Philippine Primark Properties, Inc. vs. China Banking Corporation Trust and Assets Management Group

A bank's trust department, though required by law to be organizationally, operationally, administratively, and functionally separate from the bank's other departments, does not acquire a juridical personality separate from the bank; the "trust entity" under the General Banking Law is the bank corporation itself, not its trust department, and the separation requirement serves to protect trust beneficiaries, not to create an independent suable entity.

Philippine Primark Properties, Inc. (Primark) is a corporate borrower that obtained a PHP 7 billion notes facility from China Banking Corporation (CBC) and China Bank Savings, Inc. (CBSI) under an Omnibus Notes Facility and Security Agreement (ONFSA) executed on May 11, 2018. To secure its obligations, Primark assigned all present and future receivables from its lease contracts—including those with BDO Unibank, Inc. (BDO)—to CBC's Trust and Assets Management Group (CBC-TAMG) as security trustee. CBC-TAMG is not a separately incorporated entity but a department or unit of CBC through which CBC conducts its trust and fiduciary business, as authorized by the Monetary Board under the General Banking Law. The dispute arose when Primark, after defaulting on its loan obligations, declared the ONFSA void ab initio and instructed BDO to disregard CBC-TAMG's claim over the rental receivables, creating conflicting demands that prompted BDO to file an interpleader action.

On May 11, 2018, Philippine Primark Properties, Inc. (Primark) entered into an Omnibus Notes Facility and Security Agreement (ONFSA) with China Banking Corporation (CBC) and China Bank Savings, Inc. (CBSI), collectively referred to as the Banks, under which the Banks granted Primark a notes facility in the maximum aggregate amount of PHP 7 billion. To secure its obligations, Primark assigned all present and future rights and interests over its receivables arising from contracts of lease with its tenants—including BDO Unibank, Inc. (BDO)—in favor of CBC's Trust and Assets Management Group (CBC-TAMG) as assignee and security trustee. Both Primark and CBC-TAMG notified the tenants of this arrangement. The ONFSA also required Primark to maintain a Debt Service Reserve Account (DSRA) at a certain maintaining balance; if Primark failed to timely pay its loan obligations, CBC-TAMG was authorized to debit the DSRA, and Primark was obligated to replenish the debited amounts.

Primark made ten drawdowns under the ONFSA totaling PHP 3,947,000,000.00. Thereafter, it requested the Banks to waive certain conditions precedent so it could obtain additional borrowings and proposed several amendments to the ONFSA's terms. The Banks, however, required Primark to comply with the conditions precedent before releasing additional funds or discussing amendments. On August 13, 2019, Primark sent a letter to CBC abrogating the ONFSA on the ground that it was void ab initio for being a mere credit accommodation to CBC's and CBSI's directors, officers, stockholders, and related interests (DOSRI), in violation of Section 36 of Republic Act No. 8791 (General Banking Law). Primark informed CBC-TAMG of the abrogation in a separate letter dated September 2, 2019.

On September 4, 2019, Primark failed to pay interest amounting to PHP 76,868,808.74. Pursuant to the ONFSA, CBC-TAMG debited that amount from the DSRA, which then fell below the required maintaining balance. Primark failed to replenish the shortfall and was declared in default on December 5, 2019. Meanwhile, on various dates from March 14, 2017 through August 3, 2018, Primark had entered into Contracts of Lease with BDO over properties in several locations for BDO's branches. Primark sent notices of assignment of receivables to BDO on May 22, 2018, August 3, 2018, February 11, 2019, and April 23, 2019, informing BDO that it had assigned its lease receivables to CBC-TAMG as security and authorizing BDO, upon CBC-TAMG's instruction, to deliver the receivables to a bank account designated by CBC-TAMG.

BDO regularly paid and delivered rental payments to Primark on their due dates. However, on February 4, 2020, BDO received a notice from CBC-TAMG denominated as Security Assignment, stating that an Acceleration Event had occurred and that the receivables had been assigned to CBC-TAMG as Security Trustee for the benefit of the Secured Parties. BDO was instructed to cease complying with instructions from Primark or any party other than CBC-TAMG and not to recognize any attempt by Primark to claim the receivables. On the same date, CBC-TAMG sent detailed instructions to BDO to pay the receivables directly to it when they fell due. The next day, February 5, 2020, Primark sent a letter to BDO telling it to ignore CBC-TAMG's notices because the Security Assignment was void ab initio and that BDO should continue delivering rental payments to Primark. BDO replied to CBC-TAMG on February 17, 2020, stating it could not honor CBC-TAMG's instructions because of Primark's letter challenging the legality of the assignment.

