Receivership Cases

Receivership – Rule 59

Topic: Receivership – Foreclosure is not prohibited when a bank is under receivership and liquidation.
Receivership is not considered as force majeure that can stay the running of prescriptive period for the
collection of sum of money or to foreclose a mortgage.

1. SPS. LARROBIS v PHILIPPINE VETERANS BANK

G.R. NO. 135706 OCTOBER 1, 2004

Facts

On March 3, 1980, Spouses Cesar and Virginia Larrobis (Sps. Larrobis) contracted a monetary loan due
and demandable on February 27, 1981 with Philippine Veterans Bank (the Bank) and executed a Real
Estate Mortgage on their lot together with the improvements thereon.

On March 23, 1985, the Bank was placed under receivership and liquidation by the Central Bank due to
bankruptcy.

On August 3, 1985, the Bank through authorized deputy Francis Go sent a demand letter to Sps. Larrobis
for accounts receivable over insurance premiums advanced by the Bank over the mortgaged property.

On August 23, 1995 – more than fourteen years from the loan’s due date – the Bank filed a petition with
the Regional Trial Court for extrajudicial foreclosure of mortgage of the property which was sold in a
public auction with the Bank as the lone bidder.

On April 17, 1988, Sps. Larrobis filed a complaint with the RTC to declare the foreclosure and sale null
and void on the ground that the Bank’s right to foreclose the mortgage had already lapsed.

In its answer, the Bank relied on the Provident case ruling which holds that the period during which the
bank was placed under receivership was deemed fuerza mayor which validly interrupted the prescriptive
period.

The RTC ruled in favor of the Bank. The RTC emphasized that a written extrajudicial demand wipes out
the period that had already elapsed and starts anew the prescriptive period. It recognized the
extrajudicial demand made by Francis Go as the start of the new ten - year period.

Sps. Larrobis filed a motion for reconsideration but the same was denied, hence they filed a Petition for
Review directly to the Supreme Court. They maintained that the Bank’s right to foreclose had prescribed
already and contended that the demand letter sent in 1985 referred to another obligation.

Issue

WON placement under receivership/liquidation was a fortuitous event that interrupted the ten-year
prescriptive period to initiate foreclosure proceedings

Held
No. While it is true that foreclosure falls within the broad definition of doing business, it should not be
considered included in the acts prohibited whenever banks are prohibited from doing business during
receivership and liquidation. When a bank is declared insolvent and placed under receivership, the
Central Bank, through the Monetary Board, determines whether to proceed with the liquidation or
reorganization of the financially distressed bank. A receiver, who concurrently represents the bank, then
takes control and possession of its assets for the benefit of the bank’s creditors. A liquidator meanwhile
assumes the role of the receiver upon determination by the Monetary Board that the bank can no
longer resume business.

A receiver of the bank is in fact obliged to collect debts owing to the bank, which debts form part of the
assets of the bank. The receiver must assemble the assets and pay the obligation of the bank under
receivership and take steps to prevent dissipation of such assets. Accordingly, the receiver of the bank is
obliged to collect pre-existing debts due to the bank and in connection therewith to foreclose mortgages
securing debts.

Previous ruling in the Provident case does not find application in the case at bar. Unlike Provident
Savings Bank, there was no legal prohibition imposed upon herein respondent to deter its receiver and
liquidator from performing their obligations under the law. Hence, the period within which respondent
bank was placed under receivership/liquidation proceedings does not constitute a fortuitous event.

2. CHAVEZ v CA
G.R. NO. 174356 JANUARY 20, 2010

Topic: Receivership – If the action does not require protection or preservation, the remedy is not
receivership.

Facts:

Fidela Vargas (Vargas) owned a five-hectare mixed coconut land and rice fields in Sorsogon. Evelina
Chavez (Chavez) had been staying in a remote portion of said land with her family, planting coconut
seedlings and supervising the harvest of coconut and palay. Vargas and Chavez agreed to divide the
gross sales of all products from the land between themselves. Since Vargas was busy with law practice,
Chavez undertook to hold in trust for Vargas half the profits.

