G.R. No. 131683 June 19, 2000JESUS LIM ARRANZA; LORENZO CINCO; QUINTIN TAN; JOSE ESCOBAR; ELBERT FRIEND; CLASSIC HOMES VILLAGE ASSOCIATION, INC.; BF NORTHWEST HOMEOWNERS' ASSOCIATION, INC.; and UNITED BF HOMEOWNERS' ASSOCIATIONS, INC.,petitioners,vs.B.F. HOMES, INC. AND THE HONORABLE COURT OF APPEALS,respondent.

DAVIDE, JR.,C.J.:For resolution in this petition is the issue of whether it is the Securities and Exchange Commission (SEC) or the Housing and Land Use Regulatory Board (HLURB) that has jurisdiction over a complaint filed by subdivision homeowners against a subdivision developer that is under receivership for specific performance regarding basic homeowners' needs such as water, security and open spaces.

Respondent BF Homes, Inc. (BFHI), is a domestic corporation engaged in developing subdivisions and selling residential lots. One of the subdivisions that respondent developed was the BF Homes Paraaque Subdivision, which now sprawls across not only a portion of the City of Paraaque but also those of the adjoining cities of Las Pias and Muntinlupa.

When the Central Bank ordered the closure of Banco Filipino, which had substantial investments in respondent BFHI, respondent filed with the SEC a petition for rehabilitation and a declaration that it was in a state of suspension of payments. On 18 March 1985, the SEC placed respondent under a management committee. Upon that committee's dissolution on 2 February 1988, the SEC appointed Atty. Florencio B. Orendain as a Receiver, and approved a Revised Rehabilitation Plan.

As a Receiver, Orendain instituted a central security system and unified the sixty-five homeowners' associations into an umbrella homeowners' association called United BF Homeowners' Associations, Inc. (UBFHAI), which was thereafter incorporated with the Home Insurance and Guaranty Corporation (HIGC).1In 1989, respondent, through Orendain, turned over to UBFHAI control and administration of security in the subdivision, the Clubhouse and the open spaces along Concha Cruz Drive. Through the Philippine Waterworks and Construction Corporation (PWCC), respondent's managing company for waterworks in the various BF Homes subdivisions, respondent entered into an agreement with UBFHAI for the annual collection of community assessment fund and for the purchase of eight new pumps to replace the over-capacitated pumps in the old wells.

On 7 November 1994, Orendain was relieved by the SEC of his duties as a Receiver, and a new Board of Receivers consisting of eleven members of respondent's Board of Directors was appointed for the implementation of Phases II and III of respondent's rehabilitation.2The new Board, through its Chairman, Albert C. Aguirre, revoked the authority given by Orendain to use the open spaces at Concha Cruz Drive and to collect community assessment funds; deferred the purchase of new pumps; recognized BF Paraaque Homeowners' Association, Inc., (BFPHAI) as the representative of all homeowners in the subdivision; took over the management of the Clubhouse; and deployed its own security guards in the subdivision.

Consequently, on 5 July 1995, herein petitioners filed with the HLURB a class suit "for and in behalf of the more than 7,000 homeowners in the subdivision" against respondent BFHI, BF Citiland Corporation, PWCC and A.C. Aguirre Management Corporation "to enforce the rights of purchasers of lots" in BF Homes Paraaque3. They alleged that:

1. The forty (40) wells, mostly located at different elevations in Phases 3 and 4 of the subdivision and with only twenty-seven (27) productive, are the sources of the inter-connected water system in the 765-hectare subdivision;

2. There is only one drainage and sewer system;

3. There is one network of roads;

4. There are eight (8) entry and exit points to the subdivision and from three (3) municipalities (now cities), a situation obtaining in this subdivision only and nowhere else;

5. There was no security force for the entire subdivision until 1988;

6. There are not enough open spaces in the subdivision in relation to the total land area developed; and whatever open spaces are available have been left unkempt, undeveloped and neglected;

7. There are no zoning guidelines which resulted in unregulated constructions of structures and the proliferation of business establishments in residential areas; and

8. The BFPHAI became "moribund" sometime in 1980 on account of its failure to cope with the delivery of basic services except for garbage collection.

Petitioners raised "issues" on the following basic needs of the homeowners: rights-of-way; water; open spaces; road and perimeter wall repairs; security; and the interlocking corporations that allegedly made it convenient for respondent "to compartmentalize its obligations as general developer, even if all of these are hooked into the water, roads, drainage and sewer systems of the subdivision."4Thus, petitioner prayed that:

A. A cease-and-desist order from selling any of the properties within the subdivision be issued against respondent BFHI, BF Citi, ACAMC, and/or any and all corporations acting as surrogates/alter-egos, sister companies of BFHI and/or its stockholders until the warranties, facilities and infrastructures shall have been complied with or put up (and) the advances of UBFHAI reimbursed, otherwise, to cease and desist from rescinding valid agreements or contracts for the benefit of complainants, or committing acts diminishing, duliting or otherwise depriving complainants of their rights under the law as homeowners;

B. After proper proceedings the bond or deposit put up by respondent BF Homes, Inc. be forfeited in favor of petitioners;

C. Respondent BFHI be ordered to immediately turnover the roads, open spaces, and other facilities built or put up for the benefit of lot buyers/homeowners in the subdivision to complainant UBFHAI as representative of all homeowners in BF Homes Paraaque, free from all liens, encumbrances, and taxes in arrears;

D. If the open spaces in the subdivision are not sufficient as required by law, to impose said penalties/sanctions against BFHI or the persons responsible therefor;

E. Order the reimbursement of advances made by UBFHAI;

F. Turn over all amounts which may have been collected from users' fees of the stop of open space at Concha Cruz Drive;

G. Order PWCC to effect and restore 24-hour water supply to all residents by adding new wells replacing over-capacitated pumps and otherwise improving water distribution facilities;

H. Order PWCC to continue collecting the Community Development Fund and remit all amounts collected to UBFHAI;

I. Order BFHI to immediately withdraw the guards at the clubhouse and the 8 entry and exit points to the subdivision, this being an act of usurpation and blatant display of brute force;

J. The appropriate penalties/sanctions be imposed against BF Citi, ACAMC or any other interlocking corporation of BFHI or any of its principal stockholders in respect of the diminution/encroaching/violation on the rights of the residents of the subdivision to enjoy/avail of the facilities/services due them; and

K. Respondents be made to pay attorney's fees and the costs of this suit.5In its answer, respondent claimed that (a) it had complied with its contractual obligations relative to the subdivision's development; (b) respondent could not be compelled to abide by agreements resulting from Orendain'sultra viresacts; and (c) petitioners were precluded from instituting the instant action on account of Section 6(c) of P.D. No. 902-A providing for the suspension of all actions for claims against a corporation under receivership. Respondent interposed counterclaims and grayed for the dismissal of the complaint.6Petitioners thereafter filed an urgent motion for a cease-and-desist/status quoorder. Acting on this motion, HLURB Arbiter Charito M. Bunagan issued a 20-day temporary restraining order to avoid rendering nugatory and ineffectual any judgment that could be issued in the case;7and subsequently, an Order granting petitioners' prayer for preliminary injunction was issued

enjoining and restraining respondent BF Homes, Incorporated, its agents and all persons acting for and in its behalf from taking over/administering the Concha Garden Row, from issuing stickers to residents and non-residents alike for free or with fees, from preventing necessary improvements and repairs of infrastructures within the authority and administration of complainant UBFHAI, and from directly and indirectly taking over security in the eight (8) exit points of the subdivision or in any manner interfering with the processing and vehicle control in subject gates and otherwise to remove its guards from the gates upon posting of a bond of One Hundred Thousand Pesos (P100,000.00) which bond shall answer for whatever damages respondents may sustain by reason of the issuance of the writ of preliminary injunction if it turns out that complainant is not entitled thereto.8Respondent thus filed with the Court of Appeals a petition forcertiorariand prohibition docketed as CA-G.R. SP No. 39685. It contended in the main that the HLURB acted "completely without jurisdiction" in issuing the Order granting the writ of preliminary injunction considering that inasmuch as respondent is under receivership, the "subject matter of the case is one exclusively within the jurisdiction of the SEC."9On 28 November 1997, the Court of Appeals rendered a decision10annulling and setting aside the writ of preliminary injunction issued by the HLURB. It ruled that private respondents' action may properly be regarded as a "claim" within the contemplation of PD No. 902-A which should be placed on equal footing with those of petitioners' other creditor or creditors and which should be filed with the Committee of Receivers. In any event, pursuant to Section 6(c) of P.D. No. 902-A and SEC's Order of 18 March 1985, petitioners' action against respondent, which is under receivership, should be suspended.

