A receiver of real or personal property, which is the subject of the action, may be
appointed by the court when it appears from the pleadings or such other proof as the
judge may require, that the party applying for such appointment has (1) an actual
interest in it; and (2) that (a) such property is in danger of being lost, removed or
materially injured; or (b) whenever it appears to be the most convenient and feasible
means of preserving or administering the property in litigation. 9
A receiver is a person appointed by the court in behalf of all the parties to the action for
the purpose of preserving and conserving the property in litigation and prevent its
possible destruction or dissipation, if it were left in the possession of any of the parties.
10
The appointment of a receiver is not a matter of absolute right. It depends upon the
sound discretion of the court 11 and is based on facts and circumstances of each
particular case. 12
Petitioners claim that the appointment of a receiver is justified under Section 1 (b) of
Rule 59. They argue that the ice plant which is the subject of the action was in danger
of being lost, removed and materially injured because of the following "imminent
perils":
6.1 Danger to the lives, health and peace of mind of the inhabitants living near the Sta.
Maria Ice Plant;
6.2 Drastic action or sanctions that could be brought against the plaintiff by affected
third persons, including workers who have claims against the plaintiff but could not be
paid due to the numbing manner by which the defendant took the Sta. Maria Ice Plant;
6.3 The rapid reduction of the Ice Plant into a scrap heap because of evident
incompetence, neglect and vandalism. 13
A petition for receivership under Section 1 (b) of Rule 59 requires that the property or
fund which is the subject of the action must be in danger of loss, removal or material
injury which necessitates protection or preservation. The guiding principle is the
prevention of imminent danger to the property. If an action by its nature, does not
require such protection or reservation, said remedy cannot be applied for and granted.
14
In the instant case, we do not find the necessity for the appointment of a receiver.
Petitioners have not sufficiently shown that the Sta. Maria Ice Plant is in danger of
disappearing or being wasted and reduced to a "scrap heap." Neither have they proven
that the property has been materially injured which necessitates its protection and
preservation. 15 In fact, at the hearing on respondent bank's motion to dismiss,
respondent bank, through counsel, manifested in open court that the leak in the ice
plant had already been remedied and that no other leakages had been reported since.
16
This statement has not been disputed by petitioners.
At the time the trial court issued the order for receivership of the property, the problem
had been remedied and there was no imminent danger of another leakage. Whatever
danger there was to the community and the environment had already been contained.
The "drastic sanctions" that may be brought against petitioners due to their inability to
pay their employees and creditors as a result of "the numbing manner by which
[respondent bank] took the ice plant" does not concern the ice plant itself. These
claims are the personal liabilities of petitioners themselves. They do not constitute
"material injury" to the ice plant.
Moreover, the receiver appointed by the court appears to be a representative of

petitioners. Respondent bank alleges that it was not aware that petitioners nominated
one Mr. Pesquera as receiver. 17 The general rule is that neither party to a litigation
should be appointed as receiver without the consent of the other because a receiver
should be a person indifferent to the parties and should be impartial and disinterested.
18
The receiver is not the representative of any of the parties but of all of them to the
end that their interests may be equally protected with the least possible inconvenience
and expense. 19
The power to appoint a receiver must be exercised with extreme caution. There must
be a clear showing of necessity therefor in order to save the plaintiff from grave and
irremediable loss or damage. 20 It is only when the circumstances so demand, either
because there is imminent danger that the property sought to be placed in the hands of
a receiver be lost or because they run the risk of being impaired, endeavouring to avoid
that the injury thereby caused be greater than the one sought to be avoided. 21
The Court of Appeals correctly found that the trial court gravely abused its discretion in
issuing the order for receivership. The respondent court, however, went further and
took cognizance of respondent bank's motion to dismiss. And finding merit in the
motion, it dismissed the complaint. Petitioners now claim that the respondent court
should have refrained from ruling on the motion to dismiss because the motion itself
was not before it. 22
Again, we reject petitioners' contention. The motion to dismiss is anchored on improper

venue, lack of cause of action and forum-shopping. We agree with the respondent
court that the question of venue relates to the principal action and is prejudicial to the
ancillary issue of receivership. Although the grounds for dismissal were not specifically
raised before the appellate court, the said court may consider the same since the
petition for receivership depends upon a determination thereof. 23
In their complaint, petitioners prayed for the following:
WHEREFORE, in view of the foregoing, it is respectfully prayed that after trial on the
merits judgment be rendered:
1. Ordering the Defendant to pay COMMODITIES actual and compensatory damages

in the amount of PESOS: TWO MILLION FIVE HUNDRED THOUSAND and 00/100
(P2,500,000.00);
2 Ordering the Defendant to pay Plaintiffs moral damages in the amount of PESOS:
TWO MILLION and 00/100 (P2,000,000.00) to compensate the Plaintiffs for the anxiety
and besmirched reputation caused by the unjust actuations of the Defendant;
3. Ordering the Defendant to pay Plaintiffs nominal and exemplary damages in the
amount of PESOS: FIVE HUNDRED THOUSAND and 00/100 (P500,000.00) to deter
the repetition of such unjust and malicious actuations of the Defendant;
4. In order to restore the legal right of the Plaintiff COMMODITIES to redeem its
foreclosed property, a right which COMMODITIES has been unjustly deprived of by the
malicious and bad faith machinations of the Defendant, compelling the Defendant to
produce the correct, lawful, official and honest statements of account and application of
payment. Concomitantly, ordering the Defendant to accept the redemption of the
foreclosed properties pursuant to Rule 39 of the Revised Rules of Court in conjunction
with Act 3135, within the prescribed period for redemption, said period to commence
from the date of receipt by the Plaintiff COMMODITIES of the correct, lawful, official
and honest statements of account and application of payments;
5. Ordering the Defendant to pay attorney's fees in the amount of PESOS: THREE
HUNDRED THOUSAND (P300,000.00); and costs of litigation.
Other reliefs and remedies just and equitable under the circumstances are likewise
prayed for. 24
Petitioners pray for two remedies: damages and redemption. The prayer for damages
is based on respondent bank's forcible occupation of the ice plant and its malicious
failure to furnish them their statements of account and application of payments which
prevented them from making a timely redemption. 25 Petitioners also pray that
respondent bank be compelled to furnish them said documents, and upon receipt
thereof, allow redemption of the property. They ultimately seek redemption of the
mortgaged property. This is explicit in paragraph 4 of their prayer.
An action to redeem by the mortgage debtor affects his title to the foreclosed property.
If the action is seasonably made, it seeks to erase from the title of the judgment or
mortgage debtor the lien created by registration of the mortgage and sale. 26 If not
made seasonably, it may seek to recover ownership to the land since the purchaser's
inchoate title to the property becomes consolidated after expiration of the redemption
period. 27 Either way, redemption involves the title to the foreclosed property. It is a real
action.
Section 2 of Rule 4 of the Revised Rules of Court provides:
Sec. 2. Venue in Courts of First Instance. — (a) Real actions. — Actions affecting title
to, or for recovery of possession, or for partition or condemnation of, or foreclosure of
mortgage on, real property, shall be commenced and tried in the province where the
property or any part thereof lies. 28
Where the action affects title to the property, it should be instituted in the Regional Trial
Court where the property is situated. The Sta. Maria Ice Plant & Cold Storage is
located in Sta. Maria, Bulacan. The venue in Civil Case No. 94-72076 was therefore
laid improperly.
Finally, there is no merit in petitioners' claim that the respondent bank is no longer the
real party in interest after selling the ice plant to a third person during the pendency of
the case. Section 20 of Rule 3 of the Revised Rules of Court provides that in a transfer
of interest pending litigation, the action may be continued by or against the original
party, unless the court, upon motion, directs the transferee to be substituted in the
action or joined with the original party. The court has not ordered the substitution of
respondent bank.
IN VIEW WHEREOF, the decision dated January 11, 1996 and resolution dated May
23, 1996 of the Court of Appeals in CA-G.R. SP No. 36032 are affirmed. Costs against
petitioners.
SO ORDERED.
G.R. No. L-252 March 30, 1946

TRANQUILINO CALO and DOROTEO SAN JOSE, petitioners,
vs.
ARSENIO C. ROLDAN, Judge of First Instance of Laguna, REGINO RELOVA and
TEODULA BARTOLOME, respondents.
Zosimo D. Tanalega for petitioners.
Estanislao A. Fernandez for respondents Relova and Bartolome.
No appearance for respondent Judge.
FERIA, J.:
This is a petition for writ of certiorari against the respondent Judge Arsenio C. Roldan
of the Court First Instance of Laguna, on the ground that the latter has exceeded his
jurisdiction or acted with grave abuse of discretion in appointing a receiver of certain
lands and their fruits which, according to the complainant filed by the other
respondents, as plaintiffs, against petitioners, as defendants, in case No. 7951, were in
the actual possession of and belong to said plaintiffs.
The complaint filed by plaintiffs and respondents against defendants and petitioners in
the Court of First Instance of Laguna reads as follows:
1. That the plaintiffs and the defendants are all of legal age, Filipino citizens, and
residents of Pila, Laguna; the plaintiffs are husband and wife..
2. That the plaintiff spouses are the owners and the possessors of the following
described parcels of land, to wit:.
xxx xxx xxx
3. That parcel No. (a) described above is now an unplanted rice land and parcel No. (b)
described in the complaint is a coconut land, both under the possession of the
plaintiffs..
4. That the defendants, without any legal right whatsoever and in connivance with each
other, through the use of force, stealth, threats and intimidation, intend or are intending
to enter and work or harvest whatever existing fruits may now be found in the lands
above-mentioned in violation of plaintiff's in this case ineffectual..
5. That unless defendants are barred, restrained, enjoined, and prohibited from
entering or harvesting the lands or working therein through ex-parte injunction, the
plaintiffs will suffer injustice, damages and irreparable injury to their great prejudice..
6. That the plaintiffs are offering a bond in their application for ex-parte injunction in the
amount of P2,000, subject to the approval of this Hon. Court, which bond is attached
hereto marked as Annex A and made an integral part of this complaint..
7. That on or about June 26, 1945, the defendants, through force, destroyed and took
away the madre-cacao fencer, and barbed wires built on the northwestern portion of
the land designated as parcel No. (b) of this complaint to the damage and prejudice of
the plaintiffs in the amount of at least P200..
Wherefore, it is respectfully prayed:.
(a) That the accompanying bond in the amount of P2,000 be approved;
(b) That a writ of preliminary injunction be issued ex-parte immediately restraining,
enjoining and prohibiting the defendants, their agents, servants, representatives,
attorneys, and, (or) other persons acting for and in their behalf, from entering in,
interfering with and/or in any wise taking any participation in the harvest of the lands
belonging to the plaintiffs; or in any wise working the lands above-described;
(c) That judgment be rendered, after due hearing, declaring the preliminary injunction
final;.
(d) That the defendants be condemned jointly and severally to pay the plaintiffs the
sum of P200 as damages; and.
(e) That plaintiffs be given such other and further relief just and equitable with costs of
suit to the defendants.
The defendants filed an opposition dated August 8, 1945, to the issuance of the writ of
preliminary injunction prayed for in the above-quoted complaint, on the ground that
they are owners of the lands and have been in actual possession thereof since the
year 1925; and their answer to the complaint filed on August 14, 1945, they reiterate
that they are the owners and were then in actual possession of said property, and that
the plaintiffs have never been in possession thereof.
The hearing of the petition for preliminary injunction was held on August 9, 1945, at
which evidence was introduced by both parties. After the hearing, Judge Rilloraza, then
presiding over the Court of First Instance of Laguna, denied the petition on the ground
that the defendants were in actual possession of said lands. A motion for
reconsideration was filed by plaintiffs on August 20, 1945, but said motion had not yet,
up to the hearing of the present case, been decided either by Judge Rilloraza, who
was assigned to another court, or by the respondent judge.
The plaintiffs (respondents) filed on September 4, 1945, a reply to defendants' answer
in which, among others, they reiterate their allegation in the complaint that they are
possessors in good faith of the properties in question.
And on December 17, plaintiffs filed an urgent petition ex-parte praying that plaintiffs'
motion for reconsideration of the order denying their petition for preliminary injunction
be granted and or for the appointment of a receiver of the properties described in the
complaint, on the ground that (a) the plaintiffs have an interest in the properties in
question, and the fruits thereof were in danger of being lost unless a receiver was
appointed; and that (b) the appointment of a receiver was the most convenient and
feasible means of preserving, administering and or disposing of the properties in
litigation which included their fruits. Respondents Judge Roldan, on the same date,
December 17, 1945, decided that the court would consider the motion for
reconsideration in due time, and granted the petition for appointment of and appointed
a receiver in the case.
The question to be determined in the present special civil action of certiorari is, whether
or not the respondent judge acted in excess of his jurisdiction or with grave abuse of
discretion in issuing the order appointing a receiver in the case No. 7951 of the Court
of First Instance of Laguna; for it is evident that there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of the law against the said order,
which is an incidental or interlocutory one.
It is a truism in legal procedure that what determines the nature of an action filed in the
courts are the facts alleged in the complaint as constituting the cause of the action.
The facts averred as a defense in the defendant's answer do not and can not
determine or change the nature of the plaintiff's action. The theory adopted by the
plaintiff in his complaint is one thing, and that of the defendant in his answer is another.
The plaintiff has to establish or prove his theory or cause of action in order to obtain the
remedy he prays for; and the defendant his theory, if necessary, in order to defeat the
claim or action of the plaintiff..
According to the complaint filed in the said case No. 7951, the plaintiff's action is one of
ordinary injunction, for the plaintiffs allege that they are the owners of the lands therein
described, and were in actual possession thereof, and that "the defendants without any
legal right whatever and in connivance with each other, through the use of force,
stealth, threat and intimidation, intend or are intending to enter and work or harvest
whatever existing fruits may be found in the lands above mentioned in violation of
plaintiffs' proprietary rights thereto;" and prays "that the defendants, their agents,
servants, representatives, and other persons acting for or in their behalf, be restrained,
enjoined and prohibited from entering in, interfering with, or in any way taking any
participation in the harvest of the lands above describe belonging to the plaintiffs."
That this is the nature of plaintiffs' action corroborated by the fact that they petitioned in
the same complaint for a preliminary prohibitory injunction, which was denied by the
court in its order dated August 17, 1945, and that the plaintiffs, in their motion for
reconsideration of said order filed on August 20 of the same year, and in their urgent
petition dated December 17, moving the court to grant said motion for reconsideration,
reiterated that they were actual possessors of the land in question.
The fact that plaintiffs, in their reply dated September 4, after reiterating their allegation
or claim that they are the owners in fee simple and possessors in good faith of the
properties in question, pray that they be declared the owners in fee simple, has not
changed the nature of the action alleged in the complaint or added a new cause of
action thereto; because the allegations in plaintiffs' reply were in answer to defendants'
defenses, and the nature of plaintiffs' cause of action, as set forth in their complaint,
was not and could not be amended or changed by the reply, which plaintiffs had the
right to present as a matter of course. A plaintiff can not, after defendant's answer,
amend his complaint by changing the cause of action or adding a new one without
previously obtaining leave of court (section 2, Rule 17)..
Respondents' contention in paragraph I of their answer that the action filed by them
against petitioners in the case No. 7951 of the Court of First Instance of Laguna is not
only for injunction, but also to quiet title over the two parcels of land described in the
complaint, is untenable for the reasons stated in the previous paragraph. Besides, an
equitable action to quiet title, in order to prevent harrassment by continued assertion of
adverse title, or to protect the plaintiff's legal title and possession, may be filed in courts
of equity (and our courts are also of equity), only where no other remedy at law exists
or where the legal remedy invokable would not afford adequate remedy (32 Cyc., 1306,
1307). In the present case wherein plaintiffs alleged that they are the owners and were
in actual possession of the lands described in the complaint and their fruits, the action
of injunction filed by them is the proper and adequate remedy in law, for a judgment in
favor of plaintiffs would quiet their title to said lands..
The provisional remedies denominated attachment, preliminary injunction,
receivership, and delivery of personal property, provided in Rules 59, 60, 61, and 62 of
the Rules of Court, respectively, are remedies to which parties litigant may resort for
the preservation or protection of their rights or interest, and for no other purpose,
during the pendency of the principal action. If an action, by its nature, does not require
such protection or preservation, said remedies can not be applied for and granted. To
each kind of action or actions a proper provisional remedy is provided for by law. The
Rules of Court clearly specify the case in which they may be properly granted. .
Attachment may be issued only in the case or actions specifically stated in section 1,
Rule 59, in order that the defendant may not dispose of his property attached, and thus
secure the satisfaction of any judgment that may be recovered by plaintiff from
defendant. For that reason a property subject of litigation between the parties, or
claimed by plaintiff as his, can not be attached upon motion of the same plaintiff..
The special remedy of preliminary prohibitory injunction lies when the plaintiff's
principal action is an ordinary action of injunction, that is, when the relief demanded in
the plaintiff's complaint consists in restraining the commission or continuance of the act
complained of, either perpetually or for a limited period, and the other conditions
required by section 3 of Rule 60 are present. The purpose of this provisional remedy is
to preserve the status quo of the things subject of the action or the relation between
the parties, in order to protect the rights of the plaintiff respecting the subject of the
action during the pendency of the suit. Because, otherwise or if no preliminary
prohibition injunction were issued, the defendant may, before final judgment, do or
continue the doing of the act which the plaintiff asks the court to restrain, and thus
make ineffectual the final judgment rendered afterwards granting the relief sought by
the plaintiff. But, as this court has repeatedly held, a writ of preliminary injunction
should not be granted to take the property out of the possession of one party to place it
in the hands of another whose title has not been clearly established..
A receiver may be appointed to take charge of personal or real property which is the
subject of an ordinary civil action, when it appears that the party applying for the
appointment of a receiver has an interest in the property or fund which is the subject of
the action or litigation, and that such property or fund is in danger of being lost,
removed or materially injured unless a receiver is appointed to guard and preserve it
(section 1 [b], Rule 61); or when it appears that the appointment of a receiver is the
most convenient and feasible means of preserving, administering or disposing of the
property in litigation (section 1 [e] of said Rule). The property or fund must, therefore be
in litigation according to the allegations of the complaint, and the object of appointing a
receiver is to secure and preserve the property or thing in controversy pending the
litigation. Of course, if it is not in litigation and is in actual possession of the plaintiff, the
latter can not apply for and obtain the appointment of a receiver thereof, for there
would be no reason for such appointment.
Delivery of personal property as a provisional remedy consists in the delivery, by order
of the court, of a personal property by the defendant to the plaintiff, who shall give a
bond to assure the return thereof or the payment of damages to the defendant in the
plaintiff's action to recover possession of the same property fails, in order to protect the
plaintiff's right of possession of said property, or prevent the defendant from damaging,
destroying or disposing of the same during the pendency of the suit.
Undoubtedly, according to law, the provisional remedy proper to plaintiffs' action of
injunction is a preliminary prohibitory injunction, if plaintiff's theory, as set forth in the
complaint, that he is the owner and in actual possession of the premises is correct. But
as the lower court found at the hearing of the said petition for preliminary injunction that
the defendants were in possession of the lands, the lower court acted in accordance
with law in denying the petition, although their motion for reconsideration, which was
still pending at the time the petition in the present case was heard in this court,
plaintiffs insist that they are in actual possession of the lands and, therefore, of the
fruits thereof.
From the foregoing it appears evident that the respondent judge acted in excess of his
jurisdiction in appointing a receiver in case No. 7951 of the Court of First Instance of
Laguna. Appointment of a receiver is not proper or does not lie in an action of
injunction such as the one filed by the plaintiff. The petition for appointment of a
receiver filed by the plaintiffs (Exhibit I of the petition) is based on the ground that it is
the most convenient and feasible means of preserving, administering and disposing of
the properties in litigation; and according to plaintiffs' theory or allegations in their
complaint, neither the lands nor the palay harvested therein, are in litigation. The
litigation or issue raised by plaintiffs in their complaint is not the ownership or
possession of the lands and their fruits. It is whether or not defendants intend or were
intending to enter or work or harvest whatever existing fruits could then be found in the
lands described in the complaint, alleged to be the exclusive property and in the actual
possession of the plaintiffs. It is a matter not only of law but of plain common sense
that a plaintiff will not and legally can not ask for the appointment or receiver of
property which he alleges to belong to him and to be actually in his possession. For the
owner and possessor of a property is more interested than persons in preserving and
administering it.
Besides, even if the plaintiffs had amended their complaint and alleged that the lands
and palay harvested therein are being claimed by the defendants, and consequently
the ownership and possession thereof were in litigation, it appearing that the
defendants (now petitioners) were in possession of the lands and had planted the crop
or palay harvested therein, as alleged in paragraph 6 (a) and (b) of the petition filed in
this court and not denied by the respondent in paragraph 2 of his answer, the
respondent judge would have acted in excess of his jurisdiction or with a grave abuse
of discretion in appointing a receiver thereof. Because relief by way of receivership is
equitable in nature, and a court of equity will not ordinarily appoint a receiver where the
rights of the parties depend on the determination of adverse claims of legal title to real
property and one party is in possession (53 C. J., p. 26). The present case falls within
this rule..
In the case of Mendoza vs. Arellano and B. de Arellano, this court said:
Appointments of receivers of real estate in cases of this kind lie largely in the sound
discretion of the court, and where the effect of such an appointment is to take real
estate out of the possession of the defendant before the final adjudication of the rights
of the parties, the appointment should be made only in extreme cases and on a clear
showing of necessity therefor in order to save the plaintiff from grave and irremediable
loss or damage. (34 Cyc., 51, and cases there cited.) No such showing has been made
in this case as would justify us in interfering with the exercise by trial judge of his
discretion in denying the application for receiver. (36 Phil., 59, 63, 64.).
Although the petition is silent on the matter, as the respondents in their answer allege
that the Court of First Instance of Laguna has appointed a receiver in another case No.
7989 of said court, instituted by the respondents Relova against Roberto Calo and his
brothers and sisters, children of Sofia de Oca and Tranquilino Calo (petitioner in this
case), and submitted copy of the complaint filed by the plaintiffs (now respondents) in
case No. 7989 (Exhibit 9 of the respondents' answer), we may properly express and do
hereby express here our opinion, in order to avoid multiplicity of suits, that as the cause
of action alleged in the in the complaint filed by the respondents Relova in the other
case is substantially the same as the cause of action averred in the complaint filed in
the present case, the order of the Court of First Instance of Laguna appointing a
receiver in said case No. 7989 was issued in excess of its jurisdiction, and is therefore
null and void.
In view of all the foregoing, we hold that the respondent Judge Arsenio C. Roldan of
the Court of First Instance of Laguna has exceeded his jurisdiction in appointing a
receiver in the present case, and therefore the order of said respondent judge
appointing the receiver, as well as all other orders and proceedings of the court
presided over by said judge in connection with the receivership, are null and void.
As to the petitioners' petition that respondents Relova be punished for contempt of
court for having disobeyed the injunction issued by this court against the respondents
requiring them to desist and refrain from enforcing the order of receivership and
entering the palay therein, it appearing from the evidence in the record that the palay
was harvested by the receiver and not by said respondents, the petition for contempt of
court is denied. So ordered, with costs against the respondents.
Moran, C. J., Ozaeta, Jaranilla, De Joya, Pablo, Perfecto, Hilado, and Bengzon, JJ.,
concur.
Separate Opinions
BRIONES, con quien esta conforme PARAS, M., conforme:
Estoy conforme con la parte dispositiva por la unica razon, breve pero lucidamente
expuesta en la ponencia, de que cuando hay controversia sobre el titulo de propiedad
noo debe utilizarse el nombramiento de depositario para pertubar el status quo
transladando la posesion del terreno litigioso de una parte a otra. Solamente cuando el
dominio es indisputable — verbigracia, hay de por medio un titulo Torrens — cabe
nombrar un depositario para los fines espicificos senalados por la ley, entre ellos
principalmente la preservacion del objeto litigioso cuando corre el peligro de danarse o
echarse a perder.
G.R. No. L-1401 June 25, 1947
RODOLFO YLARDE, FLOR DE VIDA YLARDE, represented by Maria Cruz as

guardian ad litem, and JULIA YLARDE, petitioners,
vs.
JUAN ENRIQUEZ, Judge of First Instance of Nueva Ecija, BIENVENIDO SABADO,
MAGDALENA SABADO and APOLINARIO SABADO, respondents.
Azarias M. Padilla for petitioners.

V. M. Ruiz for respondents.
TUASON, J.:
This is a petition for certiorari to vacate an appointment of a receiver by order of the

Court of First Instance of Nueva Ecija. A preliminary injunction has been granted by us
restraining the carrying out of the order. The appointment would authorize the receiver
to take possession of a parcel of land and to "preserve and administer the crops or
products thereon and to perform all acts necessary and incident thereto during the
pendency of this case."
None of the pleadings filed in the main case are before us, except a copy of a
supplemental complaint, and the reference to the pleadings in the proceeding at bar
furnishes indefinite and scanty information on their contents. However, the application
for certiorari, the answer, and the various court orders relative to the appointment of a
receiver afford sufficient data to serve as basis for a decision.
It seems that Eugenia Ylarde was the legal or common law wife of one Simplicio
Rosario, now deceased. It would also seem that in his life time, during his marriage or
cohabitation with Eugenia Ylarde, Rosario was granted a free patent to a homestead
measuring fifteen hectares. This is the land or it is a part of this land that is involved in
this litigation. According to the respondents' answer to the application for certiorari, in
1938, after Eugenia Ylarde's legal or common-law husband died, "an extrajudicial
partition (was) executed" by Eugenia Ylarde "wherein she falsely declared under oath
that she was the sole heiress of the estate in question." Following that so-called
extrajudicial partition a transfer certificate of title was issued in Eugenia Ylarde's name
cancelling the original document.
In September, 1945, Bienvenido Sabado, Magdalena Sabado and Apolinario Sabado,

apparently Simplicio Rosario's collateral relatives, brought the action against Eugenia
Ylarde. The application for certiorari describes the action as one "relating to the
ownership of a piece of property." The respondents in this proceeding brand this
statement, in their answer, as incorrect, "the true fact being that the action refers (1) to
the recovery of land. . . ., and (2) for the recovery of damages in the amount of
P50,000." It also appears that during the pendency of the action or before — there is
uncertainty in the allegations as to the time and the parties — two or three other so-
called extrajudicial partitions were made whereby a portion of three hectares out of the
entire tract was alloted to the Sabados. These partitions are repudiated and sought to
be annulled as fraudulent in a supplemental complaint filed by the respondents herein
in the principal case.
On December 17, 1946, Eugenia Ylarde died, and she has been substituted as party
defendant by Rodolfo Ylarde, Flor de Vida Ylarde through a guardian ad litem, and
Julia Ylarde. The record does not reveal the degree of relationship between these new
defendants and the deceased Eugenia Ylarde.
The Ylardes, petitioners herein and defendants in the main case, allege that they are
and have been in the possession of the part of the land which corresponded to them or
to Eugenia Ylarde in the partition, while the Sabados entered upon the possession of
their share upon the signing of the settlements. The respondents' (the Sabados')
attorney denies in a strong and improper language that the petitioners are in "physical"
possession of the property in dispute. But from the use of the adjective "physical" we
are to presume that the respondents admit that the Ylardes enjoy some kind of
possession, say, possession through representatives, croppers or tenants. Be that as it
may, from the very nature of the remedy of receivership which the Sabados applied for,
from their claim of P50,000 damages, and from their allegations we cannot avoid the
conclusion that their adversaries and their adversaries' predecessor-in-interest do have
the possession. The opposite theory would be an incongruity.
Upon these facts we shall proceed to state our opinion.
"The appointment of a receiver, because of its drastic nature and of its character as a
special remedy under our Code of Civil Procedure, is a power which should be
exercised with great caution." (Philippine Motor Alcohol Corp. and Palanca vs. Mapa,
64 Phil., 714.) "Where the effect of the appointment of a receiver is to take real estate
out of the possession of the defendant before the final adjudication of the rights of the
parties, the appointment should be made only in extreme cases and on a clear
showing of necessity therefor in order to save the plaintiff from grave and irremediable
loss or damages." (Mendoza vs. Arellano and B. de Arellano, 36 Phil., 59.) Of equal
application is "the rule that a court should not, by means of a preliminary injunction,
transfer property in litigation from the possession of one party to another . . . where the
legal title is in dispute and the party having possession asserts ownership in himself."
(Gordillo and Martinez vs. Del Rosario, 39 Phil., 829; Evangelista vs. Pedreñas, 27
Phil., 648; Palafox vs. Madamba, 19 Phil., 444; Devesa vs. Arbes, 13 Phil., 273; 53
C.J., 26.) If, save in exceptional cases, a preliminary injunction is improper where real
property is involved, receivership is even more so because it is harsher, more drastic
and more costly than an injunction. It has been said that "of all the extraordinary
remedies authorized by law, the appointment of a receiver is the most drastic and far-
reaching in its effect." (Delcambre vs. Murphy, 5 S.W. [2d], 789-791, cited as a
footnote in 53 C.J., 20.)
No special circumstances are present which would take this case out of the rule
enunciated in the foregoing decisions.
Those decisions are rooted in a positive provision of the former Code of Civil
Procedure which is now found in section 1 (b), Rule 61, of the Rules of Court.
According to this section it is necessary in granting the relief of receivership that the
"property or fund (be) in danger of being lost, removed or materially injured."
The land which is the subject matter of the suit here is not in any danger of
disappearing or being wasted. There is no pretense that it has any permanent
improvements or fixtures which produce income, rents or profits to be collected or
preserved. At the most a bond with sufficient sureties would be adequate to protect the
plaintiffs from any possible injury consequent upon being deprived of the possession of
the property.
The fact that there are harvested or standing crops to which the plaintiffs lay claim
does not improve their position. If anything, the existence of such crops adds to the
inequity and injustice of the measure. Section 1 (b) of Rule 61 requires that the party
applying for the appointment of receiver should have "an interest in the property which
is the subject of the action. "We take this rule to envision actual, existing interest.
Except for the plaintiffs' alleged title to the land, (which, as we have pointed out, may
not be taken away from the defendants), the plaintiffs' relation to the products is that of
complete strangers. These products are short-time crops which have been planted and
raise exclusively by the defendants personally or through others. They cost painstaking
care and diligent industry to raise and, it is said, have exacted an investment of P1,000
per hectare. There is no partnership or anything of the sort formed between the
plaintiffs and the defendants by contract or by operation of law in their pretended
ownership of the land, the plaintiffs have no title to a single onion or cabbage planted
on or harvested from it, or to any part of the proceeds of the crops, or to the
management of the enterprise. Their title to the crops is contingent upon their success
in proving their asserted title to the soil, which is still to be decided. And even if they
should ultimately succeed in that, their rights to the products would still be dependent
upon many factors yet undetermined.
These observations bring to mind another well-recognized principle in matters of

receivership which has been overlooked. A receiver, it has been repeatedly held,
should not be granted where the injury resulting therefrom would probably be greater
than the injury ensuing from leaving the possession of the property undisturbed. (53
C.J., 37.)
This doctrine fits into the case at bar. The court would place in the hands of a receiver
to administer, crops to plant and raise which, as we have seen, the defendants have
spent considerable money and attention with the plaintiffs contributing nothing beyond
their allegation that they own the ground. The receivership would have the defendants
replaced in working or looking after the working of the land by a man who is said to live
in Manila and whose ability and experience in farming is, to say the least, has not been
demonstrated. The court has not apparently given thought to where the receiver, if he
continued the planting and raising of onions and other crops, would get the
wherewithal. Would he sell the crops and use the money realized therefrom to finance
the enterprise? If that money be insufficient would he borrow — if he could? And the
Court has not made any provision — if indeed it would be practical to make such
provision at this stage of the litigation — regarding the distribution of profits — or
losses which would be the more probable outcome of the intended arrangement.
The allegations in the application for an appointment of a receiver reveals, in our

opinion, additional reasons for denying it. As we have said, we gather from these
allegations that Eugenia Ylarde had been in possession of the land and had been
cultivating it and applying its products to her own use to the exclusion of the plaintiffs.
Judging by the amount of damages asked by the plaintiffs, that possession and the
enjoyment of the products by Eugenia Ylarde must have lasted a long time. If Eugenia
Ylarde's possession was tolerated so long as to make possible the accumulation of
P50,000 damages, we see no special reason why the status quo should not be
maintained now that the cause, as we gather from the pleadings, has entered the trial
stage.
It would seem that the application for receivership was motivated by Eugenia Ylarde's
death; and the burden of the application is that the present defendants are not
Eugenia's lawful heirs, besides the plaintiffs' claim for enormous damages. But
receivership is not a legal or proper substitute for an appointment of a judicial
administrator or for a relief to secure the payment of damages. Other remedies are
indicated to protect rights based on these considerations. And the allegation that the
present defendants are not entitled to succeed to Eugenia Ylarde's rights and interest
in the property in litigation is a matter with which the plaintiffs have little to do.
Juridically, it concerns Eugenia Ylarde's relatives, devisees or legatees alone. The
plaintiffs have to rely on the strength of their case and not on the weakness of their
adversaries'. Procedurally, the way is open to the plaintiffs to move for the appointment
of an administrator of Eugenia Ylarde's estate, or to amend their complaint by bringing
in as defendants those who, according to them, have a better right to inherit from the
decedent. As a matter of fact, if the defendants' allegation in their application for
certiorari is correct — that they have been substituted for Eugenia Ylarde — the
change must have been accomplished by an amendment of the complaint by the
plaintiffs themselves. If this be the case, the plaintiffs are assuming two inconsistent
positions which they are not allowed to do.
Other objections of legal, practical and equitable character might be adduced against
the receivership in question. What has been said is enough to show that the court's
discretion, in our opinion, has not been exercised in accordance with law and with
established principles and practice. It has apparently not given a careful and full
consideration to all the facts of the case and the harmful and serious consequences of
its order in contrast to the possible less injurious effects on the plaintiffs of a decision to
leave matters as they are.
The objection that the petitioners have a remedy by appeal is not well-taken. An
appointment of a receiver is an interlocutory matter; and an appeal from an order
making such appointment can be interposed only after final judgment is rendered. In
this case on appeal would be of no avail to prevent the enforcement of the order before
damage which the petitioners seek to avoid had been done. (See II Comments on the
Rules of Court By Moran, p. 18, and cases cited.)
Upon the foregoing considerations, we hold that the court below abused its discretion
in appointing a receiver. The appointment is revoked, with costs against the
respondents other than the respondent Judge.
G.R. No. L-3430 August 7, 1906
ROCHA & CO., Sociedad en Comandita, plaintiff,

vs.
A. S. CROSSFIELD, Judge of the Court of First Instance of Manila, and
FRANCISCO T. FIGUERAS, defendants.
Chicote and Miranda, for plaintiff.