However, Vargas claimed that Chavez had failed to remit her share of the profits and had refused to turn
over administration of the property to her despite her demands. Vargas then filed a complaint against
Chavez and her daughter Aida Deles (Deles), who was assisting her mother, for recovery of possession,
rent, and damages with prayer for immediate appointment of a receiver before the Regional Trial Court.
Chavez and Deles claimed that the RTC did not have jurisdiction over the subject matter since it involved
an agrarian dispute.

The RTC dismissed the complaint for lack of jurisdiction based on admission of Chavez and Deles that
they were agricultural tenants. It ruled that the jurisdiction over the case belonged to the Department of
Agrarian Reform Adjudication Board (DARAB). Dissatisfied, Vargas appealed to the Court of Appeals and
filed with the same a motion for the appointment of a receiver.
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 considering Vargas’ claim that Chavez and Deles failed to
account for her share.

Issue

WON failure to account for one’s share to the fruits of a property constitutes sufficient ground for of the
motion for the appointment of receiver

Held

No. 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 be 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.

Here, Vargas’ main gripe is that Chavez and Deles 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 Vargas 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, Vargas must prove a clear right to its issuance. But she has not. Indeed, in none of the other
cases she filed against Chavez and Deles has that remedy been granted her.

Besides, the RTC dismissed Vargas' 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.

3. KORUGA VS. ARCENAS

G.R. No. 168332. June 19, 2009

Topic: It is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of
banks.

Facts

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she
filed a complaint before the Makati RTC for violation of the Corporation Code (i.e., self-dealing and
conflicts of interest of directors and officers; right of inspection; & receivership)

Issue

WON the RTC has jurisdiction over the Koruga Complaint.

Held
No. It is the BSP that has jurisdiction over the case. Koruga's Complaint charged defendants with
violation of Sections 31 to 34 of the Corporation Code, prohibiting self -dealing and conflict of interest of
directors and officers; invoked her right to inspect the corporation's records under Sections 74 and 75 of
the Corporation Code; and prayed for Receivership and Creation of a Management Committee, pursuant
to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank
Act. She accused the directors and officers of Banco Filipino of engaging in unsafe, unsound, and
fraudulent banking practices, more particularly, acts that violate the prohibition on self-dealing.

Koruga's invocation of the provisions of the Corporation Code is misplaced. In an earlier case, we ruled
that: “The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the
dissolution and liquidation thereof. As between a general and special law, the latter shall prevail.

Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies, or Rule 59 of

the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30
of the New Central Bank Act should be followed.

It is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section
shall be vested exclusively with the Monetary Board." The term "exclusively" connotes that only the
Monetary Board can resolve the issue of whether a bank is to be placed under receivership and, upon an
affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the
law allows the Monetary Board to take action "summarily and without need for prior hearing."

4. TANTANO v. ESPINA-CABOVERDE
G.R. No. 203585. July 29, 2013

Topic: The need for income to defray medical expenses and support is not a valid justification for the
appointment of a receiver because financial need and like reasons are not found in Sec. 1 of Rule 59.

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 having purchased them from their parents,
Maximo and Dominalda.

Respondents Eve and Fe filed a complaint before the RTC for the annulment of the Deed of Sale
purportedly transferring Lots 2, 3 and 4 from their parents in favor of petitioners Mila and Roseller and
their other siblings, Jeanny, Laluna and Ferdinand.
Fearing that the contested properties would be squandered, Dominalda filed 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.

The trial court issued a Resolution granting Dominalda's application for receivership over Lot Nos. 2, 3
and 4.

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.

The trial court denied the motion for reconsideration. The CA likewise denied the petition for certiorari.

ISSUE:

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.
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.

HELD:

Receivership is a harsh remedy to be granted with utmost circumspection and only in extreme
situations.

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.

1. The SC finds that the grant of Dominalda's Application for Receivership has no leg to stand on.
Dominalda's alleged need for income to defray her medical expenses and support is not a valid
justification for the appointment of a receiver because financial need and like reasons are not found in
Sec. 1 of Rule 59 which prescribes specific grounds or reasons for granting receivership.

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.

Placing the disputed properties under receivership is not necessary to save Dominalda from grave and
immediate loss or irremediable damage.
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.

2. 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.