Hence, petitioners filed the instant petition for review oncertiorari. On 26 January 1998, the Court issued a temporary restraining order (TRO) enjoining respondent, its officers, representatives and persons acting upon its orders from

(a) taking over/administering the Concha Garden Row; (b) issuing stickers to residents and non-residents alike for free or with fees; (c) preventing necessary improvements and repairs of infrastructures within the authority and administration of complainant United BF Homeowners' Association, Inc. (UBFHAI); (d) directly and indirectly taking over security in the eight (8) exit points of all of BF Homes Paraaque Subdivision or in any manner interfering with the processing and vehicle control in the subject gates; and (e) otherwise to remove its guards from the gates. . . . .11Respondent's motion to lift the TRO was denied.

At the hearing on 1 July 1998, the primary issue in this case was defined as "which body has jurisdiction over petitioners' claims, the Housing and Land Use Regulatory Board (HLURB) or the Securities and Exchange Commission (SEC)?" The collateral issue to be addressed is "assuming that the HLURB has jurisdiction, may the proceedings therein be suspended pending the outcome of the receivership before the SEC?"

For their part, petitioners argue that the complaint referring to rights of way, water, open spaces, road and perimeter wall repairs, security and respondent's interlocking corporations that facilitated circumvention of its obligation involves unsound real estate practices. The action is for specific performance of a real estate developers' obligations under P.D. No. 957, and the relief sought is revocation of the subdivision project's registration certificate and license to sell. These issues are within the jurisdiction of the HLURB. Even if respondent is under receivership, its obligations as a real estate developer under P.D. No. 957 are not suspended. Section 6(c) of P.D. No. 902-A, as amended by P.D. No. 957, on "suspension of all actions for claims against corporations" refers solely to monetary claims which are but incidental to petitioner's complaints against BFHI, and if filed elsewhere than the HLURB, it would result to splitting causes of action. Once determined in the HLURB, however, the monetary awards should be submitted to the SEC as established claims. Lastly, the acts enjoined by the HLURB are not related to the disposition of BFHI's assets as a corporation undergoing its final phase of rehabilitation.

On the other hand, respondent asserts that the SEC, not the HLURB, has jurisdiction over petitioners' complaint based on the contracts entered into by the former receiver. The SEC, being the appointing authority, should be the one to take cognizance of controversies arising from the performance of the receiver's duties. Since respondent's properties are under the SEC'scustodia legis, they are exempt from any court process.

Jurisdiction is the authority to hear and determine a cause the right to act in a case.12It is conferred by law and not by mere administrative policy of any court or tribunal.1It is determined by the averments of the complaint and not by the defense contained in the answer.14Hence, the jurisdictional issue involved here shall be determined upon an examination of the applicable laws and the allegations of petitioners' complaint before the HLURB.

Presidential Decree No. 957 (The Subdivision and Condominium Buyers' Protective Decree) was issued on 12 July 1976 in answer to the popular call for correction of pernicious practices of subdivision owners and/or developers that adversely affected the interests of subdivision lot buyers. Thus, one of the "whereas clauses" of P.D. No. 957 states:

WHEREAS, numerous reports reveal that many real estate subdivision owners, developers, operators, and/or sellers have reneged on their representations and obligations to provide and maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems, and other similar basic requirements, thus endangering the health and safety of home and lot buyers. . . .

Sec. 3 of P.D. No. 957 empowered the National Housing Authority (NHA) with the "exclusive jurisdiction to regulate the real estate trade and business." On 2 April 1978, P.D. No. 1344 was issued to expand the jurisdiction of the NHA to include the following:

Sec. 1. In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:

A. Unsound real estate business practices;

B. Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

C. Cases involvingspecific performance of contractual and statutory obligationsfiled by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman. (Emphasis supplied.)

Thereafter, the regulatory and quasi-judicial functions of the NHA were transferred to the Human Settlements Regulatory Commission (HSRC) by virtue of Executive Order No. 648 dated 7 February 1981. Section 8 thereof specifies the functions of the NHA that were transferred to the HSRC including the authority to hear and decide "cases on unsound real estate business practices; claims involving refund filed against project owners, developers, dealers, brokers or salesmen and cases of specific performance." Executive Order No. 90 dated 17 December 1986 renamed the HSRC as the Housing and Land Use Regulatory Board (HLURB).15The boom in the real estate business all over the country resulted in more litigation between subdivision owners/developers and lot buyers with the issue of the jurisdiction of the NHA or the HLURB over such controversies as against that of regular courts. In the cases16that reached this Court, the ruling has consistently been that the NHA or the HLURB has jurisdiction over complaints arising from contracts between the subdivision developer and the lot buyer or those aimed at compelling the subdivision developer to comply with its contractual and statutory obligations to make the subdivision a better place to live in.

Notably, inAntipolo Realty Corporation v.National Housing Authority,17one of the issues raised by the homeowners was the failure of Antipolo Realty to develop the subdivision in accordance with its undertakings under the contract to sell. Such undertakings include providing the subdivision with concrete curbs and gutters, underground drainage system, asphalt paved roads, independent water system, electrical installation with concrete posts, landscaping and concrete sidewalks, developed park or amphitheater and 24-hour security guard service. The Court held that the complaint filed by the homeowners was within the jurisdiction of the NHA.1avvphi1Similarly, inAlcasid v.Court of Appeals,18the Court ruled that the HLURB, not the RTC, has jurisdiction over the complaint of lot buyers for specific performance of alleged contractual and statutory obligations of the defendants, to wit, the execution of contracts of sale in favor of the plaintiffs and the introduction in the disputed property of the necessary facilities such as asphalting and street lights.

In the case at bar, petitioners' complaint is for specific performance to enforce their rights as purchasers of subdivision lots as regards rights of way, water, open spaces, road and perimeter wall repairs, and security. Indisputably then, the HLURB has jurisdiction over the complaint.

The fact that respondent is under receivership does not divest the HLURB of that jurisdiction.1awphilA receiver is a person appointed by the court, or in this instance, by a quasi-judicial administrative agency, in behalf of all the parties for the purpose of preserving and conserving the property and preventing its possible destruction or dissipation, if it were left in the possession of any of the parties.19It is the duty of the receiver to administer the assets of the receivership estate; and in the management and disposition of the property committed to his possession, he acts in a fiduciary capacity and with impartiality towards all interested persons.20The appointment of a receiver does not dissolve a corporation, nor does it interfere with the exercise of its corporate rights.21In this case where there appears to be no restraints imposed upon respondent as it undergoes rehabilitation receivership,22respondent continues to exist as a corporation and hence, continues or should continue to perform its contractual and statutory responsibilities to petitioners as homeowners.

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.2No violation of the SEC order suspending payments to creditors would result as far as petitioners' complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondent's obligations as a subdivision developer. Such claims are basically not pecuniary in nature although it could incidentally involve monetary considerations. All that petitioners' claims entail is the exercise of proper subdivision management on the part of the SEC-appointed Board of Receivers towards the end that homeowners shall enjoy the ideal community living that respondent portrayed they would have when they bought real estate from it.

Neither may petitioners be considered as having "claims" against respondent within the context of the followingprovisoof Section 6 (c) of P.D. No. 902-A, as amended by P.D. Nos. 1653, 1758 and 1799, to warrant suspension of the HLURB proceedings:

[U]pon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions forclaimsagainst corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. (Emphasis supplied.)

InFinasia Investments and Finance Corporation v.Court of Appeals,24this Court defined and explained the term "claim" in Section 6 (c) of P.D. No. 902-A, as amended, as follows:

We agree with the public respondent that the word "claim" as used in Sec. 6 (c) of P.D. 902-A, as amended, refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on insolvency." (Emphasis supplied.)

