G.R. No. 22537 - Behn, Meyer and Co. vs. Stanley

Case Summary (G.R. No. 22537)

Factual Background

On January 23, 1917, Behn, Meyer & Co., Ltd., through its Philippine branch, filed an action against the Collector of Customs to recover possession of certain imported merchandise then in the hands of the Collector. A. N. Jureidini & Bros. intervened and asserted title to the merchandise based on a sale ordered by the British Admiralty Court of Alexandria, Egypt, in prize court proceedings.

The Court of First Instance rendered judgment on February 28, 1918 in favor of Behn, Meyer & Co., Ltd., reasoning that title originally rested in Behn, Meyer & Co., Ltd., and that no record of the prize court proceedings showing that Behn, Meyer & Co., Ltd. had been divested of title had been presented in evidence.

On appeal, however, the judgment was reversed by the Supreme Court, and the case was remanded with instructions to grant Jureidini & Bros. a reasonable time to obtain a duly certified copy of the Admiralty Court decision declaring the merchandise lawful prize. After a new trial, on February 24, 1922, the Court of First Instance entered judgment for A. N. Jureidini & Bros., awarding P1,988 as damages and also ordering payment of an additional P1,988 representing the value of the merchandise in default of delivery.

In the meantime, on February 16, 1918, the Alien Property Custodian of the United States took over the business, property, and assets of Behn, Meyer & Co., Ltd. under the Trading with the Enemy Act, and W. D. Pemberton was appointed receiver and placed in charge. During January 1919, the Philippine branch business was liquidated. The property and assets in the Philippine Islands—together with goodwill, trade-marks, accounts receivable, and accompanying vouchers, entries, and proofs of indebtedness such as books of account—were sold on the direction and supervision of the custodial authorities to John Bordman for P660,000, as shown by Exhibits B, C, D, and E.

The Bank of the Philippine Islands advanced Bordman P660,000 to purchase the assets. The transferred purchase money was turned over to W. D. Pemberton, the receiver. On February 21, 1919, Behn, Meyer & Co., Ltd. was declared an enemy not holding a Presidential license, and demand was made on the receiver to convey and deliver the net proceeds of sale and liquidation to the Alien Property Custodian. On February 28, 1919, the net proceeds totaling P392,674.96 were delivered to the managing director of the Alien Property Custodian’s Philippine office, shown by Exhibits F and G, and were, as far as the record disclosed, still in custodian possession.

Receivership Proceedings and Subsequent Interventions

After execution of the February 24, 1922 judgment in favor of A. N. Jureidini & Bros. was issued and returned unsatisfied, Jureidini & Bros. filed an ex-parte petition on August 8, 1922 in the same case, requesting appointment of a receiver to manage the estate and effects of Behn, Meyer & Co., Ltd. On August 10, 1922, the Court of First Instance appointed Lazarus G. Joseph receiver upon the giving of a P1,000 bond.

On September 4, 1923, Lazarus G. Joseph, as receiver, commenced a separate action in the Court of First Instance of Manila against the Bank of the Philippine Islands and J. M. Menzi, designated as civil case No. 24892, seeking to annul the sale of Behn, Meyer & Co., Ltd.’s business, property, and assets to John Bordman, to recover the property as assets of the Behn entity, and to obtain an accounting and other relief.

On September 5, 1923, the receiver appeared in the original case in the Court of First Instance and obtained an order directing J. M. Menzi to show cause why he should not deliver to the receiver the books of account of Behn, Meyer & Co., Ltd.

On September 14, 1923, John Bordman, J. M. Menzi, and the Bank of the Philippine Islands filed a motion for permission to intervene in the receivership proceedings, limited to vacating the August 10, 1922 order appointing Lazarus G. Joseph as receiver. They asserted a legal interest in the subject matter. In parallel, they filed a verified motion setting out the factual situation and asking the Court to vacate and set aside the receivership appointment on grounds that Jureidini & Bros. allegedly had no legal right to the receivership and that the Court allegedly lacked jurisdiction, rendering the appointment order null and void.

Orders of the Court of First Instance

After hearing, the Court of First Instance issued an order dated September 26, 1923. It held that the intervenors had shown sufficient interests, emphasizing that Bordman had acquired through purchase for P660,000 all interests, rights, and choses in action, including books and vouchers of the plaintiff, that Menzi had been designated by Bordman to handle the properties and books in his name, and that the Bank had provided the funds for Bordman’s purchase. The Court further concluded that it had not, and did not have, jurisdiction to appoint a receiver because all properties had already been sold by the Alien Property Custodian pursuant to the federal act. Accordingly, it set aside the August 10, 1922 receivership order, canceled the bond, and ruled that Menzi had no obligation to deliver the books to Lazarus G. Joseph.

No exception was taken to the September 26, 1923 order by the receiver or by Jureidini & Bros. On October 1, 1923, counsel for the receiver and Jureidini & Bros. filed a motion for reconsideration seeking delivery of the books to the receiver. On December 3, 1923, the Court denied the motion for reconsideration, the receiver and Jureidini & Bros. took exception, and the matter proceeded to the Supreme Court on appeal from the two orders.

Issues and Contentions of the Appellants

On appeal, the appellants challenged two rulings. First, they argued that the Court of First Instance erred in permitting the appellees to intervene because a final judgment had been entered and because appellees allegedly had no legal interest in the matter being litigated. Second, they argued that the Court erred in holding that the appointment of the receiver exceeded the Court’s jurisdiction.

The Supreme Court assessed both contentions as untenable.

Appellants’ Challenge to Intervention

The Court held that the intervention issue lacked merit. It reasoned that the appellees intervened only in the receivership proceedings, which remained an open issue, and they did not attempt to interfere with the portions of the case covered by the final judgment between Jureidini & Bros. and Behn, Meyer & Co., Ltd. The intervenors did not claim interest in the underlying controversy between the judgment creditors and the judgment debtor. Rather, they claimed vital interests in the subsequent receivership phase, which was implicated by threats to the property rights they allegedly acquired from the custodian disposition.

As to John Bordman and the Bank of the Philippine Islands, the Court pointed to the receiver’s own initial action against them to annul the sale made by the Alien Property Custodian, which necessarily disturbed Bordman’s claimed property rights and threatened any lien asserted by the bank upon the property sold. As to J. M. Menzi, the Court noted that he was placed into the case at the receiver’s instance through an order to show cause why he should not deliver the books of account; therefore, no abuse of discretion attended allowing his participation to seek relief from the receivership appointment.

Jurisdictional Challenge to the Receivership Appointment

The Court likewise rejected the jurisdictional challenge. It reasoned that once Behn, Meyer & Co., Ltd. was declared an “enemy not holding a license granted by the President,” the Alien Property Custodian had the duty to take possession of the business and all assets within United States territory. The Court presumed that the duty was properly performed, and it treated those assets as beyond Philippine court jurisdiction and control.

To explain why, the Court relied on quoted provisions of the Trading with Enemy Act. It emphasized that section 7 made the “sole relief and remedy” of claimants the relief provided by the act, and limited enforcement to the net proceeds received and held by the custodian (or the Treasurer of the United States) in case of sale or disposition. The Court further cited section 9, which allowed an interested person who was “not an enemy or ally of enemy” to give notice of a claim and to institute a suit in equity against the custodian or the treasurer to establish and enforce the claim, while requiring retention of the money or property pending final decree. The Court also stressed that, except as provided, the property conveyed or paid over to the Alien Property Custodian was not liable to liens, attachments, garnishment, trustee process, or execution and was not subject to orders or decrees of any court.

The Court added that section 17 granted district courts of the United States jurisdiction to make appropriate rules, orders, and decrees necessary to enforce the act, with appeal as provided under federal law. It then concluded that the only jurisdiction given to Philippine courts was regarding criminal offenses under the act, referencing section 18. In the Court’s view, Congress did not intend to grant Philippine courts jurisdiction over civil litigation involving property under custodian control.

Ruling of the Supreme Court

The Court affirmed the orders appealed from. It sustained the Court of First Instance’s decision to allow intervention and to set aside the receivership appointment on jurisdictional grounds. It further affirmed the denial of reconsideration and the attendant rulings on the bond and delivery obligations. The Court assessed costs against the appellants and ordered the matter resolved accordingly.

Legal Basis and Reasoning

The decisive reasoning rested on the federal statutory framework governing enemy property under custodial control.

