Development Bank of the Philippines vs. Carpio

A claim for damages against a surety bond posted to secure a provisional remedy (such as replevin or attachment) must be filed before trial or before appeal is perfected or before the judgment becomes executory under Section 20, Rule 57 and Section 10, Rule 60 of the Rules of Court. A trial court does not acquire residual jurisdiction over a case dismissed without prejudice (such as for improper venue) where no appeal was filed, and equity cannot be invoked to circumvent procedural rules.

DBP held certificates of title as security for loans extended to Abad, et al. When the loans became due, DBP called on the guarantee of Guarantee Fund for Small and Medium Enterprise (GFSME) and turned over the titles to GFSME. Abad, et al. subsequently filed a replevin action to recover the titles, obtaining a writ of seizure secured by a bond from Country Bankers Insurance Corporation (CBIC). The case was dismissed for improper venue before trial on the merits.

• Abad, et al. obtained loans from DBP and submitted 228 certificates of title as security.
• When the loans became due and demandable, DBP called on the guarantee of Guarantee Fund for Small and Medium Enterprise (GFSME) and turned over the certificates of title to GFSME pursuant to their guarantee agreement.
• On August 21, 2001, Abad, et al. filed a replevin suit against DBP and GFSME before the RTC, praying for the issuance of a writ of seizure for the delivery of their certificates of title which they claimed were unlawfully detained.
• The RTC issued a Writ of Seizure on August 24, 2001, which was accompanied by a Plaintiffs Bond for Manual Delivery of Personal Property issued by Country Bankers Insurance Corporation (CBIC).
• DBP filed an Omnibus Motion to Dismiss based on improper venue, among others.
• On September 25, 2001, the RTC dismissed the case for improper venue without prejudice.
• DBP and GFSME subsequently filed a Joint Motion to Order Plaintiffs to Return Titles.
• On January 27, 2003, the RTC ordered Abad, et al. to return the 228 certificates of title to DBP and GFSME.
• Abad, et al. failed to return the titles despite the issuance of a writ of execution on December 16, 2003.
• On February 3, 2004, DBP filed a Motion/Application to Call on Plaintiff's Surety Bond, praying for the release of the bond to answer for damages sustained due to the failure to return the certificates of title.
• The RTC denied the motion, ruling it had no residual jurisdiction as the case was dismissed without prejudice and the order had become final and executory.
• The Court of Appeals affirmed the RTC's denial, citing Section 20, Rule 57 of the Rules of Court regarding the timing of claims for damages against attachment bonds.

• DBP argued that Section 20, Rule 57 should not be strictly applied because the damages resulting from the improper issuance of the writ of seizure occurred only after respondents' unjustified refusal to return the titles despite the RTC order.
• DBP claimed it could not have anticipated that respondents would fail to abide by the writ of execution, making it premature to claim damages prior to such failure.
• DBP contended that the RTC retained residual jurisdiction to hear the claim for damages against the surety bond even after the dismissal order became final.
• DBP invoked equity, arguing that strict application of the procedural rules would prejudice its right to recover damages arising from the improper attachment.

• CBIC argued that Section 20, Rule 57 explicitly requires applications for damages on account of improper attachment to be filed before trial, before appeal is perfected, or before judgment becomes executory.
• CBIC noted that DBP filed the motion more than two years after the September 25, 2001 dismissal order became final and executory.
• CBIC contended that under Section 10, Rule 60, the surety's liability should be included in the final judgment, but here there was no judgment on the merits as to entitlement to possession.
• CBIC argued that any claim for damages was only proper with respect to loss suffered by being compelled to surrender possession pending trial, not post-dismissal damages.
• CBIC maintained that DBP should have filed the application for damages earlier when it perceived the attachment to be improper, instead of merely seeking to quash the writ.

• Procedural:
  • Whether the RTC had residual jurisdiction to hear DBP's application for damages against the surety bond after the case was dismissed without prejudice and the order became final and executory.
• Substantive Issues:
  • Whether DBP's claim for damages against the surety bond was timely filed under Section 20, Rule 57 and Section 10, Rule 60 of the Rules of Court.
  • Whether equity may be invoked to excuse compliance with the procedural requirements for claiming damages against a surety bond.