Hence, in Finansia Investments, the Court held that a civil case to nullify a special power of attorney because the principal's signature was forged should not be suspended upon the appointment of a receiver of the mortgagee to whom a person mortgaged the property owned by such principal. The Court ruled that the cause of action in that civil case "does not consist of demand for payment of debt or enforcement of pecuniary liability." It added:

It has nothing to do with the purpose of Section 6 (c) of P.D. 902-A, as amended, which is to prevent a creditor from obtaining an advantage or preference over another with respect to action against corporation, partnership, association under management or receivership and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. Moreover, a final verdict on the question of whether the special power of attorney in question is a forgery or not will not amount to any preference or advantage to Castro who was not shown to be a creditor of FINASIA.25In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to enforce a pecuniary demand. Their claim for reimbursement should be viewed in the light of respondent's alleged failure to observe its statutory and contractual obligations to provide petitioners a "decent human settlement" and "ample opportunities for improving their quality of life."26The HLURB, not the SEC, is equipped with the expertise to deal with that matter.

On the other hand, the jurisdiction of the SEC is defined by P.D. No. 902-A, as amended, as follows:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any act of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission;

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members of associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity; [and]

c) Controversies in the election or appointments of directors, trustees, officers, or managers of such corporation, partnerships or associations.

For the SEC to acquire jurisdiction over any controversy under these provisions, two elements must be considered: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.27The first element requires that the controversy must arise "out of intra-corporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises."28Petitioners are not stockholders, members or associates of respondent. They are lot buyers and now homeowners in the subdivision developed by the respondent.

The second element requires that the dispute among the parties be intrinsically connected with the regulation or the internal affairs of the corporation, partnership or association.29The controversy in this case is remotely related to the "regulation" of respondent corporation or to respondent's "internal affairs."

It should be stressed that the main concern in this case is the is the issue of jurisdiction over petitioners' complaint against respondent for specific performance. P.D. No. 902-A, as amended, defines the jurisdiction of the SEC; while P.D. No. 957, as amended, delineates that of the HLURB. These twoquasi-judicialagencies exercise functions that are distinct from each other. The SEC has authority over the operation of all kinds of corporations, partnerships or associations with the end in view of protecting the interests of the investing public and creditors. On the other hand, the HLURB has jurisdiction over matters relating to observance of laws governing corporations engaged in the specific business of development of subdivisions and condominiums. The HLURB and the SEC being bestowed with distinct powers and functions, the exercise of those functions by one shall not abate the performance by the other of its own functions. As respondent puts it, "there is no contradiction between P.D. No. 902-A and P.D. No. 957."30What complicated the jurisdictional issue in this case is the fact that petitioners are primarily praying for the retention of respondent's obligations under the Memorandum of Agreement that Receiver Orendain had entered into with them but which the present Board of Receivers had revoked.

InFigueroa v.SEC,31this Court has declared that the power to overrule or revoke the previous acts of the management or Board of Directors of the entity under receivership is within a receiver's authority, as provided for by Section 6 (d) (2) of P.D. No. 902-A. Indeed, when the acts of a previous receiver or management committee prove disadvantageous or inimical to the rehabilitation of a distressed corporation, the succeeding receiver or management committee may abrogate or cast aside such acts. However, that prerogative is not absolute. It should be exercised upon due consideration of all pertinent and relevant laws when public interest and welfare are involved. The business of developing subdivisions and corporations being imbued with public interest and welfare, any question arising from the exercise of that prerogative should be brought to the proper agency that has technical know-how on the matter.

P.D. No. 957 was promulgated to encompass all questions regarding subdivisions and condominiums. It is aimed at providing for an appropriate government agency, the HLURB, to which all parties aggrieved in the implementation of its provisions and the enforcement of contractual rights with respect to said category of real estate may take recourse. Nonetheless, the powers of the HLURB may not in any way be deemed as in derogation of the SEC's authority. P.D. Nos. 902-A and 957, as far as both are concerned with corporations, are laws inpari materia. P.D. No. 902-A relates to all corporations, while P.D. No. 957 pertains to corporations engaged in the particular business of developing subdivisions and condominiums. Although the provisions of these decrees on the issue of jurisdiction appear to collide when a corporation engaged in developing subdivisions and condominiums is under receivership, the same decrees should be construed as far as reasonably possible to be in harmony with each other to attain the purpose of an expressed national policy.32Hence, the HLURB should take jurisdiction over petitioners' complaint because it pertains to matters within the HLURB's competence and expertise. The HLURB should view the issue of whether the Board of Receivers correctly revoked the agreements entered into between the previous receiver and the petitioners from the perspective of the homeowners' interests, which P.D. No. 957 aims to protect. Whatever monetary awards the HLURB may impose upon respondent are incidental matters that should be addressed to the sound discretion of the Board of Receivers charged with maintaining the viability of respondent as a corporation. Any controversy that may arise in that regard should then be addressed to the SEC.

It is worth noting that the parties agreed at the 1 July 1998 hearing that should the HLURB establish and grant petitioners' claims, the same should be referred to the SEC. Thus, the proceedings at the HLURB should not be suspended notwithstanding that respondent is still under receivership. The TRO that this Court has issued should accordingly continue until such time as the HLURB shall have resolved the controversy. The present members of the Board of Receivers should be reminded of their duties and responsibilities as an impartial Board that should serve the interests of both the homeowners and respondent's creditors. Their interests, financial or otherwise, as members of respondent's Board of Directors should be circumscribed by judicious and unbiased performance of their duties and responsibilities as members of the Board of Receivers. Otherwise, respondent's full rehabilitation may face a bleak future. Both parties should never give full rein to acts that could prove detrimental to the interests of the homeowners and eventually jeopardize respondent's rehabilitation.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. This case is REMANDED to the Housing and Land Use Regulatory Board for continuation of proceedings with dispatch as the Securities and Exchange Commission proceeds with the rehabilitation of respondent BF Homes, Inc., through the Board of Receivers. Thereafter, any and all monetary claims duly established before the HLURB shall be referred to the Board of Receivers for proper disposition and thereafter, to the SEC, if necessary. No costs.

OMMODITIES STORAGE & ICE PLANT CORPORATION, SPOUSES VICTOR & JOHANNAH TRINIDAD,petitioners,vs.COURT OF APPEALS, JUSTICE PEDRO A.. RAMIREZ, CHAIRMAN and FAR EAST BANK & TRUST COMPANY,respondents.

PUNO,J.:In this petition forcertiorari, petitioner seeks to annul and set aside the decision and resolution of the Court of Appeals1in CA-G.R. SP No. 36032 dismissing the complaint in Civil Case No. 94-72076 before the Regional Trial Court, Branch 9, Manila.

The facts show that in 1990, petitioner spouses Victor and Johannah Trinidad 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. Petitioner spouses failed to pay their loan. The bank extrajudicially foreclosed the mortgage and the ice plant was sold by public bidding on March 22, 1993. Respondent bank was the highest bidder. It registered the certificate of sale on September 22, 1993 and later took possession of the property.

On November 22, 1993, petitioner spouses filed Civil Case No. 956-M-93 against respondent bank before the Regional Trial Court, Malolos, Bulacan for reformation of the loan agreement, annulment of the foreclosure sale and damages.2The trial court dismissed the complaint for petitioners' failure to pay the docket fees. The dismissal was without prejudice to refiling of the complaint.3On October 28, 1994, petitioners filed Civil Case No. 94-72076 against respondent bank before the Regional Trial Court, Branch 9, Manila for damages, accounting and fixing of redemption period.4As a provisional remedy, petitioners filed on November 16, 1994 an "Urgent Petition for Receivership." They alleged that respondent bank took possession of the ice plant forcibly and without notice to them; that their occupation resulted in the destruction of petitioners' financial and accounting records making it impossible for them to pay their employees and creditors; the bank has failed to take care of the ice plant with due diligence such that the plant has 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; the spouses' attention had been called by several people in the barangay who threatened to inform the Department of Environment and Natural Resources should they fail to take action. Petitioners thus 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.5Instead of an answer, respondent bank filed on November 25, 1994 a "Motion to Dismiss and Opposition to Plaintiff's Petition for Receivership." It alleged that the complaint states no cause of action and that venue had been improperly laid. It also alleged that petitioners failed to pay the proper docket fees and violated the rule on forum-shopping.6In an order dated December 13, 1994, the trial court granted the petition for receivership and appointed petitioners' nominee, Ricardo Pesquera, as receiver. The order disposed as follows:

WHEREFORE, premises considered the Urgent Petition for Receivership is GRANTED and Mr. Ricardo Pesquera to whose appointment no opposition was raised by the defendant and who is an ice plant contractor, maintainer and installer is appointed receiver. Accordingly, upon the filing and approval of the bond of TWO MILLION (P2,000,000.00) pesos which shall answer for all damages defendant may sustain by reason of the receivership, said Ricardo Pesquera is authorized to assume the powers of a receiver as well as the obligation as provided for in Rule 59 of the Rules of Court after taking his oath as such receiver.

