Arabesque Industrial Philippines, Inc. vs. Court of Appeals

A writ of replevin cannot be properly directed against a lawful possessor of a chattel. Where the chattel is possessed by a repairman exercising a mechanic's lien for unpaid repair bills, the writ of replevin is improperly issued, and the matter of ownership, as well as the incurring of additional lay day fees by the continued detention of the chattel, is inconsequential.

Petitioner Arabesque Industrial Philippines, Inc. (AIPI) purchased the tugboat MT Rover at public auction from respondent PNOC Dockyard and Engineering Corporation (PDEC). After the purchase, AIPI engaged PDEC to repair the boat, creating a debtor-creditor relationship between the parties. The Civil Code provisions on credits preferences (Arts. 2241, 2243, and 2212) and on the right of a repairman to retain a movable by way of pledge until paid (Art. 1731) form the statutory backdrop against which PDEC asserted its mechanic's lien over the boat.

On 19 April 1989, Arabesque Industrial Philippines, Inc. (AIPI) bought at public auction the tugboat MT Rover from respondent PNOC Dockyard and Engineering Corporation (PDEC). Despite notice by PDEC that it was imposing lay day charges if the boat was not removed from its premises by 9 May 1989, AIPI did not remove the boat; instead, it engaged PDEC to repair it. The bill for the repair rose to P1,681,896.30. AIPI paid only P329,115.00, leaving a balance of P1,352,781.30. After evaluating the repair work, AIPI expressed willingness to pay only an additional P494,593.60.

On 7 September 1990, AIPI received from Atty. Rosendo Chaves, a notary public, a notice for a sale of the boat at public auction slated for 14 September 1990, pursuant to Arts. 2241(5), 2243, and 2212 of the Civil Code. Under Art. 2241, credits for the marking, repairs, safekeeping, or preservation of personal property constitute fifth in the order of preference (par. 5), such being considered under Art. 2245 as a mortgage or lien within the purview of the legal provisions governing insolvency. From the time of judicial demand, the interest due on such credit shall earn legal interest according to Art. 2212 although the obligation may be silent on this point.

Subsequently, AIPI sued PDEC and Notary Public Rosendo Chaves for the nullification of the public auction sale plus accounting, with prayer for preliminary injunction before RTC, Branch 147, Makati, contending that Arts. 2241 and 2243 of the Civil Code cited by PDEC were not applicable as AIPI was not yet judicially declared insolvent. AIPI prayed for immediate injunction of the auction sale and for PDEC to accept P494,593.60 as a reasonable and complete payment of its services. On 12 September 1990, Judge Teofilo Guadiz, Jr. of the Regional Trial Court, Makati, enjoined PDEC and Notary Public Chaves from holding the slated public auction sale until after its hearing set for 1 October 1990.

On 20 September, PDEC filed an omnibus motion in opposition to the injunction, praying for the lifting of the TRO, for summary judgment upon AIPI's admission of the liability of P494,593.60, and for the dismissal of the complaint. AIPI opposed the motion. On 3 October 1990, upon AIPI's filing of a bond of P100,000.00, the trial court issued a preliminary injunction against the sale of the boat. On 19 October 1990, PDEC filed an answer, amended on 28 October 1990. AIPI moved to amend the complaint, which was granted, and on 23 November 1990, the amended complaint was admitted upon a finding that there was no alteration of the cause of action. On 26 November 1990, upon AIPI posting a bond of P1 Million, and considering PDEC's answer admitting the ownership of the boat by AIPI, the court granted the replevin and ordered the return of the boat to AIPI.

On 29 November 1990, PDEC filed an "Urgent Motion to Annul, Revoke, Recall and Lift the Order Admitting the Amended Complaint dated November 23, 1990 and Order of Seizure dated November 26, 1990." Meanwhile, on 14 December 1990, the sheriffs enforcing the writ of replevin took possession of the boat and delivered the same to AIPI. After denial of PDEC's motion on 20 March 1991, PDEC filed a petition for certiorari and prohibition with the Court of Appeals under Rule 65 seeking to set aside the orders of the trial court of 23 November 1990, 26 November 1990, and 20 March 1991. On 19 July 1991, the Court of Appeals set aside the order of 26 November 1990 and directed the return of the boat to PDEC on the ground that the chattel was not wrongfully detained but possessed in the exercise of PDEC's mechanic's lien for its unpaid repair bills.