• Procedural:
  • The RTC did not have residual jurisdiction. Residual jurisdiction exists only after a trial on the merits has been conducted, a judgment rendered, and the aggrieved party has perfected an appeal. Since the case was dismissed without prejudice for improper venue under Section 1(c), Rule 16, and such dismissal is not appealable under Section 1(h), Rule 41, the RTC never acquired residual jurisdiction. Without the perfection of an appeal, there is no residual jurisdiction to speak of.
• Substantive:
  • The application for damages was belatedly filed. Section 20, Rule 57 requires the application to be filed before trial or before appeal is perfected or before the judgment becomes executory. DBP filed the application after the dismissal order became final and executory.
  • Equity cannot supersede the Rules of Court. Equity is applied only in the absence of, and never against, statutory law or judicial rules of procedure. The maxim aequitas nunquam contravenit legis (equity never contravenes the law) applies.
  • The Court suggested alternative remedies for DBP: (1) enforcing its guarantee agreement with GFSME (contract of guaranty); (2) filing an action for damages based on Article 19 of the Civil Code (abuse of rights) against respondents for unlawfully taking the certificates of title; and (3) instituting an action for collection of sum of money or foreclosure of mortgage.

• Residual Jurisdiction — The authority of the trial court to issue orders for the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal, available only after trial on the merits, judgment, and perfection of appeal, but prior to transmittal of records. It does not exist where the case is dismissed without prejudice without trial and no appeal is taken.
• Dismissal Without Prejudice vs. With Prejudice — A dismissal with prejudice bars the refiling of the same action and is appealable; a dismissal without prejudice (such as for improper venue) does not bar refiling and is not appealable under Section 1(h), Rule 41.
• Suretyship and Guaranty — A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor who agrees to pay if the principal is unable to pay after due diligence by the creditor. A surety bond posted for provisional remedies creates liability that must be determined within the same action and before finality of judgment.
• Abuse of Rights (Article 19, Civil Code) — Standards of justice, giving everyone his due, and honesty and good faith must be observed in exercising rights; when a right is exercised in a manner not conforming to these norms resulting in damage, a legal wrong is committed.

• "Equity, which has been aptly described as a 'justice outside legality,' is applied only in the absence of, and never against, statutory law or, as in this case, judicial rules of procedure."
• "Emotional appeals for justice, while they may wring the heart of the Court, cannot justify disregard of the mandate of the law as long as it remains in force. The applicable maxim, which goes back to the ancient days of the Roman jurists — and is now still reverently observed — is 'aequitas nunquam contravenit legis.'"
• "The application must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and his surety or sureties..."
• "There is no residual jurisdiction to speak of where no appeal has even been filed."

• Strongworld Construction Corporation v. Hon. Perello — Distinguished dismissal with prejudice from dismissal without prejudice; explained grounds for dismissal under Section 1, Rule 16 and their effects under Section 5.
• Jao v. Royal Financing Corporation — Held that failure to file application for damages against surety bond prior to termination of case bars recovery from the surety.
• Malayan Insurance Co., Inc. v. Salas — Enumerated requirements for recovering damages against attachment/replevin bonds under Section 20, Rule 57.
• Spouses Ong v. Philippine Commercial International Bank — Defined contract of guaranty as creating a subsidiary obligation on the part of the guarantor.
• Trade and Investment Development Corporation of the Philippines v. Asia Paces Corporation — Explained that guarantor contracts to pay if by use of due diligence the debt cannot be made out of the principal debtor.
• Globe Mackay Cable and Radio Corporation v. Court of Appeals — Discussed Article 19 (abuse of rights) as basis for damages when rights are exercised not in accordance with norms of human conduct.
• Lim Tupas v. Court of Appeals — Applied the maxim that equity never contravenes the law.
• Angeles v. Court of Appeals — Defined the scope and timing of residual jurisdiction.

• Section 20, Rule 57 of the 1997 Rules of Civil Procedure — Claim for damages on account of illegal attachment; requires application before trial, before appeal perfected, or before judgment becomes executory.
• Section 10, Rule 60 of the 1997 Rules of Civil Procedure — Damages in replevin cases; surety's liability to be included in final judgment and determined in accordance with Section 20, Rule 57.
• Section 1(h), Rule 41 of the 1997 Rules of Civil Procedure — Orders not appealable, specifically orders dismissing an action without prejudice.
• Section 1(c), Rule 16 of the 1997 Rules of Civil Procedure — Grounds for motion to dismiss, specifically improper venue.
• Article 19 of the Civil Code — Abuse of rights; standards of conduct in exercising rights and performing duties.
• Articles 20 and 21 of the Civil Code — Basis for damages for violation of Article 19.