SO ORDERED.7Respondent bank assailed this order before the Court of Appeals on a petition forcertiorari. On January 11, 1996, the Court of Appeals annulled the order for receivership and dismissed petitioners' complaint for improper venue and lack of cause of action. The dispositive portion of the decision reads:

WHEREFORE, the petition forcertiorariis GRANTED. Accordingly, the assailed order dated December 13, 1994 (Annex A, petition) is ANNULLED and SET ASIDE and respondent's complaint in Civil Case No. 94-72076 in the respondent court (Annexes F, petition; 4, comment), is DISMISSED. Costs against respondents except the court.

SO ORDERED.

Reconsideration was denied on May 23, 1996.8Hence, this petition.

Section 1 of Rule 59 of the Revised Rules of Court provides that:

Sec. 1. When and by whom receiver appointed. One or more receivers of the property, real or personal, which is the subject of the action, may be appointed by the judge of the Court of First Instance in which the action is pending, or by a Justice of the Court of Appeals or of the Supreme Court, in the following cases:

(a) When the corporation has been dissolved, or is insolvent, or is in imminent danger of insolvency, or has forfeited its corporate rights;

(b) When it appears from the complaint or answer, and such other proof as the judge may require, that the party applying for the appointment of receiver has an interest in the property or fund which is the subject of the action, and that such property or fund is in danger of being lost, removed or materially injured unless a receiver be appointed to guard and preserve it;

(c) 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 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;

(d) After judgment, to preserve the property during the pendency of the appeal, or to dispose of it according to the judgment, or to aid execution when the execution has been returned unsatisfied or the judgment debtor refuses to apply his property in satisfaction of the judgment, or otherwise carry the judgment into effect;

(e) 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.

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.9A 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.10The appointment of a receiver is not a matter of absolute right. It depends upon the sound discretion of the court11and is based on facts and circumstances of each particular case.12Petitioners claim that the appointment of a receiver is justified under Section 1 (b) of Rule 59. They argue that the ice plant which is the subject of the action was in danger of being lost, removed and materially injured because of the following "imminent perils":

6.1 Danger to the lives, health and peace of mind of the inhabitants living near the Sta. Maria Ice Plant;

6.2 Drastic action or sanctions that could be brought against the plaintiff by affected third persons, including workers who have claims against the plaintiff but could not be paid due to the numbing manner by which the defendant took the Sta. Maria Ice Plant;

6.3 The rapid reduction of the Ice Plant into a scrap heap because of evident incompetence, neglect and vandalism.13A petition for receivership under Section 1 (b) of Rule 59 requires that the property or fund which is the subject of the action must be in danger of loss, removal or material injury which necessitates protection or preservation. The guiding principle is the prevention of imminent danger to the property. If an action by its nature, does not require such protection or reservation, said remedy cannot be applied for and granted.14In the instant case, we do not find the necessity for the appointment of a receiver. Petitioners have not sufficiently shown that the Sta. Maria Ice Plant is in danger of disappearing or being wasted and reduced to a "scrap heap." Neither have they proven that the property has been materially injured which necessitates its protection and preservation.15In fact, at the hearing on respondent bank's motion to dismiss, respondent bank, through 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.16This statement has not been disputed by petitioners.

At the time the trial court issued the order for receivership of the property, the problem had been remedied and there was no imminent danger of another leakage. Whatever danger there was to the community and the environment had already been contained.

The "drastic sanctions" that may be brought against petitioners due to their inability to pay their employees and creditors as a result of "the numbing manner by which [respondent bank] took the ice plant" does not concern the ice plant itself. These claims are the personal liabilities of petitioners themselves. They do not constitute "material injury" to the ice plant.

Moreover, the receiver appointed by the court appears to be a representative of petitioners. Respondent bank alleges that it was not aware that petitioners nominated one Mr. Pesquera as receiver.17The 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.18The 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.19The power to appoint a receiver must be exercised with extreme caution. There must be a clear showing of necessity therefor in order to save the plaintiff from grave and irremediable loss or damage.20It is only when the circumstances so demand, either because there is imminent danger that the property sought to be placed in the hands of a receiver be lost or because they run the risk of being impaired, endeavouring to avoid that the injury thereby caused be greater than the one sought to be avoided.21The Court of Appeals correctly found that the trial court gravely abused its discretion in issuing the order for receivership. The respondent court, however, went further and took cognizance of respondent bank's motion to dismiss. And finding merit in the motion, it dismissed the complaint. Petitioners now claim that the respondent court should have refrained from ruling on the motion to dismiss because the motion itself was not before it.22Again, we reject petitioners' contention. The motion to dismiss is anchored on improper venue, lack of cause of action and forum-shopping. We agree with the respondent court that the question of venue relates to the principal action and isprejudicialto the ancillary issue of receivership. Although the grounds for dismissal were not specifically raised before the appellate court, the said court may consider the same since the petition for receivership depends upon a determination thereof.23In their complaint, petitioners prayed for the following:

WHEREFORE, in view of the foregoing, it is respectfully prayed that after trial on the merits judgment be rendered:

1. Ordering the Defendant to pay COMMODITIES actual and compensatory damages in the amount of PESOS: TWO MILLION FIVE HUNDRED THOUSAND and 00/100 (P2,500,000.00);

2 Ordering the Defendant to pay Plaintiffs moral damages in the amount of PESOS: TWO MILLION and 00/100 (P2,000,000.00) to compensate the Plaintiffs for the anxiety and besmirched reputation caused by the unjust actuations of the Defendant;

3. Ordering the Defendant to pay Plaintiffs nominal and exemplary damages in the amount of PESOS: FIVE HUNDRED THOUSAND and 00/100 (P500,000.00) to deter the repetition of such unjust and malicious actuations of the Defendant;

4. In order to restore the legal right of the Plaintiff COMMODITIES to redeem its foreclosed property, a right which COMMODITIES has been unjustly deprived of by the malicious and bad faith machinations of the Defendant, compelling the Defendant to produce the correct, lawful, official and honest statements of account and application of payment. Concomitantly, ordering the Defendant to accept the redemption of the foreclosed properties pursuant to Rule 39 of the Revised Rules of Court in conjunction with Act 3135, within the prescribed period for redemption, said period to commence from the date of receipt by the Plaintiff COMMODITIES of the correct, lawful, official and honest statements of account and application of payments;

5. Ordering the Defendant to pay attorney's fees in the amount of PESOS: THREE HUNDRED THOUSAND (P300,000.00); and costs of litigation.

Other reliefs and remedies just and equitable under the circumstances are likewise prayed for.24Petitioners pray for two remedies: damages and redemption. The prayer for damages is based on respondent bank's forcible occupation of the ice plant and its malicious failure to furnish them their statements of account and application of payments which prevented them from making a timely redemption.25Petitioners also pray that respondent bank be compelled to furnish them said documents, and upon receipt thereof, allow redemption of the property. They ultimately seek redemption of the mortgaged property. This is explicit in paragraph 4 of their prayer.

An action to redeem by the mortgage debtor affects his title to the foreclosed property. If the action is 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.26If not made seasonably, it may seek to recover ownership to the land since the purchaser's inchoate title to the property becomes consolidated after expiration of the redemption period.27Either way, redemption involves the title to the foreclosed property. It is a real action.

Section 2 of Rule 4 of the Revised Rules of Court provides:

Sec. 2. Venue in Courts of First Instance. (a)Real actions. 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.28Where 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. The venue in Civil Case No. 94-72076 was therefore laid improperly.

