BETTY GABIONZA and G.R. No. 161057

ISABELITA TAN,Petitioners,Present: QUISUMBING, J.Chairperson,- versus - CARPIO MORALES,TINGA,VELASCO, JR., andCOURT OF APPEALS, LUKE BRION, JJ.ROXAS and EVELYN NOLASCO,Respondents. Promulgated: September 12, 2008 x ---------------------------------------------------------------------------------x  D E C I S I O N TINGA, J.:

On 21 August 2000, petitioners Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed their respective

Complaints-affidavit[1] charging private respondents Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with several

criminal acts. Roxas was the president of ASB Holdings, Inc. (ASBHI) while Nolasco was the senior vice president

and treasurer of the same corporation.

 

According to petitioners, ASBHI was incorporated in 1996 with its declared primary purpose to invest in any

and all real and personal properties of every kind or otherwise acquire the stocks, bonds, and other securities or

evidence of indebtedness of any other corporation, and to hold or own, use, sell, deal in, dispose of, and turn to

account any such stocks.[2] ASBHI was organized with an authorized capital stock of P500,000.00, a fact reflected in

the corporations articles of incorporation, copies of which were appended as annexes to the complaint.[3]

 

Both petitioners had previously placed monetary investment with the Bank of Southeast Asia (BSA). They alleged

that between 1996 and 1997, they were convinced by the officers of ASBHI to lend or deposit money with the

corporation. They and other investors were urged to lend, invest or deposit money with ASBHI, and in return they

would receive checks from ASBHI for the amount so lent, invested or deposited. At first, they were issued

receipts reflecting the name ASB Realty Development which they were told was the same entity as BSA or was

connected therewith, but beginning in March 1998, the receipts were issued in the name of ASBHI. They claimed that

they were told that ASBHI was exactly the same institution that they had previously dealt with.[4]

 

ASBHI would issue two (2) postdated checks to its lenders, one representing the principal amount and the other

covering the interest thereon. The checks were drawn against DBS Bank and would mature in 30 to 45 days. On the

maturity of the checks, the individual lenders would renew the loans, either collecting only the interest earnings or

rolling over the same with the principal amounts.[5]

 

In the first quarter of 2000, DBS Bank started to refuse to pay for the checks purportedly by virtue of stop payment

orders from ASBHI. In May of 2000, ASBHI filed a petition for rehabilitation and receivership with the Securities and

Exchange Commission (SEC), and it was able to obtain an order enjoining it from paying its outstanding liabilities.

[6]This series of events led to the filing of the complaints by petitioners, together with Christine Chua, Elizabeth Chan,

Ando Sy and Antonio Villareal, against ASBHI.[7] The complaints were for estafa under Article 315(2)(a) and (2)(d) of

the Revised Penal Code, estafa under Presidential Decree No. 1689, violation of the Revised Securities Act and

violation of the General Banking Act.

 

A special task force, the Task Force on Financial Fraud (Task Force), was created by the Department of Justice

(DOJ) to investigate the several complaints that were lodged in relation to ASBHI. [8] The Task Force, dismissed the

complaint on 19 October 2000, and the dismissal was concurred in by the assistant chief state prosecutor and

approved by the chief state prosecutor.[9] Petitioners filed a motion for reconsideration but this was denied in February

2001.[10] With respect to the charges of estafa under Article 315(2) of the Revised Penal Code and of violation of the

Revised Securities Act (which form the crux of the issues before this Court), the Task Force concluded that the

subject transactions were loans which gave rise only to civil liability; that petitioners were satisfied with the

arrangement from 1996 to 2000; that petitioners never directly dealt with Nolasco and Roxas; and that a check was

not a security as contemplated by the Revised Securities Act.

