Receivership

A court order whereby all the property subject to dispute in a legal action is placed
under the dominion and control of an independent person known as a receiver.
Receivership is an extraordinary remedy, the purpose of which is to preserve proper
ty during the time needed to
prosecute a lawsuit, if a danger is present that such property will be dissipated or re
moved from the jurisdiction of thecourt if a receiver is not appointed. Receivership t
akes place through a court order and is utilized only in exceptionalcircumstances an
d with or without the consent of the owner of the property.

Commodities Storage v. Court of Appeals

G.R. No. 125008

This case explains who is a receiver

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 prevents
its possible destruction or dissipation, if it were left in the possession of any of the
parties. The appointment of a receiver is not a matter of absolute right.
Neither party to 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.
Nature of the duty of the receiver [Pacific Merchandising Corporation v.
Consolacion Insurance, 73 SCRA 564]
A receiver is not an agent or representative of any party to the action. He is an
officer of the court exercising his functions in the interest of neither plaintiff nor
defendant, but for the common benefit of all parties in interest.

Purpose of receivership

Receivership is aimed at the preservation of, and at making more secure, existing
rights. It cannot be used as an instrument for the destruction of those rights.
[Arranza v. B.F. Homes, Inc., 33 SCRA 799]
DUTIES OF RECEIVER
1. Gather and take charge of all the assets and liabilities of the institution
2. Administer the same for the benefit of its creditors
3. 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.
4. 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.

Cases when receiver may be appointed [Rule 59, Sec. 1]

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;
(b) 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 dissipated 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;
(c) After judgment, to preserve the property during the pendency of an appeal, or to
dispose of it according to the judgment
t, or to aid execution when the
execution has been returned unsatisfied or the judgment obligor refuses to apply his

property in satisfaction of the judgment, or otherwise to carry the judgment into

effect;
(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. 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. [Rule 59, Sec. 1]
(Mendoza vs. Arevalo and B. de Arellano) & (Sanson vs. Barrios)
Under section 174 of the Code of Civil Procedure the appointment of a receiver lies
within the sound discretion of the court. In the American courts the same principle
obtains. It is not a matter of strict or absolute right or an imperative requirement.
Even when stipulated for by the parties the appointment of a receiver is not a
matter of right. Perhaps the rule, with reference to the discretion of the trial court in
such matter, may be expressed more exactly by stating that when the party
applying for the appointment of a receiver pending the litigation has made a
showing entitling him, upon some recognized rule, to have a receiver appointed, it
is then within the sound discretion of the trial court to appoint or not a receiver. In
the absence of such showing, the appointment of a receiver is outside the discretion
of the trial court, in excess of its power, and is an abuse of discretion reposed on
him.

(Ralla VS. Alcasid)

A receiver of real or personal property, may be appointed by the court where it
appears from the pleadings, and/or such other proof as the judge may require, that
the party applying for such appointment has an actual interest in it and that such
property is in danger of being lost, removed or materially injured.
The appointment is also proper whenever it appears to be the most convenient and
feasible means of preserving, or administering the property in litigation.
The appointment of a receiver depends principally upon the sound discretion of the
court; it is not a matter absolute right. The facts and circumstances, of each
particular case determine the soundness of the exercise such discretion. Among the
consequences and effects considered by the courts before appointing a receiver
are:

(a) whether or not the injury resulting from such a appointment would probably be
greater than the injury suing if the status quo is left undisturbed; and
(b) Whether or not the appointment will imperil the interests of other whose rights
deserve as much a consideration from the court as those of the person requesting
for receivership.
Who may appoint a Receiver?
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;
(b) 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 dissipated 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;
(c) After judgment, to preserve the property during the pendency of an
appeal, or to dispose of it according to the judgment, or to aid execution
when the execution has been returned unsatisfied or the judgment obligor
refuses to apply his property in satisfaction of the judgment, or otherwise to
carry the judgment into effect;
(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.
Appointment of receiver in cases of dissolution of a corporation:
Section 117. Methods of dissolution. A corporation formed or organized under the
provisions of this Code may be dissolved voluntarily or involuntarily. (n)
Section 118. Voluntary dissolution where no creditors are affected. If dissolution
of a corporation does not prejudice the rights of any creditor having a claim against
it, the dissolution may be effected by majority vote of the board of directors or
trustees, and by a resolution duly adopted by the affirmative vote of the

stockholders owning at least two-thirds (2/3) of the outstanding capital stock or of