Finally, there is no merit in petitioners' claim that the respondent 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 respondent bank.

IN VIEW WHEREOF, the decision dated January 11, 1996 and resolution dated May 23, 1996 of the Court of Appeals in CA-G.R. SP No. 36032 are affirmed. Costs against petitioners.

G.R. No. L-28601 March 18, 1983

ENRIQUE ABRIGO,petitioner,vs.THE HON. JUDGE UNION C. KAYANAN, COURT OF FIRST INSTANCE OF QUEZON, NINTH JUDICIAL DISTRICT, BRANCH IV, ANTONIA ABAS, HERMOGENES, MERCEDES, MARIA, ARSENIA, PURIFICACION, ESTELITA, JOSE, LUISA AND SERGIO, ALL SURNAMED ABRIGO,respondents.

Quijano & Arroyo for petitioner.

De Mesa & De Mesa for respondents.

ABAD SANTOS,J.:Petition to annul and set aside several orders of the respondent judge on the ground that they were issued with grave abuse of discretion.

In Civil Case No. 178-G (later designated as No. 07) of the defunct Court of First Instance of Quezon, the plaintiffs sought the partition of seven (7) parcels of land under a claim of co-ownership with the defendants. The plaintiffs claimed that except for one-half of the fifth parcel (e), two of the defendants, Leon and Enrique Abrigo, were in possession of the lands. The defendants put up the defense of ownership; they claimed ownership by hereditary title by virtue of an alleged duly approved Amended Project of Partition in the Testate Estate of Nazario Abrigo.

One of the lands sought to be partitioned is described in the Amended Complaint as follows:

a A parcel of coconut and pasture land, with its improvements. Bounded on the NORTH, by Public land; on the SOUTH, by the Piris River and Public Land; and on the WEST, by the Macalawan River; containing an area of 802 hectares, more or less; covered by Tax Declaration No. 416, and assessed at P15,450.00.

As stated above, this parcel, including several others, are said to be in the possession of Leon and Enrique Abrigo.

On October 21, 1967, the plaintiffs filed an Urgent Motion for the appointment of a receiver to administer parcel (a) on the ground that numerous squatters had invaded the property to the plaintiffs' great damage and prejudice. The motion was set for hearing on November 3, 1967, but counsel for the defendants asked by telegram that the hearing be re-set to another date because of another court engagement. The motion was heard as scheduled in the absence of defendants' counsel and pursuant thereto then Judge Union C. Kayanan issued an Order on the same day with the following dispositive portion:

WHEREFORE, Atty. Pedro S. Nantes, Acting Clerk of Court, Branch IV, CFI, Quezon City is hereby appointed as receiver and before entering his duties he must be sworn to perform them faithfully, without the necessity of a bond being a public officer, who is expected to faithfully discharge the duties of a receiver in these actions and obey the orders of the Court accordingly. He is allowed compensation of P30.00 per day of actual service plus incidental expenses to be charged as costs against the losing party. Atty. Nantes shall follow strictly his general powers pursuant to Section 7, Rule 59 of the New Rules of Court. (Rollo, p. 50.)

On November 8, 1967, the respondent judge,motu propio, issued the following Order:

In order to insure the absolute and complete protection of the interest of party litigants, aside from Atty. Pedro S. Nantes who has been appointed as Receiver herein, Mr. Benjamin M. Santiago is hereby appointed as Assistant to the Receiver, to stay as general filed overseer in all the properties in question, subject to the control and supervision of the Receiver, to perform all the necessary rights and obligation heretofore to be assigned by the Receiver, to make periodic reports of his activities and to do all other acts pursuant to the general powers of a receiver under Section 7, Rule 59 of the New Rules of Court. As soon as Mr. Santiago shall have taken his oath, he shall assume the duties of his office with a reasonable compensation, plus incidental expenses at the discretion of the receiver, but which compensation shall not exceed P30.00 a day for both of actual service. (Rollo, p, 52,)

It was only on November 15, 1967, that the defendants filed an Opposition to the Motion for the appointment of a receiver but by then the two Order above-quoted had been issued. Accordingly, the defendants filed a - Motion to have the Orders of November 3 and 8, 1967, reconsidered but the Motion was denied by the respondent judge in his Order of December 15, 1967. The Order, however, provided that "to forestall mismanagement, the Receiver is required to put up a surety bond in the amount of Five Thousand Pesos (P5,000.00), the expenses of which shall be borne by plaintiffs ..." (Rollo, p. 69.)

On December 19, 1967, the respondent judge issued an Order which reads as follows:

The attention of the Court was called by Atty. Pedro S. Nantes and Mr. Benjamin Santiago, Receiver and Assistant, respectively, to the effect that only party litigants Antonia Abas and others represented by the De Mesa Law Office, deposited the sum of P200.00 to defray their expenses during the ocular inspection of the properties in question from November 20 to 27, 1967, but that defendants Crisanta Manaluan and others represented by Atty. Manuel R. Edao of Lucena City, and party litigants Enrique Abrigo and others represented by Quejano and Arroyo Law Office, thru Atty. Cesar Parelejo, 320 Natividad Bldg., Escolta, Manila have not paid their corresponding shares. It appears that the Receiver and his Assistant spent the actual amount of P275.05 excluding their compensation at P30.00 a day for eight (8) days or a total of P240.00. It will thus appear that the valid claim of the Receiver and his Assistant would total to P515.05 so that party litigants represented by Attys. Edao and Parelejo are directed to deposit the balance of P315.05 or P157.53 each, within ten (10) days upon receipt hereof. The parties are requested to study the recommendations of the Receiver and his Assistant, copies of which have been furnished them accordingly, and if they so desire they should make representations with any banking institution to mortgage the properties in order to raise a reasonable amount to cover the expenses of cultivation and improvement of the property to the end that it will become a going concern pending litigation. (Rollo, pp. 70-71.)

On January 9, 1968, one of the defendants who is the petitioner herein, filed a Motion for the reconsideration of the Order of December 15, 1967 he claimed that there was no legal basis for the appointment of a receiver under the facts of the case; and alternatively, he offered to post a bond so that the receiver be discharged. The Motion was denied in an Order dated January 15, 1968.

On January 14, 1968, the respondent judged issued another Order which reads in part:

Acting on the oral manifestation of counsel for the plaintiffs to the effect that six (6) of his witnesses came from Quezon City and three (3) others from Buenavista, Quezon and that they have been staying in Lucena City since the other day and as a result incurred expenses totalling P300.00, for which he requests that they be reimbursed of said expenses, and finding the same to be well-taken the defendant Enrique Abrigo is hereby ordered to reimburse to the plaintiffs, thru counsel, the sum of P300.00 on or before the next hearing of this case. (Rollo, pp. 79-80.)

Petitioner Enrique Abrigo who is one of the defendants in the action for partition now seeks the annulment and setting aside of the foregoing orders on the ground that they were issued with grave abuse of discretion.

After the private respondents had filed their answer to the petition, the case was set for hearing but while counsel for the petitioner appeared there was no appearance for the private respondents. The parties were required to file memoranda and reply memoranda. The petitioner filed a memorandum but the private respondents did not despite an extension granted to them. Hence, the case was submitted for decision the indifference of the private respondents notwithstanding.

The petition is highly impressed with merit.

The respondent judge committed grave abuse of discretion in connection with the appointment of a receiver and he can be faulted on the following counts:

1. The instant case is similar toParanete vs. Tan,87 Phil. 678 (1950) so that what was there said can well apply to the actuations of the respondent judge, to wit:

On January 16, 1950, Felix Alcaras, Fructuosa Vasquez, Maxima Vasquez and Norberta Vasquez filed a case in the Court of First Instance of Rizal for the recovery of five parcels of land against Agustina Paranete and six other co-defendants, (Civil Case No. 1020). On January 28, 1950, plaintiffs filed a petition for a writ of preliminary injunction for the purpose of ousting the defendants from the lands in litigation and of having themselves placed in possession thereof. The petition was heardex parteand as a result the respondent judged issued the writ of injunction requested. On February 28, 1950, the defendants moved for the reconsideration of the order granting the writ, to which plaintiffs objected, and after due hearing, at which both parties appeared with their respective counsel, the respondent judge reconsidered his order, but required the defendants to render an accounting of the harvest for the year 1949, as well as all future harvests, and if the harvest had already been sold, to deposit the proceeds of the sale with the clerk of court, allowing the plaintiffs or their representative to be present during each harvest. This order was issued on March 4, 1950. Defendants again filed a motion for the reconsideration of this order, but it was denied, hence the petition under consideration.

