G.R. No. 210950 - Enriquez vs. The Mercantile Insurance Co., Inc.

Case Summary (G.R. No. 210950)

Key Dates and Financial Figures

Replevin complaint filed: 2003 (Civil Case No. 10846, RTC Angeles City).
Replevin bond (Bond No. 138) issued by Mercantile Insurance: February 24, 2003 (P600,000.00, one-year period stated).
RTC order dismissing Complaint for Replevin for failure to prosecute: May 24, 2004 (also declared bond forfeited and directed surety to produce the van or show cause).
RTC order directing surety to pay P600,000.00: July 12, 2004; payment by surety to Asuten: September 3, 2004.
Value of the van claimed by petitioner: P300,000.00.
Court of Appeals decision affirming RTC: August 13, 2013; denial of reconsideration: January 14, 2014.
Supreme Court decision: August 15, 2018 (petition denied; CA decision affirmed).

Procedural History

Enriquez filed a replevin action and obtained court approval for a replevin bond in favor of the adverse party. The trial court later dismissed the replevin complaint without prejudice for failure to prosecute and ordered the return of the seized property; when the van was not returned, the RTC declared the bond forfeited and ordered the surety to pay the bond amount. The surety paid P600,000 to Asuten and later sued Enriquez for reimbursement under an indemnity agreement. The RTC granted judgment for the surety; the Court of Appeals affirmed; the Supreme Court denied the petition for review.

Core Facts

Enriquez sought immediate possession of the van via replevin and posted a bond double the claimed value (P600,000). She executed an indemnity agreement with Mercantile Insurance under which she agreed to indemnify the surety for “all damages, payments, advances, losses, costs ... attorney’s fees and expenses of whatever kind” incurred as surety, and agreed to be liable even if payments exceeded the bond amount; the agreement also contained an incontestability-of-payments clause. The replevin complaint was dismissed without prejudice for failure to prosecute, the van was not returned, and the trial court declared the bond forfeited and ordered payment to the defendant. The surety paid and then sued Enriquez to recover the P600,000.

Nature and Purpose of Replevin and the Replevin Bond (Rule 60)

Replevin is both a principal remedy and a provisional remedy to recover possession of personal property. Under Rule 60, an applicant for a writ of replevin must file an affidavit and give a bond executed to the adverse party in double the value of the property (Rule 60, Section 2). The bond indemnifies the defendant for loss and for damages that may be awarded in the defendant’s favor if delivery of the property is adjudged to be improper. After bond approval, the sheriff seizes and delivers the property to the applicant; absent adjudication on the merits, the property remains in the applicant’s custody pendente lite. Judgment after trial determines right of possession or value and may include recovery against sureties (Rule 60, Sections 9–10).

Lifetime of Court Bonds and Governing Guidelines

The Guidelines on Corporate Surety Bonds (A.M. No. 04-7-02-SC, 2004) provide that the lifetime or duration of any bond issued in criminal and civil actions is from court approval until the action or proceeding is finally decided, resolved or terminated; this term is deemed incorporated into bonding contracts even if not expressly stated. Supreme Court jurisprudence (citing De Guia and earlier cases) likewise recognizes that a surety bond remains effective until the proceeding is finally terminated, and the surety’s liability cannot usually be sought beyond that procedural window unless proper applications are made within the prescribed stage of the case.

Forfeiture and Application of Bond: Rules and Requirements

Rules 57–60 require that an application on a bond for damages (or for enforcement of the bond) must be made after hearing and before final judgment becomes executory; the purpose is to avoid multiplicity of suits and to afford the surety due process. Specifically, claims for damages arising from provisional remedies must be filed before judgment becomes final or within the appellate timelines set by the Rules (see Rule 57, Section 20 and Rule 60, Sections 9–10). Forfeiture of a replevin bond and award of its full amount typically presupposes (1) a judgment on the merits in favor of the defendant or an appropriate procedural finding, and (2) a proper application by the defendant for damages under the rules and after hearing. Absent these, the award of the full bond may be procedurally infirm.

Trial Court and Court of Appeals Findings

Both the RTC and the Court of Appeals found that (a) the lifetime of the bond extended until the case was finally terminated under the Guidelines; (b) non-payment of premiums did not render the bond expired while the case remained pending; and (c) Enriquez was bound by the incontestability-of-payments clause in the indemnity agreement and therefore liable for payments made by the surety. The CA held that the bond and indemnity agreement were in effect when the surety paid Asuten and that challenges to the amount should have been raised in the trial court proceedings, not belatedly on appeal from the collection action.

Supreme Court’s Analysis: Liability, Procedural Defaults, and Equity

The Supreme Court articulated several interrelated points:

Legal status of the bond: Pursuant to the Guidelines and De Guia jurisprudence, a bond remains effective until the related proceeding is finally resolved. Thus, the bond was still in force when the surety paid Asuten pursuant to the RTC order.
Procedural prerequisites for award of full bond: Forfeiture of the replevin bond for the full amount generally requires a judgment on the merits or an application for damages in accordance with the Rules. In this case there was no trial on the merits and no proper application for damages; equity therefore suggested that, as a matter of strict fairness, Asuten should have been awarded only the van’s value (P300,000) when petitioner failed to return it after dismissal without prejudice. Nevertheless, the RTC exercised its discretion to rule on bond forfeiture after dismissal, and the surety complied with the RTC directive.
Enforceability of the indemnity agreement: Enriquez voluntarily signed an indemnity agreement containing broad indemnification language and an incontestability clause. Basic contract law (Civil Code, art. 1306) makes contracts binding between parties unless contrary to law or public policy. Although insurance contracts are contracts of adhesion and construed in favor of the insured, the surety sought only to recover the bond amount (not sums exceeding it under the indemnity). Enriquez’s contention that the indemnity was ambiguous as an adhesion contract did not absolve her, especially because she failed to pursue timely appellate remedie

Case Syllabus (G.R. No. 210950)

Procedural Posture and Relief Sought

Petition for Review on Certiorari to the Supreme Court assailing the August 13, 2013 Decision and January 14, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 95955, which had affirmed the Regional Trial Court's finding that petitioner Milagros P. Enriquez was liable for the full amount of the replevin bond issued by respondent The Mercantile Insurance Co., Inc.
The petition seeks reversal of the CA decision and resolution and relief from the judgment ordering Enriquez to reimburse Mercantile Insurance the amount paid by the surety pursuant to the replevin bond and indemnity agreement.

Facts — Underlying Replevin Action (Civil Case No. 10846)

In 2003, Milagros P. Enriquez filed a Complaint for Replevin against Wilfred Asuten in the Regional Trial Court of Angeles City, Pampanga, for recovery of a Toyota Hi-Ace van valued at P300,000.00.
Asuten allegedly refused to return the van, claiming it had been given by Enriquez's son as the consequence of a gambling deal.
Enriquez applied for a replevin bond with Mercantile Insurance. On February 24, 2003, Mercantile Insurance issued Bond No. 138 in the amount of P600,000.00, with a period of one (1) year or until February 24, 2004.
Enriquez executed an indemnity agreement with Mercantile Insurance agreeing to indemnify the surety "for all damages, payments, advances, losses, costs, taxes, penalties, charges, attorney's fees and expenses of whatever kind and nature" that the surety would incur as surety of the replevin bond.

RTC Proceedings, Dismissal, and Forfeiture Events

On May 24, 2004, the Regional Trial Court issued an Order dismissing the Complaint without prejudice due to Enriquez's continued failure to present evidence.
The RTC found Enriquez had surrendered the van to the Bank of the Philippine Islands, San Fernando Branch, but failed to return it to the sheriff within 24 hours from receipt of the RTC March 15, 2004 Order; she also failed to prove payment of premiums on the replevin bond or to post a new bond.
The RTC declared Bond No. 138 forfeited and gave Mercantile Insurance 10 days to produce the van or to show cause why judgment should not be rendered against it for the amount of the bond.
At a July 12, 2004 hearing on final forfeiture, it was found Mercantile Insurance failed to produce the van and that Bond No. 138 had already expired; the same day the RTC ordered Mercantile Insurance to pay Asuten P600,000.00.

Payment by the Surety and Subsequent Collection Action

Mercantile Insurance requested remittance of P600,000.00 from Enriquez; due to her failure to remit, the surety paid Asuten P600,000.00 on September 3, 2004, pursuant to the RTC's July 12, 2004 Order.
Mercantile Insurance instituted a collection suit against Enriquez in the Regional Trial Court of Manila to recover what it had paid under the replevin bond.

Petitioner's Defenses and Contentions in the Collection Suit

Enriquez asserted that her daughter-in-law, Asela, filed the replevin Complaint in her name and forged her signature on the indemnity agreement.
She further argued she could not be held liable because the replevin bond had expired on February 24, 2004, and she did not renew or post another bond.

RTC Decision in Collection Case (July 23, 2010)

The RTC (Acting Presiding Judge Ma. Theresa Dolores C. Gomez-Estoesta, Branch 17, RTC Manila) rendered judgment in favor of Mercantile Insurance.
The RTC found non-payment of premiums did not cause the replevin bond to expire; therefore, the bond and indemnity agreement remained effective and Enriquez was liable for the reimbursement made by the surety.
The RTC noted Enriquez made "conflicting claims" regarding whether she applied for the bond or whether her daughter-in-law did.
Dispositive portion: judgment for plaintiff Mercantile Insurance against Enriquez ordering:
- Payment of P600,000.00 enforced under the Indemnity Agreement plus legal interest at 12% per annum from date of judicial demand (October 22, 2004) until fully paid;
- Payment of attorney's fees fixed at P50,000.00;
- Payment of costs.

Appeal to the Court of Appeals and Petitioner's Arguments There

Enriquez appealed to the Court of Appeals arguing:
- The replevin bond had expired on February 24, 2004; thus, she could not be liable under the indemnity agreement when the surety paid Asuten on September 3, 2004.
- Even if she were liable, she should not be required to pay the full amount of the bond because the van's value was only P300,000.00; she invoked Rule 60, Section 2 of the Rules of Court which requires the replevin bond to be double the value of the property and Rule 60 substantive provisions on replevin judgments.
Mercantile Insurance argued, among other things:
- Objections to awards should have been raised in the trial court; the CA should not entertain issues raised for the first time on appeal.
- Forfeiture of the bond resulted from Enriquez's negligence in failing to present evidence and in failing to return the van; Guidelines on Corporate Surety Bonds provide that a bond's lifetime runs until the court proceeding is finally terminated.

Court of Appeals Decision (August 13, 2013) and Motion for Reconsideration

The Court of Appeals affirmed the RTC's July 23, 2010 Decision.
The CA held that under the Guidelines on Corporate Surety Bonds (A.M. No. 04-7-02-SC [2004]), the lifetime of any bond issued in any court proceeding is from court approval until the case is finally terminated; consequently, the replevin bond and indemnity agreement were in force when Mercantile Insurance paid P600,000.00 to Asuten.
The CA found Enriquez bound by the "incontestability of payments clause" in the indemnity agreement which provided that any payment or disbursement by the surety on account of the bond "shall be final, and will not be contested by the undersigned."
The CA held that the question of Enriquez's liability for the full amount should have been raised in the RTC proceedings and not first raised on appeal.
Enriquez's motion for reconsideration before