5. Hiteroza v. Cruzada

Topic: It is premature to appoint a receiver without sufficient evidence to show that there is an
imminent danger of: (1) dissipation, loss, wastage, or destruction of assets or other properties; and (2)
paralyzation of its business operations that may be prejudicial to the interest of the minority
stockholders, parties-litigants, or the general public.

THE FACTS

Christ's Achievers Montessori Inc. is a non-stock, non-profit corporation that operates a school in San
Jose del Monte, Bulacan (hereinafter referred to as the school). The petitioner Sps. Hiteroza and the
respondent Charito Cruzada (Charito) are the incorporators, members and trustees of the School,
together with Alberto Cruzada, the husband of Charito, and Jaina R. Salangsang (Jaina), the mother of
Cynthia and Charito.

On February 25, 2010, the Sps. Hiteroza filed a Complaint for a derivative suit with prayer for the
creation of a management committee, the appointment of a receiver, and a claim for damages against
Charito, the President and Chairman of the school.

The Sps. Hiteroza alleged that Charito employed schemes and acts resulting in dissipation, loss, or
wastage of the school's assets that, if left unchecked, would likely cause paralysis of the school
operations, amounting to fraud and misrepresentation detrimental and prejudicial to the school's
interests. The alleged schemes and acts of Charito that brought about the Sps. Hiteroza's prayer for the
creation of a management committee and the appointment of a receiver are as follows:

First, Charito lied about the school's financial status and concealed the school's real income. The Sps.
Hiteroza discovered the discrepancies in the reported number of enrolled students versus the actual
number of enrolled students. The Sps. Hiteroza claimed that the school has missing funds due to
Charito's fraud.

Second, Charito refused the Sps. Hiteroza's request to examine the corporate and financial records of
the school, as well as an accounting of the school's receipts and expenses. Charito also refused to
conduct regular and special annual board meetings and the election of officers.
Third, the school's debt with Unitrust Development Bank secured by the Sps. Hiteroza's three (3) lots
and which are now used as the school site, ballooned from P2,000,000.00 to P7,512,492.24 due to the
school's late payments or non-payment, contrary to Charito's assurance that the loan was back to
P2,000,000.00.

Fourth, Charito faked the Securities and Exchange Commission (SEC) reportorial requirements when she
filed the General Information Sheets for the years 2006 and 2008 and falsely reported that there were
annual members' meetings held when there had been none. Charito also filed an Amended Articles of
Incorporation using the old signature page of the original Articles of Incorporation, without the Sps.
Hiteroza's consent, and forged Cynthia's signature in the school's financial statements.

Fifth, Charito caused the illegal transfer of Jaina's membership in the school to her son, Jerameel S.
Cruzada. The Sps. Hiteroza claimed that the school's bylaws provide that the membership is
nontransferable and Jaina could not have transferred her membership since she was already suffering
from alzheimer's disease.

Sixth, Charito and her family's wealth and lifestyle do not correspond with Charito and her husband's
earnings of P10,000.00 and P8,000.00 per month respectively, as reflected in the School records. Charito
bought a house and lot at Marilao, Bulacan, with a cost of around P3,000,000.00 and an Isuzu Crosswind
Sportivo which cost around P1,200,000.00.

Seventh, Charito used the school premises as her family's personal quarters without paying rent and
used the school's funds to pay for their utility bills.

Charito filed her belated Answer dated April 12, 2010, and argued that the complaint is a nuisance and
harassment suit. Charito averred that the Sps. Hiteroza's real motive is to access and secure for
themselves the school's income; the Sps. Hiteroza professed their "concern" for the school affairs only
after almost ten (10) years. Charito also averred that her family's house is situated at a low-cost
subdivision and their car was obtained through hard work and not through fraud.

Charito argued that the "serious situation test" in the case of Pryce Corporation v. China Banking
Corporation23 on the appointment of a management committee or a receiver has not been satisfied. The
complaint failed to show that there is a serious and imminent danger of dissipation, loss, wastage, or
destruction of assets and paralysis of business operations that may be prejudicial to the minority
interest of stockholders, parties-litigants, or to the general public, and that there is a necessity to
preserve the parties-litigants, investors, and the creditors' rights and interests.