Coudert Brothers, for defendants.
WILLARD, J.:
On the 25th of January, 1906 Francisco T. Figueras, one of the defendants,

commenced in the Court of First Instance of Manila an action against Rocha & Co. in
which he alleged, among other things, that in 1898 a limited partnership had been
formed under the name of "Carman & Co.;" that he and two others were general
partners and that there were various special partners; that in accordance with the
terms of the articles of partnership any one of the partners had the right to withdrawn
from the partnership upon six months' notice; that upon giving the said notice his
participation in the profits of the partnership should cease but that his capital should
draw interest at the market rate until it was returned, and that it should be returned in
four installments, one part upon giving notice, the second part six months after the
notice, the third part twelve months after the notice, and the fourth part eighteen
months after the notice. He further alleged that on the withdraw from the partnership
and waived his right to receive at the time the fourth part of his capital and consented
that the fourth part should be paid at the end of six months. It was further alleged that
on the 15th day of February, 1904, the partnership of Carman & Co., was reorganized
under the name of Rocha & Co., which latter company assumed all the debts and
liabilities of Carman & Co., and took possession of all its assets.
The complaint alleged that the plaintiff's participation in the business consisted (1) of
the capital which he had paid in, P12,000 (2) his proportionate part of a reserve fund,
and (3) his proportionate part of a sinking fund, and that he was entitled to receive from
the partnership the sum of P51,484.17; that the partnership alleged that his interest did
not exceed P34,218.22, and on the 2d day of August, 1904, the partnership paid, and
the plaintiff received, one-fourth of the amount which the partnership admitted that the
plaintiff was entitled to.
The prayer of the complaint is as follows:
Therefore the plaintiff prays that judgment be granted in his favor in the amount of
P43,574.95, with interest at 6 per cent per annum from August 2, 1904, and costs of
this action.
There was no allegation in the complaint that the partnership of Carman & Co., was
dissolved by the withdrawal of Figueras, nor was there any allegation that after that
withdrawal he was the owner of an undivided or of any interest in the physical property
which belonged to the partnership and which consisted of lorchas, launches, and
cascos, nor was there any allegation that he had any lien upon any of this property.
It is apparent that the real controversy between the parties is over the right of Figueras
to receive his proportionate part of the reserve fund and of the sinking fund.
Notwithstanding the want of these allegations, Figueras, after the presentation

complaint and after the defendants had demurred thereto, made an application to the
court below for the appointment of a receiver of the property of Rocha & Co. A receiver
was appointed who afterwards took possession of the entire property of Rocha & Co.,
and thereupon Rocha & Co., commenced this original action of certiorari in this court,
asking that the proceedings in reference to the appointment of a receiver be certified of
this court and that after such certification they be examined and that the order
appointing the receiver be declared void because the court making it had no jurisdiction
to appoint such receiver. A preliminary injunction was granted by one of the justices of
this court restraining the receiver and the defendants in this action from taking further
proceedings in the matter during the pendency thereof.
The defendants, having been cited, appeared and answered the complaint, admitting
practically all of the facts alleged therein, a hearing was had upon said complaint and
answer, and order was made by this court requiring the court below to send to it all of
the proceedings in the case relating to the appointment of the receiver. Those
proceedings have been remitted, a hearing has been had thereon, and the case is now
before us for final disposition.
Section 174 of the Code of Civil Procedure is as follows:
SEC. 174. When a receiver may be appointed. — A receiver may be appointed in the
following cases:
(1) When a corporation has been dissolved, or is insolvent, or is in imminent danger of

insolvency, or has forfeited its corporate rights.
(2) Where it is made to appear by the complaint or answer, and by such other proof as
the judge may require, that the party making the application for the appointment of
receiver has an interest in the property or fund which is the subject of the action and it
shown that the property or fund is in danger of being lost, removed, or materially
injured unless a receiver shall be appointed to guard and preserve it.
(3) In an action by the mortgagee for the foreclosure of a mortgaged where it appears
that the property is in danger of being wasted or materially injured and that its value is
probably insufficient to discharge the mortgage debt.
(4) Whenever in other cases it shall be made to appear to the court that the
appointment of a receiver is the most convenient and feasible means of preserving and
administering the property which is the subject of litigation during the pendency of the
action.
The case at bar does not fall within any of the provisions of this section. There is no
allegation in the complaint, as has been before stated, that the plaintiff is the owner of
any of the property of Rocha & Co., nor is there any allegation that he has any lien
thereon, nor are there any facts alleged in the complaint from which it could be inferred
that he was owner of such property or had any lien thereon. On the contrary, from the
facts that are alleged in the complaint it would seem that his separation from the
partnership of Carman & Co., left that partnership as a going concern and did not
dissolve it. The effect of the provisions of the articles of partnership which are referred
to in the complaint is that after the withdrawal of any partner the remaining partners
became the owners of all the assets of the partnership and he became a general
creditor of the partnership.
After this action had been commenced in this court, and after a preliminary injunction
had been issued as aforesaid, Figueras applied to the court below for leave to amend
his complaint in the action therein opening and such leave was granted. This
amendment, having been made after the action was commenced in this court and after
a receiver was appointed, can not be considered.
In one of the orders made by the court below relating to the receiver, its authority for
making it was based on paragraphs 2 and 4 of section 174 of the Code of Civil
Procedure above quoted. In a subsequent order this ground was abandoned and the
appointment was based on paragraph 1 of said section, the court holding that a special
partnership was corporation within the meaning of said section 174. This claim can not
be sustained and, in fact, it was not urged in the argument of this case in this court.
The case not being one in which a receiver could be appointed, the order making such
appointment was void and was beyond the jurisdiction of the court, although that court
had jurisdiction of the main action has been settled adversely to the defendants in this
suit by the case of Bonaplata vs. Ambler (2 Phil. Rep., 392). (See also Encarnacion vs.
Ambler,1 2 Off Gaz., 490; Findlay & Co., vs. Ambler,2 2 Off. Gaz., 491).
That certiorari is the proper remedy in such a case was decided in the case of Blanco
vs. Ambler3 (2 Off. Gaz., 281, 492.)
In the argument in this court it was claimed that this extraordinary remedy would not lie
because the plaintiff, Rocha & Co., had a right to appeal from the order appointing a
receiver, although that appeal could not be taken until a final judgment had been
entered in the case. That argument is answered by what is said in the case of Yangco
vs. Rohde (Phil. Rep., 404).
The order of the court below appointing a receiver in this case was illegal and void, and
it all proceedings taken therein are hereby annulled. Let judgment be entered to that
effect in favor of the plaintiff in this action and against the defendants, and with costs
against the defendant, Figueras. At the expiration of ten days let judgment be entered
in accordance herewith. So ordered.
G.R. No. L-3791 November 29, 1950
AGUSTINA PARANETE, PERINO VILLAR, PEDRO HERNANDEZ, COMEDES

DALLATON, VALERIANO MILLANO, FELISIANA NAVARRO, and EDUARDO B.
OCAMPO, petitioners,
vs.
BIENVENIDO A. TAN, Judge, Court of First Instance of Rizal, Rizal City Branch,
FELIX ALCARAS, FRUCTUOSA VASQUEZ, MAXIMA VASQUEZ, NORBERTA
VASQUEZ and THE PROVINCIAL SHERIFF OF RIZAL, respondents.
Emiliano M. Ocampo for petitioners.

Jose E. Morales for respondents Felix Alcaras, and Fructuosa, Maxima and Norberta,
all surnamed Vasquez.
BAUTISTA ANGELO, J.:
This is a petition for a writ of prohibition wherein petitioner seeks to enjoin the
respondent judge from enforcing his order of March 4, 1950, on the ground that the
same was issued in excess of his jurisdiction.
On January 16, 1950, Felix Alcaras, Fructuosa Vasquez Maxima Vasquez filed a case
in the Court of First Instance of Rizal for the recovery of five parcels of the land against
Agustina Paranete and six other codefendants, (civil case No. 1020 ). On January 28,
1950, plaintiffs filled a petition for a writ of preliminary injunction for the purpose of
ousting the defendants from the lands in litigation and of having themselves placed in
possession thereof. The petition was heard ex parte and as a result the respondent
judge issued the writ of injunction requested. On February 28, 1950, the defendants
moved for the reconsideration of the order granting the writ, to which plaintiff objected,
and after due hearing, at which both parties appeared with their respective counsel, the
respondent judge reconsidered his order, but required the defendants to render an
accounting of the harvest for the year 1949, as well as all future harvests, and if the
harvest had already been sold, to deposit the proceeds of the sale with the clerk of
court, allowing the plaintiff or their representative to be present during each harvest.
This order was issued on March 4, 1950. Defendants again filed a motion for the
reconsideration of this order, but it was denied, hence the petition under consideration.
The question to be determined is whether or not the respondent judge exceeded his
jurisdiction in issuing his order of March 4, 1950, under the terms and conditions set
forth above.
We hold that the respondent judge has acted in excess jurisdiction when he issued the
order above adverted to. That order, in effect, made the clerk of court a sort of a
receiver charged with the duty of receiving the proceeds of sale and the harvest of
every year during the pendency of the case with the disadvantage that the clerk of
court has not filed any bond to guarantee the faithful discharge of his duties as
depositary; and considering that in actions involving title to real property, the
appointment of a receiver cannot be entertained because its effect would be to take the
property out of the possession of the defendant, except in extreme cases when there is
clear proof of its necessity to save the plaintiff from grave and irremediable loss or
damage, it is evident that the action of the respondent judge is unwarranted and unfair
to the defendants. (Mendoza vs. Arellano vs. 36 Phil., 59; Agonoy vs. Ruiz, 11 Phil.,
204; Aquino vs. Angeles David, 77 Phil., 1087; Ylarde vs. Enriquez, 78 Phil., 527;
Arcega vs. Pecson, 44 Off. Gaz., (No. 12), 4884, 78 Phil., 743; De La Cruz vs. Guinto,
45 Off. Gaz., pp. 1309; 1311; 79 Phil., 304.) Moreover, we find that Agustina Paranete,
one of the defendants, has been in possession of the lands since 1943, in the exercise
of her rights as owner, with her codefendants working for her exclusively as tenants,
and that during all these years said Agustina Paranete had made improvements
thereon at her own expense. These improvements were made without any contribution
on the part of the plaintiffs. The question of ownership is herein involved and both
parties seem to have documentary evidence in support of their respective claims, and
to order the defendants to render an accounting of the harvest and to deposit the
proceeds in case of sale thereof during the pendency of the case would be to deprive
them of their means of livelihood before the case is decided on the merits. The
situation obtaining is such that it does not warrant the placing of the lands in the hands
of a neutral person as is required when a receiver is appointed. To do so would be
unfair and would unnecessarily prejudice the defendants.
While the respondent judge claims in his order of March 25, 1950, that he acted as he
did because of a verbal agreement entered into between the lawyers of both parties,
we do not consider it necessary to pass on this point because the alleged agreement is
controverted and nothing about it has been mentioned by the respondent judge in his
order under consideration.
Wherefore, petition is hereby granted. The court declares the order of the respondent
judge of March 4, 1950 null and void and enjoins him from enforcing it as prayed for in
the petition.
G.R. No. 61508 March 17, 1999
Citibank, N.A. (Formerly First National City Bank), petitioner,

vs.
The Honorable Court of Appeals and Douglas F. Anama, respondents.
PURISIMA, J.:
At bar is a special civil action for certiorari with prayer for a temporary restraining order
faulting the Court of Appeals 1 with grave abuse of discretion for nullifying the lower
court's order of seizure of mortgaged properties subject of a case for sum of money
and replevin.
The facts leading to the institution of the case are as follows:
In considering for a loan obtained from Citibank, N.A. (formerly First National City
Bank), the defendant (private respondent herein) Douglas Anama executed a
promissory note, dated November 10, 1972, 2 to pay the plaintiff bank the sum of
P418,000.00 in sixty (60) equal successive monthly installments of P8,722.25, starting
on the 10th day of December 1972 and on the 10th of every month thereafter. The said
Promissory Note stipulated further that:
(a) the loan is subject to interest at the rate of twelve percent (12%) per annum;
(b) the promissory note and the entire amount therein stated shall become immediately
due and payable without notice or demand upon —
(aa) default in the payment of any installment of principal or interest at the time when
the same is due;
(bb) the occurrence of any change in the condition and affairs of the defendant, which
in the opinion of the plaintiff shall increase its credit risk;
(c) the defendant agrees to pay all costs, expenses, handling and insurance charges
incurred in the granting of the loan;
(d) in case the services of a lawyer is made necessary for collection, defendant shall
be liable for attorney's fees of at least ten percent (10%) of the total amount due. 3
To secure payment of the loan, private respondent Anama also constituted a Chattel
Mortgage of even date in favor of petitioner, on various machineries and equipment
located at No. 1302 Epifanio delos Santos Avenue, Quezon City, under the following
terms and conditions:
(a) The machineries and equipment subject of the mortgage, stand as security for
defendant's account.
(b) All replacement, substitutions, additions, increases and accretions to the properties
mortgaged shall also be subject to the mortgage.
(c) The defendant appoints the plaintiff as his attorney-in-fact with authority to enter the
premises of the defendant and take actual possession of the mortgaged chattels
without any court order, to sell said property to any party.
(d) All expenses in carrying into effect the stipulations therein shall be for the account
of the defendant and shall form part of the amount of the obligation secured by the
mortgage.
(e) In case the plaintiff institutes proceedings for the foreclosure of the mortgage, the
plaintiff shall be entitled to the appointment of a receiver without a bond.
(f) In case of default, the defendant shall be liable for attorney's fees and cost of
collection in the sum equal to twenty-five (25%) of the total amount of the indebtedness
outstanding and unpaid. 4
On November 25, 1974, for failure and refusal of the private respondent to pay the
monthly installment due under the said promissory note since January 1974, despite
repeated demands, petitioner filed a verified complaint against private respondent
Anama for the collection of his unpaid balance of P405,820.52 on the said promissory
note, for the delivery and possession of the chattels covered by the Chattel Mortgage
preparatory to the foreclosure thereof as provided under Section 14 of the Chattel
Mortgage Law, docketed as Civil Case No. 95991 before the then Court of First
Instance of Manila.
On February 20, 1975, the defendant Anama submitted his Answer with Counterclaim,
denying the material averments of the complaint, and averring inter alia (1) that the
remedy of replevin was improper and the writ of seizure should be vacated; (2) that he
signed the promissory note for P418,000.00 without receiving from plaintiff Citibank
any amount, and was even required to pay the first installment on the supposed loan in
December 1974; (3) that the understanding between him and the Citibank was for the
latter to release to him the entire loan applied for prior to and during the execution of
his promissory note, but Citibank did not do so and, instead, delayed the release of any
amount on the loan even after the execution of the promissory note thereby disrupting
his timetable of plans and causing him damages; (4) that the amount released by
Citibank to him up to the present was not the amount stated in the promissory note,
and his alleged default in paying the installment on the loan was due to the delay in
releasing the full amount of the loan as agreed upon; (5) that the macheniries and
equipment described in the chattel mortgage executed by him are really worth more
than P1,000,000.00 but he merely acceded to the valuation thereof by Citibank in said
document because of the latter's representation that the same was necessary to speed
up the granting of the loan applied for by him; (6) that the properties covered by said
chattel mortgage are real properties installed in a more or less permanent nature at his
(defendant's) premises in Quezon City, as admitted by Citibank in said mortgage
document; (7) that the mortgage contract itself stipulated that the manner and
procedure for affecting the sale or redemption of the mortgage properties, if made
extrajudicial, shall be governed by Act No. 1508 and other pertinent laws which all
pertain to real properties; and (8) that because of the filing of this complaint without
valid grounds therefor, he suffered damages and incurred attorney's fees; the
defendant, now private respondent, averred.
On December 2, 1974, the trial court upon proof of default of the private respondent in
the payment of the said loan, issued an Order of Replevin over the macheneries and
equipment covered by the Chattel Mortgage.
However, despite the issuance of the said order of seizure of subject chattels, actual
delivery of possession thereof to petitioner did not take place because negotiations for
an amicable settlement between the parties were encouraged by the trial court.
On March 24, 1975, a pre-trial conference was held and the lower court issued an
order for joint management by the petitioner and the private respondent of the latter's
business for ten (10) days, after which the former would appointed receiver for the said
business.
On April 1, 1975, the petitioner took over private respondent's business as receiver.
When further proposals to settle the case amicably failed, the lower court proceeded to
try the case on the merits.
On January 29, 1977, petitioner presented a Motion for the Issuance of an Alias Writ of
Seizure, ordering the sheriff to seize the properties involved and dispose of them in
accordance with the Revised Rules of Court. The lower court then gave private
respondent five (5) days to oppose the said motion and on February 22, 1977, he sent
in his opposition thereto on the grounds: (1) that Citibank's P400,000 replevin bond to
answer for damages was grossly inadequate because the market value of the
properties involved is P1,710,000 and their replacement cost is P2,342,300.00 per the
appraisal report of the Appraisal and Research Corp.; (2) that he was never in default
to justify the seizure; (3) that the Civil Case No. 18071 of the Court of First Instance,
entitled Hernandes vs. Anama, et al., which, according to Citibank, supposedly
increased its credit risk in the alleged obligation, had already been dismissed as
against him and the case terminated with the dismissal of the complaint against the
remaining defendant, First National City Bank, by the Court in its orders of January 12,
1977 and February 7, 1977; (4) that his (defendant's) supposed obligations with
Citibank were fully secured and his mortgaged properties are more than sufficient to
secure payment thereof; and (5) that the writ of seizure if issued would stop his
business operations and contracts and expose him to lawsuits from customers, and
also dislocate his employees and their families entirely dependent thereon for their
livelihood.
On February 28, 1977, acting on the said Motion and private respondent's opposition,
the trial court issued an Order granting the Motion for Alias Writ of Seizure, ruling thus:
WHEREFORE, the motion for alias writ of seizure is hereby granted. At any rate, this
Order gives another opportunity for defendant and the intervenor who claims to be a
part owner to file a counterbond under Sec. 60 of Rules of Court. 5
Private respondent moved for reconsideration of the aforesaid order but the same was
denied by the Resolution of March 18, 1977, to wit:
In view of the foregoing, the motion for reconsideration is hereby denied.
At any rate, as already stated, the defendant has still a remedy available which is to file
a bond executed to the plaintiff in double the value of the properties as stated in the
plaintiff's affidavit. The Court at this instance therefore has no authority to stop or
suspended the writ of seizure already ordered. 6
Accordingly, by virtue of the Alias writ of Seizure, petitioner took possession of the
mortgaged chattels of private respondent. As a consequence, the sheriff seized subject
properties, dismantled and removed them from the premises where they were installed,
delivered them to petitioner's possession on March 17, 18 and 19, 1977 and advertised
them for sale at public auction scheduled on March 22, 1977.
On March 21, 1977, private respondent filed with the Court of Appeals a Petition for
Certiorari and Prohibition 7 with Injunction to set aside and annul the questioned
resolution of the trial court on the ground that they were issued "in excess of
jurisdiction and with grave abuse of discretion" because of the "lack of evidence and
clear cut right to possession of First National City Bank (herein petitioner)" top the
machineries subject of the Chattel Mortgage.
On July 30, 1982, finding that the trial court acted with grave abuse of discretion
amounting to excess of lack of jurisdiction in issuing the assailed resolutions, the Court
of Appeals granted petition, holding that the provision of the Rules of Court on
Replevin and Receivership have not been complied with, in that (1) there was no
Affidavit of Merit accompanying the Complaint for Replevin; (2) the bond posted by
Citibank was insufficient; and (3) there was non-compliance with the requirement of a
receiver's bond and oath of office. The decretal portion of the assailed decision of the
Court of Appeals, reads:
WHEREFORE, the petition is granted. The questioned resolutions issues by the

respondent judge in Civil Case No. 95991, dated February 28, 1977 and March 18,
1977, together with the writs and processes emanating or deriving therefrom, are
hereby declare null and void ab initio.
The respondent ex-officio sheriff of Quezon City and the respondent First National City
Bank are hereby ordered to return all the machineries and equipment with their
accessories seized, dismantled and hauled, to their original and respective places and
position in the shop flooring of the petitioner's premises where these articles were,
before they were dismounted, seized and hauled at their own expense. The said
respondents are further ordered to cause the repair of the concrete foundations
destroyed by them including the repair of the electrical wiring and facilities affected
during the seizure, dismanting and hauling.
The writ of preliminary injunction heretofore in effect is hereby made permanent. Costs
against the private respondents.
SO ORDERED 8
Therefrom, Citibank came to this Court via its present petition for certiorari, ascribing
grave abuse of discretion to the Court of Appeals and assigning as errors, that:
THE RESPONDENT COURT ERRED IN PRACTICALLY AND IN EFFECT

RENDERING JUDGMENT ON THE MERITS AGAINST THE HEREIN PETITIONER
BY ORDERING THE RETURN OF THE MACHINERIES AND EQUIPMENT AND ITS
ACCESSORIES TO THEIR ORIGINAL AND RESPECTIVE PLACES AND
POSITIONS.
II
THE RESPONDENT COURT ERRED IN FINDING THAT THE COMPLAINT OF THE

PETITIONER DID NOT COMPLY WITH THE PROVISIONS OF SEC. 2, RULE 60 OF
THE RULES OF COURT.
III
THAT THE RESPONDENT COURT ERRED IN FINDING THAT THE BOND POSTED
BY THE PETITIONER IS QUESTIONABLE AND/OR INSUFFICIENT.
IV
THE RESPONDENT COURT ERRED IN FINDING THAT THE PETITIONER DID NOT
COMPLY WITH THE PROVISIONS OF SEC. 5, RULE 59 BY FAILING TO POST A
RECEIVER'S BOND.
THE RESPONDENT ERRED IN FINDING THAT THE HON. JORGE R. COQUIA

ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OR
LACK OF JURISDICTION IN DEALING WITH THE SITUATION.
Anent the first assigned error, petitioner contends that the Court of Appeals, by
nullifying the writ of seizure issued below, in effect, rendered judgment on the merits
and adjudged private respondent Anama as the person lawfully entitled to the
possession of the properties subject of the replevin suit. It is theorized that the same
cannot be done, as the case before the court below was yet at trial stage and lower
court still had to determine whether or not private respondent was in fact in default in
the payment of his obligation to petitioner Citibank, which default would warrant the
seizure of subject machineries and equipment.
The contention is untenable. A judgment is on the merits when it determines the rights
and liabilities of the parties on the basis of the disclosed facts, irrespective of formal
technical or dilatory objections, and it is not necessary that there should have been a
trial. 9 The assailed decision of the Court of Appeals did not make any adjudication on
the rights and liabilities between Citibank and Douglas Anama. There was no finding
yet of the fact of default. The decision only ruled on the propriety of the issuance of the
writ of seizure by the trial court. As worded by the respondent court itself, "the main
issues to be resolved are whether there was lack or excess of jurisdiction, or grave
abuse of discretion, in the issuance of the orders in question, and there is no appeal
nor any plain, speedy, and adequate remedy in the ordinary course of law." 10
In resolving the issue posed by the petition, the Court of Appeals limited its disposition
to a determination of whether or not the assailed order of seizure was issued in
accordance with law, that is, whether the provisions of the Rules of Court on delivery of
personal property or replevin as a provisional remedy were followed. The Court of
Appeals relied on Ruled 60 of the Rules of Court, which prescribed the procedure for
the recovery of possession of personal property, which Rule, provides:
Sec. 2. Affidavit and Bond. — Upon applying or such order the plaintiff must show by
his own affidavit or that of some other person who personally knows the facts:
(a) That the plaintiff is the owner of the property claimed particularly describing it, or is
entitled to the possession thereof;
(b) That the property is wrongfully detained by the defendant, alleging the cause of
detention thereof according to his best of knowledge, information and belief;
(c) That it has nor been taken for a tax assessment or fine pursuant to law, or seized
under an execution, or an attachment against the property of the plaintiff, or is so
seized, that is exempt from such seizure; and
(d) The actual value of the property.
The plaintiff must also give a bond, executed to the defendant in double of the value of
the property as stated in the affidavit aforementioned, for the property to the defendant
of such sum as he may recover from the plaintiff in the action.
The Court of Appeals did not pass upon the issue of who, as between Douglas Anama
and Citibank, is entitled to the possession of subject machineries, as asserted by the
latter. When it ordered the restoration of the said machineries to Douglas Anama (now
the private respondent), it merely defendant to the possession of his properties, since
there was a finding that the issuance of the writ was not in accordance with the specific
rules of the Rules of Court.
II
In its second assignment of errors, petitioner theorizes that the Court of Appeals erred
in finding that it did not comply with Section 2, Rule 60 of the Rules of Court requiring
the replevin plaintiff to attach an affidavit of merit to the compliant.
Petitioner maintains that although there was no affidavit of merit accompanying its
complaint, there was nonetheless substantial compliance with the said rule as all that is
required to be alleged in the affidavit of merit was set forth in its verified complaint.
Petitioner argues further that assuming arguendo that there was non-compliance with
the affidavit of merit requirement, such defense can no longer be availed of by private
respondent Anama as it was not alleged in his Answer and was only belatedly
interposed in his Reply to the Petitioner's Comment on the Petitioner for Certiorari
before the Court of Appeals.
Petitioner is correct insofar as it contends that substantial compliance with the affidavit
requirement may be permissible. There is substantial compliance with the rule
requiring that an affidavit of merit to support the complaint for replevin if the complaint
itself contains a statements of every fact required to be stated in the affidavit of merit
and the complaint is verified like an affidavit. On the matter of replevin, Justice Vicente
Francisco's Comment on the Rules of Court, states:
Although the better practice is to keep the affidavit and pleading separate, if plaintiff's
pleading contains a statement of every fact which the statute requires to be shown in
the affidavits, and the pleading is verified by affidavit covering every statement therein,
this will be sufficient without a separate affidavit; but in no event can the pleading
supply the absence of the affidavit unless all that the affidavit is required to contain is
embodied in the pleading, and the pleading is verified in the form required in the case
of a separate affidavit. (77 CJS 65 cited in Francisco, Rules of Court of the Philippines,
Vol. IV-A, p. 383)
And similarly, in the case of an attachment which likewise requires an affidavit of merit,
the Court held that the absence of an affidavit of merit is not fatal where the petition
itself, which is under oath, recites the circumstances or facts constitutive of the grounds
for the petition. 11
The facts that must be set forth in the affidavit of merit are (1) that plaintiff owns the
property particularly describing the same, or that he is entitled to its possession; (2)
wrongful detention by defendants of said property; (3) that the property is not taken by
virtue of a tax assessment or fine pursuant to law or seized under execution or
attachment or, if it is so seized, that it is exempt from seizure; and the, (4) the actual
value of the property. 12
But, as correctly taken note of by the Court of Appeals, petitioner's complaint does not
allege all the facts that should be set forth in an affidavit of merit. Although the
complaint alleges that petitioner is entitled to the possession of subject properties by
virtue of the chattel mortgage executed by the private respondent, upon the latter's
default on its obligation, and the defendant's alleged "wrongful detention" of the same,
the said complaint does not state that subject properties were not taken by virtue of a
tax assessment or fine imposed pursuant to law or seized under execution or
attachment or, if they were so seized, that they are exempt from such seizure.
Then too, petitioner stated the value of subject properties at a "probable value of
P200,000.00, more or less". Pertinent rules require that the affidavit of merit should
state the actual value of the property subject of a replevin suit and not just its probable
value. Actual value (or actual market value) means "the price which an article would
command in the ordinary course of business, that is to say, when offered for sale by
one willing to sell, but not under compulsion to sell and purchased by another who is
willing to buy, but under no obligation to purchase it". 13 Petitioner alleged that the
machineries and equipment involved are valued at P200,000.00 while respondent
denies the same, claiming that per the appraisal report, the market value of the said
properties is P1,710,000.00 and their replacement cost is P2,342,300.00. Petitioner's
assertion is belied by the fact that upon taking possession of the aforesaid properties, it
insured the same for P610,593.74 and P450,000.00, separately. It bears stressing that
the actual value of the properties subject of a replevin is required to be in the affidavit
because such actual value will be the basis of the replevin bond required to be posted
by the plaintiff. Therefore, when the petitioner failed to declare the actual value of the
machineries and equipment subject of the replevin suit, there was non-compliance with
Section 2, Rule 60 of the Revised Rules of Court.
It should be noted, however, that the private respondent interposed the defense of lack
of affidavit of merit only in his Reply to the Comment of Citibank on the Petition for
Certiorari which respondent filed with the Court of Appeals. Section 2, Rule 9 of the
Revised Rules of Court, provides:
Sec. 2. Defenses and objections not pleaded deemed waived — Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in later
pleading, . . . .
This Rule has been revised and amended, as follows:
Sec. 1. Defenses and objection not pleaded. — Defenses and objections not pleaded
in a motion to dismiss or in the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has no jurisdiction over the
subject matter, that there is another action pending between the same parties for the
same cause, or that the action is barred by a prior judgment or by statute of limitations,
the court shall dismiss the claim.
Thus, although respondent's defense of lack of affidavit of merit is meritorious,