at least two-thirds (2/3) of the members of a meeting to be held upon call of the
directors or trustees after publication of the notice of time, place and object of the
meeting for three (3) consecutive weeks in a newspaper published in the place
where the principal office of said corporation is located; and if no newspaper is
published in such place, then in a newspaper of general circulation in the
Philippines, after sending such notice to each stockholder or member either by
registered mail or by personal delivery at least thirty (30) days prior to said
meeting. A copy of the resolution authorizing the dissolution shall be certified by a
majority of the board of directors or trustees and countersigned by the secretary of
the corporation. The Securities and Exchange Commission shall thereupon issue the
certificate of dissolution. (62a)
Section 119. Voluntary dissolution where creditors are affected. Where the
dissolution of a corporation may prejudice the rights of any creditor, the petition for
dissolution shall be filed with the Securities and Exchange Commission. The petition
shall be signed by a majority of its board of directors or trustees or other officers
having the management of its affairs, verified by its president or secretary or one of
its directors or trustees, and shall set forth all claims and demands against it, and
that its dissolution was resolved upon by the affirmative vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or by at least
two-thirds (2/3) of the members at a meeting of its stockholders or members called
for that purpose.
If the petition is sufficient in form and substance, the Commission shall, by an order
reciting the purpose of the petition, fix a date on or before which objections thereto
may be filed by any person, which date shall not be less than thirty (30) days nor
more than sixty (60) days after the entry of the order. Before such date, a copy of
the order shall be published at least once a week for three (3) consecutive weeks in
a newspaper of general circulation published in the municipality or city where the
principal office of the corporation is situated, or if there be no such newspaper, then
in a newspaper of general circulation in the Philippines, and a similar copy shall be
posted for three (3) consecutive weeks in three (3) public places in such
municipality or city.
Upon five (5) days notice, given after the date on which the right to file objections
as fixed in the order has expired, the Commission shall proceed to hear the petition
and try any issue made by the objections filed; and if no such objection is sufficient,
and the material allegations of the petition are true, it shall render judgment
dissolving the corporation and directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the debts of the
corporation. (Rule 104, RCa)

Section 120. Dissolution by shortening corporate term. A voluntary dissolution

may be effected by amending the articles of incorporation to shorten the corporate
term pursuant to the provisions of this Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and Exchange Commission in
accordance with this Code. Upon approval of the amended articles of incorporation
of the expiration of the shortened term, as the case may be, the corporation shall
be deemed dissolved without any further proceedings, subject to the provisions of
this Code on liquidation. (n)
Section 121. Involuntary dissolution. A corporation may be dissolved by the
Securities and Exchange Commission upon filing of a verified complaint and after
proper notice and hearing on the grounds provided by existing laws, rules and
regulations. (n)
Section 122. Corporate liquidation. Every corporation whose charter expires by
its own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall nevertheless
be continued as a body corporate for three (3) years after the time when it would
have been so dissolved, for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of continuing the
business for which it was established.
At any time during said three (3) years, the corporation is authorized and
empowered to convey all of its property to trustees for the benefit of stockholders,
members, creditors, and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all interest which the
corporation had in the property terminates, the legal interest vests in the trustees,
and the beneficial interest in the stockholders, members, creditors or other persons
in interest.
Upon the winding up of the corporate affairs, any asset distributable to any creditor
or stockholder or member who is unknown or cannot be found shall be escheated to
the city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this Code, no
corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities
a. General Powers of a Receiver
1. Subject to the control of the court in which the action or proceeding is
pending:
a. a receiver shall have the power to bring and defend, in such
capacity, actions in his own name;

b. to take and keep possession of the property in controversy;

c. to receive rents;
d. to collect debts due to himself as receiver or to the fund, property,
estate, person, or corporation of which he is the receiver;
e. to compound for and compromise the same;
f. to make transfers;
g. to pay outstanding debts;
h. to divide the money and other property that shall remain among
the persons legally entitled to receive the same; and
i. generally to do such acts respecting the property as the court may
authorize. However, 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. (Rule 59, Sec. 6 ROC)
i. Requirement to enter into a contract
A receiver, has no right or power to make any contract binding the
property or fund in his custody or to pay out funds in his hands without the
authority or approval of the court||| (Pacific Merch vs. Consolacion, Ins.,
G.R. No. 30204, Oct. 29, 1976).
ii. 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.|||(Rule 9, sec. 9, Interim Rules of Procedure
Governing Intra-Corporate Controversies)
iii. Authorization of the court
Subject to the control of the court in which the action is pending, a receiver
shall have the power to contract and defend, as such, actions in his own
name.|||(Somes vs. Govt of the Philippine Islands, 62 Phil 432 (1935))
iv. How are claims against properties under receivership presented?
1. Those who have any claim to property or sums 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. (Po Pauco vs. Siguenza, 52 Phil 241 (1928)

2. Court treated the motions of the creditors as complaints in

intervention*(Asiatic Petroleum vs. Orlanes & Banaag, 59 Phil 24 (1933)

3. All claims must be presented for allowance to the receiver or trustee or

other proper persons during the winding up proceedings. And if a claim is
disputed or unliquidated so that the receiver cannot safely allow the same, it
should be transferred to the proper court for trial and allowance, and the
amount so allowed then presented to the receiver or trustee for payment.
(China Banking vs. M. Michelin & Cie, 58 Phil 261 (1933)
v. Distinguish functions of a receiver and sherif

(Pauco v. Siguenza, G.R. No. 29295, [October 22, 1928], 52 PHIL 241-244)
1.
2.
3.