Charito claimed that the school's improvement negates the accusation of mismanagement. On the Sps.
Hiteroza's right of inspection, Charito claims that a derivative suit is not the proper remedy since the
right of inspection is the stockholder's personal right and his cause of action is individual. Further, the
derivative suit requirements have not been complied with since there is no allegation that the Sps.
Hiteroza exhausted all available remedies under the school's Articles of Incorporation and By-
Laws. Finally, the complaint has no allegation of earnest efforts towards a compromise, a jurisdictional
requirement, considering that the parties are siblings.

THE RTC RULING

On May 14, 2010, the Regional Trial Court (RTC) rendered a decision30 (the May 14, 2010 RTC decision)
directing Charito to allow the Sps. Hiteroza or their duly authorized representative to have access to,
inspect, examine, and secure copies of books of accounts and other pertinent records of the school. The
RTC recognized that the Sps. Hiteroza, as stockholders, have the right to inspect the school's books and
records and/or be furnished with the school's financial statements under Sections 74 and 75 of the
Corporation Code of the Philippines.

The RTC, however, held that the allegations in the complaint do not amount to a derivative suit since
any injury that may result from the claimed fraudulent acts of Charito will only affect the Sps. Hiteroza
and not the school. The RTC also held that the prayer for the creation of a management committee or
the appointment of a receiver was premature since there was yet no evidence in the complaint to
support the Sps. Hiteroza's allegations of fraud or misrepresentation.

The Sps. Hiteroza's inspection of the School's corporate books was conducted on June 14 to 15, 2010.

On September 21, 2010, the Sps. Hiteroza filed a Report on the Inspection of Corporate Documents (1st
Report); they alleged that despite demand, Charito did not produce all the documents for
inspection. With the available documents, the Sps. Hiteroza discovered misuse, wrong declaration
and/or wrong recording of funds, as well as missing funds from the coffers of the school amounting to
fraud and/or misrepresentation that are detrimental to the school's interests. The Sps. Hiteroza
reiterated their prayer for the creation of a management committee and the appointment of a receiver
for the school.

Charito filed her Comment on the 1st Report and claimed that this report is in the form of a motion for
reconsideration which is a prohibited pleading under Rule 15 of the Rules of Court. Charito claims that
the appointment of a management committee or a receiver is a provisional remedy and could not be
obtained after no appeal was filed and the May 14, 2010 RTC decision lapsed to finality.

Charito, however, admitted during the hearing before the RTC that not all documents were presented
for the Sps. Hiteroza's inspection. Hence, the RTC issued an Order directing the inspection of the school's
books of account.

On January 17, 2011, the Sps. Hiteroza filed a 2nd Report on the Inspection of Corporate Documents and
reiterated their prayer for the creation of a management committee and the appointment of a receiver
for the school. The Sps. Hiteroza alleged that Charito again refused to produce the school's main bank
accounts records. The Sps. Hiteroza also alleged that their accountants found that, based on the
declared amounts in the corporate books of accounts, the total unaccounted income of the School for
the years 2000 to 2009 amounted to P27,446,989.35.

The RTC issued an Order dated March 3, 2011, referring the dispute for mediation at the Philippine
Mediation Center, Bulacan Office. The parties appeared for mediation as directed but no settlement was
reached. The Sps. Hiteroza filed a Manifestation with Motion dated November 9, 2011, reiterating their
prayer for the appointment of a rehabilitation receiver and/or management committee.

On March 16, 2012, the RTC issued an Order (assailed RTC order) appointing Atty. Rafael Chris F. Teston
as the school's receiver in view of the "inability of the parties to work out an amicable settlement of
their dispute, and in order to enable the court to ascertain the veracity of the claim of the [spouses
Hiteroza] that Charito has unjustifiably failed and refused to comply with the final decision in this case
dated May 14, 2010."

Charito sought to nullify the assailed RTC order and filed a Petition for Certiorari dated April 3, 2012,
with application for the issuance of a temporary restraining order and/or writ of preliminary injunction
before the CA. The Sps. Hiteroza argued that the RTC gravely abused its discretion in issuing the assailed
RTC order on the appointment of a receiver since it was issued despite the absence of the following: (1)
a verified application, (2) any ground enumerated under Section 1 of Rule 9 of the Interim Rules of
Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC) (hereinafter referred to as the
"Interim Rules"), or any "serious situation" as required by the Court in the Pryce Corporation case. The
Sps. Hiteroza also argued that the assailed RTC Order contradicted the final May 14, 2010 RTC decision
denying the prayer for receivership or the creation of a management committee.