 

Petitioners then filed a joint petition for review with the Secretary of Justice. On 15 October 2001, then

Secretary Hernando Perez issued a resolution which partially reversed the Task Force and instead directed the filing

of five (5) Informations for estafa under Article 315(2)(a) of the Revised Penal Code on the complaints of  Chan and

petitioners Gabionza and Tan, and an Information for violation of Section 4 in relation to Section 56 of the Revised

Securities Act.[11] Motions for reconsideration to this Resolution were denied by the Department of Justice in a

Resolution dated 3 July 2002.[12]

 

Even as the Informations were filed before the Regional Trial Court of Makati City, private respondents assailed the

DOJ Resolution by way of a certiorari petition with the Court of Appeals. In its assailed Decision [13] dated 18 July

2003, the Court of Appeals reversed the DOJ and ordered the dismissal of the criminal cases. The dismissal was

sustained by the appellate court when it denied petitioners motion for reconsideration in a Resolution dated 28

November 2003.[14] Hence this petition filed by Gabionza and Tan.

 

The Court of Appeals deviated from the general rule that accords respect to the discretion of the DOJ in the

determination of probable cause. This Court consistently adheres to its policy of non-interference in the conduct of

preliminary investigations, and to leave to the investigating prosecutor sufficient latitude of discretion in the

determination of what constitutes sufficient evidence to establish probable cause for the filing of an information

against a supposed offender.[15]

 

At the outset, it is critical to set forth the key factual findings of the DOJ which led to the conclusion that probable

cause existed against the respondents. The DOJ Resolution states, to wit:

 The transactions in question appear to be mere renewals of the loans the complainant-petitioners earlier granted to BSA. However, just after they agreed to renew the loans, the ASB agents who dealt with them issued to them receipts indicating that the borrower was ASB Realty, with the representation that it was the same entity as BSA or connected therewith. On the strength of this representation, along with other claims relating to the status of ASB and its supposed financial capacity to meet obligations, the complainant-petitioners acceded to lend the funds to ASB Realty instead. As it turned out, however, ASB had in fact no financial capacity to repay the loans as it had an authorized capital stock of only P500,000.00 and paid up capital of onlyP125,000.00. Clearly, the representations regarding its supposed financial capacity to meet its obligations to the complainant-petitioners were simply false. Had they known that ASB had in fact no such financial capacity, they would not have invested millions of pesos. Indeed, no person in his proper frame of mind would venture to lend millions of pesos to a business entity having such a meager capitalization. The fact that the complainant-petitioners might have benefited from its earlier dealings with ASB, through interest earnings on their previous loans, is of no moment, it appearing that they were not aware of the fraud at those times they renewed the loans. The false representations made by the ASB agents who dealt with the complainant-petitioners and who inveigled them into investing their funds in ASB are properly imputable to respondents Roxas and Nolasco, because they, as ASBs president and senior vice president/treasurer, respectively, in charge of its operations, directed its agents to make the false representations to the public, including the complainant-petitioners, in order to convince them to invest their moneys in ASB. It is difficult to make a different conclusion, judging from the fact that respondents Roxas and Nolasco authorized and accepted for ASB the fraud-induced loans. This makes them liable for estafa under Article 315 (paragraph 2 [a]) of the Revised Penal Code. They cannot escape criminal liability on the ground that they did not personally deal with the complainant-petitioners in regard to the transactions in question. Suffice it to state that to commit a crime, inducement is as sufficient and effective as direct participation.[16]

  

Notably, neither the Court of Appeals decision nor the dissent raises any serious disputation as to the occurrence of

the facts as narrated in the above passage. They take issue instead with the proposition that such facts should result

in a prima facie case against either Roxas or Nolasco, especially given that neither of them engaged in any face-to-

face dealings with petitioners. Leaving aside for the moment whether this assumed remoteness of private

respondents sufficiently insulates them from criminal liability, let us first discern whether the above-stated findings do

establish a prima facie case that petitioners were indeed the victims of the crimes of estafa under Article 315(2)(a) of

the Revised Penal Code and of violation of the Revised Securities Act.

