G.R. No. 115902 - Filinvest Credit Corp. vs. Court of Appeals

Case Summary (G.R. No. 115902)

Factual Background

The spouses Edilberto and Marciana Tadiaman purchased a 10‑wheeler Isuzu cargo truck from Jordan Enterprises, Inc. in Quezon City, paying by installment under a promissory note for P196,680.00 payable in 24 monthly installments and executing a chattel mortgage to secure payment. Jordan Enterprises assigned its rights to Filinvest Finance and Leasing Corporation, which in turn assigned the instruments to Filinvest Credit Corporation. The Tadiamans defaulted in monthly payments, prompting Filinvest to sue for replevin and damages.

Writ of Replevin and Seizure

Upon motion of Filinvest the trial court issued a writ of replevin. The truck was seized in the Province of Isabela by persons who represented themselves to be special sheriffs of the court but who were employees of Filinvest. The truck was thereafter transported to Metro Manila. Filinvest had requested appointment of a special sheriff, yet the actual seizure was effected by its personnel who misrepresented their authority.

Recovery of Vehicle and Deputy Sheriff's Report

The Tadiamans filed a counterbond and the lower court ordered the truck returned, but Filinvest delayed its release. When the Tadiamans finally recovered the truck, they found missing and replaced parts. Deputy Sheriff Anastacio Dizon assisted in recovery and prepared Report (Exhibit “3”) recounting visits to Filinvest offices and garage on February 14, 18 and 19, 1983, the refusal of Filinvest representatives to deliver the truck without their lawyer’s direction, the discovery of oil stains and skid marks at an offsite compound, and the insistence of Filinvest custodians that missing or replaced parts be omitted from any acknowledgment receipt.

Trial Court Proceedings and Judgment

After trial, the RTC rendered judgment on the complaint and the counterclaim. On the complaint the court ordered the Tadiamans to pay the balance of the promissory note in the sum of P88,333.32 with interest at 14% per annum from September 26, 1982, twenty‑five percent attorney’s fees, and costs. On the counterclaim the court held that Filinvest had failed to rebut defendants’ proof of damages arising from the illegal seizure, concealment and alleged cannibalization of the truck and that Filinvest had acted in bad faith. The court awarded the Tadiamans actual damages P50,000.00, moral damages P50,000.00, exemplary damages P20,000.00, attorney’s fees P20,000.00 and proportionate costs.

Counterclaim Evidence and Trial Court Findings

The trial court found unrebutted evidence that the truck was hidden from the Tadiamans and that spare parts were missing or replaced while the vehicle was in Filinvest’s custody. The court characterized Filinvest’s conduct as offensive to good conscience and equity and in violation of the norms of honesty and fair dealing, justifying awards for compensatory, moral and exemplary damages.

Appeal to the Court of Appeals

Filinvest appealed that portion of the judgment on the counterclaim to the Court of Appeals, assigning errors including alleged right to seize upon default, the absence of actionable loss, the trial court’s acceptance of the cannibalization finding, and the claimed duty to apply the contractual terms of the promissory note and chattel mortgage. The Court of Appeals, in a decision dated May 26, 1994, affirmed the trial court in toto, holding that Filinvest was liable not for filing a replevin action but for the manner by which it carried out the seizure and for concealing and cannibalizing the vehicle.

Grounds in the Petition for Review

In the petition for certiorari Filinvest urged that the Court of Appeals committed reversible error and grave abuse of discretion in affirming findings that Filinvest seized the truck improperly and cannibalized it, and in excusing the Tadiamans from paying the unpaid balance despite admissions in their answer. Filinvest also challenged the award of moral and exemplary damages as unsupported by proof.

Issues Presented to the Supreme Court

The dispositive issue before the Supreme Court was whether the Court of Appeals committed reversible error in dismissing Filinvest’s appeal from the judgment on the Tadiamans’ counterclaim and in affirming the award of damages for the alleged illegal seizure, concealment and cannibalization of the truck. The Court treated other points as baseless or waived for failure to raise them on appeal to the Court of Appeals.

Supreme Court’s Analysis on Procedure and Good Faith

The Supreme Court observed that Sections 3 and 4, Rule 60, Rules of Court require that, upon issuance of a writ of replevin, the sheriff or other proper officer of the court must serve the order and take the property into custody. The Court held that Filinvest did not comply with the procedure because it employed its employees to impersonate court officers and to effect the seizure, and thereafter concealed the vehicle and obstructed the defendants’ recovery. The Court relied on Bachrach Motor Co. v. Summers and BPI Credit Corp. v. Court of Appeals to explain that while a mortgagee has a right to possession after default, he may not take the law into his own hands and must resort to judicial process when possession is disputed. The Court corrected the trial court’s assertion that only an owner may institute replevin, observing that Rule 60 permits a person “entitled to the possession” to file such an action.

Legal Basis for Bad Faith and Liability

The Supreme Court concluded that Filinvest’s employment of subterfuge in the seizure, concealment of the truck, and removal of parts showed bad faith in violation of Article 19 of the Civil Code which requires that every person act with justice and good faith in the exercise of rights. The Court held that these acts justified liability to the Tadiamans for damag

Case Syllabus (G.R. No. 115902)

Parties and Posture

Filinvest Credit Corporation is the petitioner seeking review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 30231 affirming the judgment of the Regional Trial Court of San Fernando (Pampanga), Branch 46, in Civil Case No. 6599.
Spouses Edilberto and Marciana Tadiaman are the private respondents and counterclaimants who recovered the mortgaged truck and sought damages for its alleged illegal seizure and mutilation.
The petition assails the Court of Appeals' affirmation of the trial court's award of compensatory, moral, exemplary damages and attorney's fees in favor of the private respondents.

Key Facts

The private respondents purchased a ten-wheeler Isuzu cargo truck from Jordan Enterprises, Inc., and executed a promissory note for P196,680.00 payable in twenty-four monthly installments and a chattel mortgage to secure the note.
Jordan Enterprises, Inc. assigned its instruments first to Filinvest Finance and Leasing Corporation and subsequently to Filinvest Credit Corporation.
After the private respondents defaulted, Filinvest filed an action for replevin and damages and secured a writ of replevin.
The truck was seized in the province of Isabela by persons who represented themselves as special sheriffs but who were actually employees of Filinvest, and the truck was transported to Metro Manila.
The private respondents filed a counterbond and obtained an order for return of the truck, but Filinvest allegedly delayed compliance and hid the truck in its garage and elsewhere.
Upon finally recovering the truck with the assistance of Deputy Sheriff Anastacio Dizon, the private respondents discovered missing and replaced parts and other signs that the truck had been "cannibalized."

Procedural History

The trial court rendered judgment in favor of Filinvest on the main action and ordered the private respondents to pay the balance of the promissory note and interest, plus attorney's fees and costs.
On the counterclaim the trial court awarded the private respondents actual damages of P50,000.00, moral damages of P50,000.00, exemplary damages of P20,000.00, attorney's fees of P20,000.00, and proportionate costs.
Filinvest appealed the counterclaim ruling to the Court of Appeals, which affirmed the trial court's judgment in toto.
Filinvest filed the present petition for review on certiorari before the Supreme Court alleging errors in the Court of Appeals' ruling.

Issues Presented

Whether the Court of Appeals gravely abused its discretion in affirming the award of damages to the private respondents for the manner in which the seizure of the mortgaged truck was effected.
Whether Filinvest acted within its rights as mortgagee in seizing and transporting the truck and whether such acts justified damages for bad faith, including moral and exemplary damages.
Whether the award of attorney's fees to the private respondents was proper under the circumstances.

Contentions

Filinvest contended that it had a right to seize the mortgaged property upon default and that the Court of Appeals erred in finding liability for the manner of seizure and in sustaining the finding t