procedurally, such a defense is no longer available for failure to plead the same in the
Answer as required by the omnibus motion rule.
III
Petitioner also faults the Court of Appeals for finding that the bond posted by the
petitioner is questionable and/or insufficient. It is averred that, in compliance with
Section 2, Rule 60 requiring the replevin plaintiff to post a bond in double the value of
the properties involved, it filed a bond in the amount P400,000.00 which is twice the
amount of P200,000.00 declared in its complaint.
The Court reiterates its findings on the second assignment of errors, particularly on the
issue of the actual of subject properties as against their probable value. Private
respondent, at the onset, has put into issues the value of the said properties. In the
Special Defenses contained in his Answer, private respondent averred:
That while defendant admits that he executed a Chattel Mortgage in favor of plaintiff,
he vigorously denies that the machineries covered therein are worth P200,000.00. The
fact is that plaintiff knew fully well that said chattels are worth no less than
P1,000,000.00, said defendant having acceded to said valuation upon plaintiff's
representation that it would be necessary to speed up the granting of the loan.
As here was a disagreement on the valuation of the properties in the first place, proper
determination of the value of the bond to be posted by the plaintiff cannot be
sufficiently arrived at. Though the rules specifically require that the needed bond be
double the value of the properties, since plaintiff merely denominated a probable value
of P200,000.00 and failed to aver the properties' actual value, which is claimed to be
much greater than that declared by plaintiff, the amount of P400,000.00 would indeed
be insufficient as found by the Court of Appeals. The Rules of Court requires the
plaintiff to "give a bond, executed to the defendant in double the value of the property
as stated in the affidavit
. . . ." Hence, the bond should be double the actual value of the properties involved. In
this case, what was posted was merely an amount which was double the probable
value as declared by the plaintiff and, therefore, inadequate should there be a finding
that the actual value is actually far greater than P200,000.00. Since the valuation made
by the petitioner has been disputed by the respondent, the lower court should have
determined first the actual value of the properties. It was thus as error for the said court
to approve the bond, which was based merely on the probable value of the properties.
It should be noted that a replevin bond is intended to indemnify the defendant against
any loss that he may suffer by reason of its being compelled to surrender the
possession of the disputed property pending trial of the
14
action. The same may also be answerable for damages if any when judgment is
rendered in favor of the defendant or the party against whom a writ of replevin was
issued and such judgment includes the return of the property to him. 15 Thus, the
requirement that the bond be double the actual value of the properties litigated upon.
Such is the case because the bond will answer for the actual loss to the plaintiff, which
corresponds to the value of the properties sought to be recovered and for damages, if
any.
Petitioner also maintains that, assuming for the sake of argument that its replevin bond
was grossly inadequate or insufficient, the recourse of the respondent should be to
post a counterbound or a redelivery bond as provided under Section 5 of Rule 60.
Sec. 5 and 6, Rule 60 of the Rules of Court, read:
Sec. 5. Return of property. — If the defendant objects to the sufficient of the plaintiff's
bond, or of the surety or sureties thereon, he cannot require the return of the property
as in this section provided; but if he does not so object, he may, at any time before the
delivery of the property to the plaintiff, if such delivery be adjudge, and for the payment
of such sum to him as may be recovered against the defendant, and by serving a copy
of such bond on the plaintiff or his attorney.
Sec. 6. Disposition of property by officer. — If within five (5) days after the taking of the
property by the officer, the defendant does not object to the sufficiecy of the bond, or of
the surety or sureties thereon, or require the return of the property as provided in the
last preceding section; or if the defendant so objects, and the plaintiff's first or new
bond is approved; or if the defendant so require, and his bond is object to and found
insufficient and he does not forthwith file an approved bond, the property shall be
delivered to the plaintiff, the officer must return it to the defendant.
The Court held in a prior case 16 that the remedies provided under Section 5, Rule 60,
are alternative remedies. ". . . If a defendant in a replevin action wishes to have the
property taken by the sheriff restored to him, he should, within five days from such
taking, (1) post a counter-bond in double the value of said property, and (2) serve
plaintiff with a copy thereof, both requirements as well as compliance therewith within
the five-day period mentioned — being mandatory." 17 This course of action is available
to the defendant for as long as he does not object to the sufficiency of the plaintiff's
bond.
Conformably, a defendant in a replevin suit may demand the return of possession of

the property replevined by filing a redelivery bond executed to the plaintiff in double the
value of the property as stated in the plaintiff's affidavit within the period specified in
Section 5 and 6.
Alternatively, "the defendant may object to the sufficiency of the plaintiff's bond, or of
the surety or sureties thereon;" but if he does so, "he cannot require the return of the
property" by posting a counter-bond pursuant to Section 5 and 6. 18
In the case under consideration, the private respondent did not opt to cause redelivery
of the properties to him by filing a counter-bond precisely because he objected to the
sufficiency of the bond posted by plaintiff. Therefore, he need not file a counter-bond or
redelivery bond. When such objection was not given due course in the court below —
when, instead of requiring the plaintiff to post a new bond, the court approved the bond
in the amount of P400,000.00, claimed by respondent to be insufficient, and ordered
the seizure of the properties — recourse to a petition for certiorari before the Court of
Appeals assailing such order is proper under the circumstances.
IV
As its fourth assignment of errors, petitioner contends that the Court of Appeals made
an error of judgment in finding that the petitioner did not comply with the provisions of
Section 5, Rule 59 by failing to post a receiver's bond. Petitioner contends that
although it is in agreement with the Court of Appeals that a receiver's bond is separate
and distinct from a replevin bond, under the circumstances it was not required to file a
receiver's bond because it did not assume receivership over the properties. It is further
argued that assuming that it did assume receivership, the Chattel Mortgage expressly
provides, that:
In case the MORTGAGEE institutes proceedings, judicially or otherwise, for the

foreclosure of this Chattel Mortgage, or to enforce any of its rights hereunder, the
MORTGAGEE shall be entitled as a matter of right to the appointment of a receiver,
without bond, of the mortgaged properties and of such properties, real or personal,
claims and rights of the MORTGAGOR as shall be necessary or proper to enable the
said receiver to property control and dispose of the mortgaged properties. 19
The order of the trial court dated March 24, 1975 provided, among others, that the
properties shall be under joint management for a period of ten days, after which period
"the bank, by virtue of the stipulations under the chattel mortgage, becomes the
Receiver to perform all the obligations as such Receiver" and "in the event that the
bank decides not to take over the receivership, the joint management continues." 20
From the evidence on record, it is palpably clear that petitioner Citibank did, in fact,
assume receivership. A letter 21 dated April 1, 1975 sent by petitioner to the private
respondent, reads:
April 1, 1975
Anama Engineering Service Group
114 R. Lagmay Street
San Juan, Rizal
Attention: Mr. Douglas Anama
Gentlemen:
Pursuant to the Court order, we have decided to take over your machine shop as
Receiver.
We are hereby appointing Mr. Artemio T. Gonzales as our representative.
Very truly yours,
FIRST NATIONAL CITY BANK
By:
P.R. REAL, JR.
Assistant Manager
Petitioner cannot therefore deny that nine days after the trial court issued the order of
receivership, it informed he private respondent that it would, as it did, assume
receivership.
The Court of Appeals found that the requirements of Section 5, Rule 59 on receivership
were not complied with by the petitioner, particularly the filing or posting of a bond and
the taking of an oath.
It should be noted that under the old Rules of Court which was in effect at the time this
case was still at trial stage, a bond for the appointment of a receiver was not generally
required of the applicant, except when the application was ex parte. 22 Therefore,
petitioner was not absolutely required to file a bond. Besides, as stipulated in the
chattel mortgage contract between the parties, petitioner, as the mortgagee, is entitled
to the appointment of a receiver without a bond.
However, the Court of Appeals was right in finding a defect in such assumption of
receiver in that the requirement of taking an oath has not been complied with Section
5, Rule 59, states:
Sec. 5. Oath and bond of receiver. — Before entering upon his duties, the receiver
must be sworn to perform them faithfully, and must file a bond, executed to such
person and in such sum as the court or judge may direct, to the effect that he will
faithfully discharge the duties of receiver in the action and obey the orders of the court
therein.
Consequently, the trail court erred in allowing the petitioner to assume receivership
over the machine shop of private respondent without requiring the appointed receiver
to take an oath.
In light of the foregoing, the answer to the fifth assignment of errors is in the negative.
For erroneously issuing the alias writ of seizure without inquiring into the sufficiency of
the replevin bond and for allowing petitioner to assume receivership without the
requisite oath, the Court of Appeals aptly held that the trial court acted with grave
abuse of discretion in dealing with situation.
Under the Revised Rules of Court, the property seized under a writ of replevin is not to
be delivered immediately to the plaintiff. 23 This is because a possessor has every right
to respected in its possession and may not be deprived of it without due process. 24
As enunciated by this Court in the case of Filinvest Credit Corporation vs. Court of
Appeals, 25
The reason why the law does not allow the creditor to possess himself of the
mortgaged property with violence and against the will of the debtor is to be found in the
fact that the creditor's right of possession is conditioned upon the fact of default, and
the existence of this fact may naturally be the subject of controversy. The debtor, for
instance, may claim in good faith, and rightly or wrongly, that the debt is paid, or that
for some other reason the alleged default is nonexistent. His possession in this
situation is as fully entitled to protection as that of any other person, and in the
language of Article 446 of the Civil Code, he must be respected therein. To allow the
creditor to seized the property against the will of the debtor would make the former to a
certain extent both judge and executioner in his own cause — a thing which is
inadmissible in the absence of unequivocal agreement in the contract itself or express
provision to the effect in the statute.
WHEREFORE, for lack of merit, the petition is hereby DISMISSED. No pronouncement

as to costs.
SO ORDERED.
G.R. No. L-27685 December 24, 1927

SEBASTIAN MARTINEZ, ET AL., plaintiffs-appellants,
vs.
CLEMENCIA GRAÑO, ET AL., defendants.
ESTANISLAO REYES, receiver-appellee.
S. C. Pamatmat for appellants.
Ramon Diokno and Ricardo Nepomuceno for appellee.

STREET, J.:
This appeal is prosecuted by the Martinez heirs, as plaintiffs, for the purpose of
reversing an order of the Court of First Instance of the Province of Laguna dated
December 10, 1926, approving the accounts of Estanislao Reyes, as receiver. The
facts necessary to an understanding of the questions involved in the appeal will be
stated in the course of the opinion.
While the case of Martinez vs. Graño (42 Phil., 35), was pending in the Court of First
Instance of Laguna, prior to the appeal to this court, the plaintiffs found themselves
unable to meet the financial requirements of the litigation for attorney's fees, costs, and
other expenses. They therefore applied to Estanislao Reyes, son-in-law of Sebastian
Martinez, for the purpose of getting him to contract with lawyers for necessary services
and to pay the indicental expenses of the appeal. As a memorial of this agreement a
formal contract date March 5, 1921, was executed between the Martinez heirs, as party
of the first part, and Estanislao Reyes, as party of the second part, of which the
following are the principal features: (1) Reyes agreed to advance and pay the
attorney's fees, expenses of documents, and court costs, — for all which the
individuals forming the party of the first part agreed jointly and severally to reimburse
him "in confirmity with an exact statement of accounts to be rendered by him"; (2)
Reyes further agreed to take over the administration of the properties involved in the
litigation and to pay the taxes accruing thereon and all the liens incumbering the
property, principally the mortgage lien existing in favor of a building and loan by the
parties that in the Hogar Filipino, it being contemplated by the parties that is the event
the litigation ended favorably to the heirs, Clemencia Graño, who was then in
possession of the property, would be substituted by Reyes, with the permission of the
court and consent of Hogar Filipino; (3) it was agreed that in payment for his services,
and as a free gift, the party of the first part would transfer to him one thousand fruiting
coconut trees such as Reyes might select from the trees then in litigation, but these
trees were further specified in the contract as being those then planted and bearing
upon a parcel of land of an area of six hectares pertaining to the heirs of Inocente
Martinez, deceased.
Paragraph 6 of the contract contains certain provisions which, for the purposes of this
litigation, are of sufficient importance to justify exact verbal quotation. It reads thus:
Sixth. Until all the incumbrances burdening the property which is the subject of litigation
are fully paid and also until the party of the first part has a completely reimbursed the
part of the second part for all the expenses advanced by the party of the second part
on account of the litigation, the latter, that is to say, Estanislao Reyes, or his legal
representative, shall have absolute power over the administration and gathering (of the
nuts), for his own benefit and in order that he may pay all the charges burdening the
property subject to the litigation, it being the sole duty of the party of the second part to
present annually, to anyone of the party of the first part, an exact statement of the
income obtained and expenses incurred upon whatever account, such as the cost of
the gathering and cleaning (of the nuts) and caring for the trees.
At the time the foregoing contract was made Clemencia Graño had permitted unpaid
dues, interest, and fines to accrue in favor of the building and loan association in the
amount of P5,215.89, and the association was threatening to foreclose the property on
account of said arrears. For this reason Reyes, on March 21, 1921, paid off these
pressing claims, in the amount stated, and took the receipt of El Hogar Filipino therefor.
On May 31, thereafter, Judge Llorente, then presiding in the Laguna court, appointed
Reyes receiver of the property, upon application of the plaintiffs, his Honor, Judge
Isidro Paredes, then presiding in the Laguna court, entered an order annulling and
dissolving the receivership, and requiring Reyes to render his accounts as receiver
within fifteen days from notification of the order. This order was upon appeal affirmed
by this court on August 14, 1926. 1 In affirming the order of removal and requirement of
account from Reyes, this court made the following disposition:
The court, however, is of the opinion that if upon the prompt submission and
examination of the receiver's accounts, it should be found that he has actually paid out
for the conservation and protection of the property which is the subject of the
receivership more than he had received by way of income, or should have received in
the exercise of reasonable diligence, such balance in his favor should be recognized
as a lawful claim constituting a lien on the property.
Pursuant to the foregoing order the record was returned to the court of origin, and after
Reyes had submitted his accounts, exceptions were taken thereto by the plaintiffs, and
the cause was heard upon proof submitted by the respective parties. In the end Judge
Paredes approved the accounts as submitted by Reyes, declared him to be creditor of
the receivership in the amount of P25,230.21, to July, 1926, and ordered that, in the
event the plaintiffs should not pay off this balance within three months, all of the
property pertaining to the receivership (with the exception of the lot containing one
thousand trees set aside for Reyes in the eight paragraph of the contract) should be
sold by the sheriff for the satisfaction of said claim. It is from this order that the present
appeal is prosecuted by the plaintiffs.
Among the items for which the appellee has been allowed credit is the sum of
P5,215.89, which we have already mentioned as paid by him to El Hogar Filipino on
March 31, 1921. The appellants do not question the propriety of said credit, but they
contend, under their fourth assignment of error, that in view of the facts presently to be
stated the appellee should have charged himself with a like amount. This contention is
well founded, as will be at once apparent upon an examination of the history of this
credit. In this connection it appears that, after the appellee had paid the aforesaid
amount of P5,215.89 to El Hogar Filipino, he instituted, in his own name and behalf, an
action to recover said sum from Clemencia Graño (civil action No. 2011 of the Court of
First Instance of Manila). On September 13, 1921, judgment was rendered in said
action in his favor, for the recovery of the amount stated with interest and costs.
Clemencia Graño appealed in vain against this decision, and it was affirmed in the First
Division of this court on December 9, 1922 (R. G. No. 18910). 2 Pursuant to said
judgment, an execution was issued in favor of Reyes and levied on property of the
judgment debtor, Clemencia Graño, consisting of five parcels of coconut land and one
parcel of land devoted to
palay, — all located in San Lorenzo, municipality of San Pablo, Laguna. At the
subsequent sale of these lands by the sheriff they were brought in by Reyes as plaintiff
in the execution for the sum of P5,215.89, this being the amount of his judgment. In
satisfaction of this bid Reyes paid no money but caused the credit itself to be applied
thereto. Two of the lots thus acquired by Reyes appear to have been previously
conveyed away by Graño to another person, and the title of Reyes to these two lots
has thus failed. He continues to hold title to the others, however, and has procured at
least one of the lots to be registered under the Torrens system in his own name.
Upon these facts it is manifest that Reyes has appropriated to his own use the credit
for P5,215.89, which he held against the receivership, by this act said credit must be
considered satisfied. He cannot be permitted to maintain the credit in his accounts as a
valid charge against the receivership after he has used it to acquire the property of
Clemencia Graño, of much greater value, at an execution sale pursuant to a judgment
recovered by him individually. it results that the defendant must be charged with said
sum of P5,215.89, or what is the same in effect, the total credit of P28,249.63, allowed
by the lower court, must be reduced by P5,215.89, leaving a charge of P23,033.74,
representing the total credit side of the account.
In their fifth assignment of error the appellants claim that the appellee should be charge
with the sum of P2,400, which represents an additional loan procured by the appellee
from El Hogar Filipino, the proceeds of which were delivered to the Honorable C. M.
Recto, one of the lawyers who represented the plaintiffs in the original litigation. In this
connection it appears that the lower court, in November, 1921, approved an account of
the appellee in which the sum of P1,000, was allowed for a fee paid to the plaintiff's
attorneys (Exhibit 2 of Nov. 30). In 1922 a similar account of the appellee was
approved in which there was an item of P4,000 for attorney's fee (Exhibit 3 of Aug. 9).
In 1924, it appearing that there was still a balance due of P2,400 to Mr. Recto, the
court permitted the loan from El Hogar Filipino to be increased in this amount, and the
money thus secured was paid over directly to Recto, without having passed through
the hands of Reyes. It thus appears from the documents, including the approved
accounts, that the sum of P7,400 was paid out by the appellee upon account of
attorney's fees; and it is evident that if said amount was so applied, the accounts are
properly stated.
The appellants claim that the total amount really paid out for attorney's fees was only
the sum of P5,000, as shown by the approved accounts of 1921 and 1922. It is further
claimed that the amount of P4,000 in the approved account if 1922 was allowed as a
credit in favor of the appellee before the said amount had been in fact disbursed and
that the sum of P2,400, subsequently secured from El Hogar Filipino, really went in
satisfaction of part of said P4,000. This assertion, however, has not been satisfactory
demonstrated; and we are compelled to take the approved accounts for what they
appear to show, namely, that the appellee actually disbursed the sum of P5,000 upon
account of lawyer's fees in addition to the P2,400 loan obtained from El Hogar Filipino.
The most difficult branch of the case is that concerned with the income which the
appellee received, or in the exercise of reasonable diligence should have received,
from the coconut trees placed under his administration. In this connection it will be
noted that the number of trees committed to the receiver's charge was somewhat
above or around seven thousand. This is the estimate of Julio Martinez who had
charge of these groves many years ago as administrator and has actually counted
them. We entertain no doubt as to the substantial correctness of this estimate because
it is fully corroborated by documentary evidence which the attorney for the appellee
himself submits to us as a reliable source of information, namely, the sworn inventory
of Julio Martinez, as administrator, from they year 1909, and the inventory contained in
the order of partition of Martinez estate, dated April 9, 1915. Turning to these exhibits
we find that the inventory of 1909 shows that the different parcels of lands comprised in
the estate then contained 5,567 trees; while in the partition of 1915 the number of trees
indicated in the portions assigned to the several heirs are as follows:
To Sebastian
1,056
Martinez ..........................
To Julio
1,121
Martinez ..............................
To heirs of Inocente Martinez
1,320
..................
To heirs of Apolonio Martinez
696
..................
To Isidro
920
Martinez .............................
To Benedicto
976
Martinez ..........................
To Eleuterio
460
Martinez ..........................
The foregoing figures are in conformity with the tabulated statements printed on pages
148-150, inclusive, of the appellee's brief, with the single exception that we have added
four trees to the number ascribed in said brief to the heirs of Apolonio Martinez, there
having been evidently a clerical error on the part of the copyist in failing to note four
trees in bearing on a lot segregated from parcel A. The total of these items, properly
summed up, comprises 6,549 trees, instead of 5,225 as erroneously shown in the
appellee's brief. In the statements contained in the partition we find it stated that
several of the parcels contain young trees not taken into account in the partition. If we
bear in mind the fact that partition was effected in 1915 and that the appellee was
appointed receiver in 1921, it is reasonable to suppose that at the inception of the
receivership a considerable number of trees were in bearing which were too young to
be counted in 1915. In fact the data above supplied shows a regular increase in the
number of tress from 5,567 in 1909 to 6,549 in 1915, and 7,000 in 1921. The statement
of Julio Martinez to the effect that the groves contained 7,000 bearing trees during the
period covered by the receivership must therefore be accepted as true, especially in
view of the fact that the appellee admitted that he had not counted the trees and did
not expect to be questioned as to their number.
With respect to the quality and character of the trees in these groves, we are likewise
not left in doubt, since we are told by Porfirio Reyes and Mauricio Ticzon, owners of
adjacent groves produce equally well as their own groves which are in good condition.
The proof also shows that the groves in question are in the care of a sufficient number
of sharers (aparceros) whose duty it is to look after the groves, keep the ground clear
of hurtful growth and guard the trees and fruit against depredation. For this service the
sharers receive a part of the crop, which, by universal custom in the Province of
Laguna, is fixed at one-seventh of the produce. In the four years covered by these
accounts there has been no storm, drought, or other catastrophe, such as would cause
a marked diminution in the harvest; and on the contrary the amount of fruit taken from
coconut trees in this vicinity has been all that could be expected under favorable
conditions. There is not a word of proof in the record tending to show that the Martinez
groves are in any way inferior to other groves.
We now come to the question of the amount of the income that ought to be obtained by
a person of ordinary diligence having the care of these groves. Porfirio Reyes testified
that his grove of 1,000 trees is adjacent to those that have been in the hands of the
appellee and that his trees produce a net average income of P1, or more, per tree
annually. As corrobarative of the statement of the witness on this point, he produced
an old memorandum book in which he and his children had for years been entering
complete statements of the income obtained from time to time from their coconut trees.
In the pages of this book we note that in 1922 the 1,000 trees belonging to this witness
produced 51,074 nuts; in 1923, 51,439; in 1924, 60,235; and in 1925, 46,356. This
gives an annual average of 52,276 nuts, with a resulting net income, after deduction of
all expenses, for the same years as follows: In 1922, P1,013.79; in 1923, P1,272.92; in
1924, P1,551.12; and in 1925, P1,656.84, or an annual average of P1,373.67 from one
thousand trees. At this rate of production the Martinez groves should have produced,
during the four years of the receivership, a net income of more than P38,000.
The witness Mauricio Ticzon testified that he has a grove containing 1,700 coconut
trees in the barrio San Lorenzo, located near the groves comprised in the receivership
and that he obtains from his grove an annual average income of about P1, per trees.
But this witness converts his nuts into copra on his own place and his income is more
than it would be if the nuts were sold in the crude state. The result of Ticzon's
operations show a laws favorable result than that obtained by Porfirio Reyes, since the
latter gets an average annual profit of more than one peso tree from the sale of crude
nuts only.
There is also direct evidence corroborative of the inferences drawn from the testimony
of Porfirio Reyes and Mauricio Ticzon as to the productive capacity of the groves in
question. This found in the testimony of the Julio Martinez in relation with Exhibit 11 of
the plaintiffs. In this connection it appears that after hostility developed in early 1922
between Estanislao Reyes and the Martinez heirs, Julio Martinez, as representative of
the heirs, was advised by his attorney that it was important to obtain and preserve
exact information as to the number of coconut produced on the groves in the hands of
the receiver. In order to comply with these instructions Julio Martinez availed himself of
information procured from time to time from Pedro Barilla, a worker in the copra kilns of
the receiver. This individual assisted in counting the nuts as they came in from the
groves, and from information thus procured he made regular reports to Martinez. From
these reports Julio Martinez made the entries in the memorandum book (Exhibit 11),
showing in detail the results of the different harvests. According to this showing the
Martinez groves produced in 1922 (last five months) a total of 184,906 nuts; in 1923, a
total of 309,492 nuts; in 1924, a total of 385,923 nuts; in 1925, a total of 339,985 nuts;
and in 1926 (to August only ) 194,910 nuts, making altogether a grand total of
1,415,216 nuts. Applying to these figures the lowest values indicated in the receiver's
own account for the respective years, the total gross income for the whole period would
be in excess of P42,000.
Everything pertinent and trustworthy that we can find in the record points to a
productivity of the Martinez groves such as is above indicated. For instance, going
back to a period antedating the receivership, we find it stated by Eulogio Diuño, that he
gathered the nuts from these trees at four consecutive harvests beginning in August,
1918, and that upon these occasions he obtained: From the first gathering 81,000 nuts;
from the second gathering, 75,000 nuts; from the third gathering, 66,000 nuts; and
from the fourth gathering, 64,000 nuts, or an average of 66,500 nuts at each gathering.
If the trees continued to produce at this rate — and we see nothing that would justify
an inference to the contrary — they should have produced during the period covered
by the accounts now before us a total of more than one and a half million nuts.
Turning now to the testimony submitted by the receiver in support of his accounts
relating to the administration of these groves, we are confronted with the extraordinary
fact that the receiver has not offered in evidence any scrap of paper in the nature of a
voucher for money paid out or memorandum of any sort showing the quantity of nuts
produced. This is not only a dereliction of legal duty but is an absolute violation of the
sixth clause of his contract of March 5, 1921, with the Martinez heirs, whereby he
obligated himself to present annually an exact statement of all items of income
obtained and expenses paid out. The receiver admits that he kept no accounts
contemporaneously with the transactions, and the "Addendas to the Accounts"
submitted in this cause as Exhibits A, B, C, D, and E, purporting to show the details of
the administration, are shown to have been made out by him after the decision
requiring him to submit accounts was rendered in this court.
It appears that the receiver has maintained at different places on the groves in his
charge a number of kilns, or ovens for drying copra. Here he has caused the nuts
taken from the groves to be for the most part converted into copra. As this work was
accomplished the copra was conveyed to the bodegas of the receiver, who is a
merchant in San Pablo, from whence the copra has been marketed by him. A small
portion of the produce of the groves has apparently been sold from time to time in the
crude form, but the general rule has been that the nuts have been converted into copra
before being sold. The receiver admits that the expenses which he has charged in
connection with the administration of the nuts include the cost of converting the nuts
into copra. Yet the credits allowed from the sales indicate only receipts from the sale of
unconverted nuts. Moreover, there are two items of expense amounting all together to
P5,533 which cannot be allowed. These are the salaries of manager and watchman
between 1922 and 1926. These expenses were, in our opinion, either unnecessary or
merely incidental to the management of the ovens. A brother-in-law of the receiver, one
Crispino Briones, appears from the proof of the appellants to have been occupying the
lot containing the one thousand coconut trees which was set aside for Estanislao
Reyes in the original contract of March 5, 1921. Reyes claims that he has paid Briones
a monthly salary of P90, for overseeing the business. But no receipt was offered in
evidence to prove any such payments; and although Briones himself was called to the
stand as a witness, he was not asked by the appellee whether any such payments had
in fact been made to him. Our conclusion is that Briones probably did not receive the
salary which is charged in the accounts as having been paid to him, and that if he was
so paid, the expense was unnecessary. The groves were in the possession of sharers
(aparceros) chosen by Reyes himself, and the oversight of these workers was ample
for the protection of the groves.
Much less justifiable is the salary of P50 per month which the receiver claims to have
paid to a watchman, one Julian Diuño; for the testimony of Diuño shows that his duties
were confined to working around the ovens during the daytime. It is evident that the
inclusion of this item as a charge against the receivership is merely in keeping with the
appellee's policy of charging the receivership with all the expenses of converting the
nuts into copra.
The receiver claims that the employment of a manager and watchman was made
necessary by thefts and depredations committed by the plaintiffs from time to time in
taking fruit from the lands in charge of the receiver. This, in our opinion, is merely an
exaggerated version of an incident which occurred in 1924 when Clemencia Graño and
Julio Martinez, taking occasion from the release of their lots from the mortgage to El
Hogar Filipino, attempted to repossess themselves of the property, an attempt which
was frustrated by the receiver.
Our analysis of the "Addendas to the Accounts" with respect both to the income and
expenses of the administration leads to the conclusion that they are grossly inexact
both as to income and expenses. In order to prove this it is enough to state that
according to the appellee's showing the net income of the groves for the whole period
covered by the accounts was the sum of P2,929.42. This cannot be true and cannot be
accepted by the court. It is unreasonable and impossible that a coconut grove
containing 7,000 trees in bearing, and valued at from P60,000 to P70,000, should have
produced so little return during the four consecutive years covered by these accounts,
and if the receiver did not get more, it must have been due to his own lack of
diligence.lawphi1.net
The proof in the record with respect to the cost of harvesting and marketing coconuts
points to the conclusion that the expenses which might have been legitimately incurred
by the receiver, supposing him to have taken from the groves the number of coconuts
which they ought to have produced, should be in the neighborhood of P11,000.
Subtracting this amount from the sum of P42,000 which, as stated above, is the gross
income that ought to have been received, we have a net balance of about P31,000, as
the amount that should have been received by the receiver from the produce of the
groves in his charge. This estimate is nearly 20 per cent lower than what would have
been received if the groves had been administered as economically and as effectually
as the grove of Porfirio Reyes; but we assume that the last named individually may
taken to have been exceptionally efficient, and something should be conceded to the
receiver in view of the fact that the trees concerned in this receivership were not under
his personal supervision.
In fixing the amount for which the receiver should be held liable upon his administration
account, we are not so much concerned with what he actually received as with what he
should have received in the exercise of reasonable diligence; and it is idle to pretend
that exact figures are attainable; but the receiver himself is to blame for the obscurity in
which the subject is enveloped, and the court cannot be deterred from attempting to
accomplish the ends of justice in the light of the best information available. With these
considerations in view we have come to the conclusion that by the time the receiver
surrendered the possession of the groves in his charge as receiver surrendered
(except the one thousand trees reserved for himself) he had charge a net profit of
something more than P31,000, or in round numbers, an amount of about P8,000 in
excess of P23,033.27, which, as stated above, is his true credit balance against the
receivership. It results, therefore, that instead of being a creditor of the receivership to
the extent of P25,321.21 as found by the trial court, he is actually a debtor thereto in
the amount of P8,000.
In the appealed decision the trial court ordered that the land subject to this
receivership, except the one thousand trees assigned to Estanislao Reyes, should be
sold for the payment of the balance which the court found to be fue to the receiver; and
the appellants, in their sixth assignment of error, maintain that it was error on the part
of the lower court thus in effect to adjudicate said one thousand trees to Reyes. This
point may possibly be said to be academic in view of the fact that, under this decision,
no sale of the groves will be effected; but if we may be permitted to say a word
prompted by a desire to see a conclusion of this protracted litigation, we would suggest

that the claim of Reyes to said thousand trees be respected, subject of course to the
mortgage in favor of El Hogar Filipino; and after the entire property shall have been
cleared of the mortgage lien the Martinez heirs should, by amicable arrangement
among themselves, equitably compensate the former owners of the thousand trees
thus awarded to Reyes.
From the discussion contained in the briefs, it may be collect that the appellants
entertain a belief that the property which Reyes acquired by purchase under execution
against Clemencia Graño, as already stated in this opinion, ought to be adjudged to
the receivership. It is true that in testifying as a witness in this case Reyes conducted in
behalf of the owners of the receivership property. But as we have already shown, he
actually acquired title to those lands in his individual right; and in charging him with the
credit of P5,215.89 which he used in purchasing said property, we have gone on the
assumption that he had acquired a good individual title. The appellants must therefore
leave that property to him, and in fact they will hereafter be estopped from questioning
his right thereto.
In view of the conclusion stated in the foregoing opinion, it becomes necessary to
reverse, as we hereby reverse, the appealed judgment; and judgment will be entered
for the plaintiffs to recover of the appellee, Estanislao Reyes, the sum of P8,000,
without liability on is part for any additional income that may have been received by him
from the groves between the last day covered by his accounts and the date when he
surrendered possession; but the income obtained by the receiver now in possession as
successor to Reyes, if such there be, will of course pertain to the receivership and
should be applied by the court to any lawful charges against the property. Without
pronouncement as to costs. So ordered.
G.R. No. L-49031 August 28, 1944
JOSE PLATON and ROMAN CASTILLO, petitioners,

vs.
HON. CLAUDIO SANDOVAL, in his capacity as Judge, Court of First Instance of
Laguna, and INES MAILOM, respondents.
Avelino & Yatco for petitioners.

