1

FIRST DIVISION

[G.R. No. 102998. July 5, 1996.]

BA FINANCE CORPORATION, petitioner, vs. HON. COURT OF APPEALS and

ROBERTO M. REYES, respondents.

Agbayani, Leal, Ebarle & Venturanza for petitioner.

Nicanor M. Zaratan, Jr. for private respondent.

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; REPLEVIN, CONSTRUED. — Replevin, broadly understood, is

both a form of principal remedy and of a provisional relief. It may refer either to the action itself, i.e., to

regain the possession of personal chattels being wrongfully detained from the plaintiff by another, or to

the provisional remedy that would allow the plaintiff to retain the thing during the pendency of the

action and hold it pendente lite. The action is primarily possessory in nature and generally determines

nothing more than the right of possession. Replevin is so usually described as a mixed action, being

partly in rem and partly in personam — in rem insofar as the recovery of specific property is concerned,

and in personam as regards to damages involved. As an "action in rem," the gist of the replevin action is

the right of the plaintiff to obtain possession of specific personal property by reason of his being the

owner or of his having a special interest therein. Consequently, the person in possession of the property

sought to be replevied is ordinarilythe proper and only necessary party defendant, and the plaintiff is not

required to so join as defendants other persons claiming a right on the property but not in possession

thereof. Rule 60 of the Rules of Court allows an application for the immediate possession of the property

but the plaintiff must show that he has a good legal basis, i.e., a clear title thereto, for seeking

such interim possession.

2. ID.; ID.; INDISPENSABLE PARTY, DEFINED. — An indispensable party is one whose interest will be

affected by the court's action in the litigation, and without whom no final determination of the case can

be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably

intertwined with the other parties' that his legal presence as a party to the proceeding is an absolute

necessity. In his absence there cannot be a resolution of the dispute of the parties before the court

which is effective, complete, or equitable. Conversely, a party is not indispensable to the suit if his

interest in the controversy or subject matter is distinct and divisible from the interest of the other parties

and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court.

He is not indispensable if his presence would merely permit complete relief between him and those

already parties to the action or will simply avoid multiple litigation. Without the presence of

indispensable parties to a suit or proceeding, a judgment of a court cannot attain real finality.

3. CIVIL LAW; CHATTEL MORTGAGE; MORTGAGEE'S RIGHT OF POSSESSION, CONDITIONED UPON

ACTUAL DEFAULT OF THE MORTGAGOR. — A chattel mortgagee, unlike a pledgee, need not be in, nor

entitled to the possession of the property unless and until the mortgagor defaults and the mortgagee

thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the

actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or

the mortgagor himself, may be required in order to allow a full and conclusive determination of the case.

When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is

not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other

things, can properly uphold the right to replevy the property. The burden to establish a valid justification

for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be

deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply

because the mortgagee brings up an action for replevin.

D E C I S I O N

VITUG, J p:

The case at bar is a suit for replevin and damages. The petition for review on certiorari assails the

decision of the Court of Appeals 1 in CA-G.R. CV No. 23605 affirming that of the Regional Trial Court of

Manila, Branch XX, 2 which has disposed of its Civil Case No. 87-42270 in this wise:

"WHEREFORE, the case against defendant-spouses (sic) Reynaldo Manahan is

hereby dismissed without prejudice, for failure to prosecute. Plaintiff having

failed to show the liability of defendant John Doe in the person of Roberto M.

Reyes, the case against the latter should likewise be dismissed. Moreover,

2

plaintiff is hereby directed to return the vehicle seized by virtue of the order of

seizure issued by this Court with all its accessories to the said Roberto M.

Reyes." 3

The decisions of both the appellate court and the court a quoare based on a like finding of the facts

hereinafter briefly narrated.

The spouses Reynaldo and Florencia Manahan executed, on 15 May 1980, a promissory note 4 binding

themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six monthly installments

commencing 01 July 1980. To secure payment, the Manahan spouses executed a deed of chattel

mortgage 5 over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial number CUBFWE-801010.

Carmasters later assigned 6 the promissory note and the chattel mortgage to petitioner BA Finance

Corporation with the conformity of the Manahans. When the latter failed to pay the due installments,

petitioner sent demand letters. The demands not having been heeded, petitioner, on 02 October 1987,

filed a complaint for replevin with damages against the spouses, as well as against a John Doe, praying

for the recovery of the vehicle with an alternative prayer for the payment of a sum of money should the

vehicle not be returned. Upon petitioner's motion and the filing of a bond in the amount of P169,161.00

the lower court issued a writ of replevin. The court, however, cautioned petitioner that should summons

be not served on the defendants within thirty (30) days from the writ's issuance, the case would be

dismissed to failure to prosecute. 7 The warning was based on what the court perceived to be the

deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they

would so "conveniently utilize as a leverage for the collection of unpaid installments on mortgaged

chattels." 8

The service of summons upon the spouses Manahan was caused to be served by petitioner at No. 35

Lantana St., Cubao, Quezon City. The original of the summons had the name and the signature of private

respondent Roberto M. Reyes indicating that he received, on 14 October 1987, a copy of the summons

and the complaint. 9 Forthwith, petitioner, through its Legal Assistant, Danilo E. Solano, issued a

certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of the Regional

Trial Court of Manila, Branch 20, the Ford Cortina seized from private respondent Roberto M. Reyes, the

John Doe referred to in the complaint, 10 in Sorsogon, Sorsogon. 11 On 20 October 1987, the lower court

came out with an order of seizure.

Alleging possession in good faith, private respondent filed, on 26 October 1987, a motion for an

extension of time within which to file his answer and/or a motion for intervention. The court granted the

motion.

A few months later, or on 18 February 1988, the court issued an order which, in part, stated:

"Perusal of the record shows that an order for the seizure of personal property

was issued on October 20, 1987 in pursuance to a previous order of the Court

dated October 13, 1987. However, to date, there is no showing that the

principal defendants were served with summons inspite of the lapse of four (4)

months.

"Considering, this is a replevin case and to forestall the evils that arise from this

practice, plaintiff failing to heed the Order dated October 13, 1987, particularly

second paragraph thereof, the above-entitled case is hereby ordered

DISMISSED for failure to prosecute and further ordering the plaintiff to return

the property seized with all its accessories to defendant John Doe in the person

of Roberto M. Reyes.

"SO ORDERED." 12

On 26 February 1988, petitioner filed a notice of dismissal of the case "without prejudice and without

pronouncement as to costs, before service of Summons and Answer, under Section 1, Rule 17, of the

Rules of Court." 13 It also sought in another motion the withdrawal of the replevin bond. In view of the

earlier dismissal of the case (for petitioner's failure to prosecute), the court, on 02 March 1988, merely

noted the notice of dismissal and denied the motion to withdraw the replevin bond considering that the

writ of replevin had meanwhile been implemented. 14

On 09 March 1988, private respondent filed a motion praying that petitioner be directed to comply with

the court order requiring petitioner to return the vehicle to him. In turn, petitioner filed, on 14 March

1988, a motion for the reconsideration of the orders of 18 February 1988 and 02 March 1988 contending

that: (a) the dismissal of the case was tantamount to adjudication on the merits that thereby deprived it

with the remedy to enforce the promissory note, the chattel mortgage and the deed of assignment,

under Section 3, Rule 117, of the Rules of Court; (b) the order to return the vehicle to private respondent

was a departure from jurisprudence recognizing the right of the mortgagor to foreclose the property to

respond to the unpaid obligation secured by the chattel mortgage, and (c) there were no legal and

factual bases for the court's view that the filing of the replevin case was "characterized (by) evil

practices." 15

On 20 April 1988, the court granted petitioner's motion for reconsideration and accordingly recalled the

order directing the return of the vehicle to private respondent, set aside the order dismissing the case,

3

directed petitioner "to cause the service of summons together with a copy of the complaint on the

principal defendants within five (5) days from receipt" 16thereof at petitioners expense, and ordered

private respondent to answer the complaint.

A few months later, or on 02 August 1988, petitioner filed a motion to declare private respondent in

default. The court granted the motion on that same day and declared private respondent "in default for

his failure to file the . . . answer within the reglementary period." 17 The court likewise granted

petitioner's motion to set the case for the presentation, ex parte, of evidence. Petitioner, thereupon,

submitted the promissory note, the deed of chattel mortgage, the deed of assignment, a statement of

account in the name of Florencia Manahan and two demand letters.

On 27 February 1989, the trial court rendered a decision dismissing the complaint against the Manahans

for failure of petitioner to prosecute the case against them. It also dismissed the case against private

respondent for failure of petitioner to show any legal basis for said respondent's liability. The court

ratiocinated:

". . . Roberto M. Reyes is merely ancillary debtor in this case. The defendant

spouses Manahan being the principal debtor(s) and as there is no showing that

the latter has been brought before the jurisdiction of this court, it must

necessarily follow that the plaintiff has no cause of action against said Roberto

M. Reyes herein before referred to as defendant John Doe. Under the

circumstances, it is incumbent upon the plaintiff to return the seized vehicle

unto the said Roberto M. Reyes."18

In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the

foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the

principal obligors as long as the court does not render any personal judgment against them. This

argument did not persuade the appellate court, the latter holding that —

". . . In action quasi in rem an individual is named as defendant and the purpose

of the proceeding is to subject his interest therein to the obligation or lien

burdening the property, such as proceedings having for their sole object the

sale or disposition of the property of the defendant, whether by attachment,

foreclosure, or other form of remedy (Sandejas vs. Robles, 81 Phil. 421). In the

case at bar, the court cannot render any judgment binding on the defendants

spouses for having allegedly violated the terms and conditions of the

promissory note and the contract of chattel mortgage on the ground that the

court has no jurisdiction over their persons, no summons having been served on

them. That judgment, it rendered, is void for having denied the defendants

spouses due process of law which contemplates notice and opportunity to be

heard before judgment is rendered, affecting one's person or property

(Macabingkil vs. Yatco, 26 SCRA 150, 157).

"It is next contended by appellant that as between appellant, as mortgagee, and

John Doe, whose right to possession is dubious if not totally non-existent, it is

the former which has the superior right of possession.

"We cannot agree.

"It is an undisputed fact that the subject motor vehicle was taken from the

possession of said Roberto M. Reyes, a third person with respect to the contract

of chattel mortgage between the appellant and the defendants spouses

Manahan.

"The Civil Code expressly provides that every possessor has a right to be

respected in his possession (Art. 539, New Civil Code); that good faith is always

presumed, and upon him who alleges bad faith on the part of a possessor rests

the burden of proof (Art. 527, ibid.); and that the possession of movable

property acquired in good faith is equivalent to a title; nevertheless, one who

has lost any movable or has been unlawfully deprived thereof, may recover it

from the person in possession of the same (Art. 559, ibid.). Thus, it has been

held that a possessor in good faith is entitled to be respected and protected in

his possession as if he were the true owner thereof until a competent court

rules otherwise (Chus Haivs. Kapunan, 104 Phil. 110; Yu, et al. vs. Hon. Honrado,

etc., et al., 99 SCRA 237). In the case at bar, the trial court did not err in holding

that the complaint does not state any cause of action against Roberto M. Reyes,

and in ordering the return of the subject chattel to him." 19

The appellate court, subsequently, denied petitioner's motion for reconsideration.

In the instant appeal, petitioner insists that a mortgagee can maintain an action for replevin against any

possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may refer

either to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained

4

from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the

thing during the pendency of the action and hold itpendente lite. 20 The action is primarily possessory in

nature and generally determines nothing more than the right of possession. Replevin is so usually

described as a mixed action, being partly in rem and partly in personam-in reminsofar as the recovery of

specific property is concerned, andin personam as regards to damages involved. As an "action in rem,"

the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal

property by reason of his being the owner or of his having a special interest therein.21 Consequently, the

person in possession of the property sought to be replevied is ordinarily the proper and only necessary

party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right

on the property but not in possession thereof. Rule 60 of the Rules of Court allows an application for the

immediate possession of the property but the plaintiff must show that he has a good legal basis, i.e., a

clear title thereto, for seeking such interimpossession.

Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the

action need only be maintained against him who so possesses the property. In rem actio est per quam

rem nostram quae ab alio possidetur petimus et semper adversus eum est qui rem possidet . In Northern

Motors, Inc. vs. Herrera, 22 the Court has said:

"There can be no question that persons having a special right of property in the

goods the recovery of which is sought, such as a chattel mortgagee, may

maintain an action for replevin therefor. Where the mortgage authorizes the

mortgagee to take possession of the property on default, he may maintain an

action to recover possession of the mortgaged chattels from the mortgagor or

from any person in whose hands he may find them." 23

In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact of

the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the

defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the

object of replevin is traced to his possession, one properly can be a defendant in an action for

replevin. It is here assumed that the plaintiffs right to possess the thing is not or cannot be

disputed.

In case the right of possession on the part of the plaintiff, or his authority to claim such possession or

that of his principal, is put to great doubt (a contending party might contest the legal bases for plaintiff's

cause of action or an adverse and independent claim of ownership or right of possession is raised by that

party), it could become essential to have other persons involved and accordingly impleaded for a

complete determination and resolution of the controversy. For instance, in Servicewide Specialists, Inc.

vs. Court of Appeals, et al., G.R. No. 103301, 08 December 1995 this Court ruled:

"While, in its present petition for review oncertiorari, Servicewide has raised a

number of points, the crucial issue still remains, however, to be whether or not

an action filed by the mortgagee for replevin to effect a foreclosure of the

property covered by the chattel mortgage would require that the mortgagor be

so impleaded as an indispensable party thereto.

"Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of

possession of personal property, to apply for a writ of replevin if it can be

shown that he is 'the owner of the property claimed . . . or is entitled to the

possessionthereof.' The plaintiff need not be the owner so long as he is able to

specify his right to the possession of the property and his legal basis therefor.

The question then, insofar as the matter finds relation to the instant case, is

whether or not the plaintiff (herein petitioner) who has predicated his right on

being the mortgagee of a chattel mortgage should implead the mortgagor in his

complaint that seeks to recover possession of the encumbered property in

order to effect its foreclosure.

"The answer has to be in the affirmative. In a suit for replevin, a clear right of

possession must be established. A foreclosure under a chattel mortgage may

properly be commenced only once there is default on the part of the mortgagor

of his obligation secured by the mortgage. The replevin in the instant case has

been sought to pave the way for the foreclosure of the object covered by the

chattel mortgage. The conditions essential for that foreclosure would be to

show, firstly, the existence of the chattel mortgage and, secondly, the default of

the mortgagor. These requirements must be established since the validity of the

plaintiff's exercise of the right of foreclosure are inevitably dependent thereon.

It would thus seem, considering particularly an adverse and independent claim

of ownership by private respondent that the lower court acted improvidently

when it granted the dismissal of the complaint against Dollente, albeit on

petitioner's (then plaintiff) plea, on the ground that the 'non-service of

summons upon Ernesto Dollente (would) only delay the determination of the

merits of the case, to the prejudice of the parties.' InImson v. Court of

Appeals, we have explained:

5

". . . An indispensable party is one whose interest will be affected by

the court's action in the litigation, and without whom no final

determination of the case can be had. The party's interest in the

subject matter of the suit and in the relief sought are so inextricably

intertwined with the other parties that his legal presence as a party

to the proceeding is an absolute necessity. In his absence there

cannot be a resolution of the dispute of the parties before the court

which is effective, complete, or equitable.

"Conversely, a party is not indispensable to the suit if his interest in

the controversy or subject matter is distinct and divisible from the

interest of the other parties and will not necessarily be prejudiced by

a judgment which does complete justice to the parties in court. He is

not indispensable if his presence would merely permit complete

relief between him and those already parties to the action or will

simply avoid multiple litigation."

"Without the presence of indispensable parties to a suit or proceeding, a

judgment of a court cannot attain real finality" (Footnotes omitted.)

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property

unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since

the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be

controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in

order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in

order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the

mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to

replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An

adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be

bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action

for replevin.

The appellate court, accordingly, acted well in arriving at its now questioned judgment.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED. No costs.

SECOND DIVISION

[G.R. No. 169596. March 28, 2007.]

SUPERLINES TRANSPORTATION COMPANY, INC., petitioner, vs. PHILIPPINE

NATIONAL CONSTRUCTION COMPANY and PEDRO BALUBAL,respondents.

D E C I S I O N

CARPIO-MORALES, J p:

Assailed via petition for review is the Court of Appeals' Decision 1 dated September 6, 2005 dismissing

for lack of merit the appeal of petitioner Superlines Transportation Company, Inc. (petitioner), docketed

as CA-G.R. CV No. 61144. CSHDTE

Petitioner is a corporation engaged in the business of providing public transportation. On December 13,

1990, one of its buses, while traveling north and approaching the Alabang northbound exit lane, swerved

and crashed into the radio room of respondent Philippine National Construction Company (PNCC).

The incident was initially investigated by respondent PNCC's toll way patrol, Sofronio Salvanera, and

respondent Pedro Balubal (Balubal), then head of traffic control and security department of the South

Luzon tollway. 2 The bus 3 was thereafter turned over to the Alabang Traffic Bureau for it to conduct its

own investigation of the incident. Because of lack of adequate space, the bus was, on request of traffic

investigator Pat. Cesar Lopera (Lopera), towed by the PNCC patrol to its compound where it was

stored. 4 AECacT

Subsequently, petitioner made several requests for PNCC to release the bus, but respondent Balubal

denied the same, despite petitioner's undertaking to repair the damaged radio room. Respondent

Balubal instead demanded the sum of P40,000.00, or a collateral with the same value, representing

respondent PNCC's estimate of the cost of reconstruction of the damaged radio room. By petitioner's

estimate, however, the damage amounted to P10,000.00 only. 5

Petitioner thus filed a complaint for recovery of personal property (replevin) with damages 6 against

respondents PNCC and Balubal with the Regional Trial Court of Gumaca, Quezon, praying as follows:

6

xxx xxx xxx

2. after trial on the issues, judgment be rendered —

a) adjudging that plaintiff has the right to the

possession of subject personal property and awarding

the material possession of said property to plaintiff as

the sole and absolute owner thereof;

b) ordering defendants jointly and severally to pay the

plaintiff the following: HAIaEc

(1) the sum of P500,000.00 representing unrealized

income as of the date of the filing of the instant

complaint and, thereafter, the sum of P7,500.00 daily

until subject passenger bus shall have been delivered to

and in actual material possession of plaintiff;

(2) the sum of P100,000.00 as and for attorney's fees;

(3) the sum of P20,000.00 as litis expenses; and

(4) the cost of suit. 7

In view of its inability to put up the bond for the issuance of a writ of replevin, petitioner opted to forego

the same and just wait for the court's final judgment.

In respondents' Answer 8 to the complaint, they claimed that they merely towed the bus to the PNCC

compound for safekeeping pursuant to an order from the police authorities; that respondent Balubal did

not release the bus to petitioner in the absence of an order from the police authorities; that petitioner,

in claiming the bus, failed to present the certificate of registration and official receipt of payment to

establish ownership thereof; and that the bus subject of the complaint was not the same bus involved in

the December 13, 1990 accident. SCADIT

By way of Counterclaim, respondents prayed for the award of P40,326.54 in actual damages, P50,000.00

in exemplary damages, and P130,000.00 in attorney's fees and litigation expenses.

By Decision of December 9, 1997, the trial court dismissed petitioner's complaint. On respondents'

Counterclaim, it ordered petitioner to pay respondent PNCC the amount of P40,320.00 representing

actual damages to the radio room.cAHITS

Petitioner appealed to the Court of Appeals 9 which held that the storage of the bus for safekeeping

purposes partakes of the nature of a deposit, hence, custody or authority over it remained with Lopera

who ordered its safekeeping; and that Lopera acted as respondent PNCC's agent, hence, absent any

instruction from him, respondent PNCC may not release the bus.

The appellate court thus concluded that the case should have been brought against the police

authorities instead of respondents. AaDSEC

Hence, the present petition for review.

The petition is impressed with merit.

Before proceeding to the substantive issues raised in the petition, the Court resolves to dispose first the

procedural issues raised by respondents in their Comment. 10

Respondents contend that the petition raises only questions of fact and suffers from a procedural defect

in that it failed to include "such material portions of the record as would support the petition" as

required under Section 4, Rule 45 11 of the Rules of Court, hence, it should be dismissed

outright. TCcDaE

Contrary to respondents' contention, the petition raises questions of law foremost of which is whether

the owner of a personal property may initiate an action for replevin against a depositary and recover

damages for illegal distraint.

In any event, while it is settled that this Court is not a trier of facts and does not, as a rule, undertake a

re-examination of the evidence presented by the parties, a number of exceptions have nevertheless

been recognized by the Court. These exceptions are enumerated in Insular Life Assurance Company, Ltd.

v. Court of Appeals: 12 ACDTcE

It is a settled rule that in the exercise of the Supreme Court's power of review,

the Court is not a trier of facts and does not normally undertake the re-

examination of the evidence presented by the contending parties during the

trial of the case considering that the findings of facts of the CA are conclusive

and binding on the Court. However, the Court had recognized several

exceptions to this rule, to wit: (1) when the findings are grounded entirely on

speculation, surmises or conjectures; (2) when the inference made is manifestly

mistaken, absurd or impossible; (3) when there is grave abuse of discretion;

(4) when the judgment is based on a misapprehension of facts; (5) when the

7

findings of facts are conflicting; (6) when in making its findings the Court of

Appeals went beyond the issues of the case, or its findings are contrary to the

admissions of both the appellant and the appellee; (7) when the findings are

contrary to the trial court; (8) when the findings are conclusions without

citation of specific evidence on which they are based; (9) when the facts set

forth in the petition as well as in the petitioner's main and reply briefs are not

disputed by the respondent; (10) when the findings of fact are premised on the

supposed absence of evidence and contradicted by the evidence on record; and

(11) when the Court of Appeals manifestly overlooked certain relevant facts not

disputed by the parties, which, if properly considered, would justify a different

conclusion. . . . (Italics in original; underscoring supplied; citations

omitted)DIHETS

As will be discussed below, number 11 of the foregoing enumeration applies in the present case. AaDSTH

Respecting the second procedural issue, as a rule, the failure of a petitioner to comply with any of the

requirements under Section 4, Rule 45 of the Rules of Court regarding the contents of and the

documents which should accompany the petition constitutes sufficient ground for its dismissal. 13

In the exercise of its equity jurisdiction, however, procedural lapses may be disregarded so that a case

may be resolved on its merits. As held in Durban Apartments Corporation v. Catacutan: 14

It is well to remember that this Court, in not a few cases, has consistently held

that cases shall be determined on the merits, after full opportunity to all parties

for ventilation of their causes and defense, rather than on technicality or some

procedural imperfections. In so doing, the ends of justice would be better

served. The dismissal of cases purely on technical grounds is frowned upon

and the rules of procedure ought not be applied in a very rigid, technical

sense, for they are adopted to help secure, not override, substantial justice,

and thereby defeat their very ends. Indeed, rules of procedure are mere tools

designed to expedite the resolution of cases and other matters pending in

court. A strict and rigid application of the rules that would result in

technicalities that tend to frustrate rather than promote justice must be

avoided. AEDcIH

xxx xxx xxx (Emphasis supplied; citations omitted)

The facts and circumstances attendant to the case dictate that, in the interest of substantial justice, this

Court resolves it on the merits.

On to the substantive issues. Tillson v. Court of Appeals 15discusses the term replevin as follows:

The term replevin is popularly understood as "the return to or recovery by a

person of goods or chattels claimed to be wrongfully taken or detained upon

the person's giving security to try the matter in court and return the goods if

defeated in the action;" "the writ by or the common-law action in which goods

and chattels are replevied," i.e., taken or gotten back by a writ for replevin;"

and to replevy, means to recover possession by an action of replevin; to take

possession of goods or chattels under a replevin order. Bouvier's Law Dictionary

defines replevin as "a form of action which lies to regain the possession of

personal chattels which have been taken from the plaintiff unlawfully . . ., (or

as) the writ by virtue of which the sheriff proceeds at once to take possession of

the property therein described and transfer it to the plaintiff upon his giving

pledges which are satisfactory to the sheriff to prove his title, or return the

chattels taken if he fail so to do; the same authority states that the term, "to

replevy" means "to re-deliver goods which have been distrained to the original

possessor of them, on his giving pledges in an action of replevin." The term

therefore may refer either to the action itself, for the recovery of personality,

or the provisional remedy traditionally associated with it, by which possession

of the property may be obtain[ed] by the plaintiff and retained during the

pendency of the action. (Emphasis and underscoring supplied; citations

omitted) ESTcIA

In a complaint for replevin, the claimant must convincingly show that he is either the owner or clearly

entitled to the possession of the object sought to be recovered, 16 and that the defendant, who is in

actual or legal possession thereof, wrongfully detains the same. 17

Petitioner's ownership of the bus being admitted by respondents, 18 consideration of whether

respondents have been wrongfully detaining it is in order.

Following the conduct of an investigation of the accident, the bus was towed by respondents on the

request of Lopera. 19 It was thus not distrained or taken for a tax assessment or a fine pursuant to law,

or seized under a writ of execution or preliminary attachment, or otherwise placed under custodia

legis. THacES

8

In upholding the dismissal of petitioner's complaint, the Court of Appeals held that while "there is no law

authorizing the impounding of a vehicle involved in an accident by the police authorities, . . . neither is

there a law making the impounding of vehicles involved in accidents illegal." It added that "the Supreme

Court is of the view that there is yet no clear-cut policy or rule on the matter." 20 The appellate court is

mistaken.

The Constitution grants the right against unreasonable seizures. Thus, Section 2, Article III provides:

The right of the people to be secure in their persons, houses, papers, and

effects againstunreasonable searches and seizures of whatever nature and for

any purpose shall be inviolable, and no search warrant or warrant of arrest shall

issue except upon probable cause to be determined personally by the judge

after examination under oath or affirmation of the complainant and the

witnesses he may produce, and particularly describing the place to be searched

and the persons or things to be seized. (Underscoring supplied) CDAcIT

The seizure and impounding of petitioner's bus, on Lopera's request, were unquestionably violative of

"the right to be let alone" by the authorities as guaranteed by the Constitution. 21

The Court of Appeals' reliance on Victory Liner, Inc. v. Bellosillo 22 to justify the impounding of vehicles

involved in accidents by police authorities is misplaced. The Victory Linercase was an administrative case

against a trial court judge. This Court explicitly declined to rule on the legality of such an order:

In the same vein, this administrative case is not the right forum to determine

the issue of the legality of respondent's order requiring VLI to post a cash bond

for the release of its impounded vehicle. VLI should have raised that issue in the

proper courts and not directly to us, and much less by way of an administrative

case. . . .

xxx xxx xxx

To allow VLI to raise that issue before us and obtain a ruling thereon directly

from us through an administrative case would be to countenance a disregard of

the established rules of procedure and of the hierarchy of courts. VLI would

thus be able to evade compliance with the requirements inherent in the filing of

a property petition, including the payment of docket fees. Hence, we shall shun

from passing upon that issue in this case. 23 (Underscoring supplied) HcaDTE

This Court's statement in Victory Liner on the lack of a "clear-cut policy" refers to the practice, rightly or

wrongly, of trial court judges of issuing orders for the impounding of vehicles involved in accidents. It has

no application to the instant case which involves the seizure and distraint implemented by respondents

upon a verbal order by Lopera without the benefit or color of legality afforded by a court process, writ or

order.

