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GRANDHOLDINGS INVESTMENTS v. CA

FACTS:

This case involves a petition for certiorari seeking to annul the resolutions of the Court of Appeals (CA) denying the motion for substitution filed by Grandholdings Investments (SPV-AMC), Inc. (petitioner). The petitioner is a corporation created under Republic Act (R.A.) No. 9182, otherwise known as "The Special Purpose Vehicle Act of 2002." The complaint for sum of money was filed by Allied Bank against TJR Industrial Corporation and other individuals (private respondents) for their failure to pay their loan obligations. Allied Bank executed a Deed of Assignment assigning to petitioner all its rights, title, and interest over its non-performing loans. The Bangko Sentral ng Pilipinas issued a Certificate of Eligibility confirming the transferability of the non-performing assets. The Regional Trial Court ruled in favor of Allied Bank, and the private respondents appealed before the CA. During the pendency of the appeal, the petitioner filed a Motion for Substitution, which was denied by the CA due to the petitioner's failure to prove compliance with the notice requirement set forth in R.A. No. 9182. The petitioner filed a Petition for Certiorari alleging grave abuse of discretion by the CA.

ISSUES:

  1. Whether the Court of Appeals (CA) committed grave abuse of discretion in denying the motion for substitution filed by Grandholdings Investments (SPV-AMC), Inc. due to alleged non-compliance with the prior notice requirement of R.A. No. 9182.

RULING:

  1. Yes, the Court of Appeals committed grave abuse of discretion. The Supreme Court ruled that the evidence, including the Certificate of Eligibility issued by the BSP, indicated that Allied Bank complied with the notice requirements set forth in R.A. No. 9182. Thereby, the transfer of the NPLs to Grandholdings Investments (SPV-AMC), Inc. is valid, elevating the latter to the status of a transferee pendente lite, entitling it to be substituted as a party-plaintiff.

PRINCIPLES:

  1. Grave Abuse of Discretion: Defined as a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction.

  2. Special Purpose Vehicle (SPV) Law (R.A. No. 9182): Requires prior notice to borrowers for the transfer of Non-Performing Loans (NPLs) to an SPV to be effective.

  3. Transferee Pendente Lite: A party that acquires interest in a case during its pendency and stands in the shoes of the transferor. The transferee is bound by the proceedings and judgment.

  4. Discretion of Courts: The substitution of parties due to transfer of interest under Section 19, Rule 3 of the Rules of Court is discretionary, though the discretion must be exercised within the sphere of law and guided by statutory principles.

  5. Certificate of Eligibility: Issued by the BSP upon compliance with specific requirements indicating the eligibility of NPAs for transfer to an SPV, including compliance with notification requirements.