• Superiority of Ownership: AIPI argued that the respondent appellate court should not have set aside the writ of replevin because AIPI is the owner of the boat and that the right of an owner is superior to that of a mere lien holder.
• Lay Day Fees: AIPI contended that lay day fees are incurred by it for continuous possession of the boat by PDEC, and that AIPI should not be made to suffer for PDEC's refusal to release the boat.
• Counterbond Requirement: AIPI argued that the return of the boat to PDEC should have been refused as PDEC had not posted a counterbond.
• Factual Issues: AIPI argued that the petition should have been dismissed by the appellate court and the case remanded to the court a quo as it involved factual issues, like the determination of reasonable expenses for the repair.
• Appealability of Interlocutory Orders: AIPI disputed the resolution of the respondent appellate court on the challenge to the interlocutory orders of the court a quo because such orders are unappealable.
• Inapplicability of Art. 1731: In its reply, AIPI added that Art. 1731 of the Civil Code, which states that he who has executed works on a movable has the right to retain it by way of pledge until paid, does not apply because it actually remitted payments to PDEC.

• Fatal Admission: PDEC pointed to the admission by AIPI of delivering the boat to PDEC for repair as fatal to the instant petition.
• Right to Retain Possession: PDEC asserted its right to retain possession of the chattel until the repair fees are fully settled, pursuant to Arts. 1731, 2098, 2105, 2112, and 2122 of the Civil Code.

• Validity of the Writ of Replevin: Whether the writ of replevin was properly issued by the court a quo.
• Appealability of Interlocutory Orders: Whether the interlocutory orders issued herein are appealable.

• Validity of the Writ of Replevin: No. The Court of Appeals correctly set aside the writ of replevin. Such writ cannot be properly directed against a lawful possessor of a chattel, and the matter of ownership as well as incurring of additional lay day fees by the continued detention of the boat by PDEC is therefore inconsequential.
• Appealability of Interlocutory Orders: Yes, they were properly made the subject of a petition for certiorari/prohibition before the Court of Appeals under Rule 65. Interlocutory orders, because they do not dispose of the case on the merits, are not appealable; consequently, they were correctly made subject of a petition for certiorari/prohibition.

• Validity of the Writ of Replevin: The writ of replevin cannot be properly directed against a lawful possessor of a chattel. PDEC possessed the boat in the exercise of a mechanic's lien for its unpaid repair bills, making it a lawful possessor. The matter of ownership, as well as the incurring of additional lay day fees by the continued detention of the boat by PDEC, is inconsequential to the validity of the writ. The requirement of posting a counterbond to reacquire possession of the chattel subject of the writ does not apply in this case because that presupposes a previous valid writ. Here, the chattel was ordered returned to PDEC because the writ was improperly issued, not on the basis of the non-posting of a counterbond.
• Appealability of Interlocutory Orders: Interlocutory orders, because they do not dispose of the case on the merits, are not appealable. Consequently, they were correctly made the subject of a petition for certiorari/prohibition before the Court of Appeals under Rule 65 of the Rules of Court. The Court of Appeals also correctly ruled that the procedural lapse of the court a quo in granting without hearing AIPI's leave to file amended complaint was cured by PDEC's "Urgent Motion to Annul, Revoke and Lift the Order Admitting the Amended Complaint, etc." Invoking the doctrine in Portugal vs. Reantaso, the Court of Appeals ruled that lack of due process is not absence of previous notice but absolute absence of opportunity to be heard. As regards admission of the amended complaint, what are barred by Sec. 3, Rule 10, of the Rules of Court are amendments which substantially change the cause of action or the theory of the case; hence, the addition of the prayer for a writ of replevin, being implied from the main cause of action, may be allowed.

