Commodities Storage & Ice Plant Corporation, Spouses Victor & Johannah Trinidad vs. Court of Appeals, Justice Pedro A.. Ramirez, Chairman and Far East Bank & Trust Company

The appointment of a receiver under Section 1(b), Rule 59 of the Revised Rules of Court requires a clear showing that the property subject of the action is in imminent danger of being lost, removed, or materially injured, and the power to appoint is exercised with extreme caution, never as a matter of absolute right. Equally, an action by a mortgage debtor to redeem foreclosed real property involves title and is therefore a real action that must be commenced and tried in the province where the property lies.

Commodities Storage & Ice Plant Corporation and the spouses Victor and Johannah Trinidad acquired the Sta. Maria Ice Plant & Cold Storage in Sta. Maria, Bulacan through a P31,000,000.00 loan extended in 1990 by Far East Bank & Trust Company, the obligation being secured by a mortgage over the ice plant and the land on which it stands. The dispute thus arose from an ordinary borrower-lender and mortgagor-mortgagee relationship in which the real property serving as collateral was itself the asset whose preservation and redemption were later litigated. The case called for the application of Rule 59 of the Revised Rules of Court on the appointment of receivers, Rule 4 on venue in real actions, and Rule 3, Section 20 on transfers of interest pending litigation.

In 1990, petitioner spouses Victor and Johannah Trinidad, together with petitioner Commodities Storage & Ice Plant Corporation, 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.

When the spouses failed to pay their loan, the bank extrajudicially foreclosed the mortgage, and the ice plant was sold at public bidding on March 22, 1993, with the bank emerging as the highest bidder. The bank registered the certificate of sale on September 22, 1993 and later took possession of the property.

On November 22, 1993, the spouses filed Civil Case No. 956-M-93 against the bank before the Regional Trial Court of Malolos, Bulacan for reformation of the loan agreement, annulment of the foreclosure sale and damages. That complaint was dismissed for failure to pay the docket fees, without prejudice to refiling.

On October 28, 1994, petitioners filed Civil Case No. 94-72076 against the bank before the Regional Trial Court, Branch 9, Manila for damages, accounting and fixing of the redemption period. As a provisional remedy, they filed on November 16, 1994 an Urgent Petition for Receivership, alleging that the bank had taken possession of the ice plant forcibly and without notice to them; that its occupation resulted in the destruction of petitioners' financial and accounting records, making it impossible for them to pay their employees and creditors; that the bank had failed to take care of the ice plant with due diligence, such that the plant had 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; and that several people in the barangay had threatened to inform the Department of Environment and Natural Resources should petitioners fail to act. Petitioners 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.

Instead of an answer, the bank filed on November 25, 1994 a Motion to Dismiss and Opposition to Plaintiff's Petition for Receivership, alleging that the complaint stated no cause of action, that venue had been improperly laid, that petitioners had failed to pay the proper docket fees, and that they had violated the rule on forum-shopping. At the hearing on the motion to dismiss, the bank's 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 — a statement petitioners did not dispute. The bank also alleged that it had not been aware that petitioners had nominated one Mr. Pesquera as receiver.

On December 13, 1994, the trial court granted the petition for receivership and appointed petitioners' nominee, Ricardo Pesquera, as receiver upon the filing and approval of a P2,000,000.00 bond, authorizing him to assume the powers and obligations of a receiver under Rule 59 of the Rules of Court. The bank assailed that order before the Court of Appeals, which on January 11, 1996 annulled the order and dismissed the complaint for improper venue and lack of cause of action, denying reconsideration on May 23, 1996. The appellate court's factual premises were that the leak had already been remedied, that no imminent danger of another leakage remained, and that the receiver appointed was in fact petitioners' own nominee.

• Receivership Under Section 1(b), Rule 59: Petitioners argued that the appointment of a receiver was justified under Section 1(b) of Rule 59 because the ice plant, which was the subject of the action, was in danger of being lost, removed and materially injured by reason of three "imminent perils": (a) danger to the lives, health and peace of mind of the inhabitants living near the Sta. Maria Ice Plant; (b) drastic action or sanctions that could be brought against petitioners by affected third persons, including workers with unpaid claims; and (c) the rapid reduction of the ice plant into a scrap heap because of evident incompetence, neglect and vandalism.
• Scope of the Certiorari Petition: Petitioners claimed that the Court of Appeals should have refrained from ruling on the bank's motion to dismiss because the motion itself was not before it.
• Real Party in Interest: Petitioners claimed that the respondent bank was no longer the real party in interest after it sold the ice plant to a third person during the pendency of the case.

• No Cause of Action: Respondent bank moved to dismiss on the ground that the complaint states no cause of action.
• Improper Venue: Respondent bank alleged that venue had been improperly laid.
• Non-Payment of Docket Fees: Respondent bank alleged that petitioners failed to pay the proper docket fees.
• Forum-Shopping: Respondent bank alleged that petitioners violated the rule on forum-shopping.
• Absence of Necessity for Receivership: Respondent bank manifested in open court, at the hearing on its motion to dismiss, that the leak in the ice plant had already been remedied and that no other leakages had been reported since.
• Partisan Nominee as Receiver: Respondent bank alleged that it was not aware that petitioners had nominated one Mr. Pesquera as receiver.

