Guerrero Estate Development Corporation vs. Leviste & Guerrero Realty Corporation

A trial court may issue a provisional deposit order under its inherent powers in Sections 5(g) and 6 of Rule 135 of the Rules of Court—even if the remedy is not among the specific provisional remedies in Rules 57 to 61—when the depositor-party regularly receives money or other property from a non-party during the pendency of the case and the court deems it proper to place such property in custodia legis pending final determination of the party truly entitled to it. Such an order is preservatory, does not amount to a prejudgment of the merits, and need not comply with the requirements for preliminary attachment under Rule 57.

GEDCOR was the owner of a 1,506‑square‑meter parcel of land in San Dionisio, Parañaque City. On June 2, 1987, GEDCOR and Conrad Leviste executed a Joint Venture Contract for the construction of a warehouse on the property. Conrad completed construction at a cost of about P995,102.20 and formed Leviste & Guerrero Realty Corporation (LGRC) in 1988 to hold the asset. The parties agreed on a 45% share for GEDCOR and 55% for Conrad in the warehouse. From 1988, LGRC leased the warehouse and regularly remitted 45% of the monthly rental income to GEDCOR. This practice continued until June 2009, when LGRC stopped remittance after GEDCOR had earlier sought termination of the joint venture and recovery of possession. GEDCOR then sued to fix the contract period under Article 1197 of the Civil Code, to collect unpaid 45% shares, and to compel an accounting.

• The Joint Venture and Sharing Arrangement: GEDCOR owned a 1,506‑sq m lot in Parañaque City. On June 2, 1987, GEDCOR and Conrad Leviste entered into a Joint Venture Contract for the construction of a warehouse on the lot, with a stipulation that a corporation would be formed to hold the asset, with GEDCOR receiving a 45% participation and Conrad 55%. Conrad built the warehouse at an estimated cost of P995,102.20 and formed LGRC in 1988.
• Lease and Regular Remittance: LGRC began leasing the warehouse in 1988. From that time until May 2009, LGRC regularly remitted 45% of the monthly rental income to GEDCOR, while retaining 55% for Conrad. The lessee at the relevant time was Lambert Williams Logistics, Inc.
• Cessation of Remittance and Demand: In 2006 and 2009, GEDCOR sent letters offering to terminate the joint venture for P1,000,000 and demanding turnover of possession, claiming Conrad had recouped his investment. In July 2009, LGRC’s board resolved to stop distributing rental income. As a result, LGRC stopped remitting GEDCOR’s 45% share starting June 2009. By September 1, 2011, the unremitted amount totaled P2,596,041.09.
• Main Action: GEDCOR filed a complaint in the RTC for fixing of period under Article 1197 of the Civil Code, collection of the sum of money representing the unremitted 45% share, and an accounting. Respondents answered that the joint venture was a partnership and that the decision to stop distribution was a management prerogative of LGRC’s board, not governed by the Civil Code.
• Motion to Deposit and RTC Order: During trial, GEDCOR moved for an order directing respondents to deposit in court the accrued 45% share and future monthly shares. Based on the monthly rental rate of P173,580.75 under a renewed lease contract (August 2009) and respondents’ admission that 45% had been regularly remitted until May 2009, GEDCOR computed its claim at P5,936,461.65 for June 2009 to September 2015. The RTC granted the motion on February 19, 2018, ordering deposit of that amount and all subsequent 45% monthly shares until final judgment.
• CA Reversal: The CA found grave abuse of discretion, holding that the deposit order was in the nature of a preliminary attachment that did not comply with Rule 57, and that the RTC’s adoption of GEDCOR’s computation without a full accounting amounted to a prejudgment of the case. The CA reasoned that the proper remedy was under Rule 57, not Rule 135, and that the order effectively resolved the disputed amount of GEDCOR’s share before trial.

• Inherent Power to Issue Deposit Order: GEDCOR argued that the deposit order was a valid exercise of the RTC’s inherent power under Sections 5(g) and 6, Rule 135 of the Rules of Court, which authorize courts to employ all necessary means to carry their jurisdiction into effect and to issue orders conformable to law and justice.
• No Prejudgment of the Case: GEDCOR maintained that the deposit order was purely provisional and preservatory; it did not adjudicate the merits. The computation was based on the last known rental rate supported by lease contracts admitted by the RTC and on respondents’ judicial admission of the longstanding practice of monthly remittance of 45%.
• Non-Applicability of Rule 57: GEDCOR contended that the order was not akin to a preliminary attachment. It did not create a lien on LGRC’s property as security for a judgment, but merely preserved GEDCOR’s own share of rental income pending determination of entitlement. Section 6, Rule 135 and Rule 57 are not mutually exclusive; a court may adopt suitable processes even if a similar remedy exists elsewhere, where no specific procedure is prescribed.

