G.R. No. L-35607. July 31, 1974.
JOHN U. OSMOND, petitioner, vs. THE COURT OF APPEALS; HON. SANTIAGO O. TAÑADA, Presiding Judge of Br. XXXIII, CFI of Rizal, Caloocan City Branch; TERESITA O. NIBUNGCO and PILAR COSGAYON, respondents.

FACTS

Private respondents Teresita O. Nibungco and Pilar O. Cosgayon filed a complaint against their brother, petitioner John U. Osmond, and their father, Henry V. Osmond. They alleged that a family business, Carlos U. Osmond Metal Works, in which they had shares, was fraudulently absorbed into a corporation, Osmond Metal Works, Inc., which refused to recognize their interests. They prayed for an accounting, transfer of shares, and settlement of their mother’s estate. The trial court, presided by respondent Judge Tañada, granted their subsequent motion to place the “business” of the corporation under receivership, citing alleged mismanagement and risk to assets. Petitioner challenged this order via certiorari in the Court of Appeals, which dismissed his petition, leading to this review.
During proceedings before the Supreme Court, a critical development emerged. The parties, including the petitioner and private respondents, had entered into a written compromise agreement dated September 25, 1971, which allocated the corporate shares among the siblings and made provisions for their father and sister. The corporation, Osmond Metal Works, Inc., was also allowed to intervene. The Court noted this agreement and directed the parties to manifest whether they preferred to proceed with its enforcement. Only petitioner and intervenors complied, expressing willingness to forego further litigation on the procedural issues.

ISSUE

Whether the Court of Appeals erred in upholding the trial court’s order placing the business of Osmond Metal Works, Inc. under receivership.

RULING

The Supreme Court reversed the decision of the Court of Appeals and set aside the receivership order. The legal logic is twofold, focusing on mootness and procedural defect. First, the compromise agreement executed by the parties rendered the receivership and the underlying controversy moot and academic. Under Article 2037 of the Civil Code, a compromise has the effect and authority of res judicata and is enforceable as a judgment upon judicial approval. The existence of this settlement meant there was no longer a live controversy justifying the extreme provisional remedy of receivership. The proper recourse for private respondents was to seek judicial approval or specific enforcement of that agreement.
Second, the receivership was procedurally infirm. The order placed the “business” of Osmond Metal Works, Inc. under receivership, but the corporation itself was not a party to the case at the time the order was issued. The Court found the allegation that the corporation was “fictitious” to be an insufficient excuse for this non-joinder, especially since the complaint contained allegations inconsistent with that theory. A receiver cannot be appointed over the property of an entity not impleaded in the suit. The Court thus set aside the receivership order without prejudice to private respondents taking steps to enforce the compromise agreement, reserving to petitioner and intervenors their right to raise defenses in such enforcement proceedings.