 

Article 315(2)(a) of the Revised Penal Code states:

 ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means

mentioned herein below shall be punished by:xxx xxx xxx 

(2) By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneous with the commission of the fraud: 

(a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits;

 xxx xxx xxx

   

The elements of estafa by means of deceit as defined under Article 315(2)(a) of the Revised Penal Code are

as follows: (1) that there must be a false pretense, fraudulent act or fraudulent means; (2) that such false pretense,

fraudulent act or fraudulent means must be made or executed prior to or simultaneously with the commission of the

fraud; (3) that the offended party must have relied on the false pretense, fraudulent act or fraudulent means, that is,

he was induced to part with his money or property because of the false pretense, fraudulent act or fraudulent means;

and (4) that as a result thereof, the offended party suffered damage.[17]

 

Do the findings embodied in the DOJ Resolution align with the foregoing elements of estafa by means of

deceit? 

First. The DOJ Resolution explicitly identified the false pretense, fraudulent act or fraudulent means

perpetrated upon the petitioners. It narrated that petitioners were made to believe that ASBHI had the financial

capacity to repay the loans it enticed petitioners to extend, despite the fact that it had an authorized capital stock of

onlyP500,000.00 and paid up capital of only P125,000.00.[18] The deficient capitalization of ASBHI is evinced by its

articles of incorporation, the treasurers affidavit executed by Nolasco, the audited financial statements of the

corporation for 1998 and the general information sheets for 1998 and 1999, all of which petitioners attached to their

respective affidavits.[19]

 

The Court of Appeals conceded the fact of insufficient capitalization, yet discounted its impact by noting that

ASBHI was able to make good its loans or borrowings from 1998 until the first quarter of 2000.[20] The short-lived

ability of ASBHI, to repay its loans does not negate the fraudulent misrepresentation or inducement it has

undertaken to obtain the loans in the first place. The material question is not whether ASBHI inspired exculpatory

confidence in its investors by making good on its loans for a while, but whether such investors would have extended

the loans in the first place had they known its true financial setup. The DOJ reasonably noted that no person in his

proper frame of mind would venture to lend millions of pesos to a business entity having such a meager

capitalization. In estafa under Article 315(2)(a), it is essential that such false statement or false representation

constitute the very cause or the only motive which induces the complainant to part with the thing.[21]

 

Private respondents argue before this Court that the true capitalization of ASBHI has always been a matter

of public record, reflected as it is in several documents which could be obtained by the petitioners from the SEC.

[22] We are not convinced. The material misrepresentations have been made by the agents or employees of ASBHI to

petitioners, to the effect that the corporation was structurally sound and financially able to undertake the series of loan

transactions that it induced petitioners to enter into. Even if ASBHIs lack of financial and structural integrity is

verifiable from the articles of incorporation or other publicly available SEC records, it does not follow that the crime of

estafa through deceit would be beyond commission when precisely there are bending representations that the

company would be able to meet its obligations. Moreover,respondents argument assumes that there is legal

obligation on the part of petitioners to undertake an investigation of ASBHI before agreeing to provide the

loans. There is no such obligation. It is unfair to expect a person to procure every available public record concerning

an applicant for credit to satisfy himself of the latters financial standing. At least, that is not the way an average

person takes care of his concerns.

 

Second. The DOJ Resolution also made it clear that the false representations have been made to petitioners

prior to or simultaneously with the commission of the fraud.The assurance given to them by ASBHI that it is a worthy

credit partner occurred before they parted with their money. Relevantly, ASBHI is not the entity with whom petitioners

initially transacted with, and they averred that they had to be convinced with such representations that Roxas and the

same group behind BSA were also involved with ASBHI.

