Case: Republic v. Security Credit and Acceptance, et al. G.R. No.

L-20583
Date: 23 January 1967 Ponente: C.J. Concepcion
TOPIC IN SYLLABUS: 1.a. Definition and Classification of Banks
SUMMARY: The Solicitor General filed the instant quo warranto proceedings before the SC to have SCAC dissolved for
engaging in banking activities without the requisite authority under the General Banking Act (RA 337). The SC found 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 P 1,689,136.74, which has been lent out to
such persons as the corporation deemed suitable. Thus, the SC held that SCAC was a bank under Sec. 2 of RA 337.
Finally, because it operated without the requisite authority, SC ordered SCAC dissolved.

PROCEDURAL ANTECEDENTS:
Original quo warranto proceeding before the SC

FACTS:
 The Solicitor General initiated the instant original quo warranto proceeding to dissolve Respondent Security Credit
and Acceptance Corp. (SCAC) for allegedly engaging in banking operations without the required authority under the
General Banking Act (RA 337).
o The other Respondents are the members of the Board of Directors and/or Executive Officers: President and
Chairman of the Board Rosendo Resuello and the Directors – Pablo Tanjutco, Arturo Soriano, Ruben Beltran,
Bienvenido Zapa (also Vice-President), Pilar Resuello (also Secretary-Treasurer), Ricardo Balatbat (also
Auditor), Jose Sebastian (also Legal Counsel), and Vito Tanjutco (also Personnel Manager).
 SCAC’s Articles of Incorporation were registered with SEC on 27 March 1961. The By-Laws were filed on 5 April
1961.
 On 19 September 1961, the Superintendent of Banks of the Central Bank (CB) asked its legal counsel an opinion on
whether or not SCAC is a banking institution within the purview of RA 337.
o On 11 October 1961, the said legal counsel resolved the question in the affirmative.
 SCAC sought reconsideration on 15 January 1962. This was denied on 16 March 1962.
 Meanwhile, on 9 March 1961, SCAC applied with the SEC for the registration and licensing of its securities under the
Securities Act.
o Before acting on the application, the SEC referred the same to the CB, which, in turn, gave the former a copy
of the aforementioned opinion. The SEC then advised SCAC on 5 December 1961 to comply with the
requirements of RA 337.
 On 18 May 1962, the Municipal Court of Manila issued a Search Warrant upon application of Manila Police and a CB
agent.
o Thereafter, members of the CB Intelligence Division and Manila Police searched SCAC’s premises and
seized documents and records which were placed under the custody of the CB.
 On 10 September 1962, the Intelligence Division of the CB submitted a Memorandum to the Acting Deputy Governor
of the CB finding that SCAC is:
o 1. Performing banking functions without the requisite certificate of authority from the Monetary Board, in
violation of Secs. 2 and 6 of RA 337, “in that it is soliciting and accepting deposit from the public and lending
out the funds so received”
o 2. “Soliciting and accepting savings deposits from the general public” when the company’s articles of
incorporation do not authorize such activities
o 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”
o 4. Since it is a private credit and financial institution, “it should come under the supervision of the Monetary
Board of the Central Bank”
o 11. The examination of SCAC’s books and records yielded: a) SCAC “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 P 5,000 of an individual depositor may be converted into stock
subscription to the capital stock of [SCAC] 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;” and b) that through
the receipt of deposits and/or the sale of securities, “loans are made regularly to any person” by SCAC.
o 12. Sec. 2 of RA 337 defines “banking institution” as: “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,
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 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. x x x”
o 13. SCAC performs “banking functions” without complying with the provisions of RA 337.
o The Memorandum concluded that the 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/or quo warranto proceedings with preliminary injunction against the Corporation for its
dissolution.”
 On 14 September 1962, the Monetary Board promulgated Resolution No. 1095 declaring that SCAC is performing
banking operations without having first complied with Secs. 2 and 61 of RA 337.
 SCAC was advised of the Resolution on 25 September 1962 but continued to perform the functions and activities
declared to constitute illegal banking operations.
o From 27 March 1961-18 May 1962, SCAC established 74 branches throughout the country
o It induced the public to open 59,463 savings deposit accounts with an aggregate deposit of P 1,689,136.74
 Because SCAC continued with its illegal activities, the Solicitor General instituted the instant quo warranto
proceedings for the dissolution of the corporation, with a prayer for Preliminary Injunction to enjoin SCAC from
performing the said illegal banking operations and that a receiver be appointed pendent lite.
 Upon joint motion of the parties, the CB Superintendent of Banks of the CB was appointed as receiver pendent lite.