The question to be determined is whether or not the respondent judge exceeded his jurisdiction in issuing his order of March 4, 1950, under the terms and conditions set forth above.

We hold that the respondent judge has acted in excess of his jurisdiction when he issued the order above adverted to. That order, in effect, made the clerk of court a sort of a receiver charged with the duty of receiving the proceeds of sale and the harvest of every year during the pendency of the case with the disadvantage that the clerk of court has not filed any bond to guarantee the faithful discharge of his duties as depositary; and considering that in actions involving title to real property, the appointment of a receiver cannot be entertained because its effect would be to take the property out of the possession of the defendant, except in extreme cases when there is clear proof of its necessity to save the plaintiff from grave and irremediable loss or damage, it is evident that the action of the respondent judge is unwarranted and unfair to the defendants. (Mendoza vs. Arellano, 36 Phil. 59; Agonoy vs, Ruiz, 11 Phil. 204; Aquino vs. Angeles David, 77 Phil. 1087; Ylarde vs. Enriquez, 78 Phil. 527; Arcega vs. Pecson, 44 Off. Gaz., (No. 12), 4884, 78 Phil. 743; De la Cruz vs. Guinto, 45 Off. Gaz., pp. 1309, 131 1; 79 Phil. 304.). (At pp. 680-681.)

2. The reason for the appointment of the receiver was the fact that the land had been entered by numerous squatters. But a receiver who is also burdened with his duties as Clerk of Court cannot be in a better position than the actual possessors in dealing with the squatters. As the petitioner has pointed out:

The appointed receiver does not acquire any advantage from the owners and/or present possessors, nor is he in a better position in order to protect the respective interest of the herein parties for he has to apply as are the present possessors deprived of their possession, for the same remedies and relief normally afforded to an aggrieved property owner, under our legal system. A receiver is not endowed with extra-legal power to take the law in his hands with a view to quell and disband the squatters short of taking legal action; nor is he conferred with a magic wand not possessed by herein party-litigants as property owners. On the contrary, the receivership placed the parties at a disadvantage. He stands between the squatters and owner. possessors, so much so that any action of the owner-possessor against the squatters will have to pass through the receiver. Whereas, if thestatus quowere left undisturbed, the owner-possessor, whose holding over the parcel of land under litigation is actually occupied and entered by squatters can take direct legal action as he has the legal right to proceed against the intruders. (Rollo p. 187.)

3. The respondent judge should at least have accepted the bond offered by the petitioner. Rule 59, Sec. 4 stipulates that "the receiver (may be) discharged when the party opposing the appointment files a bond executed to the applicant in an amount to be fixed by the court, to the effect that such party will pay the applicant all damages he may suffer by reason of the acts, omissions, or other matters specified in the application as ground for such appointment." InLacson vs. Hodges, 80 Phil. 216 (1948), this Court said:

El nombramiento, por tanto, de depositario debe hacerse solamente cuando ya no hay otro medio para garantizar los derechos del demandante; pero ofrecida la fianza, ya deja de tenerj justificacion el deposito, especialmente cuando, como en el caso presente, la responsabilidad del demandado ya esta determinada, aunque sujeta desde luego a las resultas de la apelacion

El Honorable Juez recurrido ha abusado de su discrecion al no permitir al demandado que prestase fianza de con la Regla 61, articulo 4. (At p. 220.)

Anent the order of the respondent judge that the petitioner should reimburse to the plaintiffs the sum of P300.00 for the reason stated in the Order dated January 14, 1968, it suffices to state that it was issued without notice and in the absence of the party affected and consequently void for lack of jurisdiction in its issuance.

WHEREFORE, the petition is granted; the Orders issued by the respondent judge mentioned above are hereby annulled and set aside. Costs against the private respondents.

G.R. No. 102998 July 5, 1996

BA FINANCE CORPORATION,petitioner,vs.HON. COURT OF APPEALS and ROBERTO M. REYES,respondents.

VITUG,J.:pThe case at bar is a suit for replevin and damages. The petition for review oncertiorariassails the decision of the Court of Appeals1in CA-G.R. CV No. 23605 affirming that of the Regional Trial Court of Manila, BranchXX,2which has disposed of its Civil Case No. 87-42270 in this wise:

WHEREFORE, the case against defendant-spouses (sic) Reynaldo Manahan is hereby dismissed without prejudice, for failure to prosecute. Plaintiff having failed to show the liability of defendant John Doe in the person of Roberto M. Reyes, the case against the latter should likewise be dismissed. Moreover, plaintiff is hereby directed to return the vehicle seized by virtue of the order of seizure issued by this Court with all its accessories to the said Roberto M. Reyes.3The decisions of both the appellate court and the courta quoare based on a like finding of the facts hereinafter briefly narrated.

The spouses Reynaldo and Florencia Manahan executed, on 15 May 1980, a promissory note4binding themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six monthly installments commencing 01 July 1980. To secure payment, the Manahan spouses executed a deed of chattel mortgage5over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial number CUBFWE-801010. Carmasters later assigned6the promissory note and the chattel mortgage to petitioner BA Finance Corporation with the conformity of the Manahans. When the latter failed to pay the due installments, petitioner sent demand letters. The demands not having been heeded, petitioner, on 02 October 1987, filed a complaint for replevin with damages against the spouses, as well as against a John Doe, praying for the recovery of the vehicle with an alternative prayer for the payment of a sum of money should the vehicle not be returned. Upon petitioner's motion and the filing of a bond in the amount of P169,161.00 the lower court issued a writ of replevin. The court, however, cautioned petitioner that should summons be not served on the defendants within thirty (30) days from the writ's issuance, the case would be dismissed to failure to prosecute.7The warning was based on what the court perceived to be the deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they would so "conveniently utilize as a leverage for the collection of unpaid installments on mortgaged chattels."8The service of summons upon the spouses Manahan was caused to be served by petitioner at No. 35 Lantana St., Cubao, Quezon City. The original of the summons had the name and the signature of private respondent Roberto M. Reyes indicating that he received, on 14 October 1987, a copy of the summons and the complaint.9Forthwith, petitioner, through its Legal Assistant, Danilo E. Solano, issued a certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of the Regional Trial Court of Manila, Branch 20, the Ford Cortina seized from private respondent Roberto M. Reyes, the John Doe referred to in the complaint,10in Sorsogon, Sorsogon.11On 20 October 1987, the lower court came out with an order of seizure.

Alleging possession in good faith, private respondent filed, on 26 October 1987, a motion for an extension of time within which to file his answer and/or a motion for intervention. The court granted the motion.

A few months later, or on 18 February 1988, the court issued an order which, in part, stated:

Perusal of the record shows that an order for the seizure of personal property was issued on October 20, 1987 in pursuance to a previous order of the Court dated October 13, 1987. However, to date, there is no showing that the principal defendants were served with summons inspite of the lapse of four (4) months.

Considering, this is a replevin case and to forestall the evils that arise from this practice, plaintiff failing to heed the Order dated October 13, 1987, particularly second paragraph thereof, the above-entitled case is hereby ordered DISMISSED for failure to prosecute and further ordering the plaintiff to return the property seized with all its accessories to defendant John Doe in the person of Roberto M. Reyes.

