G.R. No. 132555 February 17, 2000
SPOUSES ELISEO MALOLOS and VIRGINIA C. MALOLOS, petitioners, vs. AIDA S. DY, in her capacity as Assignee of MARIETTA M. VALENZUELA, respondent.

FACTS

Marieta Valenzuela was declared an involuntary insolvent by the RTC of Pasig on February 28, 1995, in a petition filed on November 28, 1994. The insolvency court ordered the stay of all civil proceedings against her. Meanwhile, on January 9, 1995, the spouses Malolos filed a separate collection suit against the spouses Valenzuela before the RTC of Quezon City. The Valenzuelas were declared in default, and a decision was rendered in favor of the Malolos spouses on June 23, 1995. This decision became final and was executed, leading to the sale at public auction of two of the Valenzuelas’ properties in December 1995.
In February 1996, Aida Dy, appointed as the assignee of Marieta Valenzuela’s insolvent estate, filed a motion in the Quezon City RTC to set aside the judgment and/or suspend proceedings, invoking the insolvency declaration and the mandatory stay under the Insolvency Law. The trial court denied the motion, reasoning that the collection case was against both spouses, the decision was already final and executed, and the insolvency proceeding involved only Marieta. The Court of Appeals later granted Dy’s certiorari petition, annulled the trial court’s orders, and declared the execution sale void, ordering the restitution of the properties.

ISSUE

Whether the Court of Appeals erred in annulling the final and executed judgment of the Quezon City RTC based on the subsequent insolvency proceedings.

RULING

Yes, the Supreme Court reversed the Court of Appeals and reinstated the trial court’s orders. The legal logic is anchored on the doctrine of finality of judgment and the trial court’s loss of jurisdiction post-execution. The Insolvency Law ( Act No. 1956 ) mandates a stay of pending civil proceedings against an insolvent upon declaration of insolvency. However, this provision applies prospectively to proceedings that are still pending and susceptible to being stayed. In this case, the collection suit had already progressed to a final and executory judgment, which was fully satisfied through execution and the auction sale of properties before the assignee filed her motion in February 1996. Consequently, there were no longer any proceedings to stay. The trial court had lost jurisdiction over the terminated case. The proper remedy for the assignee, as a non-party to the original suit, was not a motion in a concluded case but a separate independent action to annul the judgment on grounds of extrinsic fraud or lack of jurisdiction, a remedy that remains available even against executed judgments. The Court of Appeals therefore erred in granting certiorari, as the trial court committed no grave abuse of discretion in denying a motion that sought relief in a case already closed by final execution.