Servicewide Specialists v. CA

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Servicewide Specialists Inc v. CA, Hilda Tee, and Alberto Villafranca (1999) Purisima, J. Laus bought a car on credit from Fortune Motors, then executed a promissory note and that in case of default on any payment, total   principal becomes due. The security for this note was the ca r. Incorporated in the chattel mortgage was an assignment by Fortune of its credit and mortgage rights to Filinvest. Filinvest assigned the credit to Servicewide. Laus defaulted and also failed to surrender   possession of the car. Servicew ide instituted a complaint for replevin impleading Dee and Tee who were in possess ion of the car at  that time. A certain Villafranca files a third party claim saying that he was the true owner of the car. Villafranca was substituted as defendant. LC dimissed Servicewide s case for insufficiency of evidence and CA affirms and notes that evidence pointed to Laus as the party liable but was not impleaded by Servicewide. ’  

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Leticia Laus purchased on credit a Colt Galant from Fortune Motors then executed a promissory note payable within 48 th mos demandable on the 17 of each month starting Aug 1976. Agreed upon: In case of default of any installment, the total principal plus interest shall become immediately due o and payable. SECURITY for the promissory note: chattel mortgage over the car with a deed of assignment incorporated therein such that the credit and mortgage rights of Fortune Motors (creditor/seller/mortgagee) IN FAVOR OF Filinvest Credit Corp WITH CONSENT of mortgagor (debtor/buyer) Laus. Car was registered in name of Laus with the chattel mortgage annotated on the certificate. o Filinvest ASSIGNED the credt in favor of  Servicewide Specialists (transferred all of Filinvest ’s rights under the promissory note and chattel mortgage. This was done with a notice of the assignment sent to Laus (registered car  owner). Laus failed to pay the installments from Apr 1977 and the succeeding 17 mos so Servicewide demanded payment of the entire outstanding balance at around P46,000. Still, Laus failed to pay all the installments due until July 1980. July 1984: Servicewide sent a statement of account to Laus and demanded payment of P86,000 (balance plus interests, expenses, damages, etc). Laus failed to settle her obligation or at least surrender possession of the car for foreclosure. o Servicewide instituted a complaint for replevin impleading Dee and Tee who had custody of the car at that time. COMPLAINT of Servicewide: That it had superior lien over the mortgaged car; o That it is lawfully entitled to the possession of the car with accessories and equipment; o That Tee was wrongfully detaining the car to defeat its mortgage lien o Villafranca files THIRD PARTY CLAIM: That he is absolute owner of the car evidenced by Bureau of Land Transpo ’s Cert of Reg o That he got the car from a certain Yan under a deed of sale May 1984 which was free of lien and o encumbrances That the car was taken from his residence by Deputy Sheriff because of a seizure order  o Upon motion by Servicewide, Villafranca was subsitituted as defendant . Villafranca moved for the dismissal because there is another action pending between the same parties in RTC-Makati, involving the seizure of car and the indemnity bond posted by Servicewide. MTD set aside. LC held Villafranca to have failed to file his answer. Declared in default and Servicewide ’s evidence was received ex parte. LC dismissed for insufficiency of evidence o CA: Servicewide says a suit for replevin aimed at the foreclosure of a chattel is an action quasi in rem, and does not require the inclusion of the principal obligor (Laus) in the Complaint. Servicewide admits that the mortage contract was executed by Laus, Laus, who, for reasons for reasons not explained, was o never impleaded. impleaded . In this case, main case is for judicial foreclosure of the chattel mortgage against Tee and John Doe who were o later substituted by Villafranca. As there is no privity of contract, not even a causal link, between Servicewide and Villafranca, the LC was o correct when it dismissed for insufficiency of evidence against Tee and Villafranca since the evidence pointed to Laus as the party liable for the obligation . Affirmed LC o

Issue/Held: Whether or not a case for replevin may be pursued against Villafranca, without impleading the absconding debtormortgagor (Laus)? ---NO Ratio: Rule 60 Revised Rules of Court requires that an applicant for replevin must show that he "is the owner of the property claimed, particularly describing it, or is entitled to the possession thereof." Where the right of the plaintiff to the possession of the property is so conceded or evident, the action need only be maintained against those who currently possesses the property. I Northern Motors vs. Herrera: Herrera: SC said in BA Finance (which is similar with the present case): Persons having a special right of property, the recovery of which is sought (like a chattel mortgagee) may o maintain an action for replevin. Where the mortgage authorizes the mortgagee (creditor) to take possession of the property on default, he may o maintain an action to recover possession of the mortgaged chattels from the mortgagor (debtor) OR from any person in whose hands he may find them. 

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Thus, in default of the mortgagor, the mortgagee (creditor) is constituted as attorney-in-fact of the mortgagor , mortgagor , ENABLING such mortgagee (creditor) to act in behalf of of the owner.

That the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is tr aced to his possession, one can be a defendant in an action for replevin. It is assumed that the plaintiff's right to possess the thing is not or cannot be disputed. o 

If the right of possession of the plaintiff is put to doubt (defendant contests the legal bases for plaintiff  ’s cause of action), it could become essential to have other persons impleaded for a complete determination and resolution of the controversy. In this case, there is an independent claim of of ownership by Tee and Dee (evinced by the pending case in the CA involving the car between the same parties here). 

In a suit for replevin for replevin,, a clear right of possession must be established. established . A foreclosure under a chattel mortgage may properly be commenced ONLY once there is default on the part of the mortgagor (debtor) secured by the mortgage. The replevin here was resorted to to pave the way for the foreclosure of what is covered by the chattel mortgage. The conditions essential for such foreclosure would be to show: 1. The existence of the chattel mortgage; and 2. The default of the mortgagor. These requirements must be shown because the validity of the plaintiff  ’s exercise of the right of foreclosure is dependent thereon. When the mortgagee (creditor) seeks a replevin to effect the foreclosure, it is not only the existence of, but also the mortgagor's default that can properly uphold the right to replevy the property. 

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Since the mortgagee's(creditor ’s) right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case. The burden to establish a valid justification for replevin lies with the plaintiff. An adverse possessor, who is NOT the mortgagor, CANNOT be deprived of his possession, let alone be bound by the terms of the chattel mortgage, simply because the mortgagee brings up an action for replevin. Laus, being an indispensable party, sh ould have been impleaded in the complaint f or replevin and damages.  

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Indispensible party: An indispensable party is one whose interest will be affected by the court's action, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties that his legal presence as a party is an absolute necessity. In his absence, there cannot be a resolution of the dispute of the parties before the Court which is effective, complete, or equitable. A party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in Court. He is not indispensable if his presence would merely complete relief between him and those already parties to the action or will simply avoid multiple litigation. Without the presence of indispensable parties to a suit or proceeding, a judgment of a Court cannot attain real finality. 

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That Servicewide could not locate the mortgagor, Leticia Laus, is no excuse for resorting to a procedural short-cut. It could have availed of substituted service of summons. If it deemed such a mode to be unavailing, it could have proceeded in accordance with Sec 24. Servicewide had other proper remedies, it could have resorted to but failed to avail of: It could have properly impleaded the mortgagor. o Such failure is fatal to petitioner's cause.   

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Petition denied.