G.R. No. 176123 & G.R. No. 185265, March 10, 2010
JOSE CABARAL TIU, Petitioner, vs. FIRST PLYWOOD CORPORATION, Respondent. (G.R. No. 176123)

JOSE CABARAL TIU, Petitioner, vs. TIMBER EXPORTS, INC., ANGEL DOMINGO, COUNTRY BANKERS INSURANCE CORPORATION, PERFECTO MONDARTE, JR. and CESAR DACAL, Respondents. (G.R. No. 185265)

FACTS

On January 14, 1990, petitioner Jose Cabral Tiu and First Plywood Corporation (FPC) entered into an Agreement whereby, as settlement of FPC’s debt, petitioner was authorized to cut and haul logs within FPC’s concession areas. Alleging that FPC prohibited him from entering the areas, petitioner filed a complaint for specific performance with damages (Civil Case No. 3059) before the RTC of Pagadian City (Pagadian RTC). Based on a Compromise Agreement, the Pagadian RTC rendered a judgment and later issued a writ of execution. Deputy Sheriff Julio G. Tarongoy levied on personal properties (mainly motor vehicles) of FPC and scheduled a public auction for May 23, 1990. FPC filed an Omnibus Motion to nullify the Compromise Agreement and the writ, but the auction proceeded, with petitioner as the highest bidder. The Pagadian RTC denied FPC’s motion.
Subsequently, FPC filed a complaint (Civil Case No. 91-59404) before the RTC of Manila (Manila RTC) against petitioner and Sheriff Tarongoy for annulment of the execution sale, arguing that the sale violated the rule requiring at least five days’ prior notice. The Manila RTC ruled in favor of FPC, annulled the sale, and ordered petitioner and the sheriff to return the properties or pay their value, plus damages and attorney’s fees. Petitioner challenged this via a petition for annulment of judgment before the Court of Appeals, which dismissed it, prompting the filing of G.R. No. 176123.
Separately, in January 1991, Timber Exports, Inc. (TEI) and Angel Domingo filed a complaint (Civil Case No. 90-1867) before the RTC of Antipolo City (Antipolo RTC) against petitioner, Sheriff Tarongoy, and Country Bankers Insurance Corporation (CBIC) for annulment of the same execution sale, claiming ownership of some levied properties. CBIC filed a cross-claim against petitioner and a third-party complaint against Perfecto Mondarte, Jr. and Cesar Dacal (co-signers in an indemnity agreement). The Antipolo RTC dismissed the complaint, finding that TEI and FPC were essentially the same entity. On appeal, the Court of Appeals reversed, ordered petitioner to pay TEI and Domingo temperate damages, held CBIC solidarily liable, and declared petitioner, Mondarte, and Dacal solidarily liable to reimburse CBIC. Petitioner’s motion for reconsideration was denied, leading to G.R. No. 185265.

ISSUE

The consolidated cases present the following issues:
1. Whether the execution sale conducted on May 23, 1990, is null and void for lack of the required notice.
2. Whether TEI and its alleged stockholders had the legal capacity to sue for the annulment of the execution sale and recover the levied properties.
3. Whether the Court of Appeals correctly imposed solidary liabilities on petitioner, CBIC, Mondarte, and Dacal.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the assailed Court of Appeals decisions.
1. On the Validity of the Execution Sale (G.R. No. 176123): The Court held that the execution sale was null and void. The applicable rule (then Section 18, Rule 39 of the Rules of Court) required that notice of sale of personal property on execution be posted in three public places for not less than five days. The records showed that the Notice of Levy and Sale was dated May 18, 1990, and the sale was held on May 23, 1990. This interval was less than the mandatory five-day notice period. The sale was therefore void for non-compliance with a mandatory requirement. The Manila RTC correctly annulled the sale. Petitioner’s arguments on jurisdiction and estoppel were unavailing.
2. On the Capacity of TEI and the Stockholders to Sue (G.R. No. 185265): The Court found that TEI’s corporate existence had expired prior to the filing of the complaint. However, the amended complaint impleaded TEI’s alleged stockholders as plaintiffs. The Court ruled that these stockholders had no legal capacity to sue as there was no showing of any prior conveyance or assignment of the properties from TEI to them. They could not simply step into the shoes of the dissolved corporation to claim ownership of corporate assets. Thus, the complaint should have been dismissed on this ground.
3. On the Liabilities of Petitioner, CBIC, Mondarte, and Dacal: Despite the finding on TEI’s lack of capacity, the Court sustained the appellate court’s rulings on liabilities arising from the indemnity agreement. The Court found that CBIC had sufficiently proven the existence of the indemnity agreement signed by petitioner, Mondarte, and Dacal, wherein they jointly and severally agreed to reimburse CBIC for any liability under the surety bond. Since the Court of Appeals held CBIC solidarily liable with petitioner to TEI and Domingo (a finding not reversed), the solidary obligation of petitioner, Mondarte, and Dacal to reimburse CBIC pursuant to their indemnity agreement remained valid and enforceable.
In conclusion, while the stockholders of TEI had no capacity to sue, the nullity of the execution sale (G.R. No. 176123) and the obligations under the indemnity agreement (G.R. No. 185265) were upheld.