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Rule 59

RECEIVERSHIP
CASE NO. 2
PACIFIC MERCHANDISING CORPORATION, plaintiff-appellee,
vs.
CONSOLACION INSURANCE & SURETY CO., INC., defendant-appellee,
CONSOLACION INSURANCE & SURETY CO., INC., third party plaintiffappellee,
vs.
GREGORIO V. PAJARILLO, third party defendant-appellant.
Facts: An action for collection of sum of money was filed by Pacific
Merchandising Corporation (plaintiff-appellee) against Consolacion Insurance &
Surety Co., Inc., (defendant- appellee) who in turn filed a third-party complaint
against Gregorio V. Pajarillo (third-party defendant-appellant).
The TC rendered judgment in favor of the plaintiff and against the defendant,
ordering the latter to pay the former and condemning third defendant to pay thirdparty plaintiff for whatever sums or amounts the latter paid the plaintiff on account
of this judgment.
The third-party defendant Gregorio V. Pajarillo appealed said decision. The
parties, through their respective counsel, submitted the following Stipulation of
Facts:
1. A Writ of Execution was issued by the LC in the case Pacific Merchandising
Corporation vs. Leo Enterprises, Inc.,;
2. That by virtue of the aforesaid Writ of Execution, the Sheriff of Manila levied
and attached the following:
A. Second Hand AUTOMATICKET Machine;and
B. Cinema Projectors
Said items were advertised for sale.
3. That Atty. Greg V. Pajarillo was appointed as Receiver in the case of Gregorio
V. Pajarillo vs. Leo Enterprises, Inc.;
4. That the sale at public auction of the aforementioned items was postponed
and was later cancelled due to the representation of Atty. Greg V. Pajarillo as
Receiver of Paris Theatre operated by Leo Enterprises, Inc.
5. That the third-party defendant Pajarillo approached Consolacion Insurance
(third-party plaintiff) and applied for a surety bond in the amount of P5,000.00 to
be rated in favor of the abovenamed plaintiff in order to guarantee to said plaintiff
the payment of obligations in its favor by the Leo Enterprises, Inc.;
6. That the bond applied for was in fact executed in favor of the pIaintiff with
third-party defendant Pajarillo as principal and Consolacion Insurance (third-party
plaintiff) as surety in the context of the allegations of the preceding paragraph
and a copy of the said bond is attached a ANNEX 'A' to the third party complaint;

7. That to protect third party plaintiff against damage and injury, the third party
defendant Pajarillo executed in favor of the former an INDEMNITY AGREEMENT,
8. That the plaintiff received from Greg V. Pajarillo the sum of P2,000.00 leaving
a balance of P2,562.88 still unpaid aside from interest at the rate of 1% per
month and atto lnen s f cluiaient to 25% of tht amount due as provided for in said
undertaking (ANNEX 'C' to tlie complaint);
9. That on July 1, 1963, a decision was rendered tne court of First Instance of
Manila in Civil case No. 50201, copy of' which is attached its ANNEX 'A' to
Answer to Third Party Complaint, by virtue of which Greg V. Pajarillo, as said
Received stololcl making payments to plaintiff;
10. That the said decision in Civl Case No. 50201 dated July 1, 1963 was
appealed lix defendant Leo Enterprises, Inc. to the court of Appeals and that the
records kere eleattd to the aid ApiIiat court on August 27, 1963;
11. That on October 9, 1963, plaintiff's counsel demanded from the said principal,
Greg V. Paiarillo, the payment of the installments corresponding to the months of
May, June, July, August and September, 1963, which remain unpaid in spite of
said demand, copy of said letter being, attached as ANNEX 'E' to the complaint;
12. That the defendant was duly notified of the demand made on the principal,
Greg V. Pajarillo and in spite of said notice the defendant has failed and refused
to pay the unpaid obligation;
13. That on December 19, 1963, plaintiff's counsel demanded from the defendant
the payment of the unpaid obligation of the principal, Greg V. Pajarillo but refused
and failed to pay the same in spite of said demand;
14. That when reminded by third-party plaintiff regarding his obligations in favor
of the plaintiff, the third-party defendant, Greg V. Pajarillo replied that he no
longer was bound to pay because he had ceased to be the receiver of Paris
Theatre operated by Leo Enterprises, Inc. by virtue of the decision of the Court in
Civil Case No. 50201 cited above, and for this reason, third- party plaintiff
refused to pay the demand of the plaintiff 2
On the basis of the foregoing Stipulation of Facts, Said court affirmed the LCs
decision.
The trial court predicated its judgment on the following considerations:
(1) Since the unpaid claim represents the cost of certain materials used in the
construction of the Paris Theatre, the possession of which reverted to Gregorio V.
Pajarillo as owner of said property by virtue of the judgment in Civil Case No.
50201, "it is only simple justice that Pajarillo should pay for the said claim.
otherwise he would be enriching himself by having the said building without
paying plaintiff for the cost of certain materials that went into its construction";
(2) "under Section 7 of Rule 61 of the former Rules of Court, one of the powers of
a receiver i8 to pay outstanding debts, and since the said plaintiff's claim has
been outstanding since August 27, 1962, if not before, Pajarillo should have paid
the same long before the alleged termination of the receivership on July 1, 1963";
(3) the procedure outlined in Section 8 of the Rule, namely, that whenever the
court "shall determine that the necessity for a receiver no longer exists, it shall,