 

 

 

Third. As earlier stated, there was an explicit and reasonable conclusion drawn by the DOJ that it was the

representation of ASBHI to petitioners that it was creditworthy and financially capable to pay that induced petitioners

to extend the loans. Petitioners, in their respective complaint-affidavits, alleged that they were enticed to extend the

loansupon the following representations: that ASBHI was into the very same activities of ASB Realty Corp., ASB

Development Corp. and ASB Land, Inc., or otherwise held controlling interest therein; that ASB could legitimately

solicit funds from the public for investment/borrowing purposes; that ASB, by itself, or through the corporations

aforestated, owned real and personal properties which would support and justify its borrowing program; that ASB was

connected with and firmly backed by DBS Bank in which Roxas held a substantial stake; and ASB would, upon

maturity of the checks it issued to its lenders, pay the same and that it had the necessary resources to do so.[23]

 

Fourth. The DOJ Resolution established that petitioners sustained damage as a result of the acts

perpetrated against them. The damage is considerable as to petitioners.Gabionza lost P12,160,583.32 whereas Tan

lost 16,411,238.57.[24] In addition, the DOJ Resolution noted that neither Roxas nor Nolasco disputed that ASBHI had

borrowed funds from about 700 individual investors amounting to close to P4B.[25]

 

 

To the benefit of private respondents, the Court of Appeals ruled, citing Sesbreno v. Court of Appeals,[26] that

the subject transactions are akin to money market placements which partake the nature of a loan, the non-payment of

which does not give rise to criminal liability for estafa. The citation is woefully misplaced.  Sesbreno affirmed that a

money market transaction partakes the nature of a loan and therefore nonpayment thereof would not give rise to

criminal liability for estafa through misappropriation or conversion.[27] Estafa through misappropriation or

conversion is punishable under Article 315(1)(b), while the case at bar involves Article 315 (2)(a), a mode of

estafa by means of deceit. Indeed, Sesbreno explains: In money market placement, the investor is a lender who

loans his money to a borrower through a middleman or dealer. Petitioner here loaned his money to a borrower

through Philfinance. When the latter failed to deliver back petitioner's placement with the corresponding interest

earned at the maturity date, the liability incurred by Philfinance was a civil one. [28] That rationale is wholly irrelevant to

the complaint at bar, which centers not on the inability of ASBHI to repay petitioners but on the fraud and

misrepresentation committed by ASBHI to induce petitioners to part with their money. 

To be clear, it is possible to hold the borrower in a money market placement liable for estafa if the creditor

was induced to extend a loan upon the false or fraudulent misrepresentations of the borrower. Such estafa is one by

means of deceit. The borrower would not be generally liable for estafa through misappropriation if he or she fails to

repay the loan, since the liability in such instance is ordinarily civil in nature.

 

We can thus conclude that the DOJ Resolution clearly supports a prima facie finding that the crime of estafa

under Article 315 (2)(a) has been committed against petitioners. Does it also establish a prima facie finding that there

has been a violation of the then-Revised Securities Act, specifically Section 4 in relation to Section 56 thereof?

Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act, generally requires the registration of

securities and prohibits the sale or distribution of unregistered securities. [29] The DOJ extensively concluded that

private respondents are liable for violating such prohibition against the sale of unregistered securities:

 Respondents Roxas and Nolasco do not dispute that in 1998, ASB borrowed funds about

700 individual investors amounting to close to P4 billion, on recurring, short-term basis, usually 30 or 45 days, promising high interest yields, issuing therefore mere postdate checks. Under the circumstances, the checks assumed the character of evidences of indebtedness, which are among the securities mentioned under the Revised Securities Act. The term securities embodies a flexible rather than static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek to use the money of others on the promise of profits (69 Am Jur 2d, p. 604). Thus, it has been held that checks of a debtor received and held by the lender also are evidences of indebtedness and therefore securities under the Act, where the debtor agreed to pay interest on a monthly basis so long as the principal checks remained uncashed, it being said that such principal extent as would have promissory notes payable on demand (Id., p. 606, citing Untied States v. Attaway (DC La) 211 F Supp 682). In the instant case, the checks were issued by ASB in lieu of the securities enumerated under the Revised Securities Act in a clever attempt, or so they thought, to take the case out of the purview of the law, which requires prior license to sell or deal in securities and registration thereof. The scheme was to designed to circumvent the law. Checks constitute mere substitutes for cash if so issued in payment of obligations in the ordinary course of business transactions. But when they are issued in exchange for a big number of individual non-personalized loans solicited from the public, numbering about 700 in this case, the checks cease to be such. In such a circumstance, the checks assume the character of evidences of indebtedness. This is especially so where the individual loans were not evidenced by appropriate debt instruments, such as promissory notes, loan agreements, etc., as in this case. Purportedly, the postdated checks themselves serve as the evidences of the indebtedness. A different rule would open the floodgates for a similar scheme, whereby companies without prior license or authority from the SEC. This cannot be countenanced. The subsequent repeal of the Revised Securities Act does not spare respondents Roxas and Nolasco from prosecution thereunder, since the repealing law, Republic Act No. 8799 known as the Securities Regulation Code, continues to punish the same offense (see Section 8 in relation to Section 73, R.A. No. 8799).[30]