That a year after the incident the driver of the bus was criminally charged for reckless imprudence

resulting to damage to property in which the bus could possibly be held as evidence does not affect the

outcome of this case. 24 As explained inBagalihog v. Fernandez: 25

It is true that property held as evidence in a criminal case cannot be replevied.

But the rule applies only where the property is lawfully held,that is, seized in

accordance with the rule against warrantless searches and seizures or its

accepted exceptions. Property subject of litigation is not by that fact alone

in custodia legis. As the Court said in Tamisin v. Odejar, 26 "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. (Emphasis and

underscoring supplied; italics in the original; citations omitted)IHTaCE

Petitioner's prayer for recovery of possession of the bus is, in light of the foregoing discussion, thus in

order.

As for petitioner's claim for damages, the Court finds that it cannot pass upon the same without

impleading Lopera and any other police officer responsible for ordering the seizure and distraint of the

bus. The police authorities, through Lopera, having turned over the bus to respondents for safekeeping,

a contract of deposit 27 was perfected between them and respondents. HcSaAD

Petitioner's failure to implead indispensable parties is not, of course, fatal to its cause of action,

misjoinder or non-joinder of parties not being a ground for its dismissal. 28 Domingo v.

Scheer 29 elucidates:

However, the non-joinder of indispensable parties is not a ground for the

dismissal of an action. Parties may be added by order of the court on motion

of the party or on its own initiative at any stage of the action and/or such

times as are just. If the petitioner/plaintiff refuses to implead an indispensable

9

party despite the order of the court, the latter may dismiss the

complaint/petition for the petitioner/plaintiff's failure to comply therefor. The

remedy is to implead the non-party claimed to be indispensable. (Emphasis

and underscoring supplied; citations omitted) ScHAIT

For petitioner to pursue its claim for damages then, it or the trial court motu proprio may implead as

defendants the indispensable parties — Lopera and any other responsible police officers.

WHEREFORE, the assailed Court of Appeals Decision is REVERSED and SET ASIDE.

The prayer of petitioner, Superlines Transportation Company, Inc., for recovery of possession of personal

property is GRANTED.

The records of the case are REMANDED to the court of origin, the Regional Trial Court, Branch 62,

Gumaca, Quezon, which is DIRECTED to REINSTATE petitioner's complaint to its docket if petitioner is still

interested to pursue its claim for damages and to act in accordance with the foregoing pronouncement

of the Court. aIc

THIRD DIVISION

[G.R. No. 110048. November 19, 1999.]

SERVICEWIDE SPECIALISTS, INC.,petitioner, vs. COURT OF APPEALS, HILDA TEE,

& ALBERTO M. VILLAFRANCA,respondents.

Labaguis Loyola & Associates for petitioner.

Agcaoli & Associates for A. Villafranca.

SYNOPSIS

On May 14, 1976, Leticia Laus purchased on credit a Colt Galant, 4 door-Sedan automobile from Fortune

Motors (Phils.) Corporation. In support thereof, she executed a promissory note payable within a period

of 48 months to start in August, 1976 and a chattel mortgage was constituted on the said motor vehicle

with a deed of assignment incorporated therein which stated that the credit and mortgage rights were

assigned by Fortune Motors Corp. in favor of Filinvest Credit Corporation. On September 25, 1978,

Filinvest Credit Corporation assigned the said credit to Servicewide Specialists, Inc. However, starting

April 18, 1977, Laus failed to pay her monthly installments. Servicewide demanded payment of the entire

outstanding balance, but Laus failed to settle her obligation or to surrender possession of the said motor

vehicle for purposes of foreclosure. Thus, Servicewide instituted a complaint for replevin against Hilda

Tee and John Dee in whose custody the vehicle was believed to be at the time of the filing of the suit. On

August 1, 1984, Alberto Villafranca filed a third party claim contending that he is the absolute owner of

the subject motor vehicle. Subsequently, upon motion of the plaintiff, Villafranca was substituted as

defendant. On December 27, 1985, the lower court rendered a decision dismissing the complaint for

insufficiency of evidence. On appeal, the appellate court affirmed the decision of the lower court by

ratiocinating that there was no privity of contract between the plaintiff-appellant Servicewide Specialists,

Inc. and the defendant-appellee Alberto Villafranca and that Laus being a privy to the contract was not

impleaded as party-defendant.

The Court ruled that the conditions essential for such foreclosure would be to show, firstly, the existence

of the chattel mortgage and, secondly, the default of the mortgagor. These requirements must be shown

because the validity of the plaintiff's exercise of the right of foreclosure is inevitably dependent thereon.

10

Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may

be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be

required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a

replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but

also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the

right to replevy the property. The burden to establish a valid justification for such action lies with the

plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let

alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up

an action for replevin. Leticia Laus, being an indispensable party, should have been impleaded in the

complaint for replevin and damages.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; PROVISIONAL REMEDIES; REPLEVIN; MAY BE MAINTAINED

AGAINST THE POSSESSOR OF THE PROPERTY. — Rule 60 of the Revised Rules of Court requires that an

applicant for replevin must show that he "is the owner of the property claimed, particularly describing it,

or is entitled to the possession thereof." Where the right of the plaintiff to the possession of the

specified property is so conceded or evident, the action need only be maintained against him who so

possesses the property. In rem action est per quam rem nostram quae ab alio possidetur petimus, et

semper adversus eum est qui rem possidet.

2. ID.; ID.; ID.; ID.; DEFENDANT NOT BEING A PRIVY TO THE CHATTEL MORTGAGE IS INCONSEQUENTIAL

WHEN THE MORTGAGOR AUTHORIZES THE MORTGAGEE TO TAKE POSSESSION OF PROPERTY ON

DEFAULT. — The Court said in the case of BA Finance (which is of similar import with the present case):

"There can be no question that persons having a special right of property in the goods the recovery of

which is sought, such as a chattel mortgagee, may maintain an action for replevin therefor. Where the

mortgage authorizes the mortgagee to take possession of the property on default, he may maintain an

action to recover possession of the mortgaged chattels from the mortgagor or from any person in whose

hands he may find them." Thus, in default of the mortgagor, the mortgagee is thereby constituted as

attorney-in-fact of the mortgagor, enabling such mortgagee to act for and in behalf of the owner. That

the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object

of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here

assumed that the plaintiff's right to possess the thing is not or cannot be disputed. SAHIDc

3. ID.; ID.; ID.; ID.; IF INDEPENDENT CLAIM OF OWNERSHIP OR RIGHT OF POSSESSION WAS USED AS A

DEFENSE, OTHER PERSONS INVOLVED FOR COMPLETE DETERMINATION THEREOF SHOULD BE

IMPLEADED. — In case the right of possession on the part of the plaintiff, or his authority to claim such

possession or that of his principal, is put to great doubt (a contending party may contest the legal bases

for plaintiff's cause of action or an adverse and independent claim of ownership or right of possession

may be raised by that party), it could become essential to have other persons involved and impleaded

for a complete determination and resolution of the controversy.

4. ID.; ID.; APPEAL; PETITION FOR REVIEW ONCERTIORARI; LIMITED TO QUESTIONS OF LAW. — In the

case under scrutiny, it is not disputed that there is an adverse and independent claim of ownership by

the respondent as evinced by the existence of a pending case before the Court of Appeals involving

subject motor vehicle between the same parties herein. Its resolution is a factual matter, the province of

which properly lies in the lower Court and not in the Supreme Court, in the guise of a petition for review

on certiorari. For it is basic that under Rule 45, this Court only entertains questions of law, and rare are

the exceptions and the present case does not appear to be one of them.

5. ID.; ID.; PROVISIONAL REMEDIES; REPLEVIN; CLEAR RIGHT OF POSSESSION MUST BE ESTABLISHED. —

In a suit for replevin, a clear right of possession must be established. A foreclosure under a chattel

mortgage may properly be commenced only once there is default on the part of the mortgagor of his

obligation secured by the mortgage. The replevin in this case has been resorted to in order to pave the

way for the foreclosure of what is covered by the chattel mortgage. The conditions essential for such

foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of

the mortgagor. These requirements must be shown because the validity of the plaintiff's exercise of the

right of foreclosure is inevitably dependent thereon.

6. ID.; ID.; ID.; ID.; MORTGAGEE'S RIGHT OF POSSESSION IS CONDITIONED UPON THE ACTUAL FACT OF

DEFAULT. — Since the mortgagee's right of possession is conditioned upon the actual fact of default

which itself may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself,

may be required in order to allow a full and conclusive determination of the case. When the mortgagee

seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence

of, but also mortgagor's default on, the chattel mortgage that, among other things, can properly uphold

the right to replevy the property. The burden to establish a valid justification for such action lies with the

plaintiff.

7. ID.; ID.; ID.; ID.; ADVERSE POSSESSOR WHO IS NOT THE MORTGAGOR CANNOT BE DEPRIVED OF HIS

POSSESSION. — An adverse possessor, who is not the mortgagor, cannot just be deprived of his

11

possession, let alone be bound by the terms of the chattel mortgage contract, simply because the

mortgagee brings up an action for replevin.

8. ID.; ID.; INDISPENSABLE PARTY, ELUCIDATED. — An indispensable party is one whose interest will be

affected by the court's action in the litigation, and without whom no final determination of the case can

be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably

intertwined with the other parties that his legal presence as a party to the proceeding is an absolute

necessity. In his absence, there cannot be a resolution of the dispute of the parties before the Court

which is effective, complete, or equitable. Conversely, a party is not indispensable to the suit if his

interest in the controversy or subject matter is distinct and divisible from the interest of the other parties

and will not necessarily be prejudiced by a judgment which does complete justice to the parties in Court.

He is not indispensable if his presence would merely complete relief between him and those already

parties to the action or will simply avoid multiple litigation. Without the presence of indispensable

parties to a suit or proceeding, a judgment of a Court cannot attain real finality.

9. ID.; ID.; FORECLOSURE OF CHATTEL MORTGAGE; MORTGAGOR IS AN INDISPENSABLE PARTY. — That

petitioner could not locate the mortgagor, Leticia Laus, is no excuse for resorting to a procedural short-

cut. It could have properly availed of substituted service of summons under the Revised Rules of Court. If

it deemed such a mode to be unavailing, it could have proceeded in accordance with Section 14 of the

same Rule. Indeed, petitioner had other proper remedies, it could have resorted to but failed to avail of.

For instance, it could have properly impleaded the mortgagor. Such failure is fatal to petitioner's cause.

D E C I S I O N

PURISIMA, J p:

This is a petition for review on certiorari under Rule 45 of the Decision of the Court of Appeals 1 in CA-

G.R. CV No. 19571, affirming the judgment of the Regional Trial Court of Manila, Branch XX, dismissing

Civil Case No. 84-25763 for replevin and damages. cdphil

The litigation involves a motor vehicle, a Colt Galant, 4-door Sedan automobile, with Motor No. 2E-

08927, Serial No. A112A-5297, Model No. 1976.

The appellate court culled the facts that matter as follows: 2

"On May 14, 1976, Leticia L. Laus of Quezon City purchased on credit a Colt

Galant . . . from Fortune Motors (Phils.) Corporation. On the same date, she

executed a promissory note for the amount of P56,028.00, inclusive of interest

at 12%per annum, payable within a period of 48 months starting August, 1976

at a monthly installment of P1,167.25 due and demandable on the 17th day of

each month (Exhibit "A", pp. 144, Orig. Records,). It was agreed upon, among

others, that in case of default in the payment of any installment the total

principal sum, together with the interest, shall become immediately due and

payable (Exhibit "A"; p. 144, Orig. Records). As a security for the promissory

note, a chattel mortgage was constituted over the said motor vehicle (Exhibit

"B", ibid.), with a deed of assignment incorporated therein such that the credit

and mortgage rights were assigned by Fortune Motors Corp. in favor of Filinvest

Credit Corporation with the consent of the mortgagor-debtor Leticia Laus

(Exhibits "B-1" and "B-2"; p. 147, ibid.). The vehicle was then registered in the

name of Leticia L. Laus with the chattel mortgage annotated on said certificate.

(Exhibit "H"; p. 154, ibid.)

On September 25, 1978, Filinvest Credit Corporation in turn assigned the credit

in favor of Servicewide Specialists, Inc. (Servicewide, for brevity) transferring

unto the latter all its rights under the promissory note and the chattel mortgage

(Exhibit "B-3"; p. 149, ibid.) with the corresponding notice of assignment sent to

the registered car owner (Exhibit "C"; p. 150, Ibid.).

On April 18, 1977, Leticia Laus failed to pay the monthly installment for that

month. The installments for the succeeding 17 months were not likewise fully

paid, hence on September 25, 1978, pursuant to the provisions of the

promissory note, Servicewide demanded payment of the entire outstanding

balance of P46,775.24 inclusive of interests (Exhibits "D" and "E"; pp. 151-

152,ibid.). Despite said formal demand, Leticia Laus failed to pay all the monthly

installments due until July 18, 1980. cdll

On July 25, 1984, Servicewide sent a statement of account to Leticia Laus and

demanded payment of the amount of P86,613.32 representing the outstanding

balance plus interests up to July 25, 1985, attorney's fees, liquidated damages,

estimated repossession expense, and bonding fee (Exhibit "F"; p. 153, ibid.)

12

As a result of the failure of Leticia Laus to settle her obligation, or at least to

surrender possession of the motor vehicle for the purpose of foreclosure,

Servicewide instituted a complaint for replevin, impleading Hilda Tee and John

Dee in whose custody the vehicle was believed to be at the time of the filing of

the suit.

In its complaint, plaintiff alleged that it had superior lien over the mortgaged

vehicle; that it is lawfully entitled to the possession of the same together with

all its accessories and equipments; (sic) that Hilda Tee was wrongfully detaining

the motor vehicle for the purpose of defeating its mortgage lien; and that a

sufficient bond had been filed in court. (Complaint with Annexes, pp. 1-

13, ibid.). On July 30, 1984, the court approved the replevin bond (p. 20, ibid.)

On August 1, 1984, Alberto Villafranca filed a third party claim contending that

he is the absolute owner of the subject motor vehicle duly evidenced by the

Bureau of Land Transportation's Certificate of Registration issued in his name

on June 22, 1984; that he acquired the said motor vehicle from a certain

Remedios D. Yang under a Deed of Sale dated May 16, 1984; that he acquired

the same free from all lien and encumbrances; and that on July 30, 1984, the

said automobile was taken from his residence by Deputy Sheriff Bernardo

Bernabe pursuant to the seizure order issued by the court a quo.

Upon motion of the plaintiff below, Alberto Villafranca was substituted as

defendant. Summons was served upon him. (pp. 55-56,ibid.).

On March 20, 1985, Alberto Villafranca moved for the dismissal of the

complaint on the ground that there is another action pending between the

same parties before the Regional Trial Court of Makati, Branch 140, docketed as

Civil Case No. 8310, involving the seizure of subject motor vehicle and the

indemnity bond posted by Servicewide (Motion to Dismiss with Annexes; pp.

57-110,ibid.) On March 28, 1985, the court granted the aforesaid motion (p.

122, ibid.), but subsequently the order of dismissal was reconsidered and set

aside (pp. 135-136, ibid.). For failure to file his Answer as required by the

court a quo, Alberto Villafranca was declared in default and plaintiff's evidence

was received ex parte. LLpr

On December 27, 1985, the lower court rendered a decision dismissing the

complaint for insufficiency of evidence. Its motion for reconsideration of said

decision having been denied, . . . ."

In its appeal to the Court of Appeals, petitioner theorized that a suit for replevin aimed at the foreclosure

of a chattel is an action quasi in rem, and does not require the inclusion of the principal obligor in the

Complaint. However, the appellate court affirmed the decision of the lower Court; ratiocinating, thus:

"A cursory reading, however, of the Promissory Note dated May 14, 1976 in

favor of Fortune Motors (Phils.) Corp. in the sum of P56,028.00 (Annex "A" of

Complaint, p. 7, Original Records) and the Chattel Mortgage of the same date

(Annex "B" of Complaint; pp. 8-9, ibid.) will disclose that the maker and

mortgagor respectively are one and the same person: Leticia Laus. In fact,

plaintiff-appellant admits in paragraphs (sic) nos. 2 and 3 of its Complaint that

the aforesaid public documents (Annexes "A" and "B" thereof) were executed

by Leticia Laus, who, for reasons not explained, was never impleaded. In the

case under consideration, plaintiff-appellant's main case is for judicial

foreclosure of the chattel mortgage against Hilda Tee and John Doe who was

later substituted by appellee Alberto Villafranca. But as there is no privity of

contract, not even a causal link, between plaintiff-appellant Servicewide

Specialists, Inc. and defendant-appellee Alberto Villafranca, the court a

quocommitted no reversible error when it dismissed the case for insufficiency

of evidence against Hilda Tee and Alberto Villafranca since the evidence

adduced pointed to Leticia Laus as the party liable for the obligation sued upon

(p. 2, RTC Decision)." 3

Petitioner presented a Motion for Reconsideration but in its Resolution 4 of May 10, 1993, the Court of

Appeals denied the same, taking notice of another case "pending between the same parties . . . relating

to the very chattel mortgage of the motor vehicle in litigation."

Hence, the present petition for review on certiorari under Rule 45. Essentially, the sole issue here is:

Whether or not a case for replevin may be pursued against the defendant, Alberto Villafranca, without

impleading the absconding debtor-mortgagor?

Rule 60 of the Revised Rules of Court requires that an applicant for replevin must show that he "is the

owner of the property claimed, particularly describing it, or is entitled to the possession

thereof." 5 Where the right of the plaintiff to the possession of the specified property is so conceded or

13

evident, the action need only be maintained against him who so possesses the property. In rem action

est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem

possidet. 6

Citing Northern Motors, Inc. vs. Herrera, 7 the Court said in the case of BA Finance (which is of similar

import with the present case): llcd

"There can be no question that persons having a special right of property in the

goods the recovery of which is sought, such as a chattel mortgagee, may

maintain an action for replevin therefor. Where the mortgage authorizes the

mortgagee to take possession of the property on default, he may maintain an

action to recover possession of the mortgaged chattels from the mortgagor or

from any person in whose hands he may find them." 8

Thus, in default of the mortgagor, the mortgagee is thereby constituted as attorney-in-fact of the

mortgagor, enabling such mortgagee to act for and in behalf of the owner. That the defendant is not

privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is traced

to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the

plaintiff's right to possess the thing is not or cannot be disputed. 9(Italics supplied)

However, in case the right of possession on the part of the plaintiff, or his authority to claim such

possession or that of his principal, is put to great doubt (a contending party may contest the legal bases

for plaintiff's cause of action or an adverse and independent claim of ownership or right of possession

may be raised by that party), it could become essential to have other persons involved and impleaded

for a complete determination and resolution of the controversy. 10 In the case under scrutiny, it is not

disputed that there is an adverse and independent claim of ownership by the respondent as evinced by

the existence of a pending case before the Court of Appeals involving subject motor vehicle between the

same parties herein. 11 Its resolution is a factual matter, the province of which properly lies in the lower

Court and not in the Supreme Court, in the guise of a petition for review on certiorari. For it is basic that

under Rule 45, this Court only entertains questions of law, and rare are the exceptions and the present

case does not appear to be one of them.

In a suit for replevin, a clear right of possession must be established. (Italics supplied) A foreclosure under

a chattel mortgage may properly be commenced only once there is default on the part of the mortgagor

of his obligation secured by the mortgage. The replevin in this case has been resorted to in order to pave

the way for the foreclosure of what is covered by the chattel mortgage. The conditions essential for such

foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of

the mortgagor. These requirements must be shown because the validity of the plaintiff's exercise of the

right of foreclosure is inevitably dependent thereon. 12

Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may

be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be

required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a

replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but

also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the

right to replevy the property. The burden to establish a valid justification for such action lies with the

plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let

alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up

an action for replevin." 13

Leticia Laus, being an indispensable party, should have been impleaded in the complaint for replevin and

damages. An indispensable party is one whose interest will be affected by the court's action in the

litigation, and without whom no final determination of the case can be had. The party's interest in the

subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties

that his legal presence as a party to the proceeding is an absolute necessity. In his absence, there cannot

be a resolution of the dispute of the parties before the Court which is effective, complete, or

equitable. cdtai

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is

distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a

judgment which does complete justice to the parties in Court. He is not indispensable if his presence

would merely complete relief between him and those already parties to the action or will simply avoid

multiple litigation. 14 Without the presence of indispensable parties to a suit or proceeding, a judgment

of a Court cannot attain real finality. 15

That petitioner could not locate the mortgagor, Leticia Laus, is no excuse for resorting to a procedural

short-cut. It could have properly availed of substituted service of summons under the Revised Rules of

Court. 16 If it deemed such a mode to be unavailing, it could have proceeded in accordance with Section

14 of the same Rule. 17 Indeed, petitioner had other proper remedies, it could have resorted to but

failed to avail of. For instance, it could have properly impleaded the mortgagor. Such failure is fatal to

petitioner's cause.

14

With the foregoing disquisition and conclusion, the other issues raised by petitioner need not be passed

upon.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 19571

AFFIRMED. No pronouncement as to costs. LLpr

THIRD DIVISION

[G.R. No. 61508. March 17, 1999.]

CITIBANK, N.A. (Formerly First National City Bank), petitioner, vs. THE

HONORABLE COURT OF APPEALS AND DOUGLAS F. ANAMA, respondents.

Agcaoili & Associates for petitioner.

Quasha Asperilla Ancheta Pena & Associates for private respondent.

SYNOPSIS

In consideration of a loan obtained from Citibank, N.A., Anama executed a promissory note to pay the

same and constituted a Chattel Mortgage in favor of the Bank, on his various machineries and

equipment. Later, for failure of Anama to pay the promissory note despite demand, the Bank filed a

complaint for the collection of the unpaid balance, for the delivery and possession of the chattels

preparatory to the foreclosure thereof. An Order of Replevin over the properties covered by the Chattel

Mortgage was issued but the same was not immediately implemented in view of an amicable settlement

then being worked out. But when the same failed, the lower court proceeded to try the case on the

merits. The Bank filed a Motion for the Issuance of an Alias Writ of Seizure, and the same was granted

despite opposition by Anama. Thereafter, the Bank took possession of the mortgaged chattels and they

were advertised for public auction. Anama then went to the Court of Appeals, which ruled, among

others, that there was no Affidavit of Merit accompanying the Complaint for Replevin and the bond

posted by Citibank was insufficient. Hcnce, this petition for certiorari.

There is substantial compliance with the rule requiring an affidavit of merit to support the complaint for

replevin if the complaint itself contains a statement of every fact required to be stated in the affidavit of

merit and the complaint is verified like an affidavit. Here, the Bank's complaint did not allege all the facts

that should be set forth in an affidavit of merit. At any rate, the defense of lack of affidavit of merit was

interposed only in the Reply to the Comment of the Bank on the Petition for Certiorari which Anama filed

with the Court of Appeals. Procedurally therefore, such defense was no longer available for failure to

plead the same in the Answer as required by the omnibus motion rule.

15

The Bank also questioned the finding of the Court of Appeals that the bond posted was insufficient.

What was posted was merely an amount which was double the probable value as declared by the Bank

and, therefore, inadequate should there be a finding that the actual value is actually greater. Since the

valuation has been disputed, actual value of the properties should have been determined first by the

lower court.

SYLLABUS

1. REMEDIAL LAW; CIVIL ACTION; JUDGMENT ON THE MERITS; NOT MADE IN CASE AT BAR. — A

judgment is on the merits when it determines the rights and liabilities of the parties on the basis of the

disclosed facts, irrespective of formal, technical or dilatory objections, and it is not necessary that there

should have been a trial. The assailed decision of the Court of Appeals did not make any adjudication on

the rights and liabilities between Citibank and Douglas Anama. There was no finding yet of the fact of

default. The decision only ruled on the propriety of the issuance of the writ of seizure by the trial court.

In resolving the issue posed by the petition, the Court of Appeals limited its disposition to a

determination of whether or not the assailed order of seizure was issued in accordance with law, that is,

whether the provisions of the Rules of Court on delivery of personal property or replevin as a provisional

remedy were followed. The Court of Appeals did not pass upon the issue of who, as between Douglas

Anama and Citibank, is entitled to the possession of subject machineries, as asserted by the latter. When

it ordered the restoration of the said machineries to Douglas Anama (now the private respondent), it

merely brought the parties to a status quo, by restoring the defendant to the possession of his

properties, since there was a finding that the issuance of the writ was not in accordance with the specific

rules of the Rules of Court.

2. ID.; PROVISIONAL REMEDIES; REPLEVIN; AFFIDAVIT OF MERIT; SUBSTANTIAL COMPLIANCE THEREOF.

— There is substantial compliance with the rule requiring that an affidavit of merit to support the

complaint for replevin if the complaint itself contains a statement of every fact required to be stated in

the affidavit of merit and the complaint is verified like an affidavit. And similarly, in the case of an

attachment which likewise requires an affidavit of merit, the Court held that the absence of an affidavit

of merit is not fatal where the petition itself, which is under oath, recites the circumstances or facts

constitutive of the grounds for the petition.

3. ID.; ID.; ID.; ID.; FACTS THAT MUST BE SET FORTH. — The facts that must be set forth in the affidavit of

merit are (1) that plaintiff owns the property particularly describing the same, or that he is entitled to its

possession; (2) wrongful detention by defendant of said property; (3) that the property is not taken by

virtue of a tax assessment or fine pursuant to law or seized under execution or attachment or, if it is so

seized, that it is exempt from such seizure; and (4) the actual value of the property.

