Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-61464 May 28, 1988

BA FINANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, AUGUSTO YULO, LILY YULO (doing business
under the name and style of A & L INDUSTRIES), respondents.

GUTIERREZ, JR., J.:

This is a petition for review seeking to set aside the decision of the Court of Appeals which affirmed
the decision of the then Court of First Instance of Manila, dismissing the complaint instituted by the
petitioner and ordering it to pay damages on the basis of the private respondent's counterclaim.

On July 1, 1975, private respondent Augusto Yulo secured a loan from the petitioner in the amount
of P591,003.59 as evidenced by a promissory note he signed in his own behalf and as
representative of the A & L Industries. Respondent Yulo presented an alleged special power of
attorney executed by his wife, respondent Lily Yulo, who manages A & L Industries and under
whose name the said business is registered, purportedly authorizing Augusto Yulo to procure the
loan and sign the promissory note. About two months prior to the loan, however, Augusto Yulo had
already left Lily Yulo and their children and had abandoned their conjugal home. When the obligation
became due and demandable, Augusto Yulo failed to pay the same.

On October 7, 1975, the petitioner filed its amended complaint against the spouses Augusto and Lily
Yulo on the basis of the promissory note. It also prayed for the issuance of a writ of attatchment
alleging that the said spouses were guilty of fraud in contracting the debt upon which the action was
brought and that the fraud consisted of the spouses' inducing the petitioner to enter into a contract
with them by executing a Deed of Assignment in favor of the petitioner, assigning all their rights,
titles and interests over a construction contract executed by and between the spouses and A.
Soriano Corporation on June 19, 1974 for a consideration of P615,732.50 when, in truth, the
spouses did not have any intention of remitting the proceeds of the said construction contract to the
petitioner because despite the provisions in the Deed of Assignment that the spouses shall, without
compensation or costs, collect and receive in trust for the petitioner all payments made upon the
construction contract and shall remit to the petitioner all collections therefrom, the said spouses
failed and refuse to remit the collections and instead, misappropriated the proceeds for their own use
and benefit, without the knowledge or consent of the petitioner.

The trial court issued the writ of attachment prayed for thereby enabling the petitioner to attach the
properties of A & L Industries. Apparently not contented with the order, the petitioner filed another
motion for the examination of attachment debtor, alleging that the properties attached by the sheriff
were not sufficient to secure the satisfaction of any judgment that may be recovered by it in the case.
This was likewise granted by the court.

Private respondent Lily Yulo filed her answer with counterclaim, alleging that although Augusta Yulo
and she are husband and wife, the former had abandoned her and their children five (5) months
before the filing of the complaint; that they were already separated when the promissory note was
executed; that her signature in the special power of attorney was forged because she had never
authorized Augusto Yulo in any capacity to transact any business for and in behalf of A & L
Industries, which is owned by her as a single proprietor, that she never got a single centavo from the
proceeds of the loan mentioned in the promissory note; and that as a result of the illegal attachment
of her properties, which constituted the assets of the A & L Industries, the latter closed its business
and was taken over by the new owner.

After hearing, the trial court rendered judgment dismissing the petitioner's complaint against the
private respondent Lily Yulo and A & L Industries and ordering the petitioner to pay the respondent
Lily Yulo P660,000.00 as actual damages; P500,000.00 as unrealized profits; P300,000.00 as
exemplary damages; P30,000.00 as and for attorney's fees; and to pay the costs.

The petitioner appealed. The Court of Appeals affirmed the trial court's decision except for the
exemplary damages which it reduced from P300,000.00 to P150,000.00 and the attorney's fees
which were reduced from P30,000.00 to P20,000.00.

In resolving the question of whether or not the trial court erred in holding that the signature of
respondent Lily Yulo in the special power of attorney was forged, the Court of Appeals said:

The crucial issue to be determined is whether or not the signatures of the appellee
Lily Yulo in Exhibits B and B-1 are forged. Atty. Crispin Ordoa, the Notary Public,
admitted in open court that the parties in the subject documents did not sign their
signatures in his presence. The same were already signed by the supposed parties
and their supposed witnesses at the time they were brought to him for ratification.
We quote from the records the pertinent testimony of Atty. Ordoa, thus:

Q. This document marked as Exhibit B-1, when this was presented to

you by that common friend, June Enriquez, it was already typewritten,
it was already accomplished, all typewritten.?

