408 Phil. 291
GONZAGA-REYES, J.:
"To act as a lending investor or, otherwise, to engage in the practice of lending money or extending loans on the security of real or personal, tangible or intangible properties whether as pledge, real or chattel mortgage or otherwise, xxx without however, engaging in pawnbroking as defined under PD 114."On September 11, 1990, private respondent filed a complaint against petitioner with the Prosecution and Enforcement Department (PED) of the SEC docketed as PED CASE No. 90-0737. The complaint alleged that: (1) petitioner, contrary to the restriction set by the Commission, has been operating and doing business as a pawnbroker, pawnshop or "sanglaan" in the same neighborhood where private respondent has had its own pawnshop for 30 years in violation of its primary purpose and without the imprimatur of the Central Bank to engage in the pawnshop business thereby causing unjust and unfair competition with private respondent; and (2) the business name of petitioner, "PILIPINAS" Loan, bears similarity in spelling and phonetics with the corporate name of private respondent, "FILIPINAS" Pawnshop, creating constant confusion in the minds of the public and the customers of private respondent. In the same complaint, private respondent urged the SEC to: (1) order petitioner to change its business name, Pilipinas Loan, and cease from using it in the near future; (2) order Pilipinas Loan to cease and desist from engaging in the business of pawnbroking as defined under PD No. 114; and (3) impose upon the director, officers, employees or persons responsible such penalties as may be proper under the law.
"WHEREFORE, premises considered, the decision appealed from is hereby modified, setting aside that portion ordering petitioner to amend its articles of incorporation by deleting the word "pledge" in its primary purposes and the word "Pilipinas" as part of its corporate name. However, petitioner Pilipinas Loan Co., Inc., its directors, officers agents or other persons acting in its behalf are forthwith ordered to CEASE AND DESIST from further engaging in business as a pawnshop or "pawnbroker" or "sanglaan" as defined in Presidential Decree No. 114, otherwise known as the Pawnshop Regulation Act until the proper license shall have been secured from the Central Bank of the Philippines. In all other respects, the decision is affirmed."[3]On March 19, 1992, the Court of Appeals issued a Resolution denying the motion for reconsideration filed by petitioner.
"1. Respondent Court of Appeals gravely erred in not holding that the determination by the Central Bank of alleged violation of PD No. 114 is a condition precedent to the exercise by respondent Securities and Exchange Commission of its regulatory power over petitioner.While petitioner concedes that the SEC has jurisdiction to determine whether the condition or restriction in the articles of incorporation of a corporation has been violated, petitioner disputes the authority of the SEC to determine whether a registered entity is violating PD 114. Petitioner maintains that PD 114 vests this authority solely in the Central Bank.
2. Respondent Court of Appeals gravely erred in not ruling that the finding by respondent SEC is not supported by substantial evidence and that petitioner was denied of its right to due process.
3. Respondent Court of Appeals erred in holding that the activities of petitioner constitute pawnbroking."[4]
"Section 17. Grant of authority to the Central Bank. The Central Bank is hereby authorized (a) to issue rules and regulations to implement the provisions contained therein; (b) to require from pawnshops reports of condition and such other reports necessary to determine compliance with the provisions of this Decree; (c) to exercise visitorial powers whenever deemed necessary; (d) to impose such administrative sanctions including the imposition of fines for violations of this Decree and regulations issued by the Central Bank in pursuance thereto."Petitioner points out that in the enforcement of PD 114, the Central Bank is possessed with investigatory or inquisitorial powers which include the power to inspect, or to secure, or to require the disclosure of information by means of accounts, records, reports, statements, testimony of witnesses, production of documents, etc. Allegedly, it is only after the Central Bank has made a determination of whether petitioner is engaged in pawnbroking that the SEC can exercise its regulatory powers over petitioner. Petitioner thus insists that the jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such entities. The SEC allegedly cannot arrogate unto itself the power to look into violations of PD 114 when such power rests solely with the Central Bank.
"Art. 2123. With regard to pawnshops and other establishments, which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions of this Title."Indispensable therefore to the determination of whether or not petitioner had violated its articles of incorporation, was an inquiry by the SEC if petitioner was holding out itself to the public as a pawnshop. It must be stressed that the determination of whether petitioner violated PD 114 was merely incidental to the regulatory powers of the SEC, to see to it that a corporation does not go beyond the powers granted to it by its articles of incorporation.
"Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive *jurisdiction to hear and decide cases involving:Clearly, the recital in the complaint of private respondent that petitioner is engaged in the pawnshop business when it is not authorized to do so by its articles of incorporation amounts to fraud, detrimental not only to the corporation but also to the stockholders and the public. The relationship involved in this controversy is a category of relationship over which the SEC has exclusive jurisdiction, thus:`a) Devices and schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the commission'". (Emphasis ours)
"(a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves".[12]We agree with the Court of Appeals that petitioner cannot invoke the jurisdiction of the Central Bank in view of its own avowal that it is not a pawnshop and neither is it engaged in the business as a pawnshop. The Court of Appeals correctly ruled that:
"It must be noted that upon close scrutiny, PD No. 114 provides that the supervisory powers of the Central Bank extends merely to pawnshops registered with it in accordance with Sec. 6 of the same law. In connection with this, we take judicial notice of the Rules and Regulations for Pawnshops (CB Circular No. 374) enacted pursuant to the authority given to the Central Bank to issue rules and regulations to implement the provisions of PD 114, where it provides the following:The mere fact that a portion of the SEC decision stated that copies of the same be furnished the Central Bank does not necessarily mean that the SEC recognized the jurisdiction of the Central Bank over PD 114 violations. Obviously, the SEC had already assumed jurisdiction over the case and had in fact disposed of it, the transmission of a copy of said decision to the Central Bank was mainly to apprise the latter of the disposition of the case so that it may accordingly act on it.
`Sec. 11. Powers of Pawnshop.- A duly organized and licensed pawnshop has, in general, the power to engage in the business of lending money on the security of personal property within the framework and limitations of PD No. 114 and this circular, subject to the regulatory and supervisory powers of the Central Bank.
`Sec. 36. Examination, Inspection, or Investigation. - The official of the Central Bank in charge of non-bank financial intermediary and his duly designated representatives are hereby authorized to conduct an examination, inspection, or investigation of books, records, business affairs, administration, and financial condition of any pawnshop, whenever said official deems it necessary for the effective implementation of Presidential Decree No. 114 and of this Circular. xxx'
Furthermore, under CB Circular No. 381 providing for the Procedure For Processing Complaints Against Pawnshops, it is provided that:
`The Monetary Board, Central Bank of the Philippines, pursuant to its Chapter and Presidential Decree No. 114, entitled, The Pawnshop Regulation Act, has promulgated the following procedures for processing complaints against pawnshops;The foregoing must have also impelled Director Olaso of the Central Bank to send private respondent a reply letter (Exh. C) apprising it that only over pawnshops, and not lending institutions, does the Central Bank exercise supervisory powers. Considering that petitioner is admittedly not a registered pawnshop operator, any complaint filed against it is not cognizable by the Central Bank."[13] (Emphasis supplied)
- Complaints against pawnshops must be filed with the Office of Non Bank Financial Intermediaries (ONBFI), Central Bank of the Philippines, in writing and signed under oath by the complainant;'
"A careful examination and analysis of the records of this case indicates that petitioner has indeed engaged in the business of pawnbroking. It is not argued that petitioner do (sic) lend money on the security of personal property. What must be observed though are the very prominent words "SANGLAAN" found on its billboards (Exhs. F and G) which cannot but give the impression to the public that its establishment is more of a pawnshop than a lending institution servicing different kinds of loans. The word "SANGLAAN", especially in big cities, have come to be associated with pawnshops and it denotes the idea of a place where one presents personal property for a loan, which is the exclusive domain of a pawnshop. Thus, the use of such word by petitioner was more calculated to attract customers who will acquire loans on the security of personal properties alone. That this activity is in fact undertaken can be readily deduced from the graphic and unmistakable set-up (Exhs. J and K) of petitioner's place of business which is a picture of a typical pawnshop where a person transacts through small glass openings labeled `sangla' and `tubos'. Moreover, the supposed "promissory note" evidencing a customer's transaction with petitioner, is more of a pawnticket than what it represents. We hereby quote with approval the argument advanced by private respondent on this point."1. The contents of the `pawnshop tickets' issued by respondent PILIPINAS LOAN as "promissory notes" are basically pawnshop tickets which as provided in the Pawnshop Regulation Act, PD No. 114 are the following:2. The only document required to be executed by the customers (pawners) of respondent Pilipinas Loan is the aforesaid "Promissory Loan", which is the only document also commonly required in pawnshops or "sanglaan"; whereas genuine lending investors require a set of documents xxx.
a) Name and residence of the pawner; b) Date when loan is granted; c) Amount of the principal loan; d) Interest rate in percentage; e) Period of maturity; f) Description of the pawn g) Signature of the pawnbroker or his authorized representative; h) Signature of the pawner; and i) Other terms and conditions.
3. The respondent Pilipinas Loan always takes possession of the "pawn" or articles pawned to secure the loan; whereas, if it is truly operating as a Lending Investor it does not have to take possession of the article pledged or mortgaged because the borrower's capacity to pay is established, normally with a co-maker.