 

 

The Court of Appeals however ruled that the postdated checks issued by ASBHI did not constitute a security

under the Revised Securities Act. To support this conclusion, it cited the general definition of a check as a bill of

exchange drawn on a bank and payable on demand, and took cognizance of the fact that the issuance of checks for

the purpose of securing a loan to finance the activities of the corporation is well within the ambit of a valid corporate

act to note that a corporation does not need prior registration with the SEC in order to be able to issue a check, which

is a corporate prerogative.

 

This analysis is highly myopic and ignorant of the bigger picture. It is one thing for a corporation to issue

checks to satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme where

it would comport itself to the public as a pseudo-investment house and issue postdated checks instead of stocks or

traditional securities to evidence the investments of its patrons. The Revised Securities Act was geared towards

maintaining the stability of the national investment market against activities such as those apparently engaged in by

ASBHI. As the DOJ Resolution noted, ASBHI adopted this scheme in an attempt to circumvent the Revised

Securities Act, which requires a prior license to sell or deal in securities. After all, if ASBHIs activities were actually

regulated by the SEC, it is hardly likely that the design it chose to employ would have been permitted at all.  

But was ASBHI able to successfully evade the requirements under the Revised Securities Act? As found by

the DOJ, there is ultimately a prima facie case that can at the very least sustain prosecution of private respondents

under that law. The DOJ Resolution is persuasive in citing American authorities which countenance a flexible

definition of securities. Moreover, it bears pointing out that the definition of securities set forth in Section 2 of the

Revised Securities Act includes commercial papers evidencing indebtedness of any person, financial or non-financial

entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another.[31] A check

is a commercial paper evidencing indebtedness of any person, financial or non-financial entity. Since the checks in

this case were generally rolled over to augment the creditors existing investment with ASBHI, they most definitely

take on the attributes of traditional stocks.  

We should be clear that the question of whether the subject checks fall within the classification of securities

under the Revised Securities Act may still be the subject of debate, but at the very least, the DOJ Resolution has

established a prima facie case for prosecuting private respondents for such offense. The thorough determination of

such issue is best left to a full-blown trial of the merits, where private respondents are free to dispute the theories set

forth in the DOJ Resolution. It is clear error on the part of the Court of Appeals to dismiss such finding so perfunctorily

and on such flimsy grounds that do not consider the grave consequences. After all, as the DOJ Resolution correctly

pointed out: [T]he postdated checks themselves serve as the evidences of the indebtedness. A different rule would

open the floodgates for a similar scheme, whereby companies without prior license or authority from the SEC.  This

cannot be countenanced.[32]

 

 

This conclusion quells the stance of the Court of Appeals that the unfortunate events befalling petitioners

were ultimately benign, not malevolent, a consequence of the economic crisis that beset the Philippines during that

era.[33] That conclusion would be agreeable only if it were undisputed that the activities of ASBHI are legal in the first

place, but the DOJ puts forth a legitimate theory that the entire modus operandi of ASBHI is illegal under the Revised

Securities Act and if that were so, the impact of the Asian economic crisis would not obviate the criminal liability of

private respondents.