A. Yes, sir.

Q And the parties had already affixed their signatures in this

document?

A. Yes, sir.

Q. In this document marked as Exhibit B although it appears here that

this is an acknowledgment, you have not stated here that the
principal actually acknowledged this document to be her voluntary act
and deed?

A This in one of those things that escaped my attention. Actually I

have not gone over the second page. I believed it was in order I
signed it. (TSN pp. 13-14, Hearing of Nov. 26, 1976).

The glaring admission by the Notary Public that he failed to state in the
acknowledgment portion of Exhibit B-1 that the appellee Lily Yulo acknowledged the
said document to be her own voluntary act and deed, is a very strong and
commanding circumstance to show that she did not appear personally before the
said Notary Public and did not sign the document.

Additionally, the Notary Public admitted that, while June Enriquez is admittedly a
mutual friend of his and the defendant Augusta Yulo, and who is also an instrumental
witness in said Exhibit B-1., he could not recognize or tell which of the two signatures
appearing therein, was the signature of this June Enriquez.

Furthermore, as the issue is one of credibility of a witness, the findings and

conclusions of the trial court before whom said witness, Atty. Crispin Ordoa, the
Notary Public before whom the questioned document was supposedly ratified and
acknowledged, deserve great respect and are seldom disturbed on appeal by
appellate tribunals, since it is in the best and peculiar advantage of determining and
observing the conduct, demeanor and deportment of a particular witness while he is
testifying in court, an opportunity not enjoyed by the appellate courts who merely
have to rely on the recorded proceedings which transpired in the court below, and
the records are bare of any circumstance of weight, which the trial court had
overlooked and which if duly considered, may radically affect the outcome of the
case.

On the other hand, the appellee Lily Yulo, to back up her claim of forgery of her
signature in Exhibit B-1, presented in court a handwriting expert witness in the
person of Police Captain Yakal Giron of the Integrated National Police Training
Command, and who is also a Document Examiner of the same Command's Crime
Laboratory at Fort Bonifacio, Metro Manila. His experience as an examiner of
questioned and disputed documents, in our mind, is quite impressive. To qualify him
as a handwriting expert, he declared that he underwent extensive and actual studies
and examination of disputed or questioned document, both at the National Bureau of
Investigation Academy and National Bureau of Investigation Questioned Document
Laboratory, respectively, from July 1964, up to his appointment as Document
Examiner in June, 1975, and, to further his experience along this line, he attended
the 297th Annual Conference of the American Society of Questioned Docurnent
Examiners held at Seattle, Washington, in August 1971, as a representative of the
Philippines, and likewise conducted an observation of the present and modern trends
of crime laboratories in the West Coast, U.S.A., in 1971; that he likewise had
conducted actual tests and examination of about 100,000 documents, as requested
by the different courts, administrative, and governmental agencies of the
Government, substantial portions of which relate to actual court cases.

In concluding that the signatures of the appellee Lily Yulo, in the disputed document
in question (Exh. B-1), were all forgeries, and not her genuine signature, the expert
witness categorically recited and specified in open court what he observed to be
about twelve (12) glaring and material significant differences, in his comparison of
the signatures appearing in the genuine specimen signatures of the said appellee
and with those appearing in the questioned document (Exhibit B-1). Indeed, we have
likewise seen the supposed notable differences, found in the standard or genuine
signatures of the appellee which were lifted and obtained in the official files of the
government, such as the Bureau of Internal Revenue on her income tax returns, as
compared to the pretended signature of the appellee appearing in Exhibits B, B-1. It
is also noteworthy to mention that the appellant did not even bother to conduct a
cross-examination of the handwriting expert witness, Capt. Giron, neither did the
appellant present another handwriting expert, at least to counter-act or balance the
appellee's handwriting expert.
 Prescinding from the foregoing facts, we subscribe fully to the lower court's
observations that the signatures of the appellee Lily Yulo in the questioned document
(Exh. B-1) were forged. Hence, we find no factual basis to disagree. (pp. 28-30,
Rollo)