4. ID.; ID.; ID.; ID.; ACTUAL VALUE OF THE PROPERTY SUBJECT OF REPLEVIN. — Pertinent rules require

that the affidavit of merit should state the actual value of the property subject of a replevin suit and not

just its probable value. Actual value (or actual market value) means "the price which an article would

command in the ordinary course of business, that is to say, when offered for sale by one willing to sell,

but not under compulsion to sell, and purchased by another who is willing to buy, but under no

obligation to purchase it." It bears stressing that the actual value of the properties subject of a replevin

is, required to be stated in the affidavit because such actual value will be the basis of the replevin bond

required to be posted by the plaintiff. Therefore, when the petitioner failed to declare the actual value of

the machineries and equipment subject of the replevin suit, there was non-compliance with Section 2,

Rule 60 of the Revised Rules of Court.

5. ID.; CIVIL ACTION; PLEADINGS; DEFENSES AND OBJECTIONS NOT PLEADED DEEMED WAIVED. — It

should be noted, however, that the private respondent interposed the defense of lack of affidavit of

merit only in his Reply to the Comment of Citibank on the Petition for Certiorari which respondent filed

with the Court of Appeals. Thus, although respondent's defense of lack of affidavit of merit is

meritorious, procedurally, such a defense is no longer available for failure to plead the same in the

Answer as required by the omnibus motion rule.

6. ID.; PROVISIONAL REMEDIES; REPLEVIN; BOND; SHOULD BE DOUBLE THE ACTUAL VALUE OF THE

PROPERTIES INVOLVED. — As there was a disagreement on the valuation of the properties in the first

place, proper determination of the value of the bond to be posted by the plaintiff cannot be sufficiently

arrived at. The Rules of Court requires the plaintiff to "give a bond, executed to the defendant in double

the value of the property as stated in the affidavit . . . ." Hence, the bond should be double the actual

value of the properties involved. In this case, what was posted was merely an amount which was double

the probable value as declared by the plaintiff and, therefore, inadequate should there be a finding that

the actual value is actually greater. Since the valuation made by the petitioner has been disputed by the

respondent, the lower court should have determined first the actual value of the properties. It was thus

an error for the said court to approve the bond, which was based merely on the probable value of the

properties.

7. ID.; ID.; ID.; ID.; PURPOSE THEREOF. — It should be noted that a replevin bond is intended to

indemnify the defendant against any loss that he may suffer by reason of its being compelled to

surrender the possession of the disputed property pending trial of the action. The same may also be

16

answerable for damages if any when judgment is rendered in favor of the defendant or the party against

whom a writ of replevin was issued and such judgment includes the return of the property to him. Thus,

the requirement that the bond be double the actual value of the properties litigated upon. Such is the

case because the bond will answer for the actual loss to the plaintiff, which corresponds to the value of

the properties sought to be recovered and for damages, if any.

8. ID.; ID.; ID.; POSTING OF COUNTERBOND OR REDELIVERY BOND; WHEN PROPER; CASE AT BAR. — The

Court held in a prior case that the remedies provided under Section 5, Rule 60, are alternative remedies.

". . . If a defendant in a replevin action wishes to have the property taken by the sheriff restored to him,

he should, within five days from such taking, (1) post a counter-bond in double the value of said

property, and (2) serve plaintiff with a copy thereof, both requirements — as well as compliance

therewith within the fve-day period mentioned — being mandatory." This course of action is available to

the defendant for as long as he does not object to the sufficiency of the plaintiff's bond. Conformably, a

defendant in a replevin suit may demand the return of possession of the property replevined by filing a

redelivery bond executed to the plaintiff in double the value of the property as stated in the plaintiff's

affidavit within the period specified in Sections 5 and 6. Alternatively, "the defendant may object to the

sufficiency of the plaintiff's bond, or of the surety or sureties thereon"; but if he does so, "he cannot

require the return of the property" by posting a counter-bond pursuant to Sections 5 and 6. In the case

under consideration, the private respondent did not opt to cause redelivery of the properties to him by

filing a counter-bond precisely because he objected to the sufficiency of the bond posted by plaintiff.

Therefore, he need not file a counter-bond or redelivery bond. When such objection was not given due

course in the court below — when, instead of requiring the plaintiff to post a new bond, the court

approved the bond claimed by respondent to be insufficient, and ordered the seizure of the properties

— recourse to a petition for certiorari before the Court of Appeals assailing such order is proper under

the circumstances.

9. ID.; RECEIVERSHIP; OATH AND BOND OF RECEIVER; CASE AT BAR. — The Court of Appeals found that

the requirements of Section 5, Rule 59 on receivership were not complied with by the petitioner,

particularly the filing or posting of a bond and the taking of an oath. It should be noted that under the

old Rules of Court which was in effect at the time this case was still at trial stage, a bond for the

appointment of a receiver was not generally required of the applicant, except when the application was

made ex parte. Therefore, petitioner was not absolutely required to file a bond. Besides, as stipulated in

the chattel mortgage contract between the parties, petitioner, as the mortgagee, is entitled to the

appointment of a receiver without a bond. However, the Court of Appeals was right in finding a defect in

such assumption of receivership in that the requirement of taking an oath has not been complied with.

Consequently, the trial court erred in allowing the petitioner to assume receivership over the machine

shop of private respondent without requiring the appointed receiver to take an oath.

10. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; GRAVE ABUSE OF DISCRETION, COMMITTED BY THE TRIAL

COURT. — For erroneously issuing the alias writ of seizure without inquiring into the sufficiency of the

replevin bond and for allowing petitioner to assume receivership without the requisite oath, the Court of

Appeals aptly held that the trial court acted with grave abuse of discretion in dealing with the situation.

Under the Revised Rules of Court, the property seized under a writ of replevin is not to be delivered

immediately to the plaintiff. This is because a possessor has every right to be respected in its possession

and may not be deprived of it without due process.

D E C I S I O N

PURISIMA, J p:

At bar is a special civil action for certiorari with prayer for a temporary restraining order faulting the

Court of Appeals 1with grave abuse of discretion for nullifying the lower court's order of seizure of

mortgaged properties subject of a case for sum of money and replevin. llcd

The facts leading to the institution of the case are as follows:

In consideration for a loan obtained from Citibank, N.A.(formerly First National City Bank), the

defendant (private respondent herein) Douglas Anama executed a promissory note, dated November 10,

1972, 2 to pay the plaintiff bank the sum of P418,000.00 in sixty (60) equal successive monthly

installments of P8,722.25, starting on the 10th day of December 1972 and on the 10th of every month

thereafter. The said Promissory Note stipulated further that:

"(a) the loan is subject to interest at the rate of twelve percent (12%) per

annum;

(b) the promissory note and the entire amount therein stated shall become

immediately due and payable without notice or demand upon —

(aa) default in the payment of any installment of principal or interest

at the time when the same is due;

17

(bb) the occurrence of any change in the condition and affairs of the

defendant, which in the opinion of the plaintiff shall

increase its credit risk;

(c) the defendant agrees to pay all costs, expenses, handling and insurance

charges incurred in the granting of the loan;

(d) in case the services of a lawyer is made necessary for collection, defendant

shall be liable for attorney's fees of at least ten percent (10%) of the

total amount due." 3

To secure payment of the loan, private respondent Anama also constituted a Chattel Mortgage of even

date in favor of petitioner, on various machineries and equipment located at No. 1302 Epifanio delos

Santos Avenue, Quezon City, under the following terms and conditions:

"(a) The machineries and equipment, subject of the mortgage, stand as security

for defendant's account.

(b) All replacements, substitutions, additions, increases and accretions to the

properties mortgaged shall also be subject to the mortgage.

(c) The defendant appoints the plaintiff as his attorney-in-fact with authority to

enter the premises of the defendant and take actual possession of

the mortgaged chattels without any court order, to sell said property

to any party.

(d) All expenses in carrying into effect the stipulations therein shall be for the

account of the defendant and shall form part of the amount of the

obligation secured by the mortgage.

(e) In case the plaintiff institutes proceedings for the foreclosure of the

mortgage, the plaintiff shall be entitled to the appointment of a

receiver without a bond.

(f) In case of default, the defendant shall be liable for attorney's fees and cost of

collection in the sum equal to twenty-five percent (25%) of the total

amount of the indebtedness outstanding and unpaid." 4

On November 25, 1974, for failure and refusal of the private respondent to pay the monthly installments

due under the said promissory note since January 1974, despite repeated demands, petitioner filed a

verified complaint against private respondent Anama for the collection of his unpaid balance of

P405,820.52 on the said promissory note, for the delivery and possession of the chattels covered by the

Chattel Mortgage preparatory to the foreclosure thereof as provided underSection 14 of the Chattel

Mortgage Law, docketed as Civil Case No. 95991 before the then Court of First Instance of Manila.

On February 20, 1975, the defendant Anama submitted his Answer with Counterclaim, denying the

material averments of the complaint, and averring, inter alia (1) that the remedy of replevin was

improper and the writ of seizure should be vacated; (2) that he signed the promissory note

forP418,000.00 without receiving from plaintiff Citibank any amount, and was even required to pay the

first installment on the supposed loan in December 1974; (3) that the understanding between him and

the Citibank was for the latter to release to him the entire loan applied for prior to and during the

execution of his promissory note, but Citibank did not do so and, instead, delayed the release of any

amount on the loan even after the execution of the promissory note thereby disrupting his timetable of

plans and causing him damages; (4) that the amount released by Citibank to him up to the present was

not the amount stated in the promissory note, and his alleged default in paying the installments on the

loan was due to the delay in releasing the full amount of the loan as agreed upon; (5) that the

machineries and equipment described in the chattel mortgage executed by him are really worth more

than P1,000,000.00 but he merely acceded to the valuation thereof by Citibank in said document

because of the latter's representation that the same was necessary to speed up the granting of the loan

applied for by him; (6) that the properties covered by said chattel mortgage are real properties installed

in a more or less permanent nature at his(defendant's) premises in Quezon City, as admitted by Citibank

in said mortgage document; (7) that the mortgage contract itself stipulated that the manner and

procedure for effecting the sale or redemption of the mortgaged properties, if made extrajudicially, shall

be governed by Act No. 1508 and other pertinent laws which all pertain to real properties; and (8) that

because of the filing of this complaint without valid grounds therefor, he suffered damages and incurred

attorney's fees; the defendant, now private respondent, averred.

On December 2, 1974, the trial court, upon proof of default of the private respondent in the payment of

the said loan, issued an Order of Replevin over the machineries and equipment covered by the Chattel

Mortgage.

However, despite the issuance of the said order of seizure of subject chattels, actual delivery of

possession thereof to petitioner did not take place because negotiations for an amicable settlement

between the parties were encouraged by the trial court.

18

On March 24, 1975, a pre-trial conference was held and the lower court issued an order for joint

management by the petitioner and the private respondent of the latter's business for ten (10) days, after

which the former would be appointed receiver for the said business.

On April 1, 1975, the petitioner took over private respondent's business as receiver. When further

proposals to settle the case amicably failed, the lower court proceeded to try the case on the merits.

On January 29, 1977, petitioner presented a Motion for the Issuance of an Alias Writ of Seizure, ordering

the sheriff to seize the properties involved and dispose of them in accordance with the Revised Rules of

Court. The lower court then gave private respondent five (5) days to oppose the said motion and on

February 22, 1977, he sent in his opposition thereto on the grounds: (1) that Citibank's P400,000 replevin

bond to answer for damages was grossly inadequate because the market value of the properties

involved is P1,710,000 and their replacement cost is P2,342,300.00 per the appraisal report of the

Appraisal and Research Corp.; (2) that he was never in default to justify the seizure; (3) that the Civil Case

No. 18071 of the Court of First Instance, entitled Hernandes vs. Anama, et al., which, according to

Citibank, supposedly increased its credit risk in the alleged obligation, had already been dismissed as

against him and the case terminated with the dismissal of the complaint against the remaining

defendant, First National City Bank, by the Court in its orders of January 12, 1977 and February 7, 1977;

(4) that his(defendant's) supposed obligations with Citibank were fully secured and his mortgaged

properties are more than sufficient to secure payment thereof; and (5) that the writ of seizure if issued

would stop his business operations and contracts and expose him to lawsuits from customers, and also

dislocate his employees and their families entirely dependent thereon for their livelihood.

On February 28, 1977, acting on the said Motion and private respondent's opposition, the trial court

issued an Order granting the Motion for Alias Writ of Seizure, ruling thus:

"WHEREFORE, the motion for alias writ of seizure is hereby granted. At any rate,

this Order gives another opportunity for defendant and the intervenor who

claims to be a part owner to file a counterbond under Sec. 60 of Rules of

Court." 5

Private respondent moved for reconsideration of the aforesaid order but the same was denied by the

Resolution of March 18, 1977, to wit:

"In view of the foregoing, the motion for reconsideration is hereby denied.

At any rate, as already stated, the defendant has still a remedy available which

is to file a bond executed to the plaintiff in double the value of the properties as

stated in the plaintiff's affidavit. The Court at this instance therefore has no

authority to stop or suspend the writ of seizure already ordered." 6

Accordingly, by virtue of the Alias Writ of Seizure, petitioner took possession of the mortgaged chattels

of private respondent. As a consequence, the sheriff seized subject properties, dismantled and removed

them from the premises where they were installed, delivered them to petitioner's possession on March

17, 18 and 19, 1977 and advertised them for sale at public auction scheduled on March 22, 1977.

On March 21, 1977, private respondent filed with the Court of Appeals a Petition for Certiorari and

Prohibition 7 with Injunction to set aside and annul the questioned resolutions of the trial court on the

ground that they were issued "in excess of jurisdiction and with grave abuse of discretion" because of

the "lack of evidence and clear cut right to possession of First National City Bank (herein petitioner)" to

the machineries subject of the Chattel Mortgage. cdasia

On July 30, 1982, finding that the trial court acted with grave abuse of discretion amounting to excess or

lack of jurisdiction in issuing the assailed resolutions, the Court of Appeals granted the petition, holding

that the provisions of the Rules of Court on Replevin and Receivership have not been complied with, in

that (1) there was no Affidavit of Merit accompanying the Complaint for Replevin; (2) the bond posted by

Citibank was insufficient; and (3) there was non-compliance with the requirement of a receiver's bond

and oath of office. The decretal portion of the assailed decision of the Court of Appeals, reads:

"WHEREFORE, the petition is granted. The questioned resolutions issued by the

respondent judge in Civil Case No. 95991, dated February 28, 1977 and March

18, 1977, together with the writs and processes emanating or deriving

therefrom, are hereby declared null and void ab initio.

The respondent ex-officio sheriff of Quezon City and the respondent First

National City Bank are hereby ordered to return all the machineries and

equipment with their accessories seized, dismantled and hauled, to their

original and respective places and positions in the shop flooring of the

petitioner's premises where these articles were, before they were dismantled,

seized and hauled at their own expense. The said respondents are further

ordered to cause the repair of the concrete foundations destroyed by them

including the repair of the electrical wiring and facilities affected during the

seizure, dismantling and hauling.

19

The writ of preliminary injunction heretofore in effect is hereby made

permanent. Costs against the private respondents.

SO ORDERED." 8

Therefrom, Citibank came to this Court via its present petition for certiorari, ascribing grave abuse of

discretion to the Court of Appeals and assigning as errors, that:

I

THE RESPONDENT COURT ERRED IN PRACTICALLY AND IN EFFECT RENDERING

JUDGMENT ON THE MERITS AGAINST THE HEREIN PETITIONER BY ORDERING

THE RETURN OF THE MACHINERIES AND EQUIPMENT AND ITS ACCESSORIES TO

THEIR ORIGINAL AND RESPECTIVE PLACES AND POSITIONS.

II

THE RESPONDENT COURT ERRED IN FINDING THAT THE COMPLAINT OF THE

PETITIONER DID NOT COMPLY WITH THE PROVISIONS OF SEC. 2, RULE 60 OF

THE RULES OF COURT. LLpr

III

THAT THE RESPONDENT COURT ERRED IN FINDING THAT THE BOND POSTED BY

THE PETITIONER IS QUESTIONABLE AND/OR INSUFFICIENT.

IV

THE RESPONDENT COURT ERRED IN FINDING THAT THE PETITIONER DID NOT

COMPLY WITH THE PROVISIONS OF SEC. 5, RULE 59 BY FAILING TO POST A

RECEIVER'S BOND.

V

THE RESPONDENT ERRED IN FINDING THAT THE HON. JORGE R. COQUIA ACTED

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OR LACK OF

JURISDICTION IN DEALING WITH THE SITUATION.

I

Anent the first assigned error, petitioner contends that the Court of Appeals, by nullifying the writ of

seizure issued below, in effect, rendered judgment on the merits and adjudged private respondent

Anama as the person lawfully entitled to the possession of the properties subject of the replevin suit. It is

theorized that the same cannot be done, as the case before the court below was yet at trial stage and

the lower court still had to determine whether or not private respondent was in fact in default in the

payment of his obligation to petitioner Citibank, which default would warrant the seizure of subject

machineries and equipment.

The contention is untenable. A judgment is on the merits when it determines the rights and liabilities of

the parties on the basis of the disclosed facts, irrespective of formal, technical or dilatory objections, and

it is not necessary that there should have been a trial. 9 The assailed decision of the Court of Appeals did

not make any adjudication on the rights and liabilities between Citibank and Douglas Anama. There was

no finding yet of the fact of default. The decision only ruled on the propriety of the issuance of the writ

of seizure by the trial court. As worded by the respondent court itself, "the main issues to be resolved

are whether there was lack or excess of jurisdiction, or grave abuse of discretion, in the issuance of the

orders in question, and there is no appeal nor any plain, speedy, and adequate remedy in the ordinary

course of law."10

In resolving the issue posed by the petition, the Court of Appeals limited its disposition to a

determination of whether or not the assailed order of seizure was issued in accordance with law, that is,

whether the provisions of the Rules of Court on delivery of personal property or replevin as a provisional

remedy were followed. The Court of Appeals relied on Rule 60 of the Rules of Court, which prescribes

the procedure for the recovery of possession of personal property, which Rule, provides:

SECTION 2. Affidavit and Bond. — Upon applying or such order the plaintiff

must show by his own affidavit or that of some other person who personally

knows the facts:

(a) That the plaintiff is the owner of the property claimed particularly describing

it, or is entitled to the possession thereof;

(b) That the property is wrongfully detained by the defendant, alleging the

cause of detention thereof according to his best of knowledge,

information and belief;

(c) That it has not been taken for a tax assessment or fine pursuant to law, or

seized under an execution, or an attachment against the property of

the plaintiff, or is so seized, that is exempt from such seizure; and

(d) The actual value of the property.

20

The plaintiff must also give a bond, executed to the defendant in double of the

value of the property as stated in the affidavit aforementioned, for the return of

the property to the defendant of such sum as he may recover from the plaintiff

in the action.

The Court of Appeals did not pass upon the issue of who, as between Douglas Anama and Citibank, is

entitled to the possession of subject machineries, as asserted by the latter. When it ordered the

restoration of the said machineries to Douglas Anama (now the private respondent), it merely brought

the parties to a status quo, by restoring the defendant to the possession of his properties, since there

was a finding that the issuance of the writ was not in accordance with the specific rules of the Rules of

Court.

II

In its second assignment of errors, petitioner theorizes that the Court of Appeals erred in finding that it

did not comply with Section 2, Rule 60 of the Rules of Court requiring the replevin plaintiff to attach an

affidavit of merit to the complaint.

Petitioner maintains that although there was no affidavit of merit accompanying its complaint, there was

nonetheless substantial compliance with the said rule as all that is required to be alleged in the affidavit

of merit was set forth in its verified complaint. Petitioner argues further that assuming arguendothat

there was non-compliance with the affidavit of merit requirement, such defense can no longer be availed

of by private respondent Anama as it was not alleged in his Answer and was only belatedly interposed in

his Reply to the Petitioner's Comment on the Petition for Certiorari before the Court of Appeals.

Petitioner is correct insofar as it contends that substantial compliance with the affidavit requirement

may be permissible. There is substantial compliance with the rule requiring that an affidavit of merit to

support the complaint for replevin if the complaint itself contains a statement of every fact required to

be stated in the affidavit of merit and the complaint is verified like an affidavit. On the matter of

replevin, Justice Vicente Francisco's Comment on the Rules of Court, states:

"Although the better practice is to keep the affidavit and pleading separate, if

plaintiff's pleading contains a statement of every fact which the statute requires

to be shown in the affidavit, and the pleading is verified by affidavit covering

every statement therein, this will be sufficient without a separate affidavit; but

in no event can the pleading supply the absence of the affidavit unless all that

the affidavit is required to contain is embodied in the pleading, and the pleading

is verified in the form required in the case of a separate affidavit." (77 CJS 65

cited in Francisco, Rules of Court of the Philippines, Vol. IV-A, p. 383)

And similarly, in the case of an attachment which likewise requires an affidavit of merit, the Court held

that the absence of an affidavit of merit is not fatal where the petition itself, which is under oath, recites

the circumstances or facts constitutive of the grounds for the petition. 11

The facts that must be set forth in the affidavit of merit are (1) that plaintiff owns the property

particularly describing the same, or that he is entitled to its possession; (2) wrongful detention by

defendant of said property; (3) that the property is not taken by virtue of a tax assessment or fine

pursuant to law or seized under execution or attachment or, if it is so seized, that it is exempt from such

seizure; and the (4) the actual value of the property. 12

But, as correctly taken note of by the Court of Appeals, petitioner's complaint does not allege all the

facts that should be set forth in an affidavit of merit. Although the complaint alleges that petitioner is

entitled to the possession of subject properties by virtue of the chattel mortgage executed by the private

respondent, upon the latter's default on its obligation, and the defendant's alleged "wrongful detention"

of the same, the said complaint does not state that subject properties were not taken by virtue of a tax

assessment or fine imposed pursuant to law or seized under execution or attachment or, if they were so

seized, that they are exempt from such seizure.

Then too, petitioner stated the value of subject properties at a "probable value of P200,000.00, more or

less". Pertinent rules require that the affidavit of merit should state the actual value of the property

subject of a replevin suit and not just itsprobable value. Actual value (or actual market value) means "the

price which an article would command in the ordinary course of business, that is to say, when offered for

sale by one willing to sell, but not under compulsion to sell, and purchased by another who is willing to

buy, but under no obligation to purchase it". 13 Petitioner alleged that the machineries and equipment

involved are valued at P200,000.00 while respondent denies the same, claiming that per the appraisal

report, the market value of the said properties is P1,710,000.00 and their replacement cost is

P2,342,300.00. Petitioner's assertion is belied by the fact that upon taking possession of the aforesaid

properties, it insured the same for P610,593.74 and P450,000.00, separately. It bears stressing that the

actual value of the properties subject of a replevin is required to be stated in the affidavit because such

actual value will be the basis of the replevin bond required to be posted by the plaintiff. Therefore, when

the petitioner failed to declare the actual value of the machineries and equipment subject of the replevin

suit, there was non-compliance with Section 2, Rule 60 of the Revised Rules of Court.

21

It should be noted, however, that the private respondent interposed the defense of lack of affidavit of

merit only in his Reply to the Comment of Citibank on the Petition for Certiorariwhich respondent filed

with the Court of Appeals. Section 2, Rule 9 of the Revised Rules of Court, provides:

SECTION 2. Defenses and objections not pleaded deemed waived. — Defenses

and objections not pleaded either in a motion to dismiss or in the answer are

deemed waived; except the failure to state a cause of action which may be

alleged in a later pleading, . . . .

This Rule has been revised and amended, as follows:

SECTION 1. Defenses and objections not pleaded. — Defenses and objections

not pleaded in a motion to dismiss or in the answer are deemed waived.

However, when it appears from the pleadings or the evidence on record that

the court has no jurisdiction over the subject matter, that there is another

action pending between the same parties for the same cause, or that the action

is barred by a prior judgment or by statute of limitations, the court shall dismiss

the claim.

Thus, although respondent's defense of lack of affidavit of merit is meritorious, procedurally, such a

defense is no longer available for failure to plead the same in the Answer as required by the omnibus

motion rule.

III

Petitioner also faults the Court of Appeals for finding that the bond posted by the petitioner is

questionable and/or insufficient. It is averred that, in compliance with Section 2, Rule 60 requiring the

replevin plaintiff to post a bond in double the value of the properties involved, it filed a bond in the

amount of P400,000.00 which is twice the amount of P200,000.00 declared in its complaint.

The Court reiterates its findings on the second assignment of errors, particularly on the issue of the

actual value of subject properties as against their probable value. Private respondent, at the onset, has

put into issue the value of the said properties. In the Special Defenses contained in his Answer, private

respondent averred:

"That while defendant admits that he executed a Chattel Mortgage in favor of

plaintiff, he vigorously denies that the machineries covered therein are only

worth P200,000.00. The fact is that plaintiff knew fully well that said chattels

are worth no less than P1,000,000.00, said defendant having acceded to said

valuation upon plaintiff's representation that it would be necessary to speed up

the granting of the loan."

As there was a disagreement on the valuation of the properties in the first place, proper determination

of the value of the bond to be posted by the plaintiff cannot be sufficiently arrived at. Though the rules

specifically require that the needed bond be double the value of the properties, since plaintiff merely

denominated a probable value of P200,000.00 and failed to aver the properties' actual value, which is

claimed to be much greater than that declared by plaintiff, the amount of P400,000.00 would indeed be

insufficient as found by the Court of Appeals. The Rules of Court requires the plaintiff to "give a bond,

executed to the defendant in double the value of the property as stated in the affidavit . . . ." Hence, the

bond should be double the actual value of the properties involved. In this case, what was posted was

merely an amount which was double the probable value as declared by the plaintiff and, therefore,

inadequate should there be a finding that the actual value is actually far greater than P200,000.00. Since

the valuation made by the petitioner has been disputed by the respondent, the lower court should have

determined first the actual value of the properties. It was thus an error for the said court to approve the

bond, which was based merely on the probable value of the properties.

It should be noted that a replevin bond is intended to indemnify the defendant against any loss that he

may suffer by reason of its being compelled to surrender the possession of the disputed property

pending trial of the action. 14 The same may also be answerable for damages if any when judgment is

rendered in favor of the defendant or the party against whom a writ of replevin was issued and such

judgment includes the return of the property to him. 15 Thus, the requirement that the bond be double

the actual value of the properties litigated upon. Such is the case because the bond will answer for the

actual loss to the plaintiff, which corresponds to the value of the properties sought to be recovered and

for damages, if any.

Petitioner also maintains that, assuming for the sake of argument that its replevin bond was grossly

inadequate or insufficient, the recourse of the respondent should be to post a counterbond or a

redelivery bond as provided under Section 5 of Rule 60.

Sections 5 and 6, Rule 60 of the Rules of Court, read:

"SECTION 5. Return of property. — If the defendant objects to the sufficiency of

the plaintiff's bond, or of the surety or sureties thereon, he cannot require the

return of the property as in this section provided; but if he does not so object,

he may, at any time before the delivery of the property to the plaintiff, if such

delivery be adjudged, and for the payment of such sum to him as may be

22

recovered against the defendant, and by serving a copy of such bond on the

plaintiff or his attorney.

SECTION 6. Disposition of property by officer. — If within five (5) days after the

taking of the property by the officer, the defendant does not object to the

sufficiency of the bond, or of the surety or sureties thereon, or require the

return of the property as provided in the last preceding section; or if the

defendant so objects, and the plaintiff's first or new bond is approved; or if the

defendant so requires, and his bond is objected to and found insufficient and he

does not forthwith file an approved bond, the property shall be delivered to the

plaintiff, the officer must return it to the defendant."

The Court held in a prior case 16 that the remedies provided under Section 5, Rule 60, are alternative

remedies. ". . . If a defendant in a replevin action wishes to have the property taken by the sheriff

restored to him, he should, within five days from such taking, (1) post a counter-bond in double the

value of said property, and (2) serve plaintiff with a copy thereof, both requirements — as well as

compliance therewith within the five-day period mentioned — being mandatory." 17This course of

action is available to the defendant for as long as he does not object to the sufficiency of the plaintiff's

bond.

Conformably, a defendant in a replevin suit may demand the return of possession of the property

replevined by filing a redelivery bond executed to the plaintiff in double the value of the property as

stated in the plaintiff's affidavit within the period specified in Sections 5 and 6. cdasia

Alternatively, "the defendant may object to the sufficiency of the plaintiff's bond, or of the surety or

sureties thereon;" but if he does so, "he cannot require the return of the property" by posting a counter-

bond pursuant to Sections 5 and 6. 18

In the case under consideration, the private respondent did not opt to cause redelivery of the

properties to him by filing a counter-bond precisely because he objected to the sufficiency of the

bond posted by plaintiff. Therefore, he need not file a counter-bond or redelivery bond. When such

objection was not given due course in the court below — when, instead of requiring the plaintiff to

post a new bond, the court approved the bond in the amount ofP400,000.00, claimed by

respondent to be insufficient, and ordered the seizure of the properties — recourse to a petition

for certiorari before the Court of Appeals assailing such order is proper under the circumstances.

IV

As its fourth assignment of errors, petitioner contends that the Court of Appeals made an error of

judgment in finding that the petitioner did not comply with the provisions of Section 5, Rule 59 by failing

to post a receiver's bond. Petitioner contends that although it is in agreement with the Court of Appeals

that a receiver's bond is separate and distinct from a replevin bond, under the circumstances it was not

required to file a receiver's bond because it did not assume receivership over the properties. It is further

argued that assuming that it did assume receivership, the Chattel Mortgage expressly provides, that:

"In case the MORTGAGEE institutes proceedings, judicially or otherwise, for the

foreclosure of this Chattel Mortgage, or to enforce any of its rights hereunder,

the MORTGAGEE shall be entitled as a matter of right to the appointment of a

receiver, without bond, of the mortgaged properties and of such other

properties, real or personal, claims and rights of the MORTGAGOR as shall be

necessary or proper to enable the said receiver to properly control and dispose

of the mortgaged properties."19

The order of the trial court dated March 24, 1975 provided, among others, that the properties shall be

under joint management for a period of ten days, after which period "the bank, by virtue of the

stipulations under the chattel mortgage, becomes the Receiver to perform all the obligations as such

Receiver" and "in the event that the bank decides not to take over the receivership, the joint

management continues." 20

From the evidence on record, it is palpably clear that petitioner Citibank did, in fact, assume

receivership. A letter 21dated April 1, 1975 sent by petitioner to the private respondent, reads:

April 1, 1975

Anama Engineering Service Group

114 R. Lagmay Street

San Juan, Rizal

Attention: Mr. Douglas Anama

Gentlemen:

Pursuant to the Court order, we have decided to take over your machine shop

as Receiver.

23

We are hereby appointing Mr. Artemio T. Gonzales as our representative.

Very truly yours,

FIRST NATIONAL CITY BANK

By:

P.R. REAL, JR.

Assistant Manager

Petitioner cannot therefore deny that nine days after the trial court issued the order of receivership, it

informed the private respondent that it would, as it did, assume receivership.

The Court of Appeals found that the requirements of Section 5, Rule 59 on receivership were not

complied with by the petitioner, particularly the filing or posting of a bond and the taking of an oath.

It should be noted that under the old Rules of Court which was in effect at the time this case was still at

trial stage, a bond for the appointment of a receiver was not generally required of the applicant, except

when the application was made ex parte.22 Therefore, petitioner was not absolutely required to file a

bond. Besides, as stipulated in the chattel mortgage contract between the parties, petitioner, as the

mortgagee, is entitled to the appointment of a receiver without a bond.

However, the Court of Appeals was right in finding a defect in such assumption of receivership in that the

requirement of taking an oath has not been complied with. Section 5, Rule 59, states:

"SECTION 5. Oath and bond of receiver. — Before entering upon his duties, the

receiver must be sworn to perform them faithfully, and must file a bond,

executed to such person and in such sum as the court or judge may direct, to

the effect that he will faithfully discharge the duties of receiver in the action

and obey the orders of the court therein."

Consequently, the trial court erred in allowing the petitioner to assume receivership over the machine

shop of private respondent without requiring the appointed receiver to take an oath.

V

In light of the foregoing, the answer to the fifth assignment of errors is in the negative. For erroneously

issuing the alias writ of seizure without inquiring into the sufficiency of the replevin bond and for

allowing petitioner to assume receivership without the requisite oath, the Court of Appeals aptly held

that the trial court acted with grave abuse of discretion in dealing with the situation.

Under the Revised Rules of Court, the property seized under a writ of replevin is not to be delivered

immediately to the plaintiff. 23 This is because a possessor has every right to be respected in its

possession and may not be deprived of it without due process. 24

As enunciated by this Court in the case of Filinvest Credit Corporation vs. Court of Appeals, 25

"The reason why the law does not allow the creditor to possess himself of the

mortgaged property with violence and against the will of the debtor is to be

found in the fact that the creditor's right of possession is conditioned upon the

fact of default, and the existence of this fact may naturally be the subject of

controversy. The debtor, for instance, may claim in good faith, and rightly or

wrongly, that the debt is paid, or that for some other reason the alleged default

is nonexistent. His possession in this situation is as fully entitled to protection as

that of any other person, and in the language of Article 446 of the Civil Code, he

must be respected therein. To allow the creditor to seize the property against

the will of the debtor would make the former to a certain extent both judge and

executioner in his own cause — a thing which is inadmissible in the absence of

unequivocal agreement in the contract itself or express provision to the effect

in the statute."

WHEREFORE, for lack of merit, the petition is hereby DISMISSED. No pronouncement as to costs.

24

SECOND DIVISION

[G.R. No. 93540. December 13, 1999.]

FULGENCIO S. FACTORAN, JR., Secretary, Department of Environment and

Natural Resources, VICENTE A. ROBLES and NESTOR GAPUZAN, petitioners, vs.

COURT OF APPEALS (Third Division), Hon. BENIGNO T. DAYAW, as, Judge,

Regional Trial Court of Quezon City, Branch 80, JESUS SY and LILY FRANCISCO

UY,respondents.

The Solicitor General for petitioner.

King and Adorio Law Offices for private respondents.

SYNOPSIS

Private respondent's six-wheeler truck was apprehended by police officers of the Marikina Police Station

carrying 4,000 board feet of narra lumber. The truck driver, private respondent Jesus Sy, were brought to

the Personnel Investigation Committee/Special Actions and Investigation Division (PIC/SAID) of the

Department of Environment and Natural Resources (DENR) in Quezon City. The PIC/SAID found after an

investigation that private respondents violated Bureau of Forestry and Development Circular No. 10 and

P.D. No. 705, otherwise known as the Revised Forestry Code. Petitioner Fulgencio S. Factoran, then

Secretary of the DENR, issued an order for the confiscation of the narra lumber and the truck. Private

respondents neither asked for reconsideration of nor appealed, the said order to the Office of the

President. Consequently, the confiscated narra lumber and six-wheeler truck were forfeited in favor of

the government. They were subsequently advertised to be sold at public auction on March 20, 1989. On

March 17, 1989 private respondents filed a complaint with the Regional Trial Court of Quezon City with

prayer for the issuance of writs of replevin and preliminary injunction and/or temporary restraining

order for the recovery of the confiscated lumber and truck and to enjoin the planned auctioned sale of

the subject narra lumber, respectively. The trial court issued an order directing petitioners to desist from

proceeding with the planned auction sale. On March 20, 1989, the scheduled date of the auction sale,

private respondents filed an Ex parte Motion for Release and Return of Goods and Documents

(Replevin). The trial court granted the writ of replevin. Thereafter, the trial court issued a writ of seizure.

However, petitioners refused to comply therewith. On the same day, petitioners filed a Manifestation

stating their intention to file their counterbond under Rule 60 of the Rules of Court to stay the execution

of the writ of seizure and to post a cash bond in the amount of P180,000.00, but it was refused. On

March 27, 1989, private respondents filed a motion to declare petitioners in contempt for disobeying the

writ of seizure. Petitioners filed with the Court of Appeals a Petition for Certiorari, Prohibition

andMandamus to annul the Orders of the trial court dated March 20, 1989 and March 27, 1989. The

appellate court lifted the writ of preliminary injunction and dismissed the petition. It declared that the

complaint for replevin filed by private respondents complied with the requirements under the Revised

Rules of Court. As for the contempt charge against petitioners, the appellate court believed the same

were sufficiently based on a written charge by private respondents and the report submitted by the

sheriff. Petitioners filed a motion for reconsideration, but it was denied. Hence, the present petition.

Petitioners contended that the confiscated lumber cannot be the subject of replevin and the writ of

replevin was issued in contravention of P.D. No. 705.

The Supreme Court granted the petition. The Court ruled that the issuance of the confiscation order by

petitioner Secretary was a valid exercise of his power under Section 68-A of P.D. No. 705. By virtue of

said order, the narra lumber and the six-wheeler truck were held in custodial legis and, hence, beyond

the reach of replevin. According to the Court, when a thing is in official custody of a judicial or executive

officer in pursuance of his execution of a legal writ, replevin will not lie to recover it. Otherwise, there

would be interference with the possession before the function of law had been performed to the process

under which the property was taken.

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; DELIVERY OF PERSONAL PROPERTY (REPLEVIN); SUBJECT

NARRA LUMBER AND SIX-WHEELER TRUCK WERE LEGALLY CONFISCATED BY PETITIONER PURSUANT TO

HIS ADMINISTRATIVE AUTHORITY TO CONFISCATE UNDER SECTION 68-A OF P.D. NO. 705, AS AMENDED

BY EXECUTIVE ORDER NO. 277. — A writ of replevin does not just issue as a matter of course upon the

applicant's filing of a bond and affidavit, as the Court of Appeals has wrongly put it. The mere filing of an

affidavit, sans allegations therein that satisfy the requirements of Sec. 2, Rule 60 of the Rules of Court,

cannot justify the issuance of a writ of replevin. Wrongful detention by the defendant of the properties

sought in an action for replevin must be satisfactorily established. If only a mechanistic averment thereof

is offered, the writ should not be issued. In the case at bar, the subject narra lumber and six-wheeler

truck were confiscated by petitioner Secretary pursuant to Section 68-A of P.D. No. 705, as amended by

25

Executive Order (E.O.) No. 277. As the petitioner Secretary's administrative authority to confiscate is

clearly provided by law, the taking of the subject properties is not wrongful and does not warrant the

issuance of a writ of replevin prayed for by private respondents.

2. ID.; ID.; ID.; REPLEVIN WILL NOT LIE TO RECOVER A PROPERTY UNDER CUSTODIA LEGIS. — Issuance of

the confiscation order by petitioner Secretary was valid exercise of his power under Sec. 68-A of P.D. No.

705. By virtue of said order, the narra lumber and six-wheeler truck of private respondents were held

in custodia legis and hence, beyond the reach of replevin. Property lawfully taken by virtue of legal

process is deemed to be in custodia legis. When a thing is in official custody of judicial or executive

officer in pursuance of his execution of a legal writ, replevin will not lie to recover it. Otherwise, there

would be interference with the possession before the function of law had been performed as to the

process under which the property was taken. So basic is the doctrine that it found inclusion in the 1997

amendments introduced to the Rules of Civil Procedure. Thus, Sec. 2 (c), Rule 60 of the 1997 Rules of

Civil Procedure provides that:"Affidavit and bond. — Upon applying for such order the plaintiff must

show by his own affidavit or that some other person who personally knows the facts:" . . . "(c) That the

property has not been distrained or taken for a tax assessment or fine pursuant to law, or seized under a

writ of execution, or preliminary attachment or otherwise placed under custodia legis, or if so seized,

that it is exempt from such seizure or custody; . . ."

3. ID.; ID.; ID.; SECTION 80 OF P.D. NO. 705 WHICH REQUIRES DELIVERY OF THE SEIZED FOREST

PRODUCTS WITHIN SIX (6) HOURS FROM THE TIME OF SEIZURE TO THE APPROPRIATE OFFICIAL

DESIGNATED BY LAW TO CONDUCT PRELIMINARY INVESTIGATIONS APPLIES ONLY TO CRIMINAL

PROSECUTIONS PROVIDED FOR IN SECTION 68, AND NOT TO ADMINISTRATIVE CONFISCATION PROVIDED

FOR IN SECTION 68-A. — Sec. 80 of P.D. No. 705 which requires delivery of the seized forest products

within six (6) hours from the time of the seizure to the appropriate official designated by law to conduct

preliminary investigations applies only to criminal prosecutions provided for in Sec. 68, and not to

administrative confiscation provided for in Section 68-A. The title of Sec. 80-A — "Arrest; Institution of

Criminal Actions" — bespeaks this intendment of the law. The fact, too, those Secs. 68 and 80 were co-

existing prior to the introduction of Sec. 68-A, proves that Sec. 80 applies to the criminal prosecution

subject of Sec. 68 and not to the administrative confiscation subject of Sec. 68-A. Sec. 68-A, therefore,

should not be interpreted in relation to Sec. 80 as to require that criminal charges be filed with and

seized forest products be immediately delivered to, the fiscal in case of administrative confiscation, for

this renders nugatory the purpose sought to be achieved thereby. Statutes should always be construed

in the light of the object to be achieved and the evil or mischief to be suppressed, and they should be

given such interpretation as will advance the object, suppress the mischief, and secure the benefits

intended.

4. ID.; SPECIAL CIVIL ACTIONS; CONTEMPT; WITHOUT A LAWFUL ORDER HAVING BEEN ISSUED, NO

CONTEMPT OF COURT COULD BE COMMITTED. — The writ of seizure and the writ of replevin were

issued by the trial court in grave abuse of its discretion. Thus, disobedience thereto cannot constitute

indirect contempt of court which presupposes that the court order thereby violated was valid and legal.

Without a lawful order having been issued, no contempt of court could be committed. cETDIA

D E C I S I O N

DE LEON, JR., J p:

Before us is a petition for review on certiorari of the Decision and Resolution of the Court of Appeals

dated March 30, 1990 and May 18, 1990, respectively, dismissing petitioners' charge that Honorable

Benigno T. Dayaw, Presiding Judge of Branch 80 of the Regional Trial Court (RTC) of Quezon City,

committed grave abuse of discretion in ordering them to deliver to private respondents the six-wheeler

truck and its cargo, some 4,000 board feet of narra lumber which were confiscated by the Department of

Environment and Natural Resources (DENR) and forfeited in favor of the government. 1

The antecedent facts:

On August 9, 1988, two (2) police officers of the Marikina Police Station, Sub-Station III, intercepted a six-

wheeler truck, with Plate No. NJT-881, carrying 4,000 board feet of narra lumber as it was cruising along

the Marcos Highway. They apprehended the truck driver, private respondent Jesus Sy, and brought the

truck and its cargo to the Personnel Investigation Committee/Special Actions and Investigation Division

(PIC/SAID) of the DENR Office in Quezon City. There, petitioner Atty. Vicente Robles of the PIC/SAID

investigated them, and discovered the following discrepancies in the documentation of the narra

lumber: 2

"a. What were declared in the documents (Certificate of Timber Origin, Auxiliary

Invoices and various Certifications) were narra flitches, while the

cargo of the truck consisted of narra lumber;

26

"b. As appearing in the documents, the Plate Numbers of the truck supposed to

carry the forest products bear the numbers BAX-404, PEC-492 or

NSN-267, while the Plate Number of the truck apprehended is NVT-

881; llcd

"c. Considering that the cargo is lumber, the transport should have been

accompanied by a Certificate of Lumber Origin, scale sheet of said

lumber and not by a Certificate of Timber Origin, which merely

covers only transport of logs and flitches;

"d. The Log Sale Purchase Agreement presented is between DSM Golden Cup

International as the seller and Bonamy Enterprises as the

buyer/consignee and not with Lily Francisco Lumber and

Hardware," 3

which are in violation of Bureau of Forestry Development (BFD) Circular No. 10. The said BFD

Circular requires possession or transportation of lumber to be supported by the following

documents: (1) Certificate of Lumber Origin (CLO) which shall be issued only by the District

Forester, or in his absence, the Assistant District Forester; (2) Sales Invoice; (3) Delivery Receipt;

and (4) Tally Sheets. 4 Such omission is punishable under Sec. 68 of Presidential Decree (P.D.) No.

705 otherwise known as the Revised Forestry Code. 5 Thus, petitioner Atty. Robles issued a

temporary seizure order and seizure receipt for the narra lumber and the six-wheeler truck. 6

On January 20, 1989, petitioner Fulgencio S. Factoran, then Secretary of Environment and Natural

Resources (hereinafter referred to as petitioner Secretary) issued an order for the confiscation of the

narra lumber and the six-wheeler truck. 7

Private respondents neither asked for reconsideration of nor appealed, the said order to the Office of

the President. Consequently, the confiscated narra lumber and six-wheeler truck were forfeited in favor

of the government. They were subsequently advertised to be sold at public auction on March 20, 1989. 8

On March 17, 1989, private respondents filed a complaint with prayer for the issuance of writs of

replevin and preliminary injunction and/or temporary restraining order for the recovery of the

confiscated lumber and six-wheeler truck, and to enjoin the planned auction sale of the subject narra

lumber, respectively. 9 Said complaint was docketed as Civil Case No. Q-89-2045 and raffled to Branch 80

of the RTC of Quezon City.

On the same day, the trial court issued an Order directing petitioners to desist from proceeding with the

planned auction sale and setting the hearing for the issuance of the writ of preliminary injunction on

March 27, 1989. 10

On March 20, 1989, the scheduled date of the auction sale, private respondents filed an Ex-Parte Motion

for Release and Return of Goods and Documents (Replevin) supported by an Affidavit for Issuance of

Writ of Replevin and Preliminary Injunction and a Replevin Bond in the amount of P180,000.00.11 The

trial court granted the writ of replevin on the same day and directed the petitioners "to deliver the . . .

[n]arra lumber, original documents and truck with plate no. NJT 881 to the custody of the plaintiffs

and/or their representative . . .". 12

On March 22, 1989, the trial court issued a writ of seizure. However, petitioners refused to comply

therewith. 13 David G. Brodett, Sheriff of Branch 80 of the RTC of Quezon City (hereinafter referred to as

the Sheriff) reported that petitioners prevented him from removing the subject properties from the

DENR Compound and transferring them to the Mobil Unit Compound of the Quezon City Police Force. To

avoid any unwarranted confrontation between them, he just agreed to a constructive possession of the

properties in question. 14

In the afternoon of the same day, petitioners filed a Manifestation stating their intention to file a

counterbond under Rule 60 of the Rules of Court to stay the execution of the writ of seizure and to post

a cash bond in the amount of P180,000.00. But the trial court did not oblige petitioners for they failed to

serve a copy of the Manifestation on private respondents. Petitioners then immediately made the

required service and tendered the cash counterbond in the amount of P180,000.00, but it was refused,

petitioners' Manifestation having already been set for hearing on March 30, 1989. 15

On March 27, 1989, petitioners made another attempt to post a counterbond which was, however,

denied for the same reason. 16

On the same day, private respondents filed a motion to declare petitioners in contempt for disobeying

the writ of seizure. 17 The trial court gave petitioners twenty-four (24) hours to answer the motion.

Hearing thereon was scheduled on March 30, 1989. LibLex

However, on March 29, 1989, petitioners filed with the Court of Appeals a Petition for Certiorari,

Prohibition and/orMandamus to annul the Orders of the trial court dated March 20, 1989 and March 27,

1989. 18

On March 30, 1989, the Court of Appeals granted petitioners temporary relief in the form of a temporary

restraining order (TRO).

27

On September 11, 1989, the Court of Appeals converted the TRO into a writ of preliminary injunction

upon filing by petitioners of a bond in the amount of P180,000.00. 19

However, on March 30, 1990, the Court of Appeals lifted the writ of preliminary

injunction and dismissed the petition. It declared that as the complaint for replevin filed by private

respondents complied with the requirements of an affidavit and bond under Secs. 1 and 2 of Rule

60 of the Revised Rules of Court, issuance of the writ of replevin was mandatory. 20

As for the contempt charges against petitioners, the Court of Appeals believed the same

were sufficiently based on a written charge by private respondents and the report submitted by the

Sheriff. 21

On April 25, 1990, petitioners filed a motion for reconsideration of the foregoing decision. However, that

motion was denied by the Court of Appeals in its Resolution dated May 18, 1990. 22

Hence this petition.

On the one hand, petitioners contend, thus:

(1) "Confiscated lumber cannot be subject of replevin". 23

(2) "Petitioners not compelled to criminally prosecute private respondents but

may opt only to confiscate lumber". 24

(3) "Private respondent charged criminally in court". 25 and

(4) "Writ of Replevin issued in contravention of PD #605". 26

On the other hand, private respondents argue that:

(1) "The respondent Judge had jurisdiction to take cognizance of the complaint

for recovery of personal property and, therefore, had jurisdiction to

issue the necessary orders in connection therewith." 27

(2) "The issuance of the order for the delivery of personal property upon

application, affidavit and filing of replevin bond by the plaintiff is

mandatory and not discretionary, hence, no abuse of discretion can

be committed by the trial court in the issuance thereof." 28

(3) "The Order of March 20, 1989 was in accordance with Section 4, Rule 60 of

the Rules of Court and is, therefore, valid." 29

(4) "The private respondents have not been proven to have violated Section 68

of the Revised Forestry Code." 30

(5) "The petitioners do not have the authority to keep private respondents'

property for an indefinite period, more so, to dispose of the same

without notice and hearing or without due process." 31

(6) "Contrary to the allegation of petitioners, no formal investigation was

conducted by the PIC with respect to the subject lumber in this

case." 32

(7) "The alleged Order dated January 20, 1989 of the petitioner Secretary

Fulgencio Factoran, Jr. of the DENR is not valid and does not make

the issuance of the order of replevin illegal."33 and

(8) "The subject properties were not in custody of the law and may be

replevied." 34

At the outset we observe that herein respondents never appealed the confiscation order of petitioner

Secretary to the Office of the President as provided for in Sec. 8 of P.D. No. 705 which reads: LLphil

"All actions and decisions of the Director are subject to review, motu propio or

upon appeal of any person aggrieved thereby, by the Department Head whose

decision shall be final and executory after the lapse of thirty (30) days from

receipt by the aggrieved party of said decision unless appealed to the President

. . . . The decision of the Department Head may not be reviewed by the courts

except through a special civil action forcertiorari and prohibition."

The doctrine of exhaustion of administrative remedies is basic. Courts, for reasons of law, comity

and convenience, should not entertain suits unless the available administrative remedies have first

been resorted to and the proper authorities have been given an appropriate opportunity to act and

correct their alleged errors, if any, committed in the administrative forum. 35 As to the application

of this doctrine in cases involving violations of P.D. No. 705, our ruling in Paat v. Court of Appeals,

is apropos:

"Moreover, it is important to point out that the enforcement of forestry laws,

rules and regulations and the protection, development and management of

forest lands fall within the primary and special responsibilities of the

Department of Environment and Natural Resources. By the very nature of its

28

function, the DENR should be given a free hand unperturbed by judicial

intrusion to determine a controversy which is well within its jurisdiction. The

assumption by the trial court, therefore, of the replevin suit filed by private

respondents constitutes an encroachment into the domain of the

administrative agency's prerogative. The doctrine of primary jurisdiction does

not warrant a court to arrogate unto itself the authority to resolve a

controversy the jurisdiction over which is initially lodged with an administrative

body of special competence. In Felipe Ismael, Jr. and Co. vs. Deputy Executive

Secretary, which was reiterated in the recent case of Concerned Officials

of MWSS vs. Vasquez, this Court held:

'Thus, while the administration grapples with the complex and

multifarious problems caused by unbridled exploitation of these

resources, the judiciary will stand clear. A long line of cases establish

the basic rule that the courts will not interfere in matters which are

addressed to the sound discretion of government agencies entrusted

with the regulation of activities coming under the special technical

knowledge and training of such agencies.'"36

However, petitioners did not file a motion to dismiss based on the ground of non-exhaustion of

administrative remedies. Thus, it is deemed waived. 37

Nonetheless, the petition is impressed with merit.

First. A writ of replevin does not just issue as a matter of course upon the applicant's filing of a bond and

affidavit, as the Court of Appeals has wrongly put it. The mere filing of an affidavit, sans allegations

therein that satisfy the requirements of Sec. 2, Rule 60 of the Revised Rules of Court, cannot justify the

issuance of a writ of replevin. Said provision reads:

"Affidavit and bond. — Upon applying for such order the plaintiff must show by his own affidavit or that

of some other person who personally knows the facts:

"(a) That the plaintiff is the owner of the property claimed, particularly

describing it, or entitled to the possession thereof;

"(b) That the property is wrongfully detained by the defendant, alleging the

cause of detention thereof to his best knowledge, information, and belief;

"(c) That it has not been taken for a tax assessment or fine pursuant to law, or

seized under an execution, or an attachment against the property of the

plaintiff, or, if so seized, that it is exempt from such seizure; and

"(d) The actual value of the property.