Galo Al. Acuña and T. G. de Castro for respondents.
OZAETA, J.:
This is an original petition for certiorari and mandamus to annul an order issued by the
respondent judge whereby the receiver appointed in civil case No. 7385 of the Court of
First Instance of La entitled "Ines Mailom vs. Antonio Castillo and Roman Castillo," was
discharge, and to compel the respondent judge to approve the appeal of said from said
order.
It appears that said civil case was instituted by Ines Mailom, one of the heirs of the
deceased Servanda Mailom, to annul the sale of certain parcels of land made by the
spouses Roman Castillo and Servanda Mailom (previous to the death of the latter) in
favor of Antonio Castillo, a brother of Roman. After the death of Servanda Mailom, her
husband Roman Castillo was appointed administrator of the estate left by her. The
herein petitioner Jose Platon was appointed receiver of the property in litigation in said
civil case No. 7385 at the instance of the plaintiff (now respondent) Ines Mailom.
It was also Ines Mailom who, through her attorney, moved the court on November 11,
1942, to discharge the receiver on the ground that there was no more necessity for the
continuation of the receivership inasmuch as the defendant Antonio Castillo had
renounce his claim to said property in a stipulation of facts submitted to the court on
November 25,1940, and the heirs of the deceased Servanda Mailom, including the
administrator Roman Castillo, had submitted a project of partition in the intestate
proceedings of the deceased Servanda Mailom, case Mo. 3148 of said court which
upon such allegations, which the court found to be true upon such allegations, which
the court found to be true, the respondent judge granted the motion, discharging the
receiver and ordering him to deliver the properties under receivership to the persons
entitled to receive the same in accordance with the project of partition aforementioned.
The receiver Jose Platon filed a motion to set aside said order on the grounds (1) that
the had not been notified of the motion upon which the same was issued; (2) that the
case in which he was appointed receiver was still pending decision by Judge Proceso
Sebastian; (3) that in the event Antonio Castillo wins the case, the receiver has to
deliver to him the properties, thereby rendering the project of partition useless and of
no value; and (4) that irregularities were committed by Attorney Acuña for the plaintiff
and the heirs of Sevanda Mailom regarding the disposition of the properties in question
after the approval of the project of partition. In a memorandum submitted by the
attorney for the receiver Jose Platon in support of said motion, said attorney who also
represents the defendant-administrator Roman Castillo, said that the latter joins the
receiver in said motion and makes it his own.
After hearing both parties upon said motion to set aside the order discharging the
receiver, the respondent judge reaffirmed his finding that there was no necessity for the
continuation of the receivership and denied said motion Thereupon the receiver filed a
notice of appeal from said order and tendered a record on appeal which the
respondent judge disapproved on the ground that the order was interlocutory and not
appealable.
With regard to the order discharging the receiver and terminating the receivership, we
find no excess of jurisdiction nor grave abuse of discretion on the part of the
respondent judge. The property in litigation and under receivership belongs to the
intestate estate of the deceased Servanda Mailom, deceased wife of the petitioner
Roman Castillo. The defendant Antonino Castillo, who is not a heir of said deceased,
does not claim ownership of said property and has signed his conformity to the
discharge of the receiver. And the heirs of said deceased have agreed upon the
partition of said property with the approval of the probate court. It seems clear,
therefore, that the declaration of the respondent judge that there was no longer any
necessity for the continuation of the receivership was well founded. In any event, it
cannot be said that the respondent judge exceeded his jurisdiction or abused his
discretion in making such a finding. Furthermore, the receiver, being an officer of the
court and not the agent or representative of either party to the action, has no legal
interest or standing to question the court's determination that the necessity for the
continuation of the receivership has ceased to exist.
It is immaterial to decide now whether the receiver was entitled to be heard on the
original motion to discharge him, for the reason that he was actually heard in the
premises when thru his attorney he filed a motion for reconsideration.
With regard to the approval of the record on appeal, we agree with the respondent
judge that the order sought to be appealed from is interlocutory, and hence mandamus
does not lie to compel him to approve and certify the record on appeal. As a matter of
fact, certiorari to annul an order and mandamus to approve an appeal from said order
are inconsistent remedies. The first is predicated on the theory that the second is
unavailable. Having decided to pass upon the petition for certiorari on the merits, we
cannot consistently compel the approval of an appeal from the same order which was
the object of the certiorari proceeding.
The petition is denied and the orders assailed are affirmed, with costs against the
petitioners.
G.R. No. 146313 October 31, 2006
FLORENCIO ORENDAIN, petitioner,

vs.
BF HOMES, INC., respondent.
DECISION
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari praying for the reversal of the August
18, 2000 Decision and December 6, 2000 Resolution of the Court of Appeals (CA) in
CA-G.R. SP No. 48263 entitled Florencio B. Orendain v. Hon. Alfredo R. Enriquez,
Presiding Judge of RTC-Br. 275, Las Piñas, and BF Homes, Inc., which affirmed the
December 4, 1996 and April 22, 1998 Orders of the Las Piñas RTC finding that said
court, not SEC, has jurisdiction over Civil Case No. LP-96-0022 for reconveyance of
the lot covered by TCT No. T-36482 to respondent BF Homes, Inc. (‘BF Homes’ for
brevity).
BF Homes, Inc. is a domestic corporation operating under Philippine laws and

organized primarily to develop and sell residential lots and houses and other related
realty business.1
Records show that respondent BF Homes had to avail itself of financial assistance
from various sources to enable it to buy properties and convert them into residential
subdivisions. This resulted in its incurring liabilities amounting to PhP
1,542,805,068.232 as of July 31, 1984. On the other hand, during its business
operations, it was able to acquire properties and assets worth PhP 2,482,843,358.81
as of July 31, 1984, which, if liquidated, were more than enough to pay all its creditors. 3
Despite its solvent status, respondent filed a Petition for Rehabilitation and for
Declaration in a State of Suspension of Payments under Section 4 of PD No. 1758
before the Securities and Exchange Commission (SEC) because of the following:
(a) the predatory acts of the Central Bank of trying to take over Banco Filipino and
hand it cheap to its unidentified principal and its buyer financing facility with Banco
Filipino has been suspended such that it cannot now consummate its sales
transactions necessary for it to generate cash to service and/or liquidate its various
maturing obligations;
(b) the libelous [circulars] made by the Central Bank to banks under its supervision that
its deposit accounts and other transactions with them were being examined such that
the creditors of [BF Homes] have [begun] insisting on full liquidation under pain of
foreclosure of their notes x x x; and
(c) the [liquidation] of [BF Homes’] assets cannot be made in such a short time as
demanded by its creditors.4
In the said petition, respondent prayed that—in the meantime it was continuing its
business operations—it be afforded time to pay its aforesaid obligations, freed from
various proceedings either judicially or extra-judicially against its assets and properties.
Also, respondent highlighted the importance of and prayed for a Rehabilitation
Receiver in the petition. Such receiver, according to respondent, was "imperative to
oversee the management and operations of [BF Homes] so that its business may not
be paralyzed and the interest of the creditors may not be prejudiced." It further argued
that "rehabilitation [was] feasible and imperative because otherwise, in view of the
extent of its involvement in the shelter program of the government and in the nation’s
home mortgage insurance system, which has a secured coverage for at least P900 M
of [BF Homes’] P1.5 B liabilities, not only [the] creditors, [buyers, and stockholders] of
the petitioner corporation may suffer but the public as well." 5
In SEC Case No. 2693, the SEC subsequently issued its March 18, 1985 Order which
stated:
WHEREFORE, in the interest of the parties-litigants, as well as the general public, and
in order to prevent [paralyzation] of business operation[s] of the B.F. Homes, Inc., a
Management Committee is hereby created composed of:
1. Atty. Florencio Orendain as Chairman
2. Representative of B. F. Homes, Inc. – member
3. Representative of Home Financing Commission – member
4. Two (2) representatives from the major creditors – members
xxxx
Accordingly, with the creation of the Management Committee, all actions for claims
against B.F. Homes, Inc. pending before the court, tribunal, board or body are hereby
deemed suspended.6
Thereafter, on February 2, 1988, the SEC ordered the appointment of a rehabilitation

receiver, FBO Management Networks, Inc., with petitioner Orendain as Chairman to
prevent paralyzation of BF Homes’ business operations. 7
On October 8, 1993, a Deed of Absolute Sale 8 was executed by and between BF

Homes—represented by petitioner Orendain—as absolute and registered owner, and
the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI)
over a parcel of land situated at Barangay Pasong Papaya, BF International,
Municipality of Las Piñas, Metro Manila, covered by Transfer Certificate of Title No. T-
36482.
The portion of land sold to LSFSIPI was 7,800 square meters, more or less, for
Nineteen Million Five Hundred Thousand Pesos (PhP 19,500,000.00). 9
Meanwhile, on November 7, 1994, the SEC hearing panel released an Omnibus

Order10 which admitted and confirmed the Closing Report submitted by the receiver,
petitioner Orendain. It further appointed a new Committee of Receivers composed of
the eleven (11) members of the Board of Directors of BF Homes with Albert C. Aguirre
as the Chairman of the Committee. Consequently, receiver Orendain was relieved of
his duties and responsibilities.
In its August 22, 1995 Order, 11 the SEC denied BF Homes’ and the intervenor-
derivative suitor Eduardo S. Rodriguez’s motions for reconsideration of its November 7,
1994 Omnibus Order.
On January 23, 1996, BF Homes filed a Complaint before the Las Piñas RTC against
LSFSIPI and petitioner Orendain, in Civil Case No. LP-96-0022, for reconveyance of
the property covered by TCT No. T-36482—alleging, inter alia, that the LSFSIPI
transacted with Orendain in his individual capacity and therefore, neither FBO
Management, Inc. nor Orendain had title to the property transferred. Moreover, BF
Homes averred that the selling price was grossly inadequate or insufficient amounting
to fraud and conspiracy with the LSFSIPI. BF Homes also stated that the total
assessed value of the property was approximately PhP 802,330.00. Hence, it prayed in
the Complaint that LSFSIPI reconvey the disputed property or, if reconveyance was no
longer feasible, pay the present value of the property. 12
On March 21, 1996, the LSFSIPI filed its Answer with Compulsory Counterclaim, 13
stating, among others, that (1) the Complaint stated no cause of action since there was
a valid sale with sufficient consideration, and there was no fraud; (2) it was barred by a
prior judgment of a tribunal with sufficient jurisdiction over the matter, and BF Homes
was liable for forum shopping; and (3) BF Homes could not question its own acts by
way of estoppel.
On June 14, 1996, Florencio B. Orendain filed a Motion to Dismiss stating that (1) the
RTC had no jurisdiction over the reconveyance suit; (2) the Complaint was barred by
the finality of the November 7, 1994 Omnibus Order of the SEC hearing panel; and (3)
BF Homes, acting through its Committee of Receivers, had neither the interest nor the
personality to prosecute the said action, in the absence of SEC’s clear and actual
authorization for the institution of the said suit. 14
On July 15, 1996, BF Homes filed its Opposition 15 to petitioner’s Motion to Dismiss,
alleging that the case was within the exclusive jurisdiction of the RTC, not the SEC,
considering that the case was an ordinary reconveyance suit. Likewise, BF Homes
alleged that the cause of action was not barred by the perceived finality of the SEC
November 7, 1994 Omnibus Order, and that the general powers of a receiver
authorized BF Homes to institute actions to recover the property.
On December 4, 1996, RTC Las Piñas, Branch 275 issued an Order denying the June
14, 1996 Motion to Dismiss for lack of merit.16
However, on May 8, 1997, the SEC rendered its Order, as follows:
WHEREFORE, premises considered, the decision of the hearing panel denying the
motion for intervention of Mr. Eduardo Rodriguez is hereby AFFIRMED. The
Commission hereby receives and notes the Closing Report of the Management
Network and the Joaquin Cunanan Audit Report for inclusion in the records of the case
without going into the merits and veracity of the contents thereof; the order to pay the
attorney’s fees of Balgos and Perez is hereby SET ASIDE; the resolution of the issue
on the alleged payment of receiver’s fees of FBO Management Network is hereby
deferred, and the order to pay the additional fees of the receiver is hereby set aside
until after the Commission en banc finally clears and releases FBO Management
Networks from its accountabilities in accordance with the policies and orders of the
Commission on the receivership.17
On December 27, 1997, petitioner Orendain filed his Motion for Reconsideration 18 of
the RTC December 4, 1996 Order. Consequently, BF Homes filed its January 17, 1997
Opposition19 to Orendain’s Motion for Reconsideration; and on April 22, 1998, the RTC
issued an Order denying the Motion for Reconsideration for lack of merit and petitioner
Orendain was directed to file his answer to the Complaint within ten (10) days from
receipt of the Order.20
Petitioner then filed his Answer Ex Abudante Ad Cautelam with Compulsory

Counterclaims21 on May 29, 1998.
On July 13, 1998, petitioner filed before the CA a Petition for Certiorari and Prohibition
with Prayer for the Issuance of a Temporary Restraining Order and/or Bonded Writ of
Preliminary Injunction22 which sought to annul the RTC December 4, 1996 and April 22,
1998 Orders, denying petitioner’s Motion to Dismiss and Motion for Reconsideration.
Petitioner alleged that these motions were issued without jurisdiction or with grave
abuse of discretion amounting to lack or in excess of jurisdiction.
The Ruling of the Court of Appeals
In its August 18, 2000 Decision, the CA held that the action for reconveyance filed by
BF Homes was within the exclusive jurisdiction of the RTC. In the rehabilitation case,
the LSFSIPI was not a party to the said case and did not have any intra-corporate
relation with petitioner at the time of the sale. The SEC could not acquire jurisdiction
over the Franciscan Sisters; while petitioner Orendain was sued in his individual
capacity and not in his official capacity as receiver. 23
Moreover, the CA stated that at the time the assailed orders were issued, the subject
SEC Order had not yet attained finality; that there was no identity between the first and
the second action with respect to the parties; and that the SEC November 7, 1994
Omnibus Order relied on by Orendain was not a decision on the merits of BF Homes’
Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments
under Sec. 4 of P.D. No. 1758.
According to the CA:
Although this Court is not oblivious to the fact that the SEC en banc in a Decision
dated May 8, 1997, affirmed the denial of the intervention filed by Rodriguez, still the
said order did not go into the merits of the intervention but merely refused to give due
recognition to the intervention as it was allegedly "untimely." Therefore, the contention
of petitioner that the principle of res judicata is applicable in the case at bar does not
hold water. 24
The CA ultimately rendered its judgment in this wise:
WHEREFORE, premises considered, the instant petition is DISMISSED for failure to

clearly show grave abuse of discretion and the assailed orders dated December 4,
1996 and April 22, 1998, are hereby AFFIRMED in toto without costs to petitioner. 25
Hence, this petition is before us.
Petitioner avers that the CA erred in holding that (1) the complaint a quo is a simple
reconveyance suit and hence, can be heard and tried by the court a quo; (2) res
judicata is inapplicable to the complaint a quo; and (3) the Committee of Receivers
may institute an action against a former receiver without prior SEC approval. 26
The petition is not meritorious.
Action for Reconvenyance in the RTC Does Not Involve Intra-Corporate Dispute
The issue central to this petition is: which has jurisdiction over the action for
reconveyance—the RTC or SEC.
Petitioner Orendain argues that it is the SEC that has jurisdiction by virtue of
Presidential Decree No. 902-A since BF Homes’ suit was instituted against him as its
former receiver. He also avers that BF Homes’ allegations were nothing more than
protestations against the former receiver who entered into a transaction during BF
Homes’ regime of rehabilitation; and that the assailed transaction was consummated at
the time the SEC had placed BF Homes under rehabilitation. Therefore, according to
petitioner, the SEC, which appointed the rehabilitation receiver, has the sole power to
decide the issue as to whether petitioner acted within the scope of the vested authority.
Petitioner also claims that the resolution of the instant controversy depends on the
ratification by the SEC of the acts of its agent, the receiver. Also, he asserts that for the
RTC to insist on hearing and deciding the case below is to dislodge the appointing
body from reviewing, ratifying, confirming, or overruling the acts of its appointee; and
such would constitute undue interference on the jurisdiction of the SEC by a court of
equal jurisdiction. Further, petitioner claims that the questions of whether the receiver
of a company undergoing rehabilitation acted within the scope of his authority, and
whether a transaction consummated during the rehabilitation proceedings is
impermissible, are matters not within the province of a regular court acting on an
ordinary reconveyance suit. Petitioner avers that the undisputed fact is that at the time
of the said transaction, respondent was operating under rehabilitation whereby
receivership places all matters arising from, incidental, or connected with the
implementation of said rehabilitation proceedings beyond the jurisdiction of regular
courts. In addition, petitioner avers that the property in question is one of the many
properties which formed part of a pool of assets placed under receivership and that he
was the Chairman of the FBO Management, Inc.—the SEC-appointed Rehabilitation

Receiver at the time of the transaction.
WE hold OTHERWISE.
In Speed Distributing Corp. v. CA, we held that:
Jurisdiction over the subject matter is conferred by law. The nature of an action, as well
as which court or body has jurisdiction over it, is determined based on the allegations
contained in the complaint of the plaintiff, irrespective of whether or not plaintiff is
entitled to recover upon all or some of the claims asserted therein. It cannot depend on
the defenses set forth in the answer, in a motion to dismiss, or in a motion for
reconsideration by the defendant (citations omitted). 27
In the case at bench, the BF Homes’ Complaint for reconveyance was filed on January
23, 1996 against LSFSIPI and Florencio B. Orendain, in Civil Case No. LP-96-002.
In 1996, Section 5 of PD No. 902-A, 28 which was approved on March 11, 1976, was still
the law in force—whereby the SEC still had original and exclusive jurisdiction to hear
and decide cases involving:
b) controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members, or associates; between any and/or all of them and the
corporation, partnership, or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and
the state insofar as it concerns their individual franchise or right to exist as such entity.
Clearly, the controversy involves matters purely civil in character and is beyond the
ambit of the limited jurisdiction of the SEC. As held in Viray v. Court of Appeals, "[t]he
better policy in determining which body has jurisdiction over a case would be to
consider not only [1] the status or relationship of the parties but also [2] the nature of
the question that is the subject of their controversy." 29
More so, in Speed Distributing Corp., we held that:
The first element requires that the controversy must arise out of intra-corporate or
partnership relations between any or all of the parties and the corporation, partnership
or association of which they are stockholders, members or associates; between any or
all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their individual
franchises. The second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character, necessarily, the case
does not involve an intra-corporate controversy. The determination of whether a
contract is simulated or not is an issue that could be resolved by applying pertinent

provisions of the Civil Code (citations omitted). 30
However, Section 5 of PD No. 902-A does not apply in the instant case. The LSFSIPI
is neither an officer nor a stockholder of BF Homes, and this case does not involve
intra-corporate proceedings. In addition, the seller, petitioner Orendain, is being sued in
his individual capacity for the unauthorized sale of the property in controversy. Hence,
we find no cogent reason to sustain petitioner’s manifestation that the resolution of the
instant controversy depends on the ratification by the SEC of the acts of its agent or
the receiver because the act of Orendain was allegedly not within the scope of his
authority as receiver. Furthermore, the determination of the validity of the sale to
LSFSIPI will necessitate the application of the provisions of the Civil Code on
obligations and contracts, agency, and other pertinent provisions.
In addition, jurisdiction over the case for reconveyance is clearly vested in the RTC as
provided in paragraph (2), Section 19, B.P. Blg. 129, to wit:
Jurisdiction in civil cases. – Regional Trial Courts shall exercise exclusive [and] original
jurisdiction
(1) In all civil actions in which the subject of the litigation is incapable of pecuniary
estimation; and
(2) In all civil actions which involve the title to, or possession of, real property or any
interest therein, where the assessed value of the property involved exceeds Twenty
Thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value
exceeds Fifty Thousand pesos (P50,000.00) x x x
Likewise, in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc., the Court said:
Nowhere in said decree [PD 902-A] do we find even so much as an intimidation [sic]
that absolute jurisdiction and control is vested in the Securities and Exchange
Commission in all matters affecting corporations. To uphold the respondents’
arguments would remove without the legal imprimatur from the regular courts all
conflicts over matters involving or affecting corporations, regardless of the nature of the
transactions which give rise to such dispute. The courts would then be divested of
jurisdiction not by reason of the nature of the dispute submitted to them for
adjudication, but solely for the reason that the dispute involves a corporation. This
cannot be done. To do so would not only be to encroach on the legislative prerogative
to grant and revoke jurisdiction of the courts but such a sweeping interpretation may
suffer constitutional infirmity. Neither can we reduce jurisdiction of the court by judicial
fiat ( [citing] Article X, Section 1, The [1973] Constitution). 31
Res Judicata Does Not Apply in the Action for Reconveyance

According to petitioner, dismissal of the complaint is proper based on res judicata. He

alleged that on September 28, 1994, he filed a Petition for Rehabilitation and for
Declaration in a State of Suspension of Payments docketed as SEC Case No. 2693;
and that sometime in 1994, FBO Management Network, Inc. submitted its Closing
Report to the SEC. In said report, the receiver disclosed the conveyance of the
property to the LSFSIPI. It is the same transaction which BF Homes seeks to nullify in
the complaint a quo.
We are not persuaded.
There are two (2) aspects to the doctrine of res judicata:
The first, known as "bar by prior judgment," is the effect of a judgment as a bar to the
prosecution of a second action upon the same claim, demand or cause of action. The
second, known as "conclusiveness of judgment," issues actually and directly resolved
in a former suit cannot again be raised in any future case between the same parties
involving a different cause of action.32
A case is barred by prior judgment when the following requisites are present: "(1) the
former judgment is final; (2) it is rendered by a court having jurisdiction over the subject
matter and the parties; (3) it is a judgment or an order on the merits; and (4) there is—
between the first and second actions—identity of parties, of subject matter, and causes
of action."33
Petitioner asserts that bar by prior judgment exists since the May 8, 1997 Order of the
SEC en banc had become final which would effectively preclude the adjudication of
Civil Case No. LP-96-0022.
We DISAGREE.
While the said SEC order denied the motion for intervention filed by intervenor Eduardo
S. Rodriguez, it did not, however, resolve the issues raised in the motion on the merits.
A judgment is "on the merits when it amounts to a legal declaration of the respective
rights and duties of the parties based upon the disclosed facts (emphasis supplied and
citation omitted)."34 It is apparent that the SEC order in question merely acknowledged
the Closing Report for inclusion in the records of the case. It did not, however, pass
upon the merits and veracity of the report’s contents. As such, it cannot, in any wise,
be considered as an adjudication of the rights and obligations of the parties relating to
the subject matter of the action.
Likewise, it appears that between the first and second actions, there was no identity of
parties, of subject matter, and of cause of action. Hence, res judicata does not apply in
the instant case.
The second type of res judicata is "conclusiveness of judgment." In Francisco v. Co,

this Court elucidated the nature of this principle, thus:
"Conclusiveness of judgment" operates as a bar even if there is no identity as between

the first and second causes of judgment. Under the doctrine, any right, fact, or matter
in issue directly adjudicated or necessarily involved in the determination of an action
before a competent court in which judgment is rendered on the merits is conclusively
settled by the judgment therein and cannot again be litigated between the parties and
their privies whether or not the claim, demand, purpose, or subject matter of the two
actions is the same.
Evidently, "conclusiveness of judgment" may operate to bar the second case even if
there is no identity of causes of action. The judgment is conclusive in the second case,
only as to those matters actually and directly controverted and determined, and not as
to matters merely involved therein.35
A perusal of the SEC case would show that reconveyance of the property in
controversy was neither an issue nor a relief sought by any party in the SEC
proceedings. Evidently, the SEC November 7, 1994 Omnibus Order did not mention
any reconveyance of property.36
Eduardo S. Rodriguez, the intervenor in the SEC case, did not demand the reversion
of the disputed property precisely because the SEC has no jurisdiction over the action
for reconveyance. Assuming, arguendo, that intervenor Rodriguez raised the issue on
the validity of petitioner’s acts in his capacity as receiver, still, the SEC November 7,
1994 Omnibus Order did not delve into the merits of the intervention nor did the order
give due course to the intervention as it was untimely.
Thus, there is no "conclusiveness of judgment" as the reconveyance of the lot sold to

LSFSIPI was not directly decided or necessarily involved and adjudicated in the said
SEC order.
Furthermore, petitioner argues that the Committee of Receivers should have sought
prior clearance from the SEC before instituting the action for reconveyance before the
RTC, because it does not have the legal capacity to sue. This is incorrect. One of the
general powers of a receiver under Rule 59, Section 6 of the Rules of Court is the
power to bring and defend suits in such capacity.
Petitioner also contends that an action filed by a successor-receiver against him as

predecessor-receiver is not allowed under Rule 59, Section 6 without leave of court
which appointed him; as Section 6 provides that "no action may be filed by or against a
receiver without leave of the court which appointed him." This is bereft of merit.
The rule talks of the current receiver of the company and not the previous receiver like
petitioner Orendain. The reason behind Rule 59, Section 6, which requires leave of
court for all suits by or against the present receiver, is to forestall any undue
interference with the receiver’s performance of duties through improvident suits.
Apparently, such situation cannot apply to Orendain who is no longer BF Homes’
receiver.
Moreover, the instant petition has been rendered moot and academic by the passage
of RA 8799 or The Securities Regulation Code which took effect on August 8, 2000.37
Section 5.2 of RA 8799 transferred exclusive and original jurisdiction of the SEC over
actions involving intra-corporate controversies to the courts of general jurisdiction or
the appropriate RTC. In the transition, all intra-corporate cases pending in the SEC,
which were not ripe for adjudication as of August 8, 2000, were turned over to the RTC.
Congress thereby recognized the expertise and competence of the RTC to take
cognizance of and resolve cases involving intra-corporate controversies. Thus,
"whether or not the issue is intra-corporate, it is now the [RTC] and no longer the SEC
that takes cognizance of [and resolves cases involving intra-corporate
controversies]."38
Section 5.2 of RA 8799 explicitly provides:
The Commission’s jurisdiction over all cases enumerated under Section 5 of

Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that
shall exercise jurisdiction over the cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed
(emphasis supplied).
Subsequently, on January 23, 2001, the Supreme Court issued Supplemental

Administrative Circular No. 8-01 which ordered that effective March 1, 2000, "all SEC
cases originally assigned or transmitted to the regular RTC shall be transferred to the
branches of the regular RTC specially designated to hear such cases in accordance
with AM No. 00-11-03-SC."
During the Bicameral Conference Committee’s discussions on the conflicting

provisions of Senate Bill No. 1220 and House Bill No. 8015 on the "Amendments to the
Securities, Regulations and Enforcement Act," former Senator Raul S. Roco rendered
his report, 39 as follows:
The first major departure is as regards the Security Exchange Commission. The
Securities and Exchange Commission has been authorized under this proposal to
reorganize itself. As an administrative agency, we strengthened it and at the same
time we take away the quasi-judicial functions. The quasi-judicial functions are
now given back to the courts of general jurisdiction––the Regional Trial Court,
except for two categories of cases (emphasis supplied).
In case of corporate disputes, only those that are now submitted for final determination
of the SEC will remain with the SEC. So, all those cases, both memos of the plaintiff
and defendant, that have been submitted for resolution will continue. At the same time,
cases involving rehabilitation, bankruptcy, suspension of payments and receiverships
that were filed before June 30, 2000 will continue with the SEC. In other words, we are
avoiding the possibility, upon approval of this bill, of people filing cases with the SEC,
in a manner of speaking, to select their court.
x x x It is only right now with this bill that we clarify the independent functions, not only
in terms of monetary polity, by giving it to the Monetary Board, but in matters of
commerce and securities and capital formation, by giving them to the [SEC], with
sufficient powers to monitor and regulate capital formation in the Philippines.
That is the first major departure x x x in terms of the powers and responsibilities of the
[SEC]. In registration of securities, exempt transactions [and exempt securities], these
are very technical and there are modifications x x x The registration and monitoring of
securities are basically the same as the old law.
Pre-need plans x x x remain with the SEC. Originally we wanted the SEC to
concentrate on commerce, corporations and the securities regulation, but pre-need
plan[s] under the Senate report was really with the SEC and under the House report, it
was recommended to remain with the SEC without prejudice to a subsequent law if we
should decide to do so to have the pre-need plans transferred to the Office of the
Insurance Commissioner. x x x
Thus, it is unequivocal that the jurisdiction to try and decide cases originally assigned
to the SEC under Section 5 of PD 902-A has been transferred to the RTC. For clarity,
we quote those cases under Section 5, PD 902-A, which now fall within the RTC’s
jurisdiction, as follows:
(a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or stockholders, partners, members
of associations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association and the State insofar as it concerns their
individual franchise or right as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or

managers of such corporations, partnerships, or associations;
(d) Petitioners of corporations, partnerships or associations to be declared in the state

of suspension of payment in cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities but is under the management
of a rehabilitation receiver or management committee created pursuant to this Decree.
The remaining powers and functions of the SEC are enumerated in Section 5 of RA
8799, to wit:
Powers and Functions of the Commission. – [5.1] The Commission shall act with
transparency and shall have the powers and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the
Financing Company Act and other existing law[s]. Pursuant thereto the Commission
shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations
who are the grantees of primary franchises and/or a license or permit issued by the
Government;
(b) Formulate policies and recommendations on issues concerning the securities

market, advise Congress and other government agencies on all aspects of the
securities marker and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements,

and registration and licensing applications;
(d) Regulate, investigate and supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing
agencies and other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders
issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations, and orders, and issue
opinions and provide guidance on and supervise compliance with such rules,
regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of
the Government, civil or military as well as any private institution, corporation, firm,
associations or person in the implementation of its powers and functions under this
Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with
the pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings
of the Commission and in appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax returns, and books of accounts
of any entity or person under investigation as may be necessary for the proper
disposition of the cases before it, subject to the provision of existing laws;
(m) Suspend, or revoke, after notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds
provided by law; and
(n) Exercise such other powers as my be provided by law as well as those which may
be implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.
Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were
retained by the SEC, it is clear that the SEC retained its administrative, regulatory, and
oversight powers over all corporations, partnerships, and associations who are
grantees of primary franchises, and/or a license or permit issued by the Government.
However, the Securities Regulations Code (SRC) is clear that when there is a
controversy arising out of intra-corporate relations, between and among stockholders,
members or associates, and between, any, or all of them and the corporation, it is the
RTC, not SEC, which has jurisdiction over the case.
Thus, when the complaint involves "an active antagonistic assertion of a legal right on
one side and a denial thereof on the other concerning a real, and not a mere
theoretical question or issue," 40 a cause of action involving a delict or wrongful act or
omission committed by a party in violation of the primary right of another, 41 or an actual
controversy involving rights which are legally demandable or enforceable, 42 the
jurisdiction over this complaint is lodged with the RTC but not the SEC.
The passage of RA 8799 has put to rest petitioner Orendain’s claim that it is the SEC
and not the RTC that has jurisdiction over Civil Case No. LP-96-0022. At present, the
instant petition has nothing to stand on and perforce must fail.
WHEREFORE, the August 18, 2000 Decision and December 6, 2000 Resolution of the
Court of Appeals in CA-G.R. SP No. 48263 is hereby AFFIRMED IN TOTO.
SO ORDERED.
G.R. No. 111357 June 17, 1997
TRADERS ROYAL BANK, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, and HEIRS OF THE LATE JOSE C.

