State Investment House v Citibank

1. State Investment House Inc. v. Citibank (G.R. Nos. 79926-27 October 17, 1991)
Nature An appeal of the decision of the CA reversing the decision of the RTC that foreign banks licensed to do business in the Phil are not
residents of the Phil.
Facts On Dec 1981, the Bank of America (BA), Citibank, and Hongkong Shanghai Banking Corporation (HSBC) (The Banks) filed a petition for
involuntary insolvency of Consolidated Mining Inc. (CMI) under Sec 20 of the Insolvency Law (Act No. 1956) in the CFI of Rizal. The pertinent
provision of law states, an adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands,
whose credits or demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less than one
thousand pesos The petition alleged that CMI obtained loans from The Banks and as Nov./Dec. 1891 the outstanding debts were millions in
US$ and in pesos (P15M and $4.18M from BA, $4.9M from Citibank, and $5.3M and P6M from HSBC), that State Investment House Inc (SIHI)
and State Financing Center Inc (SFCI) had separately instituted actions for collection of sums of money against CMI and writ of attachment were
issued against royalty/ profit payment due to CMI from Benguet Consolidated Mining Inc., and that CMI committed acts of insolvency (its
property remained under attachment and it defaulted in paying its obligations). The petition was opposed by SIHI and SFCI averring that The
Banks had already received payments from CMI in the aggregate amount of P10.8M, that the court has no jurisdiction since the alleged
insolvency is false, the writ of attachment were issued for other lawful ground, and that the court has no jurisdiction because the foreign banksare
non-resident creditors in contemplation of the insolvency law. CMI filed an Answer asserting it is not insolvent and filed a motion to dismiss on
the affirmative defense that The Banks have no capacity to sue being not Philippine residents. Resolution deferred. Hearing on merits followed.
SIHI and SFCI requested The Banks for admissions but only HSBC complied. SIHI and SFCI then filed a
Motion for summary judgment on the ground that trial court has no jurisdiction since The Banks are not resident creditors as required by the
Insolvency Law. Trial court found merit on the motion for summary judgment, dismissed the petition for lack of jurisdiction, and declared that
the banks are merely licensed to do business in the Phil. and not deemed residents. The foreign banks filed a notice of appeal. At the CA, the CA
reversed the decision of the trial court. The CA ruled: 1. that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash
for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness; that the law was designed not
only for the benefit of the creditors but more importantly for the benefit of the debtor himself. 2. that the Trial Court had placed "a very strained
and restrictive interpretation of the term "resident," 3. the three banks are in fact considered as "residents" of the Philippines for purposes of doing
business in the Philippines and taxation; 4. that the banks had complied with all the laws for doing business in the country; that the authority
granted to them covers not only transacting banking business but likewise maintaining suits for recovery of any debt, claims or demand 5. that to
deprive the foreign banks of their right to proceed against their debtors would contravene the basic standards of equity and fair play 6. that as
regards a corporation, it may have its legal "domicile" in one place and "residence" in another. MR was filed by SIHI and SFCI but was denied.
Issue: Whether foreign banks licensed to do business in the Philippines, may be considered "residents of the Philippine Islands" within the
meaning of Section 20 of the Insolvency Law.
Ruling: Petition is denied. The Insolvency Law does not give the answer. However other statutes, though subsequently enacted, may be
enlightening. The NIRC declares that the term "'resident foreign corporation' applies to a foreign corporation engaged in trade or business within
the Philippines," as distinguished from a "non-resident foreign corporation" which is one not engaged in trade or business within the Philippines.
The Offshore Banking Law (PD No. 1034), states "that branches, subsidiaries, or any other units of corporation organized under the laws of any
foreign country operating in the Philippines shall be considered residents of the Philippines." The General Banking Act (RA No. 337), places
"branches and agencies in the Philippines of foreign banks called Philippine branches," in the same category as "commercial, savings,
development, and rural banks formed and organized under Philippine laws, making no distinction between foreign and domestic in so far, as the
terms "banking institutions" and "bank" are used in the Act, declaring further that foreign banks or their branches lawfully doing business in the
Philippines shall be bound by all laws applicable to domestic banking corporations of the same class. This Court itself has already had occasion to
hold that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a non-resident
(Claude Neon Lights v. Philippine Advertising Corporation). The assimilation of foreign corporations authorized to do business in the Philippines
"to the status of domestic corporations," subsumes their being found and operating as corporations, hence, residing, in the country. The same
principle is recognized in American law: that the residence of a corporation, is necessarily where it exercises corporate functions and that it is
considered dwelling in the place where its business is done. The Court cannot thus accept the petitioners' theory that corporations may not have a
residence separate from their domicile and that they may be considered by other states as residents only for limited and exclusive purposes.
Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical
statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign corporations
just expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and
actually doing business in this Country through branch offices or agencies, they were in effect stating that they are resident foreign corporations
in the Philippines.