FIRST DIVISION

[G.R. No. 102998. July 5, 1996.]

BA FINANCE CORPORATION, petitioner, vs. HON.

COURT OF APPEALS and ROBERTO M.
REYES, respondents.

Agbayani, Leal, Ebarle & Venturanza for petitioner.

Nicanor M. Zaratan, Jr. for private respondent.

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; REPLEVIN,

CONSTRUED. — Replevin, broadly understood, is both a form of principal
remedy and of a provisional relief. It may refer either to the action itself, i.e., to
regain the possession of personal chattels being wrongfully detained from the
plaintiff by another, or to the provisional remedy that would allow the plaintiff to
retain the thing during the pendency of the action and hold it pendente lite. The
action is primarily possessory in nature and generally determines nothing more
than the right of possession. Replevin is so usually described as a mixed action,
being partly in rem and partly in personam — in rem insofar as the recovery of
specific property is concerned, and in personam as regards to damages involved.
As an "action in rem," the gist of the replevin action is the right of the plaintiff to
obtain possession of specific personal property by reason of his being the owner
or of his having a special interest therein. Consequently, the person in
possession of the property sought to be replevied is ordinarily the proper and
only necessary party defendant, and the plaintiff is not required to so join as
defendants other persons claiming a right on the property but not in possession
thereof. Rule 60 of the Rules of Court allows an application for the immediate
possession of the property but the plaintiff must show that he has a good legal
basis, i.e., a clear title thereto, for seeking such interim possession.
2. ID.; ID.; INDISPENSABLE PARTY, DEFINED. — An indispensable party is
one whose interest will be affected by the court's action in the litigation, 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 to the
proceeding 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. Conversely, 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 permit 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.
3. CIVIL LAW; CHATTEL MORTGAGE; MORTGAGEE'S RIGHT OF
POSSESSION, CONDITIONED UPON ACTUAL DEFAULT OF THE
MORTGAGOR. — A chattel mortgagee, unlike a pledgee, need not be in, nor
entitled to the possession of the property unless and until the mortgagor defaults
and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee'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. When the mortgagee seeks a replevin in order to effect the eventual
foreclosure of the mortgage, it is not only the existence of, but also the
mortgagor's default on, the chattel mortgage that, among other things, can
properly uphold the right to replevy the property. The burden to establish a valid
justification for that action lies with the plaintiff. An adverse possessor, who is not
the mortgagor, cannot just be deprived of his possession, let alone be bound by
the terms of the chattel mortgage contract, simply because the mortgagee brings
up an action for replevin.