TAYENGCO, respondents.
RESOLUTION
ROMERO, J.:
The factual aspects of this case have already been resolved by this Court in G.R. No.
63855, 1 wherein we ruled the deceased spouses Jose and Salvacion Tayengco to be
the lawful owners of the properties under receivership, and G.R. No. 60076, 2 where we
affirmed the validity of the appointment of petitioner Traders Royal Bank (TRB) as
receiver pendente lite.
In view of these rulings, the receivership proceeding was duly terminated. Thus, TRB
rendered its final accounting of the funds under receivership wherein it retained the
amount of P219,016.24 as its receiver's fee, instead of turning over the entire fund to
the Tayengcos. The Regional Trial Court of Iloilo, Branch 5, in an order dated July 5,
1988, approved the final accounting submitted by TRB, including the deduction of its
fee from the fund under receivership.
The Tayengcos assailed said order before the Court of Appeals, 3 contending that
TRB's compensation should have been charged against the losing party and not from
the funds under receivership.
In resolving this issue the Court of Appeals, 4 in its decision dated February 12, 1993,
ruled that TRB cannot deduct its fee from the funds under its receivership since this
must be shouldered by the losing party or equally apportioned among the parties-
litigants. Consequently, TRB was ordered to return the P219,016.24 to the Tayengcos,
and the losing parties, Cu Bie, et al., were held solely liable for TRB's compensation. 5
TRB filed a motion for reconsideration, but this was denied by the appellate court in its
resolution dated August 17, 1993. 6
In this appeal, TRB raises the following errors allegedly committed by the Court of
Appeals:
1. The Hon. IAC (should be CA) erred when it rendered the judgment and Resolution
ordering the return by TRB of Receiver's Fee of P219,016.24 to the heirs of Jose
Tayengco, as it reversed the Decision of the Supreme Court in the case of Jose
Tayengco vs. Hon. Ilarde, TRB, et al., GR No. 60076, which ordered the Trial Court to
"settle the account of the receiver, TRB" to thereafter discharge the receiver and
charged as cost against the losing party;
2. The Hon. IAC had no jurisdiction in CA-GR. 21423 and erred in knowingly taking
cognizance and rendering the judgment and resolution on the issue of the payment of
receiver's fee to TRB since the same subject matter was already within the jurisdiction
of the Supreme Court in GR. No. 60076;
3. The Hon. IAC erred when it rendered the judgment and Resolution which reversed
the final Supreme Court Decision in GR. No. 60076 on the payment of the receiver's
fee to TRB as it violated the Rule on "Bar by Final Judgment". 7 (Emphasis supplied).
TRB's assignment of errors submits for resolution two vital issues: (1) Is the Court of
Appeals decision dated February 12, 1993 barred by res judicata by virtue of our ruling
in G.R. No. 60076 recognizing the propriety of TRB's appointment as receiver? (2)
Who is responsible for TRB's receiver's fee?
With respect to the first assigned error, we are not persuaded.
The elements of res judicata are: (1) The previous judgment has become final; (2) the
prior judgment was rendered by a court having jurisdiction over the matter and parties;
(3) the first judgment was made on the merits; and (4) there was substantial identity of
parties, subject matter, and cause of action, as between the prior and subsequent
actions. 8
The difference between the two causes of action is unmistakable. In G.R. No. 60076,
the petition was for the annulment of the trial court's order requiring Tayengco to
render and submit an accounting of the rental of the buildings and apartments, while
C.A. G.R. CV No. 21423 was an appeal questioning the order of the trial court
authorizing the deduction by TRB of its compensation from the receivership funds.
There is clearly no identity of causes of action here. Clearly, the last element of res
judicata is absent in the case at bar.
Procedural obstacles aside, we now answer the principal query posed in the instant
petition.
Nobody questions the right of TRB to receive compensation. Section 8, Rule 59 of the
Rules of Court, however, explicitly provides for the manner in which it shall be paid for
its services, to wit:
Sec. 8. Termination of receivership; compensation of receiver.— Whenever the court,

of its own motion or on that of either party, shall determine that the necessity for a
receiver no longer exists, it shall, after due notice to all interested parties and hearing,
settle the accounts of the receiver, direct the delivery of the funds and other property in
his hands to the persons adjudged entitled to receive them, and order the discharge of
the receiver from further duty as such. The court shall allow the receiver such
reasonable compensation as the circumstances of the case warrant, to be taxed as
costs against the defeated party, or apportioned, as justice requires. (Emphasis
supplied).
It is, therefore, clear that when the services of a receiver who has been properly
appointed terminates, his compensation is to be charged against the defeated party, or
the prevailing litigant may be made to share the expense, as justice requires.
Consequently, the trial court's order approving TRB's compensation to be charged
solely against the funds under its receivership is without legal justification; hence, it
was correctly reversed by the Court of Appeals.
IN VIEW OF THE FOREGOING, the decision appealed from is AFFIRMED. Costs

against petitioner.
SO ORDERED.
G.R. No. 151925 February 6, 2003
CHAS REALTY AND DEVELOPMENT CORPORATION, petitioner,

vs.
HON. TOMAS B. TALAVERA, in his capacity as Presiding Judge of the Regional
Trial Court of Cabanatuan City, Branch 28, and ANGEL D. CONCEPCION, SR.,
respondents.
DECISION
VITUG, J.:
Petitioner Chas Realty and Development Corporation (CRDC) is a domestic

corporation engaged in property development and management. It is the owner and
developer of a three-hectare shopping complex, also known as the Megacenter Mall
(Megacenter), in Cabanatuan City.
The construction of Megacenter commenced in January 1996, but by the time of its so-
called "soft opening" in July 1998, it was only partly completed due to lack of funds,
said to have been brought about by construction overages due to the massive
devaluation of the peso during the economic crisis in 1997, low occupancy, and rental
arrearages of tenants. The opening of the upper ground floor and the second floor of
the building followed, respectively, in August 1998 and towards the end of 1998.
Eventually, Megacenter opened its third floor in 1999.l^vvphi1.net
Purportedly on account of factors beyond the control of CRDC, such as high interest
rates on its loans, unpaid rentals of tenants, low occupancy rate, sluggishness of the
economy and the freezing of its bank account by its main creditor, the Land Bank of
the Philippines, CRDC encountered difficulty in paying its obligations as and when they
fell due and had to contend with collection suits and related cases.
On 04 June 2001, CRDC filed a petition for rehabilitation attaching thereto a proposed
rehabilitation plan, accompanied by a secretary’s certificate, consonantly with
paragraph 2(k), Section 2, Rule 4, of the Interim Rules of Procedure on Corporate
Rehabilitation. CRDC claimed that it had sufficient assets and a workable rehabilitation
plan both of which showed that the continuance of its business was still feasible. It
alleged that, prior to the filing of the petition for rehabilitation, a special meeting of its
stockholders was held on 18 April 2001 during which the majority of the outstanding
capital stock of CRDC approved the resolution authorizing the filing of a petition for
rehabilitation.
On 08 June 2001, the Regional Trial Court, Branch 28, of Cabanatuan City, to which
the petition was assigned, issued an order staying all claims against CRDC and
prohibited it from making any payment on its outstanding obligations and selling, or
otherwise disposing or encumbering, its property. Forthwith, the court appointed a
rehabilitation receiver.
On 20 July 2001, Angel D. Concepcion, Sr., herein private respondent, filed a

complaint in intervention opposing the appointment of CRDC’s nominee for the post of
rehabilitation receiver. He belied CRDC’s factual allegations and claimed that the
predicament of the corporation was due to serious "mismanagement, fraud,
embezzlement, misappropriation and gross/evident violation of the fiduciary duties of
CHAS officers." Concepcion moved to dismiss and/or to deny the petition for
rehabilitation on the ground that there was no approval by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock which, according
to him, would be essential under paragraph 2(k), Section 2, Rule 4, of the Interim Rules
on Corporate Rehabilitation. Concepcion further asserted that the supposed approval
of the directors of the filing of the petition for rehabilitation was inaccurate considering
that the membership of petitioner CRDC’s board of directors was still then being
contested and pending final resolution.
On 10 August 2001, CRDC submitted its opposition ex abundante cautelam

contending that the complaint in intervention was a prohibited pleading and that there
was no need for it to secure the irrevocable consent and approval of its stockholders
representing at least two-thirds (2/3) of its outstanding capital stock because the
petition did not include in its plan for rehabilitation acts that would need any
amendment of its articles of incorporation and/or by-laws, increase or decrease in the
authorized capital stock, issuance of bonded indebtedness, or the like, where such
two-thirds (2/3) vote would be required.
The trial court issued an order, dated 15 October 2001, the decretal portion of which
was to the following effect; viz:
"WHEREFORE, premises considered, in the absence of any showing that the

petitioner has complied with the certification required under Section 2, Rule 4(K) of the
Interim Rules of Procedure on Corporate Rehabilitation, the petitioner is hereby given a
period of 15 days from receipt of a copy of this order to secure from its directors and
stockholders the desired certification and submit the same to this Court in accordance
with the above-mentioned provision of the Interim Rules of Procedure on Corporate

Rehabilitation.
"With respect to the other oppositions to the petition for rehabilitation including the
opposition to the appointment of the rehabilitation receiver, opposition filed by the land
bank and the EEI, Inc., the resolution of the same is hereby held in abeyance till after
the period given to the petitioner to comply with this order as it may become moot and
academic after the expiration of the period given to the petitioner." 1
On 29 October 2001, CRDC filed before the Court of Appeals a petition for certiorari,
with prayer for temporary restraining order and/or preliminary injunction, which sought
to have the 15th October 2001 order of the trial court set aside.
The Court of Appeals rendered a decision on 18 January 2002 and held:
"WHEREFORE, the foregoing premises considered, the petition for certiorari, with
prayer for temporary restraining order and/or writ of preliminary injunction, is DENIED
for lack of merit."2
Hence, the instant petition on the following grounds:
"I
"Public respondent acted with grave abuse of discretion amounting to lack and/or
excess of jurisdiction in issuing the assailed order considering that:
"A. The petition for rehabilitation and the proposed rehabilitation plan do not require
extraordinary corporate actions.
"B. Since no extraordinary corporate actions are required or even contemplated as

necessary and desirable for the rehabilitation of CRDC, the requirements of the
corporation code for the approval of such actions cannot be complied with.
"C. The rehab rules and the corporation code do not allow or intend blind blanket
approvals of extraordinary corporate actions.
"D. To require 2/3 stockholders’ approval for corporate actions requiring only a majority
violates the right of the majority stockholders.
"II
"Public respondent acted with grave abuse of discretion amounting to lack and/or
excess of jurisdiction in requiring CRDC’s compliance with paragraph 2(k), Section 2,
Rule 4 of the Rehab rules when CRDC already complied therewith." 3
Rule 4, Section 2(k), of the Interim Rules on Corporate Rehabilitation provides:

"Sec. 2. Contents of the Petition. – The petition filed by the debtor must be verified and
must set forth with sufficient particularity all the following material facts: (a) the name
and business of the debtor; (b) the nature of the business of the debtor; (c) the history
of the debtor; (d) the cause of its inability to pay its debts; (e) all the pending actions or
proceedings known to the debtor and the courts or tribunals where they are pending; (f)
threats or demands to enforce claims or liens against the debtor; and (g) the manner
by which the debtor may be rehabilitated and how such rehabilitation may benefit the
general body of creditors, employees, and stockholders.
"The petitioner shall be accompanied by the following documents:
"x x x x x x x x x.
"k. A Certificate attesting, under oath, that (a) the filing of the petition has been duly
authorized; and (b) the directors and stockholders have irrevocably approved and/or
consented to, in accordance with existing laws, all actions or matters necessary and
desirable to rehabilitate the debtor including, but not limited to, amendments to the
articles of incorporation and by-laws or articles of partnership; increase or decrease in
the authorized capital stock; issuance of bonded indebtedness; alienation, transfer, or
encumbrance of assets of the debtor; and modification of shareholders’ rights." 4
Rule 4, Section 2(k), distinctly provides that, first, under letter (a), the filing of the
petition has been duly authorized; and, second, under letter (b), the directors and
stockholders have irrevocably approved and/or consented to, in accordance with
existing laws, all actions or matters necessary and desirable to rehabilitate the debtor
including, but not limited to, amendments to the articles of incorporation and by-laws or
articles of partnership; increase or decrease in the authorized capital stock; issuance of
bonded indebtedness, alienation, transfer, or encumbrance of assets of the debtor; and
modification of shareholder’s rights.
Observe that Rule 4, Section 2(k), prescribes the need for a certification; one, to state
that the filing of the petition has been duly authorized, and two, to confirm that the
directors and stockholders have irrevocably approved and/or consented to, in
accordance with existing laws, all actions or matters necessary and desirable to
rehabilitate the corporate debtor, including, as and when called for, such extraordinary
corporate actions as may be marked out.1awphi1.nét The phrase, "in accordance with
existing laws," obviously would refer to that which is, or to those that are, intended to
be done by the corporation in the pursuit of its plan for rehabilitation. Thus, if any
extraordinary corporate action (mentioned in Rule 4, Section 2(k), of the Interim Rules
on Corporate Rehabilitation) are to be done under the proposed rehabilitation plan, the
petitioner would be bound to make it known that it has received the approval of a
majority of the directors and the affirmative votes of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock of the corporation. Where no such
extraordinary corporate acts (or one that under the law would call for a two-thirds (2/3)
vote) are contemplated to be done in carrying out the proposed rehabilitation plan, then
the approval of stockholders would only be by a majority, not necessarily a two-thirds

(2/3), vote, as long as, of course, there is a quorum 5 a fact which is not here being
disputed.
The trial court and appellate court, unfortunately, have taken an inaccurate
understanding of the memorandum to the Supreme Court of Justice Reynato S. Puno,
the committee chair on the draft of the rules on corporate rehabilitation, still then being
proposed; the memorandum reads, in part, thusly:
"3. Rule 4. – Rehabilitation
"The following are the principal deviation from the SEC Rules:
"a) The proposed Rules now require, as an attachment to the petition, a Certificate
attesting, among others, that the governing body and owners of the petitioning debtor
have approved and consented to whatever is necessary or desirable (including but not
limited to increasing or decreasing the authorized capital stock of the company and
modification of stockholders’ right) to rehabilitate the debtor (Sec. 2, par. (k), Rule 4).
This is to avoid a situation where a rehabilitation plan, after being developed for years,
cannot be implemented because of the refusal of shareholders to approve the
arrangements necessary for its implementation." 6
Nowhere in the aforequoted paragraph can it be inferred that an affirmative vote of

stockholders representing at least two-thirds (2/3) of the outstanding stock is invariably
necessary for the filing of a petition for rehabilitation regardless of the corporate action
that the plan envisions. Just to the contrary, it only requires in the filing of the petition
that the corporate actions therein proposed have been duly approved or consented to
by the directors and stockholders "in consonance with existing laws." The requirement
is designed to avoid a situation where a rehabilitation plan, after being developed and
judicially sanctioned, cannot ultimately be seen through because of the refusal of
directors or stockholders to cooperate in the full implementation of the plan. In fine, a
certification on the approval of stockholders is required but the question, whether such
approval should be by a majority or by a two-thirds (2/3) vote of the outstanding capital
stock, would depend on the existing law vis-à-vis the corporate act or acts proposed to
be done in the rehabilitation of the distressed corporation.
The rehabilitation plan7 submitted by petitioner merely consists of a repayment or re-

structuring scheme of CRDC’s bank loans to Land Bank of the Philippines and
Equitable-PCI Bank and of leasing out most of the available spaces in the Megacenter,
including the completion of the construction of the fourth floor, to increase rental
revenues. None of the proposed corporate actions would require a vote of approval by
the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.
Relative to the contention that a motion for reconsideration is required prior to bringing
up the petition for certiorari (with the Court of Appeals), it should suffice to say that the
filing of a motion for reconsideration before availing of the remedy of certiorari is not
always sine qua non such as when the issue raised is one purely of law, or where the
error is patent or the questions raised on certiorari are exactly the same as those
already squarely presented to and passed upon by the court a quo. 8
WHEREFORE, the instant petition is GRANTED and the questioned decision of the
Court of Appeals, dated 18 January 2002, and the order of the Regional Trial Court,
Branch 28, Cabanatuan City, dated 15 October 2001, in Civil Case No. 4036-AF, are
REVERSED and SET ASIDE. The Regional Trial Court is directed to give due course
to the Petition for Rehabilitation and conduct with dispatch the necessary proceedings
still required thereon. No costs.
SO ORDERED.
NEW CENTRAL BANK ACT, SECTION 30

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of
the head of the supervising or examining department, the Monetary Board finds that a
bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, That this shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become
final, involving acts or transactions which amount to fraud or a dissipation of the assets
of the institution; in which cases, 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 of the banking
institution.
For a quasi-bank, any person of recognized competence in banking or finance

may be designed as receiver.
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, and
exercise the general powers of a receiver under the Revised Rules of Court but shall
not, with the exception of administrative expenditures, pay or commit any act that will
involve the transfer or disposition of any asset of the institution: Provided, That the
receiver may deposit or place the funds of the institution in non-speculative
investments. The receiver shall determine as soon as possible, but not later than ninety
(90) days from take over, whether the institution may be rehabilitated or otherwise
placed in such a condition so that it may be permitted to resume business with safety
to its depositors and creditors and the general public: Provided, That any determination
for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or

permitted to resume business in accordance with the next preceding paragraph, the
Monetary Board shall notify in writing the board of directors of its findings and direct the
receiver to proceed with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior
notice or any other action, a petition for assistance in the liquidation of the institution
pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation
for general application to all closed banks. In case of quasi-banks, the liquidation plan
shall be adopted by the Monetary Board. 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. The receiver shall pay the cost of the proceedings from the
assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and
other parties, for the purpose of paying the debts of such institution in accordance with
the rules on concurrence and preference of credit under the Civil Code of the
Philippines and he may, in the name of the institution, and with the assistance of
counsel as he may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the institution. 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.
The actions of the Monetary Board taken under this section or under Section 29
of this Act shall be final and executory, and may not be restrained or set aside by the
court except on petition for certiorari on the ground that the action taken was in excess
of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt by the
board of directors of the institution of the order directing receivership, liquidation or
conservatorship.
The designation of a conservator under Section 29 of this Act or the

appointment of a receiver under this section shall be vested exclusively with the
Monetary Board. Furthermore, the designation of a conservator is not a precondition to
the designation of a receiver.
INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES,

RULE 9 (A.M. NO. 01-2-04-SC)
Rule 9
MANAGEMENT COMMITTEE

Section 1. Creation of a management committee. - As an incident to any of the
cases filed under these Rules or the Interim Rules Corporate Rehabilitation, a
party may apply for the appointment of a management committee for the
corporation, partnership or association, when there is imminent danger
of:chanroblesvirtuallawlibrary
(1) Dissipation, loss, wastage or destruction of assets or other properties; and
(2) Paralyzation of its business operations which may be prejudicial to the
interest of the minority stockholders, parties-litigants or the general public.
Sec. 2. Receiver. -- In the event the court finds the application to be sufficient in
form and substance, the court shall issue an order; (a) appointing a receiver of
known probity, integrity and competence and without any conflict of interest as
hereunder defined to immediately take over the corporation, partnership or
association, specifying such powers as it may deem appropriate under the
circumstances, including any of the powers specified in Section 5 of this Rule;
(b) fixing the bond of the receiver; (c) directing the receiver to make a report as
to the affairs of the entity under receivership and on other relevant matters
within sixty (60) days from the time he assumes office; (d) prohibiting the
incumbent management of the company, partnership or association from selling,
encumbering, transferring or disposing in any manner any of its properties
except in the ordinary course of business; and (e) directing the payment in full of
all administrative expenses incurred after the issuance of the order.
Sec. 3. Receiver and management committee as officers of the court. - The
receiver and the members of the management committee in the exercise of their
powers and performance of their duties are considered officers of the court and
shall be under its control and supervision.
Sec. 4. Composition of the management committee. - After due notice and

hearing, the court may appoint a management committee composed of three (3)
members chosen by the court. In the appointment of the members of the
management committee, the following qualifications shall be taken into
consideration by the court.
(1) Expertise and acumen to manage and operate a business similar in size and
completely as that the corporation, association or partnership sought to be put
under management committee;
(2) Knowledge in management and finance;
(3) Good moral character, independence and integrity;
(4) A lack of a conflict of interest as defined in these Rules; and

(5) Willingness and ability to file a bond in such amount as may be determined
by the court.
Without limiting the generality of the following, a member of a management

committee may be deemed to have a conflict of interest
if:chanroblesvirtuallawlibrary
(1) He is engaged in a line of business which completes with the corporation,
association or partnership sought to be placed under management;
(2) He is a director, officer or stockholder charged with mismanagement,
dissipation or wastage of the properties of the entity under management; or
(3) He is related by consanguinity or affinity within the fourth civil degree to any
director, officer or stockholder charged with mismanagement, dissipation or
wastage of the properties of the entity under management.
Sec. 5. Powers and functions of the management committee. - Upon assumption

to office of the management committee, the receiver shall immediately render a
report and turn over the management and control of the entity under his
receivership to the management committee.
The management committee shall have the power to take custody of and control
all assets and properties owned or possessed by the entity under management.
It shall take the place of the management and board of directors of the entity
under management, assume their rights and responsibilities, and preserve the
entity's assets and properties in its possession.

Without limiting the generality of the foregoing, the management committee shall
exercise the following powers and functions:chanroblesvirtuallawlibrary
(1) To investigate the acts, conduct, properties, liabilities, and financial condition
of the corporation, association or partnership under management;
(2) To examine under oath the directors and offices of the entity and any other
witnesses that it may deem appropriate;
(3) To report to the court any fact ascertained by it pertaining to the causes of
the problems, fraud, misconduct, mismanagement and irregularities committed
by the stockholders, directors, management or any other person;
(4) To employ such person or persons such as lawyers, accountants, auditors,

appraisers and staff as are necessary in performing its functions and duties as
management committee;
(5) To report to the court any material adverse change in the business of the
corporation, association or partnership under management;
(6) To evaluate the existing assets and liabilities, earnings and operations of the
corporation, association or partnership under management;
(7) To determine and recommended to the court the best way to salvage and
protect the interest of the creditors, stockholders and the general public,
including the rehabilitation of the corporation, association or partnership under
management;
(8) To prohibit and report to the court any encumbrance, transfer, or disposition
of the debtor's property outside of the ordinary course of business or what is
allowed by the court;
(9) To prohibit and report to the court any payments made outside of the
ordinary course of business;
(10) To have unlimited access to the employees, premises, books, records and
financial documents during business hours;
(11) To inspect, copy, photocopy or photograph any document, paper, book,

account or letter, whether in the possession of the corporation, association or
partnership or other persons;
(12) To gain entry into any property for the purposes of inspecting, measuring,
surveying, or photographing it or any designated relevant object or operation
thereon;
(13) To bring to the attention of the court any material change affecting the
entity's ability to meet its obligations;
(14) To revoke resolutions passed by the Executive Committee or Board of

Directors/Trustees or any governing body of the entity under management and
pass resolution in substitution of the same to enable it to more effectively
exercise its powers and functions;
(15) To modify, nullify or revoke transactions coming to its knowledge which it

deems detrimental or prejudicial to the interest of the entity under management;
(16) To recommend the termination of the proceedings and the dissolution of the
entity if determines that the continuance in business of such entry is no longer
feasible or profitable or no longer works to the best interest of the stockholders,
parties-litigants, creditors or the general public;
(17) To apply to the court for any order or directive that it may deem necessary
or desirable to aid it in the exercise of its powers and performance of its duties
and functions; and
(18) To exercise such other powers as may, from time to time, be conferred upon
it by the court.
Sec. 6. Action by management committee. - A majority of its members shall be

necessary for the management committee to act or make a decision. The
chairman of the management committee shall be chosen by the members from
among themselves. The committee may delegate its management functions as
may be necessary to operate the business of the entity under management and
preserve its assets.
Sec. 7. Transactions deemed to be in bad faith. - All transactions made by the
previous management and directors shall be deemed fraudulent and are
rescissible if made within thirty (30) days prior to the appointment of the receiver
or management committee or during their incumbency as receiver or
Sec. 8. Fees and expenses. - The receiver or the management committee and the
persons hired by it shall be entitled to reasonable professionals fees
reimbursement of expenses which shall be considered as administrative
expenses.
Sec. 9. Immunity from suit. - The receiver and members of the management
committee and the persons employed by them shall not be subject to any action,
claim or demand in connection with any act done or omitted by them in good
faith in the exercise of their functions and powers. All official acts and
transactions of the receiver or management committee duly approved or ratified
by the court shall render them immune from any suit in connection with such act
or transaction.
Sec. 10. Reports. - Within a period of sixty (60) days from the appointment of its
members, the management committee shall make a report to the court on the
state of the corporation, partnership or association under management.
Thereafter, the management committee shall report every three (3) months to the
court or as often as the court may require on the general condition of the entity
under management.
Sec. 11. Removal and replacement of a member of the management committee. -

A member of the management is deemed removed upon appointment by the
court of his replacement chosen in accordance with Section 4 of this Rule.
Sec. 12. Discharge of the management committee. - The management committee

shall be discharged and dissolved under the following
circumstances:chanroblesvirtuallawlibrary
(1) Whenever the court, on motion of motu proprio, has determined that the
necessity for the management committee no longer exist;
(2) By agreement of the parties; and
(3) Upon termination of the proceedings.
Upon its discharge and dissolution, the management committee shall submit its
final report and render accounting of its management within such reasonable
time as the court may allow.
RULES OF PROCEDURE FOR CORPORATE REHABILITATION

A.M. No. 00-8-10-SC December 2, 2008
RULES OF PROCEDURE ON CORPORATE REHABILITATION
RESOLUTION
Acting on the recommendation of the Subcommittee on Special Rules for Special
Commercial Courts, submitting for the consideration and approval of the Court the
Resolved to APPROVED the same.
The Rule shall take effect on January 16, 2009 following its publication in two (2)
newspapers of general circulation.
December 2, 2008
RULES OF PROCEDURE ON CORPORATE REHABILITATION (2008)
RULE 1
COVERAGE
Section 1. Scope - These Rules shall apply to petitions for rehabilitation of
corporations, partnerships and associations pursuant to Presidential Decree No. 902-
A, as amended.
Section 2. Applicability to Rehabilitation Cases Transferred from the Securities and
Exchange Commission. - Cases for rehabilitation transferred from Securities Exchange
Commission to the Regional Trial Court pursuant to Republic Act No. 8799, otherwise
known as The Securities Regulation Code, shall likewise be governed by these Rules.
RULE 2
DEFINITION OF TERMS AND CONSTRUCTION
Section 1. Definition of Terms. - For purpose of these Rules:
"Administrative Expenses" shall refer to (a) reasonable and necessary expenses that
are incurred in connection with the filing of the petition; (b) expenses incurred in the
ordinary course of business after the issuance of the stay order, excluding interest
payable to the creditors for loans and credit accommodations existing at the time of the
issuance of the stay order, and (c) other expenses that are authorized under this
Rules.
"Affidavit of General Financial Condition" shall refer to a verified statement on the

general financial condition of the debtor requiredin Section 2, Rule 4 of these Rules.
"Affiliate" is a corporation that directly or indirectly, through one or more intermediaries,
is controlled by, or is under the common control of another corporation, which thereby
becomes its parent corporation.
"Asset" is anything of value that can be in the form of money, such as cash at the bank
or amounts owed; fixed assets such as property or equipment; or intangibles including
intellectual property, the book value of which is shown in the last three audited financial
statement immediately preceding the filing of the petition, In case the debtor is less
than three years in operation, it is sufficient that the book value is based on the audited
financial statement\s for the years or year immediately preceding the filing of petition,
as the case may be.
"Board of Directors" shall include the executive committee or the management of
partnership or association
"Claim" shall include all claims or demands of whatever nature or charter against a
debtor or its property, whether for money or otherwise
"Control" is the power of a parent corporation to direct or govern the financial and
operating policies of an enterprise so as to obtain benefits from its activities. Control is
presumed to exit when the parent owns, directly or indirectly though subsidiaries, more
than one - half (½) of the voting power of the voting power of an enterprise unless,
unless, in exception circumstances, it can clearly be demonstrated that such own ship
does not constitute control. Control also exits even when the parents owns one-half
(1/2) or less of the voting power of an enterprise when there is power.
(A) Over more than one-half (½) of agreement with investors;
(B) To direct or govern the financial and operating policies of the enterprise under a
statute or agreement;
(C) To appoint or remove the majority of the member of the board of directors or
equivalent governing body; or
(D) To cast the majority votes at meeting of the board of directors or equivalent
governing body.
"Creditor" shall mean any holder or a Chain
"Court" shall refer to the proper Regional Trial Court designated to hear and decide the
cases contemplated contemplated under these Rules.
"Days" shall refer to calendar days unless otherwise provided in these Rules.
"Debtor" shall mean any corporation, partnership or association or a group of
companies, whether supervised or regulated by the Securities and Exchange
Commission or other government agencies, on whose behalf a petition for
rehabilitation has been filed under these rules.
"Foreign count" means a judicial or other authority competent to control or supervise a
foreign proceeding.
"Foreign proceeding" means a collective judicial or administrative proceeding in a