"xxx xxx xxx."

Wrongful detention by the defendant of the properties sought in an action for replevin must be

satisfactorily established. If only a mechanistic averment thereof is offered, the writ should not be

issued.

In the case at bar, the subject narra lumber and six-wheeler truck were confiscated by petitioner

Secretary pursuant toSection 68-A of P.D. No. 705, as amended by Executive Order (E.O.) No. 277, to

wit: LLphil

"SEC. 68-A. Administrative Authority of the Department Head or His Duly

Authorized Representative to Order Confiscation. — In all cases of violations of

this Code or other forest laws, rules and regulations, the Department Head or

his duly authorized representative, may order the confiscation of any forest

products illegally cut, gathered, removed, or possessed or abandoned, and all

conveyances used either by land, water, or air in the commission of the

offense and to dispose of the same in accordance with pertinent laws,

regulations or policies on the matter." 38

As the petitioner Secretary's administrative authority to confiscate is clearly provided by law, the taking

of the subject properties is not wrongful and does not warrant the issuance of a writ of replevin prayed

for by private respondents.

Second. Issuance of the confiscation order by petitioner Secretary was a valid exercise of his power

under Sec. 68-A of P.D. No. 705. By virtue of said order, the narra lumber and six-wheeler truck of private

respondents were held in custodia legis and hence, beyond the reach of replevin.

Property lawfully taken by virtue of legal process is deemed to be in custodia legis. 39 When a thing is in

official custody of a judicial or executive officer in pursuance of his execution of a legal writ, replevin will

not lie to recover it. 40 Otherwise, there would be interference with the possession before the function

of law had been performed as to the process under which the property was taken. 41 So basic is this

doctrine that it found inclusion in the 1997 amendments introduced to the Rules of Civil Procedure.

Thus, Sec. 2(c), Rule 60 of the 1997 Rules of Civil Procedure provides that:

29

"Affidavit and bond. — Upon applying for such order the plaintiff must show by

his own affidavit or that of some other person who personally knows the facts:

"xxx xxx xxx;

"(c) That the property has not been distrained or taken for a tax assessment or

fine pursuant to law, or seized under a writ of execution, or preliminary

attachment or otherwise placed undercustodia legis, or if so seized, that it is

exempt from such seizure or custody; . . .

"xxx xxx xxx." 42

Third. Petitioner Secretary's authority to confiscate forest products under Sec. 68-A of P.D. No. 705 is

distinct from and independent of the confiscation of forest products in a criminal action provided for in

Section 68 of P.D. No. 705. Thus, in Paat, we held that:

"'. . . precisely because of the need to make forestry laws 'more responsive to present situations and

realities' and in view of the 'urgency to conserve the remaining resources of the country,' that the

government opted to add Section 68-A. This amendatory provision is an administrative remedy totally

separate and distinct from criminal proceedings. . . . The preamble of EO 277 that added Section 68-A to

PD 705- is most revealing:

'WHEREAS, there is an urgency to conserve the remaining forest

resources of the country for the benefit and welfare of the present

and future generations of Filipinos;

WHEREAS, our forest resources may be effectively conserved and

protected through the vigilant enforcement and implementation of

our forestry laws, rules and regulations;

WHEREAS, the implementation of our forestry laws suffers from

technical difficulties, due to certain inadequacies in the Penal

provisions of the Revised Forestry Code of the Philippines; and

WHEREAS, to overcome this [sic] difficulties, there is a need to

penalize certain acts more responsive to present situations and

realities;'

'It is interesting to note that Section 68-A is a new provision authorizing the

DENR to confiscate, not only 'conveyances' but forest products as well. On the

other hand, confiscation of forest products by the 'court' in a criminal action has

long been provided for in Section 68. If as private respondents insist, the power

of confiscation cannot be exercised except only through the court under Section

68, then Section 68-A would have no purpose at all. Simply put, Section 68-A

would not have provided any solution to the problem perceived in EO 277, . . .

.'" 43

Sec. 68-A was added precisely to supplant the inadequacies and supplement criminal enforcement

of forestry laws.

Fourth. Sec. 80 of P.D. No. 705 which requires delivery of the seized forest products within six (6) hours

from the time of the seizure to the appropriate official designated by law to conduct preliminary

investigations applies only to criminal prosecutions provided for in Sec. 68, and not to administrative

confiscation provided for in Section 68-A.

Sec. 80 of P.D. No. 705 provides:

"SEC. 80. Arrest; Institution of criminal actions. — A forest officer or employee

of the Bureau shall arrest even without a warrant any person who has

committed or is committing in his presence any of the offenses defined in this

Chapter. He shall also seize and confiscate, in favor of the Government, the

tools and equipment used in committing the offense, and the forest products

cut, gathered or taken by the offender in the process of committing the offense.

The arresting officer or employee shall thereafter deliver within six (6) hours

from the time of arrest and seizure, the offender and the confiscated forest

products, tools and equipment to, and file the proper complaint with, the

appropriate official designated by law to conduct preliminary investigations and

file informations in court. Cdpr

"xxx xxx xxx."

The title of Sec. 80 — "Arrest; Institution of Criminal Actions" — bespeaks this intendment of the

law. The fact, too, that Secs. 68 and 80 were co-existing prior to the introduction of Sec. 68-A,

proves that Sec. 80 applies to the criminal prosecutions subject of Sec. 68 and not to the

administrative confiscation subject of Sec. 68-A. Sec. 68-A, therefore, should not be interpreted in

relation to Sec. 80 as to require that criminal charges be filed with and seized forest products be

immediately delivered to, the fiscal in case of administrative confiscation, for this renders nugatory

the purpose sought to be achieved thereby. Statutes should always be construed in the light of the

30

object to be achieved and the evil or mischief to be suppressed, and they should be given such

interpretation as will advance the object, suppress the mischief, and secure the benefits

intended. 44

Fifth. Nothing in the records supports private respondents' allegation that their right to due process was

violated as no investigation was conducted prior to the confiscation of their properties.

On the contrary, by private respondents' own admission, private respondent Sy who drove the six-

wheeler truck was properly investigated by petitioner Atty. Robles at the PIC/SAID Office of the DENR.

Thereafter, private respondent Sy and his witnesses were given full opportunity to explain the

deficiencies in the documents. 45 Private respondents categorically stated that they made a "continuous

and almost daily follow-up and plea . . . with the PIC for the return of the truck and lumber . . .

." 46 Finally in a letter dated December 30, 1989, private respondent Lily Francisco Uy requested

petitioner Secretary for "immediate resolution and release of the impounded narra sawn lumber." 47

Undoubtedly, private respondents were afforded an opportunity to be heard before the order of

confiscation was issued. There was no formal or trial type hearing but the same is not, in all instances,

essential in administrative proceedings. It is settled that due process is satisfied when the parties are

afforded fair and reasonable opportunity to explain their side of the controversy or an opportunity to

move for a reconsideration of the action or ruling complained of. 48

Moreover, respondents claim that the order of confiscation was antedated and not the product of the

investigation supposedly conducted by the PIC of the DENR. However, they proffer no proof to support

that allegation. On the other hand, there is the legal presumption that official duty has been regularly

performed. The presumption of regularity in the performance of official duties is even particularly strong

with respect to administrative agencies like the DENR which are vested with quasi-judicial powers in

enforcing the laws affecting their respective fields of activity, the proper regulation of which requires of

them such technical mastery of all relevant conditions obtaining in the nation. 49

Finally. The writ of seizure and the writ of replevin were issued by the trial court in grave abuse of its

discretion. Thus, disobedience thereto cannot constitute indirect contempt of court which presupposes

that the court order thereby violated was valid and legal. Without a lawful order having been issued, no

contempt of court could be committed. 50

WHEREFORE, the instant petition is hereby GRANTED. The Decision of the Court of Appeals dated March

30, 1990 and its Resolution dated May 18, 1990 in CA-G.R. SP No. 17194 are hereby SET ASIDE and

REVERSED. Respondent Presiding Judge Benigno T. Dayaw, of the Regional Trial Court of Quezon City, is

PERMANENTLY ENJOINED from enforcing the Orders dated March 20, 1989 and March 22, 1989 in Civil

Case No. Q-89-2045, or if said orders have already been enforced, the said respondent Judge is directed

to render judgment of forfeiture on the replevin bond filed by private respondents. Finally, the said

respondent Judge is PERMANENTLY ENJOINED from further acting on the Motion for Contempt filed by

private respondents against the petitioners. cdasia

Costs against private respondents.

31

SECOND DIVISION

[G.R. No. 183018. August 3, 2011.]

ADVENT CAPITAL AND FINANCE CORPORATION, petitioner, vs. ROLAND

YOUNG, respondent.

DECISION

CARPIO, J p:

The Case

This petition for review 1 assails the 28 December 2007 Decision 2 and 15 May 2008 Resolution 3 of the

Court of Appeals in CA-G.R. SP No. 96266. The Court of Appeals set aside the 24 March 2006 and 5 July

2006 Orders 4 of the Regional Trial Court of Makati City, Branch 147, and directed petitioner Advent

Capital and Finance Corporation to return the seized vehicle to respondent Roland Young. The Court of

Appeals denied the motion for reconsideration. DCaEAS

The Antecedents

The present controversy stemmed from a replevin suit instituted by petitioner Advent Capital and

Finance Corporation (Advent) against respondent Roland Young (Young) to recover the possession of a

1996 Mercedes Benz E230 with plate number UMN-168, which is registered in Advent's name. 5

Prior to the replevin case, or on 16 July 2001, Advent filed for corporate rehabilitation with the Regional

Trial Court of Makati City, Branch 142 (rehabilitation court). 6

On 27 August 2001, the rehabilitation court issued an Order (stay order) which states that "the

enforcement of all claims whether for money or otherwise, and whether such enforcement is by court

action or otherwise, against the petitioner (Advent), its guarantors and sureties not solidarily liable with

it, is stayed." 7

On 5 November 2001, Young filed his Comment to the Petition for Rehabilitation, claiming, among

others, several employee benefits allegedly due him as Advent's former president and chief executive

officer.

On 6 November 2002, the rehabilitation court approved the rehabilitation plan submitted by Advent.

Included in the inventory of Advent's assets was the subject car which remained in Young's possession at

the time.

Young's obstinate refusal to return the subject car, after repeated demands, prompted Advent to file the

replevin case on 8 July 2003. The complaint, docketed as Civil Case No. 03-776, was raffled to the

Regional Trial Court of Makati City, Branch 147 (trial court).

After Advent's posting of P3,000,000 replevin bond, which was double the value of the subject car at the

time, through Stronghold Insurance Company, Incorporated (Stronghold), the trial court issued a Writ of

Seizure 8 directing the Sheriff to seize the subject car from Young. Upon receipt of the Writ of Seizure,

Young turned over the car to Advent, 9 which delivered the same to the rehabilitation

receiver. 10 ITcCaS

Thereafter, Young filed an Answer alleging that as a former employee of Advent, he had the option to

purchase the subject car at book value pursuant to the company car plan and to offset the value of the

car with the proceeds of his retirement pay and stock option plan. Young sought the (1) execution of a

deed of sale over the subject car; and (2) determination and payment of the net amount due him as

retirement benefits under the stock option plan.

Advent filed a Reply with a motion to dismiss Young's counterclaim, alleging that the counterclaim did

not arise from or has no logical relationship with the issue of ownership of the subject car.

After issues have been joined, the parties entered into pre-trial on 2 April 2004, which resulted in the

issuance of a pre-trial order of even date reciting the facts and the issues to be resolved during the trial.

On 28 April 2005, the trial court issued an Order dismissing the replevin case without prejudice for

Advent's failure to prosecute. In the same order, the trial court dismissed Young's counterclaim against

Advent for lack of jurisdiction. The order pertinently reads:

It appears that as of July 28, 2003, subject motor vehicle has been turned over

to the plaintiff, thru its authorized representative, and acknowledged by the

parties' respective counsels in separate Manifestations filed. To date, no action

had been taken by the plaintiff in the further prosecution of this case.

32

Accordingly, this case is ordered dismissed without prejudice on the ground of

failure to prosecute.

Anent plaintiff's Motion to Dismiss defendant Young's counterclaim for benefits

under the retirement and stock purchase plan, the Court rules as follows: The

only issue in this case is who is entitled to the possession of the subject motor

vehicle. This issue may have a connection, but not a necessary connection with

defendant's rights under the retirement plan and stock purchase plan as to be

considered a compulsory counterclaim.

xxx xxx xxx

Notably, defendant's claim is basically one for benefits under and by virtue of

his employment with the plaintiff, and the subject vehicle is merely an incident

in that claim. Said claim is properly ventilated, as it is resolvable by, the

Rehabilitation Court which has jurisdiction and has acquired jurisdiction, to the

exclusion of this Court. Accordingly, plaintiff's Motion to Dismiss defendant

Young's counterclaim is granted. 11

On 10 June 2005, Young filed a motion for partial reconsideration of the dismissal order with respect to

his counterclaim.

On 8 July 2005, Young filed an omnibus motion, praying that Advent return the subject car and pay him

P1.2 million in damages "(f)or the improper and irregular seizure" of the subject car, to be charged

against the replevin bond posted by Advent through Stronghold. DcCITS

On 24 March 2006, the trial court issued an Order denying Young's motion for partial

reconsideration, viz.:

In the instant case, defendant, in his counterclaim anchored her [sic] right of

possession to the subject vehicle on his alleged right to purchase the same

under the company car plan. However, considering that the Court has already

declared that it no longer has jurisdiction to try defendant's counterclaim as it is

now part of the rehabilitation proceedings before the corporate court

concerned, the assertions in the Motion for Reconsiderations (sic) will no longer

stand.

On the other hand, the plaintiff did not file a Motion for Reconsideration of the

same Order, dismissing the complaint for failure to prosecute, within the

reglementary period. Hence, the same has attained finality.

Defendant alleged that the dismissal of the case resulted in the dissolution of

the writ. Nonetheless, the Court deems it proper to suspend the resolution of

the return of the subject vehicle. In this case, the subject vehicle was turned

over to plaintiff by virtue of a writ of replevin validly issued, the latter having

sufficiently shown that it is the absolute/registered owner thereof. This was not

denied by the defendant. Plaintiff's ownership includes its right of possession.

The case has been dismissed without a decision on the merits having been

rendered. Thus, to order the return of the vehicle to one who is yet to prove his

right of possession would not be proper.

Accordingly, the Motion for Partial Reconsideration is denied. 12

On 8 June 2006, Young filed a motion to resolve his omnibus motion.

In an Order dated 5 July 2006, the trial court denied the motion to resolve, to wit:

In the instant case, the Court suspended the resolution of the return of the

vehicle to defendant Roland Young. It should be noted that the writ of replevin

was validly issued in favor of the plaintiff and that it has sufficiently established

ownership over the subject vehicle which includes its right to possess. On the

other hand, the case (Olympia International vs. Court of Appeals) cited by

defendant finds no application to this case, inasmuch as in the former the Court

has not rendered judgment affirming plaintiff's (Olympia) right of possession on

the property seized. Moreover, the Court, in the Order dated April 28, 2005, has

already denied defendant's counterclaim upon which he based his right of

possession on the ground of lack of jurisdiction. Accordingly, the Court

reiterates its previous ruling that to order the return of the subject vehicle to

defendant Young, who is yet to prove his right of possession before the

Rehabilitation Court would not be proper. CHDTEA

WHEREFORE, there being no new and substantial arguments raised, the Motion

to Resolve is denied. 13

33

Young filed a petition for certiorari and mandamus with the Court of Appeals seeking to annul the trial

court's Orders of 24 March 2006 and 5 July 2006.

The Court of Appeals' Ruling

In his petition before the Court of Appeals, Young argued mainly that the trial court committed grave

abuse of discretion amounting to lack or excess of jurisdiction in (1) not directing the return of the

subject vehicle to him; (2) refusing to hold a hearing to determine the damages to be recovered against

the replevin bond; and (3) dismissing his counterclaim.

The Court of Appeals ruled in favor of Young and annulled the assailed rulings of the trial court. The

Court of Appeals held:

It is noteworthy that the case was dismissed by the court a quo for failure of

Advent to prosecute the same. Upon dismissal of the case, the writ of seizure

issued as an incident of the main action (for replevin) became functus

officio and should have been recalled or lifted. Since there was no adjudication

on the merits of the case, the issue of who between Advent and petitioner has

the better right to possess the subject car was not determined. As such, the

parties should be restored to their status immediately before the institution of

the case.

The Supreme Court's ruling in Olympia International, Inc. vs. Court of Appeals (supra) squarely applies

to the present controversy, to wit:

"Indeed, logic and equity demand that the writ of replevin be cancelled. Being

provisional and ancillary in character, its existence and efficacy depended on

the outcome of the case. The case having been dismissed, so must the writ's

existence and efficacy be dissolved. To let the writ stand even after the

dismissal of the case would be adjudging Olympia as the prevailing party, when

precisely, no decision on the merits had been rendered. The case having been

dismissed, it is as if no case was filed at all and the parties must revert to their

status before the litigation." TSEHcA

Indeed, as an eminent commentator on Remedial Law expounds:

"The plaintiff who obtains possession of the personal property by a writ of

replevin does not acquire absolute title thereto, nor does the defendant acquire

such title by rebonding the property, as they only hold the property subject to

the final judgment in the action." (I Regalado, Remedial Law Compendium,

Eighth Revised Edition, p. 686)

Reversion of the parties to the status quo ante is the consequence ex proprio

vigore of the dismissal of the case. Thus, in Laureano vs. Court of Appeals (324

SCRA 414), it was held:

"(A)lthough the commencement of a civil action stops the running of the statute

of prescription or limitations, its dismissal or voluntary abandonment by

plaintiff leaves the parties in exactly the same position as though no action had

been commenced at all."

By the same token, return of the subject car to petitioner pending rehabilitation

of Advent does not constitute enforcement of claims against it, much more

adjudication on the merits of petitioner's counterclaim. In other words, an

order for such return is not a violation of the stay order, which was issued by

the rehabilitation court on August 27, 2001. . . .

Corollarily, petitioner's claim against the replevin bond has no connection at all

with the rehabilitation proceedings. The claim is not against the insolvent

debtor (Advent) but against bondsman, Stronghold. Such claim is expressly

authorized by Sec. 10, Rule 60, in relation to Sec. 20, Rule 57, id., . . . 14

The dispositive portion of the Court of Appeals' decision reads:

WHEREFORE, premises considered, the instant petition is PARTLY GRANTED.

The orders of the Regional Trial Court dated March 24, 2006 and July 5, 2006

are ANNULLED and SET ASIDE in so far as they suspended resolution of

petitioner's motion for, and/or disallowed, the return of the subject car to

petitioner. Accordingly, respondent Advent Capital and Finance Corporation is

directed to return the subject car to petitioner.

The Regional Trial Court of Makati City (Branch 147) is directed to conduct a

hearing on, and determine, petitioner's claim for damages against the replevin

bond posted by Stronghold Insurance Co.

SO ORDERED. 15

Advent filed a motion for reconsideration, which was denied by the Court of Appeals in a Resolution

dated 15 May 2008.

34

The Issue

The main issue in this case is whether the Court of Appeals committed reversible error in (1) directing

the return of the seized car to Young; and (2) ordering the trial court to set a hearing for the

determination of damages against the replevin bond.

The Court's Ruling

The petition is partially meritorious.

On returning the seized vehicle to Young

We agree with the Court of Appeals in directing the trial court to return the seized car to Young since this

is the necessary consequence of the dismissal of the replevin case for failure to prosecute without

prejudice. Upon the dismissal of the replevin case for failure to prosecute, the writ of seizure, which is

merely ancillary in nature, became functus officioand should have been lifted. There was no adjudication

on the merits, which means that there was no determination of the issue who has the better right to

possess the subject car. Advent cannot therefore retain possession of the subject car considering that it

was not adjudged as the prevailing party entitled to the remedy of replevin. SCaTAc

Contrary to Advent's view, Olympia International Inc. v. Court of Appeals 16 applies to this case. The

dismissal of the replevin case for failure to prosecute results in the restoration of the parties' status prior

to litigation, as if no complaint was filed at all. To let the writ of seizure stand after the dismissal of the

complaint would be adjudging Advent as the prevailing party, when precisely no decision on the merits

had been rendered. Accordingly, the parties must be reverted to theirstatus quo ante. Since Young

possessed the subject car before the filing of the replevin case, the same must be returned to him, as if

no complaint was filed at all.

Advent's contention that returning the subject car to Young would constitute a violation of the stay

order issued by the rehabilitation court is untenable. As the Court of Appeals correctly concluded,

returning the seized vehicle to Young is not an enforcement of a claim against Advent which must be

suspended by virtue of the stay order issued by the rehabilitation court pursuant to Section 6 of the

Interim Rules on Corporate Rehabilitation (Interim Rules). 17 The issue in the replevin case is who has

better right to possession of the car, and it was Advent that claimed a better right in filing the replevin

case against Young. In defense, Young claimed a better right to possession of the car arising from

Advent's car plan to its executives, which he asserts entitles him to offset the value of the car against the

proceeds of his retirement pay and stock option plan.

Young cannot collect a money "claim" against Advent within the contemplation of the Interim Rules. The

term "claim" has been construed to refer to debts or demands of a pecuniary nature, or the assertion to

have money paid by the company under rehabilitation to its creditors. 18 In the replevin case, Young

cannot demand that Advent pay him money because such payment, even if valid, has been "stayed" by

order of the rehabilitation court. However, in the replevin case, Young can raise Advent's car plan,

coupled with his retirement pay and stock option plan, as giving him a better right to possession of the

car. To repeat, Young is entitled to recover the subject car as a necessary consequence of the dismissal

of the replevin case for failure to prosecute without prejudice.

On the damages against the replevin bond

Section 10, Rule 60 of the Rules of Court 19 governs claims for damages on account of improper or

irregular seizure in replevin cases. It provides that in replevin cases, as in receivership and injunction

cases, the damages to be awarded upon the bond "shall be claimed, ascertained, and granted" in

accordance with Section 20 of Rule 57 which reads:

Sec. 20.Claim for damages on account of improper, irregular or excessive

attachment. — An application for damages on account of improper, irregular or

excessive attachment must be filed before the trial or before appeal is

perfected or before the judgment becomes executory, with due notice to the

attaching obligee or his surety or sureties, setting forth the facts showing his

right to damages and the amount thereof. Such damages may be awarded only

after proper hearing and shall be included in the judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom

the attachment was issued, he must claim damages sustained during the

pendency of the appeal by filing an application in the appellate court with

notice to the party in whose favor the attachment was issued or his surety or

sureties, before the judgment of the appellate court becomes executory. The

appellate court may allow the application to be heard and decided by the trial

court. THIASE

Nothing herein contained shall prevent the party against whom the attachment

was issued from recovering in the same action the damages awarded to him

from any property of the attaching obligee not exempt from execution should

the bond or deposit given by the latter be insufficient or fail to fully satisfy the

award.

35

The above provision essentially allows the application to be filed at any time before the judgment

becomes executory. 20 It should be filed in the same case that is the main action, 21 and with the court

having jurisdiction over the case at the time of the application. 22

In this case, there was no application for damages against Stronghold resulting from the issuance of the

writ of seizure before the finality of the dismissal of the complaint for failure to prosecute. It appears

that Young filed his omnibus motion claiming damages against Stronghold after the dismissal order

issued by the trial court on 28 April 2005 had attained finality. While Young filed a motion for partial

reconsideration on 10 June 2005, it only concerned the dismissal of his counterclaim, without any claim

for damages against the replevin bond. It was only on 8 July 2005 that Young filed an omnibus motion

seeking damages against the replevin bond, after the dismissal order had already become final for

Advent's non-appeal of such order. In fact, in his omnibus motion, Young stressed the finality of the

dismissal order. 23 Thus, Young is barred from claiming damages against the replevin bond.

In Jao v. Royal Financing Corporation, 24 the Court held that defendant therein was precluded from

claiming damages against the surety bond since defendant failed to file the application for damages

before the termination of the case, thus:

The dismissal of the case filed by the plaintiffs-appellees on July 11, 1959, had

become final and executory before the defendant-appellee corporation filed its

motion for judgment on the bond on September 7, 1959. In the order of the

trial court, dismissing the complaint, there appears no pronouncement

whatsoever against the surety bond. The appellee-corporation failed to file its

proper application for damages prior to the termination of the case against it. It

is barred to do so now. The prevailing party, if such would be the proper term

for the appellee-corporation, having failed to file its application for damages

against the bond prior to the entry of final judgment, the bondsman-appellant is

relieved of further liability thereunder.

Since Young is time-barred from claiming damages against the replevin bond, the dismissal order having

attained finality after the application for damages, the Court of Appeals erred in ordering the trial court

to set a hearing for the determination of damages against the replevin bond. DCcHIS

WHEREFORE, the Court GRANTS the petition IN PART. The Court SETS ASIDE the portion in the assailed

decision of the Court of Appeals in CA-G.R. SP No. 96266 ordering the trial court to set a hearing for the

determination of damages against the replevin bond.

FIRST DIVISION

[G.R. No. 166901. October 27, 2006.]

ASIAN TERMINALS, INC., petitioner, vs. HON. HELEN BAUTISTA-RICAFORT,

Presiding Judge of RTC, Branch 260, Parañaque City; SAMUEL ROSETE, in his

personal capacity and as attorney-in-fact and in representation of NOEL

TABUELOG, proprietor of BEST PART ENTERPRISES; ERNESTO DE JESUS,

President of EASTERN METROPOLITAN BUS CORP.; NORMA PONDEVIDA,

proprietress of NSP TRANSPORTATION SERVICES; RENATO CLAROS, President

of PRINCE BUS AND TRUCK PARTS, INC.; ERNESTO M. CHUA, President of EMC

TRANSPORTATION, INC.; CECILIA T. SAULOG, proprietress of MANSOUR

TRANSPORT SERVICES; JENELITA S. NAPARATE, proprietress of SANEI SOUGYO

TRADING; RODOLFO J. MAGO, proprietor of DNS SHUTTLE SERVICES; and

AMALIA C. EDAMURA, Proprietress of DAMLAR TRADING,respondents.

D E C I S I O N

CALLEJO, SR., J p:

Before us is a Petition for Review on Certiorari for the reversal of the Decision 1 of the Court of Appeals

(CA) in CA-G.R. SP No. 61562, affirming the Orders 2 of the Regional Trial Court (RTC) of Parañaque City,

Branch 260, in Civil Case No. 98-0435 for replevin and damages.