As to the petitioner's contention that even if the signature of Lily Yulo was forged or even if the
attached properties were her exclusive property, the same can be made answerable to the obligation
because the said properties form part of the conjugal partnership of the spouses Yulo, the appellate
court held that these contentions are without merit because there is strong preponderant evidence to
show that A & L Industries belongs exclusively to respondent Lily Yulo, namely: a) The Certificate of
Registration of A & L Industries, issued by the Bureau of Commerce, showing that said business is a
single proprietorship, and that the registered owner thereof is only Lily Yulo; b) The Mayor's Permit
issued in favor of A & L Industries, by the Caloocan City Mayor's Office showing compliance by said
single proprietorship company with the City Ordinance governing business establishments; and c)
The Special Power of Attorney itself, assuming but without admitting its due execution, is tangible
proof that Augusto Yulo has no interest whatsoever in the A & L Industries, otherwise, there would
have been no necessity for the Special Power of Attorney if he is a part owner of said single
proprietorship.

With regard to the award of damages, the Court of Appeals affirmed the findings of the trial court that
there was bad faith on the part of the petitioner as to entitle the private respondent to damages as
shown not only by the fact that the petitioner did not present the Deed of Assignment or the
construction agreement or any evidence whatsoever to support its claim of fraud on the part of the
private respondent and to justify the issuance of a preliminary attachment, but also by the following
findings:

Continuing and elaborating further on the appellant's mala fide actuations in securing
the writ of attachment, the lower court stated as follows:

Plaintiff not satisfied with the instant case where an order for
attachment has already been issued and enforced, on the strength of
the same Promissory Note (Exhibit"A"), utilizing the Deed of Chattel
Mortgage (Exhibit "4"), filed a foreclosure proceedings before the
Office of the Sheriff of Caloocan (Exhibit"6") foreclosing the remaining
properties found inside the premises formerly occupied by the A & L
Industries. A minute examination of Exhibit "4" will show that the
contracting parties thereto, as appearing in par. 1 thereof, are
Augusto Yulo, doing business under the style of A & L Industries
(should be A & L Glass Industries Corporation), as mortgagor and BA
Finance Corporation as mortgagee, thus the enforcement of the
Chattel Mortgage against the property of A & L Industries exclusively
owned by Lily T. Yulo appears to be without any factual or legal basis
whatsoever. The chattel mortgage, Exhibit "4" and the Promissory
Note, Exhibit A, are based on one and the same obligation. Plaintiff
tried to enforce as it did enforce its claim into two different modes a
single obligation.

Aware that defendant Lily Yulo, filed a Motion to Suspend

Proceedings by virtue of a complaint she filed with the Court of First
Instance of Caloocan, seeking annulment of the Promissory Note, the
very basis of the plaintiff in filing this complaint, immediately after the
day it filed a Motion for the Issuance of an Alias Writ of Preliminary
 Attachment . . .Yet, inspite of the knowledge and the filing of this
Motion to Suspend Proceedings, the Plaintiff still filed a Motion for the
Issuance of a Writ of Attachment dated February 6, 1976 before this
court. To add insult to injury, plaintiff even filed a Motion for
Examination of the Attachment Debtor, although aware that Lily Yulo
had already denied participation in the execution of Exhibits "A" and
"B". These incidents and actions taken by plaintiff, to the thinking of
the court, are sufficient to prove and establish the element of bad
faith and malice on the part of plaintiff which may warrant the award
of damages in favor of defendant Lily Yulo. (Ibid., pp. 102-103). <re||an1w>

Indeed, the existence of evident bad faith on the appellant's part in

proceeding against the appellee Lily Yulo in the present case, may
likewise be distressed on the fact that its officer Mr. Abraham Co, did
not even bother to demand the production of at least the duplicate
original of the Special Power of Attorney (Exhibit B) and merely
contended himself with a mere xerox copy thereof, neither did he
require a more specific authority from the A & L Industries to contract
the loan in question, since from the very content and recitals of the
disputed document, no authority, express or implied, has been
delegated or granted to August Yulo to contract a loan, especially
with the appellant. (pp. 33-34, Rollo)

Concerning the actual damages, the appellate court ruled that the petitioner should have presented
evidence to disprove or rebut the private respondent's claim but it remained quiet and chose not to
disturb the testimony and the evidence presented by the private respondent to prove her claim.