• Replevin against a lawful possessor — A writ of replevin cannot be properly directed against a lawful possessor of a chattel. Where the chattel is possessed by a repairman exercising a mechanic's lien for unpaid repair bills, the writ is improperly issued, and the matter of ownership as well as the incurring of additional lay day fees by the continued detention of the chattel is inconsequential. The requirement of posting a counterbond to reacquire possession presupposes a previous valid writ.
• Lack of due process — Lack of due process is not absence of previous notice but absolute absence of opportunity to be heard. A procedural lapse in granting without hearing a party's leave to file an amended complaint is cured when the opposing party files a motion to annul, revoke, recall, and lift the order admitting the amended complaint, thereby having the opportunity to be heard.
• Amendments to pleadings — What are barred by Sec. 3, Rule 10, of the Rules of Court are amendments which substantially change the cause of action or the theory of the case. The addition of a prayer for a writ of replevin, being implied from the main cause of action, may be allowed.
• Appealability of interlocutory orders — Interlocutory orders, because they do not dispose of the case on the merits, are not appealable; consequently, they are properly made the subject of a petition for certiorari/prohibition under Rule 65 of the Rules of Court.

• "Such writ cannot be properly directed against a lawful possessor of a chattel, and the matter of ownership as well as incurring of additional lay day fees by the continued detention of the boat by PDEC is therefore inconsequential." — This passage states the ratio decidendi on the first issue: a writ of replevin is invalid when directed against a lawful possessor holding under a mechanic's lien.
• "The requirement of posting a counterbond to reacquire possession of the chattel subject of the writ, does not apply in the case at bar because that presupposes a previous valid writ." — This clarifies that the counterbond requirement under the replevin rules presupposes a validly issued writ, and does not apply where the writ itself was improperly issued.
• "Interlocutory orders, because they do not dispose of the case on the merits, are not appealable; consequently, they where correctly made subject of a petition for certiorari/prohibition before the Court of Appeals under Rule 65 of the Rules of the Court." — This states the rule on the second issue: interlocutory orders are not appealable but may be assailed via certiorari under Rule 65.
• "Invoking the doctrine in Portugal v. Reantaso, the Court of Appeals ruled that lack of due process is not absence of previous notice but absolute absence of opportunity to be heard." — This articulates the canonical definition of lack of due process in the context of procedural lapses in granting amendments to pleadings.

• Portugal vs. Reantaso — Cited by the Court of Appeals and affirmed by the Supreme Court for the doctrine that lack of due process is not absence of previous notice but absolute absence of opportunity to be heard. The procedural lapse of the trial court in granting without hearing AIPI's leave to file amended complaint was cured by PDEC's subsequent motion challenging the order.

• Art. 2241(5), Civil Code — Credits for the marking, repairs, safekeeping, or preservation of personal property constitute fifth in the order of preference. This was the basis of PDEC's mechanic's lien over the boat and its notice of public auction sale.
• Art. 2243, Civil Code — Referenced by PDEC in its notice of auction sale as a basis for the extrajudicial enforcement of its lien.
• Art. 2212, Civil Code — From the time of judicial demand, the interest due on a credit shall earn legal interest although the obligation may be silent on this point. This was cited in PDEC's notice of auction sale.
• Art. 2245, Civil Code — Credits considered as a mortgage or lien within the purview of the legal provisions governing insolvency. This was referenced in the Court's discussion of the preference of PDEC's credit.
• Art. 1731, Civil Code — He who has executed works on a movable has the right to retain it by way of pledge until paid. PDEC asserted this provision as the basis of its right to retain possession of the boat until the repair fees are fully settled.
• Arts. 2098, 2105, 2112, 2122, Civil Code — Cited by PDEC in support of its right to retain possession of the chattel until the repair fees are fully settled.
• Sec. 3, Rule 10, Rules of Court — What are barred by this provision are amendments which substantially change the cause of action or the theory of the case. The addition of the prayer for a writ of replevin, being implied from the main cause of action, may be allowed.
• Rule 65, Rules of Court — Interlocutory orders, because they do not dispose of the case on the merits, are not appealable; consequently, they were correctly made the subject of a petition for certiorari/prohibition before the Court of Appeals under this Rule.

Cruz, Padilla, and Griño-Aquino, JJ., concurred.