ISSUES:
1. Whether or not SCAC is a bank (YES)
2. Whether or not SCAC should be dissolved (YES)

PETITIONER’S ARGUMENTS:
1. Based on the anniversary publication of SCAC, the Tanjutcos, Soriano, Beltran, Zapa, Balatbat, and Sebastian are
officers/directors. This was confirmed by the minutes of the 27 September 1962 stockholders meeting.
2. The views of the CB legal counsel, SEC, Intelligence Division, Superintendent of Banks, and the Monetary Board
have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in
accordance with law.
3. The validity of the Search Warrant has not been contested as provided by law.
4. SCAC’s Petition before CFI Manila (infra.) is now highly improper because the herein Respondents have already
committed infractions and violations of the law thereby justifying the dissolution of the corporation.

RESPONDENTS’ ARGUMENTS:
1. Denied that the Pablo and Vito Tanjutco, Soriano, Beltran, Zapa, Balatbat, and Sebastian are directors.
2. Assailed the validity of the findings, opinions and conclusions rendered by the CB legal counsel, the Intelligence
Division, SEC, and the Superintendent of Banks.
3. Also questioned the Monetary Board Resolution and the search and seizure made under the Search Warrant issued
by the Municipal Court of Manila.
4. As of 7 July 1961, the Board of Directors was composed of Rosendo and Pilar Resuello, and Aquilino Illera.
5. On 11 July 1962, SCAC filed with the Superintendent of Banks an application for conversion into a Security Savings
and Mortgage Bank with Pablo and Vito Tanjutco, Soriano, Beltran, Zapa, Balatbat, and Sebastian as proposed
directors, in addition to the Resuellos and Illera.

1
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.
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6. The proposed directors never assumed office because of the pendency of the application. In fact, Sorianio, Beltran,
Sebastian, and the Tanjutcos withdrew from the proposed mortgage and savings bank.
7. Before the commencement of the instant Petition, SCAC instituted a civil case against Purificacion Santos and other
members of the corporation’s savings plan and the Manila Fiscal for declaratory relief and injunction.
8. On December 1962, Judge Cloribel of CFI Manila issued a Writ directing the defendants in the civil case to refrain
from prosecuting the SCAC officers by reason of or in connection with the acceptance by the same of deposits under
its savings plan.
9. Upon Petition of herein Respondent officers, the CFI appointed Jose Ma. Ramirez as receiver of SCAC.
10. The failure of SCAC to honor the demands for withdrawal of its depositors or members of its savings plan and its
former employees was due to the mass demand for withdrawal, attachment of property by creditors, suspension of
payments by debtors, and the 26 September 1962 SEC order enjoining SCAC from soliciting and receiving deposits.
11. On dissolution: The case should be remanded to the CFI as held in Veraguth v. Isabela Sugar

HELD:
1. SCAC is a bank/banking institution as it engaged in banking activities
 Even if Respondents deny that SCAC is engaged in banking operations, it is conceded 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 P 1,689,136.74, which has been lent out to such
persons as the corporation deemed suitable.
o It is clear that these transactions partake of the nature of banking as defined under Sec. 2 of RA 337.
 A bank has been identified as: “x x x a moneyed institute founded to facilitate the borrowing, lending and
safekeeping of money and to deal, in notes, bills of exchange, and credits.” (citations omitted)
 It has been held that:
o “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. v.
Murray)
o “x x x 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
v. State)
 Thus, SCAC violated the law by engaging in banking without securing the administrative authority required in RA 337.

2. SCAC should be dissolved

 “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.”
 As regards Respondents’ argument that the case should be remanded to the CFI, the SC held that it is vested with
original jurisdiction, concurrently with CFIs, to hear and decide quo warranto cases.
o Thus, it lies within SC’s discretion to entertain the instant case or to require that the issues be taken up in the
civil case filed by Respondents in CFI Manila.
 The Veraguth case cited by Respondents is inapplicable to the instant case because there were issues of fact therein
that required the presentation of evidence.
o In the case at bar, there is no dispute as to the principal facts; the man issue here is one of law
o “For this reason, and because public interest demands an early disposition of the case, we have deemed it
best to determine the merits thereof.”

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