foreign State, interim proceeding, pursuant to a law re solvency in which proceeding
the assets and affairs of the debtor are subject to control or supervision by a foreign
count, for the purpose of rehabilitation or re-organization
"Foreign Representative" means person or entity, including one appointed on an
interim basis, authorized in a foreign proceeding to administer the reorganization or
rehabilitation of the debtor or act as a representative of the foreign proceeding.
"Group of companies" refers to, and can cover only, corporation that are financially
refers to, and can cover only, corporations that are financially rated to one another as
parent corporation, subsidiaries and affiliates.
When the petition covers a group of companies, all reference under these Rules to
"debtor" shall include and apply include and apply to the group of companies.
"Liabilities" shall refer to monetary claims against the debtor, including stockholders
advances that have been recoded in the debtor's audited financial statements as
advances for subscription.
"Parent" is a corporation directly or indirectly though one or more intermediaries.
"Rehabilitation" shall mean the restoration of the debtor to a position of successful
operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments
projected in the plan more if the corporation continues as a going concern than if it
immediately liquidated.
"Secured claim" shall refer to any clan whose payment or fulfillment is secured by
contract or by law, including any clam or credit enumerated under Articles 2241 and
2242 of the civil Code and Article 110, as amended, of the Labor code of the
Philippines.
"Subsidiary" mean a corporation more than fifty percent (50%) of the voting stock of
which is owned or controlled directly or indirectly though one or more intermediaries by
another corporation
"Unsecured clan" shall mean any clan other than a seared claim.
Section 2. Construction - These Rules shall be liberally construed to carry out the
objectives of Section 5(d), 6(d) and 6(d) of Presidential Decree No. 902-A, as
amended, and to assist the parties in obtaining a jut, expeditious and inexpensive
determination of case. Where applicable, the Rules of Court shall apply supplementary
to proceedings under these Rules.
RULES 3
GENERAL PROVISONS
Section 1. Nature of Proceeding - Any proceeding initiated under these Rules shall be
considered in rem. Jurisdiction over all persons affected by the proceeding shall be
considered as acquired upon publication of the notice of the commencement of the
proceedings in any newspaper or general circulation in the Philippines in the manner
prescribed by these rules.
The proceedings shall also be summary and non-adversarial in nature. The following
pleading are prohibited:
(a) Motion to dismiss;
(b) Motion for a bill of particulars:
(c) Petition for relief;
(d) Motion for extension;
(e) Motion for postponement
(f) Third-party complaint;
(g) Intervention;
(h) Motion to hear affirmative defenses; and
(I) Any pleading or motion which is similar to or of like effect as any of the foregoing.
Any pleading, motion, opposition, defense or claim filed by any interested party shall be
supported by verified statements that the affiant has read same and that the factual
allegations therein are true and correct of his personal knowledge or based on
authentic records, and correct of his personal knowledge or based on authentic
records, and shall contain as annexes such documents as may be deemed by the
party court may be decide matters on the basis of affidavits and other documentary
evidence. Where necessary, the court shall conduct clarificatory hearings before
resolving any matter submitted to it for resolution.
Section 2. Venue. - Petitions for rehabilitation pursuant to these Rules shall be filed in
the regional trial court which has jurisdiction over the principal office of the debtor as
specified in its articles of incorporation or partnership. Where the principal office of the
corporation, partnership or association is registered in the Securities and Exchange
Commission as Metro Manila, the action must be filed in the regional trial court of the
city or municipality where the head office is located.
A joint petition by a group of companies shall be filed in the Regional Trial Court which
has jurisdiction over the principal office of the parent company, as specified in its
Articles of Incorporation.
Section 3. Service of Pleadings and Documents. - When so authorized by the court,
any pleading and/or document required by these Rules may be filed with the court
and/or served upon the other parties by facsimile transmission (fax) or electronic mail
(e-mail). In such cases, the date of transmission shall be deemed to be the dtae of
service. Where the pleading or document is voluminous, the court may, upon motion,
waive the requirement of service; provided that a copy thereof together with all its
attachments is duly filed with the court and is made available for examination and
reproduction by any party, and provided, further, that a notice of such filing and
availability is duly served on the parties.
Section 4. Trade Secrets and Other Confidential Information. - Upon motion, the court
may issue an order to protect trade secrets or other confidential research, development
or commercial information belonging to the debtor.
Section 5. Executory Nature of Orders. - Any order issued by the court under these
Rules is immediately executory. A petition to review the order shall not stay the
execution of the order unless restrained or enjoined by the appellate court. Unless
otherwise provided in these Rules, the review of any order or decision of the court or
an appeal therefrom shall be in accordance with the Rules of Court; provided, however,
that the reliefs ordered by the trial or appellate courts shall take into account the need
for resolution of proceedings in a just, equitable and speedy manner.
Section 6. Nullification of Illegal Transfers and Preferences. - Upon motion the court
may nullify any transfer of property or any other conveyance, sale, payment or
agreement made in violation of its stay order or in violation of these Rules.
Section 7. Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall; not later than five (5) working days from the filing of the petition,
issue an order: (a) appointing a rehabilitation receive and fixing his bond; (b) staying
enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and
persons not solidarily liable with the debtor; provided, that the stay order shall not cover
claims against letters of credit and similar security arrangements issued by a third party
to secure the payment of the debtor's obligations; provided, further, that the stay order
shall not cover foreclosure by a creditor of property not belonging to a debtor under
corporate rehabilitation; provided, however, that where the owner of such property
sought to be foreclosed is also a guarantor or one who is not solidarily liable, said
owner shall be entitled to the benefit of excussion as such guarantor; (c) prohibiting the
debtor from selling, encumbering, transferring, or disposing in any manner any of its
properties except in the ordinary course of business; (d) prohibiting the debtor from
making any payment of its liabilities except as provided in items (e), (f) and (g) of this
Section or when ordered by the court pursuant to Section 10 of Rule 3; (e) prohibiting
the debtor's suppliers of goods or services from withholding supply of goods and
services in the ordinary course of business for as long as the debtor makes payments
for the services and goods supplied after the issuance of the stay order; (f) directing
the payment in full of all administrative expenses incurred after the issuance of the stay
order; (g) directing the payment of new loans or other forms of credit accommodations
obtained for the rehabilitation of the debtor with prior court approval; (h) fixing the dates
of the initial hearing on the petition not earlier than forty-five (45) days but not later than
sixty (60) days from the filing thereof; (I) directing the petitioner to publish the Order in
a newspaper of general circulation in the Philippines once a week for two (2)
consecutive weeks; (j) directing the petitioner to furnish a copy of the petition and its
annexes, as well as the stay order, to the creditors named in the petition and the
appropriate regulatory agencies such as, but not limited to, the Securities and
Exchange Commission, the Bangko Sentral ng Pilipinas, the Insurance Commission,
the National Telecommunications Commission, the Housing and Land Use Regulatory
Board and the Energy Regulatory Commission; (k) directing the petitioner that foreign
creditors with no known addresses in the Philippines be individually given a copy of the
stay order at their foreign addresses; (l) directing all creditors and all interested parties
(including the regulatory agencies concerned) to file and serve on the debtor a verified
comment on or opposition to the petition, with supporting affidavits and documents, not
later than fifteen (15) days before the date of the first initial hearing and putting them
on notice that their failure to do so will bar them from participating in the proceedings;
and (m) directing the creditors and interested parties to secure from the court copies of
the petition and its annexes within such time as to enable themselves to file their
comment on or opposition to the petition and to prepare for the initial hearing of the
petition.
The issuance of a stay order does not affect the right to commence actions or
proceedings insofar as it is necessary to preserve a claim against the debtor.
Section 8. Service of Stay Order on Rehabilitation Receiver. - The petitioner shall
immediately serve a copy of the stay order on the rehabilitation receiver appointed by
the court, who shall manifest his acceptance or non-acceptance of his appointment not
later than ten (10) days from receipt of the order.
Section 9. Period of Stay Order. - The stay order shall be effective from the date of its
issuance until the approval of the rehabilitation plan or the dismissal of the petition.
Section 10. Relief from, Modification, or Termination of Stay Order. -
(a) The court may, upon motion, terminate, modify, or set conditions for the
continuance of the stay order, or relieve a claim from the coverage thereof upon
showing that (1) any of the allegations in the petition, or any of the contents of any
attachment, or the verification thereof has ceased to be true; (2) a creditor does not
have adequate protection over property securing its claims; (3) the debtor's secured
obligation is more than the fair market value of the property subject of the stay and
such property is not necessary for the rehabilitation of the debtor; or (4) the property
covered by the stay order is not essential or necessary to the rehabilitation and the
creditor's failure to enforce its claim will cause more damage to the creditor than to the
debtor.
(b) For purposes of this Section, the creditor lacks adequate protection if it can be
shown that:
(1) The debtor fails or refuses to honor a pre-existing agreement with the to keep the
property insured;
(2) The debtor fails or refuses to take commercially reasonable steps to maintain the
property; or
(3) The property has depreciated to an extent that the creditor is undersecured
(c) Upon showing the creditor's lack of adequate protection, the court shall order the
rehabilitation receiver to (1) make arrangements to provide for the insurance or
maintenance of the property, or (2) to make payments or otherwise provide additional
or replacement security such as that the obligation is fully secured. If such
arrangements are not feasible, the court shall modify the stay order to allow the
secured creditor lacking adequate protection to enforce its claim against the debtor;
provided, however, that the court may deny the creditor the remedies in this paragraph
if such remedies would prevent the continuation of the debtor as a going concern or
otherwise prevent the approval and implementation of a rehabilitation plan.
Section 11. Qualifications of Rehabilitation Receiver. -

(a) In the appointment of the rehabilitation receiver, the following qualifications shall be
taken into consideration by the court:
(1) Expertise and acumen to manage and operate a business similar in size and
complexity to that of the debtor;
(2) Knowledge in management, finance and rehabilitation of distressed companies;
(3) General familiarity with the rights of creditors in suspension of payments or
rehabilitation and general understanding of the duties and obligations of a rehabilitation
receiver;
(4) Good moral character, independence and integrity;
(5) Lack of conflict of interest as defined in this Section; and
(6) Willingness and ability to file a bond in such amount as may be determined by the
court.
(b) Without limiting the generality of the following, a rehabilitation receiver may be
deemed to have a conflict of interest if:
(1) He is creditor or stockholder of the debtor;
(2) He is engaged in a line of business which competes with the debtor;
(3) He is, or was within two (2) years from the filing of the petition, a director, officer, or
employee or the auditor or accountant of the debtor;
(4) He is or was within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;
(5) He is related by consanguinity or affinity within the fourth civil degree to any
creditor, stockholder, director, officer, employee, or underwriter of the debtor; or
(6) He has any other direct or indirect material interest in the debtor or any creditor.
Section 12. Powers and Functions of Rehabilitation Receiver. - The rehabilitation
receiver shall not take over the management and control of the debtor but shall closely
oversee and monitor the operations of the debtor during the pendency of the
proceedings. For this purpose, the rehabilitation receiver shall have the powers, duties
and functions of a receiver under Presidential Decree No. 902-A, as amended, and the
Rules of Court.
The rehabilitation receiver shall be considered as an officer of the court. He shall be
primarily tasked to study the best way to rehabilitate the debtor and to ensure that the
value of the debtor's property is reasonably maintained pending the determination of
whether or not the debtor should be rehabilitated, as well as implement the
rehabilitation plan after its approval. Accordingly, he shall have the following powers
and functions:
(a) To verify the accuracy of the petition, including its annexes such as the Schedule of
Debts and Liabilities and the Inventory of Assets submitted in support to the petition;
(b) To accept and incorporate, when justified, amendments to the Schedule of Debts
and Liabilities;
(c) To recommend to the court the disallowance of claims and rejection of amendments
t the Schedule of Debts and Liabilities that lack sufficient proof and justification;
(d) To submit to the court and make available for review by the creditors, a revised
Schedule of Debts and Liabilities;
(e) To investigate the acts, conduct, properties, liabilities and financial condition of the
debtor, the operation of its business and the desirability of the continuance thereof;
and, any other matter relevant to the proceeding or to the formulation of a rehabilitation
plan;
(f) To examine under oath the directors and officers of the debtor and any other
witnesses that he may deem appropriate;
(g) To make available to the creditors documents and notices necessary for them to
follow and participate in the proceedings;
(h) To report to the court any fact ascertained by him pertaining to the causes of the
debtor's problems, fraud, preferences, dispositions, encumbrances, misconduct,
mismanagement and irregularities committed by the stockholders, directors,
management,, or any other person against the debtor;
(i) To employ such person or persons such as lawyers, accountants, appraisers and
staff are necessary in performing his functions and duties as rehabilitation receiver;
(j) To monitor the operations of the debtor and to immediately report to the court any
material adverse change in the debtor's business;
(k) To evaluate the existing assets and liabilities, earnings and operations of the
debtor;
(l) To determine and recommend to the court the best way to salvage and protect the
interests of the creditors, stockholders and the general public;
(m) To study the rehabilitation plan proposed by the debtor or any rehabilitation plan
submitted during the proceedings, together with any comments made thereon;
(n) To prohibit and report to the court any encumbrance, transfer or disposition of the
debtor's property outside of the ordinary course of business or what is allowed by the
court;
(o) To prohibit and report to the court any payments outside of the ordinary course of
business;
(p) To have unlimited access to the debtor's employees, premises, books, records and
financial documents during business hours;
(q) To inspect, copy, photocopy or photograph any document, paper, book, account or
letter, whether in the possession of the debtor or other persons;
(r) To gain entry into any property for the purpose of inspecting, measuring, surveying
or photographing it or any designated relevant object or operation thereon;
(s) To take possession, control and custody of the debtor's assets;

(t) To notify counterparties and the court as to contracts that the debtor has decided to
continue to perform the breach;
(u) To be notified of and to attend all meetings of the board of directors and stockholder
of the debtor;
(v) To recommend any modification of an approved rehabilitation plan as he may deem
appropriate;
(w) To bring to the attention of the court any material change affecting the debtor's
ability to meet the obligations under the rehabilitation plan;
(x) To recommend the appointment of a management committee in the cases provided
for under Presidential Decree No. 902-A, as amended;
(y) To recommend the termination of the proceedings and the dissolution of the debtor
if he determines that the continuance in business of such entity is no longer feasible or
profitable or no longer works to the best interest of the stockholders, parties-litigants,
creditors or the general public;
(z) To apply to the court for any order or directive that he may deem necessary or
desirable to aid him in the exercise of his powers and performance of his duties and
functions; and
(aa) To exercise such other powers as may from time to time be conferred upon him by
the court.
Section 13. Oath and Bond. - Before entering upon his powers, duties and functions,
the rehabilitation receiver must be sworn in to perform them faithfully, and must post a
bond executed in favor of the debtor in such sum as the court may direct, to guarantee
that he will faithfully discharge his duties and obey the orders of the court. If necessary,
he shall also declare under oath that he will perform the duties of a trustee of the
assets of the debtor, will act honestly and in good faith, and deal with the assets of the
debtor on a commercially reasonable manner.
Section 14. Fees and Expenses. - The rehabilitation receiver and the persons hired by
him shall be entitled to reasonable professional fees and reimbursement of expenses
which shall be considered as administrative expenses.
Section 15. Immunity from Suit. - The rehabilitation receiver shall not be subject to any
action, claim or demand in connection with any act done or omitted by him in good faith
in the exercise of his functions and powers herein conferred.
Section 16. Reports. - The rehabilitation receiver shall file a written report every three
(3) months to the court or as often as the court may require on the general condition of
the debtor. The report shall include, at the minimum, interim financial statements of the
debtor.
Section 17. Dismissal of Rehabilitation Receiver. - A rehabilitation receiver may, upon
motion, be dismissed by the court on the following grounds: (a) if he fails, without just
cause, to perform any of his powers and functions under these Rules; or (b) on any of
the grounds for removing a trustee under the general principles of trusts.
Section 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but not
limited, to the non-impairment of their security liens or interests; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the
execution of the rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale exchange or any disposition of
assets or of the interest of shareholders, partners or members; (e) a liquidation
analysis setting out for each creditor that the present value of payments it would
receive under the plan is more than that which it would receive if the assets of the
debtor were sold by a liquidator within a six-month period from the estimated date of
filing of the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation plan.
Section 19. Repayment Period. - If the rehabilitation plan extends the period for the
debtor to pay its contractual obligations, the new period should not extend beyond
fifteen (15) years from the expiration of the stipulated term existing at the time of filing
of the petition.
Section 20. Effects of Rehabilitation Plan. - The approval of the rehabilitation plan by
the court shall result in the following:
(a) The plan and its provisions shall be binding upon the debtor and all persons who
may be affected thereby, including the creditors, whether or not such persons have
participated in the proceedings or opposed the plan or whether or not their claims have
been scheduled;
(b) The debtor shall comply with the provisions of the plan and shall take all actions
necessary to carry out the plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the
plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the plan; and
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor
shall be binding on creditors regardless of whether or not the plan is successfully
implemented.
Section 21. Revocation of Rehabilitation Plan on Grounds of Fraud. - Upon motion,
within ninety (90) days from the approval of the rehabilitation plan, and after notice and
hearing, the court may revoke the approval thereof on the ground that the same was
secured through fraud.
Section 22. Alteration or Modification of Rehabilitation Plan. - An approved
rehabilitation plan may, upon motion, be altered or modified if, in the judgement of the
court, such alteration or modification is necessary to achieve the desired targets or
goals set forth therein.
Section 23. Termination of Proceedings. - The court shall, upon motion or upon
recommendation of the rehabilitation receiver, terminate the proceeding in any of the
following cases:
(a) Dismissal of the petition;
(b) Failure of the debtor to submit the rehabilitation plan;
(c) Disapproval of the rehabilitation plan by the court;
(d) Failure to achieve the desired targets or goals as set forth in the rehabilitation plan;
(e) Failure of the debtor to perform its obligations under the plan;
(f) Determination that the rehabilitation plan may no longer be implemented in
accordance with its terms, conditions, restrictions or assumptions; or
(g) Successful implementation of the rehabilitation plan.
Section 24. Discharge of Rehabilitation Receiver. - Upon termination of the
rehabilitation proceedings, the rehabilitation receiver shall submit his final report and
accounting with such period of time as the court will allow him. Upon approval of his
report and accounting, the court shall order his discharge.
RULE 4
DEBTOR-INITIATED REHABILITATION
Section 1. Who May Petition. - Any debtor who foresees the impossibility of meeting
its debts when they respectively fall due, may petition the proper regional trial court for
rehabilitation.
A group of companies may jointly file a petition for rehabilitation under these Rules
when one or more of its constituent corporations foresee the impossibility of meeting
debts when they respectively fall due, and the financial distress would likely adversely
affect the financial condition and/or operations of the other member companies of the
group is essential under the terms and conditions of the proposed rehabilitation plan.
Section 2. Contents of Petition. -
(a) The petition filed by the debtor must be verified and must set forth with sufficient
particularity all the following material facts: (1) the name and business of the debtor; (2)
the nature of the business of the debtor; (3) the history of the debtor; (4) the cause of
its inability to pay its debts; (5) all the pending actions or proceedings known to the
debtor and the courts or tribunals where they are pending; (6) threats or demands to
enforce claims or liens against the debtor; and (7) the manner by which the debtor may
be rehabilitated and how such rehabilitation may benefit the general body of creditors,
employees and stockholders.
(b) The petition shall be accompanied by the following documents:
(1) An audited financial statement of the debtor at the end of its last fiscal year;
(2) Interim financial statements as of the end of the month prior to the filing of the
petition;
(3) A Schedule of Debts and Liabilities which lists all the creditors of the debtor,
indicating the name and last address of record of each creditor; the amount of each
claim as to principal, interest, or penalties due as of the date of filing; the nature of the
claim; and any pledge, lien, mortgage judgement or other security given for the
payment thereof;
(4) An Inventory of Assets which must list with reasonable specificity all the assets of
the debtor, stating the nature of each asset, the location and condition thereof, the
book value or market value of the asset, and attaching the corresponding certificate of
title thereof in case of real property, or the evidence of title or ownership in case of
movable property, the encumbrances, liens or claims thereon, if any, and the identities
and addresses of the lienholders and claimants. The Inventory shall include a
Schedule of Accounts Receivable which must indicate the amount of each, the persons
from who due, the date of maturity and the degree of collectibility categorizing them as
highly collectible to remotely collectible;
(5) A rehabilitation plan which conforms with the minimal requirements set out in
Section 18 of Rule 3;
(6) A Schedule of Payments and Disposition of Assets which the debtor may have
effected within three (3) months immediately preceding the filing of the petition;
(7) A Schedule of Cash Flow of the debtor for three (3) months immediately preceding
the filing of the petition, and a detailed schedule of the projected cash flow for the
succeeding three (3) months;
(8) A Statement of Possible Claims by or against the debtor which must contain a brief
statement of the facts which might give rise to the claim and an estimate of the
probable amount thereof;
(9) An Affidavit of General Financial Condition which shall contain answers to the
questions or matters prescribed in Annex "A" hereof;
(10) At least three (3) nominees for the position of rehabilitation receiver as well as
their qualifications and addresses, including but not limited to their telephone numbers,
fax numbers and e-mail address; and
(11) A certificate attesting under oath that (i) the filing of the petition has been duly
authorized; and (ii) the directors and stockholders of the debtor have irrevocably
approved and/or consented to, in accordance with existing laws, all actions or matters
necessary and desirable to rehabilitate the debtor including, but not limited to,
amendments to the articles of incorporation and by-laws or articles of partnership;
increase or decrease in the authorized capital stock; issuance of bonded indebtedness;
alienation, transfer, or encumbrance of assets of the debtor; and modification of
shareholders' rights.
(c) Five (5) copies of the petition shall be filed with the court.
Section 3. Verification by Debtor. - The petition filed by the debtor must be verified by
an affidavit of a responsible officer of the debtor and shall be in a form substantially as
follows:
"I, ___________________, (position) of (name of petitioner), do solemnly swear that

the petitioner has been duly authorized to file the petition and that the stockholders and
board of directors (or governing body) have approved and/or consented to, accordance
with law, all actions or matters necessary or desirable to rehabilitate the debtor. The
petition is being filed to protect the interests of the debtor, the stockholders, the
inventors and the creditors of the debtor, which warrant the appointment of a
rehabilitation receiver. There is no petition for insolvency filed with any other body,
court of tribunal affecting the petitioner. The Inventory of Assets and the Schedule of
Debts and Liabilities contains a full, correct and true description of all debts and
liabilities and of all goods, effects, estate and property of whatever kind of class
belonging to petitioner. The Inventory also contains a full, correct and true statement of
all debts owing or due to petitioner, or to any person or persons in trust for petitioner
and of all securities and contracts whereby any money may hereafter become due or
payable to petitioner or by or through which any benefit or advantage may accrue to
petitioner. The petition contains a concise statement of the facts giving rise, or which
might give rise, to any cause of action in favor of petitioner. Petitioner has no land,
money, stock, expectancy, or property of any kind, except those set forth in the
Inventory of Assets. Petitioner has, in no instance, created or acknowledged a debt for
a greater sum than the true and correct amount. Petitioner, its officers, directors and
stockholders have not, directly or indirectly, concealed, fraudulently sold or otherwise
fraudulently disposed of, any part of petitioner's real or personal property, estate,
effects or rights of action, and petitioner, its officers, directors and stockholders have
not in any way compounded with any of its creditors in order to give preference to such
creditors, or to receive or to accept any profit or advantage therefrom, or to defraud or
deceive in any manner any creditor to whom petitioner is indebted. Petitioner, its
officers, directors, and stockholders have been acting in good faith and with due
diligence.
Section 4. Opposition to or Comment on Petition. - Every creditor of the debtor or any
interested party shall file his verified opposition to or comment on the petition not later
than fifteen (15) days before the date of the initial hearing fixed in the stay order. After
such time, no creditor or interested party shall be allowed to file any comment thereon
or opposition thereto without leave of court.
If the Schedule of Debts and Liabilities omits a claim or liability, the creditor concerned
shall attach to its comment or opposition a verified statement of the obligations
allegedly due it.
Section 5. Initial Hearing. -
(a) On or before the initial hearing set in the order mentioned in Section 7 of Rule 3, the
petitioner shall file a publisher's affidavit showing that the publication requirements and
a petitioner's affidavit showing that the notification requirement for foreign creditors had
been complied with, as required in the stay order.
(b) Before proceeding with the initial hearing, the court shall determine whether the
jurisdictional requirements set forth above had been complied with. After finding that
such requirements are met, the court shall ensure that the parties consider in detail all
of the following:
(1) Amendments to the rehabilitation plan proposed by the debtor;
(2) Simplification of the issues;
(3) The possibility of obtaining stipulations and admission of facts and documents,
including resort to request for admission under Rule 26 of the Rule of Court;
(4) The possibility of amicably agreeing on any issue brought up in the comments on,
or opposition to, the petition;
(5) Referral of any accounting, financial and other technical issues to an expert;
(6) The possibility of submitting the petition for decision on the basis of the comments,
opposition, affidavit and other documents on record;
(7) The possibility of a new rehabilitation plan voluntarily agreed upon by the debtor
and its creditors; and
(8) Such other matters as may aid in the speedy and summary disposition of the case.
Section 6. Additional Hearings. - The court may hold additional hearings as part of the
initial hearing contemplated in these Rules but the initial hearing must be concluded
not later than ninety (90) days from the initial date of the initial hearing fixed in the stay
order.
Section 7. Order After Initial Hearing. -
(a) Within twenty (20) days after the last hearing, the court shall issue an order which
shall:
(1) Give due course to the petition and immediately refer the petition and its annexes to
the rehabilitation receiver who shall evaluate the rehabilitation plan and submit his
recommendations to the court not later than ninety (90) days from the date of the last
initial hearing, if the court is satisfied that there is merit to the petition, otherwise the
court shall immediately dismiss the petition; and
(2) Recite in detail the matters taken up in the initial hearing and the action taken
thereon, including a substitute rehabilitation plan contemplated in Sections 5 (b)(7) and
(8) of this Rule;
(b) If the debtor and creditors agree on a new rehabilitation plan pursuant to Section 5
(b)(7) of this Rule, the order shall so state the fact and require the rehabilitation
receiver to supply the details of the plan and submit it for the approval of the court not
later than sixty (6) days from the date of the last initial hearing. The court shall approve
the new rehabilitation plan not later than ninety (90) days from the date of the last initial
hearing upon concurrence of the following:
(1) Approval or endorsement of creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor including secured creditors holding more than fifty percent (50%)
of the total secured claims of the debtor and unsecured creditors holding more than
fifty percent (50%) of the total unsecured claims of the debtor;
(2) The rehabilitation plan complies with the requirements specified in Section 18 of
Rule 3;
(3) The rehabilitation plan would provide the objecting class of creditors with payments
whose present value projected in the plan would be greater than that which they would
have received if the assets of the debtor were sold by a liquidator within a six (6) month
period from the date of filing of the petition; and
(4) The rehabilitation receiver has recommended approval of the plan.
The approval by the court of the new rehabilitation plan shall have the same effect as
approval of a rehabilitation plan under Section 20 of Rule 3.
Section 8. Creditors' Meetings. - If no new rehabilitation plan is agreed upon by the
debtor and the creditors, the rehabilitation receiver, at any time before he submits his
evaluation on the debtor-proposed rehabilitation plan to the court as prescribed in
Section 7(a)(1) of this Rule, shall, either alone or with the debtor, meet with the
creditors or any interested party t discuss the plan with a view to clarifying or resolving
any matter connected therewith.
Section 9. Comments on or Opposition to Rehabilitation Plan. - Any creditor or
interested party of record may file comments on or opposition to the proposed
rehabilitation plan, with a copy given to the rehabilitation receiver, not later than sixty
(60) days from the date of the last initial hearing. The court shall conduct summary and
non-adversarial proceedings to receive evidence, if necessary, in hearing the
comments on and opposition to the plan.
Section 10. modification of Proposed Rehabilitation Plan. - The debtor may modify its
rehabilitation plan in the light of the comments of the rehabilitation receiver and
creditors or any interested party and submit a revised or substitute rehabilitation plan
for the final approval of the court. Such rehabilitation plan must be submitted to the
court not later than ten (10) moths from the date of filing of the petition.
Section 11. Approval of Rehabilitation Plan. - The court may approve a rehabilitation
plan even over the opposition of creditors of the debtor if, in its judgement, the
rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly
unreasonable if the following are present:
(a) The rehabilitation plan complies with the requirements specified in Section 18 of
Rule 3;
(b) The rehabilitation plan would provide the objecting class of creditors with payments
whose present value projected in the plan would be greater than that which they would
have received if the assets of the debtor were sold by a liquidator within a six (6)-month
period from the date of filing of the petition; and
(c) The rehabilitation receiver has recommended approval of the plan.
In approving the rehabilitation plan, the court shall ensure that the rights of the secured
creditors are not impaired. The court shall also issue the necessary orders or
processes for its immediate and successful implementation. it may impose such terms,
conditions, or restrictions as the effective implementation and monitoring thereof may
reasonably require, or for the protection and preservation of the interests of the
creditors should the plan fall.
Section 12. Period to Decide Petition. - The court shall decide the petition within one
(1) year from the date of filing of the petition, unless the court, for good cause shown, is
able to secure an extension of the period from the Supreme Court.
RULE 5
CREDITOR-INITIATED REHABILITATION
Section 1. Who May Petition. - Any creditor or creditors holding at least twenty percent
(20%) of the debtor's total liabilities may file a petition with the proper regional trial
court for rehabilitation of a debtor that cannot meet its debts as they respectively fall
due.
Section 2. Requirements for Creditor-Initiated Petitions. - Where the petition is filed by
a creditor or creditors under this Rule, it is sufficient that the petition is accompanied by
a rehabilitation plan and a list of at least three (3) nominees to the position of
rehabilitation receiver and verified by a sworn statement that the affiant has read the
petition and that its contents are true and correct of his personal knowledge or based
on authentic records and that the petition is being filed to protect the interests of the
debtor, the stockholders, the investors and the creditors of the debtor.
Section 3. Applicability of Provisions Relating to Debtor-Initiated Rehabilitation. - The
provisions of Sections 5 to 12 of Rule 4 shall apply to rehabilitation under this Rule.
RULE 6
PRE-NEGOTIATED REHABILITATION
Section 1. Pre-negotiated Rehabilitation Plan. - A debtor that foresees the impossibility
of meeting its debts as they fall due may, by itself or jointly with any of its creditors, file
a verified petition for the approval of a pre-negotiated rehabilitation plan. The petition
shall comply with Section 2 of Rule 4 and be supported by an affidavit showing the
written approval or endorsement of creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than fifty percent
(50%) of the total secured claims of the debtor and unsecured creditors holding more
than fifty percent (50%) of the total unsecured claims of the debtor.
Section 2. Issuance of Order. - If the court finds the petition sufficient in form and
substance, it shall, not later than five (5) working days from the filing of the petition,
issue an order which shall:
(a) Identify the debtor, its principal business or activity/ies and its principal place of
business;
(b) Direct the publication of the order in a newspaper of general circulation once a
week for at least two (2) consecutive weeks, with the first publication to be made within
seven (7) days from the time of its issuance;
(c) Direct the service by personal delivery of a copy of the petition on each creditor who
is not a petitioner holding at least five percent (5%) of the total liabilities of the debtor,
as determined in the schedule attached to the petition, within three (3) days;
(d) Direct the petitioner to furnish a copy of the petition and its annexes, as well as the
stay order, to the relevant regulatory agency;
(e) State that copies of the petition and the rehabilitation plan are available for
examination and copying by any interested party;
(f) Direct creditors and other parties interested (including the Securities and Exchange
Commission and the relevant regulatory agencies such as, but not limited to, the
Bangko Sentral ng Pilipinas, the Insurance Commission, the National
Telecommunications Commission, the Housing and Land Use Regulatory Board and
the Energy Regulatory Commission) in opposing the petition or rehabilitation plan to file
their verified objections thereto or comments thereon within a period of not later than
twenty (20) days from the second publication of the order, with a warning that failure to
do so will bar them from participating in the proceedings;
(g) Appoint the rehabilitation receiver named in the plan, unless the court finds that he
is not qualified under these Rules in which case it may appoint a qualified rehabilitation
receiver of its choice;
(h) Stay enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and
persons not solidarily liable with the debtor; provided, that the stay order shall not cover
claims against letters of credit and similar security arrangements issued by a third party
to secure the payment of the debtor's obligations; provided further, that the stay order
shall not cover foreclosure by a creditor of property not belonging to a debtor under
corporate rehabilitation; provided, however, that where the owner of such property
sought to be foreclosed is also a guarantor or one who is not solidarily liable, said
owner shall be entitled to be benefit of excussion as such guarantor;
(i) Prohibit the debtor from selling, encumbering, transferring, or disposing in any
manner any of its properties except in the ordinary course of business;
(j) Prohibit the debtor from making any payment of its liabilities outstanding as of the
date of filing of the petition;
(k) Prohibit the debtor's suppliers of goods or services from withholding supply of
goods and services in the ordinary course of business for as long as the debtor makes
payments for the services and goods supplied after the issuance of the stay order;
(l) Direct the payment in full of all administrative expenses incurred after the issuance
of the stay order; and
(m) Direct the payment of new loans or other forms of credit accommodations obtained
for the rehabilitation of the debtor with prior court approval.
Section 3. Approval of Plan. - Within ten (10) days from the date of the second
publication of the order referred to in Section 2 of this Rule, the court shall approve the
rehabilitation plan unless a creditor or other interested party submits a verified
objection to it in accordance with the next succeeding section.
Section 4. Objection to Petition or Rehabilitation Plan. - Any creditor or other

interested party may submit to the court a verified objection to the petition or the
rehabilitation plan. The objection shall be limited to the following:
(a) The petition or the rehabilitation plan or their attachments contain material
omissions or are materially false or misleading;
(b) The terms of rehabilitation are unattainable; or
(c) The approval or endorsement of creditors required under Section 1 of this Rule has
not been obtained
Copies of any objection to the petition or the rehabilitation plan shall be served on the
petitioning debtor and/or creditors.
Section 5. Hearing on Objections. - The court shall set the case for hearing not earlier
than ten (10) days and no longer than twenty (20) days from the date of the second
publication of the order mentioned in Section 2 of this Rule on the objections is in
accordance with the immediately preceding section, it shall direct the petitioner to cure
the defect within a period fifteen (15) days from receipt of the order.
Section 6. Period for Approval of Rehabilitation Plan. - The court shall decide the
petition not later than one hundred twenty (120) days from the date of the filing of the
petition. If the court fails to do so within said period, the rehabilitation plan shall be
deemed approved.
Section 7. Effects of Approval of Rehabilitation Plan. - Approval of the rehabilitation
plan under this Rule shall have the same legal effect as approval of a rehabilitation
plan under Section 20 of Rule 3.
Section 8. Revocation of Approved Rehabilitation Plan. - Not later than thirty (30) days
from the approval of a rehabilitation plan under this Rule, the plan may, upon motion
and after notice and hearing, be revoked on the ground that the approval was secured
by fraud or that the petitioner has failed to cure the defect ordered by the court
pursuant to Section 5 of this Rule.
Section 9. Effect of Rule on Pending Petitions. - Any pending petition for rehabilitation
that has not undergone the initial hearing prescribed under the Interim Rules of
Procedure for Corporate Rehabilitation at the time of the effectivity of these Rules may
be converted into a rehabilitation proceeding under this Rule.
RULE 7
RECOGNITION OF FOREIGN PROCEEDINGS
Section 1. Scope of Application. - This Rule applies where (a) assistance is sought in
a Philippine court by a foreign court or a foreign representative in connection with a
foreign proceeding; (b) assistance is sought in a foreign State in connection with a
domestic proceeding governed by these Rules; or (c) a foreign proceeding and a
domestic proceeding are concurrently taking place.
The sole fact that a petition is filed pursuant to this Rule does not subject the foreign
representative or the foreign assets and affairs of the debtor to the jurisdiction of the
local courts for any purpose other than the petition.
Section 2. Non-Recognition of Foreign Proceeding. - Nothing in this Rule prevents the