Section 1, Republic Act (RA) No. 8506, which took effect on February 22, 1998, provides that "it shall be

unlawful for any person to import, cause the importation of, register, cause the registration of, use or

operate any vehicle with its steering wheel right hand side thereof in any highway, street or road,

whether private or public, or at the national or local . . . ."

Noel Tabuelog, Ernesto de Jesus, Norma Pondevida, Renato Claros, Ernesto M. Chua, Cecilia T. Saulog,

Jenelita S. Napárate, Rodolfo F. Mago, and Amalia C. Edamura are duly-licensed importers of vehicles.

Sometime in April and May 1998, they imported 72 secondhand right-hand drive buses from Japan.

When the shipment arrived at the South Harbor, Port of Manila, the District Collector of Customs

36

impounded the vehicles and ordered them stored at the warehouse of the Asian Terminals, Inc. (ATI), a

customs-bonded warehouse under the custody of the Aviation and Cargo Regional Division. Conformably

with Section 2607 of the Tariff and Customs Code, the District Collector of Customs issued Warrants of

Distraint 3 against the shipment and set the sale at public auction on September 10, 1998. 4

In the meantime, on October 28, 1998, the Secretary of Justice rendered Opinion No. 127, 5 Series of

1998, stating that shipments of right hand wheel vehicles loaded and exported at the port of origin

before February 22, 1998 were not covered by RA No. 8506 unless the same were loaded and imported

after said date.

On November 11, 1998, the importers, through their Attorney-in-Fact Samuel N. Rosete, filed a

complaint with the RTC of Parañaque City, against the Secretary of Finance, Customs Commissioner, and

the Chief Executive of the Societe Generale de Surillee, for replevin with prayer for the issuance of a writ

of preliminary and mandatory injunction and damages.

Plaintiffs averred, inter alia, that in accordance with the opinion of the Assistant Director of the Customs

Legal Service and the Office of the Legal Affairs of the Department of Finance, the importation of right-

hand drive vehicles are not prohibited under RA No. 8506 provided that conversion kits are included in

the imported vehicles. As such, there was no factual and legal basis for the seizure of the shipment and

the storage thereof at the ATI. The complaint contained the following prayer:

WHEREFORE, premises considered, it is most respectfully prayed before this

Honorable Court that an Order be issued in the following tenor:

A. PRIOR TO HEARING:

1. A Writ of Replevin be issued upon the posting of a bond of PhP12,000,000.00

(double the value of the vehicles) executed in favor of defendants to answer for

damages, and approved by this Court, directing the Sheriff or his deputies to

forthwith take custody of the said vehicles which are in the possession and

custody of the defendants or their agents at the Bureau of Customs Holding

Area, located at South Harbor, Port Area, Manila City, and retain it in its

custody;

B. AFTER HEARING:

1. To pay the sum of PhP6,000,000.00 if the Writ of Replevin cannot be

implemented successfully plus interest until fully paid;

2. To pay compensatory damages of not less than PhP840,000.00 for unrealized

profits, moral damages of not less [than] PhP1,000,000.00, exemplary damages

of not less than PhP250,000.00, litigation and necessary expenses of not less

than PhP500,000.00, attorney's fees on a contingent basis, not less than

P1,000,000.00 actual damages if and when plaintiffs are legally obliged to pay

storage fees;

3. Such other reliefs just and equitable under the premises. 6

The RTC granted the application for a writ of replevin on a bond of P12,000,000.00. 7

However, George Jeroes, the Chief of Customs Police and four (4) customs policemen prevented the

Sheriff and the policemen assisting him from taking custody of the vehicles. 8He claimed that the District

Collector of Customs had jurisdiction over the vehicles. On motion of the plaintiffs, the court issued an

Order 9 on November 23, 1998, directing the PNP Director to assist the Sheriff in implementing the writ

it issued and to arrest anyone who would obstruct the implementation of its order. The Sheriff served a

copy of the Order on ATI and succeeded in taking custody of the vehicles and signed a receipt

therefor. 10 The District Collector of Customs agreed to transfer the custody of the vehicles to the RTC,

on the condition that the required taxes, dues, and other charges be paid. The Customs Commissioner

approved the decision of the District Collector. 11 Plaintiffs paid the requisite taxes, dues, and other

charges amounting to P7,528,635.00. They were able to take possession of the vehicles over the

objections of ATI. 12

On November 27, 1998, the defendants, through the Office of the Solicitor General, filed an Omnibus

Motion 13 , seeking the reconsideration of the RTC Order granting plaintiffs' plea for a writ of replevin. It

likewise prayed that the writ of replevin issued by the court be quashed on the ground that the RTC has

no jurisdiction over the vehicles subject of seizure and detention before the Bureau of Customs. The OSG

declared that the Bureau of Customs which had custody of the vehicles through ATI "had exclusive

jurisdiction over said vehicles and on the issues of the seizure and detention thereof." The ATI filed a

motion for the court to allow the vehicles to remain in its warehouse. 14

On December 1, 1998, the ATI filed a Third-Party Claim 15over the shipment, alleging that it had a lien

over the vehicles for accumulated and unpaid storage and arrastre charges, and wharfage dues

amounting to P13,036,480.94. It prayed that the vehicles be returned and remain with it until payment

of said dues. On December 9, 1998, ATI filed a Motion 16seeking to require plaintiffs (third-party

defendants) to post a bond to insure payment of its claims against the plaintiffs, or to order the Sheriff to

return possession of the vehicles to it. EIAHcC

37

Plaintiffs opposed the Third-Party Claim of ATI claiming that it failed to allege in its Affidavit of Third-

Party Claim any factual and legal basis for its alleged lien and to present documentary evidence to prove

the same. ATI has no cause of action against them for wharfage/arrastre services because there was no

contract to cover said charges. 17

Before the court could resolve the motions, plaintiffs filed a "Motion/Notice to Dismiss/Withdraw

Complaint" 18 against the officials of the Bureau of Customs and Department of Finance, on the ground

that said defendants had agreed to the implementation of the writ of replevin issued by the court on

condition that plaintiffs pay the taxes, dues, and other charges on the importation amounting to

P7,528,635.00 to the government and that plaintiffs had paid the said amount. The OSG opposed the

motion, alleging that:

The instant Complaint states that the subject importation is legal. This is a

matter which cannot be admitted by defendants simply because the law and

the Opinion of the Secretary of Justice are crystal clear. Likewise, all the

erroneous statements of law and legal conclusions stated therein cannot be

hypothetically admitted.

3. Hence, it is imperative that the Omnibus Motion be resolved first prior to any

other incident for the same delves on the very merits of the instant case.

4. The release of the imported right-hand drive buses by the Bureau of Customs

cannot make the said importation legal; otherwise, said act will constitute a

violation of R.A. No. 8506 which declares illegal the act of importation of this

type of vehicle.

5. The Bureau of Customs was constrained to release the subject vehicles on

November 27, 1998 because of this Court's Order dated November 23, 1998,

the last paragraph of which states:

"Chief of PNP General Roberto Lastimoso is ordered to assist the

Sheriff in the implementation of its order dated November 11, 1998

and to effect the arrest of persons who would obstruct the

implementation of this court's order."

The overwhelming number of PNP personnel who accompanied the sheriff

(there were at least 20 police cars which swarmed over the area), pitied against

only three (3) hapless Customs policemen, plus the threat to arrest anyone who

would obstruct the implementation of the Order dated November 11, 1998

granting the application for a Writ of Replevin, left the Bureau of Customs with

no choice but to allow the release of the subject vehicles. 19

On January 13, 1999, ATI filed a Motion for Intervention and for Admission of its Complaint-in-

Intervention, alleging that it had a lien on the vehicles to the extent of P13,820,150.93, representing

accumulated storage and arrastre charges and wharfage dues. ATI prayed that its Complaint-in-

Intervention be admitted, and that after due proceedings judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be

rendered in this Complaint-in-Intervention ordering plaintiffs to pay intervenor:

a) the sum of PESOS THIRTEEN MILLION EIGHT HUNDRED TWENTY THOUSAND

ONE HUNDRED FIFTY AND 93/100 (P13,820,150.93), plus legal interest from the

date of the filing of this Complaint-in-Intervention.

b) the sum of PESOS ONE HUNDRED THOUSAND (P100,000.00) as and for

attorney's fees; and

c) costs of suit. 20

Plaintiffs opposed the motion of ATI on the following grounds: (1) ATI failed to allege and present any

contract covering the deposit/storage of the vehicles in its warehouse; (2) ATI has no legal interest over

the matter in litigation; and (3) the adjudication of the rights of the parties may be delayed or prejudiced

while those of ATI may be protected in a separate proceeding. 21

The OSG opposed the motion of the plaintiffs and the notice to dismiss/withdraw the complaint, praying

that the court resolve its pending motions. 22

On April 27, 1999, the court issued an Order dismissing the complaint on the following grounds:

1. Plaintiffs themselves filed a Motion to Dismiss against Secretary of Finance

and Commissioner of Customs.

2. This Court has no jurisdiction over the case. "The Court of Tax Appeals

exercises exclusive appellate jurisdiction to review the ruling of the

Commissioner in seizure and confiscation cases and that power is to the

38

exclusion of the Court of First Instance which may not interfere with the

Commissioner's decisions . . . "

In view of the foregoing, let this case be as it is hereby ordered Dismissed.

SO ORDERED. 23

The OSG filed a motion for reconsideration of the April 27, 1999 Order, and prayed that the court resolve

the issue as to who is entitled to the possession of the vehicles as required by Sections 9 and 10, Rule 60

of the Rules of Court. For its part, ATI filed a motion for clarification of the order, alleging that the court

failed to resolve its motion. It also pleaded for the court to admit its Complaint-in-Intervention and its

motion seeking to require plaintiffs to post a bond to insure payment of its claims for wharfage/arrastre

charges. 24

On September 23, 1999, the RTC issued its Order dismissing the Complaint-in-Intervention, thus:

Before this Court are the following Motions:

1. Motion for Clarification, and

2. Motion for Reconsideration

The Complaint-in-Intervention of Intervenor — ATI is likewise dismissed, it

being only an accessory to the principal case.

Plaintiff Samuel Rosete is hereby ordered to return the possession of the

subject buses to Pedro Mendoza, in his capacity as Customs Commissioner of

the Bureau of Customs. EaIDAT

SO ORDERED. 25

ATI filed a motion for reconsideration, which the court denied on July 31, 2000. While it recognized the

arguments of ATI, the court held that its rights could be fully protected in a separate proceeding. It

declared that the subject buses were under custodia legis by virtue of the writ of replevin it had issued.

However, due to the dismissal of the plaintiffs' complaint, the subject buses have to be returned to the

person who was in custody prior to the implementation of the writ. The motion for reconsideration filed

by ATI and the opposition filed by plaintiffs were likewise denied. 26

ATI filed a Petition for Certiorari under Rule 65 before the CA, assailing the RTC Orders dated April 27,

1999, September 23, 1999, and July 31, 2000. It raised the following questions:

WHETHER OR NOT THE LOWER COURT COMMITTED GRAVE ABUSE OF

DISCRETION WHEN IT OUTRIGHTLY DISMISSED THE SUBJECT COMPLAINT FILED

BY PRIVATE RESPONDENTS.

WHETHER OR NOT THE LOWER COURT COMMITTED GRAVE ABUSE OF

DISCRETION WHEN IT DENIED THE MOTION FOR RECONSIDERATION FILED BY

THE PETITIONER.

WHETHER OR NOT THE PUBLIC RESPONDENTS COMMITTED GRAVE ABUSE OF

DISCRETION WHEN IT OUTRIGHTLY DISMISSED THE COMPLAINT-IN-

INTERVENTION FILED BY PETITIONER. 27

ATI averred that it filed its Complaint-in-Intervention before the RTC dismissing the complaint of private

respondents. It pointed out that the dismissal of the main case does not necessarily result in the

dismissal of its ancillary action because it has a legal interest in the matter in litigation, that is, it is so

situated as to be adversely affected by the distribution or other disposition of the property in question. It

thus behooved the court to have ordered respondents to post a bond following its third-party claim over

the property for the collection of the wharfage and arrastre fees/charges.

On November 30, 2004, the CA rendered judgment dismissing the petition for lack of merit. 28 The

appellate court ruled that the RTC had no jurisdiction over the complaint filed by respondents. Under the

Customs and Tarriff Code, the Collector of Customs sitting in seizure and forfeiture proceedings had the

exclusive jurisdiction to hear and determine all questions relating on the seizure and forfeiture of

dutiable goods. The RTC had no review powers over such proceedings; it is the Court of Tax Appeals

under RA No. 1125. Since the RTC had no jurisdiction over the main case, it was also bereft of authority

to hear the third-party claim or the complaint-in-intervention filed by ATI. Citing Saw v. Court of

Appeals, 29 the appellate court ruled that intervention was not an independent proceeding but merely

an ancillary and supplemental one, which, in the nature of things, is subordinate to the main proceeding

unless otherwise provided for by statute or by the Rules of Court. The general rule is that an intervention

is limited to the field of litigation open to the original parties. The RTC had dismissed the main action;

thus, there was no more principal proceeding in which petitioner ATI may intervene.

ATI filed a motion for reconsideration, which the CA denied through its January 28, 2005 Resolution. 30

In the present petition, ATI (now petitioner) raises the following issues:

1. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN

DISMISSING THE THIRD-PARTY CLAIM WHICH WAS CONVERTED INTO

39

A COMPLAINT-IN-INTERVENTION BASED ON THE GROUND THAT IT IS

ANCILLARY TO THE DISMISSED MAIN ACTION. AHDacC

2. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN

DISMISSING THE THIRD-PARTY CLAIM WHICH WAS CONVERTED INTO

A COMPLAINT-IN-INTERVENTION BASED ON THE GROUND THAT THE

COURT A QUO HAS NO JURISDICTION OVER THE PRINCIPAL ACTION.

3. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN

DISMISSING THE COMPLAINT IN INTERVENTION ON THE BASIS OF

THE RULING IN BARANGAY MATICTIC VS. ELBINIAS (148 SCRA 83). 31

Citing Metropolitan Bank and Trust Company v. The Presiding Judge, RTC, Manila Branch

39, 32 petitioner maintains that the dismissal of the original complaint filed by respondents cannot, in

any way, result in the denial of its complaint-in-intervention. It posits that its consent as intervenor is

necessary for the dismissal of the main action, and that the original parties cannot "isolate" it and agree,

among themselves, to dismiss the complaint. Petitioner asserts that, even if the original complaint was

properly dismissed, its complaint-in-intervention survives the original complaint and may proceed as

long as the existence of an actual controversy had been established by the pleadings. It insists that the

intervention has to be heard regardless of the disposition of the principal action.

Petitioner submits that even on the assumption that the lower court has no jurisdiction over the

principal action, the third-party complaint may still be maintained.

Petitioner further contends that the appellate court erred in relying on Barangay Matictic v.

Elbinias 33 because in that case, the third-party-complaint was filed after the decision in the main case

had already become final, whereas, in the present case, the third-party claim and third-party complaint

before the RTC dismissed respondents' action. Petitioner maintains that the Metropolitan case is thus

applicable, and points out that the Court therein ruled that the complaint-in-intervention should be

preserved regardless of the outcome of the original complaint.

For their part, respondents assert that the CA decision is in accord with the Rules of Court.

We are thus tasked to resolve the issue of whether the CA erred in dismissing the petition

for certiorari of the petitioner.

The petition is denied for lack of merit.

We rule that the trial court acted in accordance with the Tariff and Customs Code (TCC) and the rulings

of this Court when it issued the assailed Orders.

Section 602 of the TCC provides that the Bureau of Customs shall exercise exclusive jurisdiction over

seized and forfeited cars. It is tasked to enforce tariff, and supervise and control customs law and all

other laws, rules and regulations relating to the tariff and customs administration; and to supervise and

control all import and export cargoes, loaded or stored in piers, terminal facilities, including container

yards and freight stations, for the protection of government revenues. Under Section 2301 of the TCC,

the Collector of Customs is empowered to make a seizure of cargoes and issue a receipt for the

detention thereof:

SEC. 2301. Warrant for Detention of Property-Cash Bond. — Upon making any

seizure, the Collector shall issue a warrant for the detention of the

property; and if the owner or importer desires to secure the release of the

property for legitimate use, the Collector shall, with the approval of the

Commissioner of Customs, surrender it upon the filing of a cash bond , in an

amount to be fixed by him, conditioned upon the payment of the appraised

value of the article and/or any fine, expenses and costs which may be adjudged

in the case: Provided, That such importation shall not be released under any

bond when there is a prima facie evidence of fraud in the importation of the

article: Provided further, That articles the importation of which is prohibited by

law shall not be released under any circumstance whomsoever, Provided,

finally, That nothing in this section shall be construed as relieving the owner or

importer from any criminal liability which may arise from any violation of law

committed in connection with the importation of the article. (emphasis

supplied) ScAHTI

Section 2530 of the TCC enumerates the properties subject of seizure and forfeiture:

Section 2530. Property Subject of Forfeiture Under Tariff and Customs Laws. —

Any vehicle, vessel or aircraft, cargo, article and objects shall, under the

following conditions be subject to forfeiture:

xxx xxx xxx

(f) Any article the importation or exportation of which is effected or attempted

contrary to law, or any article of prohibited importation or exportation, and all

40

other articles which, in the opinion of the Collector, have been used, are or

were entered to be used as instruments in the importation or exportation of

the former.

As the Court ruled in Jao v. Court of Appeals, 34 Regional Trial Courts are devoid of any competence to

pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of

Customs and to enjoin or otherwise interfere with these proceedings. It is the Collector of Customs,

sitting in seizure and forfeiture proceedings, who has exclusive jurisdiction to hear and determine all

questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are

precluded from assuming cognizance over such matters even through petitions ofcertiorari, prohibition

or mandamus. The Court further explained:

It is likewise well-settled that the provisions of the Tariff and Customs Code and

that of Republic Act No. 1125, as amended, otherwise known as "An Act

Creating the Court of Tax Appeals," specify the proper fora and procedure for

the ventilation of any legal objections or issues raised concerning these

proceedings. Thus, actions of the Collector of Customs are appealable to the

Commissioner of Customs, whose decision, in turn, is subject to the exclusive

appellate jurisdiction of the Court of Tax Appeals and from there to the Court of

Appeals.

The rule that Regional Trial Courts have no review powers over such

proceedings is anchored upon the policy of placing no unnecessary hindrance

on the government's drive, not only to prevent smuggling and other frauds

upon Customs, but more importantly, to render effective and efficient the

collection of import and export duties due the State, which enables the

government to carry out the functions it has been instituted to perform. 35

Thus, the RTC had no jurisdiction to take cognizance of the petition for replevin by respondents herein,

issue the writ of replevin and order its enforcement. The Collector of Customs had already seized the

vehicles and set the sale thereof at public auction. The RTC should have dismissed the petition for

replevin at the outset. By granting the plea of respondents (plaintiffs below) for the seizure of the

vehicles and the transfer of custody to the court, the RTC acted without jurisdiction over the action and

the vehicles subject matter thereof. It bears stressing that the forfeiture of seized goods in the Bureau of

Customs is a proceeding against the goods and not against the owner. It is in the nature of a

proceeding in rem, i.e., directed against the res or imported articles and entails a determination of the

legality of their importation. In this proceeding, it is, in legal contemplation, the property itself which

commits the violation and is treated as the offender,without reference whatsoever to the character or

conduct of the owner. 36

In fine, the initial orders of the RTC granting the issuance of the writ of replevin and its implementation

are void. 37 While it is true that the District Collector of Customs allowed the release of the vehicles and

the transfer thereof to the custody of the RTC upon the payment by the private respondents of the

required taxes, duties and charges, he did not thereby lose jurisdiction over the vehicles; neither did it

vest jurisdiction on the RTC to take cognizance of and assume jurisdiction over the petition for replevin.

As very well explained by the Office of the Solicitor General, the District Collector of Customs agreed to

transfer the vehicles to the custody of the RTC since the latter had ordered the arrest of those who

would obstruct the implementation of the writ. The District Collector of Customs had yet to resolve

whether to order the vehicles forfeited in favor of the government, in light of the opinion of the

Secretary of Justice that, under RA No. 8506, the importation was illegal. EICDSA

The RTC cannot be faulted for dismissing petitioner's complaint-in-intervention. Considering that it had

no jurisdiction over respondents' action and over the shipment subject of the complaint, all proceedings

before it would be void. 38 The RTC had no jurisdiction to take cognizance of the complaint-in-

intervention and act thereon except to dismiss the same. Moreover, considering that intervention is

merely ancillary and supplemental to the existing litigation and never an independent action, 39 the

dismissal of the principal action necessarily results in the dismissal of the complaint-in-intervention.

Likewise, a court which has no jurisdiction over the principal action has no jurisdiction over a complaint-

in-intervention. Intervention presupposes the pendency of a suit in a court of competent

jurisdiction. 40 Jurisdiction of intervention is governed by jurisdiction of the main action. 41

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Court of Appeals Decision in CA-G.R. SP

No. 61562 is AFFIRMED.

41

THIRD DIVISION

[G.R. No. 137705. August 22, 2000.]

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI

LEASING AND FINANCE, INC., respondent.

Antonio R. Bautista & Partners for petitioners.

Perez & Calima Law Offices for respondent.

SYNOPSIS

On February 13, 1998, respondent PCI Leasing and Finance Inc. filed with the RTC of Quezon City a

complaint for sum of money, with an application for a writ of replevin. On March 6, 1998, respondent

judge issued a writ of replevin directing its sheriff to seize and deliver the machineries and equipment to

PCI Leasing after 5 days and upon payment of the necessary expenses. The sheriff proceeded to

petitioner's factory and seized one machinery. On March 25, 1998, petitioner filed a motion for special

protective order invoking the power of the court to control the conduct of its officers and amend and

control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin.

The motion was opposed by PCI on the ground that the properties were personal and therefore still

subject to seizure and writ of replevin. In their reply, petitioners asserted that the properties were

immovable. They further stated that PCI was estopped from treating these machineries as personal

because the contracts were totally sham and farcical. On April 7, 1998, petitioners went to the Court of

Appeals via an original action for certiorari. The Court of Appeals ruled that the subject machines were

personal property as provided by the agreement of the parties. Hence, this petition. TaCEHA

The Court found the petition not meritorious. The Court ruled that the contracting parties may validly

stipulate that a real property be considered as personal. After agreeing to such stipulation, they are

consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is

ordinarily precluded from denying the truth of any material fact found therein. In the present case, the

lease agreement clearly provides that the machines in question are to be considered as personal

properties. Clearly then, petitioners were estopped from denying the characterization of the subject

machines as personal property. Under the circumstances, they are proper subject of the writ of seizure.

Accordingly, the petition was denied and the assailed decision of the Court of Appeals was affirmed.

SYLLABUS

1. CIVIL LAW; CONTRACTS; CONTRACTING PARTIES MAY VALIDLY STIPULATE THAT REAL PROPERTY BE

CONSIDERED AS PERSONAL. — The Court has held that contracting parties may validly stipulate that a

real property be considered as personal. After agreeing to such stipulation, they are consequently

estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily

precluded from denying the truth of any material fact found therein. Hence, in Tumalad v. Vicencio, the

Court upheld the intention of the parties to treat a house as a personal property because it had been

made the subject of a chattel mortgage. The Court ruled: ". . . . Although there is no specific statement

referring to the subject house as personal property, yet by ceding, selling or transferring a property by

way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or

at least, intended to treat the same as such, so that they should not now be allowed to make an

inconsistent stand by claiming otherwise." Applying Tumalad, the Court in Makati Leasing and Finance

Corp. v. Wearever Textile Mills also held that the machinery used in a factory and essential to the

industry, as in the present case, was a proper subject of a writ of replevin because it was treated as

personal property in a contract. CcaASE

2. ID.; ID.; ID.; THIRD PERSONS ACTING IN GOOD FAITH ARE NOT AFFECTED BY STIPULATION

CHARACTERIZING MACHINERY AS PERSONAL. — In the present case, the Lease Agreement clearly

provides that the machines in question are to be considered as personal property. Specifically, Section

12.1 of the Agreement reads as follows: "12.1 The PROPERTY is, and shall at all times be and remain,

personal property notwithstanding that the PROPERTY or any part thereof may now be, or hereafter

become, in any manner affixed or attached to or embedded in, or permanently resting upon, real

property or any building thereon, or attached in any manner to what is permanent." Clearly then,

petitioners are estopped from denying the characterization of the subject machines as personal

property. Under the circumstances, they are proper subjects of the Writ of Seizure. It should be stressed,

however, that our holding — that the machines should be deemed personal property pursuant to the

Lease Agreement — is good only insofar as the contracting parties are concerned. Hence, while the

parties are bound by the Agreement, third persons acting in good faith are not affected by its stipulation

characterizing the subject machinery as personal. In any event, there is no showing that any specific third

party would be adversely affected.

42

3. REMEDIAL LAW; PROVISIONAL REMEDIES; REPLEVIN; THE REMEDY OF DEFENDANTS UNDER RULE 60

WAS EITHER TO POST A COUNTER-BOND OR TO QUESTION THE SUFFICIENCY OF PLAINTIFF'S BOND. —

The validity and the nature of the contract are the lis mota of the civil action pending before the RTC. A

resolution of these questions, therefore, is effectively a resolution of the merits of the case. Hence, they

should be threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondeña Distillers v. CA, the Court explained that the policy under Rule 60 was that

questions involving title to the subject property — questions which petitioners are now raising — should

be determined in the trial. In that case, the Court noted that the remedy of defendants under Rule 60

was either to post a counter-bond or to question the sufficiency of the plaintiff's bond. They were not

allowed, however, to invoke the title to the subject property. The Court ruled: "In other words, the law

does not allow the defendant to file a motion to dissolve or discharge the writ of seizure (or delivery) on

ground of insufficiency of the complaint or of the grounds relied upon therefor, as in proceedings on

preliminary attachment or injunction, and thereby put at issue the matter of the title or right of

possession over the specific chattel being replevied, the policy apparently being that said matter should

be ventilated and determined only at the trial on the merits." THADEI

D E C I S I O N

PANGANIBAN, J p:

After agreeing to a contract stipulating that a real or immovable property be considered as personal or

movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper

subject of a writ of replevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision 1 of the Court of

Appeals (CA) 2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution 3denying reconsideration.