DECISION

VITUG, J  :p

The case at bar is a suit for replevin and damages. The petition for review
on certiorari assails the decision of the Court of Appeals 1 in CA-G.R. CV No.
23605 affirming that of the Regional Trial Court of Manila, Branch XX, 2 which
has disposed of its Civil Case No. 87-42270 in this wise:
"WHEREFORE, the case against defendant-
spouses (sic) Reynaldo Manahan is hereby dismissed
without prejudice, for failure to prosecute. Plaintiff having
failed to show the liability of defendant John Doe in the
person of Roberto M. Reyes, the case against the latter
should likewise be dismissed. Moreover, plaintiff is hereby
directed to return the vehicle seized by virtue of the order of
 seizure issued by this Court with all its accessories to the
said Roberto M. Reyes." 3
The decisions of both the appellate court and the court a quo are based on
a like finding of the facts hereinafter briefly narrated.
The spouses Reynaldo and Florencia Manahan executed, on 15 May
1980, a promissory note 4 binding themselves to pay Carmasters, Inc., the
amount of P83,080.00 in thirty-six monthly installments commencing 01 July
1980. To secure payment, the Manahan spouses executed a deed of chattel
mortgage 5 over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial
number CUBFWE-801010. Carmasters later assigned 6 the promissory note and
the chattel mortgage to petitioner BA Finance Corporation with the conformity of
the Manahans. When the latter failed to pay the due installments, petitioner sent
demand letters. The demands not having been heeded, petitioner, on 02 October
1987, filed a complaint for replevin with damages against the spouses, as well as
against a John Doe, praying for the recovery of the vehicle with an alternative
prayer for the payment of a sum of money should the vehicle not be returned.
Upon petitioner's motion and the filing of a bond in the amount of P169,161.00
the lower court issued a writ of replevin. The court, however, cautioned petitioner
that should summons be not served on the defendants within thirty (30) days
from the writ's issuance, the case would be dismissed to failure to
prosecute. 7 The warning was based on what the court perceived to be the
deplorable practice of some mortgagees of "freezing (the) foreclosure
or replevin cases" which they would so "conveniently utilize as a leverage for the
collection of unpaid installments on mortgaged chattels." 8
The service of summons upon the spouses Manahan was caused to be
served by petitioner at No. 35 Lantana St., Cubao, Quezon City. The original of
the summons had the name and the signature of private respondent Roberto M.
Reyes indicating that he received, on 14 October 1987, a copy of the summons
and the complaint. 9 Forthwith, petitioner, through its Legal Assistant, Danilo E.
Solano, issued a certification to the effect that it had received from Orson R.
Santiago, the deputy sheriff of the Regional Trial Court of Manila, Branch 20, the
Ford Cortina seized from private respondent Roberto M. Reyes, the John Doe
referred to in the complaint, 10 in Sorsogon, Sorsogon. 11 On 20 October 1987,
the lower court came out with an order of seizure.
Alleging possession in good faith, private respondent filed, on 26 October
1987, a motion for an extension of time within which to file his answer and/or a
motion for intervention. The court granted the motion.
A few months later, or on 18 February 1988, the court issued an order
which, in part, stated:
 "Perusal of the record shows that an order for the
seizure of personal property was issued on October 20,
1987 in pursuance to a previous order of the Court dated
October 13, 1987. However, to date, there is no showing
that the principal defendants were served with summons
inspite of the lapse of four (4) months.
"Considering, this is a replevin case and to forestall
the evils that arise from this practice, plaintiff failing to heed
the Order dated October 13, 1987, particularly second
paragraph thereof, the above-entitled case is hereby
ordered DISMISSED for failure to prosecute and further
ordering the plaintiff to return the property seized with all its
accessories to defendant John Doe in the person of
Roberto M. Reyes.
"SO ORDERED." 12
On 26 February 1988, petitioner filed a notice of dismissal of the case
"without prejudice and without pronouncement as to costs, before service of
Summons and Answer, under Section 1, Rule 17, of the Rules of Court." 13 It also
sought in another motion the withdrawal of the replevin bond. In view of the
earlier dismissal of the case (for petitioner's failure to prosecute), the court, on 02
March 1988, merely noted the notice of dismissal and denied the motion to
withdraw the replevin bond considering that the writ of replevin had meanwhile
been implemented. 14
On 09 March 1988, private respondent filed a motion praying that
petitioner be directed to comply with the court order requiring petitioner to return
the vehicle to him. In turn, petitioner filed, on 14 March 1988, a motion for the
reconsideration of the orders of 18 February 1988 and 02 March 1988
contending that: (a) the dismissal of the case was tantamount to adjudication on
the merits that thereby deprived it with the remedy to enforce the promissory
note, the chattel mortgage and the deed of assignment, under Section 3, Rule
117, of the Rules of Court; (b) the order to return the vehicle to private
respondent was a departure from jurisprudence recognizing the right of the
mortgagor to foreclose the property to respond to the unpaid obligation secured
by the chattel mortgage, and (c) there were no legal and factual bases for the
court's view that the filing of the replevin case was "characterized (by) evil
practices." 15
On 20 April 1988, the court granted petitioner's motion for reconsideration
and accordingly recalled the order directing the return of the vehicle to private
respondent, set aside the order dismissing the case, directed petitioner "to cause
the service of summons together with a copy of the complaint on the principal
defendants within five (5) days from receipt" 16 thereof at petitioners expense,
and ordered private respondent to answer the complaint.
 A few months later, or on 02 August 1988, petitioner filed a motion to
declare private respondent in default. The court granted the motion on that same
day and declared private respondent "in default for his failure to file the . . .
answer within the reglementary period." 17 The court likewise granted petitioner's
motion to set the case for the presentation, ex parte, of evidence. Petitioner,
thereupon, submitted the promissory note, the deed of chattel mortgage, the
deed of assignment, a statement of account in the name of Florencia Manahan
and two demand letters.
On 27 February 1989, the trial court rendered a decision dismissing the
complaint against the Manahans for failure of petitioner to prosecute the case
against them. It also dismissed the case against private respondent for failure of
petitioner to show any legal basis for said respondent's liability. The court
ratiocinated:
". . . Roberto M. Reyes is merely ancillary debtor in
this case. The defendant spouses Manahan being the
principal debtor(s) and as there is no showing that the latter
has been brought before the jurisdiction of this court, it
must necessarily follow that the plaintiff has no cause of
action against said Roberto M. Reyes herein before
referred to as defendant John Doe. Under the
circumstances, it is incumbent upon the plaintiff to return
the seized vehicle unto the said Roberto M. Reyes." 18
In its appeal to the Court of Appeals, petitioner has asserted that a suit
for replevin aimed at the foreclosure of the chattel is an action quasi in rem which
does not necessitate the presence of the principal obligors as long as the court
does not render any personal judgment against them. This argument did not
persuade the appellate court, the latter holding that —
". . . In action quasi in rem an individual is named as
defendant and the purpose of the proceeding is to subject
his interest therein to the obligation or lien burdening the
property, such as proceedings having for their sole object
the sale or disposition of the property of the defendant,
whether by attachment, foreclosure, or other form of
remedy (Sandejas vs. Robles, 81 Phil. 421). In the case at
bar, the court cannot render any judgment binding on the
defendants spouses for having allegedly violated the terms
and conditions of the promissory note and the contract of
chattel mortgage on the ground that the court has no
jurisdiction over their persons, no summons having been
served on them. That judgment, it rendered, is void for
having denied the defendants spouses due process of law
which contemplates notice and opportunity to be heard
 before judgment is rendered, affecting one's person or
