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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 banks are 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

2.
3.
4.

5.
6.

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.
that the Trial Court had placed "a very strained and restrictive interpretation of the
term "resident,"
the three banks are in fact considered as "residents" of the Philippines for purposes
of doing business in the Philippines and taxation;
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
that to deprive the foreign banks of their right to proceed against their debtors would
contravene the basic standards of equity and fair play
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.