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.

FACTS

The Republic of the Philippines, through the Solicitor General, initiated an original quo warranto proceeding to dissolve the Security Credit and Acceptance Corporation. The corporation’s Articles of Incorporation were registered with the Securities and Exchange Commission (SEC) on March 27, 1961. The Central Bank’s legal counsel opined on October 11, 1961, that the corporation was a banking institution under the General Banking Act ( Republic Act No. 337 ). The corporation’s application for reconsideration was denied. On May 18, 1962, a search warrant was issued, and documents were seized from the corporation’s premises. Examinations by the Central Bank’s intelligence division and Superintendent of Banks found that the corporation was: 1) soliciting and accepting deposits from the public and lending out the funds received without the required certificate of authority; 2) exceeding its corporate powers by accepting savings deposits when its charter authorized primarily financing projects and secondarily buying/selling stocks and bonds; 3) soliciting subscriptions to shares without prior registration under the Securities Act; and 4) should be under the supervision of the Monetary Board. The Monetary Board, via Resolution No. 1095 dated September 14, 1962, declared the corporation was performing banking operations without complying with Sections 2 and 6 of Republic Act No. 337 . Despite notice, the corporation continued its operations. From March 27, 1961, to May 18, 1962, it established 74 branches, induced the public to open 59,463 savings deposit accounts with aggregate deposits of P1,689,136.74, and increased its capital stock from P500,000 to P3,000,000. Its statement as of December 31, 1961, showed a capital stock of P1,273,265.98 and a loss of P96,685.29 for 1961. The Solicitor General filed the petition on December 6, 1962. The Superintendent of Banks was appointed receiver pendente lite on August 20, 1963. In their answer, the respondents admitted most factual allegations but denied that some individual respondents were directors and challenged the validity of the various opinions, rulings, and the search warrant.

ISSUE

Whether the Security Credit and Acceptance Corporation is engaged in banking operations without the requisite authority under the General Banking Act, thereby warranting its dissolution.

RULING

The Supreme Court granted the petition for quo warranto and ordered the dissolution of the Security Credit and Acceptance Corporation. The Court found that the corporation was indeed performing banking functions as defined in Section 2 of Republic Act No. 337 . The corporation was regularly lending funds obtained from the public through the receipt of deposits or the sale of securities. By soliciting and accepting savings deposits from the general public and lending out those funds, it was conducting operations that made it a “banking institution” under the law. Since it did not possess the required certificate of authority from the Monetary Board to engage in banking, it was operating illegally. The corporation’s acts were ultra vires, as accepting deposits was beyond the scope of its corporate powers as defined in its Articles of Incorporation, which authorized it primarily for financing agricultural, commercial, and industrial projects and secondarily for buying and selling stocks and bonds. The Court held that the corporation’s operations fell squarely within the prohibition of Section 6 of the General Banking Act, which forbids any entity from transacting banking business without first complying with the Act. The appointment of the Superintendent of Banks as receiver was affirmed, and the corporation was ordered dissolved for illegally engaging in banking operations.