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MILAGROS P. ENRIQUEZ v. MERCANTILE INSURANCE CO.

FACTS:

Milagros P. Enriquez filed a complaint for replevin against Wilfred Asuten to recover her Toyota Hi-Ace van. She applied for a bond from The Mercantile Insurance Company, Inc. as surety in the amount of P600,000. The bond expired on February 24, 2004. The complaint was dismissed without prejudice due to Enriquez's failure to present evidence, resulting in the forfeiture of the bond. Mercantile Insurance paid Asuten and filed a collection suit against Enriquez. The trial court ruled in favor of Mercantile Insurance, holding Enriquez liable for the reimbursement made by the surety. The Court of Appeals affirmed this decision, finding that the bond and indemnity agreement were still in effect when Mercantile Insurance paid Asuten. Enriquez's motion for reconsideration was denied, prompting her to file a Petition for Review with the Supreme Court.

ISSUES:

  1. Whether the writ of seizure should be lifted and the van returned to the respondent upon the dismissal of the replevin case for failure to prosecute.

  2. Whether the petitioner should be made liable for the bond despite her failure to return the van.

  3. Whether or not the counter-bond requirement in Section 13 of Rule 57, Section 14 of Rule 57, Section 4(b) of Rule 58, Section 6 of Rule 58, Section 2 of Rule 59, and Section 3 of Rule 60 violates the constitutional right to due process of law.

  4. Whether or not the counter-bond requirement in the aforementioned rules is necessary to protect the rights of the attaching party.

  5. Whether the bond for a writ of seizure in a replevin should be double the value of the property and if so, what is the purpose of the bond.

  6. Whether the judgment on the merits and an application for damages are necessary for the forfeiture of the replevin bond.

  7. Whether the Indemnity Agreement is a contract of adhesion.

  8. Whether petitioner is liable to reimburse respondent for the payment made pursuant to the replevin bond.

RULING:

  1. Yes, the writ of seizure should be lifted and the van returned to the respondent upon the dismissal of the replevin case for failure to prosecute. The dismissal of the replevin case results in restoring the parties to their status prior to litigation, as if no complaint was filed at all. Therefore, the writ of seizure, which is ancillary in nature, becomes functus officio and should be lifted. The petitioner does not have the right to retain possession of the van since there was no determination of who has the better right to possess it.

  2. No, the petitioner should not be made liable for the bond despite her failure to return the van. The liability of the surety under the bond can only be established after hearing and before the entry of final judgment. If the judgment under execution does not contain any directive for the surety to pay and no claim is made before the judgment became final and executory, the surety cannot be held liable under the bond. In this case, the surety bond remains effective until the action or proceeding is finally decided, resolved, or terminated.

  3. The counter-bond requirement does not violate the constitutional right to due process of law. The requirement is a reasonable safeguard to ensure that the attaching party will be able to recover any judgment that may be awarded in the case and to provide security for the payment of damages that the enjoined or restrained party may suffer. It does not deprive the party of any property rights and is not an undue burden on the right to due process.

  4. The counter-bond requirement is necessary to protect the rights of the attaching party. It provides a means of securing the satisfaction of the judgment that may be awarded to the attaching party and ensures that the enjoined or restrained party will be held liable for any damages caused by the injunction or restraining order. The requirement balances the interests of both parties and is a reasonable condition for the granting of the attachment, preliminary injunction, receivership, or replevin.

  5. The bond for a writ of seizure in a replevin should be double the value of the property. The purpose of the bond is to indemnify the defendant against any loss he may suffer by being compelled to surrender the possession of the disputed property pending trial of the action. It may also answer for damages if judgment is rendered in favor of the defendant and includes the return of the property to him.

  6. Forfeiture of the replevin bond requires a judgment on the merits in favor of the defendant and an application by the defendant for damages. In this case, neither circumstance is present, therefore the forfeiture of the entire bond was improper.

  7. The Indemnity Agreement is a contract of adhesion. As a contract of insurance, it is prepared by the insurance company and may contain terms and conditions that are too vague for a layperson to understand. Therefore, it is construed liberally in favor of the insured.

  8. Petitioner is liable to reimburse respondent for the payment made pursuant to the replevin bond. The Indemnity Agreement holds petitioner liable for any payment made by respondent by virtue of the bond. Since respondent only seeks to recover the amount of the bond, petitioner is obligated to reimburse respondent.

PRINCIPLES:

  • Dismissal of the replevin case for failure to prosecute results in restoring the parties to their status prior to litigation, as if no complaint was filed at all.

  • The writ of seizure becomes functus officio and should be lifted upon the dismissal of the replevin case.

  • Liability of the surety under the bond can only be established after hearing and before the entry of final judgment.

  • The surety bond remains effective until the action or proceeding is finally decided, resolved, or terminated.

  • The counter-bond requirement in the rules on attachment, preliminary injunction, receivership, and replevin is a valid and constitutional safeguard to protect the rights of the attaching party and ensure the fair resolution of disputes.

  • The counter-bond requirement is not a violation of the right to due process of law and is a reasonable condition for the granting of attachment, injunction, receivership, or replevin.

  • The counter-bond requirement provides security for the enjoined or restrained party and safeguards against the potential damages that may be caused by the attachment, injunction, receivership, or replevin.

  • The bond for a writ of seizure in a replevin should be double the value of the property to answer for any loss to the plaintiff and for damages if judgment is rendered in favor of the defendant. (Citibank, N.A. v. Court of Appeals)

  • Forfeiture of the replevin bond requires a judgment on the merits in the defendant's favor and an application by the defendant for damages.

  • An indemnity agreement in a replevin bond may require the indemnitor to pay all damages, advances, costs, and expenses incurred by the surety.

  • A contract is the law between the parties as long as it is not contrary to law, morals, good customs, public order, or public policy.

  • A contract of insurance is a contract of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.