property (Macabingkil vs. Yatco, 26 SCRA 150, 157).
"It is next contended by appellant that as between
appellant, as mortgagee, and John Doe, whose right to
possession is dubious if not totally non-existent, it is the
former which has the superior right of possession.
"We cannot agree.
"It is an undisputed fact that the subject motor
vehicle was taken from the possession of said Roberto M.
Reyes, a third person with respect to the contract of chattel
mortgage between the appellant and the defendants
spouses Manahan.
"The Civil Code expressly provides that every
possessor has a right to be respected in his possession
(Art. 539, New Civil Code); that good faith is always
presumed, and upon him who alleges bad faith on the part
of a possessor rests the burden of proof (Art. 527, ibid.);
and that the possession of movable property acquired in
good faith is equivalent to a title; nevertheless, one who
has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the
same (Art. 559, ibid.). Thus, it has been held that a
possessor in good faith is entitled to be respected and
protected in his possession as if he were the true owner
thereof until a competent court rules otherwise (Chus
Hai vs. Kapunan, 104 Phil. 110; Yu, et al. vs. Hon.
Honrado, etc., et al., 99 SCRA 237). In the case at bar, the
trial court did not err in holding that the complaint does not
state any cause of action against Roberto M. Reyes, and in
ordering the return of the subject chattel to him." 19
The appellate court, subsequently, denied petitioner's motion for reconsideration.
In the instant appeal, petitioner insists that a mortgagee can maintain an
action for replevin against any possessor of the object of a chattel mortgage even
if the latter were not a party to the mortgage.
Replevin, broadly understood, is both a form of principal remedy and of a
provisional relief. It may refer either to the action itself, i.e., to regain the
possession of personal chattels being wrongfully detained from the plaintiff by
another, or to the provisional remedy that would allow the plaintiff to retain the
thing during the pendency of the action and hold it pendente lite. 20 The action is
primarily possessory in nature and generally determines nothing more than the
right of possession. Replevin is so usually described as a mixed action, being
partly in rem and partly in personam-in rem insofar as the recovery of specific
property is concerned, and in personam as regards to damages involved. As an
"action in rem," the gist of the replevin action is the right of the plaintiff to obtain
possession of specific personal property by reason of his being the owner or of
his having a special interest therein. 21 Consequently, the person in possession of
the property sought to be replevied is ordinarily the proper and only necessary
party defendant, and the plaintiff is not required to so join as defendants other
persons claiming a right on the property but not in possession thereof. Rule 60 of
the Rules of Court allows an application for the immediate possession of the
property but the plaintiff must show that he has a good legal basis, i.e., a clear
title thereto, for seeking such interim possession.
Where the right of the plaintiff to the possession of the specific property is
so conceded or evident, the action need only be maintained against him who so
possesses the property. In rem actio est per quam rem nostram quae ab alio
possidetur petimus et semper adversus eum est qui rem possidet. In Northern
Motors, Inc. vs. Herrera, 22 the Court has said:
"There can be no question that persons having a
special right of property in the goods the recovery of which
is sought, such as a chattel mortgagee, may maintain an
action for replevin therefor. Where the mortgage authorizes
the mortgagee to take possession of the property on
default, he may maintain an action to recover possession of
the mortgaged chattels from the mortgagor or from any
person in whose hands he may find them." 23
In effect then, the mortgagee, upon the mortgagor's default, is
constituted an attorney-in-fact of the mortgagor enabling such
mortgagee to act for and in behalf of the owner. Accordingly, that
the defendant is not privy to the chattel mortgage should be
inconsequential. By the fact that the object of replevin is traced to
his possession, one properly can be a defendant in an action
for replevin. It is here assumed that the plaintiffs right to possess
the thing is not or cannot be disputed.
In case the right of possession on the part of the plaintiff, or his authority to
claim such possession or that of his principal, is put to great doubt (a contending
party might contest the legal bases for plaintiff's cause of action or an adverse
and independent claim of ownership or right of possession is raised by that
party), it could become essential to have other persons involved and accordingly
impleaded for a complete determination and resolution of the controversy. For
instance, in Servicewide Specialists, Inc. vs. Court of Appeals, et al., G.R. No.
103301, 08 December 1995 this Court ruled:
"While, in its present petition for review on certiorari,
Servicewide has raised a number of points, the crucial
issue still remains, however, to be whether or not an action
filed by the mortgagee for replevin to effect a foreclosure of
the property covered by the chattel mortgage would require
that the mortgagor be so impleaded as an indispensable
party thereto.
"Rule 60 of the Rules of Court allows a plaintiff, in an
action for the recovery of possession of personal property,
to apply for a writ of replevin if it can be shown that he is
'the owner of the property claimed . . . or is entitled to the
possession thereof.' The plaintiff need not be the owner so
long as he is able to specify his right to the possession of
the property and his legal basis therefor. The question
then, insofar as the matter finds relation to the instant case,
is whether or not the plaintiff (herein petitioner) who has
predicated his right on being the mortgagee of a chattel
mortgage should implead the mortgagor in his complaint
that seeks to recover possession of the encumbered
property in order to effect its foreclosure.
"The answer has to be in the affirmative. In a suit
for replevin, a clear right of possession must be
established. A foreclosure under a chattel mortgage may
properly be commenced only once there is default on the
part of the mortgagor of his obligation secured by the
mortgage. The replevin in the instant case has been sought
to pave the way for the foreclosure of the object covered by
the chattel mortgage. The conditions essential for that
foreclosure would be to show, firstly, the existence of the
chattel mortgage and, secondly, the default of the
mortgagor. These requirements must be established since
the validity of the plaintiff's exercise of the right of
foreclosure are inevitably dependent thereon. It would thus
seem, considering particularly an adverse and
independent claim of ownership by private respondent that
the lower court acted improvidently when it granted the
dismissal of the complaint against Dollente, albeit on
petitioner's (then plaintiff) plea, on the ground that the 'non-
service of summons upon Ernesto Dollente (would) only
delay the determination of the merits of the case, to the
prejudice of the parties.' In Imson v. Court of Appeals, we
have explained:
". . . An indispensable party is one whose
interest will be affected by the court's action in the
litigation, 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 to the proceeding 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.
"Conversely, 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 permit 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" (Footnotes omitted.)
A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the
possession of the property unless and until the mortgagor defaults and the
mortgagee thereupon seeks to foreclose thereon. Since the mortgagee'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. When the mortgagee seeks a replevin in order to effect the eventual
foreclosure of the mortgage, it is not only the existence of, but also the
mortgagor's default on, the chattel mortgage that, among other things, can
properly uphold the right to replevy the property. The burden to establish a valid
justification for that action lies with the plaintiff. An adverse possessor, who is not
the mortgagor, cannot just be deprived of his possession, let alone be bound by
the terms of the chattel mortgage contract, simply because the mortgagee brings
up an action for replevin.
The appellate court, accordingly, acted well in arriving at its now
questioned judgment.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. No
costs.
SO ORDERED.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ ., concur.
 