The decretal portion of the CA Decision reads as follows: IEAacT

"WHEREFORE, premises considered, the assailed Order dated February 18, 1998

and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby

AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is hereby

LIFTED." 4

In its February 18, 1998 Order, 5 the Regional Trial Court (RTC) of Quezon City (Branch 218) 6 issued a

Writ of Seizure. 7 The March 18, 1998 Resolution 8 denied petitioners' Motion for Special Protective

Order, praying that the deputy sheriff be enjoined "from seizing immobilized or other real properties in

[petitioners'] factory in Cainta, Rizal and to return to their original place whatever immobilized

machineries or equipments he may have removed." 9

The Facts

The undisputed facts are summarized by the Court of Appeals as follows: 10

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing

for short) filed with the RTC-QC a complaint for [a] sum of money (Annex 'E'),

with an application for a writ of replevin docketed as Civil Case No. Q-98-33500.

"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent

judge issued a writ of replevin (Annex 'B') directing its sheriff to seize and

deliver the machineries and equipment to PCI Leasing after 5 days and upon the

payment of the necessary expenses.

"On March 24, 1998, in implementation of said writ, the sheriff proceeded to

petitioner's factory, seized one machinery with [the] word that he [would]

return for the other machineries.

"On March 25, 1998, petitioners filed a motion for special protective order

(Annex 'C'), invoking the power of the court to control the conduct of its officers

and amend and control its processes, praying for a directive for the sheriff to

defer enforcement of the writ of replevin.

"This motion was opposed by PCI Leasing (Annex 'F'), on the ground that the

properties [were] still personal and therefore still subject to seizure and a writ

of replevin.

"In their Reply, petitioners asserted that the properties sought to be seized

[were] immovable as defined in Article 415 of the Civil Code, the parties'

agreement to the contrary notwithstanding. They argued that to give effect to

the agreement would be prejudicial to innocent third parties. They further

stated that PCI Leasing [was] estopped from treating these machineries as

personal because the contracts in which the alleged agreement [were]

embodied [were] totally sham and farcical.

43

"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and

take possession of the remaining properties. He was able to take two more, but

was prevented by the workers from taking the rest.

"On April 7, 1998, they went to [the CA] via an original action for certiorari."

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were personal

property, and that they had only been leased, not owned, by petitioners. It also ruled that the "words of

the contract are clear and leave no doubt upon the true intention of the contracting parties." Observing

that Petitioner Goquiolay was an experienced businessman who was "not unfamiliar with the ways of

the trade," it ruled that he "should have realized the import of the document he signed." The CA further

held:

"Furthermore, to accord merit to this petition would be to preempt the trial

court in ruling upon the case below, since the merits of the whole matter are

laid down before us via a petition whose sole purpose is to inquire upon the

existence of a grave abuse of discretion on the part of the [RTC] in issuing the

assailed Order and Resolution. The issues raised herein are proper subjects of a

full-blown trial, necessitating presentation of evidence by both parties. The

contract is being enforced by one, and [its] validity is attacked by the other — a

matter . . . which respondent court is in the best position to determine."

Hence, this Petition. 11

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:

"A. Whether or not the machineries purchased and imported by SERG'S became

real property by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease." 12

In the main, the Court will resolve whether the said machines are personal, not immovable, property

which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also address

briefly the procedural points raised by respondent.

The Court's Ruling

The Petition is not meritorious.

Preliminary Matter:

Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule

45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded Judge

Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support in the very

title of the Petition, which is "Petition for Review on Certiorari." 13

While Judge Laqui should not have been impleaded as a respondent, 14 substantial justice requires that

such lapse by itself should not warrant the dismissal of the present Petition. In this light, the Court

deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the present case.

Main Issue:

Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ

issued by the RTC because they were in fact real property. Serious policy considerations, they argue,

militate against a contrary characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal

property only. 15 Section 3 thereof reads:

"SECTION 3. Order. — Upon the filing of such affidavit and approval of the

bonds, the court shall issue an order and the corresponding writ of replevin

describing the personal property alleged to be wrongfully detained and

requiring the sheriff forthwith to take such property into his custody."

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:

ARTICLE 415. The following are immovable property: HCTEDa

xxx xxx xxx

44

(5) Machinery, receptacles, instruments or implements intended by the owner

of the tenement for an industry or works which may be carried on in a building

or on a piece of land, and which tend directly to meet the needs of the said

industry or works.

xxx xxx xxx"

In the present case, the machines that were the subjects of the Writ of Seizure were placed by

petitioners in the factory built on their own land. Indisputably, they were essential and principal

elements of their chocolate-making industry. Hence, although each of them was movable or personal

property on its own, all of them have become "immobilized by destination because they are essential

and principal elements in the industry." 16 In that sense, petitioners are correct in arguing that the said

machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code. 17

Be that as it may, we disagree with the submission of the petitioners that the said machines are not

proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real property be considered as

personal. 18After agreeing to such stipulation, they are consequently estopped from claiming otherwise.

Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of

any material fact found therein.

Hence, in Tumalad v. Vicencio, 19 the Court upheld the intention of the parties to treat a house as a

personal property because it had been made the subject of a chattel mortgage. The Court ruled:

". . . Although there is no specific statement referring to the subject house as

personal property, yet by ceding, selling or transferring a property by way of

chattel mortgage defendants-appellants could only have meant to convey the

house as chattel, or at least, intended to treat the same as such, so that they

should not now be allowed to make an inconsistent stand by claiming

otherwise."

Applying Tumalad, the Court in Makati Leasing and FinanceCorp. v. Wearever Textile Mills 20 also held

that the machinery used in a factory and essential to the industry, as in the present case, was a proper

subject of a writ of replevin because it was treated as personal property in a contract. Pertinent portions

of the Court's ruling are reproduced hereunder:

". . . if a house of strong materials, like what was involved in the

above Tumalad case, may be considered as personal property for purposes of

executing a chattel mortgage thereon as long as the parties to the contract so

agree and no innocent third party will be prejudiced thereby, there is absolutely

no reason why a machinery, which is movable in its nature and becomes

immobilized only by destination or purpose, may not be likewise treated as

such. This is really because one who has so agreed is estopped from denying the

existence of the chattel mortgage."

In the present case, the Lease Agreement clearly provides that the machines in question are to be

considered as personal property. Specifically, Section 12.1 of the Agreement reads as follows: 21

"12.1 The PROPERTY is, and shall at all times be and remain, personal property

notwithstanding that the PROPERTY or any part thereof may now be, or

hereafter become, in any manner affixed or attached to or embedded in, or

permanently resting upon, real property or any building thereon, or attached in

any manner to what is permanent."

Clearly then, petitioners are estopped from denying the characterization of the subject machines as

personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding — that the machines should be deemed personal

property pursuant to the Lease Agreement — is good only insofar as the contracting parties are

concerned. 22 Hence, while the parties are bound by the Agreement, third persons acting in good faith

are not affected by its stipulation characterizing the subject machinery as personal. 23 In any event,

there is no showing that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a lease. 24 Submitting

documents supposedly showing that they own the subject machines, petitioners also argue in their

Petition that the Agreement suffers from "intrinsic ambiguity which places in serious doubt the intention

of the parties and the validity of the lease agreement itself." 25In their Reply to respondent's Comment,

they further allege that the Agreement is invalid. 26

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the

civil action pending before the RTC. A resolution of these questions, therefore, is effectively a resolution

45

of the merits of the case. Hence, they should be threshed out in the trial, not in the proceedings

involving the issuance of the Writ of Seizure.

Indeed, in La Tondeña Distillers v. CA, 27 the Court explained that the policy under Rule 60 was that

questions involving title to the subject property — questions which petitioners are now raising — should

be determined in the trial. In that case, the Court noted that the remedy of defendants under Rule 60

was either to post a counter-bond or to question the sufficiency of the plaintiff's bond. They were not

allowed, however, to invoke the title to the subject property. The Court ruled:

"In other words, the law does not allow the defendant to file a motion to

dissolve or discharge the writ of seizure (or delivery) on ground of insufficiency

of the complaint or of the grounds relied upon therefor, as in proceedings on

preliminary attachment or injunction, and thereby put at issue the matter of the

title or right of possession over the specific chattel being replevied, the policy

apparently being that said matter should be ventilated and determined only at

the trial on the merits." 28

Besides, these questions require a determination of facts and a presentation of evidence, both of which

have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court

under Rule 45. 29

Reliance on the

Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on

record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC

proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed valid

and binding as the law between the parties.

Makati Leasing and Finance Corporation 30 is also instructive on this point. In that case, the Deed of

Chattel Mortgage, which characterized the subject machinery as personal property, was also assailed

because respondent had allegedly been required "to sign a printed form of chattel mortgage which was

in a blank form at the time of signing." The Court rejected the argument and relied on the Deed, ruling as

follows:

". . . Moreover, even granting that the charge is true, such fact alone does not

render a contract void ab initio, but can only be a ground for rendering said

contract voidable, or annullable pursuant to Article 1390 of the new Civil Code,

by a proper action in court. There is nothing on record to show that the

mortgage has been annulled. Neither is it disclosed that steps were taken to

nullify the same. . . ."

Alleged Injustice Committed

on the Part of Petitioners

Petitioners contend that "if the Court allows these machineries to be seized, then its workers would be

out of work and thrown into the streets." 31 They also allege that the seizure would nullify all efforts to

rehabilitate the corporation.

Petitioners' arguments do not preclude the implementation of the Writ. As earlier discussed, law and

jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true,

should not be blamed on this Court, but on the petitioners for failing to avail themselves of the remedy

underSection 5 of Rule 60, which allows the filing of a counter-bond. The provision states:

"SECTION 5. Return of property. — If the adverse party objects to the sufficiency

of the applicant's bond, or of the surety or sureties thereon, he cannot

immediately require the return of the property, but if he does not so object, he

may, at any time before the delivery of the property to the applicant, require

the return thereof, by filing with the court where the action is pending a bond

executed to the applicant, in double the value of the property as stated in the

applicant's affidavit for the delivery thereof to the applicant, if such delivery be

adjudged, and for the payment of such sum to him as may be recovered against

the adverse party, and by serving a copy bond on the applicant."

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs

against petitioners. TH

46

THIRD DIVISION

[G.R. No. 165895. June 5, 2009.]

TERLYNGRACE RIVERA, petitioner, vs. FLORENCIO L. VARGAS, respondent.

D E C I S I O N

NACHURA, J p:

What is the effect of a writ of replevin that has been improperly served?

This is the sole issue to be resolved in this petition for review on certiorari seeking to set

aside the Decision 1of the Court of Appeals (CA) dated November 18, 2003 in CA-G.R. SP No. 78529,

as well as its October 20, 2004 Resolution, 2 denying the petition for certiorari filed by petitioner

Terlyngrace Rivera (Rivera). DcAEIS

The facts follow.

On February 24, 2003, respondent Florencio Vargas (Vargas) filed a complaint 3 against

petitioner and several John Does before Branch 02 of the Regional Trial Court (RTC) in Tuguegarao

City, Cagayan, for the recovery of a 150 T/H rock crushing plant located in Sariaya, Quezon. In his

complaint and affidavit, 4 Vargas claims ownership of the said equipment, having purchased and

imported the same directly from Hyun Dae Trading Co., in Seoul, South Korea, in December

1993. 5 The equipment was allegedly entrusted to petitioner's husband, Jan T. Rivera, who died

sometime in late 2002, as caretaker of respondent's construction aggregates business in Batangas.

According to Vargas, petitioner failed to return the said equipment after her husband's death

despite his repeated demands, thus forcing him to resort to court action. 6 The complaint was

accompanied by a prayer for the issuance of a writ of replevin and the necessary bond amounting

to P2,400,000.00.

Summons 7 dated February 24, 2003 was served upon petitioner through her personal

secretary on April 28, 2003 at her residence in Parañaque City. Interestingly, however, the writ of

replevin 8 was served upon and signed by a certain Joseph Rejumo, the security guard on duty in

petitioner's crushing plant in Sariaya, Quezon on April 29, 2003, 9 contrary to the sheriff's

return 10 stating that the writ was served upon Rivera.

On May 8, 2003, Rivera filed her answer, manifestation, and motion for the acceptance

of petitioner's redelivery bond. 11 In her answer, petitioner countered that the rock-crushing plant

was ceded in favor of her husband as his share following the dissolution of the partnership formed

between Jan Rivera and respondent's wife, Iluminada Vargas (Iluminada), on May 28, 1998, while

the partnership's second rock-crushing plant in Cagayan was ceded in favor of Iluminada. 12 She

further averred that from the time that the partnership was dissolved sometime in 2000 until Jan

Rivera's death in late 2002, it was petitioner's husband who exercised ownership over the said

equipment without any disturbance from respondent.13

On May 12, 2003, the RTC issued an Order 14disapproving petitioner's redelivery bond

application for failure to comply with the requirements under Sections 5 and 6 of Rule 60 of the

Rules of Court. 15 Without directly saying so, the RTC faulted petitioner for her failure to file the

application for redelivery bond within five (5) days from the date of seizure as provided in the Rules

of Court. Petitioner moved for reconsideration, 16 but the same was also denied. 17

Aggrieved, petitioner elevated the matter to the CA through a petition

for certiorari under Rule 65. This, too, was denied for lack of merit. 18 Petitioner moved for

reconsideration, 19 but it was also denied. 20 cCAIDS

Undaunted, petitioner now comes to us via this Rule 45 petition.

Petitioner argues that the RTC committed grave abuse of discretion in denying her

counterbond on the ground that it was filed out of time. She contends that the mandatory five-day

period did not even begin to run in this case due to the improper service of the writ of replevin,

contrary to Section 4 of Rule 60. 21

We find the petition meritorious.

Replevin is one of the most ancient actions known to law, taking its name from the

object of its process. 22 It originated in common law as a remedy against the wrongful exercise of

the right of distress for rent 23 and, according to some authorities, could only be maintained in

such a case. 24 But by the weight of authority, the remedy is not and never was restricted to cases

of wrongful distress in the absence of any statutes relating to the subject, but is a proper remedy

for any unlawful taking. 25"Replevied", used in its technical sense, means delivered to the

owner, 26 while the words "to replevy" means to recover possession by an action of replevin. 27

47

Broadly understood in this jurisdiction, replevin is both a form of principal remedy and

of provisional relief. It may refer either to the action itself, i.e., to regain the possession of personal

chattels being wrongfully detained from the plaintiff by another, or to the provisional remedy that

would allow the plaintiff to retain the thing during the pendency of the action and to hold

it pendente lite. 28 The action is primarily possessory in nature and generally determines nothing

more than the right of possession. 29

The law presumes that every possessor is a possessor in good faith. 30 He is entitled to

be respected and protected in his possession 31 as if he were the true owner thereof until a

competent court rules otherwise. 32Before a final judgment, property cannot be seized unless by

virtue of some provision of law. 33 The Rules of Court, under Rule 60, authorizes such seizure in

cases of replevin. However, a person seeking a remedy in an action for replevin must follow the

course laid down in the statute, since the remedy is penal in nature. 34 When no attempt is made

to comply with the provisions of the law relating to seizure in this kind of action, the writ or order

allowing the seizure is erroneous and may be set aside on motion 35 by the adverse party. Be it

noted, however, that a motion to quash the writ of replevin goes to the technical regularity of

procedure, and not to the merits of the case 36 in the principal action.

The process regarding the execution of the writ of replevin in Section 4 of Rule 60 is

unambiguous: the sheriff, upon receipt of the writ of replevin and prior to the taking of the

property, must serve a copy thereof to the adverse party (petitioner, in this case) together with the

application, the affidavit of merit, and the replevin bond. 37The reasons are simple, i.e., to provide

proper notice to the adverse party that his property is being seized in accordance with the court's

order upon application by the other party, and ultimately to allow the adverse party to take the

proper remedy consequent thereto. CTSAaH

Service of the writ upon the adverse party is mandatory in line with the constitutional

guaranty on procedural due process and as safeguard against unreasonable searches and

seizures. 38 If the writ was not served upon the adverse party but was instead merely handed to a

person who is neither an agent of the adverse party nor a person authorized to receive court

processes on his behalf, the service thereof is erroneous and is, therefore, invalid, running afoul of

the statutory and constitutional requirements. The service is likewise invalid if the writ of replevin

was served without the required documents. Under these circumstances, no right to seize and to

detain the property shall pass, the act of the sheriff being both unlawful and unconstitutional.

In the case at bar, petitioner avers that the writ of replevin was served upon the security

guard where the rock-crushing plant to be seized was located. 39 The signature of the receiving

party indicates that the writ was received on April 29, 2003 by a certain Joseph Rejumo, the guard

on duty in a plant in Sariaya, Quezon, where the property to be seized was located, and witnessed

by Claudio Palatino, respondent's caretaker. 40 The sheriff's return, 41 however, peremptorily

states that both the writ of replevin and the summons were served upon Rivera. On May 8, 2003,

or nine (9) days after the writ was served on the security guard, petitioner filed an answer to the

complaint accompanied by a prayer for the approval of her redelivery bond. The RTC, however,

denied the redelivery bond for having been filed beyond the five-day mandatory period prescribed

in Sections 5 and 6 of Rule 60. 42 But since the writ was invalidly served, petitioner is correct in

contending that there is no reckoning point from which the mandatory five-day period shall

commence to run.

The trial court is reminded that not only should the writ or order of replevin comply

with all the requirements as to matters of form or contents prescribed by the Rules of

Court. 43 The writ must also satisfy proper service in order to be valid and effective: i.e., it should

be directed to the officer who is authorized to serve it; and it should be served upon the person

who not only has the possession or custody of the property involved but who is also a party or

agent of a party to the action. Consequently, a trial court is deemed to have acted without or in

excess of its jurisdiction with respect to the ancillary action of replevin if it seizes and detains a

personalty on the basis of a writ that was improperly served, such as what happened in this case.

At the outset, petitioner's proper remedy should have been to file a motion to quash

the writ of replevin or a motion to vacate the order of seizure. Nevertheless, petitioner's filing of an

application for a redelivery bond, while not necessary, did not thereby waive her right to question

the improper service. It now becomes imperative for the trial court to restore the parties to their

former positions by returning the seized property to petitioner and by discharging the replevin

bond filed by respondent. The trial, with respect to the main action, shall continue. Respondent

may, however, file a new application for replevin should he choose to do so.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, as well as

its Resolution, in CA-G.R. SP No. 78529 is hereby SET ASIDE. The Regional Trial Court is hereby

ordered to restore the parties to their former positions, discharge respondent's replevin bond, and

proceed with the trial of the main action with dispatch.

48

SECOND DIVISION

[A.M. No. P-04-1920. August 17, 2007.]

SPOUSES NORMANDY and RUTH BAUTISTA, complainants, vs. ERNESTO L.

SULA, Sheriff IV, Regional Trial Court, Branch 98, Quezon City, respondent.

D E C I S I O N

CARPIO, J p:

The Facts

On 6 December 2003, Ruth B. Bautista (Ruth) borrowed P300,000 from Ceniza C. Glor (Glor). The loan,

payable in three months, bore a monthly interest of five percent. The three-month period commenced

on 6 December 2003 and expired on 6 March 2004. To secure the loan, Ruth executed a chattel

mortgage over her Honda CRV in favor of Glor. 1

Upon maturity of the loan, Glor repeatedly demanded payment from Ruth. Despite the repeated

demands, Ruth refused to pay her debt, or surrender possession of the vehicle. 2 Thus, on 6 May 2004,

Glor filed with the Regional Trial Court, Branch 98, Quezon City (trial court), a civil case 3 for judicial

foreclosure of chattel mortgage with prayer for the issuance of a writ of replevin.

Thereafter, the trial court issued a writ of replevin 4 dated 14 May 2004 directing Ernesto L. Sula

(respondent), Sheriff IV of the trial court, to take possession of the vehicle and keep it in his

custody: ADSTCa

WHEREAS, plaintiff Ceniza C. Glor, in the above-entitled case, having filed an

application with this Court praying for the seizure and delivery to Ceniza C. Glor

of the property, more particularly described hereafter, and having filed the

affidavit required by the Rules of Court and executed to the defendant a bond

in the sum of EIGHT HUNDRED THOUSAND PESOS ONLY (P800,000.00).

You are hereby ordered to take immediate possession of the following property

which is now detained by the defendant, to wit:

MAKE & TYPE : Honda CRV (Station Wagon)

MOTOR NO. : PEWD7P100308

CHASSIS NO. : PADRD1830WV000347

PLATE NO. : HRS-555

FILE NO. : 1320-00000161749

and to keep the said property in your possession for five (5) days. At the

expiration of the said period, you shall deliver, subject to the provisions of

Sections 5, 6 and 7 of Rule 60 of the Rules of Court, to the plaintiff the said

property, provided that your legal fees and all the necessary expenses are fully

paid. CADacT

Respondent enforced the writ on 17 May 2004. 5 On 20 May 2004, spouses Normandy R. Bautista and

Ruth B. Bautista (complainants) filed with the trial court an urgent motion 6 for the return of the vehicle

and submission of counter-bond. On 21 May 2004, complainants filed a motion 7 to withdraw the urgent

motion, attaching thereto an omnibus motion 8 for entry of appearance, urgent setting of hearing, and

redelivery of the vehicle to them. Pursuant to Section 5 of Rule 60, complainants required the return of

the vehicle to them by filing a counter-bond and serving Glor a copy of the counter-bond. 9

Because the trial court failed to approve complainants' counter-bond within the five-day period provided

in Section 6 of Rule 60, Glor, in a letter 10 dated 24 May 2004, asked respondent to deliver the vehicle to

her. In a letter 11 dated 26 May 2004, complainants asked respondent not to deliver the vehicle to Glor

because (1) pursuant to Section 5, they had required the return of the vehicle to them and filed the

corresponding counter-bond; (2) the vehicle's delivery to Glor was not justified under Section 6; and (3)

there was no order from the trial court directing the delivery to Glor. In a letter 12dated 26 May 2004,

Glor reiterated her demand on respondent to deliver the vehicle to her; otherwise, she would be

constrained to pursue legal actions against him.

On 26 May 2004, complainants alleged that respondent approached them in the Quezon City Hall of

Justice building asking them to wait for him by the benches at the back of the second floor. There,

respondent told them that he was willing to ignore Glor's request in exchange for P20,000. With a little

hesitation, they offered him P3,000 and promised to give the balance on the following day. Respondent

agreed and immediately received the P3,000. On the next day, however, complainants did not give the

balance. They asked respondent if he could give them more time to raise the money. Respondent was

irked by this. Complainants alleged that:

49

At 4:50 P.M. he came to us at the designated place and while we were reading

his Sheriff's Manifestation, he said he had not eaten lunch yet because in his

words "dahil sa paggawa ko ngManifestation at sama ng loob dahil ako ang

naipit dito sa kaso nyo, si judge kasi ang bagal mag-

release ng order. Kakasuhan na ko saOmbudsman ng plaintiff." Trying to clarify

what he meant about this, we ask [sic] him what we on our part need [sic] to do

so that the property will be ensured that its [sic] under the custody of the court

or "custodia legis" until such time that the Honorable Court could resolve our

motion. However we were totally surprised when he said that "Nasa sa inyo yan

pero yun kasing kabila talagang desidido na makuha ang property, kung

makapagbigay kayo ng kahit Twenty (20) Thousand sa akin magagawan natin

yan ng paraan na di makuha ng plaintiff, yun ay kung gusto nyo lang, kasi pag

napunta yan sa kanila baka di nyo na makita yan." IcSHTA

[With] those words from Sheriff IV Ernesto L. Sula it became clear to us that he

was asking money to favor us in the disposition of the property, I replied that

the only cash we have [sic] at the time was only Three (3) Thousand Pesos and

ask [sic] him if he could accept it for the meantime and that we will come up

with the balance on the following morning. He said "Cge pero siguraduhin nyo

lang maibigay nyo ang balanse bukas ng maaga kasi meron din akong bibigyan

para safe din ako. Ganito kasi dito kailangan may nakakaalam na mas mataas

para may proteksiyon tayo." At this point I asked my wife, Ruth B. Bautista what

she thought about it and she said its [sic] up to me and thereafter I gestured to

give him the Three (3) Thousand Pesos which he said "Isimple mo lang ang abot

para walang makapansin" and I simply slipped the money in his hand and after

he received the money put his hand immediately in his pocket. . . .

[O]n the following day 27th May 2004 at 8:10 A.M. We met him at the benches

at the back of the 3rd floor of the Justice Hall Bldg. We immediately apologized

and told him that we failed to borrow money for the balance of our agreement

and ask [sic] if he could wait until at [sic] Friday 29th May 2004 to come up with

the balance of our agreement because it might take some time before we can

raise it. . . . He answered that "Medyo mahirap pala kayong kausap" and left

us. 13

On 27 May 2004, respondent filed a sheriff's manifestation asking the trial court's guidance on whether

he should deliver the vehicle to Glor or keep it in custodia legis:

[T]his Manifestation is respectfully filed before the Honorable Court, in order

that he maybe [sic] guided on whether he should release the vehicle as

demanded by plaintiff or hold its release until such time that the Motions and

Counter[-]bond filed by defendants is [sic] resolved as requested by the

defendant. 14

Without waiting for the trial court's instructions regarding the vehicle, respondent filed his sheriff's

return on 28 May 2004 stating that he had already delivered the vehicle to Glor: ISHaTA

[O]n May 27, 2004, after the expiration of the five (5) days [sic] period and in

the absence of any Court Order/s, undersigned turned-over the possession of

the motor vehicle to the Plaintiff as per Court/Sheriff's Receipt hereto

attached. 15

On 31 May 2004, complainants alleged that they went to the trial court to check on the vehicle and to

look for respondent. There, respondent admitted to them that he had already delivered the vehicle to

Glor — he acted on his own discretion. Complainants asked respondent how much he received from Glor

and why he did not give them a chance to fulfill their agreement. He just said "pasensiyahan na lang

tayo." 16

On 2 and 7 June 2004, complainants filed with the Office of the Ombudsman and the Office of the Court

Administrator (OCA), respectively, a joint affidavit-complaint 17 against respondent. Since the acts

complained of were related to respondent's functions as an officer of the court, the Office of the

Ombudsman, in its 1st Indorsement 18 dated 20 July 2004, referred the matter to the OCA.