With the conflicting claims unresolved, BDO wrote to Primark on April 7, 2020 stating it would issue checks payable to either Primark or CBC-TAMG for rentals starting March 2020. CBC-TAMG reiterated its instruction to deliver rentals directly to it in a letter dated June 26, 2020, while Primark sent demand letters to all BDO branch lessees on June 30, 2020 demanding payment of rent and warning that it would not recognize any payment made to unauthorized persons. These conflicting demands prompted BDO to file a Complaint for Interpleader with Prayer for Consignation against Primark and CBC-TAMG before RTC-57, docketed as Civil Case No. R-MKT-20-01679-SC. In its Answer, CBC-TAMG denied that the ONFSA and Security Assignment were void and argued that Primark was estopped from assailing the ONFSA's validity. Primark, for its part, raised as an affirmative defense that CBC-TAMG lacked legal capacity to sue or be sued under Rule 3, Section 1 of the Rules of Court because it was a mere department of CBC, and that a pending action for declaration of nullity of contracts involving the same ONFSA was already before RTC-58, Makati City.

• Wrong Remedy from Dismissal Without Prejudice: Primark argued that the RTC-57 Order dated November 16, 2020, dismissing the first interpleader case on the ground of CBC-TAMG's lack of legal capacity to sue and be sued, was a dismissal without prejudice and not a judgment on the merits. Pursuant to Rule 41, Section 1(g) of the Rules of Court, no appeal may be taken from an order dismissing an action without prejudice; the aggrieved party's remedy is an appropriate special civil action under Rule 65. Thus, the CA erred in giving due course to CBC-TAMG's appeal.
• Questions of Law Only: Primark contended that CBC-TAMG's appeal before the CA involved only questions of law—legal capacity/personality to sue or be sued and estoppel—which are not reviewable by the CA pursuant to Rule 41, Section 2(c) of the Rules of Court.
• No Reinstatement of BDO's Complaint: Primark asserted that the CA erred in reinstating the first interpleader case because BDO did not appeal the RTC-57 Order and even filed a Motion to Withdraw the complaint. CBC-TAMG's appeal only involved the dismissal of its counterclaim and cross-claim, not BDO's complaint.
• No Legal Capacity to Sue: Primark maintained that CBC-TAMG was not created by operation of law and is not a corporation within the definition of the Corporation Code. It is a mere department or unit attached to CBC for the latter's trust operations and fund management, and thus does not have the capacity or standing to sue or be sued independent of CBC.

• Procedural Defect in Petition: CBC-TAMG argued that the Petition should be dismissed outright for non-compliance with Rule 45, Section 4(d) of the Rules of Court, which requires the petition to be accompanied by material portions of the record.
• Proper Appeal from Final Order: CBC-TAMG countered that the RTC-57 Order was a final order of dismissal and that while BDO did not appeal, this did not affect CBC-TAMG's right to appeal the dismissal of its counterclaims and cross-claims.
• Mixed Questions of Fact and Law: CBC-TAMG submitted that it raised mixed questions of fact and law in its appeal before the CA, not purely questions of law as Primark claimed.
• Capacity as Trust Entity: CBC-TAMG insisted that it has the capacity to sue and be sued and is a real party-in-interest in the first interpleader case, characterizing itself as a trust department endowed with corporate powers under Section 83 of the General Banking Law.
• Clean Hands Doctrine: CBC-TAMG argued that Primark should not be allowed to abuse the judicial process and that parties who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing.

• Proper Remedy: Whether the CA erred in giving due course to CBC-TAMG's appeal from the RTC-57 Order of dismissal.
• Reinstatement of BDO's Complaint: Whether the CA erred in reinstating BDO's first interpleader complaint despite BDO not appealing the RTC-57 Order.
• Legal Capacity to Sue: Whether CBC-TAMG has the legal capacity to sue and be sued independently of CBC.