Footnotes
1.Penned by Associate Justice Celso L. Magsino and concurred in by
Associate Justices Serafin E. Camilon and Artemon D. Luna.
 2.Presided by Judge Doroteo N. Caneba.
3.Rollo, p. 38.
4.Exh. A, Record, p. 6.
5.Exh. B, Record, pp. 8-11.
6.Exh. C, Record, p. 12.
7.Record, p. 22.
8.Rollo, p. 28.
9.Record, p. 24; it is not on record why the summons evidently did not reach
the Spouses Manahan.
10.Ibid., p. 25.
11.Rollo, p. 77.
12.Ibid., p. 29.
13.Record, p. 34.
14.Ibid., p. 35.
15.Ibid., p. 51.
16.Rollo, pp. 29-30.
17.Record, p. 64.
18.Rollo, p. 38.
19.Rollo, p. 32.
20.See Tillson vs. Court of Appeals, 197 SCRA 587, 598; Bouvier's
Dictionary, Third (Rawle's) Revision, Vol. 2; Black's Law Dictionary,
Sixth Edition, p. 1299.
21.37 WORDS AND PHRASES 17, citing the Young Chevrolet Co. case 127
P. 2d, 813, 191; Okl. 161 (1942).
22.49 SCRA 392.
23.At p. 396.

 (BA Finance Corp. v. Court of Appeals, G.R. No. 102998, [July 5, 1996], 327
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PHIL 716-728)