In this petition for certiorari, the petitioner raises three issues. The first issue deals with the appellate
court's affirmance of the trial court's findings that the signature of the private respondent on the
Special Power of Attorney was forged. According to the petitioner, the Court of Appeals disregarded
the direct mandate of Section 23, Rule 132 of the Rules of Court which states in part that evidence
of handwriting by comparison may be made "with writings admitted or treated as genuine by the
party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge,"
and that there is no evidence on record which proves or tends to prove the genuineness of the
standards used.

There is no merit in this contention.

The records show that the signatures which were used as "standards" for comparison with the
alleged signature of the private respondent in the Special Power of Attorney were those from the
latter's residence certificates in the years 1973, 1974 and 1975, her income tax returns for the years
1973 and 1975 and from a document on long bond paper dated May 18, 1977. Not only were the
signatures in the foregoing documents admitted by the private respondent as hers but most of the
said documents were used by the private respondent in her transactions with the government. As
was held in the case of Plymouth Saving & Loan Assn. No. 2 v. Kassing (125 NE 488, 494):

We believe the true rule deduced from the authorities to be that the genuineness of a
"standard" writing may be established (1) by the admission of the person sought to
be charged with the disputed writing made at or for the purposes of the trial or by his
testimony; (2) by witnesses who saw the standards written or to whom or in whose
hearing the person sought to be charged acknowledged the writing thereof; (3) by
evidence showing that the reputed writer of the standard has acquiesced in or
 recognized the same, or that it has been adopted and acted upon by him his
business transactions or other concerns....

Furthermore, the judge found such signatures to be sufficient as standards. In the case of Taylor-
Wharton Iron & Steel Co. v. Earnshaw (156 N.E. 855, 856), it was held:

When a writing is offered as a standard of comparison it is for the presiding judge to

decide whether it is the handwriting of the party to be charged. Unless his finding is
founded upon error of law, or upon evidence which is, as matter of law, insufficient to
justify the finding, this court will not revise it upon exceptions." (Costelo v. Crowell,
139 Mass. 588, 590, 2 N.E. 648; Nuez v. Perry, 113 Mass, 274, 276.)

We cannot find any error on the part of the trial judge in using the above documents as standards
and also in giving credence to the expert witness presented by the private respondent whose
testimony the petitioner failed to rebut and whose credibility it likewise failed to impeach. But more
important is the fact that the unrebutted handwriting expert's testimony noted twelve (12) glaring and
material differences in the alleged signature of the private respondent in the Special Power of
Attorney as compared with the specimen signatures, something which the appellate court also took
into account. In Cesar v. Sandiganbayan (134 SCRA 105, 132), we ruled:

Mr. Maniwang pointed to other significant divergences and distinctive characteristics

between the sample signatures and the signatures on the questioned checks in his
report which the court's Presiding Justice kept mentioning during Maniwang's
testimony.

In the course of his cross-examination, NBI expert Tabayoyong admitted that he saw
the differences between the exemplars used and the questioned signatures but he
dismissed the differences because he did not consider them fundamental. We rule
that significant differences are more fundamental than a few similarities. A forger
always strives to master some similarities.

The second issue raised by the petitioner is that while it is true that A & L Industries is a single
proprietorship and the registered owner thereof is private respondent Lily Yulo, the said
proprietorship was established during the marriage and its assets were also acquired during the
same. Therefore, it is presumed that this property forms part of the conjugal partnership of the
spouses Augusto and Lily Yulo and thus, could be held liable for the obligations contracted by
Augusto Yulo, as administrator of the partnership.

