Commercial Laws 1: Deposit — Chapter 4: Sequestration or Judicial Deposit

TITLE XII

DEPOSIT

CHAPTER 4

Sequestration or Judicial Deposit

Article 2005. 

A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered.

Article 2006. 

Movable as well as immovable property may be the object of sequestration.

Article 2007. 

The depositary of property or objects sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders.

Article 2008. 

The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family.

Article 2009. 

As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court.

1. Distinguished from Extrajudicial Deposit.

• The purpose of the delivery of the thing to the depositary under the contract of deposit is for safekeeping. 
• In judicial deposit, the purpose is not for safekeeping but for the purpose of securing the owner's right to the thing. 
• The possession or custody of the thing is for the benefit of the owner and not necessarily the depositor.

2. Attachment. 

• It is a basic remedial law rule that execution of judgment shall issue as a matter of right, on motion if the judgment is already final and executory.
• The writ of execution that will be issued can be against personal properties of the judgment obligor.
• If the obligation is unpaid, the sheriff shall sell such portion of the properties levied upon to satisfy the judgment obligation.
• This process is also known as final attachment. 
• However, attachment can also be preliminary attachment. 
• In preliminary attachment, properties may be attached as a security for the satisfaction of the future judgment in a case that is filed and is still pending.
• In both cases, whether final or preliminary attachment, the property that is attached is in custodia legis. 
• A property that is in custodia legis can no longer be returned to the depositor who is the judgment debtor in the case. 
• The depositary already owes a duty to the court after the attachment. 
• It should be noted however that the property subject of litigation is not by that fact alone in custodia legis.
• A thing is in custodia legis when 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.
• Only when property is lawfully taken by virtue of legal process is it considered in the custody of the law, and not otherwise.

3. Delivery of Money or Property to Court.

• It should also be noted in this connection that money or property may be delivered to the court by way of judicial deposit. 
• For example, judicial deposit may be made by way of consignation. 
• Another type of judicial deposit is the deposit of part of the consideration of just compensation in expropriation. 
• In these cases, the court holds the amounts deposited temporarily but these amounts are in due course released to the persons entitled thereto.
• Judicial deposit is not one of the provisional remedies expressly allowed under the Rules of Court. 
• Nevertheless, a party in a case may be ordered to make a judicial deposit of property as a preliminary relief. 
• Example:
• Reyes v. Lim:
• The case was for rescission of a contract of sale which necessarily requires restitution of the price. 
• The Court may order the judicial deposit in certain rescission cases because "a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller himself seeks rescission of the sale because he has subsequently sold the same property to another buyer. 
• By seeking rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back his offer if the Court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial deposit. 
• There would be unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. 
• Eternal Gardens Memorial Parks Corp. v.  IAC:
• The Court held the plaintiff could not continue to benefit from the property or funds in litigation during the pendency of the suit at the expense of whomever the court might ultimately adjudge as the lawful owner. 
• The Court declared that a careful analysis of the records will show that petitioner admitted among other things in its complaint in interpleader that it is still obligated to pay certain amounts to private respondent; that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to said amounts. Hence, judicial deposit was proper in the case.

4. Legal Deposit.

• There are cases when judicial deposit is mandated by law. 
• Example:
•  Article 638 of the New Civil Code provides that: ''Possession as a fact cannot be recognized at the same time in two different personalities except in the cases of co-possession. Should a question arise regarding the fact of possession, the present possessor shall be preferred; if there are two possessors, the one longer in possession; if the dates of the possession are the same, the one who presents a title; and if all these conditions are equal, the thing shall be placed in judicial deposit pending determination of its possession or ownership through proper proceedings." 

When judicial deposit takes place.

• A deposit may be constituted judicially or extrajudicially. 
• Judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered by a court.
• A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation. The property subject of the litigation is not by that fact alone in custodia legis.
•  It is only when property is lawfully taken by virtue of legal process that it becomes in custodia legis, and not otherwise. 
• Examples:
• Properties may be attached by the sheriff upon the filing of a complaint (Rule 57, Rules of Court.)
• A receiver (a disinterested party) may be appointed by the court to administer and preserve the property in litigation2 (Rule 59, ibid.)
• Personal property may be seized by the sheriff in suits of replevin or manual delivery of personal property. (Rule 60, ibid.)
• Property subject of litigation is not by that fact alone in custodia legis. A thing is in custodia legis, when it is shown that it has been and is subjected to the official custody of a judicial or executive officer in pursuance of his execution of a legal writ. 
• Only when property is lawfully taken by virtue of legal process is it considered in the custody of the law, and not otherwise. 

Nature and purpose of judicial deposit. 

• The deposit is judicial because it is auxiliary to a case pending in court.
•  The purpose is to maintain the status quo during the pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment. 
• Obligation of depositary of sequestrated property. 
• The depositary of sequestrated property is the person appointed by the court. (Art. 2007.) 
• He has the obligation to take care of the property with the diligence of a good father of a family (Art. 2008.) and he may not be relieved of his responsibility until the litigation is ended or the court so orders. (Art. 2007.)
• In our jurisdiction, an escrow order may be issued by a court in the exercise of its intrinsic power to issue orders and other ancillary writs and processes incidental or reasonably necessary to the exercise of its main jurisdiction. 
• Thus, the deposit of rentals in escrow with a bank, receiver, or administrator, in the name of the court, is only an in cident in the main proceeding — placing property in litigation under judicial possession. 
• The usual defi nition is that an escrow is a written instrument which by its terms imports a legal obligation and which is deposited by the grantor, promisor, or obligor, or his agent with a stranger or third party, to be kept by the depositary until the performance of a condition or the happening of a certain event, and then to be delivered over to the grantee, promisee, or obligee. 
• While originally, the doctrine of escrow applied only to deeds by way of grant, or as otherwise stated, instruments for the conveyance of land, under mod ern theories of law, the term “escrow’’ is not limited in its application to deeds, but is applied to the deposit of any written instrument with a third person. It is no longer open to question that money may be delivered in escrow.

Judicial and extrajudicial deposits distinguished. 

• The differences between judicial and extrajudicial deposits are:

1. Cause or origin.
• judicial — by the will of the court; 
• extrajudicial — by the will of the parties; hence, there is a contract; 
2. Purpose. 
• judicial — as security and to secure the right of a party to recover in case of a favorable judgment; 
• extrajudicial — custody and safekeeping of the thing;
3. Subject matter. 
• judicial  — either movable or immovable property but generally immovable property; 
• extrajudicial — only movable property;
4. Remuneration.
• judicial — always remunerated (onerous); 
• extrajudicial  — may be compensated or not, but generally gratuitous; and 
5. In whose behalf it is held. 
• judicial — in behalf of the person who, by the judgment, has a right; 
• extrajudicial — in behalf of the depositor or third person designated. 

Applicable law. 

• The law on judicial deposit is remedial or procedural in nature. 
• Hence, the Rules of Court are applicable. 
• The relevant provisions of the Rules of Court are:
• Rule 57 (Preliminary Attachment)
• Rule 59 (Receivership)
• Rule 60 (Replevin). 
• The Rules of Court provide also for attachment in criminal cases. (Rule 127 thereof.)