Visayan Surety and Insurance Corp. vs. Court of Appeals

Factual Background

The plaintiffs, spouses Danilo Ibajan and Mila Ambe Ibajan, filed a complaint for replevin on February 2, 1993, alleging forcible and unlawful taking of an Isuzu jeepney by spouses Jun and Susan Bartolome on December 8, 1992. On February 8, 1993, the plaintiffs posted a replevin bond with Visayan Surety & Insurance Corporation as surety in the penal sum of P300,000 to secure the issuance of a writ of replevin for manual delivery of the vehicle. The trial court issued the writ the same day, and the sheriff seized the jeepney on February 22, 1993 and delivered it to the plaintiffs.

Intervention and Competing Claims

On May 3, 1993, Dominador V. Ibajan filed a motion to intervene asserting a superior right of ownership and possession over the jeepney; the trial court granted intervention on June 1, 1993. The trial court later granted the defendants' motion to quash the writ of replevin and ordered the vehicle returned to the intervenor. Subsequent writs for delivery to the intervenor were issued but returned unsatisfied, and the intervenor moved for judgment on the plaintiffs' bond.

Trial Court Judgment

On June 6, 1994, the Regional Trial Court rendered judgment in favor of Dominador V. Ibajan against Mila Ibajan and Visayan Surety & Insurance Corporation, jointly and severally, ordering payment of the value of the jeepney in the amount of P150,000 plus such other damages as might be proved, together with costs. Motions for reconsideration filed by the surety and Mila Ibajan were denied on August 16, 1994. Visayan Surety appealed the judgment to the Court of Appeals on November 24, 1995.

Appellate Proceedings

The Court of Appeals in CA-G.R. CV No. 49094 promulgated a decision on August 30, 1996 affirming the trial court's judgment. The surety filed a motion for reconsideration which the Court of Appeals denied on December 2, 1996. Thereafter, Visayan Surety & Insurance Corporation elevated the case to the Supreme Court by a petition for review under Rule 45.

Issue Presented

The principal legal issue was whether Visayan Surety & Insurance Corporation, as surety on a replevin bond executed by the plaintiffs, could be held liable to an intervenor, Dominador V. Ibajan, who was not a signatory or party to the surety contract and whose interest arose by intervention after the bond was posted.

Parties' Contentions

The intervenor contended that by intervening he assumed the personality of the original defendants insofar as the plaintiffs' bond was concerned and thus became entitled to enforce the bond against the surety. Visayan Surety contended that intervention made the intervenor a party to the suit but not a beneficiary of the replevin bond; the intervenor neither signed nor was party to the contract of suretyship and therefore the surety could not be bound in favor of a third person not contemplated by the bond.

The Court's Ruling

The Court reversed the decision of the Court of Appeals and set it aside. The Court ruled that Visayan Surety & Insurance Corporation was not liable under the replevin bond to intervenor Dominador V. Ibajan. The Court ordered no costs.

Legal Basis and Reasoning

The Court reasoned that an intervenor is a person, not originally impleaded, who has a legal interest in the litigation and who may be so situated as to be adversely affected by disposition of property in the court's custody, citing Rule 19, Section 1, 1997 Rules of Civil Procedure and pertinent precedents. The Court reiterated the fundamental contractual principle that contracts bind only the parties who entered into them and cannot, by general operation, favor or prejudice third persons, citing Article 1311, Civil Code of the Philippines and relevant authorities. The Court explained that suretyship is a contractual relation whereby the surety guarantees the performance of the principal in favor of the obligee, referencing Section 175, Insurance Code of the Philippines, and that the surety's obligation cannot be extended by implication beyond its specified limits. The Court emphasized that when a surety executes a bond it does not guarantee the meritoriousness of the plaintiff's cause nor automatically accept liability to all persons who late