• Proper Remedy: Yes, the CA erred. The RTC-57 Order was a dismissal without prejudice because it was based on lack of legal capacity to sue, a ground not enumerated in Rule 15, Section 13 as one that bars refiling. Under Rule 41, Section 1(g), no appeal lies from a dismissal without prejudice; the proper remedy is a Rule 65 petition for certiorari.
• Reinstatement of BDO's Complaint: No error as framed. The CA did not reinstate BDO's complaint; its dispositive portion remanded only for CBC-TAMG's counterclaim and cross-claim. BDO had already withdrawn and filed a second interpleader case impleading CBC.
• Legal Capacity to Sue: No. CBC-TAMG does not have legal capacity to sue and be sued independently of CBC. It is not a juridical person under Article 44 of the Civil Code, and the "trust entity" under the General Banking Law refers to the bank corporation itself, not its trust department.

• Proper Remedy: Rule 15, Section 13 of the 2019 Revised Rules of Court enumerates the grounds for dismissal with prejudice—prior judgment, prescription, payment/waiver/abandonment/extinguishment, and unenforceability under the statute of frauds. An order granting an affirmative defense on grounds other than these, such as lack of legal capacity to sue and be sued, is a dismissal without prejudice. Rule 41, Section 1(g) expressly provides that no appeal may be taken from an order dismissing an action without prejudice; the aggrieved party's remedy is a special civil action under Rule 65. The RTC-57 dismissed the first interpleader case and CBC-TAMG's cross-claim and counterclaim based on CBC-TAMG's lack of legal capacity to sue and be sued. This was therefore a dismissal without prejudice, and CBC-TAMG should have filed a petition for certiorari under Rule 65 rather than an ordinary appeal. Because CBC-TAMG availed itself of the wrong remedy, the CA should have dismissed the appeal.

• Reinstatement of BDO's Complaint: A review of the records confirmed that CBC-TAMG's appeal prayed that the CA declare it had legal capacity to sue and that it was entitled to prosecute its counterclaim against BDO and cross-claim against Primark. The CA's dispositive portion reversed the RTC Order and remanded the case for further proceedings to allow CBC-TAMG to present evidence on its counterclaim and cross-claim, and ordered consolidation with the second interpleader case. BDO had earlier withdrawn its appeal and filed the second interpleader case impleading CBC. Thus, the CA Decision did not reinstate BDO's first interpleader complaint, which BDO never questioned. The remand was expressly limited to CBC-TAMG's counterclaim and cross-claim.

• Legal Capacity to Sue: Rule 3, Section 1 of the Rules of Court provides that only natural or juridical persons, or entities authorized by law, may be parties in a civil action. Article 44 of the Civil Code enumerates juridical persons: (1) the State and its political subdivisions; (2) other corporations, institutions, and entities for public interest or purpose created by law; and (3) corporations, partnerships, and associations for private interest or purpose to which the law grants juridical personality. CBC-TAMG does not fall under any of these categories; it does not deny that it is not a corporation organized under Philippine law. CBC-TAMG relied on Section 83 of the General Banking Law, which states that a "trust entity" possesses general powers incident to corporations, including the capacity to sue and be sued. However, reading Sections 79, 81, 82, and 83 together reveals that the "trust entity" is the stock corporation duly authorized by the Monetary Board to engage in trust business—not the corporation's trust department. Section 79 defines the trust entity as "such a corporation," referring to the stock corporation authorized by the Monetary Board. Section 83 simply recognizes that the duly incorporated stock corporation already possesses general corporate powers under Section 35 of the Revised Corporation Code (RA 11232), and grants additional specific powers if the corporation obtains authority to engage in trust business. Nothing in the General Banking Law confers separate juridical personality upon a mere department of a corporation. Section 412 of the 2021 MORB requires the trust department to be organizationally, operationally, administratively, and functionally separate from other departments, but Section 132 in relation to Section 412 provides that the trust committee is responsible to the bank's board of directors, which retains control over all of the bank's business and resources. Section 87 of the General Banking Law requires separation of trust business from general business, but this is for the protection of the beneficiary—ensuring trust assets are not commingled with the bank's own assets—not to create a separate suable entity. American jurisprudence confirms that bank departments cannot be considered independent entities but must be deemed part of a single corporation. Under Rule 3, Section 3, a trustee acting in a fiduciary capacity is merely a representative of the beneficiary, who is the real party-in-interest. Allowing CBC-TAMG to litigate separately while CBC pursues the same claims in the second interpleader case would constitute forum shopping. The Court declined to reach the issues of estoppel and personality to sue, leaving those for the second interpleader case where CBC had already been impleaded.

