G.R. No. L-30187 June 25, 1980
REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN ADMINISTRATION, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of First Instance of Rizal, Branch IV, Quezon City and MARCELO STEEL CORPORATION, respondents.

FACTS

Spouses Petra and Benjamin Farin obtained a loan from Marcelo Steel Corporation, secured by a real estate mortgage on their property. Upon alleged default, Marcelo Steel initiated extrajudicial foreclosure. The spouses filed a petition for prohibition to enjoin the sale, docketed as Civil Case No. Q-9384, claiming they were not in default. The court issued a preliminary injunction. During the pendency of this case, Petra Farin leased portions of the mortgaged building (Doña Petra Building) to the Rice and Corn Administration (RCA). Relying on a clause in the mortgage contract appointing the mortgagee as attorney-in-fact to collect rents, Marcelo Steel filed a motion in the prohibition case praying that RCA be ordered to pay rentals directly to it. The respondent judge granted the motion.
The RCA and the Farins filed motions for reconsideration. RCA argued it was not a party to the case, had not been heard, and that Petra Farin had assigned the rentals to another party. RCA also claimed a right of compensation, as Petra Farin had an outstanding accountability to it for rice shortages. The motions were denied. RCA then filed this petition for certiorari and prohibition, asserting the trial court acted without jurisdiction and with grave abuse of discretion.

ISSUE

Whether the respondent judge acted without jurisdiction or with grave abuse of discretion in issuing the order directing RCA to pay rentals directly to Marcelo Steel Corporation.

RULING

Yes. The Supreme Court granted the petition, annulling the questioned orders. The legal logic is grounded on jurisdiction and due process. The main case was a special civil action for prohibition filed by the Farins against the sheriff and Marcelo Steel to stop the foreclosure sale. It was not an action for the collection of rents or for the enforcement of the mortgage contract’s ancillary stipulations. The RCA was never impleaded as a party. The order directing RCA to divert rental payments was issued upon Marcelo Steel’s mere motion, without RCA being formally made a party and without a hearing to adjudicate RCA’s substantive defenses, particularly its claim of a right to compensation. The court emphasized that an order which affects the rights of an entity not a party to the record is void for lack of jurisdiction. Furthermore, due process demands that RCA be given its day in court to prove its claim that no rentals are due to Petra Farin because of a valid compensation. The trial court’s order effectively decided a controversial issue without trial, constituting grave abuse of discretion. The proper procedure would have been for Marcelo Steel to file a separate action to enforce its claim under the mortgage contract, where all indispensable parties, including RCA and the alleged assignee, could be joined and their rights fully litigated.