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Banking & Allied Laws

l. p ignacio

FIRST DIVISION
BANCO DE ORO-EPCI, INC.,*
Petitioner,

G.R. No. 179901


Present:

-versus-

JAPRL DEVELOPMENT
CORPORATION, RAPID
FORMING CORPORATION
and JOSE U. AROLLADO,
Respondents.

PUNO, C.J., Chairperson,


CARPIO,
CORONA,
AZCUNA** and
LEONARDO-DECASTRO, JJ.

Promulgated:
April 14, 2008

x-----------------------------------------x
DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its
resolution[3] denying reconsideration.
After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,
petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000[5] on March 28, 2003. Respondents Rapid Forming
Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties.
[4]

Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan.
Petitioner later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial statements. It
allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment. [7]The
information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement, [8] it demanded immediate payment of JAPRLs
outstanding obligations amounting to P194,493,388.98.[9]
SP PROC. NO. Q-03-064
[6]

On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City,
Branch 90 (Quezon City RTC). [10] It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in
2002.[11]
Because the petition was sufficient in form and substance, a stay order [12] was issued on September 28, 2003.[13] However, the proposed
rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated May 9, 2005. [14]
CIVIL CASE NO. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a
writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003. [15] Petitioner
essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements. [16]
The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was
unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents. [17] Pursuant to the said order, summonses
were issued against respondents and were served upon them.

Respondents moved to dismiss the complaint due to an allegedly invalid service of summons. [18] Because the officers return stated that an
administrative assistant had received the summons, [19] JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court [20] contained an
exclusive list of persons on whom summons against a corporation must be served. [21] An administrative assistant was not one of them. Arollado,
on the other hand, cited Section 6, Rule 14 thereof[22] which mandated personal service of summons on an individual defendant. [23]
The Makati RTC, in its October 10, 2005 order,[24] noted that because corporate officers are often busy, summonses to corporations are usually
received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack
of merit.
Respondents moved for reconsideration[25] but withdrew it before the Makati RTC could resolve the matter.[26]
RTC SEC CASE NO. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34
(Calamba RTC). Finding JAPRLs petition sufficient in form and in substance, the Calamba RTC issued a stay order [27] on March 13, 2006.
In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No. 03-991 pending in the Makati RTC. [28]
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that,
because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue. [29] Respondents moved for
reconsideration[30] but it was denied.[31]
On August 11, 2006, respondents filed a petition for certiorari [32] in the CA alleging that the Makati RTC committed grave abuse of
discretion in issuing the October 10, 2005 and July 7, 2006 orders. [33] They asserted that the court did not acquire jurisdiction over their persons due
to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money. [34]
In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC
never acquired jurisdiction over respondents. Thus, it granted the petition. [35]
Petitioner moved for reconsideration but it was denied. [36] Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction
over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the
payment of their obligations.[37]
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons ( i.e., whether or
not the service of summons was validly made). Therefore, it was only the October 10, 2005 order of the said trial court which they in effect
assailed.[38] However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10
months and 1 day after the assailed order was issued by the Makati RTC, [39] way past the 60 days allowed by the Rules of Court. For these reasons,
the said petition should have been dismissed outright by the CA.
More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the
basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to
have submitted themselves voluntarily to the jurisdiction of the Makati RTC. [40]
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991
insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or
claims against the corporation seeking rehabilitation [41] from the date of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings.[42]
The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as
will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation. [43]
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of
their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the
amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy. [44]
Banks are entities engaged in the lending of funds obtained through deposits [45] from the public.[46] They borrow the publics excess money
(i.e., deposits) and lend out the same.[47] Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public. [48] They plough back the bulk of
said deposits into the economy in the form of loans. [49] Since banks deal with the publics money, their viability depends largely on their ability to
return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to
sound lending practices and good corporate governance. [50]

Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly
individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans
without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities.
Considering the amount of petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed
committed fraud in securing the credit accomodation.
A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the
rehabilitation case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the
General Banking Law which states:
Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit
accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.
Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of
their income and expenditures and such information as may be prescribed by law or by rules and regulations of the
Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false
or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis
of said statements and shall have the right to demand immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional
collateral. (emphasis supplied)
Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers
proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages.[51]
Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is
probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.[52]
ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in
CA-G.R. SP No. 95659 are REVERSED and SET ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to
respondent Jose U. Arollado, and the other respondents if warranted.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-20583
January 23, 1967
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO,
RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO
TANJUTCO JR., respondents.
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner.
Sycip, Salazar, Luna, Manalo & Feliciano for respondents.
Natalio M. Balboa and F. E. Evangelista for the receiver.
CONCEPCION, C.J.:
This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly
engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents
in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely:
NAME
Rosendo T. Resuello

POSITION
President & Chairman of the Board

Pablo Tanjutco

Director

Arturo Soriano

Director

Ruben Beltran

Director

Bienvenido V. Zapa

Director & Vice-President

Pilar G. Resuello

Director & Secretary-Treasurer

Ricardo D. Balatbat

Director & Auditor

Jose R. Sebastian

Director & Legal Counsel

Vito Tanjutco Jr.

Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant corporation 1 were registered with the Securities and Exchange Commission on
March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws, 2 which were filed with said Commission on
April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on
whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11,
1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said
Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the
aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied
with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this
application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with
which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon
application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued
Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department
searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said
warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines;
that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy
Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is:
1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of
Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received;
2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to
engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of
any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultravires:
3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or
licensing of such shares or securing exemption therefor, in violation of the Securities Act; and
4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank,
by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct
Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337."
(Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and
pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum
dated August 28, 1962, stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May
23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and
records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team was conducted by this Department.
The examination disclosed the following findings:
a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc.,receives deposits from the
public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock.
Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the
Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its
capital stock are offered to the public as part of its regular operations.
b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities, loans are made
regularly to any person by the Security Credit and Acceptance Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books
and records of the Corporation is attached hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the
receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations
shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of
other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation isregularly lending funds
obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as
contemplated in Republic Act No. 337, without having first complied with the provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board decide and declare:
1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the
provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and

2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including,
if warranted criminal action against the Persons criminally liable and/orquo warranto proceedings with preliminary injunction against the
Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its
Resolution No. 1095, declaring that the corporation is performing banking operations, without having first complied with the provisions
of Sections 2 and 6 of Republic Act No. 337;3that on September 25, 1962, the corporation was advised of the aforementioned resolution,
but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been
and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the
period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the
Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public
to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits with
the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock,
both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares
and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of
December 31, 1961, the corporation had a capital stock aggregating P1,273,265.98 and suffered, during the year 1961, a loss of
P96,685.29. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of
the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its
branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed
pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank of the Philippines was appointed by this
Court receiver pendente lite of defendant corporation, and upon the filing of the requisite bond, said officer assumed his functions as such receiver
on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco
(Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling,
evaluation and conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the Central Bank, the Securities and
Exchange Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant
No. A-1019 of the Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative allegations, defendants averred
that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G.
Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings
and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in
addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed
president, vice-president, secretary-treasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective
offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and
Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 or before the
commencement of the present proceedings the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case
No. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the
City Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing the
defendants in said case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the
corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition filed by
plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had appointed Jose Ma. Ramirez as receiver of the
corporation; that, on December 12, 1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as to one of the
defendants in said case No. 52342, the issues therein have already been joined; that the failure of the corporation to honor the demands for
withdrawal of its depositors or members of its savings plan and its former employees was due, not to mismanagement or misappropriation of
corporate funds, but to an abnormal situation created by the mass demand for withdrawal of deposits, by the attachment of property of the
corporation by its creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities
and Exchange Commission dated September 26, 1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of
deposits of members of the savings plan of the corporation was understood to be subject, as to time and amounts, to the financial condition of the
corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that
defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are
officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962,
showing that said defendants had been elected officers thereof; that the views of the legal counsel of the Central Bank, of the Securities and
Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in
the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of
Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable
amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits
amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No. 52342 of the Court of First
Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law
justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions
partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463
savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which
has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as
the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of
money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange,
and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).
Moreover, it has been held that:

