April 2012 Philippine Supreme Court Decisions on Commercial Law

Here are select April 2012 rulings of the Philippine Supreme Court on commercial law:

Corporation; derivative suit. In Hi-Yield Realty, Incorporated v. Court of Appeals, the Court enumerated the requisites for filing a derivative suit, as follows:

(a)  the party bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material;

(b)  he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and

(c)  the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit. Lisam Enterprises, Inc., represented by Lolita A. Soriano and Lolita A. Soriano vs. Banco de Oro Unibank, Inc., et al., G.R. No. 143264, April 23, 2012.

Corporation; doing business without a license.  The appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full control of the foreign corporation.  On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines.  It should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances.

 In the case at bench, it is undisputed that DISI was founded in 1979 and is independently owned and managed by the spouses Leandro and Josephine Bantug.  In addition to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater settings. The dealership agreement between Steelcase and DISI had been described by the owner himself as:

basically a buy and sell arrangement whereby we would inform Steelcase of the volume of the products needed for a particular project and Steelcase would, in turn, give ‘special quotations’ or discounts after considering the value of the entire package.  In making the bid of the project, we would then add out profit margin over Steelcase’s prices.  After the approval of the bid by the client, we would thereafter place the orders to Steelcase.  The latter, upon our payment, would then ship the goods to the Philippines, with us shouldering the freight charges and taxes.

This clearly belies DISI’s assertion that it was a mere conduit through which Steelcase conducted its business in the country.  From the preceding facts, the only reasonable conclusion that can be reached is that DISI was an independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and for its own account. Steelcase, Inc.  vs. Design International Selections, Inc. G.R. No. 171995, April 18, 2012.

Corporation; doing business without a license; estoppel. As shown in the previously cited cases, this Court has time and again upheld the principle that a foreign corporation doing business in the Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine entity that had derived some benefit from their contractual arrangement because the latter is considered to be estopped from challenging the personality of a corporation after it had acknowledged the said corporation by entering into a contract with it.

In Antam Consolidated, Inc. v. Court of Appeals, this Court had the occasion to draw attention to the common ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized by defaulting domestic companies which seek to avoid the suit by the former.  The Court cannot allow this to continue by always ruling in favor of local companies, despite the injustice to the overseas corporation which is left with no available remedy. Steelcase, Inc.  vs. Design International Selections, Inc., G.R. No. 171995, April 18, 2012.

Corporation; head office and branch as one entity. The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines.  It may choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and independent legal personality to conduct business in the country.  In the alternative, it may create a branch in the Philippines, which would not be a legally independent unit, and simply obtain a license to do business in the Philippines.

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines.  Their Philippine branches are, as the name implies, merely branches, without a separate legal personality from their parent company, Citibank and BA.  Thus, being one and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter.

For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading case of Sokoloff v. The National City Bank of New York, where the Supreme Court of New York held:

Where a bank maintains branches, each branch becomes a separate business entity with separate books of account.  A depositor in one branch cannot issue checks or drafts upon another branch or demand payment from such other branch, and in many other respects the branches are considered separate corporate entities and as distinct from one another as any other bank.  Nevertheless, when considered with relation to the parent bank they are not independent agencies; they are, what their name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities whereby the parent bank carries on its business, and are established for its own particular purposes, and their business conduct and policies are controlled by the parent bank and their property and assets belong to the parent bank, although nominally held in the names of the particular branches.  Ultimate liability for a debt of a branch would rest upon the parent bank.

This ruling was later reiterated in the more recent case of United States v. BCCI Holdings Luxembourg where the United States Court of Appeals, District of Columbia Circuit, emphasized that “while individual bank branches may be treated as independent of one another, each branch, unless separately incorporated, must be viewed as a part of the parent bank rather than as an independent entity.”

In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered as one legal entity. PDIC vs. Citibank, N.A. and Bank of America, S.T. & N.A, G.R. No. 170290, April 11, 2012.

Corporation; intra-corporate controversy. An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.”

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno, an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799. Philip L. Go, Pacifico Q. Lim, et al. vs. Distinction Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012.

PDIC Law; Inter-branch deposits; not covered by PDIC Law.  As explained by the respondents, the transfer of funds, which resulted from the inter-branch transactions, took place in the books of account of the respective branches in their head office located in theUnited States.  Hence, because it is payable outside of the Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter:

Sec. 3(f) The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of said bank or deposit in another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be deposit liabilities of the Bank; Provided, that any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposits; Provided further, that any insured bank which is incorporated under the laws of the Philippines may elect to include for insurance its deposit obligation payable only at such branch.

The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC, after which PDIC was modelled, is also persuasive.  Inter-branch deposits refer to funds of one branch deposited in another branch and both branches are part of the same parent company and it is the practice of the FDIC to exclude such inter-branch deposits from a bank’s total deposit liabilities subject to assessment.  PDIC vs. Citibank, N.A. and Bank of America, S.T. & N.A, G.R. No. 170290, April 11, 2012.

(Hector thanks Jon Edmarc R. Castillo for his assistance to Lexoterica.)