 

Private respondents cannot make capital of the fact that when the DOJ Resolution was issued, the Revised

Securities Act had already been repealed by the Securities Regulation Code of 2000.[34] As noted by the DOJ, the

new Code does punish the same offense alleged of petitioners, particularly Section 8 in relation to Section 73 thereof.

The complained acts occurred during the effectivity of the Revised Securities Act. Certainly, the enactment of the new

Code in lieu of the Revised Securities Act could not have extinguished all criminal acts committed under the old law. 

In 1909-1910, the Philippine and United States Supreme Courts affirmed the principle that when the

repealing act reenacts substantially the former law, and does not increase the punishment of the accused, the

right still exists to punish the accused for an offense of which they were

convicted and sentenced before the passage of the later act.[35] This doctrine was reaffirmed as recently as 2001,

where the Court, through Justice Quisumbing, held inBenedicto v. Court of Appeals[36] that an exception to the rule

that the absolute repeal of a penal law deprives the court of authority to punish a person charged with violating the

old law prior to its repeal is where the repealing act reenacts the former statute and punishes the act previously

penalized under the old law.[37] It is worth noting that both the Revised Securities Act and the Securities Regulation

Code of 2000 provide for exactly the same penalty: a fine of not less than five thousand (P5,000.00) pesos nor more

than five hundred thousand (P500,000.00) pesos or imprisonment of not less than seven (7) years nor more than

twenty one (21) years, or both, in the discretion of the court.[38]

 

It is ineluctable that the DOJ Resolution established a prima facie case for violation of Article 315 (2)(a) of

the Revised Penal Code and Sections 4 in relation to 56 of the Revised Securities Act. We now turn to the critical

question of whether the same charges can be pinned against Roxas and Nolasco likewise.

 

The DOJ Resolution did not consider it exculpatory that Roxas and Nolasco had not themselves dealt

directly with petitioners, observing that to commit a crime, inducement is as sufficient and effective as direct

participation.[39] This conclusion finds textual support in Article 17[40] of the Revised Penal Code. The Court of Appeals

was unable to point to any definitive evidence that Roxas or Nolasco did not instruct or induce the agents of ASBHI to

make the false or misleading representations to the investors, including petitioners. Instead, it sought to acquit Roxas

and Nolasco of any liability on the ground that the traders or employees of ASBHI who directly made the dubious

representations to petitioners were never identified or impleaded as respondents.

 

It appears that the Court of Appeals was, without saying so, applying the rule in civil cases that all

indispensable parties must be impleaded in a civil action.[41] There is no equivalent rule in criminal procedure, and

certainly the Court of Appeals decision failed to cite any statute, procedural rule or jurisprudence to support its

position that the failure to implead the traders who directly dealt with petitioners is indeed fatal to the complaint.[42]

 

Assuming that the traders could be tagged as principals by direct participation in tandem with Roxas and

Nolasco the principals by inducement does it make sense to compel that they be jointly charged in the same

complaint to the extent that the exclusion of one leads to the dismissal of the complaint? It does not. Unlike in civil

cases, where indispensable parties are required to be impleaded in order to allow for complete relief once the case is

adjudicated, the determination of criminal liability is individual to each of the defendants. Even if the criminal court

fails to acquire jurisdiction over one or some participants to a crime, it still is able to try those accused over whom it

acquired jurisdiction. The criminal court will still be able to ascertain the individual liability of those accused whom it

could try, and hand down penalties based on the degree of their participation in the crime.

The absence of one or some of the accused may bear impact on the available evidence for the prosecution or

defense, but it does not deprive the trial court to accordingly try the case based on the evidence that is actually

available.

