Diversified Plastic Film System, Inc. vs. Philippine Investment One (SPV-AMC), Inc.

A domestic corporation is not validly served with summons where service is made upon a receiving officer who is not among the exclusive list in Section 11, Rule 14 of the Rules of Court; a special appearance that explicitly and consistently challenges jurisdiction over the person does not constitute voluntary submission. The transfer of non-performing loans to a special purpose vehicle is void if the transferring financial institution fails to comply with the prior notice and certification requirements of Section 12 of Republic Act No. 9182. An assignee of rights under a trust indenture cannot be appointed trustee where the assignee does not meet the indenture’s express qualification that the trustee be an institution duly authorized to engage in trust business.

Development Bank of the Philippines (DBP) granted All Asia Capital and Trust Corporation a loan of ₱265,000,000.00, which All Asia re-lent to Diversified Plastic Film System, Inc. under a Continuing Suretyship. As continuing security, Diversified executed a Mortgage Trust Indenture (MTI) designating All Asia as trustee for the benefit of its lenders. All Asia later transferred all its rights, titles, and interests under the MTI to DBP by dation in payment. DBP subsequently assigned Diversified’s loan, in the amount of ₱100,000,000.00, to Philippine Investment One (SPV-AMC), Inc., a special purpose vehicle (SPV). When Diversified defaulted, PI-One initiated extrajudicial foreclosure. Diversified opposed, asserting that PI-One lacked authority to act as trustee, and obtained a writ of preliminary injunction that was later dissolved. PI-One then filed a petition for judicial appointment as trustee under Section 7.08 of the MTI.

• The Loan and the Mortgage Trust Indenture: On December 29, 1997, DBP granted a loan of ₱265,000,000.00 to All Asia. The same day, All Asia re-lent the full amount to Diversified, evidenced by a Continuing Suretyship signed by Diversified’s Chairman. As continuing security, Diversified executed a Mortgage Trust Indenture (MTI) dated July 22, 1998, with an initial drawdown of ₱100,000,000.00. The MTI established mortgages over Diversified’s properties and designated All Asia as trustee for the benefit of Diversified’s lenders. A Supplemental Indenture later included ING Bank as an additional lender for a further ₱213,463,000.00 credit facility.

• Transfer of Rights: On December 25, 2006, All Asia executed a dation in payment, irrevocably transferring all its rights, titles, and interests in the MTI to DBP. On August 10, 2007, DBP executed a Deed of Assignment covering Diversified’s ₱100,000,000.00 loan in favor of PI-One, a special purpose vehicle.

• Default and Opposition to Foreclosure: Diversified failed to pay, and PI-One demanded payment and initiated extrajudicial foreclosure. Diversified filed a complaint for injunction with the RTC of Mariveles, Bataan, which issued a writ of preliminary injunction (WPI) enjoining the foreclosure. The Court of Appeals later annulled the WPI, finding grave abuse of discretion, and the Supreme Court denied Diversified’s petition for review (G.R. No. 229229).

• Petition for Appointment as Trustee: PI-One filed a petition before the RTC of Makati City, praying to be appointed or confirmed as trustee under the MTI. It alleged that it was the sole remaining creditor under the MTI and that it stepped into the shoes of All Asia and DBP by virtue of the assignments. PI-One invoked Section 7.08 of the MTI, which allows any lender to apply to a court of competent jurisdiction for the appointment of a successor trustee if a vacancy remains unfilled for two months.

• Diversified’s Opposition: Diversified entered a special appearance and filed an Answer Ad Cautelam and Amended Answer Ad Cautelam, expressly reserving its objection to jurisdiction. It argued that summons had been served on a mere receiving officer, not on any of the officers specified in the Rules of Court. On the merits, Diversified contended that All Asia had never resigned or been removed as trustee; that the power to appoint belonged jointly to the borrower and majority lenders; that the assignments did not transfer trustee duties; that PI-One was not an institution authorized to engage in trust business as required by Section 7.02 of the MTI; and that PI-One was not the majority lender and could not petition unilaterally.

• RTC and CA Rulings: The RTC granted the petition, holding that the trustee position had long been vacant, that PI-One had inherited all rights including the position of trustee, and that the improper summons issue was mooted by Diversified’s filing of an Answer. The CA affirmed, ruling that the court could act under Section 7.08 of the MTI, that the assignments were valid under Section 13 of R.A. No. 9182, and that PI-One acquired all rights of All Asia including the trusteeship.

• Lack of Jurisdiction over the Person: Summons was served on a receiving officer, not on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel as required by Section 11, Rule 14 of the Rules of Court. The filing of an Answer Ad Cautelam with explicit reservation of the jurisdictional objection was a special appearance, not voluntary submission.

• Invalidity of the Deed of Assignment: The assignment from DBP to PI-One violated Section 12 of R.A. No. 9182 because DBP failed to give prior written notice to Diversified and did not secure a certification of eligibility before the transfer. The post-transfer letter from PI-One on the same date as the deed was insufficient.

• Non-Assignment of Trustee Duties: Even if the assignment were valid, it covered only the credit; it did not assign the fiduciary duties of trustee under the MTI.

