Rule 59

Receivership

PERSONS THAT CAN BE APPOINTED AS RECEIVER

1. Generally: Juridical person cannot be appointed as a receiver. Only natural person can be
appointed as receiver by court order because the rules mandates that the receiver, before entering
upon his duties, shall be sworn to perform them faithfully and obey the orders of the court (take an
oath).
Exception: Placement of banks or quasi-banks under receivership, the Monetary Board shall
Designate the Philippine Deposit Insurance Company (PDIC) whenever it finds them pursuant to the
provisions of the New Central Bank Act.
(Compaia General vs Gauzon, 20 Phil 261)
An indifferent person
Subject to the control of the court
Can exercise only those powers provided for by the rules
Entitled to compensation as determined and fixed by the court

A receiver is generally defined to be an indifferent person between the parties litigants, appointed by the
court and on behalf of all the parties, and not of the plaintiff or defendant only,:
a. To receive and hold the thing or property in litigation, pending the suit
b. To receive the rents, issues, or profits of the land or thing in question
c. To hold possession and control of the property which is the subject-matter of the litigation and
d. To dispose of it in such manner as may be directed by the court
Generally a receiver has no authority to incur expense in the administration of his receivership, without
express permission of the court, except it be absolutely necessary to preserve the property, and then only
when, under special circumstances, he cannot secure such authority from the court. He should administer
the estate as economically as possible, to the end that the interest of all the parties shall be conserved.

The amount of compensation of a receiver is fixed by the sound discretion of the court. The court, in
fixing the compensation of the receiver, should take into consideration the general efficiency of the
receiver in his administration of the property under his control.

Distinguish from replevin

Receivership Replevin
The purpose is to preserve and take care The purpose is to recover possession of
the property disputed pending litigation property capable of manual delivery
wrongfully detained by the defendant
Subject may either be personal or real Subject is only personal property
property
The property is taken out from the Property is recovered from the defendant
defendant and place under the and direct a court officer to deliver the
administration and protection of a special same to the right full owner or possessor to
officer appointed by the court restore him of the possession thereof
There is only a mere deposit of the There is a delivery of the property of
property in litigation litigation

Po Pauco vs Siguenza, 52 Phil 241

Sheriff Receiver
-Is a court officer of general character -Is a special officer
-Not appointed for a certain judicial case - Appointed in relation to and within the
limits of his jurisdiction
- Who exercises and can exercise his - Whose duties are limited to his sphere of
functions within the action and do not extend further than
limits of his jurisdiction the case in which he was appointed

- Funds in custody of a sheriff may be within -Funds in custody of a receiver are not
the reach of processes coming from other subject to any other judicial processes;
judicial proceedings merely act as a depositary
-Those who have any claim to property or
funds 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.
 Receivership is aimed at preservation of and at making more secure, existing rights. It cannot be used as
an instrument for the destruction of those rights.
Rule 59 presupposes that there is an action and that the property subject of the action requires its
preservation.

Effect of the dismissal of main case

Berg vs Teus, 88 Phil 173 The fact that the appointment of receiver, as the defendant emphasizes, is
an ancillary remedy is precisely one powerful reason why the case should not be dismissed; dismissal
of the main action would eliminate the only basis for the appointment of a receiver and thus
completely bar the door to any relief from mischiefs.

Granted only in extreme situations

Vivares vs Reyes, 545 SCRA 80 receivership is a harsh remedy to be granted only in extreme
situations.
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
a. imminent danger of loss,
b. the injury thereby cause 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.

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."

Where rights of a party are still to be determined; Propriety

Descallar vs CA, 224 SCRA 566
Ruling:
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. To elucidate, even if it
were true that a former witness did not have the money to buy those property, the land was titled to her name
and not to the Austrian, who is also prohibited to own lands in the Phils. 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. Moreover, the property in question is real property,
hence, it is neither perishable or consummable. 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. 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.

Exhaustion of local remedies (important)

Bonaplata vs Amber, 2 Phil 395
Ruling: The Creditor is not bound. In the first place the appointment of a receiver is not proper. 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, the legal remedy must be exhausted. Hence, (the creditor) is entitled to a writ of
mandamus to compel the issuance of execution on his judgment.