 

At bar, if it is established after trial that Roxas and Nolasco instructed all the employees, agents and traders

of ASBHI to represent the corporation as financially able to engage in the challenged transactions and repay its

investors, despite their knowledge that ASBHI was not established to be in a position to do so, and that

representatives of ASBHI accordingly made such representations to petitioners, then private respondents could be

held liable for estafa. The failure to implead or try the employees, agents or traders will not negate such potential

criminal liability of Roxas and Nolasco. It is possible that the non-participation of such traders or agents in the trial will

affect the ability of both petitioners and private respondents to adduce evidence during the trial, but it cannot quell the

existence of the crime even before trial is had. At the very least, the non-identification or non-impleading of such

traders or agents cannot negatively impact the finding of probable cause.

 

The assailed ruling unfortunately creates a wide loophole, especially in this age of call centers, that would

create a nearly fool-proof scheme whereby well-organized criminally-minded enterprises can evade prosecution for

criminal fraud. Behind the veil of the anonymous call center agent, such enterprises could induce the investing public

to invest in fictional or incapacitated corporations with fraudulent impossible promises of definite returns on

investment. The rule, as set forth by the Court of Appeals ruling, will allow the masterminds and profiteers from the

scheme to take the money and run without fear of the law simply because the defrauded investor would be hard-

pressed to identify the anonymous call center agents who, reading aloud the script prepared for them in mellifluous

tones, directly enticed the investor to part with his or her money.

 

Is there sufficient basis then to establish probable cause against Roxas and Nolasco? Taking into account

the relative remoteness of private respondents to petitioners, the DOJ still concluded that there was. To repeat:

 The false representations made by the ASB agents who dealt with the complainant-

petitioners and who inveigled them into investing their funds in ASB are properly imputable to respondents Roxas and Nolasco, because they, as ASBs president and senior vice president/treasurer, respectively, respectively, in charge of its operations, directed its agents to make the false representations to the public, including the complainant-petitioners, in order to convince them to invest their moneys in ASB. It is difficult to make a different conclusion, judging from the fact that respondents Roxas and Nolasco authorized and accepted for ASB the fraud-induced loans.[43]

  

Indeed, the facts as thus established cannot lead to a definite, exculpatory conclusion that Roxas and

Nolasco did not instruct, much less forbid, their agents from making the misrepresentations to petitioners. They could

of course pose that defense, but such claim can only be established following a trial on the merits considering that

nothing in the record proves without doubt such law-abiding prudence

on their part. There is also the fact that ABSHI, their corporation, actually received the alleged amounts of money

from petitioners. It is especially curious that according to the ASBHI balance sheets dated 31 December 1999, which

petitioners attached to their affidavit-complaints,[44] over five billion pesos were booked as advances to stockholder

when, according to the general information sheet for 1999, Roxas owned 124,996 of the 125,000 subscribed

shares ofASBHI.[45] Considering that ASBHI had an authorized capital stock of only P500,000 and a

subscribed capital of P125,000, it can be reasonably deduced that such large amounts booked as advances

to stockholder could have only come from the loans extended by over 700 investors to ASBHI.

 

It is true that there are exceptions that may warrant departure from the general rule of non-interference with

the determination of probable cause by the DOJ, yet such exceptions do not lie in this case, and the justifications

actually cited in the Court of Appeals decision are exceptionally weak and ultimately erroneous. Worse, it too hastily

condoned the apparent evasion of liability by persons who seemingly profited at the expense of investors who lost

millions of pesos. The Courts conclusion is that the DOJS decision to prosecute private respondents is founded on

sufficient probable cause, and the ultimate determination of guilt or acquittal is best made through a full trial on the

merits. Indeed, many of the points raised by private respondents before this Court, related as they are to the factual

context surrounding the subject transactions, deserve the full assessment and verification only a trial on the merits

can accord.

 

 

 

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals

dated 18 July 2003 and 28 November 2003 are REVERSED and SET ASIDE. The Resolutions of the Department of

Justice in I.S. Nos. 2000-1418 to 1422 dated 15 October 2001 and 3 July 2002 are REINSTATED. Costs against

private respondents.