An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and
borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although
but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S.
30.)
Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in
Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of
the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance
inflicts injury upon the public, owing to the number of persons affected thereby.
It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co.
(57 Phil. 266). In this connection, it should be noted that this Court is vested with original jurisdiction, concurrently with courts of first instance, to
hear and decide quo warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require that the issues therein
be taken up in said Civil Case No. 52342. The Veraguth case cited by herein defendants, in support of the second alternative, is not in point, because
in said case there were issues of fact which required the presentation of evidence, and courts of first instance are, in general, better equipped than
appellate courts for the taking of testimony and the determination of questions of fact. In the case at bar, there is, however, no dispute as to the
principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said
facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have
deemed it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of
receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to administer the properties, deposits, and
other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.
Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Footnotes
1
Which, as amended on May 8, 1961, authorized it:
"1. To extend credit facilities for home building and agricultural, commercial and industrial projects;
2. To extend credit, give loans, mortgages and pledges, either as principal, agent, broker or attorney-in-fact, upon every and all
kind and classes of products, materials, goods, merchandise, and other properties, real or personal of every kind and nature;
3. To draw, accept, endorse, purchase, own, sell, discount, mortgage, assign or otherwise dispose of, negotiate or collect
accounts or notes receivables, negotiable instruments, letters of credit and other evidence of indebtedness;
4. To purchase, acquire, and take over, all or any part of the rights, assets and business of any person, partnership, corporation or
association, and to undertake and assume the liabilities and obligations of such person, partnership, corporation or association
whose rights, assets, business or property may be purchased, acquired or taken over;
5. To issue bonds, debentures, securities, collaterals and other obligations or otherwise incur indebtedness in such manner as
may be ascertained by the corporation; and
6. To undertake the management, promotion, financing and/or collection services of the operation of the business, industry or
enterprises of any person, partnership, corporation or association in so far as may be permitted under the laws of the
Philippines." (Emphasis supplied.).
2
Empowering said Board, inter alia:
"c) To pay for any property or rights acquired by the corporation or to discharge obligations of the corporation either wholly or
partly in money or in stock, bonds, debentures or other securities of the corporation;
"d) To lend or borrow money for the corporation with or without security and for such purpose to accept or create, make and
issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgage or pledge of property
belonging to the corporation; provided, that as hereinafter provided, the proper officers of the corporation shall have these
powers, unless expressly limited by the Board of Directors: ... (Emphasis supplied).
3
"Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of
deposits or the sale of bonds, securities, or obligations of any kind, and all entities regularly conducting such operations shall be
considered as banking institutions and shall be subject to the provisions of this Act, of the General Bank Act, and of other pertinent laws.
The terms 'banking institution and 'bank', as used in this Act, are synonymous and interchangeable and specially include banks, banking
institutions, commercial banks, savings banks, mortgage banks, trust companies, building and loan associations, branches and agencies in
the Philippines of foreign banks, hereinafter called Philippine branches, and all other corporations, companies, partnerships, and
associations performing banking functions in the Philippines.
"Persons and entities which receive deposits only occasionally shall not be considered as banks, but such persons and entities
shall be subject to regulation by the Monetary Board of the Central Bank; nevertheless in no case may the Central Bank
authorize the drawing of checks against deposits not maintained in banks, or branches or agencies thereof.
"The Monetary Board may similarly regulate the activities of persons and entities which act as agents of banks.
"Sec. 6. No person, association or corporation not conducting the business of a commercial banking corporation, trust
corporation, savings and mortgage banks, or building and loan association, as defined in this Act, shall advertise or hold itself
out as being engaged in the business of such bank, corporation or association, or use in connection with its business title the
word or words, 'bank', 'banking,' 'banker,' 'building and loan association,' 'trust corporation,' 'trust company,' or words of similar
import, or solicit or receive deposits of money for deposit, disbursement, safekeeping, or otherwise, or transact in any manner
the business of any such bank, corporation or association without having first complied with the provisions of this Act in so far
as it relates to commercial banking corporations, trust corporations, savings and mortgage banks, or building and loan
association as the case may be. For any violation of the provisions of this section by a corporation, the officers and directors
thereof shall be jointly and severally liable. Any violation of the provisions of this section shall be punished by a fine of five
hundred pesos for each day during which such violation is continued or repeated, and, in default of the payment thereof,
subsidiary imprisonment as prescribed by law."