• Deposit Order as Unlawful Attachment: Respondents argued that the deposit order functioned as a preliminary attachment to secure satisfaction of a possible money judgment, yet GEDCOR obtained it without complying with the requisites and procedure under Rule 57. The RTC could not resort to Rule 135 because a specific provisional remedy was available.
• Prejudgment and Lack of Accounting: Respondents asserted that by fixing the amount to be deposited based solely on GEDCOR’s computation—without an accounting of expenses, taxes, and maintenance costs—the RTC effectively prejudged the principal claim. This reversed the burden of proof and granted relief not yet proven.

• Jurisdiction of the Regular RTC: Whether Branch 274, a regular RTC, correctly exercised jurisdiction over the complaint, or whether the case involved an intra-corporate dispute cognizable exclusively by a Special Commercial Court.
• Validity of the Deposit Order under Rule 135: Whether the CA erred in finding that the RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction when it issued the deposit order for rental income under Sections 5(g) and 6 of Rule 135, rather than requiring compliance with Rule 57, and whether the order constituted a prejudgment of the case.

• Jurisdiction of the Regular RTC: Jurisdiction was properly exercised. Applying the relationship and nature-of-controversy tests, the dispute was not an intra-corporate controversy: GEDCOR was not a stockholder of LGRC, and the claim was not for a dividend entitlement but for a contractual share under the joint venture. Even assuming arguendo that an intra-corporate dispute existed, the Court, following Gonzales v. GJH Land, Inc., held that the erroneous raffling of a commercial case to a regular RTC branch is a mere procedural incident that does not divest the RTC of subject matter jurisdiction. The RTC’s exercise of jurisdiction over the complaint was therefore valid, and any procedural misstep would only require re-docketing under the guidelines established in Gonzales, not dismissal.
• Validity of the Deposit Order under Rule 135: The RTC did not act with grave abuse of discretion; the CA erred in annulling the deposit order. The deposit order was a proper extraordinary provisional remedy sanctioned under Sections 5(g) and 6 of Rule 135, as articulated in Lorenzo Shipping Corporation v. Villarin. It fell squarely within the second category of deposit orders: LGRC, the depositor-party, regularly received rental payments from a non-party lessee during the pendency of the case, and the court deemed it appropriate to place the disputed 45% share in custodia legis to preserve it for the party ultimately entitled. Because the deposit was not sought as security for a judgment but to preserve the very income stream in controversy, compliance with Rule 57 was unnecessary. The order did not amount to a prejudgment; its provisional and preservatory character was confirmed by Province of Bataan v. Villafuerte, which held that such escrow or deposit orders are incidental to the court’s jurisdiction and merely secure the eventual enforcement of rights, not an advance determination of the merits. The RTC’s computation was based on admitted rental rates and the parties’ admissions; concerns about deductions for expenses were addressed by the court’s assurance that amounts could be released upon motion for operating or maintenance needs.

• Provisional Deposit Orders as Extraordinary Remedy under Rule 135 — A deposit order is an extraordinary provisional remedy whereby money or property is placed in custodia legis to ensure restitution to whichever party is declared entitled after adjudication. Its basis lies in the inherent powers of courts under Sections 5(g) and 6 of Rule 135, not in Rules 57 to 61. Two categories exist: (1) where the demandability of the money or property cannot be contested by the depositor-party due to the nature of the relief (e.g., interpleader, rescission with refund); and (2) where the depositor-party regularly receives money or property from a non-party during the pendency of the case, and the court deems it proper to place such sums in custodia legis pending determination of the rightful claimant. The common thread is an agreement or juridical tie binding the parties or forming the basis for the regular receipt. The Court applied the second category here, finding that LGRC regularly received rentals from a lessee and that the disputed 45% share warranted preservation in court. (Lorenzo Shipping Corporation v. Villarin)
• Distinction Between Jurisdiction and Exercise of Jurisdiction — Jurisdiction over the subject matter is conferred by law, while the mode of exercising that jurisdiction—including the designation of specialized branches—is a matter of procedure. An erroneous raffle to a regular RTC branch of a case that should have been tried by a Special Commercial Court does not divest the RTC of subject matter jurisdiction. The proper remedy is re‑docketing, not dismissal. (Gonzales v. GJH Land, Inc.)
• Test for Intra-Corporate Dispute — To determine whether a case involves an intra-corporate controversy, courts apply the relationship test (the conflict must fall within the enumerated intra-corporate relationships) and the nature of controversy test (the dispute must be rooted in intra-corporate relations and the enforcement of rights under the Corporation Code and internal rules). A party not a stockholder and a claim not involving dividend entitlement do not give rise to an intra-corporate controversy.
• Provisional Orders Are Not a Prejudgment — Provisional orders issued to preserve the subject matter of litigation or to maintain the status quo are not an advanced determination of the parties’ rights. They are means adopted to secure effective adjudication and enforcement of rights after final judgment, and they do not constitute a prejudgment of the main case. (Province of Bataan v. Villafuerte)