In his comment 19 dated 4 August 2004, respondent prayed that the instant case be dismissed because:

1. Complainants' accusations against him were malicious and unfounded. They

filed the instant case against him because they "amassed so much

anxiety and wrath against respondent to the point of even telling

telltales." They felt aggrieved because of the vehicle's delivery to

Glor and its subsequent foreclosure. aEHADT

2. He was only guided by the orders of the court and, in their absence, by the

Rules of Court particularly Rule 60. Under Section 6 of the said Rule,

50

the vehicle's delivery to Glor followed as a matter of course because

she posted a bond which was approved by the court. On the other

hand, up to the time of the delivery, complainants' counter-bond

had not been approved by the court.

3. Complainants' accusation that he asked for P20,000 was incredulous and a

total lie. He never dealt clandestinely with complainants, much less

demanded money from them. He did not personally know Glor, nor

was he acquainted with complainants.

4. Complainants had no evidence to support their accusation. If it were true

that he asked and received money from them, it would have been

easy for them to entrap him, yet, they did not do so.

5. He enjoyed the presumption of regularity in the performance of his duties.

In their comment 20 to respondent's comment dated 4 August 2004, complainants prayed that

respondent be preventively suspended pending the investigation of the case. They alleged that they had

a witness who was willing to testify on the circumstances surrounding respondent's demand and receipt

of the money from them. However, the witness did not want to testify unless respondent was placed

under preventive suspension because she was afraid that her testimony would endanger her means of

livelihood inside the Hall of Justice building.

The Office of the Court Administrator's

Report and Recommendations

In its memorandum 21 dated 14 October 2004, the OCA found that respondent erred when he released

the vehicle to Glor without waiting for the trial court's instructions on who had a better right over the

vehicle. The OCA recommended that the case be re-docketed as a regular administrative matter and that

respondent be held liable for grave abuse of authority and fined P4,000. The OCA recommended that the

charges for violation of the Anti-Graft and Corrupt Practices Act, gross ignorance of the law, and conduct

prejudicial to the best interest of the service be dismissed for insufficiency of evidence. TAIcaD

In a Resolution 22 dated 8 December 2004, the Court ordered the re-docketing of the case as a regular

administrative matter and, in a Resolution 23 dated 16 March 2005, the Court required the parties to

manifest if they were willing to submit the case for decision based on the pleadings already filed.

Complainants filed a motion 24 for further investigation and preventive suspension of respondent

pending the investigation of the case. They prayed that the case be referred to the Executive Judge of

the Regional Trial Court, Quezon City, for investigation. They also prayed that respondent be placed

under preventive suspension to allow their witness to testify without fear of being harassed by

respondent.

The Court noted complainants' motion for further investigation and preventive suspension and referred

the case to the OCA for investigation, report, and recommendation. 25 In an Order26 dated 24 August

2005, the OCA set the case for investigation on 15 and 16 September 2005. In the investigation, only

respondent appeared. 27 The complainants filed a manifestation and motion 28 dated 10 September

2005 stating that although they were willing to participate in the investigation, they could not convince

their witness to testify unless respondent was preventively suspended.

In a letter 29 dated 20 September 2005, the OCA returned therollo of the case together with

complainants' manifestation and motion to the Court for further instructions. In a Resolution 30dated 10

October 2005, the Court noted the said letter and referred the same to the OCA for report and

recommendation. Accordingly, the OCA set the case for investigation on 23 and 24 August

2006. 31 Again, only respondent appeared in the investigation. The complainants reiterated their claim

that they could not participate in the investigation unless respondent was preventively suspended. 32

In its Report 33 dated 13 September 2006, the OCA recommended that (1) the motion to preventively

suspend respondent be denied; (2) the previous recommendation imposing a fine of P4,000 on

respondent for grave abuse of authority be adopted; and (3) the charges for violation of the Anti -Graft

and Corrupt Practices Act, gross ignorance of the law, and conduct prejudicial to the best interest of the

service be dismissed for insufficiency of evidence. DcIHSa

The Court's Ruling

The Court finds respondent liable for simple misconduct.

On the Charge of Violation of the

Anti-Graft and Corrupt Practices Act,

Gross Ignorance of the Law, and

Conduct Prejudicial to the Best Interest of the Service

Complainants bear the burden of proving, by substantial evidence, the allegations in the complaint.

"Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to

support a conclusion." 34

In the instant case, complainants failed to substantiate the allegation that respondent violated the Anti -

Graft and Corrupt Practices Act. Aside from their bare allegation that respondent demanded and

51

received money from them, complainants did not present any substantial evidence to support the

charge. The only pieces of evidence they offered were (1) respondent's admission in his reply that he

approached complainants in the Hall of Justice building and (2) a witness who could testify on

respondent's alleged acts of demanding and receiving money from the complainants: AcSEHT

From the very words of the respondent Sheriff himself (page 5 of his Reply), he

admitted to have [sic] APPROACHED US when he furnished us a copy of his

Manifestation . . . . Why then did the respondent Sheriff approached [sic] us

when his Manifestation is addressed and concerns only the Court? To put to

rest that this is just a bare allegation, a third person is willing to present herself

to the investigation of this Honorable Office to testify to the truth of the

circumstances of the said incident which she personally witnessed but which

[sic] we could not reveal her identity at the moment upon her own request

because the said person makes her living in the hallway of the Hall of Justice of

Quezon City.35

Complainants, however, never appeared in any of the investigations, nor presented their witness. The

fact that respondent approached complainants in the Hall of Justice building is not enough basis for this

Court to conclude that respondent demanded and received money from them. On complainants'

witness, the OCA found that "[t]he alleged fear from harassment of the complainants' unnamed witness

[precluding her] to testify against the respondent unless the latter is suspended from office is purely

speculative." 36Complainants failed to present the quantum of evidence required to hold respondent

liable.

There is also no sufficient evidence to prove that respondent is guilty of gross ignorance of the law and

conduct prejudicial to the best interest of the service. As the OCA correctly held, "[t]he charges for Gross

Ignorance of the Law and Conduct Prejudicial to the Best Interest of the Service must likewise fail, for

insufficiency of evidence; if there was any fault by herein respondent, it was his overzealousness to

perform his duty."37

On the Charge of Simple Misconduct

The Court, however, finds respondent liable for simple misconduct. Simple misconduct has been defined

as an unacceptable behavior that transgresses the established rules of conduct for public officers. 38 It is

an unlawful behavior. 39"Misconduct in office is any unlawful behavior by a public officer in relation to

the duties of his office, willful in character. It generally means wrongful, improper, unlawful conduct

motivated by a premeditated, obstinate, or intentional purpose although it may not necessarily imply

corruption or criminal intent." 40

The OCA found that respondent erred when he delivered the vehicle to Glor without waiting for the trial

court's instructions on the matter: cDCIHT

In this case, plaintiff/applicant had posted a replevin bond duly approved by the

court. Nevertheless, one of the elements upon which the property subject of

replevin may be delivered to the plaintiff/applicant is lacking. There appears to

be no court order issued yet for the release of the aforementioned property to

the plaintiff/applicant. The order dated 12 May 2004 issued by the court only

directed respondent to take into his custody the subject motor vehicle.

Further, respondent filed a manifestation seeking guidance from the court on

the disposal of the seized property. Hence, respondent's justification that the

release of the seized property to the plaintiff/applicant follows as a matter of

course because the applicant/plaintiff had already filed a replevin bond to

answer for any damage that may be suffered by complainants may not be

given weight.

It must be stressed that the prerogatives of Sheriffs do not give them any

discretion to determine who among the parties is entitled to possession of the

subject property. The appropriate course of action should have been for

respondent to wait for the instructions of the court as to whom he will release

the property since he had already asked for its guidance through his

Manifestation which was submitted to the court virtually at the close of office

hours on 26 May 2004. Yet the following morning, he suddenly decided to

release the car to the plaintiff without waiting for any court order on the

matter. Such apparent haste raised questions on his actions and leaves doubts

as to his intent or interest in the case.

Moreover, under the Revised Rules of Court, the property seized under a writ

of replevin is not to be delivered immediately to the plaintiff. This is because a

possessor has every right to be respected in its possession and may not be

deprived of it without due process. DCcSHE

The purpose of the five (5) day period in Section 6, Rule 60 is to give defendants

in a replevin case a chance to require the return of the property by filing a

52

counter[-]bond. Considering that there was no court order to release the

property to the applicant/plaintiff and the complainants were able to require

the return of the property and file their counter[-]bond within the five (5) day

period required by the Rules, respondent should have been more circumspect

in releasing the property to the plaintiff/applicant. By hastily deciding to

release the seized property to the plaintiff/applicant without waiting for the

court's order, respondent patently abused his authority. (Emphasis ours)

Indeed, respondent went beyond the call of his duties when he delivered the vehicle to Glor. The writ of

replevin issued by the trial court specifically stated that the vehicle shall be delivered to Glor subject to

the provisions of Sections 5 and 6 of Rule 60. Yet, respondent opted to ignore these provisions.

Good faith on respondent's part, or lack of it, would be of no moment for he is chargeable with the

knowledge that being an officer of the court, his duty is to comply with the Rules. 41Sections 5 and 6 of

Rule 60 provide that:

SEC. 5. Return of property. — If the adverse party objects to the sufficiency of

the applicant's bond, or of the surety or sureties thereon, he cannot

immediately require the return of the property, but if he does not so object, he

may, at any time before the delivery of the property to the applicant, require

the return thereof, by filing with the court where the action is pending a bond

executed to the applicant, in double the value of the property as stated in the

applicant's affidavit for the delivery thereof to the applicant, if such delivery be

adjudged, and for the payment of such sum to him as may be recovered against

the adverse party, and by serving a copy of such bond on the applicant.

SEC. 6. Disposition of property by sheriff. —If within five (5) days after the

taking of the property by the sheriff, the adverse party does not object to the

sufficiency of the bond, or of the surety or sureties thereon; or if the adverse

party so objects and the court affirms its approval of the applicant's bond or

approves a new bond, or if the adverse party requires the return of the

property but his bond is objected to and found insufficient and he does not

forthwith file an approved bond, the property shall be delivered to the

applicant. If for any reason the property is not delivered to the applicant, the

sheriff must return it to the adverse party. (Emphasis ours)

Under Section 5, complainants may require the return of the vehicle by (1) posting a counter-bond in

double the value of the vehicle and (2) serving Glor with a copy of the counter-bond. Both requirements

must be complied with before the vehicle is delivered to Glor. Put differently: aECSHI

If a defendant in a replevin action wishes to have the property taken by the

sheriff restored to him, he should within five days from such taking, (1) post a

counter-bond in double the value of said property, and (2) serve plaintiff with a

copy thereof, both requirements — as well as compliance therewith within the

five-day period mentioned — being mandatory. . . .

Conformably, a defendant in a replevin suit may demand the return of

possession of the property replevined by filing a redelivery bond executed to

the plaintiff in double the value of the property as stated in the plaintiff's

affidavit within the period specified in Sections 5 and 6. 42

Under Section 6, the vehicle shall be delivered to Glor only under the following instances:

1. If within five days after the taking of the vehicle, complainants do not object

to the sufficiency of the bond or of the surety or sureties thereon;

2. If within five days after the taking of the vehicle, complainants object to the

sufficiency of the bond and the trial court affirms its approval of

Glor's bond or approves a new bond; or

3. If within five days after the taking of the vehicle, complainants require the

return of the vehicle and their bond is objected to and found

insufficient and they do not forthwith file an approved bond.

In the instant case, complainants duly complied with all of the requirements under Sections 5 and 6 for

the return of the vehicle. Respondent took possession of the vehicle on 17 May 2004. On 20 May 2004,

complainants filed their urgent motion for the return of the vehicle and submission of counter-bond and,

on 21 May 2004, they filed a motion to withdraw the urgent motion and change the same with an

omnibus motion. Both the urgent motion and the omnibus motion were filed before the delivery of the

vehicle to Glor and before the expiration of the five-day period. Later, the trial court approved

complainants' counter-bond. Thus, respondent committed an irregularity when he hastily delivered the

vehicle to Glor. EDCcaS

53

Under the Rules of Court, the sheriff should not immediately deliver the property seized under a writ of

replevin to the plaintiff. This is because defendants have every right to be respected in their possession

and may not be deprived of it without due process. 43 The purpose of the five-day period in Section 6 is

to give defendants in a replevin case a chance to require the return of the property by filing a counter-

bond. InPardo v. Velasco, 44 this Court held that:

Respondent as an officer of the Court is charged with certain ministerial duties

which must be performed faithfully to the letter. Every provision in the Revised

Rules of Court has a specific reason or objective. In this case, the purpose of the

five (5) days is to give a chance to the defendant to object to the sufficiency of

the bond or the surety or sureties thereon or require the return of the property

by filing a counter[-]bond.

In Sebastian v. Valino, 45 this Court held that:

Under the Revised Rules of Court, the property seized under a writ of replevin

is not to be delivered immediately to the plaintiff. The sheriff must retain it in

his custody for five days and he shall return it to the defendant, if the latter, as

in the instant case, requires its return and files a counter[-]bond (Sec. 4, Rule

60, Revised Rules of Court). (Emphasis ours)

The prerogatives of sheriffs do not include the discretion to determine who among the parties is entitled

to the possession of the property. Even when placed in a difficult situation, they are not called to

exercise their own discretion. In Cruz v. Villar, 46 the Court agreed with the OCA's observations:

The nature of their functions is essentially ministerial. Their prerogatives do not

give them any discretion to determine who among the parties is entitled to

possession of the subject properties. The appropriate course of action should

have been for respondents to inform their judge of the situation by way of a

partial Sheriff's Return and wait for instructions on the proper procedure to be

observed. These respondents failed to do. HAaDcS

Similarly, in Mamanteo v. Magumun, 47 this Court held that:

[T]he novelty of his predicament did not call for him to use his discretion . . .

without waiting for instructions from his judge. A sheriff's prerogative does not

give him the liberty to determine who among the parties is entitled to the

possession of the attached property.

Respondent's act of filing the manifestation seeking the trial court's guidance virtually at the close of

office hours on 26 May 2004 then delivering the vehicle to Glor in the morning of 27 May 2004 is highly

questionable. As the OCA held:

[R]espondent filed a Manifestation seeking guidance from the court on the

disposal of the seized property. Hence, respondent's justification that the

release of the seized property to plaintiff/applicant follows as a matter of

course because the applicant/plaintiff had already filed a replevin bond to

answer for any damage that may be suffered by complainants may not be given

weight.

The appropriate course of action should have been for respondent to wait for

the instructions of the court as to whom he will release the property since he

had already asked for its guidance through his Manifestation which was

submitted to the court virtually at the close of office hours on 26 May 2004. Yet

the following morning, he suddenly decided to release the car to the plaintiff

without waiting for any court order on the matter. Such apparent haste raised

questions on his action and leaves doubts as to his intent or interest in the

case. acADIT

Since respondent had filed a manifestation seeking the trial court's guidance, the most appropriate

course of action should have been for him to wait for the trial court's instructions on what he should do

with the vehicle. Assuming that the issue may have been too technical for respondent to decide on the

spot, it would have been prudent for him to let the trial court decide on the matter. However, he was

overzealous and delivered the vehicle to Glor without even giving the trial court a chance to act on his

manifestation. His unusual zeal and precipitate decision to give possession of the vehicle to Glor

effectively destroyed the presumption of regularity in the performance of his duties. 48 "While the

expeditious and efficient execution of court orders and writs is commendable, it should not, under any

circumstances, be done by departing from the Rules governing the same." 49

Respondent should execute the directives of the trial court strictly "in accordance with the letter thereof

and without any deviation therefrom." 50 As an officer of the court, he should follow the provisions of

the Rules to the letter especially when the law is clear.

When, as in this case, the law is clear, respondent owes it to himself and to the

public he serves to adhere to its dictates. The failure to do so exposes the

wrongdoer to administrative sanctions. When the inefficiency of an officer of

54

the court springs from a failure to consider so basic and elemental a rule, a law

or a principle in the discharge of his duties, he is either too incompetent and

undeserving of the position and title he holds or is too vicious that the oversight

or omission was deliberately done in bad faith or with grave abuse of

authority. 51

Section 52 (B) (2) 52 of the Revised Uniform Rules on Administrative Cases in the Civil

Service 53 classifies simple misconduct as a less grave offense punishable by suspension of one month

and one day to six months for the first offense. Having been in the service for more than 26

years, 54respondent cannot wrongly interpret basic rules without appearing grossly incompetent or

having acted in bad faith.

WHEREFORE, we find respondent Ernesto L. Sula, Sheriff IV, Regional Trial Court, Branch 98, Quezon City,

GUILTY of SIMPLE MISCONDUCT. Accordingly, we SUSPEND him for six months without pay and STERNLY

WARN him that a repetition of the same or similar acts shall be dealt with more severely.

FIRST DIVISION

[G.R. No. 127261. September 7, 2001.]

VISAYAN SURETY & INSURANCE CORPORATION, petitioner, vs. THE

HONORABLE COURT OF APPEALS, SPOUSES JUN BARTOLOME + and SUSAN

BARTOLOME and DOMINADOR V. IBAJAN,+ respondents.

Chavez Laureta & Associates for petitioner.

Eduardo F. Cruz for private respondents.

SYNOPSIS

Spouses Danilo Ibajan and Mila Ambe Ibajan filed with the Regional Trial Court, Biñan,

Laguna, a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them

the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the

owners of an Isuzu jeepney which was forcibly and unlawfully taken by defendants Jun and Susan

Bartolome on December 8, 1992 while parked at their residence. The Ibajans also filed a replevin

bond through petitioner Visayan Surety & Insurance Corporation. The contract of surety provided

that Sps. Danilo Ibajan and Mila Ibajan and the Visayan Surety & Insurance Corporation, of Cebu,

jointly and severally bind themselves in the sum of Three Hundred Thousand Pesos (P300,000.00)

for the return of the property to the defendant, if the return thereof be adjudged, and for the

payment to the defendant of such sum as he/she may recover from the plaintiff in the action.

Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion for leave of

court to intervene, stating that he has a right superior to the plaintiffs over the ownership and

possession of the subject vehicle. The trial court granted the motion to intervene. Intervenor

Dominador Ibajan also filed with the trial court a motion/application for judgment against plaintiffs'

bond. The trial court rendered judgment in favor of Dominador Ibajan and against Mila Ibajan and

the Visayan Surety ordering them to pay the former jointly and severally the value of the subject

jeepney in the amount of P150,000.00 and such other damages as may be proved by Dominador

Ibajan plus costs. Visayan Surety and Mila Ibajan filed with the trial court their respective motions

for reconsideration. The trial court denied both motions. On appeal, the Court of Appeals

55

promulgated its decision affirming the judgment of the trial court. Petitioner filed a motion for

reconsideration. The Court of Appeals denied the motion for reconsideration for lack of merit.

Hence, the present petition. The issue in this case is whether the surety is liable to an intervenor on

a replevin bond posted by petitioner in favor of respondents. Respondent Dominador Ibajan

asserted that as intervenor, he assumed the personality of the original defendants in relation to the

plaintiff's bond for the issuance of a writ of replevin.

The Supreme Court reversed the decision of the Court of Appeals. The Court ruled that

contracts can bind only the parties who had entered into it and cannot favor or prejudice a third

person. A contract of surety is an agreement where a party called the surety guarantees the

performance by another party called the principal or obligor of an obligation or undertaking in

favor of a third person called the obligee. The obligation of a surety cannot be extended by

implication beyond its specified limits. When a surety executes a bond, it does not guarantee that

the plaintiff's cause of action is meritorious, and that it will be responsible for all the costs that may

be adjudicated against its principal in case the action fails. The extent of a surety's liability is

determined only by the clause of the contract of suretyship. Since the obligation of the surety

cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor

when the relationship and obligation of the surety is limited to the defendants specified in the

contract of surety.

SYLLABUS

COMMERCIAL LAW; INSURANCE; CONTRACT OF SURETYSHIP; A SURETY CANNOT BE HELD LIABLE TO AN

INTERVENOR WHEN THE RELATIONSHIP AND OBLIGATION OF THE SURETY IS LIMITED TO THE

DEFENDANTS SPECIFIED IN THE CONTRACT OF SURETY; CASE AT BAR. — It is a basic principle in law that

contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person.

Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and

obligations arising from the contract are not transmissible by their nature, or by stipulation or by

provision of law. A contract of surety is an agreement where a party called the surety guarantees the

performance by another party called the principal or obligor of an obligation or undertaking in favor of a

third person called the obligee. Specifically, suretyship is a contractual relation resulting from an

agreement whereby one person, the surety, engages to be answerable for the debt, default or

miscarriage of another, known as the principal. The obligation of a surety cannot be extended by

implication beyond its specified limits. "When a surety executes a bond, it does not guarantee that the

plaintiff's cause of action is meritorious, and that it will be responsible for all the costs that may be

adjudicated against its principal in case the action fails. The extent of a surety's liability is determined

only by the clause of the contract of suretyship." A contract of surety is not presumed; it cannot extend

to more than what is stipulated. Since the obligation of the surety cannot be extended by implication, it

follows that the surety cannot be held liable to the intervenor when the relationship and obligation of

the surety is limited to the defendants specified in the contract of surety. ESHAcI

D E C I S I O N

PARDO, J p:

The Case

The case is a petition to review and set aside a decision 1 of the Court of Appeals affirming that of the

Regional Trial Court, Biñan, Laguna, Branch 24, holding the surety liable to the intervenor in lieu of the

principal on a replevin bond. AScHCD

The Facts

The facts, as found by the Court of Appeals, 2 are as follows:

On February 2, 1993, the spouses Danilo Ibajan and Mila Ambe Ibajan filed with the Regional Trial Court,

Laguna, Biñan a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them

the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the owners of

an Isuzu jeepney which was forcibly and unlawfully taken by defendants Jun and Susan Bartolome on

December 8, 1992, while parked at their residence.

On February 8, 1993, plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance

Corporation. The contract of surety provided thus:

"WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the VISAYAN SURETY

& INSURANCE CORP., of Cebu, Cebu, with branch office at Manila, jointly and

severally bind ourselves in the sum of Three Hundred Thousand Pesos

(P300,000.00) for the return of the property to the defendant, if the return

thereof be adjudged, and for the payment to the defendant of such sum as

he/she may recover from the plaintiff in the action."3

56

On February 8, 1993, the trial court granted issuance of a writ of replevin directing the sheriff to take the

Isuzu jeepney into his custody. Consequently, on February 22, 1993, Sheriff Arnel Magat seized the

subject vehicle and turned over the same to plaintiff spouses Ibajan. 4

On February 15, 1993, the spouses Bartolome filed with the trial court a motion to quash the writ of

replevin and to order the return of the jeepney to them.

On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion

for leave of court to intervene, stating that he has a right superior to the plaintiffs over the ownership

and possession of the subject vehicle.

On June 1, 1993, the trial court granted the motion to intervene.

On August 8, 1993, the trial court issued an order granting the motion to quash the writ of replevin and

ordering plaintiff Mila Ibajan to return the subject jeepney to the intervenor Dominador Ibajan. 5

On August 31, 1993, the trial court ordered the issuance of a writ of replevin directing the sheriff to take

into his custody the subject motor vehicle and to deliver the same to the intervenor who was the

registered owner. 6

On September 1, 1993, the trial court issued a writ of replevin in favor of intervenor Dominador Ibajan

but it was returned unsatisfied. cHCSDa

On March 7, 1994, intervenor Dominador Ibajan filed with the trial court a motion/application for

judgment against plaintiffs' bond.

On June 6, 1994, the trial court rendered judgment the dispositive portion of which reads:

"WHEREFORE, in the light of the foregoing premises, judgment is hereby

rendered in favor of Dominador Ibajan and against Mila Ibajan and the Visayan

Surety and Insurance Corporation ordering them to pay the former jointly and

severally the value of the subject jeepney in the amount of P150,000.00 and

such other damages as may be proved by Dominador Ibajan plus costs." 7

On June 28, 1994, Visayan Surety and Insurance Corporation and Mila Ibajan filed with the trial court

their respective motions for reconsideration.

On August 16, 1994, the trial court denied both motions.

On November 24, 1995, Visayan Surety and Insurance Corporation (hereafter Visayan Surety) appealed

the decision to the Court of Appeals. 8

On August 30, 1996, the Court of Appeals promulgated its decision affirming the judgment of the trial

court. 9 On September 19, 1996, petitioner filed a motion for reconsideration. 10 On December 2, 1996,

the Court of Appeals denied the motion for reconsideration for lack of merit. 11

Hence, this petition. 12

The Issue

The issue in this case is whether the surety is liable to an intervenor on a replevin bond posted by

petitioner in favor of respondents. 13

Respondent Dominador Ibajan asserts that as intervenor, he assumed the personality of the original

defendants in relation to the plaintiffs' bond for the issuance of a writ of replevin.

Petitioner Visayan Surety contends that it is not liable to the intervenor, Dominador Ibajan, because the

intervention of the intervenor makes him a party to the suit, but not a beneficiary to the plainti ffs' bond.

The intervenor was not a party to the contract of surety, hence, he was not bound by the contract.

The Court's Ruling

The petition is meritorious.

An intervenor is a person, not originally impleaded in a proceeding, who has legal interest in the matter

in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be

adversely affected by a distribution or other disposition of property in the custody of the court or of an

officer thereof. 14

May an intervenor be considered a party to a contract of surety which he did not sign and which was

executed by plaintiffs and defendants? aTEScI

It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot

favor or prejudice a third person. 15 Contracts take effect between the parties, their assigns, and heirs,

except in cases where the rights and obligations arising from the contract are not transmissible by their

nature, or by stipulation or by provision of law. 16

A contract of surety is an agreement where a party called the surety guarantees the performance by

another party called the principal or obligor of an obligation or undertaking in favor of a third person

called the obligee. 17 Specifically, suretyship is a contractual relation resulting from an agreement

57

whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of

another, known as the principal. 18

The obligation of a surety cannot be extended by implication beyond its specified limits. 19 "When a

surety executes a bond, it does not guarantee that the plaintiff's cause of action is meritorious, and that

it will be responsible for all the costs that may be adjudicated against its principal in case the action

fails. The extent of a surety's liability is determined only by the clause of the contract of suretyship." 20 A

contract of surety is not presumed; it cannot extend to more than what is stipulated.21

Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be

held liable to the intervenor when the relationship and obligation of the surety is limited to the

defendants specified in the contract of surety.

WHEREFORE, the Court REVERSES and sets aside the decision of the Court of Appeals in CA-G.R. CV No.

49094. The Court rules that petitioner Visayan Surety & Insurance Corporation is not liable under the

replevin bond to the intervenor, respondent Dominador V. Ibajan.

No costs.