after due notice to all interested parties and hearing, settle the accounts of the
receiver, direct the delivery of the funds and other property in his hands to the
persons adjudged entitled to receive them, and order the discharge of the
receiver from further duty as such," has not been followed; and
(4) when Gregorio V. Pajarillo undertook to pay the amount owed to plaintiff
(Annex "C") and executed the surety bond (Annex "D") in favor of plaintiff, he 4 6
stepped into the shoes" of the dr Leo Enterprises, Inc., .4 and the properties of
the said debtor having all subsequently passed on to Pajarillo, there is no reason,
legal or otherwise, for relieving defendants of their said undertaking."
The court a quo likewise declared that (1) "the receivership was not terminated
by virtue of the appeal interposed by Leo Enterprises, Inc., one of the defendants
in Civil Case No. 50201, because a decision which is appealed cannot be the
subject of execution";
(2) "granting arguendo that the decision is final and executory, the said decision
cannot bind nor can it be enforced against the plaintiff in the present case
because it is not a party in Civil Case No. 50201"; and
(3) "when Atty. Pajarillo assumed the obligation of Leo Enterprises, Inc., as a
Receiver, there was a subrogation of the party liable and, therefore, the plaintiff
cannot enforce the judgment in Civil Case No. 49691 against Leo Enterprises,
Inc."
From the foregoing judgment, third-party defendant Gregorio V. Pajarillo
appealed to the CA. The aforesaid Appellate Court, in turn certified the same to
this Court on the ground that there is no question of fact involved, but only one of
law.
Issue: Whether or not third party defendant-appellant Gregorio V. Pajarillo is
liable to plaintiff for the unpaid amount claimed.
Upon the resolution of this issue will in turn depend the liability of defendant-thirdparty plaintiff Consolacion Insurance & surety Co., Inc. under the Surety Bond,
on the basis of which it was ordered by the court a quo to pay the amount
involved to plaintiff-appellee.
A receiver is not an agent or representative of any party to the action. He is an
officer of the court exercising his functions in the interest of neither plaintiff nor
defendant, but for the common benefit of all the parties in interest. He performs
his duties "subject to the control of the Court," and every question involved in the
receivership may be determined by the court taking cognizance of the
receivership proceedings.
Thus, "a receiver, strictly speaking, has no right or power to make any contract
binding the property or fund in his custody or to pay out funds in his hands
without the authority or approval of the court as explained by Justice Moran,
speaking for The custody of the receiver is the custody of the court. His acts and
possession are the acts and possession of the court, and his contracts and
liabilities are, in contemplation of law, the contracts and liabilities of the court. As
a necessary consequence, receiver is subject to the control and supervision of
the court at every step in his management of the property or funds placed in his
hands. He cannot operate independently of the court, and cannot enter into any
contract without its approval.
In the case at bar, appellant Pajarillo does not dispute the fact that he never
secured the court's approval of either the agreement of March 11, 1963, with

Pacific Merchandising Corporation or of his Indemnity Agreement with the


Consolacion Insurance & Surety Co., Inc. on March 14, 1963, in consideration of
the performance bond submitted by the latter to Pacific Merchandising
Corporation to guarantee the payment of the obligation. As the person to whom
the possession of the theater and its equipment was awarded by the court in Civil
Case No. 50201, it was certainly to his personal profit and advantage that the
sale at public auction of the equipment of the theater was prevented by his
execution of the aforesaid agreement and submission of the aforementioned
bond.
In order to bind the property or fund in his hands as receiver, he should have
applied for and obtained from the court authority to enter into the aforesaid
contract. Unauthorized contracts of a receiver do not bind the court in charge of
receivership. They are the receiver's own contracts and are not recognized by
the courts as contracts of the receivership.Consequently, the aforesaid
agreement and undertaking entered into by appellant Pajarillo not having been
approved or authorized by the receivership court should, therefore, be
considered as his personal undertaking or obligation. Certainly, if such
agreements were known by the receivership court, it would not have terminated
the receivership without due notice to the judgment creditor as required by
Section 8 of Rule 59 of the Rules of Court. This must be assumed because of the
legal presumption that official duty has been regularly performed.
Indeed, if it were true that he entered into the agreement and undertaking as a
receiver, he should have, as such receiver, submitted to the court an account of
the status of the properties in his hands including the outstanding obligations of
the receivership. Had he done so, it is reasonable to assume that the judgment
creditor would have opposed the termination of the receivership, unless its claim
was paid. Having failed to perform his duty, to the prejudice of the creditor,
appellant should not be permitted to take advantage of his own wrong. The
judgment creditor having been induced to enter into the aforesaid agreement by
appellant Pajarillo it was the duty of the latter to comply with his end of the
bargain.
He not only failed to perform his undertaking, but now attempts to evade
completely his liability. Under such circumstances, appellant is not entitled to
equitable relief. No ground for equitable relief can be found in a case where a
party has not only failed to perform the conditions upon which he alone obtained
the execution of the contract, but where it is clear that he never, at any time,
intended to perform them.