There is no dispute that A & L Industries was established during the marriage of Augusta and Lily
Yulo and therefore the same is presumed conjugal and the fact that it was registered in the name of
only one of the spouses does not destroy its conjugal nature (See Mendoza v. Reyes, 124 SCRA
161, 165). However, for the said property to be held liable, the obligation contracted by the husband
must have redounded to the benefit of the conjugal partnership under Article 161 of the Civil Code.
In the present case, the obligation which the petitioner is seeking to enforce against the conjugal
property managed by the private respondent Lily Yulo was undoubtedly contracted by Augusto Yulo
for his own benefit because at the time he incurred the obligation he had already abandoned his
family and had left their conjugal home. Worse, he made it appear that he was duly authorized by his
wife in behalf of A & L Industries, to procure such loan from the petitioner. Clearly, to make A & L
Industries liable now for the said loan would be unjust and contrary to the express provision of the
Civil Code. As we have ruled in Luzon Surety Co., Inc. v. De Gracia (30 SCRA 111, 115-117):
 As explained in the decision now under review: "It is true that the husband is the
administrator of the conjugal property pursuant to the provisions of Art. 163 of the
new Civil Code. However, as such administrator the only obligations incurred by the
husband that are chargeable against the conjugal property are those incurred in the
legitimate pursuit of his career, profession or business with the honest belief that he
is doing right for the benefit of the family. This is not true in the case at bar for we
believe that the husband in acting as guarantor or surety for another in an indemnity
agreement as that involved in this case did not act for the benefit of the conjugal
partnership. Such inference is more emphatic in this case, when no proof is
presented that Vicente Garcia in acting as surety or guarantor received consideration
therefore, which may redound to the benefit of the conjugal partnership.(Ibid, pp. 46-
47).

xxx xxx xxx

xxx xxx xxx

In the most categorical language, a conjugal partnership under that provision is liable
only for such "debts and obligations contracted by the husband for the benefit of the
conjugal partnership." There must be the requisite showing then of some advantage
which clearly accrued to the welfare of the spouses. There is none in this case.

xxx xxx xxx

Moreover, it would negate the plain object of the additional requirement in the
present Civil Code that a debt contracted by the husband to bind a conjugal
partnership must redound to its benefit. That is still another provision indicative of the
solicitude and tender regard that the law manifests for the family as a unit. Its interest
is paramount; its welfare uppermost in the minds of the codifiers and legislators.

We, therefore, rule that the petitioner cannot enforce the obligation contracted by Augusto Yulo
against his conjugal properties with respondent Lily Yulo. Thus, it follows that the writ of attachment
cannot issue against the said properties.

Finally, the third issue assails the award of actual damages according to the petitioner, both the
lower court and the appellate court overlooked the fact that the properties referred to are still subject
to a levy on attachment. They are, therefore, still under custodia legis and thus, the assailed decision
should have included a declaration as to who is entitled to the attached properties and that assuming
arguendo that the attachment was erroneous, the lower court should have ordered the sheriff to
return to the private respondent the attached properties instead of condemning the petitioner to pay
the value thereof by way of actual damages.

In the case of Lazatin v. Twao (2 SCRA 842, 847), we ruled:

xxx xxx xxx

... It should be observed that Sec. 4 of Rule 59, does not prescribed the remedies
available to the attachment defendant in case of a wrongful attachment, but merely
provides an action for recovery upon the bond, based on the undertaking therein
made and not upon the liability arising from a tortuous act, like the malicious suing
out of an attachment. Under the first, where malice is not essential, the attachment
defendant, is entitled to recover only the actual damages sustained by him by reason
 of the attachment. Under the second, where the attachment is maliciously sued out,
the damages recoverable may include a compensation for every injury to his credit,
business or feed (Tyler v. Mahoney, 168 NC 237, 84 SE 362; Pittsburg etc. 5
Wakefield, etc., 135 NC 73, 47 SE 234). ...

The question before us, therefore, is whether the attachment of the properties of A & L Industries
was wrongful so as to entitle the petitioner to actual damages only or whether the said attachment
was made in bad faith and with malice to warrant the award of other kinds of damages. Moreover, if
the private respondent is entitled only to actual damages, was the court justified in ordering the
petitioner to pay for the value of the attached properties instead of ordering the return of the said
properties to the private respondent Yulo ?

Both the trial and appellate courts found that there was bad faith on the part of the petitioner in
securing the writ of attachment. We do not think so. "An attachment may be said to be wrongful
when, for instance, the plaintiff has no cause of action, or that there is no true ground therefore, or
that the plaintiff has a sufficient security other than the property attached, which is tantamout to
saying that the plaintiff is not entitled to attachment because the requirements of entitling him to the
writ are wanting. (7 C.J.S., 664)" (p. 48, Section 4, Rule 57, Francisco, Revised Rules of Court).

