G.R. No.

L-30204 October 29, 1976

PACIFIC MERCHANDISING CORPORATION, plaintiff-appellee,

vs.
CONSOLACION INSURANCE & SURETY CO., INC., defendant-appellee,

CONSOLACION INSURANCE & SURETY CO., INC., third party plaintiff-appellee,

vs.
GREGORIO V. PAJARILLO, third party defendant-appellant.

Facts:

Pacific Merchandising Corporation (plaintiff) filed an action for collection of sum of money
against Consolacion Insurance & Surety Co., Inc., (defendant). Defendant filed a third-party
complaint against Gregorio V. Pajarillo (third-party defendant-appellant).The trial court rendered
judgment in favor of the plaintiff and against the defendant, ordering the latter to pay the former.

Pajarillo appealed the case to the Court of First Instance of Manila. He submitted the following
Stipulation of Facts:

1. That a Writ of Execution was issued by CFI Manila under Civil Case No. 49691,
entitled Pacific Merchandising Corporation vs. Leo Enterprises, Inc., by virtue of which
Sheriff of Manila levied assets, properties and equipment of Paris Theatre, operated by
Leo Enterprises, Inc.;
2. That Atty. Greg V. Pajarillo was appointed as Receiver of the said assets, properties and
equipment of Paris Theatre
3. That the sale at public auction of the above described properties was postponed and was
later cancelled due to the representation of Atty. Greg V. Pajarillo as Receiver in which
he undertook the that judgment rendered in favor of the plaintiff against Leo Enterprises,
Inc.
4. Pajarillo approached the 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.;
5. That to protect third party plaintiff against damage and injury, the third party defendant
Pajarillo executed in favor of the former an INDEMNITY AGREEMENT
6. A decision was rendered by the court of First Instance of Manila in Civil case No.
50201, , by virtue of which Greg V. Pajarillo, as said Received stololcl ordered to make
payments to plaintiff
7. 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;
8. 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 
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On the basis of the foregoing Stipulation of Facts, the Court of First Instance rendered
judgment affirming the appealed decision of the City Court . 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, 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 is to pay outstanding debts, and since the said plaintiff's claim
has been outstanding, 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."

Issue: Whether or not Gregorio V. Pajarillo is liable to plaintiff for the unpaid amount claimed.

Ruling:

Yes. 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

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 approal of either the agreement with Pacific Merchandising Corporation or of his Indemnity
Agreement with the Consolacion Insurance & Surety Co., Inc., 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 afore-mentioned 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
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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
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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 is 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.