THE CA RULING

In its decision dated July 9, 2012, the CA granted Charito's petition and nullified the assailed RTC order
on the appointment of a receiver.

The CA explained that the May 14, 2010 RTC decision already denied the Sps. Hiteroza's prayer for the
creation of a management committee or the appointment of a receiver for lack of evidence and for
being premature. The May 14, 2010 RTC decision eventually became final and executory since no appeal
was filed.

The CA held that the RTC gravely abused its powers in reconsidering its final decision on the basis of the
Sps. Hiteroza's reports on the inspection of the school records. The CA noted that the Sps. Hiteroza's
reports, which reiterated their prayer for the creation of a management committee and the
appointment of a receiver, are veiled attempts to move for the reconsideration of the RTC decision; a
motion for reconsideration is a prohibited pleading under Section 8(3), Rule 1 of the Interim Rules.

The CA also held that there was noncompliance with the requisites for the appointment of a receiver
under Section 1, Rule 9 of the Interim Rules. The CA declared that the allegations on the school's
dissipation of assets and funds have yet to be proven and that the RTC was still in the process of
ascertaining the veracity of the Sps. Hiteroza's claims. Further, there is no showing that the school is in
imminent danger of paralysation of its business operations.
The Sps. Hiteroza filed a motion for reconsideration of the CA decision, but the CA denied the motion for
lack of merit.

THE PETITION

The Sps. Hiteroza filed the present petition for review on certiorari to challenge the CA ruling.

The Sps. Hiteroza argue that the CA ruling is erroneous since it considers the May 14, 2010 RTC decision
as a final judgment when, in fact, the RTC decision is preliminary as it merely grants a remedy by way of
a mode of discovery,i.e., the inspection of corporate documents, books, and records. The May 14, 2010
RTC decision merely granted one of the reliefs asked for by the Sps. Hiteroza, but by itself, does not
address all of the Sps. Hiteroza's causes of action in their complaint. More importantly, Charito has not
fully complied with the May 14, 2010 RTC decision since Charito refused to open the School's other
corporate books and records for inspection.

The Sps. Hiteroza also argue that the reports have extensively shown that there was dissipation of the
school's assets and funds and that the school is heavily indebted to the bank, thus warranting the
appointment of a receiver.

THE ISSUES

The issues of the petition are: (1) whether the May 14, 2010 RTC Decision is a final judgment; and (2)
whether the CA correctly nullified the assailed RTC Order which directed the appointment of a receiver.

OUR RULING

We partially grant the petition.

The May 14, 2010 RTC decision is  not  a final judgment since the case is not ripe for decision. No pre-
trial has been conducted pursuant to the Interim Rules and the parties have not submitted their pre-
trial briefs.

Section 4, Rule 4 of the Interim Rules provides that a judgment before pre-trial, as in the present case,
may only be rendered after the parties' submission of their respective pre-trial briefs.

SEC. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court determines
that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a
judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter,
the court shall render judgment, either full or otherwise, not later than ninety (90) days from the
expiration of the period to file the memoranda. (emphases supplied)
Complementing Section 4 is Section 1, Rule 4 of the Interim Rules which provides for the mandatory
conduct of a pre-trial conference, to quote:

SECTION 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for availment
of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the
court shall issue and serve an order immediately setting the case for pre-trial conference and directing
the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish
each other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court
and the other party at least five (5) days before the date set for the pre-trial. x x x.

The conduct of a pre-trial is mandatory under the Interim Rules. Except in cases of default, Sections 1
and 4 of Rule 4 of the Interim Rules require the conduct of a pre-trial conference and the submission of
the parties' pre-trial briefs before the court may render a judgment on intra-corporate disputes.

Rule 7 of the Interim Rules (Inspection of Corporate Books and Records) dispenses with the need for a
pre-trial conference or the submission of a pre-trial brief before the court may render a judgment. This
Rule, however, applies only to disputes exclusively involving the rights of stockholders or members to
inspect the books and records and/or to be furnished with the financial statements of a corporation.

