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104720

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Republic of the Philippines

THIRD DIVISION

G.R. No. 104720 April 4, 2001

PILIPINAS LOAN COMPANY, INC., petitioner,

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision2 of the Court of
Appeals in CA-G.R. SP No. 25782 entitled "Pilipinas Loan Company, Inc. vs. Honorable Securities and Exchange
Commission and Filipinas Pawnshop, Inc." dated October 31, 1991 and Resolution dated March 19, 1992 which
denied the motion for reconsideration of herein petitioner Pilipinas Loan Company, Inc. (petitioner).

Private respondent Filipinas Pawnshop, Inc. (private respondent) is a duly organized corporation registered with the
Securities and Exchange Commission (SEC) on February 9, 1959 with its principal place of business located along
Pedro Gil St Paco, Metro Manila. The articles of incorporation of private respondent states that its primary purpose
is to extend loans at legal interest on the security of either personal properties or on the security of real properties,
and to finance installment sales of motor vehicles, home appliances and other chattels.

Petitioner is a lending corporation duly registered with the SEC on July 27, 1989 with some of its places of business
located along Pedro Gil, Sta. Ana, Manila and Onyx St., cor. Augusto Francisco St., San Andres, Paco, Manila.
Based on its articles of incorporation, the primary purpose of petitioner is:

"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.

On October 18, 1990, petitioner filed its Comment/Answer questioning the power of the SEC to take cognizance of
the complaint involving (1) a supposed violation of the Pawnshop Regulations Act which is more properly within the
jurisdiction of the Central Bank; and (2) the determination of whether a corporate name is confusingly similar to
another which is within the jurisdiction of the regular courts. Petitioner denied that it is engaged in the pawnshop
business, alleging that it is a lending investor duly registered with the Central Bank.

On October 18, 1991, private respondent filed its reply to the Comment/Answer.

On April 8, 1991, the PED of the SEC issued an Order directing petitioner to amend its articles of incorporation by
changing the word "Pilipinas" in its corporate name, and to cease and desist from further engaging in the business
of pawnshop or "sanglaan".

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On August 13, 1991, the SEC en banc rendered a Decision affirming with modification the aforementioned Order.
The Decision ordered petitioner to (1) amend its articles of incorporation by deleting the word "pledge" in its primary
purpose and the word "Pilipinas" as part of its corporate name and substituting another word in lieu thereof within
fifteen (15) days from receipt of the decision; and (2) 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.

Aggrieved, petitioner filed a petition for review before the Court of Appeals docketed as CA G.R. SP No. 25782.

On October 31, 1991 the Court of Appeals rendered a Decision affirming with modification the decision of the SEC.
The dispositive portion of the now assailed decision reads:

"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.

Hence, this petition for review anchored on these grounds:

"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.

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

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.

In upholding the jurisdiction of the SEC, the Court of Appeals ruled that there is nothing in PD 114 that grants
exclusively to the Central Bank the authority to determine if there has been a violation of said decree. Petitioner
insists that this interpretation is erroneous on the ground that it runs counter to the time-honored maxim of expressio
unius est exclusio alterius. The express and specific mention of the Central Bank in PD 114 allegedly implies the
exclusion of other governmental agencies from making a determination of violations of the provisions of said decree.
In support of its argument, petitioner cites Section 17 of PD 114 that provides:

"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.

The petition is without merit.

Petitioner conjures a supposed conflict of jurisdiction between the Central Bank and the SEC by insisting that it is
only the Central Bank that has jurisdiction over violations of PD 114. The argument is misplaced. Basic is the rule
that it is the allegations in the complaint that vests jurisdiction.5 A case in point is Philippine Woman’s Christian

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Temperance Union, Inc. vs. Abiertas House of Friendship, Inc.6 wherein we held that when the thrust of a complaint
is on the ultra vires act of a corporation, that is the complained act of a corporation is contrary to its declared
corporate purposes, the SEC has jurisdiction to entertain the complaint before it.

It must be recalled that the complaint of private respondent alleged that the articles of incorporation of petitioner
contained this prohibition: "without, however, engaging in pawnbroking as defined in PD 114" and despite this
restriction, petitioner allegedly continued to actually operate and do business as a pawnshop. The complaint thus
treats of a violation of petitioner’s primary franchise. Section 5 of PD 114, the same law invoked by petitioner,
mandates that a corporation desiring to engage in the pawnshop business must first register with the SEC. Without
question, the complaint filed by private respondent against petitioner called upon the SEC to exercise its
adjudicatory and supervisory powers. By law, the SEC has absolute jurisdiction, supervision and control over all
corporations that are enfranchised to act as corporate entities.7 A violation by a corporation of its franchise is
properly within the jurisdiction of the SEC.