• Juridical Personality Under Article 44 of the Civil Code — Juridical persons are limited to three categories: (1) the State and its political subdivisions; (2) other corporations, institutions, and entities for public interest or purpose created by law; and (3) corporations, partnerships, and associations for private interest or purpose to which the law grants juridical personality separate and distinct from that of each shareholder, partner, or member. A bank's trust department does not fall under any of these categories and therefore is not a juridical person.

• Dismissal With Prejudice vs. Without Prejudice — Under Rule 15, Section 13 of the 2019 Revised Rules of Court, an order granting a motion to dismiss or affirmative defense is with prejudice (barring refiling) only when the ground is: prior judgment, statute of limitations, payment/waiver/abandonment/extinguishment, or unenforceability under the statute of frauds. Dismissal on any other ground—such as lack of legal capacity to sue—is without prejudice and does not preclude refiling.

• Legal Capacity to Sue vs. Personality to Sue — Lack of legal capacity to sue refers to a plaintiff's general disability to sue, such as minority, insanity, incompetence, lack of juridical personality, or any other general disqualification. Lack of personality to sue refers to the plaintiff not being the real party-in-interest, which is grounded on failure to state a cause of action. The former is a ground for motion to dismiss based on lack of legal capacity; the latter is a ground based on the complaint stating no cause of action.

• Trust Entity Under the General Banking Law — The "trust entity" in Chapter IX of RA 8791 refers to the stock corporation authorized by the Monetary Board to engage in trust business, not to the corporation's trust department. Section 83 grants corporate powers to the trust entity—the bank corporation itself—in addition to the general powers it already possesses under the Revised Corporation Code. The statutory requirement to separate the trust department from other departments (Section 87, Section 412 MORB) serves to protect trust beneficiaries by preventing commingling of trust assets with the bank's own assets, not to create a separate juridical personality for the trust department.

• Trustee as Representative Under Rule 3, Section 3 — A trustee or someone acting in a fiduciary capacity is only a representative of the beneficiary, who is considered the real party-in-interest. A trust department acting as trustee cannot prosecute claims separately from the beneficiary.

• "There is nothing in the General Banking Law that creates such a fantastical animal that CBC-TAMG claims to be, i.e., a trust department exercising the general powers incident to corporations separately and independently from the bank that it belongs to." — This passage captures the Court's core rejection of CBC-TAMG's argument that its trust department status confers independent corporate powers, forming the ratio decidendi on the legal capacity issue.

• "By no means of imagination can Section 83 of the General Banking Law be interpreted as one that confers a separate juridical personality upon a mere department of a corporation." — This statement crystallizes the holding that Section 83 grants powers to the bank corporation, not to its trust department, and is likely to be cited in future cases involving the suability of bank departments.

• "Many banking institutions are organized with several departments such as commercial, savings, trust, bond, loan, real estate, etc. Interdeparmental transactions in such banks cannot be regarded as dealing at arm's length, as between independent entities. Departmental banks, after all, are single corporate entities, managed by a single board of directors and owned by shareholders who participate in the combined profits and losses of the several departments." — This quotation from American jurisprudence, adopted by the Court, establishes the doctrinal foundation that bank departments are not independent entities, applying the single-corporation principle to Philippine banking law.

• "The statutory provisions regulate how the bank operates the trust business vis-à-vis its general operations, not a grant of separate juridical personality to a mere trust department or unit of a banking corporation." — This passage clarifies the purpose of the separation requirements in the General Banking Law and MORB, distinguishing operational regulation from personality creation.