• Receivership: Whether the appointment of a receiver was justified under Section 1(b) of Rule 59 of the Revised Rules of Court.
• Scope of Certiorari Review: Whether the Court of Appeals erred in taking cognizance of and ruling upon the respondent bank's motion to dismiss.
• Venue: Whether venue in Civil Case No. 94-72076 was properly laid in Manila.
• Real Party in Interest: Whether the respondent bank ceased to be the real party in interest after selling the ice plant to a third person during the pendency of the case.

• Receivership: No. The appointment of a receiver under Section 1(b), Rule 59 requires that the property or fund subject of the action be in danger of loss, removal or material injury, and no such necessity was shown since the leak had already been remedied.
• Scope of Certiorari Review: Yes. The Court of Appeals properly ruled on the motion to dismiss, the question of venue being related to the principal action and prejudicial to the ancillary issue of receivership.
• Venue: No. Redemption of the foreclosed property involves title and is a real action, which must be commenced and tried in the province where the property lies — Sta. Maria, Bulacan.
• Real Party in Interest: No. The bank remained the real party in interest, no substitution having been ordered under Section 20, Rule 3 of the Revised Rules of Court.

• Receivership: A petition for receivership under Section 1(b) of Rule 59 requires that the property or fund which is the subject of the action be in danger of loss, removal or material injury, the guiding principle being the prevention of imminent danger to the property; if an action by its nature does not require such protection or preservation, the remedy cannot be applied for and granted. No necessity for the appointment of a receiver was found: petitioners did not sufficiently show that the Sta. Maria Ice Plant was in danger of disappearing or being wasted and reduced to a "scrap heap," nor did they prove that the property had been materially injured. At the hearing on the motion to dismiss, the bank manifested in open court that the leak had already been remedied and that no other leakages had been reported since, a statement petitioners did not dispute; by the time the trial court issued the receivership order, the problem had been remedied, no imminent danger of another leakage existed, and whatever danger there was to the community and the environment had already been contained. The "drastic sanctions" that might be brought against petitioners due to their inability to pay employees and creditors did not concern the ice plant itself; those claims were the personal liabilities of petitioners and did not constitute material injury to the ice plant. Moreover, the receiver appointed appeared to be a representative of petitioners, the bank having alleged that it was unaware of the nomination of Mr. Pesquera. 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, so that their interests may be equally protected with the least possible inconvenience and expense. The power to appoint a receiver must be exercised with extreme caution, and there must be a clear showing of necessity in order to save the plaintiff from grave and irremediable loss or damage; it is only when circumstances so demand, either because of imminent danger that the property be lost or because it runs the risk of being impaired, that the remedy may issue, endeavoring to avoid that the injury thereby caused be greater than the one sought to be avoided. The Court of Appeals thus correctly found that the trial court gravely abused its discretion in issuing the order for receivership.
• Scope of Certiorari Review: The motion to dismiss was anchored on improper venue, lack of cause of action and forum-shopping, and 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, that court may consider them since the petition for receivership depends upon a determination thereof. The appellate court may consider an unassigned error if it is closely related to an error properly assigned, or upon which a determination of the error properly assigned is dependent.
• Venue: Petitioners prayed for two remedies — damages and redemption. The prayer for damages was based on the bank's forcible occupation of the ice plant and its malicious failure to furnish statements of account and application of payments, which allegedly prevented a timely redemption. Petitioners also prayed that the bank be compelled to furnish those documents and, upon receipt, allow redemption of the property; they ultimately sought redemption of the mortgaged property, as paragraph 4 of their prayer made explicit. An action to redeem by the mortgage debtor affects his title to the foreclosed property: if 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; if not seasonably made, it may seek to recover ownership of the land since the purchaser's inchoate title becomes consolidated after expiration of the redemption period. Either way, redemption involves the title to the foreclosed property, and it is a real action. Under Section 2 of Rule 4 of the Revised Rules of Court, 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. 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, so venue in Civil Case No. 94-72076 was improperly laid.
• Real Party in Interest: There is no merit in the claim that the 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 the respondent bank.