• "Based on jurisprudence, a deposit order is an extraordinary provisional remedy whereby money or other property is placed in custodia legis to ensure restitution to whichever party is declared entitled thereto after court proceedings. It is extraordinary because its basis is not found in Rules 57 to 61 of the Rules of Court on Provisional Remedies but rather, under Sections 5(g) and 6, Rule 135 of the same Rules pertaining to the inherent power of every court '[t]o amend and control its process and orders so as to make them conformable to law and justice;' as well as to issue 'all auxiliary writs, processes and other means necessary' to carry its jurisdiction into effect." (citing Lorenzo Shipping Corporation v. Villarin) — This passage defines the nature and legal basis of the deposit order as an extraordinary remedy grounded in the court’s inherent powers.
• "The second category of cases involve provisional deposit orders covering sums regularly received from non-parties to the case by the depositor-party during the pendency of the proceedings. These are turned over to the custody of the court since the entitlement of the depositor-party thereto remains disputed, and to ensure the timely transfer of such sums to whoever would be adjudged properly entitled thereto." — This excerpt delineates the second category of deposit orders, which the RTC correctly applied.
• "By issuing the Deposit Order, the RTC is merely holding in custodia legis the amount corresponding to 45% of the rental income to ensure that it can enforce the rights of the parties after adjudication." — This passage underscores that the order was preservatory and not an adjudication on the merits.
• "the erroneous raffling to a regular branch [of the RTC] instead of to a Special Commercial Court is only a matter of procedure—that is an incident related to the exercise of jurisdiction—and thus, should not negate the jurisdiction which the RTC already acquired." (citing Gonzales v. GJH Land, Inc.) — This clarifies that subject matter jurisdiction is not lost by a procedural raffling error.

• Lorenzo Shipping Corporation v. Villarin, G.R. No. 175727 & 178713, March 6, 2019 — Followed; provided the doctrinal framework for the two categories of provisional deposit orders and affirmed their validity under Sections 5(g) and 6 of Rule 135. The Court adopted its reasoning to uphold the RTC’s order.
• Gonzales v. GJH Land, Inc., 772 Phil. 483 (2015) — Applied; clarified the distinction between jurisdiction over subject matter and the exercise of jurisdiction, and established guidelines for cases erroneously raffled to regular RTC branches instead of Special Commercial Courts. The Court relied on it to dispose of the jurisdictional challenge.
• Province of Bataan v. Villafuerte, 419 Phil. 907 (2001) — Relied upon for the principle that escrow/deposit orders issued during the pendency of a case are incidental to the court’s jurisdiction and do not constitute a prejudgment. The Court cited it to refute the CA’s conclusion that the RTC’s order prematurely resolved the merits.

• Sections 5(g) and 6, Rule 135, Rules of Court — These provisions grant every court the inherent power to amend and control its processes and orders to conform to law and justice, and to employ all auxiliary writs, processes, and means necessary to carry its jurisdiction into effect. The Court held that these provisions are the legal basis for a provisional deposit order, and that the remedy exists independently of the specific provisional remedies under Rules 57 to 61.
• Section 5, Republic Act No. 8799 (The Securities Regulation Code) — This provision transferred the SEC’s jurisdiction over intra-corporate disputes to the RTCs. The Court, conformably with Gonzales, interpreted the transfer as vesting jurisdiction in all RTCs, not exclusively in designated Special Commercial Courts; thus, a regular RTC branch could exercise jurisdiction over a commercial case, subject only to procedural re‑docketing if mis‑raffled.
• Article 1197, Civil Code of the Philippines — The basis of the main action for fixing the period of the joint venture contract. Mentioned to describe the nature of the principal suit, but not directly applied in the resolution of the procedural issue.

Perlas-Bernabe, S.A.J. (Chairperson), Hernando, Gaerlan, and Dimaampao, JJ.