APPOINTMENT (SEC.1. RULE 59)

How: Upon a verified application

Who: one or more receivers of the property subject of the action or proceeding may be appointed
Whom: - appointed by the court where the action is pending

- Court of Appeals, Supreme Court, or a member thereof

WHEN MAY RECEIVERSHIP ISSUE (GROUNDS)?
Receivership may issue in the following cases: (main case is still pending in court)

1. When it appears from the verified application, and such other proof as the court may require:
b. That the party applying for the appointment of a receiver has an interest in the property or fund
c. The property or fund is subject of the action or proceeding, and
 d. 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

Commodities Storage & Ice Plant vs CA, 274 SCRA 439

The guiding principal is the prevention of imminent danger to the property. If an action by its nature does
not require such protection or preservation, said remedy cannot be applied for and granted.

NEITHER PARTY TO A LITIGATION SHOULD BE APPOINTED AS RECEIVER

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. 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.

2. When it appears in an action by the mortgagee for the foreclosure of a mortgage:

a. That the property is in danger of being wasted or dissipated or materially injured, and
b. That its value is probably insufficient to discharge the mortgage debt, or
c. That the parties have so stipulated in the contract of mortgage

3. After judgment
d. To preserve the property during the pendency of an appeal
e. To dispose of it according to the judgment
f. To aid execution when the execution has been returned unsatisfied or the judgment obligor
refuses to apply his property in satisfaction of the judgment
g. Otherwise to carry the judgment into effect

4. 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.

During the pendency of an appeal

The appellate court may allow an application for the appointment of a receiver to be filed in and
decided by the court of origin and the receiver appointed to be subject to the control of said court.

Sec.2. Bond on appointment of receiver

> Before issuing the order appointing a receiver the court shall
a.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.
Condition of the bond:
the bond shall be filed upon the condition that the applicant shall pay all damages that the adverse party
may sustain by reason of the appointment of 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.

Jurisdiction

Harden vs Director of Prisons, GR no. L-2349

Ruling:
While a court cannot 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, whether the property was removed before or after the appointment of
the receiver is likewise immaterial.

Receivership, when not proper

Property or fund which is subject to the action
or proceeding

Calo vs Roldan, 76 Phil 445 -

Ruling: No. the proper remedy is to apply for a preliminary prohibitory injunction. The remedy of
receivership will not lie because as the owner has more interest than persons in preserving and
administering it. Furthermore, the legal effect of the appointment is to take the real estate out of the
possession of the defendant before final adjudication of the rights of the parties. Hence, would place the
defendant economically disadvantage.

Ylarde vs Enriques, June 25, 1947

Ruling: Receivership will not lie. 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.
Moreover, a receiver should not be appointed where the resulting injury therefrom would
probably greater than the injury ensuing from leaving the possession of the property disturbed. Otherwise,
as receivership is a drastic, harsh, extreme remedy, the defendant shall be divested with their means of
livelihood.
Rocha & Co vs Crossfield, 6 Phil 355
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.
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.

Paranete vs Tan, Nov. 29, 1950

RULING: Receivership is not proper. 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.

Distinction

Attachment Preliminary Receivership Replevin

Injunction
When may On grounds Relief When Prov rem consist
issue under demanded in the in delivery, by
Sec.1 of Rule 57 the applic order of the
plaintiffs ant has
court, of a
complaint an
consist in interes personal property
restraining t in the by the defendant
the proper to the plaintiff,
commission ty and who shall give a
or that bond to assure
continuance such
of the acts proper the return thereof
complained ty or the payment of
for, either which damages to the
perpetually is defendant in the
or for a subjec plaintiff's action
limited t to of to recover
period the
action possession of the
It shall not or same property
issue when litigati fails, in order to
the on is protect the
in plaintiff's right of
applicants title has danger
not been clearly possession of
of
established. being said property, or
lost, prevent the
remov defendant from
ed damaging,
materi destroying or
ally
injure disposing of the
d same during the
unless pendency of the
a suit.
receiv
 er is
appoin
ted to
preser
ve it;
or

When
the
appoin
tment
of
receiv
er is
the
most
conve
nient
and
feasibl
e
means
of
preser
ving it

Status of Property in the property must

the litigation cannot be in litigation.
object be attached. Otherwise
appointment of a
receiver will not
prosper
Purpose: In order that To preserve the status the object of
defendant may quo of the thing subject appointing a
not dispose of of the action; in order to receiver is to
the property preserve the rights of secure and
attached and the plaintiff respecting preserve the
thus secure the the subject of the action property or thing
satisfaction of during pendency of the in controversy
any judgment suit. pending the
that may be litigation.
recovered by the
plaintiff from the
defendant

Oath and Bond of Receiver (sec.4, rule 59)

Before entering upon his duties,
a. The receiver shall be sworn to perform his duty faithfully
b. The receiver shall file a bond executed to such person and in such sum as the court may direct, to the
effect that he will faithfully discharge his duties in the action or proceeding and obey the orders of the
court

Denial of application or discharge of receiver (sec.3, Rule 59)

The application may be denied when:
1. The adverse party files a bond executed to the applicant
2. Amount of bond is fixed by the court
3. the bond is conditioned upon that such party shall pay the applicant(applicant for the appointment) all
damages he may suffer by reason of the acts, omissions or other matters specified in the application
as ground for such appointment.

Additional circumstance when application may be denied:

when applicants bond is found to be insufficient in amount and failed to cure the same

DISCHARGED:
The receiver may be discharged when:
1. if it is shown that his appointment was obtained without sufficient cause
2. when the adverse party files a bond executed to the applicant
3. the amount of bond is fixed by the court
4. the bond is conditioned that such party will pay to the applicant all damages he may suffer by reason
of the acts, omissions, or other matters specified in the applications as grounds for such appointment
Additional circumstance when the receiver may be discharged
a. when the receivers bond is found to be insufficient in amount and failed to cure the same
b. when the court, muto proprio or upon motion by either party, shall determine that the necessity of a
receiver no longer exists.

Powers of Receiver
The receiver shall have the power to:

1. bring and defend, in such capacity, actions in his own name

2. take and keep possession of the property in controversy
3. receive rents,
4. collect debts duet to himself as receiver or to the fund, property estate, person or corporation of which he
is the receiver
5. compound for and compromise the same
6. make transfer
7. pay outstanding debts
8. gived the money and other property that shall remain among the persons legally entitled to receive the
same
9. generally, do such acts respecting the property as the court may authorize

Note: funds in the hands of a receiver may be invested only by order of the court upon the written consent of
all the parties to the action.

Actions against receivers; leave of court (sec.6)

No action may be filed by or against a receiver without leave of court which appointed him.
GR: leave of court/authority which appointed the receiver is required before an action may be filed by or
against a receiver.

Liability for refusal or neglect to deliver property to receiver (sec.7)

A person who refuses or neglects, upon reasonable demand, to deliver to the receiver all the properties
within his power or control, subject of or involved in the action or proceeding, or in case of disagreement, as
determined and ordered by the court, may be:
1. Punished for contempt and
2. Shall be liable to the receiver for the properties refused or neglected to be surrendered
3. Together with all damages that may have been sustained by the party or parties entitled thereto as a
consequence of such refusal or neglect

Termination of receivership
1. The court, motu proprio or upon motion of either party, shall determine that the
necessity for a receiver no longer exists
2. After due notice to all parties and hearing, it shall:
a. Settle the accounts of the receiver
b. Direct the delivery of the funds and other property in his possession to the person adjudged to be
entitled to receive them
c. Order the discharge of the receiver from further duty as such

Judgment to include recovery against sureties( sec.9)

The amount, if any, to be awarded to any party upon any bond filed in accordance with the provisions of
this rule, shall be claimed, ascertained and granted under the same procedure prescribed in Sec. 20, of
rule 57.

Proceedings in Receivership and liquidation Conservatorship not a pre-condition

Should the designation of a conservator a pre-condition to the designation of a receiver?
No. the designation of a conservator is not a precondition to the designation of a receiver. Hence, a bank
may be place under a receivership without the necessity of placing it first under conservatorship.

Who shall appoint a receiver?

vested exclusively with the monetary Board
Sec.30 of the new central bank act
Persons may be appointed as receiver of a bank or quasi bank:
a. not quasi-banks -
Philippine Deposit Insurance
Corporation (PDIC)
b. For quasi-banks
PDIC, or
Any person of recognized competence in banking or finance may be designed as receiver

GROUNDS FOR RECEIVERSHIP

Whenever, upon report of the head of the supervising or examining department, the Monetary Board
finds that a bank or quasibank:

a. is unable to pay its liabilities as they become due in the ordinary course of business: provided that
this shall not included inability to pay caused by extraordinary demands induced by financial panic in
the banking community;

b. by the Bangko Sentral, to meet its liabilities

c. cannot continue in business without involving probable losses to its depositors or creditors

d. has willfully violated a cease and desist order 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 PDIC as receiver of the banking institution.

Duties and powers of the receiver in banking laws:

a. shall immediately gather and take charge of all the assets and liabilities of the institution
b. administer the same for the benefit of its creditors
c. exercise the general powers of a receiver under the rules of court
d. shall not pay or commit any act that will involve the transfer or disposition of any asset of the
institution, except administrative expenditures
e. may place the funds of the institution in nonspeculative investments
f. the receiver shall determine as soon as possible, but not later than 90 days from take over, whether
the institution may be rehabilitated or otherwise place 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.