In the present case, Rule 7 of the Interim Rules does not apply since the Sps. Hiteroza's complaint did
not exclusively involve the denial of the Sps. Hiteroza's right to inspect the school's records, but also
several other allegations of Charito's fraud and misrepresentation in the School's management. There
has been no conduct of a pre-trial conference or the submission of the parties' respective pre-trial briefs
before the issuance of the May 14, 2010 RTC decision. The issuance of the May 14, 2010 RTC decision
was, thus, premature.

Even a cursory examination of the issue on whether the CA correctly nullified the assailed RTC Order
directing the appointment of the school's receiver immediately leads us to conclude that this is a
question of fact that is not within the authority of this Court to decide. More importantly, the factual
issue has not been ventilated in the proper proceedings before the trial court because the case did not
even reach the pre-trial stage. Thus, the appointment of the school's receiver is premature.

The requirements in Section 1, Rule 9 of the Interim Rules apply to both the creation of a management
committee and/or the appointment of a receiver.

Without going into the factual circumstances on the propriety of the appointment of a receiver, we find
that the CA correctly applied the requisites of Section 1, Rule 9 of the Interim Rules (on the creation of a
management committee) to determine the propriety of the appointment of a receiver.

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

preserve properties involved in a suit and to protect the rights of the parties under the control and
supervision of the court.

Section 1, Rule 9 of the Interim Rules provides:

SECTION 1. Creation of a management committee. — As an incident to any of the cases filed under these
Rules or the Interim Rules on 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:

(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.
Section 2, Rule 9 of the Interim Rules, on the other hand, provides for the appointment of a receiver, to
quote:

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.

While the caption of Section 1, Rule 9 states "the creation of a management committee," the
requirements stated in Section 1 apply to both the creation of a management committee and the
appointment of a receiver, as can be gleaned from Section 2, Rule 9 which refers to "the application
sufficient in form and substance." The "application" referred to in Section 2 on Receiver is the same
application referred to in Section 1 of Rule 9.

The recent case of Villamor, Jr. v. Umale that touches on these points, is instructive:

x x x 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."

Applicants for the appointment of a receiver or management committee need to establish the
confluence of these two requisites. 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. This may have a negative effect on the operations and affairs of the corporation with
third parties,—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. (Emphasis
supplied)

In Villamor, Jr., the Court recognized that Section 1, Rule 9 of the Interim Rules applies to both the
appointment of a receiver and the creation of a management committee. Further, the Court held that
there must be imminent danger of both the dissipation, loss, wastage, or destruction of assets or other
properties; and paralysation of its business operations that may be prejudicial to the interest of the
minority stockholders, parties-litigants, or the general public, before allowing the appointment of a
receiver or the creation of a management committee.

In the case of Sy Chim v. Sy Siy Ho & Sons, Inc.,68 the Court similarly held that the two requisites found in
Section 1 of Rule 9 of the Interim Rules should be present before a management committee may be
created and a receiver appointed by the RTC.

The reason for the stringent requirements on the creation of a management committee and the
appointment of a receiver was explained in the Sy Chim case, as follows:

The rationale for the need to establish the confluence of the two (2) requisites under Section 1, Rule 9
by an applicant for the appointment of a management committee is primarily based upon the fact that
such committee and receiver appointed by the court will immediately take over the management of the
corporation, partnership or association, including such power as it may deem appropriate, and any of
the powers specified in Section 5 of the Rule. x x x.

Thus, the creation and appointment of a management committee and a receiver is an extraordinary 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 allowed only under pressing circumstances and, when there is
inadequacy, or ineffectual exhaustion of legal or other remedies. The power to intervene before the
legal remedy is exhausted and misused when it is exercised in aid of such a purpose. The power of the
court to continue a business of a corporation, partnership, or association must be exercised with the
greatest care and caution. There should be a full consideration of all the attendant facts, including the
interest of all the parties concerned.

