G.R. No. L-31789. June 29, 1972.
Antonio R. Banzon and Rosa Balmaceda, petitioners, vs. Hon. Fernando Cruz, Spouses Pedro Cardenas and Leonila Baluyot and Associated Insurance & Surety Company, Inc., represented by Insurance Commissioner in her capacity as Liquidator of Associated Insurance & Surety Company, Inc., respondents.

FACTS

Petitioners, the Banzon spouses, were indemnitors under a surety bond issued by respondent Associated Insurance & Surety Company, Inc. for a debtor. Upon the debtor’s default, Associated sued and obtained a judgment against the debtor and the indemnitors, including petitioner Antonio Banzon. Based on this judgment, Associated levied upon and purchased at public auction two parcels of land owned by Banzon. Subsequently, while the titles remained in Banzon’s name pending consolidation, Associated itself faced insolvency and was placed under liquidation.
The Insurance Commissioner, as liquidator, was substituted for Associated. In a separate proceeding, the Court of Appeals later annulled the very judgment upon which the execution sale was based, finding that Banzon was not properly served with summons, rendering the judgment void as to him. Despite this annulment, the properties had already been sold at auction to Associated, and a subsequent levy was made on one of the lots by another creditor of Associated, the respondent spouses Cardenas.

ISSUE

Whether the petitioners are entitled to reconveyance of their properties following the annulment of the judgment that served as the basis for the execution sale.

RULING

Yes. The core legal logic is that a judgment that is void for lack of jurisdiction, such as one rendered without proper service of summons, produces no legal effect. Since the Court of Appeals definitively annulled the judgment against Banzon for this precise reason, the execution sale derived from that void judgment is itself a nullity. It conferred no valid title upon Associated Insurance.
Therefore, the subsequent levy by the Cardenas spouses, who are creditors of Associated, is also invalid as it traces its origin to a void transaction. The property rights never lawfully passed from Banzon. The Insurance Commissioner, as liquidator of the insolvent Associated, holds any apparent interest in the properties in trust for the rightful owner, Banzon. The Supreme Court, in the interest of substantial justice and equity, ordered the reconveyance of the properties to petitioners, as the annulment of the foundational judgment restored the status quo ante and entitled them to recover what was taken under a void legal process.