STATE INVESTMENT HOUSE, INC. ANS STATE FINANCING CENTER, INC.
VS Whether or Not foreign banks licensed to do business in the Philippines,
CITIBANK, BANK OF AMERICA AND HONGKONG AND SHANGHAI BANK
FACTS:
The foreign banks involved in the case are Bank of America, Citibank, and
Hongkong and Shanghai Banking Corporation, all of whom are creditors of
Consolidated Mines, Inc. (CMI).
On December 11, 1981, the three banks jointly filed with the RTC of Rizal a
petition for Involuntary Insolvency of CMI. Among the grounds alleged by
the foreign banks is CMI’s commission of specific acts of insolvency, i.e. that
CMI suffered its property to remain under attachment for three days for the
purpose of hindering or delaying or defrauding its creditors and that CMI has
defaulted in the payment of its current obligations for a period of thirty
days.
The petition for involuntary insolvency was opposed by herein petitioners
State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI).
SIHI and SFCI claimed, among others, that the court had no jurisdiction to
take cognizance of the petition for insolvency because the foreign banks are
not resident creditors of CMI as required under the Insolvency Law.
The RTC rendered judgment in favour of SIHI and SFCI for lack of jurisdiction
over the subject matter. The court ruled that the insolvency court could not
acquire jurisdiction to adjudicate the debtor (CMI) as insolvent because the
foreign banks are not “residents of the Philippines”.
On petition for review, the CA rendered order reversing the judgment of the
RTC. The CA ruled that the three banks are residents of the Philippines for
the purpose of doing business in the Philippines, and that the Insolvency
Law was designed for the benefit of both the creditors and debtors. The CA
also reiterated that the authority granted to the three banks by the SEC
covers not only transacting banking business, but also maintaining suits for
the recovery of any debt and claims.
Hence, SIHI and SFCI brought their appeal before the SC.
ISSUE:
may be considered “residents of the Philippine Islands” as contemplated in
Sec. 20 of Insolvency Law
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.
HELD: The SC ruled that since the Insolvency Law did not mention of the
meaning of “residents of the Philippine Islands”, the better approach would
be to harmonize the provisions of the Corporation Code, the General
Banking Act, the Offshore Banking Law and the NIRC.
Hence, the Court ruled that it is not really the grant of a license to a foreign
corporation to do business in the Philippines that makes it a resident. The
license merely gives legitimacy to its doing business in the country. What
effectively makes such foreign corporation a resident corporation in the
Philippines is its actually being in the Philippines and licitly doing business
here, or the “locality of existence”, which is the necessary element.
Foreign corporations duly licensed to do business in the Philippines are
considered “residents” of the Philippines, as the word is understood in Sec.
20 of the Insolvency Law, authorizing at least three resident creditors of the
Philippines to file a petition to declare a corporation insolvent. The Tax Code
declares that the term “resident foreign corporation applies to foreign
corporation engaged in trade or business within the Philippines” as
distinguished from a “non-resident foreign corporation” which is not
engaged in trade or business within the Philippines. The Offshore Banking
Law sates that: “Branches, subsidiaries, affiliates, extension offices or any
other units of corporation or juridical person organized under the laws of
any foreign country operating in the Philippines shall be considered
residents of the Philippines.” The General Banking Act places “branches and
agencies in the Philippines of foreign banks” in the category as commercial
banks, rural banks, stock savings and loan association making no distinction
between the former ad the latter in so far as the terms “banking
institutions” and “banks” are used in said Act. Petition is DENIED and the
challenged Decision of the Court of Appeals is AFFIRMED.