SO ORDERED.12On 26 February 1988, petitioner filed a notice of dismissal of the case "without prejudice and without pronouncement as to costs, before service of Summons and Answer, under Section 1, Rule 17, of the Rules of Court."13It also sought in another motion the withdrawal of the replevin bond. In view of the earlier dismissal of the case (for petitioner's failure to prosecute), the court, on 02 March 1988, merely noted the notice of dismissal and denied the motion to withdraw the replevin bond considering that the writ of replevin had meanwhile been implemented.14On 09 March 1988, private respondent filed a motion praying that petitioner be directed to comply with the court order requiring petitioner to return the vehicle to him. In turn, petitioner filed, on 14 March 1988, a motion for the reconsideration of the orders of 18 February 1988 and 02 March 1988 contending that: (a) the dismissal of the case was tantamount to adjudication on the merits that thereby deprived it with the remedy to enforce the promissory note, the chattel mortgage and the deed of assignment, under Section 3, Rule 117, of the Rules of Court; (b) the order to return the vehicle to private respondent was a departure from jurisprudence recognizing the right of the mortgagor to foreclose the property to respond to the unpaid obligation secured by the chattel mortgage, and (c) there were no legal and factual bases for the court's view that the filing of the replevin case was "characterized (by) evil practices."15On 20 April 1988, the court granted petitioner's motion for reconsideration and accordingly recalled the order directing the return of the vehicle to private respondent, set aside the order dismissing the case, directed petitioner "to cause the service of summons together with a copy of the complaint on the principal defendants within five (5) days from receipt"16thereof at petitioner's expense, and ordered private respondent to answer the complaint.

A few months later, or on 02 August 1988, petitioner filed a motion to declare private respondent in default. The court granted the motion on that same day and declared private respondent "in default for his failure to file the . . . answer within the reglementary period."17The court likewise granted petitioner's motion to set the case for the presentation,ex parte, of evidence. Petitioner, thereupon, submitted the promissory note, the deed of chattel mortgage, the deed of assignment, a statement of account in the name of Florencia Manahan and two demand letters.

On 27 February 1989, the trial court rendered a decision dismissing the complaint against the Manahans for failure of petitioner to prosecute the case against them. It also dismissed the case against private respondent for failure of petitioner to show any legal basis for said respondent's liability. The court ratiocinated:

. . . . Roberto M. Reyes is merely ancillary debtor in this case. The defendant spouses Manahan being the principal debtor(s) and as there is no showing that the latter has been brought before the jurisdiction of this court, it must necessarily follow that the plaintiff has no cause of action against said Roberto M. Reyes herein before referred to as defendant John Doe. Under the circumstances, it is incumbent upon the plaintiff to return the seized vehicle unto the said Roberto M. Reyes.18In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the foreclosure of the chattel is an actionquasi in remwhich does not necessitate the presence of the principal obligors as long as the court does not render any personal judgment against them. This argument did not persuade the appellate court, the latter holding that

. . . . In actionquasi in reman individual is named as defendant and the purpose of the proceeding is to subject his interest therein to the obligation or lien burdening the property, such as proceedings having for their sole object the sale or disposition of the property of the defendant, whether by attachment, foreclosure, or other form of remedy (Sandejas vs. Robles, 81 Phil. 421). In the case at bar, the court cannot render any judgment binding on the defendants spouses for having allegedly violated the terms and conditions of the promissory note and the contract of chattel mortgage on the ground that the court has no jurisdiction over their persons no summons having been served on them. That judgment, it rendered, is void for having denied the defendants spouses due process of law which contemplates notice and opportunity to be heard before judgment is rendered, affecting one's person or property (Macabingkil vs. Yatco, 26 SCRA 150, 157).

It is next contended by appellant that as between appellant, as mortgagee, and John Doe, whose right to possession is dubious if not totally non-existent, it is the former which has the superior right of possession.

We cannot agree.

It is an undisputed fact that the subject motor vehicle was taken from the possession of said Roberto M. Reyes, a third person with respect to the contract of chattel mortgage between the appellant and the defendants spouses Manahan.

The Civil Code expressly provides that every possessor has a right to be respected in his possession (Art. 539, New Civil Code); that good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof (Art. 527,ibid.); and that the possession of movable property acquired in good faith is equivalent to a title; nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same (Art. 559,ibid.). Thus, it has been held that a possessor in good faith is entitled to be respected and protected in his possession as if he were the true owner thereof until a competent court rules otherwise (Chus Hai vs. Kapunan, 104 Phil. 110; Yu, et al. vs. Hon. Honrado, etc., et al., 99 SCRA 237). In the case at bar, the trial court did not err in holding that the complaint does not state any cause of action against Roberto M. Reyes, and in ordering the return of the subject chattel to him.19The appellate court, subsequently, denied petitioner's motion for reconsideration.

In the instant appeal, petitioner insists that a mortgagee can maintain an action for replevin against any possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may refer either to the action itself,i.e., to regain the possession of personal chattels being wrongfully detained from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the thing during the pendency of the action and hold itpendente lite.20The action is primarily possessory in nature and generally determines nothing more than the right of possession. Replevin is so usually described as a mixed action, being partlyin remand partlyin personamin reminsofar as the recovery of specific property is concerned, andin personamas regards to damages involved. As an "action in rem," the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the owner or of his having a special interest therein.21Consequently, the person in possession of the property sought to be replevied isordinarythe proper and only necessary party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the property but not in possession thereof. Rule 60 of the Rules of Court allows an application for the immediate possession of the property but the plaintiff must show that he has a good legal basis,i.e., a clear title thereto, for seeking suchinterimpossession.

Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the action need only be maintained against him who so possesses the property.In rem actio est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet. InNorthern Motors,Inc.vs.Herrera,22the Court has said:

There can be no question that persons having a special right of property in the goods the recovery of which is sought; such as a chattel mortgagee, may maintain an action for replevin therefor. Where the mortgage authorizes the mortgagee to take possession of the property on default, he may maintain an action to recover possession of the mortgaged chattels from the mortgagor or from any person in whose hands he may find them.23In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the plaintiffs right to possess the thing is not or cannot be disputed.

In case the right of possession on the part of the plaintiff, or his authority to claim such possession or that of his principal, is put to great doubt (a contending party might contest the legal bases for plaintiffs cause of action or an adverse and independent claim of ownership or right of possession is raised by that party), it could become essential to have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. For instance, inServicewide Specialists,Inc.,vs.Court of Appeals,et al., G.R. No. 103301, 08 December 1995, this Court ruled.

While, in its present petition for review oncertiorari, Servicewide has raised a number of points, the crucial issue still remains, however, to be whether or not an action filed by the mortgagee for replevin to effect a foreclosure of the property covered by the chattel mortgage would require that the mortgagor be so impleaded as an indispensable party thereto.

Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of possession of personal property, to apply for a writ of replevin if it can be shown that he is theownerof the property claimed . . . or isentitled to the possessionthereof.' The plaintiff need not be the owner so long as he is able to specify his right to the possession of the property and his legal basis therefor. The question then, insofar as the matter finds relation to the instant case, is whether or not the plaintiff (herein petitioner) who has predicated his right on being the mortgagee of a chattel mortgage should implead the mortgagor in his complaint that seeks to recover possession of the encumbered property in order to effect its foreclosure.

The answer has to be in the affirmative. In a suit for replevin, a clear right of possession must be established. A foreclosure under a chattel mortgage may properly be commenced only once there is default on the part of the mortgagor of his obligation secured by the mortgage. The replevin in the instant case has been sought to pave the way for the foreclosure of the object covered by the chattel mortgage. The conditions essential for that foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the mortgagor. These requirements must be established since the validity of the plaintiffs exercise of the right of foreclosure are inevitably dependent thereon. It would thus seem, considering particularly an adverse and independentclaim of ownershipby private respondent that the lower court acted improvidently when it granted the dismissal of the complaint against Dollente,albeiton petitioner's (then plaintiff) plea, on the ground that the "non-service of summons upon Ernesto Dollente (would) only delay the determination of the merits of the case, to the prejudice of the parties." InImson v.Court of Appeals, we have explained:

. . . . An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties' that his legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable.

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. He is not indispensable if his presence would merely permit complete relief between him and those already parties to the action or will simply avoid multiple litigation.

Without the presence of indispensable parties to a suit or proceeding, a judgment of a court cannot attain real finality. (Footnotes omitted.)

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

The appellate court, accordingly, acted well in arriving at its now questioned judgment.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED No costs.

G.R. No. 79021 May 17, 1993

ROMEO S. CHUA,petitioner,vs.THE HON. COURT OF APPEALS, DENNIS CANOY AND ALEX DE LEON,respondents.

Roberto R. Palmares for petitioner.

Josefino B. Remotigue for private respondents.