• Columbia Pictures, Inc. vs. Court of Appeals, 329 Phil. 875 (1996) — Followed. The Court relied on this case to define and differentiate "lack of legal capacity to sue" (general disability, including lack of juridical personality) from "lack of personality to sue" (not being the real party-in-interest). This distinction was central to classifying the RTC dismissal as without prejudice.
• Cancio vs. Performance Foreign Exchange Corp., 832 Phil. 212 (2018) — Followed. The Court cited this case for the proposition that failure to attach material portions of the record does not necessarily warrant outright dismissal of a Rule 45 petition where there is substantial compliance, supporting the decision to decide the case on the merits.
• Heirs of Sadhwani vs. Sadhwani, 859 Phil. 385 (2019) — Cited in support of the rule that the remedy from an order of dismissal without prejudice is a Rule 65 special civil action, not an ordinary appeal.
• Balayan Bay Rural Bank, Inc. vs. National Livelihood Development Corp., 770 Phil. 30 (2015) — Cited for the principle under Rule 3, Section 3 that a trustee acting in a fiduciary capacity is a representative, with the beneficiary as the real party-in-interest.
• Securities and Exchange Commission vs. Laigo, 768 Phil. 239 (2015) — Cited as authority for the Court's use of American case law in interpreting the nature of a bank's trust and fiduciary business and the bank's fiduciary duties.
• In re Binder: Squire vs. Emsley, 137 Ohio St. 26 (1940) — Adopted. American case law holding that separate departments of a banking institution cannot be considered independent entities but must be deemed a single corporation. The Court applied this principle to conclude that CBC-TAMG is not separate from CBC.

• Article 44, Civil Code — Enumerates juridical persons. The Court applied this provision to determine that CBC-TAMG does not qualify as a juridical person under any of the three categories, as it is not a corporation or entity created by law but a mere department of CBC.
• Rule 3, Section 1, Rules of Court — Provides that only natural or juridical persons, or entities authorized by law, may be parties in a civil action. Applied to hold that CBC-TAMG, not being a juridical person, cannot be a party.
• Rule 3, Section 3, Rules of Court — Provides that a trustee or someone acting in a fiduciary capacity is a representative, with the beneficiary as the real party-in-interest. Applied to conclude that CBC-TAMG, as a fiduciary, cannot prosecute claims separately from the beneficiary.
• Rule 15, Section 13, 2019 Revised Rules of Court — Enumerates grounds for dismissal with prejudice. Applied to classify the RTC dismissal based on lack of legal capacity as one without prejudice, since that ground is not among those listed.
• Rule 41, Section 1(g), Rules of Court — Provides that no appeal may be taken from an order dismissing an action without prejudice; the remedy is a Rule 65 special civil action. Applied to hold that CBC-TAMG's appeal was improper.
• Rule 45, Section 4(d), Rules of Court — Requires a petition for review to be accompanied by material portions of the record. Applied under the doctrine of substantial compliance, the Court found Primark's attachments sufficient.
• Section 36, RA 8791 (General Banking Law) — Restriction on bank exposure to DOSRI. Primark invoked this provision to declare the ONFSA void ab initio, though the Court did not rule on this issue.
• Sections 79, 80, 81, 82, 83, 87, RA 8791 (General Banking Law) — Governs trust entities. Section 79 defines the trust entity as the stock corporation authorized by the Monetary Board. Section 83 grants the trust entity general corporate powers in addition to specific trust powers. Section 87 requires separation of trust business from general business. The Court read these provisions together to hold that the trust entity is the bank corporation, not its trust department, and that the separation requirement protects beneficiaries, not creates separate personality.
• Section 35, RA 11232 (Revised Corporation Code) — Grants corporations the power to sue and be sued. The Court noted that this power already inheres in the bank corporation; Section 83 of the General Banking Law merely adds specific trust powers to the already-incorporated bank.
• Sections 411, 412, 132, 2021 Manual of Regulations for Banks (MORB) — BSP regulations on organization and management of trust business. Section 412 requires the trust department to be separate from other departments but responsible to the bank's board. Section 132 provides that the board controls all corporate business and resources. Applied to show that the trust department remains under the bank's board control and is not independent.

Caguioa (Chairperson), Gaerlan, Dimaampao, and Singh, JJ., concurred. No separate concurring opinions were written.