Case Syllabus (G.R. No. 22537)

Parties and Procedural Posture

Behn, Meyer & Co., Ltd. initiated an action against the Collector of Customs to recover possession of certain imported merchandise then held by the Collector.
A. N. Jureidini & Bros. intervened and claimed title to the merchandise based on an alleged sale ordered by the British Admiralty Court of Alexandria, Egypt, in prize court proceedings.
The Court of First Instance initially ruled in favor of Behn, Meyer & Co., Ltd., but the Supreme Court reversed and remanded, directing that Jureidini & Bros. be given reasonable time to obtain a certified copy of the Admiralty decision.
After retrial, the Court of First Instance rendered judgment in favor of A. N. Jureidini & Bros. and awarded damages and value of the merchandise in default of delivery.
Upon issuance of execution and its return as unsatisfied, Jureidini & Bros. filed an ex-parte petition seeking appointment of a receiver, and the Court of First Instance appointed Lazarus G. Joseph as receiver.
Lazarus G. Joseph, in a separate civil action, later sought to annul a sale of the business, property, and assets of Behn, Meyer & Co., Ltd. to John Bordman and to recover the property and obtain an accounting.
Joseph also obtained an order to cite J. M. Menzi to show cause why books of account should not be delivered to the receiver.
John Bordman, J. M. Menzi, and the Bank of the Philippine Islands filed motions to intervene in the receivership proceedings and to vacate the receiver’s appointment, and the Court of First Instance granted intervention and set aside the appointment.
The Court of First Instance denied a subsequent motion for reconsideration by the receiver and Jureidini & Bros., and the present appeal challenged both intervention and the order setting aside the receivership appointment.

Key Factual Background

In 1917, Behn, Meyer & Co., Ltd., through its Philippine branch, sued to recover imported merchandise held by the Collector of Customs.
Jureidini & Bros. asserted title under British Admiralty prize proceedings, claiming a sale ordered by that court.
The first Court of First Instance judgment for Behn, Meyer & Co., Ltd. rested on lack of evidentiary record of the prize proceedings showing divestment of Behn’s title.
On appeal, the Supreme Court reversed and remanded, requiring time to obtain a duly certified Admiralty decision declaring the merchandise lawful prize.
On February 24, 1922, after a new trial, the Court of First Instance entered judgment against Behn, Meyer & Co., Ltd. in favor of Jureidini & Bros., awarding damages and the value of the merchandise in default.
In February 1918, the Alien Property Custodian of the United States took over the business, property, and assets of Behn, Meyer & Co., Ltd. under the Trading with the Enemy Act, appointing W. D. Pemberton as receiver.
In January 1919, the Philippine branch business was liquidated, and the corporation’s Philippine assets, including goodwill, trade-marks, accounts receivable, and relevant vouchers and proofs, were sold to John Bordman under the Alien Enemy Act, for P660,000 as shown by the bills of sale.
The Bank of the Philippine Islands advanced P660,000 to Bordman to purchase the assets, and the funds were turned over to Pemberton, the Alien Property Custodian’s receiver.
On February 21, 1919, Behn, Meyer & Co., Ltd. was declared by the Alien Property Custodian to be an enemy not holding a license granted by the President of the United States.
On the same date, demand was made upon the receiver to convey and deliver the net proceeds, and by February 28, 1919, P392,674.96 was delivered to the Alien Property Custodian’s Philippine office as reflected in the record.
After the receivership judgment remained unsatisfied, Jureidini & Bros. sought court-appointed receivership over the Behn estate, leading to Joseph’s appointment on August 10, 1922.
On September 4, 1923, Joseph commenced an action against the Bank of the Philippine Islands and J. M. Menzi to annul the Bordman sale and to recover property and seek an accounting.
On September 5, 1923, Joseph appeared in the present case and obtained an order requiring Menzi to show cause why Behn’s books of account should not be turned over to the receiver.
On September 14, 1923, Bordman, Menzi, and the bank sought leave to intervene to vacate Joseph’s appointment, asserting legal interests adverse to the receivership.

Issues Raised on Appeal

The appellants argued that intervention should not have been allowed because a final judgment had already been entered in the underlying case.
The appellants a