court from refusing to take an action governed by this Rule if (a) the action would be
manifestly contrary to the public policy of the Philippines; and (b) if the court finds that
the country of which the petitioner is a national does not grant recognition to a
Philippine rehabilitation proceeding in a manner substantially in accordance with this
Rule.
Section 3. Petition for Recognition of Foreign Proceeding. - A foreign representative
may apply with the Regional Trial Court where the debtor resides for recognition of the
foreign proceeding in which the foreign representative has been appointed.
A petition for recognition shall be accompanied by:
(a) A certified copy of the decision commencing the foreign proceeding and appointing
the foreign representative; or
(b) A certificate from the foreign court affirming the existence of the foreign proceeding
and of the appointment of the foreign representative; or
(c) In the absence of evidence referred to in subparagraph (a) and (b), any other
evidence acceptable to the court of the existence of the foreign proceeding and of the
appointment of the foreign representative.
Section 4. Recognition of Foreign Proceeding. - A foreign proceeding shall be
recognized if:
(a) The proceeding is a foreign proceeding as defined herein;
(b) The person or body applying for recognition is a foreign representative as defined
herein; and
(c) The petition meets the requirements of Section 3 of this Rule;
Section 5. Period to Recognize Foreign Proceeding. - A petition for recognition of a
foreign proceeding shall be decided within thirty (30) days from the filing thereof.
Section 6. Notification to Court. - From the time of filing the petition for recognition f the
foreign proceeding, the foreign representative shall inform the court promptly of:
(a) Any substantial change in the status of the foreign proceeding or the status of the
foreign representative's appointment; and
(b) Any other foreign proceeding regarding the same debtor that becomes known to the
foreign representative.
Section 7. Provisional Relief that May be Granted upon Application for Recognition of
Foreign Proceeding. - From the time of filing a petition for recognition until the same is
decided upon, the court may, upon motion of the foreign representative where relief is
urgently needed to protect the assets of the debtor or the interests of the creditors,
grant relief of a provisional nature, including:
(a) Staying execution against the debtor's assets;
(b) Entrusting the administration or realization of all or part of the debtor's assets
located in the Philippines to the foreign representative or another person designated by
the court in order to protect and preserve the value of assets that, by their nature or
because of other circumstances, are perishable, susceptible to devaluation or

otherwise in jeopardy;
(c) Any relief mentioned in Section 9(a)(1), (2) and (7) of this Rule.
Section 8. Effects of Recognition of Foreign Proceeding. - Upon recognition of a
foreign proceeding:
(a) Commencement or continuation of individual actions or individual proceedings
concerning the debtor's assets, rights, obligations or liabilities is stayed; provided, that
such stay does not affect the right to commence individual actions or proceedings to
the extent necessary to preserve a claim against the debtor.
(b) Execution against the debtor's assets is stayed; and
(c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is
suspended.
Section 9. Relief That May be Granted After Recognition of Foreign Proceeding. -
(a) Upon recognition of a foreign proceeding, where necessary to protect the assets of
the debtor or the interests of the creditors, the court may, upon motion of the foreign
representative, grant any appropriate relief including:
(1) Staying the commencement or continuation of individual actions or individual
proceedings concerning the debtor's assets, rights, obligations or liabilities to the
extent they have not been stayed under Section 8(a) of this Rule;
(2) Staying execution against the debtor's assets to the extent it has not been stayed
under Section 8(b) of this Rule;
(3) Suspending the right to transfer, encumber or otherwise dispose of any assets of
the debtor to the extent this right has not been suspended under Section 8(c) of this
Rule;
(4) Providing for the examination of witnesses, the taking of evidence or the delivery of
information concerning the debtor's assets, affairs, rights, obligations or liabilities;
(5) Entrusting the administration or realization of all or part of the debtor's assets
the court;
(6) Extending the relief granted under Section 7 of this Rule;
(7) Granting any additional relief that may be available to the rehabilitation receiver
under these laws.
(b) Upon recognition of a foreign proceeding, the court may, at the request of the
foreign representative, entrust the distribution of all or part of the debtor's assets
the court; provided that the court is satisfied that the interests of local creditors are
adequately protected.
Section 10. Protection of Creditors and Other Interested Persons. -
(a) In granting or denying relief under this Rule or in modifying or terminating the relief
under paragraph (c) of this Section, the court must be satisfied that the interests of the
creditors and other interested persons, including the debtor, are adequately protected.
(b) The court may subject the relief granted under Section 7 or Section 9. Of this Rule
to conditions it considers appropriate.
(c) The court may, upon motion of the foreign representative or a person affected by
the relief granted under Section 7 or Section 9 of this Rule, or on its own motion,
modify or terminate such relief.
Section 11. Actions to Avoid Acts Detrimental to Creditors. - Upon recognition of a
foreign proceeding, the foreign representative acquires the standing to initiate actions
to avoid or otherwise render ineffective acts detrimental to creditors that are available
under these Rules.
Section 12. Intervention by Foreign Representative in Philippine Proceedings. - Upon
recognition of a foreign proceeding, the foreign representative may intervene in any
action or proceeding in the Philippines in which the debtor is a party.
Section 13. Cooperation and Direct Communication with Foreign Courts and Foreign
Representatives. - In matters covered by this Rule, the court shall cooperate to the
maximum extent possible with foreign courts or foreign representatives.
The court is entitled to communicate directly with, or request information or assistance
directly from, foreign courts or foreign representatives.
Section 14. Forms of Cooperation. - Cooperation may be implemented by any
appropriate means, including but not limited to the following:
(a) Appointment of a person or body to act at the discretion of the court;
(b) Communication of information by any means considered appropriate by the court;
(c) Coordination of the administration and supervision of the debtor's assets and
affairs;
(d) Approval or implementation by courts of agreements concerning the coordination of
proceedings;
(e) Coordination of concurrent proceedings regarding the same debtor;
(f) Suspension of proceedings against the debtor;
(g) Limiting the relief of assets that should be administered in a foreign proceeding
pending in a jurisdiction other than the place where the debtor has its principal place of
business (foreign non-main proceeding) or information required in that proceeding; and
(h) Implementation of rehabilitation or re-organization plan for the debtor.
Nothing in this Rule limits the power of the court to provide additional assistance to the
foreign representative under other applicable laws.
Section 15. Commencement of Local Proceeding after Recognition of Foreign
Proceeding. - After the recognition of a foreign proceeding, a local proceeding under
these Rules may be commenced only if the debtor is doing business in the Philippines,
the effects of the proceedings shall be restricted to the assets of the debtor located in
the country and, to the extent necessary to implement cooperation and coordination
under Sections 13 and 14 of this Rule, to the other assets of the debtor that, under
local laws, must be administered in that proceeding.
Section 16. Local and Foreign Proceedings. - Where a foreign proceeding and a local
proceeding are taking place concurrently regarding the same debtor, the court shall
seek cooperation and coordination under Section 13 and 14 of this Rule. Any relief
granted to the foreign proceeding must be made consistent with the relief granted in
the local proceeding.
RULE 8
PROCEDURAL REMEDIES
Section 1. Motion for Reconsideration. - A party may file a motion for reconsideration
of any order issued by the court prior to the approval of the rehabilitation plan. No relief
can be extended to the party aggrieved by the court's order on the motion through a
special civil action for certiorari under Rule 65 of the rules of Court. Such order can
only be elevated to the Court of Appeals as an assigned error in the petition for review
of the decision or order approving or disapproving the rehabilitation plan.
An order issued after the approval of the rehabilitation plan can de reviewed only
through a special civil action for certiorari under Rule 65 of the Rules of Court.
Section 2. Review of Decision or Order on Rehabilitation Plan. - an order approving or
disapproving a rehabilitation plan can only be reviewed through a petition for review to
the Court of Appeals under Rule 43 of the Rules of Court within fifteen (15) days from
notice of the decision or order.
RULE 9
FINAL PROVISIONS
Section 1. Severability. - If any provision or section of these Rules is held invalid, the
other provisions or sections shall not be affected thereby.
Section 2. Transitory Provision. - Unless the court orders otherwise to prevent
manifest injustice, any pending petition for rehabilitation that has not undergone the
initial hearing prescribed under the Interim Rules of Procedure for Corporate
Rehabilitation at the time of the effectivity of these Rules shall be governed by these
rules.
Section 3. Effectivity. - These Rules shall take affect on 16 January 2009 following its
publication in two (2) newspapers of general circulation in the Philippines.
ANNEX "A"
AFFIDAVIT OF GENERAL FINANCIAL CONDITION
(1) Are you an officer of the debtor referred to in these proceedings?
(2) What is your full name and what position do you hold in the debtor?
(3) What is the full name of the debtor and what is the address of its head office?
(4) When was it formed or incorporated?
(5) When did the debtor commence business?

(6) What is the nature of its business? What is the market share of the debtor in the
industry in which it is engaged?
(7) Who are the parties, members, or stockholders? How many employees?
(8) What is the capital of the debtor?
(9) What is the capital contribution and what is the amount of the capital, paid and
unpaid, of each of the partners or shareholders?
(10) Do any of these people hold the shares in trust for others?
(11) Who are the directors and officers of the debtors?
(12) Has the debtor any subsidiary corporation? If so, give particulars?
(13) Has the debtor properly maintained its books and are they updated?
(14) Were the books audited annually?
(15) If so, what is the name of the auditor and when was the last audited statement
drawn up?
(16) Have all proper returns been made to the various government agencies requiring
same?
(17) When did the debtor first become aware of its problems?
(18) Has the debtor within the twelve months preceding the filing of the petition:
(a) made any payments, returned any goods or delivered any property to any of its
creditors, except in the normal course of business?
(b) executed any mortgage, pledge, or security over any of its properties in favor of any
creditor?
(c) transferred or disposed of any of its properties in payment of any debt?
(d) sold, disposed of, or removed any of its property except in the ordinary course of
business?
(e) sold any merchandise at less than fair market value or purchased merchandise or
services at more than fair market value?
(f) made or been a party to any settlement of property in favor of any person?
If, so, give particulars.
(19) Has the debtor recorded all sales or dispositions of assets?
(20) What were the sales for the last three years and what percentage of the sales
represented the profit or markup?
(21) What were the profits or losses for the debtor for the last three years?
(22) What are the causes of the problems of the debtor? Please provide particulars?
(23) When did you first notice these problems and what actions did the debtor take to
rectify them?
(24) How much do you estimate is needed to rehabilitate the debtor?
(25) Has any person expressed interest in investing new money into the debtor?
(26) Are there any pending and threatened legal actions against the debtor? If so,
please provide particulars.
(27) Has the debtor discussed any restructuring or repayment plan with any of the
creditors? Please provide status and details.
(28) Has any creditor expressed interest in restructuring the debts of the debtor? If so,
please give particulars.
(29) Have employees' wages and salaries been kept current? If not, how much are in
arrears and what time period do the arrears represent?
(30) Have obligation to the government and its agencies been kept current? If not, how
much are in arrears and what time period do the arrears represent
FINANCIAL REHABILITATION AND INSOLVENCY ACT
REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF
FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and
Insolvency Act (FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors,
both juridical and natural persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights. In furtherance thereof, the
State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation or liquidation shall be made with a view to
ensure or maintain certainly and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are similarly
situated. When rehabilitation is not feasible, it is in the interest of the State to facilities a
speedy and orderly liquidation of these debtor's assets and the settlement of their
obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem.
Jurisdiction over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the proceedings in
any newspaper of general circulation in the Philippines in the manner prescribed by the
rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:
(1) incurred or arising from the filing of a petition under the provisions of this Act;
(2) arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement
date;
(4) for the payment of new obligations obtained after the commencement date to
finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other expenses
as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to; (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors or third parties
from filing cases against the directors and officers acting in their personal capacities.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under Section 16
of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the
financial and operating policies of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half (1/2) of the voting power of an
enterprise unless, in exceptional circumstances, it can clearly be demonstrated that
such ownership does not constitute control. Control also exists even when the parent
owns one-half (1/2) or less of the voting power of an enterprise when there is power:
(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;
(2) to direct or govern the financial and operating policies of the enterprise under a
statute or an agreement;
(3) to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or equivalent
governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against the
debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a
partnership duly registered with the Securities and Exchange Commission (SEC), a
corporation duly organized and existing under Philippine laws, or an individual debtor
who has become insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon
which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion
thereof its neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or affiliates; (2)
partnerships that are owned more than fifty percent (50%) by the same person; and (3)
single proprietorships that are owned by the same person. When the petition covers a
group of debtors, all reference under these rules to debtor shall include and apply to
the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has
liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus the
property and assets acquired by the rehabilitation receiver or liquidator after that date,
as well as all other property and assets in which the debtor has an ownership interest,
whether or not these property and assets are in the debtor's possession as of
commencement date: Provided, That trust assets and bailment, and other property and
assets of a third party that are in the possession of the debtor as of commencement
date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's
advances that have been recorded in the debtor's audited financial statements as
advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legality entities a creditor to resort to said property for payment
of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of
this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by
the court and entrusted with such powers and duties as set forth in this Act: Provided,
That, if the liquidator is a juridical entity, it must designated a natural person who
possesses all the qualifications and none of the disqualifications as its representative, it
being understood that the juridical entity and the representative are solidarity liable for
all obligations and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in
or contemplated by a juridical entity's articles of incorporation, bylaws or equivalent
documents, except for the corporate secretary, the assistant corporate secretary and
the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the individual
debtor's or debtor's business operations prior to rehabilitation or insolvency
proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in property
held by the debtor, including those covered by trust receipts or assignments of
receivables.
(aa) Parent shall refer to a corporation which has control over another corporation
either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a party with an ownership interest in property held
by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any other
juridical or natural person who stands to be benefited or injured by the outcome of the
proceedings and whose notice of appearance is accepted by the court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's
acceptance of a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other persons
have an ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of

successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted with
such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability
of an insolvent debtor can be restored using various means including, but not limited
to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion
en pago, debt-equity conversion and sale of the business (or parts of it) as a going
concern, or setting-up of new business entity as prescribed in Section 62 hereof, or
other similar arrangements as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.
(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a
member of a nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under the
New Central Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually
subject to insolvency proceedings under the Insurance Code (Presidential Decree No.
1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer
to sell pre-need plans.
Provided, That government financial institutions other than banks and government-
owned or controlled corporations shall be covered by this Act, unless their specific
charter provides otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The
Supreme Court shall designate the court or courts that will hear and resolve cases
brought under this Act and shall promulgate the rules of pleading, practice and
procedure to govern the proceedings brought under this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be
considered as a separate entity under the proceedings in this Act. Under these
proceedings, the assets and liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a related enterprise that is owned
or controlled directly or indirectly by the same interests: Provided, however, That the
commingling or aggregation of assets and liabilities of the debtor with those of a related
enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and
to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may
be promulgated by the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to
the relevant provisions of the Corporation Code in the case of stock or nonstock
corporations or the Civil Code in the case of partnerships that are not inconsistent with
this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to
vote or otherwise act on their behalf by filing notice of such representation with the
court and serving a copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a
Partnership, or Directors and Officers. - Individual debtor, owner of a sole
proprietorship, partners in a partnership, or directors and officers of a debtor shall be
liable for double the value of the property sold, embezzled or disposed of or double the
amount of the transaction involved, whichever is higher to be recovered for benefit of
the debtor and the creditors, if they, having notice of the commencement of the
proceedings, or having reason to believe that proceedings are about to be

commenced, or in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or authorize or approve any transaction in fraud of
creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles
or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or
officer under this section. In this connection, in case of partnerships and corporations,
the court shall consider the amount of the shareholding or partnership or equity interest
of such partner, director or officer, the degree of control of such partner, director or
officer over the debtor, and the extent of the involvement of such partner, director or
debtor in the actual management of the operations of the debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable
banking legislation to the contrary, any bank, whether universal or not, may acquire
and hold an equity interest or investment in a debtor or its subsidiaries when conveyed
to such bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan
approved by the court: Provided, That such ownership shall be subject to the
ownership limits applicable to universal banks for equity investments and: Provided,
further, That any equity investment or interest acquired or held pursuant to this section
shall be disposed by the bank within a period of five (5) years or as may be prescribed
by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by
the owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or in case of a corporation, by a majority vote of the board of directors or
trustees and authorized by the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of
at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly
called for the purpose, an insolvent debtor may initiate voluntary proceedings under
this Act by filing a petition for rehabilitation with the court and on the grounds
hereinafter specifically provided. The petition shall be verified to establish the
insolvency of the debtor and the viability of its rehabilitation, and include, whether as
an attachment or as part of the body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay
its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;

(e) Other information that may be required under this Act depending on the form of
relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver;
and
(j) Other documents required to be filed with the petition pursuant to this Act and the
rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one
or more of its members foresee the impossibility of meeting debts when they
respectively fall due, and the financial distress would likely adversely affect the
financial condition and/or operations of the other members of the group and/or the
participation of the other members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any
creditor or group of creditors with a claim of, or the aggregate of whose claims is, at
least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a petition for rehabilitation with the
court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that
the due and demandable payments thereon have not been made for at least sixty (60)
days or that the debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against
the debtor that will prevent the debtor from paying its debts as they become due or will
render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor may
be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation
proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief
requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the
rules of procedure as may be promulgated by the Supreme Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of
the petition, issue a Commencement Order. If, within the same period, the court finds
the petition deficient in form or substance, the court may, in its discretion, give the
petitioner/s a reasonable period of time within which to amend or supplement the
petition, or to submit such documents as may be necessary or proper to put the petition
in proper order. In such case, the five (5) working days provided above for the issuance
of the Commencement Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement
Order. - The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of
business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to
the relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in
Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general
circulation in the Philippines once a week for at least two (2) consecutive weeks, with
the first publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the
debtor as determined from the schedule attached to the petition within five (5) days; if
the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the
petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the
petitioner/s and who shall exercise such powers and duties defined in this Act as well
as the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims
against the debtor and direct all creditors to their claims with the court at least five (5)
days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment
on or opposition to the petition or its claim/s against the debtor under such procedures
as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of
goods and services in the ordinary course of business for as long as the debtor makes
payments for the services or goods supplied after the issuance of the Commencement
Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from
the date of filing of the petition for the purpose of determining whether there is
substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and
copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least
five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in
this Act, the court's issuance of a Commencement Order shall, in addition to the effects
of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such
as the right to review and obtain records to which the debtor's management and
directors have access, including bank accounts or whatever nature of the debtor
subject to the approval by the court of the performance bond filed by the rehabilitation
receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of
any extrajudicial activity or process to seize property, sell encumbered property, or
otherwise attempt to collection or enforce a claim against the debtor after
commencement date unless otherwise allowed in this Act, subject to the provisions of
Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the
commencement date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against
the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the
court Provided. However, That the court may allow the continuation of cases on other
courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings
shall be sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension
Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement date
Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court
or quasi-judicial agency which, upon determination by the court is capable of resolving
the claim more quickly, fairly and efficiently than the court: Provided, That any final and
executory judgment of such court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with
the debtor, and third party or accommodation mortgagors as well as issuers of letters
of credit, unless the property subject of the third party or accommodation mortgage is
necessary for the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to
recover or otherwise claim moneys and securities entrusted to the latter in the ordinary
course of the latter's business as well as any action of such securities market
participant or the appropriate regulatory agency or self-regulatory organization to pay
or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor
pursuant to a securities pledge or margin agreement for the settlement of securities
transactions in accordance with the provisions of the Securities Regulation Code and
its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a
clearing agency or similar entities duly authorized, registered and/or recognized by the
appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC
as well as any form of actions of such agencies or entities to reimburse themselves for
any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of
a debtor shall not be affected by any proceeding commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local
Government Units (LGUs). - Upon issuance of the Commencement Order by the court,
and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever
is earlier, the imposition of all taxes and fees including penalties, interests and charges
thereof due to the national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to Government Financial
Institutions. - The provisions of this Act concerning the effects of the Commencement
Order and the Stay or Suspension Order on the suspension of rights to foreclose or
otherwise pursue legal remedies shall apply to government financial institutions,
notwithstanding provisions in their charters or other laws to the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the
court, the Commencement Order shall be for the effective for the duration of the
rehabilitation proceedings for as long as there is a substantial likelihood that the debtor
will be successfully rehabilitated. In determining whether there is substantial likelihood
for the debtor to be successfully rehabilitated, the court shall ensure that the following
minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business
for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts
to reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation,
stating that the underlying assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any
case, a substantial likelihood for the debtor to be successfully rehabilitated because,
among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good
faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights
of the creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing
at least three-fourths (3/4) of its total obligations to the extent reasonably possible and
made a good faith effort to reach a consensus on the proposed Rehabilitation Plan if
the petitioner/s is/are a creditor or group of creditors, that/ the petitioner/s has/have met
with the debtor and made a good faith effort to reach a consensus on the proposed
Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or
a group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of
claims;
(b) hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to
submit the same to the court and to the rehabilitation receiver within a period of not
more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and
to prepare and submit to the court within forty (40) days from initial hearing the report
provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not
listed in the schedule of debts and liabilities and who fails to file a notice of claim in
accordance with the Commencement Order but subsequently files a belated claim shall
not be entitled to participate in the rehabilitation proceedings but shall be entitled to
receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the
initial hearing and with or without the comments of the creditors or any of them, the
rehabilitation receiver shall submit a report to the court stating his preliminary findings
and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act
or acts committed by the owner/s of a sole proprietorship partners of a partnership or
directors or officers of a corporation in contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish
such goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and
reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of
Proceedings. - Within ten (10) days from receipt of the report of the rehabilitation
receiver mentioned in Section 24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition i8 a sham filing intended only to delay the enforcement of the rights of
the creditor/s or of any group of creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto contain any
materially false or misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a
group of creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1)the debtor is insolvent; and
(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as
determined in accordance with the rules to be promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due course, the court
shall direct the rehabilitation receiver to review, revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the court within a period of
not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation
proceedings pending before it to arbitration or other modes of dispute resolution, as
provided for under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of
2004, should it determine that such mode will resolve the dispute more quickly, fairly
and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b)
of Section 25 hereof, then the court may, in its discretion, order the petitioner to pay
damages to any creditor or to the debtor, as the case may be, who may have been
injured by the filing of the petition, to the extent of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors'
Committee.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or
juridical person may serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must designate a natural person/s who
possess/es all the qualifications and none of the disqualification’s as its representative,
it being understood that the juridical entity and the representative/s are solidarily liable
for all obligations and responsibilities of the rehabilitation receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver
shall have the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality and
independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures, as well as the relevant training and/or experience that may be
necessary to enable him to properly discharge the duties and obligations of a
rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth
in procedural rules, taking into consideration the nature of the business of the debtor
and the need to protect the interest of all stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially
appoint the rehabilitation receiver, who mayor may not be from among the nominees of
the petitioner, However, at the initial hearing of the petition, the creditors and the
debtor who are not petitioners may nominate other persons to the position. The court
may retain the rehabilitation receiver initially appointed or appoint another who mayor
may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the
nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of
the secured creditors and the general unsecured creditors, and satisfactory evidence is
submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The
rehabilitation receiver shall be deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the
rehabilitation proceedings, determining the viability of the rehabilitation of the debtor,
preparing and recommending a Rehabilitation Plan to the court, and implementing the
approved Rehabilitation Plan, To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following powers, duties and
responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor,
and their valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the
debtor;
(e)To take possession, custody and control, and to preserve the value of all the
property of the debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the operations
and business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the
debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary course of
business;
(j) With the court's approval, to engage the services of or to employ persons or entities
to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review)
revise and/or recommend action on the Rehabilitation Plan and submit the same or a
new one to the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under
the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by
the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon him by
the court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be
required by the court motu proprio. or upon motion of any creditor. or as may be
provided, in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation
receiver shall not take over the management and control of the debtor but may
recommend the appointment of a management committee over the debtor in the cases
provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may
be removed at any time by the court either motu proprio or upon motion by any
creditor/s holding more than fifty percent (50%) of the total obligations of the debtor, on
such grounds as the rules of procedure may provide which shall include, but are not
limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his
direct employees or independent contractors shall be entitled to compensation for
reasonable fees and expenses from the debtor according to the terms approved by the
court after notice and hearing. Prior to such hearing, the rehabilitation receiver and his
direct employees shall be entitled to reasonable compensation based on quantum
meruit. Such costs shall be considered administrative expenses.
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his
powers, duties and responsibilities, the rehabilitation receiver shall take an oath and file
a bond, in such amount to be fixed by the court, conditioned upon the faithful and
proper discharge of his powers, duties and responsibilities.
Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any
reason whatsoever. the court shall direct the debtor and the creditors to submit the
name/s of their nominee/s to the position. The court may appoint any of the qualified
nominees. or any other person qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or
Management Committee. – Upon motion of any interested party, the court may appoint
and direct the rehabilitation receiver to assume the powers of management of the
debtor, or appoint a management committee that will undertake the management of the
debtor. upon clear and convincing evidence of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the
debtor’s assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part
of, or gross or willful violation of this Act by. existing management of the debtor Or the
owner, partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of
management of the debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him
in the discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
Section 37.Role of the Management Committee. – When appointed pursuant to the
foregoing section, the management committee shall take the place of the management
and the governing body of the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee, whose members shall
be considered as officers of the court, shall be prescribed by the procedural rules.
Section 38.Qualifications of Members of the Management Committee. - The
qualifications and disqualification’s of the members of the management committee
shall be set forth in the procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all stakeholders
concerned.
Section 39.Employment of Professionals. - Upon approval of the court, and after
notice and hearing, the rehabilitation receiver or the management committee may
employ specialized professionals and other experts to assist each in the performance
of their duties. Such professionals and other experts shall be considered either
employees or independent contractors of the rehabilitation receiver or the management
committee, as the case may be. The qualifications and disqualification’s of the
professionals and experts may be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation
receiver, member of a_ management committee, or be employed by the rehabilitation
receiver or the management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be
materially influenced in the exercise of his judgment for or against any party to the
proceedings. Without limiting the generality of the foregoing, an individual shall be
deemed to have a conflict of interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer,
owner, partner or employee of the debtor or any of the creditors, or the auditor or
accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any
individual creditor, owners of a sale proprietorship-debtor, partners of a partnership-
debtor or to any stockholder, director, officer, employee or underwriter of a corporation-
debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the
creditors.
Any rehabilitation receiver, member of the management committee or persons
employed or contracted by them possessing any conflict of interest shall make the
appropriate disclosure either to the court or to the creditors in case of out-of-court
rehabilitation proceedings. Any party to the proceeding adversely affected by the
appointment of any person with a conflict of interest to any of the positions enumerated
above may however waive his right to object to such appointment and, if the waiver is
unreasonably withheld, the court may disregard the conflict of interest, taking into
account the general interest of the stakeholders.
Section 41.Immunity. - The rehabilitation receiver and all persons employed by him,
and the members of the management committee and all persons employed by it, shall
not be subject to any action. claim or demand in connection with any act done or
omitted to be done by them in good faith in connection with the exercise of their powers
and functions under this Act or other actions duly approved by the court.1awp++il
Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to

Section 63 hereof, the creditors belonging to a class may formally organize a
committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors'
committee composed of a representative from each class of creditors, such as the
following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation receiver or his
representative shall attend such meeting and extend the appropriate assistance as
may be defined in the procedural rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when constituted
pursuant to Section 42 of this Act shall assist the rehabilitation receiver in
communicating with the creditors and shall be the primary liaison between the
rehabilitation receiver and the creditors. The creditors' committee cannot exercise or
waive any right or give any consent on behalf of any creditor unless specifically
authorized in writing by such creditor. The creditors' committee may be authorized by
the court or by the rehabilitation receiver to perform such other tasks and functions as
may be defined by the procedural rules in order to facilitate the rehabilitation process.
(D) Determination of Claims.
Section 44.Registry of Claims. - Within twenty (20) days from his assumption into
office, the rehabilitation receiver shall establish a preliminary registry of claims. The
rehabilitation receiver shall make the registry available for public inspection and
provide
publication notice to the debtor, creditors and stakeholders on where and when they
may inspect it. All claims included in the registry of claims must be duly supported by
sufficient evidence.
Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the
expiration of the period stated in the immediately preceding section, the debtor,
creditors, stakeholders and other interested parties may submit a challenge to claim/s
to the court, serving a certified copy on the rehabilitation receiver and the creditor
holding the challenged claim/so Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of claims which shall include
undisputed claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may
be appealed to the court.
(E) Governance.
Section 47.Management. - Unless otherwise provided herein, the management of the

juridical debtor shall remain with the existing management subject to the applicable
law/s and agreement/s, if any, on the election or appointment of directors, managers
Or managing partner. However, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property , or any other act affecting title or
interest in property, shall be subject to the approval of the rehabilitation receiver and/or
the court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and
Claims after Commencement Date.
Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no
funds or property of the debtor shall he used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance the administrative
expenses of the rehabilitation proceedings.
Section 49.Sale of Assets. - The court, upon application of the rehabilitation receiver,
may authorize the sale of unencumbered property of the debtor outside the ordinary
course of business upon a showing that the property, by its nature or because of other
circumstance, is perishable, costly to maintain, susceptible to devaluation or otherwise
injeopardy.
Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of
Third Parties Held by Debtor. The court may authorize the sale, transfer, conveyance
or disposal of encumbered property of the debtor, or property of others held by the
debtor where there is a security interest pertaining to third parties under a financial,
credit or other similar transactions if, upon application of the rehabilitation receiver and
with the consent of the affected owners of the property, or secured creditor/s in the
case of encumbered property of the debtor and, after notice and hearing, the court
determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued
operation of the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership right
that provides an equal level of security for the counter-party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell
such as trust receipt or consignment arrangements may be sold or disposed of by
the .debtor, if such sale or disposal is necessary for the operation of the debtor's
business, and the debtor has made arrangements to provide a substitute lien or
ownership right that provides an equal level of security for the counter-party's claim or
right.
Sale or disposal of property under this section shall not give rise to any criminal liability
under applicable laws.
Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory
pledges, mechanic's liens or similar claims, third parties who have in their possession
or control property of the debtor shall not transfer, conveyor otherwise dispose of the
same to persons other than the debtor, unless upon prior approval of the rehabilitation
receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of such property
to the rehabilitation receiver or any other person, subject to payment of the claims
secured by any possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement
would more likely preserve or increase the value of the property in question or the total
value of the assets of the debtor; or
(c) undertake any otI1er disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets.
- The court may rescind or declare as null and void any sale, payment, transfer or
conveyance of the debtor's unencumbered property or any encumbering thereof by the
debtor or its agents or representatives after the commencement date which are not in
the ordinary course of the business of the debtor: Provided, however, That the
unencumbered property may be sold, encumbered or otherwise disposed of upon
order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the preparation
and implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and
the debtor has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a
judicial or extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a possessory
lien.
Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of
Value. - Upon the application of a secured creditor holding a lien against or holder of
an ownership interest in property held by the debtor that is subject to potentially rapid
obsolescence, depreciation or diminution in value, the court shall, after notice and
hearing, order the debtor or rehabilitation receiver to take reasonable steps necessary
to prevent the depreciation. If depreciation cannot be avoided and such depreciation is
jeopardizing the security or property interest of the secured creditor or owner, the court
shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor
according to the relevant agreement between the debtor and the secured creditor,
applicable rules of procedure and relevant legislation: Provided. That the proceeds of
the sale will be distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest
owner. order the conveyance of a lien against or ownership interest in substitute
property of the debtor to the secured creditor: Provided. That other creditors holding
liens on such property, if any, do not object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership interest of
a lien on the residual funds from the sale of encumbered property during the
proceedings; or
(d) allow the sale or disposition of the property: Provided. That the sale or disposition
will maximize the value of the property for the benefit of the secured creditor and the
debtor, and the proceeds of the sale will be distributed in accordance with the order
prescribed under the rules of concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on
secured and unsecured claims shall be determined and provided for in the approved
Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the
court upon the recommendation of the rehabilitation receiver, the debtor, in order to
enhance its
rehabilitation. may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered property
or secondary mortgages of encumbered property with the approval of senior secured
parties with regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses
under this Act.
Section 56.Treatment of Employees, Claims. Compensation of employees required to
carry on the business shall be considered an administrative expense. Claims of
separation pay for months worked prior to the commencement date shall be
considered a pre- ommencement claim. Claims for salary and separation pay for work
performed after the commencement date shall be an administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of
a court of competent jurisdiction issued prior to the issuance of the Commencement
Order, or at anytime thereafter by the court before which the rehabilitation proceedings
are pending, all valid and subbsisting contracts of the debtor with creditors and other
third parties as at the commencement date shall continue in force: Provided, That
within ninety (90) days following the commencement of proceedings, the debtor, with
the consent of the rehabilitation receiver, shall notify each contractual counter-party of
whether it is confirming the particular contract. Contractual obligations of the debtor
arising or performed during this period, and afterwards for confirmed contracts, shall be
considered administrative expenses. Contracts not confirmed within the required
deadline shall be considered terminated. Claims for actual damages, if any, arising as
a result of the election to terminate a contract shall be considered a pre-