Although the petitioner failed to prove the ground relied upon for the issuance of the writ of
attachment, this failure cannot be equated with bad faith or malicious intent. The steps which were
taken by the petitioner to ensure the security of its claim were premised, on the firm belief that the
properties involved could be made answerable for the unpaid obligation due it. There is no question
that a loan in the amount of P591,003.59 was borrowed from the bank.

We, thus, find that the petitioner is liable only for actual damages and not for exemplary damages
and attorney's fees. Respondent Lily Yulo has manifested before this Court that she no longer
desires the return of the attached properties since the said attachment caused her to close down the
business. From that time she has become a mere employee of the new owner of the premises. She
has grave doubts as to the running condition of the attached machineries and equipments
considering that the attachment was effected way back in 1975. She states as a matter of fact that
the petitioner has already caused the sale of the machineries for fear that they might be destroyed
due to prolonged litigation. We, therefore, deem it just and equitable to allow private respondent Lily
Yulo to recover actual damages based on the value of the attached properties as proven in the trial
court, in the amount of P660,000.00. In turn, if there are any remaining attached properties, they
should be permanently released to herein petitioner.

We cannot, however, sustain the award of P500,000.00 representing unrealized profits because this
amount was not proved or justified before the trial court. The basis of the alleged unearned profits is
too speculative and conjectural to show actual damages for a future period. The private respondent
failed to present reports on the average actual profits earned by her business and other evidence of
profitability which are necessary to prove her claim for the said amount (See G. A. Machineries, Inc.
v. Yaptinchay, 126 SCRA 78, 88).

The judgment is therefore set aside insofar as it holds the petitioner liable for P500,000.00 actual
damages representing unrealized profits, P150,000.00 for exemplary damages and P20,000.00 for
attorney's fees. As stated earlier, the attached properties, should be released in favor of the
petitioner.

WHEREFORE, the decision of the Court of Appeals is hereby SET ASIDE and the petitioner is
ordered to pay the private respondent Lily Yulo the amount of SIX HUNDRED SIXTY THOUSAND
PESOS (P660,000.00) as actual damages. The remaining properties subject of the attachment are
ordered released in favor of the petitioner.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes JJ., concur.

FIRST DIVISION

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

BA FINANCE CORPORATION, petitioner vs. HON. COURT OF

APPEALS and ROBERTO M. REYES, respondents.

DECISION
VITUG, J.:

The case at bar is a suit for replevin and damages. The petition for review
on certiorariassails 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, 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 quo are 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 for 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, 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"[16] thereof at petitioner's 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 x x x 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:

"x x x. 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-

"x x x. 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, if 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 Hai vs. 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 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.[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 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.[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 interim possession.
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 plaintiff's
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 on certiorari, 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 x x x or is entitled to the
possession thereof. 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 ownershipby 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' In Imson v. Court of Appeals, we
have explained:

x x x. 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.
SO ORDERED.
Padilla, Bellosillo, Kapunan, and Hermosisima, Jr., JJ., concur.

Penned by Associate Justice Celso L. Magsino and concurred in by Associate Justices Serafin E. Camilon
[1]

and Artemon D. Luna.

[2]
Presided by Judge Doroteo N. Caneba.
[3]
Rollo, p. 38.
[4]
Exh. A, Record, p. 6.
[5]
Exh. B, Record, pp. 8-11.
[6]
Exh. C, Record, p. 12.
[7]
Record, p. 22.
[8]
Rollo, p. 28.
[9]
Record, p. 24; it is not on record why the summons evidently did not reach the Spouses Manahan.
[10]
Ibid., p. 25.
[11]
Rollo, p. 77.
[12]
Ibid., p. 29.
[13]
Record, p. 34.
[14]
Ibid., p. 35.
[15]
Ibid., p. 51.
[16]
Rollo, pp. 29-30.
[17]
Record, p. 64.
[18]
Rollo, p. 38.
[19]
Rollo, p. 32.
See Tillson vs. Court of Appeals, 197 SCRA 587, 598; Bouvier's Dictionary, Third (Rawle's) Revision,
[20]

Vol. 2; Black's Law Dictionary, Sixth Edition, p. 1299.

[21]
37 WORDS AND PHRASES 17, citing the Young Chevrolet Co. case, 127 P.2d 813, 191 Okl. 161 (1942).
[22]
49 SCRA 392.
[23]
At p. 396.