• Disqualification as Trustee: Section 7.02 of the MTI requires the trustee to be an institution duly authorized to engage in trust business in Metro Manila. PI-One is not so authorized and therefore cannot be appointed.

• Premature and Unilateral Petition: PI-One is not the only creditor under the MTI, as other lenders hold larger loans, and it is not the majority lender. The petition could not be filed unilaterally.

• Voluntary Submission to Jurisdiction: The filing of the Answer Ad Cautelam constituted voluntary appearance, thereby curing any defect in the service of summons and vesting the trial court with jurisdiction over Diversified.

• Valid Assignment and Succession to Trustee Status: The Deed of Assignment was executed in compliance with the Special Purpose Vehicle Act. Under Section 13 of R.A. No. 9182, PI-One was subrogated to all of DBP’s and All Asia’s rights and interests under the MTI, including the position of trustee.

• Capacity to Serve as Trustee: PI-One possesses the ability and capability to discharge a trustee’s duties, and the court may appoint a suitable trustee in the interest of creditors.

• Proper Resort to Judicial Appointment: Section 7.08 of the MTI expressly permits any lender to apply to a court of competent jurisdiction for appointment of a successor trustee when the position remains vacant for more than two months.

• Subject Matter Jurisdiction: Whether the RTC had jurisdiction over the petition for appointment of trustee under the MTI.

• Jurisdiction over the Person: Whether the RTC acquired jurisdiction over the person of Diversified despite service of summons on its receiving officer, and whether the filing of an Answer Ad Cautelam constituted voluntary appearance.

• Validity of the Deed of Assignment: Whether the assignment of the loan from DBP to PI-One was valid under Section 12 of Republic Act No. 9182.

• Qualification as Trustee: Whether PI-One could be appointed trustee despite not being an institution authorized to engage in trust business as required by Section 7.02 of the MTI.

• Subject Matter Jurisdiction: The RTC had jurisdiction over the petition. Section 7.08 of the MTI explicitly authorizes any lender to apply to a court of competent jurisdiction for the appointment of a successor trustee if none is appointed within two months from vacancy. Moreover, a petition for appointment of trustee does not seek recovery of a sum of money or real property; its subject matter is incapable of pecuniary estimation, falling within the RTC’s jurisdiction under Section 19 of Batas Pambansa Blg. 129.

• Jurisdiction over the Person: The RTC never acquired jurisdiction over Diversified. Section 11, Rule 14 of the Rules of Court provides an exclusive list of persons upon whom summons may be served for a domestic corporation. Service on a receiving officer was defective and void. Although voluntary appearance can cure defective service, Diversified’s Answer Ad Cautelam and Amended Answer Ad Cautelam consistently and unequivocally challenged jurisdiction over its person, operating as a special appearance. The inclusion of a warning in the summons that failure to answer could result in a default judgment did not convert this special appearance into voluntary submission. All proceedings and the judgment rendered were therefore void.

• Validity of the Deed of Assignment: The assignment was invalid. Section 12 of R.A. No. 9182 imposes mandatory requirements for the transfer of non-performing loans to an SPV: (a) prior written notice to the borrower and holders of prior encumbrances; (b) prior certification of eligibility by the appropriate regulatory authority; and (c) post-transfer written notice to the borrower. The record contained no proof that DBP, as the transferring financial institution, complied with any of these requirements. A letter from PI-One dated the same day as the deed did not satisfy the statutory notice obligations. Without compliance, the transfer never took effect, and PI-One acquired no rights, titles, or interests under the MTI.

• Qualification as Trustee: Even assuming a valid assignment, PI-One could not be appointed trustee. Under Section 13 of R.A. No. 9182, assignments of credit are governed by the rules on subrogation under the Civil Code. An assignee stands in the shoes of the assignor and is bound by exactly the same conditions. Section 7.02 of the MTI explicitly requires the trustee to be “an institution duly authorized to engage in the trust business in Metro Manila.” It is undisputed that PI-One is not engaged in the trust business. An assignee cannot acquire greater rights than the assignor, and the condition disqualifying non-trust institutions binds PI-One.

• Service of Summons on a Domestic Corporation — Under Section 11, Rule 14 of the Rules of Court, service of summons on a domestic corporation is restricted exclusively to the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. Service on any other person, such as a receiving officer, is invalid and does not vest the court with jurisdiction over the corporation’s person.

• Special Appearance as Exception to Voluntary Appearance — A party who makes a special appearance for the sole purpose of challenging the court’s jurisdiction over its person, and who explicitly and unequivocally reserves that objection in every pleading, does not voluntarily submit to the court’s jurisdiction. The filing of an Answer Ad Cautelam with a clear jurisdictional challenge qualifies as a special appearance and prevents a finding of voluntary submission, even if the pleading addresses other defenses under compulsion of a default warning.