SHERIFF
is a judicial officer of a general
character
not appointed in any particular
judicial case
who exercises or may exercise
his functions within the limits of
his jurisdiction

RECEIVER
is a special officer
appointed in connection with and
in a particular case or action
duties are limited to his sphere of
action and do not extend further
than the case in which he is
appointed

b. Cases when a receiver may be appointed

i.

If a spouse without just cause abandons the other or fails to comply with
his or her obligations to the family, the aggrieved spouse may petition the
court for receivership, for judicial separation of property or for authority to
be the sole administrator of the absolute community, (Art. 101, Family
Code)

ii.

The court may appoint a receiver of the property of the judgment obligor;
and it may also forbid a transfer or other disposition of, or any interference
with, the property of the judgment obligor not exempt from execution.
(Rule 39, Sec 41 ROC)

iii.

A receiver is a representative of the court appointing him for the purpose

of preserving and conserving the property under receivership and
preventing its possible destruction or dissipation, if it goes to the
possession of another person.||| (Salientes vs. IAC, G.R. No. 66211, July 14,
1995)

iv.

To secure and preserve the property or thing in controversy pending

litigation in order that, as far as practicable, a judicial tribunal, in aid of its
jurisdiction, may be able to effectively bestow to the parties litigant the
rights to which they are entitled, or exact from them the obligations to
which they are subject, under the law. (Dolar vs. Sundiam, G.R. No. 27631,
April 30, 1971)

c. Two kinds of bonds

1. 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||| (Rule 59, sec. 2 ROC)
2. Oath and bond of receiver. Before entering upon his duties, the receiver
shall be sworn to perform them faithfully, and 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. (sec. 4)
Jurisprudence: A person who exercises the functions of a receiver
without a judicial appointment thereto, may nevertheless be regarded as
a common law receiver and a receiver's bond given by him is valid and
enforceable. (Dela Rosa vs. De Borja, 53 Phil 990 (1929)

d. Service of copies of bonds effect of disapproval of the same: The person filing a
bond in accordance with the provisions of this Rule shall forthwith serve a copy
thereof on each interested party, who may except to its sufficiency or of the surety
or sureties thereon. If either the applicant's or the receiver's bond is found to be
insufficient in amount, or if the surety or sureties thereon fail to justify, and a bond
sufficient in amount with sufficient sureties approved after justification is not filed
forthwith, the application shall be denied or the receiver discharged, as the case
may be. If the bond of the adverse party is found to be insufficient in amount or the
surety or sureties thereon fail to justify, and a bond sufficient in amount with
sufficient sureties approved after justification is not filed forthwith, the receiver shall
be appointed or re-appointed, as the case may be. (Rule 59, Sec. 5 ROC)
e. Liability for refusal or neglect to deliver property to receiver: A person who refuses
or neglects, upon reasonable demand, to deliver to the receiver all the property,
money, books, deeds, notes, bills, documents and papers 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 punished for
contempt and shall be liable to the receiver for the money or the value of the
property and other things so refused or neglected to be surrendered, together with

all damages that may have been sustained by the party or parties entitled thereto
as a consequence of such refusal or neglect.|||(Rule 59, Sec. 7 ROC)
f.

Termination of receivership: Whenever the court, motu proprio or on

motion 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
possession to the person adjudged to be 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.
(Rule 59, Sec. 8 ROC)
Jurisprudence:
The court having charge of the receivership should remove a receiver
who asserts ownership over the property in his hands as receiver and refuses to
submit any account of the financial status of said property. (Martinez v. Grao,
G.R. No. 25437, [August 14, 1926],)

After filing his final report and accounting as receiver, and after due
hearing thereon, the same was approved. (Philippine Trust vs. HSBC, 67 Phil 204
(1939)

g. Judgment to include recovery against sureties: 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 as prescribed in
Section 20 of Rule 57||| (Rule 59, Sec. 9 ROC)
Jurisprudence: Demand for damages suffered by reason of the
appointment of a receiver must be made and prosecuted in the receivership
case and cannot be litigated in a separate action. (Nava v. Hofilea, G.R. No.
27764, [December 31, 1927])