G.R. No. L-28488 October 2, 1977
THE ECONOMIC INSURANCE COMPANY, INC., petitioner, vs. JUDGE GUILLERMO E. TORRES of the COURT OF FIRST INSTANCE OF RIZAL; VISAYAN MARKETING CORPORATION; and the SHERIFF OF THE PROVINCE OF RIZAL, respondents.

FACTS

Visayan Marketing Corporation obtained a judgment against I-Feng Enamelling Co. (Phil.) Inc. for P360,000, which remained partially unsatisfied. To satisfy the judgment, Visayan initiated a proceeding under Section 45, Rule 39 of the Revised Rules of Court, examining the President of The Economic Insurance Company, Inc. (Economic). Economic was a second mortgagee of I-Feng’s properties and had paid off the first mortgagee, Philippine Bank of Communications, consolidating the mortgage rights. Economic later assigned all its mortgage rights to Atlas Glass & Enamelling Co., Inc. for P523,000. Atlas Glass subsequently foreclosed the mortgages. Visayan contended that Economic realized an excess of P52,987.43 from this assignment over its mortgage credit, which should belong to the mortgagor, I-Feng, and thus be available to satisfy its judgment.
During the examination, Economic’s President denied any indebtedness to I-Feng. Nevertheless, the respondent Judge issued an order directing Economic to pay Visayan the amount of P52,987.43 as partial satisfaction of the judgment, plus interest and attorney’s fees. Economic filed motions for reconsideration, arguing that the court had no authority to issue such a payment order in a summary proceeding under Rule 39, especially when the alleged debt was denied. The motions were denied, prompting Economic to file this petition for certiorari.

ISSUE

Whether the respondent Judge committed grave abuse of discretion in ordering Economic, a third party alleged to hold property of the judgment debtor, to pay a specific sum to the judgment creditor in a summary proceeding under Section 45, Rule 39, after Economic had denied the indebtedness.

RULING

Yes, the Supreme Court ruled that the respondent Judge committed grave abuse of discretion. The legal logic is anchored on the proper interpretation of Section 45, Rule 39. This provision governs proceedings supplemental to execution when a third party is alleged to hold property of or be indebted to the judgment debtor. The rule explicitly states that if such third party “claims an interest in the property adverse to him or denies the debt, the court or judge may authorize… the judgment creditor to institute an action” for recovery. The provision does not grant the court the power to summarily adjudicate the merits of the claim and directly order the third party to pay.
The Court emphasized that when a third party like Economic denies the debt or claims an adverse interest, the court’s sole authority is to authorize the judgment creditor to file a separate, ordinary action to litigate the claim. To order payment summarily deprives the third party of property without due process, as it is denied the opportunity for a full trial on the merits of its defenses. The respondent Judge exceeded his jurisdiction by making a factual finding on the alleged excess profit and issuing a coercive payment order. Consequently, the assailed orders were set aside for having been issued without legal basis.