• Mandatory Notice and Certification Requirements for Transfer of Non-Performing Loans to an SPV — Section 12 of Republic Act No. 9182 requires, as conditions precedent for the transfer of non-performing loans to a special purpose vehicle: (1) prior written notice by the financial institution to the borrower and all holders of prior encumbrances; (2) a prior certification of eligibility from the appropriate regulatory authority; and (3) a post-transfer written notice by the financial institution to the borrower. Non-compliance with any of these requirements renders the transfer ineffective, and the SPV acquires no rights thereunder.

• Assignee Bound by Conditions of the Original Contract — An assignee of a credit is subrogated to all the rights and obligations of the assignor and is bound by exactly the same conditions to which the assignor was subject. The assignee cannot acquire greater rights than those possessed by the assignor. Consequently, if the original instrument imposes a qualification on the holder of a right — such as a requirement that the trustee be an institution authorized to engage in trust business — the assignee must satisfy that qualification to exercise the assigned right.

• “Well-settled is the rule that service of summons on a domestic corporation is restricted, limited and exclusive to the persons enumerated in Section 11, Rule 14 of the 1997 Rules of Civil Procedure, following the rule in statutory construction that expressio unios est exclusio alterius. Service must therefore be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel.”

• “As a general rule, one who seeks an affirmative relief is deemed to have submitted to the jurisdiction of the court. … This, however, is tempered by the concept of conditional appearance, such that a party who makes a special appearance to challenge, among others, the court's jurisdiction over his person cannot be considered to have submitted to its authority.”

• “As the notice requirement under Section 12 of Article III of the SPV law was not amended, the same was still necessary to effect transfer of Non-Performing Loans to an SPV, like petitioner, to be effective. There being no compliance with such notice requirement at the time of the assignment to petitioner of the subject PN during the effectivity of the SPV law, as amended, it could not substitute BPI as party plaintiff-appellee.”

• “x x x an assignee cannot acquire a greater right than that pertaining to the assignor. At most, an assignee can only acquire rights duplicating those which his assignor is entitled by law to exercise.”

• “By virtue of the Deed of Assignment, the assignee is deemed subrogated to the right and obligations of the assignor and is bound by exactly the same conditions as those which bound the assignor. Accordingly, an assignee cannot acquire greater rights than those pertaining to the assignor.”

• DOLE Philippines, Inc. (Tropifresh Div.) v. Judge Quilala, 579 Phil. 700 (2008) — Applied for the strict and exclusive enumeration of persons authorized to receive summons for a domestic corporation.

• Interlink Movie Houses, Inc. v. Court of Appeals, 823 Phil. 1032 (2018) — Applied for the principle that a special appearance challenging jurisdiction over the person does not constitute voluntary submission.

• Frias v. Alcayde, 826 Phil. 713 (2018) — Applied to reiterate that consistent and unequivocal jurisdictional objections in pleadings constitute a special appearance, preventing a finding of voluntary submission.

• Prudential Bank v. Magdamit, Jr., 746 Phil. 649 (2014) — Cited to explain that special appearance is a recognized exception to the general rule on voluntary appearance.

• Asset Pool A (SPV-AMC), Inc. v. Court of Appeals, 597 Phil. 663 (2009) — Applied for the rule that failure to comply with the notice requirement under Section 12 of R.A. No. 9182 invalidates the transfer of non-performing loans to an SPV.

• Grandholdings Investments (SPV-AMC), Inc. v. Court of Appeals, G.R. No. 221271, June 19, 2019 — Applied to reaffirm that the transferring financial institution bears the burden of proving compliance with the notice requirement.

• Casabuena v. Court of Appeals, 350 Phil. 237 (1998) — Applied for the doctrine that an assignee cannot acquire greater rights than the assignor and is bound by existing conditions.

• Fort Bonifacio Development Corporation v. Fong, 757 Phil. 314 (2015) — Applied to reiterate that an assignee is subrogated to both the rights and obligations of the assignor and is bound by exactly the same conditions.

• First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications, 833 Phil. 400 (2018) — Applied to support the classification of the petition for appointment of trustee as an action incapable of pecuniary estimation, thus within RTC jurisdiction.

• Section 11, Rule 14, Rules of Court — Service upon a domestic private juridical entity must be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. Service on a receiving officer did not comply and conferred no jurisdiction.

• Section 12, Republic Act No. 9182 (Special Purpose Vehicle Act of 2002) — Mandates prior written notice to the borrower, prior certification of eligibility, and post-transfer written notice as conditions for the validity of a transfer of non-performing loans to an SPV. Non-compliance rendered the assignment void ab initio.

• Section 13, Republic Act No. 9182 — Provides that the transfer of non-performing loans to an SPV is governed by the rules on subrogation and assignment of credits under the Civil Code, thereby binding the assignee to the same conditions as the assignor.

• Section 19, Batas Pambansa Blg. 129 — Confers on the RTC jurisdiction over actions incapable of pecuniary estimation, applied to the petition for appointment of trustee.

• Articles on Assignment of Credits, New Civil Code — Through Section 13 of the SPV Act, formed the legal basis for the rule that PI-One stepped into the shoes of its assignors and was bound by the MTI’s trustee qualification.

Caguioa (Chairperson), Inting, Dimaampao, and Singh, JJ.