Considering the requirements for the appointment of a receiver, we find that the CA correctly attributed
grave abuse of discretion on the part of the RTC when the RTC prematurely appointed a receiver
without sufficient evidence to show that there is an imminent danger of: (1) dissipation, loss, wastage,
or destruction of assets or other properties; and (2) paralysation of its business operations that may be
prejudicial to the interest of the minority stockholders, parties-litigants, or the general public. The RTC
explicitly stated in its May 14, 2010 decision that there was yet no evidence to support the Sps.
Hiteroza's allegations on Charito's fraud and misrepresentation to justify the appointment of a
receiver.70chanrobleslaw

Further, the appointment of the school's receiver was not based on the presence of the requirements of
Section 1, Rule 9 of the Interim Rules, but based on the "inability of the parties to work out an amicable
settlement of their dispute, and in order to enable the court to ascertain the veracity of the claim of the
[spouses Hiteroza] that Charito has unjustifiably failed and refused to comply with the final Decision in
this case dated May 14, 2010."

Considering these findings, we find that the CA correctly nullified the assailed RTC order appointing a
receiver for the school without satisfying the requirements of Section 1, Rule 9 of the Interim Rules.
WHEREFORE, we hereby PARTIALLY GRANT the petition for review on certiorari. The decision dated July
9, 2012 of the Court of Appeals in CA-G.R. SP No. 124096 is AFFIRMED insofar as the appointment of
Atty. Rafael Chris F. Teston as receiver for the School is nullified. Civil Case No. 130-M-2010
is REMANDED to the Regional Trial Court to enable the conduct of the pre-trial conference and of
further proceedings.

6. BANKO FILIPINO V. BSP

G.R. No. 200678, June 04, 2018

Topic: A closed bank under receivership can only sue or be sued through its receiver, the Philippine
Deposit Insurance Corporation.

Facts

Petitioner bank has been placed under receivership when it filed a Petition for Certiorari with the
Supreme Court. Said Petition was assailed by the respondent that contended that the same should be
dismissed outright for being filed without Philippine Deposit Insurance Corporation’s authority. It asserts
that petitioner was placed under receivership on March 17, 2011, and thus, petitioner’s Executive
Committee would have had no authority to sign for or on behalf of petitioner absent the authority of its
receiver, Philippine Deposit Insurance Corporation. They also point out that both the Philippine Deposit
Insurance Corporation Charter and Republic Act No. 7653 categorically state that the authority to file
suits or retain counsels for closed banks is vested in the receiver. Thus, the verification and certification
of non-forum shopping signed by petitioner’s Executive Committee has no legal effect.

Issue:

Whether or not petitioner Banco Filipino, as a closed bank under receivership, could file this Petition for
Review without joining its statutory receiver, the Philippine Deposit Insurance Corporation, as a party to
the case.

Ruling:

A closed bank under receivership can only sue or be sued through its receiver, the Philippine Deposit
Insurance Corporation. Under Republic Act No. 7653, when the Monetary Board finds a bank insolvent,
it 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.”

The relationship between the Philippine Deposit Insurance Corporation and a closed bank is fiduciary in
nature. Section 30 of Republic Act No. 7653 directs the receiver of a closed bank to “immediately gather
and take charge of all the assets and liabilities of the institution” and “administer the same for the
benefit of its creditors.” The law likewise grants the receiver “the general powers of a receiver under the
Revised Rules of Court.” Under Rule 59, Section 6 of the Rules of Court, “a receiver shall have the power
to bring and defend, in such capacity, actions in his [or her] own name.” Thus, Republic Act No. 7653
provides that the receiver shall also “in the name of the institution, and with the assistance of counsel as
[it] may retain, institute such actions as may be necessary to collect and recover accounts and assets of,
or defend any action against, the institution.” Considering that the receiver has the power to take
charge of all the assets of the closed bank and to institute for or defend any action against it, only the
receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed bank.

When petitioner was placed under receivership, the powers of its Board of Directors and its officers
were suspended. Thus, its Board of Directors could not have validly authorized its Executive Vice
Presidents to file the suit on its behalf. The Petition, not having been properly verified, is considered an
unsigned pleading. A defect in the certification of non-forum shopping is likewise fatal to petitioner’s
cause. Considering that the Petition was led by signatories who were not validly authorized to do so, the
Petition does not produce any legal effect. Being an unauthorized pleading, this Court never validly
acquired jurisdiction over the case. The Petition, therefore, must be dismissed.