• Requisites of Receivership Under Rule 59, Section 1(b) — 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. The guiding principle is the prevention of imminent danger to the property; if an action by its nature does not require such protection or preservation, the remedy cannot be applied for and granted. In this case, the requisites were not met because the leak had already been remedied and no imminent danger of another leakage remained, while the threatened sanctions against petitioners concerned their personal liabilities rather than the ice plant itself.
• Discretionary, Not Absolute, Nature of Receivership — The appointment of a receiver is not a matter of absolute right; it depends upon the sound discretion of the court and is based on the facts and circumstances of each particular case. The power must be exercised with extreme caution, and there must be a clear showing of necessity in order to save the plaintiff from grave and irremediable loss or damage. The Court applied this standard in holding that the trial court gravely abused its discretion in granting the receivership.
• Impartiality and Disinterestedness of 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 preventing its possible destruction or dissipation if it were left in the possession of any of the parties. 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, so that their interests may be equally protected with the least possible inconvenience and expense. The Court noted that the appointee was petitioners' own nominee, of which the bank claimed it was unaware.
• Redemption of Foreclosed Property as a Real Action — An action to redeem by the mortgage debtor affects his title to the foreclosed property. If 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; if not seasonably made, it may seek to recover ownership of the land since the purchaser's inchoate title becomes consolidated after expiration of the redemption period. Either way, redemption involves the title to the foreclosed property, and it is a real action that must be commenced and tried in the province where the property lies.
• Transfer of Interest Pending Litigation — 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. Because no substitution had been ordered, the bank remained the real party in interest notwithstanding its sale of the ice plant to a third person during the pendency of the case.
• Appellate Court May Consider Unassigned Errors Related to Assigned Errors — The appellate court may consider an unassigned error if it is closely related to an error properly assigned, or upon which a determination of the error properly assigned is dependent. This authorized the Court of Appeals to pass upon the motion to dismiss, the question of venue being prejudicial to the ancillary issue of receivership.

• "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." — This defines the office of a receiver and supplies the rationale for the rule that the appointee must be impartial and disinterested rather than a nominee of one party.
• "The appointment of a receiver is not a matter of absolute right. It depends upon the sound discretion of the court and is based on facts and circumstances of each particular case." — This states the standard of review governing receivership orders, which the Court used to sustain the finding of grave abuse of discretion against the trial court.
• "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." — This is the canonical formulation of the impartiality requirement, applied against the appointment of petitioners' own nominee, Mr. Pesquera.
• "Either way, redemption involves the title to the foreclosed property. It is a real action." — This is the ratio for the venue ruling, classifying the mortgage debtor's action for redemption as a real action that must be filed where the property lies.

• Ralla vs. Alcasid, 116 Phil. 622 [1962] — Cited for the requisites of receivership under Rule 59 and for the rule that the appointment of a receiver is a matter of sound judicial discretion.
• Calo and San Jose vs. Roldan, 76 Phil. 445 [1946] — Cited for the rule that the appointment of a receiver is not a matter of absolute right and for the requirement that the property be in danger of loss, removal or material injury.
• Mendoza vs. Arellano, 36 Phil. 59 [1917] — Cited for the rule that the power to appoint a receiver must be exercised with extreme caution and only upon a clear showing of necessity.
• Alcantara vs. Abbas, 9 SCRA 54 [1963] — Cited for the general rule that neither party to a litigation should be appointed as receiver without the consent of the other.
• Normandy vs. Duque, 29 SCRA 385 [1969] — Cited for the rule that a receiver is not the representative of any of the parties but of all of them, so that their interests may be equally protected.
• Medida vs. Court of Appeals, 208 SCRA 886 [1992] — Cited for the rule that the judgment or mortgage debtor remains the owner of the mortgaged property during the redemption period, and for the rule that an appellate court may consider an unassigned error closely related to an error properly assigned.
• Garrido vs. Court of Appeals, 236 SCRA 450 [1994] — Cited for the rule that the appellate court may consider an unassigned error if it is closely related to an error properly assigned, or upon which a determination of the error properly assigned is dependent.
• National Investment and Development Corporation vs. Judge Aquino; Philippine National Bank vs. Judge Aquino, 163 SCRA 153 [1988] — Cited for the requirement that there be a clear showing of necessity before a receiver may be appointed.

• Section 1, Rule 59, Revised Rules of Court — Enumerates the cases in which a receiver may be appointed. Paragraph (b), relied upon by petitioners, requires that the party applying for the appointment have an interest in the property or fund which is the subject of the action and that such property or fund be in danger of being lost, removed or materially injured unless a receiver be appointed to guard and preserve it. The Court held that this requisite was not satisfied.
• Section 2, Rule 4, Revised Rules of Court — Provides that real actions, including 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. The Court applied this provision in holding that the action for redemption, being a real action, should have been filed in Bulacan.
• Section 1, Rule 4, Revised Rules of Court (as amended by Administrative Circular No. 13-95, effective June 20, 1995) — Provides that actions affecting title to or possession of real property, or interest therein, shall be commenced and tried in the proper court which has jurisdiction over the area wherein the real property involved, or a portion thereof, is situated. The Court noted this amendment in its discussion of the venue rule.
• Section 20, Rule 3, 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 applied this provision in holding that the bank remained the real party in interest because no substitution had been ordered.
• Act 3135 and Rule 39, Revised Rules of Court — Invoked in petitioners' prayer, which sought to compel the bank to accept redemption of the foreclosed properties pursuant to Rule 39 in conjunction with Act 3135, within the prescribed redemption period reckoned from receipt of the correct statements of account and application of payments. The Court characterized this prayer as one ultimately seeking redemption, thereby rendering the action a real action for purposes of venue.

Regalado, Romero, Mendoza and Torres, Jr., JJ.