commencement claim against the debtor. Nothing contained herein shall prevent the
cancellation or termination of any contract of the debtor for any ground provided by
law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any
transaction occurring prior to commencement date entered into by the debtor or
involving its funds or assets may be rescinded or declared null and void on the ground
that the same was executed with intent to defraud a creditor or creditors or which
constitute undue preference of creditors. Without limiting the generality of the
foregoing, a disputable presumption of such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed
within ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days
prior to the commencement date;
(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more than
its pro rata share in the assets of the debtor, executed at a time when the debtor was
insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims
where the effect of the transaction is to put assets of the debtor beyond the reach of
creditors or to otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding
or declaring as null and void a transaction on other grounds provided by relevant
legislation and jurisprudence: Provided, further, That the provisions of the Civil Code
on rescission shall in any case apply to these transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his
conformity, any creditor may initiate and prosecute any action to rescind, or declare
null and void any transaction described in Section 58 hereof. If the rehabilitation
receiver does not consent to the filing or prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall
assign and transfer to the creditor all rights, title and interest in the chose in action or
subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to institute the proceeding for the benefit
of the creditors, the order shall fix the time within which he shall do so and, m that
case, the benefit derived from the proceeding, if instituted within the time limits so
fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the
Commencement Order and the Suspension or Stay Order, and any other provision of
this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or
the value of his lien or security, except that his right to enforce said security or lien may
be suspended during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a
secured creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the
debtor. The secured creditor and/or the other lien holders shall be admitted to the
rehabilitation proceedings only for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may
terminate, modify or set conditions for the continuance of suspension of payment, or
relieve a claim from the coverage thereof, upon showing that: (a) a creditor does not
have adequate protection over property securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for
rehabilitation of the debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it
can be shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to
keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the
property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the
rehabilitation receiver to make arrangements to provide for the insurance or
maintenance of the property; or to make payments or otherwise provide additional or
replacement security such that the obligation is fully secured. If such arrangements are
not feasible, the court may modify the Stay Order to allow the secured creditor lacking
adequate protection to enforce its security claim against the debtor: Provided,
however, That the court may deny the creditor the remedies in this paragraph if the
property subject of the enforcement is required for the rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a
minimum:
(a) specify the underlying assumptions, the financial goals and the procedures
proposed to accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the
Rehabilitation Plan with those that they will receive if liquidation ensues within the next
one hundred twenty (120) days;
(c) contain information sufficient to give the various classes of creditors a reasonable
basis for determining whether supporting the Plan is in their financial interest when
compared to the immediate liquidation of the debtor, including any reduction of
principal interest and penalties payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by the
court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to,
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going
concern, or setting-up of a new business entity or other similar arrangements as may
be necessary to restore the financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d) and
(e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established under
the provisions of the Civil Code on concurrence and preference of credits and other
applicable laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value
of the security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the
supervision and implementation of the Plan, their affiliation with the debtor and their
remuneration;
(p) address the treatment of claims arising after the confirmation of the Rehabilitation
Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that
the debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to
the Plan's approval unless such condition has been waived in writing by the creditors
concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR Or other applicable tax
authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise
settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the
approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court
assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. – if the court gives due course to
the petition, the rehabilitation receiver shall confer with the debtor and all the classes of
creditors, and may consider their views and proposals ill the review, revision or
preparation of a new Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall
notify the creditors and stakeholders that the Plan is ready for their examination. Within
twenty (2Q) days from the said notification, the rehabilitation receiver shall convene the
creditors, either as a whole or per class, for purposes of voting on the approval of the
Plan. The Plan shall be deemed rejected unless approved by all classes of creditors w
hose rights are adversely modified or affected by the Plan. For purposes of this
section, the Plan is deemed to have been approved by a class of creditors if members
of the said class holding more than fifty percent (50%) of the total claims of the said
class vote in favor of the Plan. The votes of the creditors shall be based solely on the
amount of their respective claims based on the registry of claims submitted by the
rehabilitation receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan

is approved, the rehabilitation receiver shall submit the same to the court for
confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court shall
notify the creditors that the Rehabilitation Plan has been submitted for confirmation,
that any creditor may obtain copies of the Rehabilitation Plan and that any creditor may
file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection
to the Rehabilitation Plan within twenty (20) days from receipt of notice from the court
that the Rehabilitation Plan has been submitted for confirmation. Objections to a
Rehabilitation Plan shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the
relevant period, the court shall issue an order setting the time and date for the hearing
or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other
party to cure the defect, whenever feasible. If the court determines that the debtor
acted in bad faith, or that it is not feasible to cure the defect, the court shall convert the
proceedings into one for the liquidation of the debtor under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within
the relevant period or, if objections are filed, the court finds them lacking in merit, or
determines that the basis for the objection has been cured, or determines that the
debtor has complied with an order to cure the objection, the court shall issue an order
confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes
over claims if the Rehabilitation Plan has made adequate provisions for paying such
claims.
For the avoidance of doubt, the provisions of other laws to the contrary
notwithstanding, the court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the owners, partners
or stockholders of the insolvent debtor: Provided, That the terms thereof are necessary
to restore the financial well-being and viability of the insolvent debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by . it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan or
whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take
all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor
shall be binding on creditors regardless of whether or not the Plan is successfully
implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan
are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court:
Provided, however, That the court may maintain jurisdiction over the case in order to
resolve claims against the debtor that remain contested and allegations that the debtor
has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under
an Approved Plan. - The approval of the Plan shall not affect the rights of creditors to
pursue actions against the general partners of a partnership to the extent they are
liable under relevant legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or
Reduced. - Amounts of any indebtedness or obligations reduced or forgiven in
connection with a Plan's approval shall not be subject to any tax in furtherance of the
purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a
maximum period of one (1) year from the date of the filing of the petition to confirm a
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon
motion or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation
of the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and
accounting to the court. Unless the Rehabilitation Plan specifically requires and
describes the role of the rehabilitation receiver after the approval of the Rehabilitation
Plan, the court shall discharge the rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under
Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver be
terminated by order of the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder or there is
a failure to realize the objectives, targets or goals set forth therein, including the
timelines and conditions for the settlement of the obligations due to the creditors and
other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by
an affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time,
falling which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the
Rehabilitation Plan, the approval of which shall be governed by the same requirements
for the approval of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation,
other applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of
execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the
following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any
action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of
rehabilitation or dismissal of the petition for reasons other than technical grounds, the
proceedings shall be immediately converted to liquidation as provided in Section 92 of
this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a pre-negotiated
Rehabilitation Plan which has been endorsed or approved by creditors holding at least
two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding
more than fifty percent (50%) of the total secured claims of the debtor and unsecured
creditors holding more than fifty percent (50%) of the total unsecured claims of the
debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3)
qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of
funds to account for appropriate payments should any such claims be ruled valid or
their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination
that the petition is sufficient in form and substance, the court shall issue an Order
which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of
business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the
Philippines once a week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who
is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor,
as determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for
examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or
Rehabilitation Plan may file their objections or comments thereto within a period of not
later than twenty (20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second
publication of the Order, the court shall approve the Rehabilitation Plan unless a
creditor or other interested party submits an objection to it in accordance with the next
succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other
interested party may submit to the court a verified objection to the petition or the
Rehabilitation Plan not later than eight (8) days from the date of the second publication
of the Order mentioned in Section 77 hereof. The objections shall be limited to the
following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto
are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor
and the claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the
debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest
claim and who supports the Rehabilitation Plan, and the unsecured creditor with the
largest claim and who supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall
set the same for hearing. The date of the hearing shall be no earlier than twenty (20)
days and no later than thirty (30) days from the date of the second publication of the
Order mentioned in Section 77 hereof. If the court finds merit in the objection, it shall
direct the debtor, when feasible to cure the detect within a reasonable period. If the
court determines that the debtor or creditors supporting the Rehabilitation Plan acted in
bad faith, or that the objection is non-curable, the court may order the conversion of the
proceedings into liquidation. A finding by the court that the objection has no substantial
merit, or that the same has been cured shall be deemed an approval of the
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a
maximum period of one hundred twenty (120) days from the date of the filing of the
petition to approve the Rehabilitation Plan. If the court fails to act within the said period,
the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the
same legal effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation
Plans. - An out-of-curt or informal restructuring agreement or Rehabilitation Plan that
meets the minimum requirements prescribed in this chapter is hereby recognized as
consistent with the objectives of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans. - For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it
must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the
secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of

the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the
total liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the
parties pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be
effective and enforceable not only against the contracting parties but also against the
other creditors: Provided, That (a) such agreement is approved by creditors
representing more than fifty percent (50%) of the total liabilities of the debtor; (b) notice
thereof is publishing in a newspaper of general circulation in the Philippines once a
week for two (2) consecutive weeks; and (c) the standstill period does not exceed one
hundred twenty (120) days from the date of effectivity. The notice must invite creditors
to participate in the negotiation for out-of-court rehabilitation or restructuring agreement
and notify them that said agreement will be binding on all creditors if the required
majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation
Plan that is approved pursuant to an informal workout framework referred to in this
chapter shall have the same legal effect as confirmation of a Plan under Section 69
hereof. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall
be published once a week for at least three (3) consecutive weeks in a newspaper of
general circulation in the Philippines. The Rehabilitation Plan or restructuring
agreement shall take effect upon the lapse of fifteen (15) days from the date of the last
publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance
with the terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other
proceedings arising from, or relating to, the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan shall not stay its
implementation, unless the relevant party is able to secure a temporary restraining
order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this
Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by
filing a petition for liquidation with the court. The petition shall be verified, shall
establish the insolvency of the debtor and shall contain, whether as an attachment or
as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties;
and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation proceedings by filing a motion in
the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified,
shall contain or set forth the same matters required in the preceding paragraph, and
state that the debtor is seeking immediate dissolution and termination of its corporate
existence.
If the petition or the motion, as the case may be, is sufficient in form and substance,
the court shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of
whose claims is at least either One million pesos (Php1,000,000,00) or at least twenty-
five percent (25%0 of the subscribed capital stock or partner's contributions of the
debtor, whichever is higher, may apply for and seek the liquidation of an insolvent
debtor by filing a petition for liquidation of the debtor with the court. The petition shall
show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that
the due and demandable payments thereon have not been made for at least one
hundred eighty (180) days or that the debtor has failed generally to meet its liabilities
as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-
negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at
least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%)
of the subscribed capital or partner's contributions of the debtor, whichever is higher,
may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into
liquidation proceedings. The motion shall be verified, shall contain or set forth the same
matters required in the preceding paragraph, and state that the movants are seeking
the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an
Order:
(1) directing the publication of the petition or motion in a newspaper of general
circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their
comment on the petition or motion within fifteen (15) days from the date of last
publication.
If, after considering the comments filed, the court determines that the petition or motion
is meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the
pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court
may order the conversion of rehabilitation proceedings to liquidation proceedings
pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75
of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation
of the rehabilitation receiver that the rehabilitation of the debtor is not feasible.
Thereupon, the court shall issue the Liquidation Order mentioned in Section 112
hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The
provisions of this chapter shall not affect the regulatory powers of the SEC under
Section 6 of Presidential Decree No. 902-A, as amended, with respect to any
dissolution and liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover
all his debts but foreseeing the impossibility of meeting them when they respectively
fall due, may file a verified petition that he be declared in the state of suspension of
payments by the court of the province or city in which he has resides for six (6) months
prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a
schedule of debts and liabilities; (b) an inventory of assess; and (c) a proposed
agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and
substance, it shall, within five (5) working days from the filing of the petition, issue an
Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at
such time not less than fifteen (15) days nor more than forty (40) days from the date of
such Order and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims
before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation
published in the province or city in which the petition is filed once a week for two (2)
consecutive weeks, with the first publication to be made within seven (7) days from the
time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered
mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing
in any manner of his property, except those used in the ordinary operations of
commerce or of industry in which the petitioning individual debtor is engaged so long

as the proceedings relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary
or legitimate expenses of his business or industry, so long as the proceedings relative
to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court
may issue an order suspending any pending execution against the individual debtor.
Provide, That properties held as security by secured creditors shall not be the subject
of such suspension order. The suspension order shall lapse when three (3) months
shall have passed without the proposed agreement being accepted by the creditors or
as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from
the time of the filing of the petition for suspension of payments and for as long as
proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last
illness and funeral of the wife or children of the debtor incurred in the sixty (60) days
immediately prior to the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting
to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting.
The commissioner appointed by the court shall preside over the meeting and the clerk
of court shall act as the secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5)
of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the
majority vote shall be drawn up, and the commissioner and the individual debtor
together with all creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the
petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by
the Suspension Order may refrain from attending the meeting and from voting therein.
Such persons shall not be bound by any agreement determined upon at such meeting,
but if they should join in the voting they shall be bound in the same manner as are the
other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be
deemed rejected if the number of creditors required for holding a meeting do not attend
thereat, or if the two (2) majorities mentioned in Section 97 hereof are not in favor
thereof. In such instances, the proceeding shall be terminated without recourse and the
parties concerned shall be at liberty to enforce the rights which may correspond to
them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment
thereof made during the creditors' meeting, is approved by the majority of creditors in
accordance with Section 97 hereof, any creditor who attended the meeting and who
dissented from and protested against the vote of the majority may file an objection with
the court within ten (10) days from the date of the last creditors' meeting. The causes
for which objection may be made to the decision made by the majority during the
meeting shall be: (a) defects in the call for the meeting, in the holding thereof and in
the deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent
connivance between one or more creditors and the individual debtor to vote in favor of
the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of
obtaining a majority. The court shall hear and pass upon such objection as soon as
possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's
proposal or any amendment thereof made during the creditors' meeting is annulled by
the court, the court shall declare the proceedings terminated and the creditors shall be
at liberty to exercise the rights which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the
majority of the creditors to approve the proposed agreement or any amendment thereof
made during the creditors' meeting is uphold by the court, or when no opposition or
objection to said decision has been presented, the court shall order that the agreement
be carried out and all parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party. The Order confirming the approval of the
proposed agreement or any amendment thereof made during the creditors' meeting
shall be binding upon all creditors whose claims are included in the schedule of debts
and liabilities submitted by the individual debtor and who were properly summoned, but
not upon: (a) those creditors having claims for personal labor, maintenance, expenses
of last illness and funeral of the wife or children of the debtor incurred in the sixty (60)
days immediately prior to the filing of the petition; and (b) secured creditors who failed
to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual
debtor fails, wholly or in part, to perform the agreement decided upon at the meeting of
the creditors, all the rights which the creditors had against the individual debtor before
the agreement shall revest in them. In such case the individual debtor may be made
subject to the insolvency proceedings in the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to
cover his liabilities, and owing debts exceeding Five hundred thousand pesos
(Php500,000.00), may apply to be discharged from his debts and liabilities by filing a
verified petition with the court of the province or city in which he has resided for six (6)
months prior to the filing of such petition. He shall attach to his petition a schedule of
debts and liabilities and an inventory of assets. The filing of such petition shall be an
act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and
substance it shall, within five (5) working days issue the Liquidation Order mentioned in
Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a
claim of, or with claims aggregating at least Five hundred thousand pesos (Php500,
000.00) may file a verified petition for liquidation with the court of the province or city in
which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation
shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or
taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for
three (3) days for the purpose of hindering or delaying the liquidation or of defrauding
his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or
claimant for the purpose of hindering or delaying the liquidation or of defrauding any
creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the
purpose of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with
intent to give a preference to one or more of his creditors and thereby hinder or delay
the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his
creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of
his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he
shall have been found to be without sufficient property subject to execution to satisfy
the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned
that if the petition for liquidation is dismissed by the court, or withdrawn by the
petitioner, or if the debtor shall not be declared an insolvent the petitioners will pay to
the debtor all costs, expenses, damages occasioned by the proceedings and attorney's
fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such
creditors' petition, the court shall issue an Order requiring the individual debtor to show
cause, at a time and place to be fixed by the said court, why he should not be
adjudged an insolvent. Upon good cause shown, the court may issue an Order
forbidding the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing contained herein shall
affect or impair the rights of a secured creditor to enforce his lien in accordance with its
terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues
are found in favor of the petitioning creditors the court shall issue the Liquidation Order
mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor
resides out of the Republic of the Philippines; or has departed therefrom; or cannot,
after due diligence, be found therein; or conceals himself to avoid service of the Order
to show cause, or any other preliminary process or orders in the matter, then the
petitioning creditors, upon submitting the affidavits requisite to procedure an Order of
publication, and presenting a bond in double the amount of the aggregate sum of their
claims against the individual debtor, shall be entitled to an Order of the court directing
the sheriff of the province or city in which the matter is pending to take into his custody
a sufficient amount of property of the individual debtor to satisfy the demands of the
petitioning creditors and the costs of the proceedings. Upon receiving such Order of
the court to take into custody of the property of the individual debtor, it shall be the duty
of the sheriff to take possession of the property and effects of the individual debtor, not
exempt from execution, to an extent sufficient to cover the amount provided for and to
prepare within three (3) days from the time of taking such possession, a complete
inventory of all the property so taken, and to return it to the court as soon as
completed. The time for taking the inventory and making return thereof may be
extended for good cause shown to the court. The sheriff shall also prepare a schedule
of the names and residences of the creditors, and the amount due each, from the
books of the debtor, or from such other papers or data of the individual debtor available
as may come to his possession, and shall file such schedule or list of creditors and
inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds;
Exemptions to Sureties. - In all cases where property is taken into custody by the
sheriff, if it does not embrace all the property and effects of the debtor not exempt from
execution, any other creditor or creditors of the individual debtor, upon giving bond to
be approved by the court in double the amount of their claims, singly or jointly, shall be
entitled to similar orders and to like action, by the sheriff; until all claims be provided
for, if there be sufficient property or effects. All property taken into custody by the
sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of
all creditors of the individual debtor whose claims shall be duly proved as provided in
this Act. The bonds provided for in this section and the preceding section to procure
the order for custody of the property and effects of the individual debtor shall be
conditioned that if, upon final hearing of the petition in insolvency, the court shall find in
favor of the petitioners, such bonds and all of them shall be void; if the decision be in
favor of the individual debtor, the proceedings shall be dismissed, and the individual
debtor, his heirs, administrators, executors or assigns shall be entitled to recover such
sum of money as shall be sufficient to cover the damages sustained by him, not to
exceed the amount of the respective bonds. Such damages shall be fixed and allowed
by the court. If either the petitioners or the debtor shall appeal from the decision of the
court, upon final hearing of the petition, the appellant shall be required to give bond to
the successful party in a sum double the amount of the value of the property in
controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the
sureties on such bond or bonds. When excepted to the petitioner's sureties, upon
notice to the person excepting of not less than two (2) nor more than five (5) days,
must justify as to their sufficiency; and upon failure to justify, or of others in their place
fail to justify at the time and place appointed the judge shall issue an Order vacating
the order to take the property of the individual debtor into the custody of the sheriff, or
denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are
presented to the court or a judge thereof, asking for and obtaining an Order of
publication and an Order for the custody of the property of the individual debtor and
thereafter the petitioners shall make it appear satisfactorily to the court or a judge
thereof that the interest of the parties to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold in the same manner as property
is sold under execution, the proceeds to de deposited in the court to abide by the result
of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND
JURIDICAL DEBTORS
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall
include both individual debtor as defined in Section 4(o) and debtor as defined in
Section 4(k) of this Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor,
except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to
the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the
rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of
other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which
date shall not be less than thirty (30) days nor more than forty-five (45) days from the
date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation
Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical
existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be
exempt from execution, shall be deemed vested in the liquidator or, pending his
election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the
liquidator, within ninety (90) days from the date of his assumption of office, declares
otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. Such
actions already pending will be transferred to the Liquidator for him to accept and settle
or contest. If the liquidator contests or disputes the claim, the court shall allow, hear
and resolve such contest except when the case is already on appeal. In such a case,
the suit may proceed to judgment, and any final and executor judgment therein for a
claim against the debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180)
days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the
right of a secured creditor to enforce his lien in accordance with the applicable contract
or law. A secured creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and
the liquidator. When the value of the property is less than the claim it secures, the
liquidator may convey the property to the secured creditor and the latter will be
admitted in the liquidation proceedings as a creditor for the balance. If its value
exceeds the claim secured, the liquidator may convey the property to the creditor and
waive the debtor's right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within
the period set by the court, and whose claims are not barred by the statute of
limitations, will be allowed to vote in the election of the liquidator. A secured creditor
will not be allowed to vote, unless: (a) he waives his security or lien; or (b) has the
value of the property subject of his security or lien fixed by agreement with the
liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee
receiving the highest number of votes cast in terms of amount of claims, ad who is
qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein,
the court may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a

rehabilitation receiver, who was administering the debtor prior to the commencement of
the liquidation, from being appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers,
duties and responsibilities, the liquidator shall take an oath and file a bond, In such
amount to be fixed by the court, conditioned upon the proper and faithful discharge of
his powers, duties and responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the
qualifications enumerated in Section 29 hereof. He may be removed at any time by the
court for cause, either motu propio or upon motion of any creditor entitled to vote for
the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator
shall be deemed an officer of the court with the principal duly of preserving and
maximizing the value and recovering the assets of the debtor, with the end of
liquidating them and discharging to the extent possible all the claims against the
debtor. The powers, duties and responsibilities of the liquidator shall include, but not
limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law
from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come
into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be
an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval
of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist
him in the discharge of the functions and which shall have powers as the court deems
just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and
reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have
the right and duty to take all reasonable steps to manage and dispose of the debtor's
assets with a view towards maximizing the proceedings therefrom, to pay creditors and
stockholders, and to terminate the debtor's legal existence. Other duties of the
liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a
rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and
entities engaged or employed by him to assist in the discharge of his powers and
duties shall be entitled to such reasonable compensation as may determined by the
liquidation court, which shall not exceed the maximum amount as may be prescribed
by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record
of all moneys received and all disbursements mad by him or under his authority as
liquidator. He shall render a quarterly report thereof to the court , which report shall be
made available to all interested parties. The liquidator shall also submit such reports as
may be required by the court from time to time as well as a final report at the end of the
liquidation proceedings.
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the
claims against the debtor , the liquidator will notify all the creditors, either by publication
in a newspaper of general circulation or such other mode as the court may direct or
allow, that will apply with the court for the settlement of his account and his discharge
from liability as liquidator. The liquidator will file a final accounting with the court, with
proof of notice to all creditors. The accounting will be set for hearing. If the court finds
the same in order, the court will discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into
office the liquidator shall prepare a preliminary registry of claims of secured and
unsecured creditors. Secured creditors who have waived their security or lien, or have
fixed the value of the property subject of their security or lien by agreement with the
liquidator and is admitted as a creditor for the balance , shall be considered as
unsecured creditors. The liquidator shall make the registry available for public
inspection and provide publication notice to creditors, individual debtors owner/s of the
sole proprietorship-debtor, the partners of the partnership-debtor and shareholders or
members of the corporation-debtor, on where and when they may inspect it. All claims
must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and
creditor of each other one debt shall be set off against the other, and only the balance,
if any shall be allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the
expiration of the period for filing of applications for recognition of claims, creditors,
individual debtors, owner/s of the sole proprietorship-debtor, partners of the
partnership-debtor and shareholders or members of the corporation -debtor and other
interested parties may submit a challenge to claim or claims to the court, serving a
certified copy on the liquidator and the creditor holding the challenged claim. Upon the
expiration of the (30) day period, the rehabilitation receiver shall submit to the court the
registry of claims containing the undisputed claims that have not been subject to
challenge. Such claims shall become final upon the filling of the register and may be
subsequently set aside only on grounds or fraud, accident, mistake or inexcusable
neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve
disputed claims and submit his findings thereon to the court for final approval. The
liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring
prior to the issuance of the Liquidation Order or, in case of the conversion of the
rehabilitation proceedings prior to the commencement date, entered into by the debtor
or involving its assets, may be rescinded or declared null and void on the ground that
the same was executed with intent to defraud a creditor or creditors or which constitute
undue preference of creditors. The presumptions set forth in Section 58 hereof shall
apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his
conformity, a creditor may initiate and prosecute any action to rescind, or declare null
and void any transaction described in the immediately preceding paragraph. If the
liquidator does not consent to the filling or prosecution of such action, any creditor may
seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign
and transfer to the creditor all rights, title and interest in the chose in action or subject
matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to
the extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator
signifies to the court his readiness to the institute the proceeding for the benefit of the
creditors, the order shall fix the time within which he shall do so and, in that case the
benefit derived from the proceedings, if instituted within the time limits so fixed, belongs
to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into
office, the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan
shall, as a minimum enumerate all the assets of the debtor and a schedule of
liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon
petition and after hearing, to exempt and set apart, for the use and benefit of the said
insolvent, such real and personal property as is by law exempt from execution, and
also a homestead; but no such petition shall be heard as aforesaid until it is first proved
that notice of the hearing of the application therefor has been duly given by the clerk,
by causing such notice to be posted it at least three (3) public places in the province or
city at least ten (10) days prior to the time of such hearing, which notice shall set forth
the name of the said insolvent debtor, and the time and place appointed for the hearing
of such application, and shall briefly indicate the homestead sought to be exempted or
the property sought to be set aside; and the decree must show that such proof was
made to the satisfaction of the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered
assets of the debtor and convert the same into money. The sale shall be made at
public auction. However, a private sale may be allowed with the approval of the court if;
(a) the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in
value, or are disproportionately expensive to keep or maintain; or (b) the private sale is
for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be
conveyed to a creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall
implement the Liquidation Plan as approved by the court. Payments shall be made to
the creditors only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as
enumerated in the Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his preferred right. For
purposes of this chapter, credits for services rendered by employees or laborers to the
debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the
Securities and Exchange Commission. - Upon determining that the liquidation has
been completed according to this Act and applicable law, the court shall issue an Order
approving the report and ordering the SEC to remove the debtor from the registry of
legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the
debtor has been removed from the registry of legal entities at the SEC. The court shall
issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions
of this chapter shall be without prejudice to the power of a regulatory agency or self-
regulatory organization to liquidate trade-related claims of clients or customers of a
securities market participant which, for purposes of investor protection, are hereby
deemed to have absolute priority over other claims of whatever nature or kind insofar
as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right
and other owned and used by the securities market participant in the ordinary course of
this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION
PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership

Pursuant to a State-funded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims
and provide other relief necessary to assist in the liquidation of a financial under
rehabilitation receivership established by a state-funded or state-mandated insurance
system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial
institutions, insurance companies and pre-need companies shall be determined by
relevant legislation. The provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to
the provision of Section 136 hereof and the rules of procedure that may be adopted by
the Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations
Center for International Trade and Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection
with an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction,
upon the submission of a petition by the representative of the foreign entity that is the
subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or
foreclose on property of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief under
this subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their
claim in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or
rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other
interested parties in a manner substantially in accordance with the manner prescribed
in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED
CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled

Corporations. - Public funds for the rehabilitation of government-owned and controlled
corporations shall be released only pursuant to an appropriation by Congress and shall
be supported by funds actually available as certified by the National Treasurer.
The Department of Finance, in collaboration with the Department of Budget and
Management, shall promulgate the rules for the use and release of said funds.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they
are applicable, shall likewise apply to proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of the
debtor who commits any one of the following acts shall, upon conviction thereof, be
punished by a fine of not more than One million pesos (Php 1, 000,000.00) and
imprisonment for not less than three(3) months nor more than five (5) years for each
offense;
(a) if he shall, having notice of the commencement of the proceedings, or having
reason to believe that proceedings are about to be commented, or in contemplation of
the proceedings hide or conceal, or destroy or cause to be destroyed or hidden any
property belonging to the debtor or if he shall hide, destroy, after mutilate or falsify, or
cause to be hidden, destroyed, altered, mutilated or falsified, any book, deed,
document or writing relating thereto; if he shall, with intent to defraud the creditors of
the debtor, make any payment sale, assignment, transfer or conveyance of any
property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious
claim against the debtor, fail to disclose the same to the rehabilitation receiver of
liquidator within one (1) month after coming to said knowledge or belief; or if he shall
attempt to account for any of the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation
established by this Act.
Section 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken effect.
All further proceedings in insolvency, suspension of payments and rehabilitation cases
then pending, except to the extent that in opinion of the court their application would
not be feasible or would work injustice, in which event the procedures set forth in prior
laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of
the debtor regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is
hereby repealed. All other laws, orders, rules and regulations or parts thereof
inconsistent with any provision of this Act are hereby repealed or modified accordingly.
Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall remain in full force effect
Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its
complete publication in the Official Gazette or in at least two (2) national newspaper of
general circulation.

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Page 1 of 217 | Receivership – Week 6 | amgisidro

G.R. No. 6305 September 26, 1911

2. Cutting and grinding, according to 8,565.97

4. Expenses in Iloilo, according to

7. Selling commission 648. 28

8. Judgment for plaintiff in cause No.

9. Receiver's pay 1,000.00

G.R. No. 172843 September 24, 2014

ALFREDO L. VILLAMOR, JR., Petitioner,

G.R. No. 172881

ODIVAL E. REYES, HANS M. PALMA and DOROTEO M. PANGILINAN, Petitioners,

On March 1, 2004, PPC obtained an option to lease portions of MidPasig’s property,

On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of

Respondent Balmores alleged in his complaint that because of petitioners’ actions,

Ruling of the Regional Trial Court

WHEREFORE, premises considered the appointment of a Receiver and the creation of

Ruling of the Court of Appeals

WHEREFORE, premises considered, the instant petition is hereby GRANTED and

The Court of Appeals characterizedthe assailed order/resolution of the trial court as an

In justifying its decision to place PPCunder receivership and to create a management

I. Whether the Court of Appeals correctly characterized respondent Balmores’ action

According to the directors, assuming that a receiver or management committee may be

On the appointment of a receiver or management committee, respondent Balmores

precisely because of this fraudulent practice that a receiver/management committee

The petitions have merit.

Petition for review on

Respondent Balmores argued that the petition raises questions of fact.

Respondent Balmores’ action

A derivative suit is an action filed by stockholders to enforce a corporate action.56 It is

Individual stockholders may be allowed to sue on behalf of the corporation whenever

Thus, this court noted:

SECTION 1. Derivative action. – A stockholder or member may bring an action in the

(4) The suit is not a nuisance or harassment suit.

Moreover, it is important that the corporation be made a party to the case.69

This court explained in Asset Privatization Trust v. Court of Appeals70 why it is a

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in ascertaining the effect of partial recovery by an

Section 81 of the Corporation Code provides the instances of appraisal right:

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of

3. In case of merger or consolidation.

Respondent Balmores complained aboutthe alleged inaction of PPC’s directors in his

(2) Controversies arising out of intra-corporate, partnership, or association relations,

(3) Controversies in the election orappointment of directors, trustees, officers, or

(4) Derivative suits;and

(5) Inspection of corporate books. (Emphasis supplied)

Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or

His intent was also explicit from his prayer:

WHEREFORE, plaintiff respectfully prays that the Honorable Court –

2. After notice and due proceedings –

Respondent Balmores has no cause of action that would

Appointment of a management committee was not proper

A corporation may be placed under receivership, or management committees may be

Applicants for the appointment of a receiver or management committee need to

Thus, in Sy Chim v. Sy Siy Ho & Sons, Inc.,87 this court said:

. . . the creation and appointment of a management committee and a receiver is an

The Court of Appeals had no

The Court of Appeals has no power to appoint a receiver or management committee.

G.R. No. L-25729 November 24, 1926

THE BELGIAN CATHOLIC MISSIONARIES, INC., plaintiff-appellee,

Antonio M. Opisso, Romualdez Hermanos and Luciano de la Rosa for appellant.

To secure the payment of said promissory notes which amounted to a total of

Briefly, therefore, we have the following: