SECOND DIVISION

ADVENT CAPITAL AND G.R. No. 183018

FINANCE CORPORATION,

Petitioner, Present:

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,^*

- versus - BRION,

PEREZ, and

SERENO, JJ.

ROLAND YOUNG, Promulgated:

Respondent. August 3, 2011

x-----------------------------------------------------------------------------------------x

D E C I S I O N

CARPIO, J.:

The Case

This petition for review¹ assails the 28 December 2007 Decision² and 15 May 2008 Resolution³ 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 Orders⁴ 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.

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 Advents 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 Advents 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 Advents assets was the subject car which remained in Youngs possession at the time.

Youngs 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 Advents 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 Seizure⁸ 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

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 Youngs 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 Advents failure to prosecute. In the same order, the trial court dismissed Youngs 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 adknowledged 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. Accordingly, this case is ordered dismissed without prejudice on the ground of failure to prosecute.

Anent plaintiffs Motion to Dismiss defendant Youngs 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 defendants rights under the retirement plan and stock purchase plan as to be considered a compulsory counterclaim.

x x x

Notably, defendants 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, plaintiffs Motion To Dismiss defendant Youngs 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.

On 24 March 2006, the trial court issued an Order denying Youngs 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 defendants 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. Plaintiffs 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 plaintiffs (Olympia) right of possession on the property seized. Moreover, the Court, in the Order dated April 28, 2005, has already denied defendants 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.

WHEREFORE, there being no new and substantial arguments raised, the Motion to Resolve is denied.¹³

Young filed a petition for certiorari and mandamus with the Court of Appeals seeking to annul the trial courts 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 Courts 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 writs 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.

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 petitioners 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. x x x

Corollarily, petitioners 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., x x x¹⁴

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 petitioners 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, petitioners 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.

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 Courts 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 officio and 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.

Contrary to Advents view, Olympia International Inc. v. Court of Appeals¹⁶ 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 their status 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.

Advents 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 Advents 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 Advents 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 Court¹⁹ 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. e

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.

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.

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

e remed

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 Advents 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.

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.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA

Chief Justice

* Designated Actimg Member per Special Order No. 1006 dated 10 June 2011.

1 Under Rule 45 of the Rules of Court.

2 Rollo, pp. 37-48. Penned by Associate Justice Edgardo P. Cruz with Associate Justices Fernanda Lampas Peralta and Normandie B. Pizarro concurring.

3 Id. at 50. Penned by Associate Justice Edgardo P. Cruz with Associate Justices Fernanda Lampas Peralta and Normandie B. Pizarro concurring.

4 Id. at 90-91, 92. Penned by Judge Maria Cristina J. Cornejo.

5 Young admitted Advents ownership of the subject car. Id. at 159.

6 Docketed as Civil Case No. 01-1122.

7 Rollo, p. 66.

8 Id. at 155.

9Id. at 156. In a Manifestation dated 8 August 2003, Young stated that he turned over the possession of the subject car to Atty. Gerald Soriano, an Associate of Advents counsel Atty. Edgardo L. de Jesus.

10Id. at 94-95. Atty. Johnny Y. Aruego, Jr. from the Office of the Rehabilitation Receiver wrote a letter, addressed to Verano Law Firm (Youngs counsel), confirming that the subject car was indeed in the possession, control and custody of Atty. Danilo L. Concepcion.

11 Id. at 89.

12 Id. at 91.

13 Id. at 92.

14 Id. at 43-45.

15 Id. at 47.

16 259 Phil. 841 (1989).

17 Sec. 6. Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; x x x

18 Finasia Investments and Finance Corporation v. Court of Appeals, G.R. No. 107002, 7 October 1994, 237 SCRA 446, 450 cited in Panlilio v. Regional Trial Court, G.R. No. 173846, 2 February 2011.

19 Sec. 10 (Rule 60) Judgment to include recovery against sureties.

The amount, if any, to be awarded to any party upon any bond filed in accordance with the provisions of this Rule, shall be claimed, ascertained, and granted under the same procedure as prescribed in section 20 of Rule 57.

20 Carlos v. Sandoval, 508 Phil. 260, 277. .

21 Id. citing Paramount Insurance Corp. v. Court of Appeals, 369 Phil. 641 (1999).

22 Id.

23 CA rollo, p. 75. Young alleged in his Omnibus Motion that In an Order dated 28 April 2005, the [trial court] dismissed the case on the ground of failure to prosecute. To date and despite the lapse of more than fifteen (15) days from notice, Advent has not moved for reconsideration.

24 No. L-16716, 28 April 1962, 4 SCRA 1210, 1215-1216.