A corporation, under the Corporation Code, has only such powers as are expressly granted to it by law and by its
articles of incorporation,8 those which may be incidental to such conferred powers, those reasonably necessary to
accomplish its purposes and those which may be incident to its existence.9 In the case at bar, the limit of the powers
of petitioner as a corporation is very clear, it is categorically prohibited from "engaging in pawnbroking as defined
under PD 114". Hence, in determining what constitutes pawnbrokerage, the relevant law to consider is PD 114. This
reference to PD 114 is also in line with Article 2123 of the Civil Code that states that:

"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.

Jurisprudence has laid down the principle that it is the certificate of incorporation that gives juridical personality to a
corporation and places it within SEC jurisdiction.10 The case of Orosa, Jr. vs. Court of Appeals11 teaches that this
jurisdiction of the SEC is not affected even if the authority to operate a certain specialized activity is withdrawn by
the appropriate regulatory body other than the SEC. With more reason that we cannot sustain the submission of
petitioner that a declaration by the Central Bank that it violated PD 114 is a condition precedent before the SEC can
take cognizance of the complaint against petitioner.

Aside from the supervision and control powers granted by Section 3 of PD 902-A to the SEC, Section 5 thereof
provides that:

"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:

‘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)

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) 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.

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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:

‘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;

1. 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;’

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)

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.

Petitioner bewails the alleged violation of substantive due process when the SEC rendered the assailed decision
based on evidence which petitioner claims it did not receive. The SEC allegedly reached the conclusion that
petitioner is engaged in pawnshop activities based on the photographs attached by private respondent to its position
paper. The photographs in question show that petitioner used a billboard with the inscription "SANGLAAN" in front of
its office. Petitioner however claims that it was not furnished a copy of the position paper of private respondent and
that these photographs were not presented during the hearing before the PED. Except for said photographs,
petitioner points out that private respondent did not adduce any other evidence to substantiate its claim that
petitioner is engaged in pawnshop activities. Petitioner asserts that the photographs cannot be considered as
substantial evidence.

We are not persuaded. Due process is not necessarily tantamount to a full-blown trial. The essence of due process
is simply the opportunity to be heard or as applied to administrative proceedings, an opportunity to explain one’s
side or an opportunity to seek a reconsideration of the ruling or action taken.14 The records of this case show that
petitioner was accorded every opportunity to be heard during the conference before the PED wherein the parties
were required to file their position papers, and on appeal before the SEC en banc.

Contrary to the claim of petitioner, the Court of Appeals found that the evidence presented by private respondent
was duly appended to the position paper submitted to the PED and to the SEC en banc. Assuming arguendo that
petitioner was not furnished a copy of the photographs, it is now too late in the day for petitioner to raise this matter
before us when it could have submitted this issue before the hearing officer and the SEC en banc. The records fail
to support petitioner’s insistence that it raised this issue before the SEC. In its appeal before the SEC, petitioner
merely harped on the fact that in ruling for private respondent, the hearing officer relied only on the photographs
without mentioning that petitioner did not receive a copy of said photographs. Plainly then, the SEC could not have
addressed this issue for the simple reason that it was not duly informed of this matter, a situation which was
petitioner’s own making.

We reject petitioner’s claim that the SEC relied solely on the photographs in reaching the conclusion that petitioner
is engaged in pawnshop activities. Aside from the questioned photographs, other evidence such as affidavits of the
past customers of petitioner and the supposed "promissory note" between petitioner and its customers were also
submitted to the SEC. The SEC and the Court of Appeals were one in ruling that the so-called "promissory note"
was more of a pawn ticket than an instrument of indebtedness. We see no cogent reason to set aside the factual

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findings of the SEC, also upheld by the Court of Appeals, based on the settled rule that the findings of fact of the
SEC must be respected as long as they are supported by substantial evidence, as in this case.15

The Court of Appeals appreciated the entire evidence, consisting of the affidavits, the promissory note and
photographs, in this manner:

"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:

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.

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.

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.

xxx xxx xxx"16

Thus, the totality of the evidence substantially establishes the conclusion that petitioner contravened its articles of
incorporation when it held itself out to the public as a pawnshop.

WHEREFORE, in view of the foregoing, the petition is DENIED. Costs against petitioner.

SO ORDERED.

Melo (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

Footnotes
1
This case was re-raffled to herein ponente pursuant to this Court’s Resolution in A.M. No. 00-9-03-SC dated
February 27, 2001.

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2
Per Associate Justice Celso L. Magsino, concurred in by Associate Justices Artemon D. Luna and Jainal D.
Rasul, Special Seventh Division.
3
Rollo, p. 47.
4
Ibid., pp. 18-19.

5 FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, VOL. I, 7th REV. ED., p. 9.

6 292 SCRA 785 (1998).

7 See Section 3 of PD No. 902-A.

8 Corporation Code, Sec. 45.

9 Ibid., Sec. 2.

10
Orosa vs. Court of Appeals, 193 SCRA 391 (1991), p. 396.
11
Ibid.
12
Ibid., p. 397.
13
Rollo, p. 43.
14
Villareal vs. Court of Appeals, 219 SCRA 293 (1993), p. 301.
15
Ibid., p. 300.
16
Rollo, p. 46.

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