Title
Diversified Plastic Film System, Inc. vs. Philippine Investment One , Inc.
Case
G.R. No. 236924
Decision Date
Mar 29, 2023
DBP loaned All Asia, which lent to Diversified, secured by MTI. PI-One sought foreclosure; RTC appointed PI-One as trustee. SC ruled improper summons, invalid assignment, and PI-One unqualified as trustee.
loan
foreclosure
trustee
A

Case Digest (G.R. No. L-21516)

Facts:

  • Background on the Loans and Security Arrangements
    • On December 29, 1997, the Development Bank of the Philippines (DBP) granted All Asia Capital and Trust Corporation (All Asia) a loan amounting to P265,000,000.00.
    • On the same day, All Asia—authorized by DBP to re-lend—granted Diversified Plastic Film System, Inc. (Diversified) an identical loan as evidenced by a Continuing Suretyship executed by Diversified’s Chairman, Ramon Garcia, on December 17, 1997.
    • As security for the loan, Diversified executed a Mortgage Trust Indenture (MTI) dated July 22, 1998, establishing an initial drawdown of P100,000,000.00 and mortgaging several properties.
    • A Supplemental Indenture (SI) was later executed to include an additional lender, ING Bank, thereby increasing the credit facility by P213,463,000.00, while Diversified obtained further financing for construction and equipment procurement.
  • Assignment of Rights and Foreclosure Proceedings
    • On December 25, 2006, All Asia executed a dation in payment, transferring all its rights under the MTI to DBP.
    • On August 10, 2007, DBP executed a Deed of Assignment transferring a loan of P100,000,000.00 in Diversified’s favor to Philippine Investment One (SPV-AMC), Inc. (PI-One).
    • Due to Diversified’s failure to settle the loan, PI-One demanded payment and subsequently filed a petition for extra-judicial foreclosure of Diversified’s mortgaged properties.
    • A Notice of Sheriff’s Sale was issued for the public auction of these properties.
  • Diversified’s Opposition and Injunction Proceedings
    • Diversified filed a Complaint for injunction, seeking a writ of preliminary injunction (WPI) and/or temporary restraining order (TRO) to stop the foreclosure.
    • The RTC of Mariveles, Bataan, Branch 4 initially issued a 72-hour TRO, and later granted a WPI enjoining PI-One from foreclosing the properties.
    • PI-One challenged the issuance of the injunction before the Court of Appeals (CA), arguing that the RTC committed grave abuse of discretion by prejudging the merits and overstepping its authority.
  • Court of Appeals (CA) Rulings and Subsequent Motions
    • On May 4, 2016, the CA ruled that the RTC abused its discretion in granting the WPI, dissolving the injunction as it overstepped by prejudging the case merits.
    • Diversified filed motions for reconsideration before the CA, which were subsequently denied.
    • Diversified then elevated the matter to the Supreme Court via its Petition for Review on Certiorari dated March 6, 2017, praying for the reinstatement of the WPI, but the petition was denied in a Resolution on July 19, 2017.
  • Petition for Appointment as Trustee and Related Allegations
    • PI-One filed a separate Petition for Appointment as Trustee before the RTC of Makati City, Branch 143, alleging:
      • Under the Deed of Assignment, PI-One became the new creditor and stepped into the trustee’s shoes held by All Asia and DBP.
      • PI-One claimed to be the only remaining creditor under the MTI and SI, justifying its unilateral petition for appointment.
    • Diversified opposed the petition, arguing:
      • The MTI and SI secured various loan obligations involving multiple creditors.
      • All Asia never resigned as trustee, and the power to appoint a trustee lies only with the borrower and the majority lenders per Section 7.08 of the MTI.
      • The RTC’s jurisdiction to appoint a trustee was overstepped and the service of summons was defective.
    • On January 19, 2016, the RTC rendered a decision granting PI-One’s petition, appointing it as trustee under the MTI, while noting:
      • The vacancy in the trustee position.
      • That PI-One inherited all rights as per the assignments from All Asia and DBP.
    • Diversified’s motion for reconsideration before the RTC was denied, and the CA eventually affirmed the RTC’s appointment of PI-One as trustee on July 20, 2017.
  • Issues Leading to the Instant Petition
    • Diversified raised several issues on appeal and in the petition to the Supreme Court, including:
      • The jurisdiction of the RTC to appoint the trustee, given that Section 7.08 of the MTI vests the appointment power with the borrower and majority lenders.
      • The improper service of summons on Diversified, rendering the RTC’s jurisdiction over its person defective.
      • The validity of the Deed of Assignment from DBP to PI-One, particularly in light of the requirements under Section 12 of R.A. No. 9182 (Special Purpose Vehicle Act).
      • PI-One’s qualification to act as trustee under the MTI given the requirement that the trustee be an institution duly authorized to engage in the trust business in Metro Manila.
    • The instant petition was filed by Diversified to challenge the CA’s rulings and to set aside both the CA decision assembling the trustee appointment and the earlier RTC decisions.

Issues:

  • Jurisdictional Challenges
    • Whether the RTC properly exercised jurisdiction in appointing PI-One as trustee under the MTI, given that the power to appoint rests solely with the borrower and the majority lenders according to Section 7.08 of the MTI.
    • Whether the RTC acquired personal jurisdiction over Diversified, considering the summons was improperly served on its receiving officer rather than on one of the persons expressly enumerated under Section 11, Rule 14 of the Rules of Court.
  • Validity and Effect of the Assignment
    • Whether the Deed of Assignment from DBP to PI-One is valid, as required under Section 12 of R.A. No. 9182, which mandates prior notice and certification for the transfer of non-performing loans to an SPV.
    • Whether the purported assignment included the duty to act as trustee under the MTI, or if PI-One merely assumed the creditor’s rights without the associated trustee responsibilities.
  • Qualification of PI-One to Act as Trustee
    • Whether PI-One is qualified to serve as trustee under Section 7.02 of the MTI, which requires the trustee to be an institution duly authorized and engaged in the trust business in Metro Manila.
    • Whether, even assuming a valid assignment, PI-One’s status as a non-trust institution disqualifies it from performing the trustee functions.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
Unlock Full Case Digest

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms