G.R. No. 29119 , February 18, 1928
TEAL MOTOR CO., INC., and E. H. TEAL, petitioners, vs. COURT OF FIRST INSTANCE OF MANILA, E. M. BACHRACH and THEODORE G. DAVIS, receiver, respondents.

FACTS

E. M. Bachrach, a major stockholder of Teal Motor Co., Inc., filed a complaint against the corporation and its president, E. H. Teal. Bachrach alleged that Teal fraudulently induced him to invest by misrepresenting that Teal had fully paid for his 50% stock subscription with assets worth P500,000. Bachrach further accused Teal of mismanagement, dissipation of corporate assets, fraudulent cancellation of chattel mortgages securing discounted notes, personal overdrafts, and other acts placing the corporation in imminent danger of insolvency. Based on these allegations, the trial court appointed Theodore G. Davis as a receiver for the corporation. Teal and the corporation filed a petition for certiorari, seeking to annul the appointment of the receiver, arguing that the trial court acted without jurisdiction or with grave abuse of discretion.

ISSUE

Did the trial court commit a grave abuse of discretion or act without jurisdiction in appointing a receiver for Teal Motor Co., Inc.?

RULING

No. The Supreme Court denied the petition for certiorari and sustained the appointment of the receiver.
The Court held that the appointment of a receiver is an ancillary remedy within the sound discretion of the trial court. This discretion is not absolute but must be exercised judiciously based on the facts of the case. The grounds for appointment under Section 174 of the Code of Civil Procedure include situations where a corporation is insolvent, in imminent danger of insolvency, or where its property is in jeopardy of being lost or materially injured.
The Court found that Bachrach’s complaint, verified under oath, contained detailed and specific allegations of fraud, mismanagement, and imminent danger of insolvency caused by the president, Teal. These allegations, which the court must presume to be true at this preliminary stage, presented a *prima facie* case justifying the ancillary remedy of receivership to preserve the corporate assets pending litigation. The Court emphasized that a receiver is an officer of the court, appointed for the equal benefit of all parties, and must remain neutral. The powers of the receiver are derived from and limited by the statute and the court’s order, and his primary function is to preserve the property *in custodia legis* until a final decision on the merits is rendered. Since the trial court’s order was based on sufficient grounds and within its discretionary power, no grave abuse of discretion warranting certiorari was found.