BIDIN,J.:This is a petition for review oncertiorariunder Rule 45 of the Revised Rules of Court assailing the decision of the Court of Appeals dated May 7, 1987 which nullified the orders dated April 18, 1986 and May 19, 1986 of the Regional Trial Court of Cebu City Branch VIII.

The facts of the case are not disputed. On April 12, 1986, Judge Lauro V. Francisco of the Regional Trial Court of Cebu City Branch XIII, after examining 2Lt. Dennis P. Canoy and two (2) other witnesses, issued a search warrant directing the immediate search of the premises of R.R. Construction located at M.J. Cuenco Avenue, Cebu City, and the seizure of an Isuzu dump truck with plate number GAP-175. At twelve noon of the same date, respondent Canoy seized the aforesaid vehicle and took custody thereof.

On April 14, 1986, a civil action for Replevin/Sum of Money for the recovery of possession of the same Isuzu dump truck was filed by petitioner against respondent Canoy and one "John Doe" in the Regional Trial Court of Cebu City Branch VIII, presided by Judge Leonardo B. Caares and docketed thereat as Civil Case No. CEB 4384 alleging among other things, petitioner's lawful ownership and possession of the subject vehicle; that he has not sold the subject vehicle to anyone; that he has not stolen nor carnapped it, and that he has never been charged of the crime of carnapping or any other crime for that matter. Further, petitioner questioned the validity of the search warrant and the subsequent seizure of the subject vehicle on the strength of the aforesaid search warrant.

On the same date, April 14, 1986, Judge Caares of the Regional Trial Court of Cebu City Branch VIII directed the issuance of a writ of replevin upon the posting of a bond in the amount of one hundred thousand pesos (P100,000.00). The writ of replevin was also issued on the same date, and the subject vehicle was seized on 15 April 1986 by Deputy Sheriff Galicano V. Fuentes.

On April 16, 1986, respondent Canoy filed a motion for the dismissal of the complaint and for the quashal of the writ of replevin. The motion was opposed by petitioner. The motion to dismiss and to quash the writ of replevin was denied in an Order dated April 18, 1986. A motion for reconsideration of the aforementioned Order was filed and was opposed by petitioner. In an order dated May 19, 1986, the Regional Trial Court of Cebu Branch VIII denied the motion for reconsideration and directed the delivery of the subject vehicle to petitioner. Not satisfied, herein private respondents filed with the Court of Appeals a Petition forCertiorariand Prohibition praying for the nullification of the orders dated April 18, 1986 and May 19, 1986.

Meanwhile, a case for Carnapping docketed as I.S. No. 86-185, entitled "Alex De Leon, Complainant, vs. Romeo Chua, Respondent" pending preliminary investigation before the Office of the City Fiscal of Cebu City was provisionally dismissed upon motion of Romeo Chua with the following reservation: "without prejudice to its reopening once the issue of ownership is resolved", (Rollo, p. 62).

In a decision dated May 17, 1987, the Court of Appeals reversed the Regional Trial Court of Cebu City Branch VIII, and nullified the questioned orders. The appellate court ordered the dismissal of the Replevin action, and directed that possession of the subject vehicle be restored to Canoy. It applied the ruling in the case ofPagkalinawan vs. Gomez(21 SCRA 1275 [1967]) which held:

Once a Court of First Instance has been informed that a search warrant has been issued by another court of first instance, it cannot require a sheriff or any proper officer of the court to take the property subject of the replevin action, if theretofore it came into custody of another public officer by virtue of a search warrant. Only the court of first instance that issued such a search warrant may order its release.

Furthermore, it was also pointed out in the same case that the validity of a search warrant may only be questioned in the same court that issued it.

Petitioner moved for a reconsideration of the decision, but the respondent court denied the same. Thus, petitioner filed this appeal bycertiorari. The parties submitted their respective memoranda, and thereafter the case was deemed submitted for decision.

The issue presented before the Court is whether or not the validity of a seizure made pursuant to a search warrant issued by a court can be questioned in another branch of the same court, where the criminal action filed in connection with which the search warrant was issued, had been dismissed provisionally.

At the outset, it must be pointed out that the ruling made by the Office of the City Fiscal in the complaint for carnapping was erroneous. It held: ". . . the preliminary investigation of that case is premature until such time that the issue of ownership will be resolved by the Court of Appeals, so that the instant case is herebydismissed provisionally without prejudice to its reopening once the issue of ownership is resolved in favor of complainant." (emphasis supplied).

A criminal prosecution for carnapping need not establish the fact that complainant therein is the absolute owner of the motor vehicle. What is material is the existence of evidence which would show that respondent took the motor vehicle belonging to another. The Anti-Carnapping Law or Republic Act No. 6539 punishes as carnapping the taking with intent to gain, of a motor vehicle belonging to another person, without the latter's consent or by means of violence or intimidation of person or by using force upon things.

Another aspect which needs to be stressed is the fact that since a preliminary investigation is not part of the trial, the dismissal of a case by the fiscal will not constitute double jeopardy and hence there is no bar to the filing of another complaint for the same offense (People vs. Medted, 68 Phil. 435).

We find no merit in the main issue presented before Us. Petitioner seeks a reversal of a decision of the Court of Appeals which relied on the decision inPagkalinawan vs.Gomez (supra).

The principle followed among courts in the dispensation of justice is that a judge who presides in a branch of a court cannot modify or annul the orders issued by another branch of the same court, since the two (2) courts are of the same rank, and act independently but coordinately (Montesa vs. Manila Cordage Co., 92 Phil. 25 [1952]).

It is a basic tenet of civil procedure that replevin will not lie for property incustodia legis. A thing is incustodia legiswhen it is shown that it has been and is subjected to the official custody of a judicial executive officer in pursuance of his execution of a legal writ (Bagalihog vs. Fernandez, 198 SCRA 614 [1991]). The reason posited for this principle is that if it was otherwise, there would be interference with the possession before the function of the law had been performed as to the process under which the property was taken. Thus, a defendant in an execution or attachment cannot replevy goods in the possession of an officer under a valid process, although after the levy is discharged, an action to recover possession will lie (Francisco, Revised Rules of Court in the Philippines: Provisional Remedies, p. 402 [1985]).

The Court had occasion to rule on this issue in the case ofVlasons Enterprises Corporation vs. Court of Appeals(155 SCRA 186 [1987]). In the aforementioned case, two (2) propeller pieces were seized on the strength of a search warrant issued by the Court of First Instance of Manila Branch XVIII. After the seizure, criminal complaints were filed against the alleged thieves. However, the complaints were later on dismissed. Five (5) months later, a civil action for the recovery of the possession of the propellers were filed in the Court of First Instance of Manila Branch XXIX. The latter court granted the motion for repossession of the propellers. On appeal this Court held:

The proceeding for the seizure of the property in virtue of a search warrant does not end with the actual taking of the property . . . and its delivery . . ., to the court . . . . It is merely the first step in the process to determine the character of the seized property. That determination is done in the criminal action involving the crime or crimes in connection with which the search warrant was issued. Hence, such a criminal action should be prosecuted, or commenced if not yet instituted, and prosecuted. The outcome of the criminal action will dictate the disposition of the seized property. (Vlasons Enterprises Corp. vs. Court of Appeals,supra.)

In theVlasonscase, the Court differentiated the case brought before it therein, from thePagkalinawan case. It stated that in thePagkalinawancase, there was a conflict in jurisdiction. On the other hand, in theVlasons case, it was certain that no criminal case would ensue subsequent to or in connection with the search warrant, hence no conflict in jurisdiction or in the ultimate disposition of the property could arise. Thus, where personal property is seized under a search warrant and it appears that the seizure will not be followed by the filing of any criminal action, but there are conflicting claims asserted over the seized property, the appropriate remedy is the institution of an ordinary civil action by any interested party, or of an interpleader action by the Government itself, in the proper competent court to which the seizing court shall transfer custody of the articles. Another branch of the same court, in an action to recover said property and during the pendency thereof, cannot order the delivery of said personal property to therein plaintiffpendente lite.

Construing thePagkalinawan casetogether with theVlasons case, we rule that where personal property is seized under a search warrant and there is reason to believe that the seizure will not anymore be follow