 

TIMESHARE REALTY G.R. No. 158941CORPORATION,                             Petitioner, Present:

YNARES-SANTIAGO, J.,          Chairperson,

- versus - AUSTRIA-MARTINEZ,CORONA,*

NACHURA, andREYES, JJ.

CESAR LAO andCYNTHIA V. CORTEZ, Promulgated:                             Respondents.   February 11, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  D E C I S I O N  AUSTRIA-MARTINEZ, J.:

 

          Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the

October 30, 2002 Resolution[1] of the Court of Appeals (CA), which denied due course to the appeal of Timeshare

Realty Corporation (petitioner) from the March 25, 2002 Decision [2] of the Securities and Exchange Commission

(SEC) in SEC Case No. 01-99-6199; and the July 4, 2003 CA Resolution,[3] which denied petitioner’s Motion for

Reconsideration.

          As found by the SEC,[4] the antecedent facts are as follows:

 

            On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V. Cortez (respondents), one

timeshare of Laguna de Boracay for US$7,500.00 under Contract No. 135000998 payable in eight months and fully

paid by the respondents.

 

          Sometime in February 1998, the SEC issued a resolution to the effect that petitioner was without authority to

sell securities, like timeshares, prior to February 11, 1998.  It further stated in the resolution/order that the

Registration Statement of petitioner became effective only on February 11, 1998.  It also held that the 30 days within

which a purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of

money paid applies to all purchase agreements entered into by petitioner prior to the effectivity of the Registration

Statement.

 

          Petitioner sought a reconsideration of the aforesaid order but the SEC denied the same in a letter dated March

9, 1998.

         

On March 30, 1998, respondents wrote petitioner demanding their right and option to cancel their Contract,

as it appears that Laguna de Boracay is selling said shares without license or authority from the SEC.  For failure to

get an answer to the said letter, respondents this time, through counsel, reiterated their demand through another

letter dated June 29, 1998.  But despite repeated demands, petitioner failed and refused to refund or pay

respondents.[5]

 

 

          Respondents directly filed with SEC En Banc[6] a Complaint[7] against petitioner and the Members of its Board

of Directors - Julius S. Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of Section 4 of Batas

Pambansa Bilang (B.P. Blg.) 178.[8]  Petitioner filed an Answer[9] to the Complaint but the SEC En Banc, in an

Order[10]dated April 25, 2000, expunged the Answer from the records due to tardiness.

 

          On March 25, 2002, the SEC En Banc rendered a Decision in favor of respondents, ordering petitioner,

together with Julius S. Strachan, Angel G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the amount of

US$7,500.00.[11]

 

          Petitioner filed a Motion for Reconsideration[12] which the SEC En Banc denied in an Order[13] dated June 24,

2002. 

 

Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July 4, 2002[14] and had 15 days or

until July 19, 2002 within which to appeal.  However, on July 10, 2002, petitioner sought from the CA an extension of

30 days, counted from July 19, 2002, or until August 19, 2002, within which to appeal.[15]  The CA partly granted the

motion in an Order dated July 24, 2002, to wit:             As prayed for, but conditioned on the timeliness of its filing, the Motion for Extension to File Petition for Review dated 09 July 2002 and filed before this Court on 10 July 2002 is GRANTED and petitioners are given a non-extendible period of fifteen (15) days from 10 July 2002 or until 25 July 2002 within which to file the desired petition, otherwise, the above-entitled case will be dismissed.    (Emphasis supplied.) [16]       

         

Petitioner purportedly received the July 24, 2002 CA Order on July 29, 2002,[17] but filed a Petition for

Review with the CA on August 19, 2002.[18] 

 

          In the assailed October 30, 2002 Resolution, the CA dismissed the Petition for Review, thus:             Under Section 4, Rule 43 of the 1997 Revised Rules of Civil Procedure, petitioners shall not be given an extension longer than fifteen (15) days from the expiration of the reglementary period, except for the most compelling reason.             Thus, on 24 July 2002, in the absence of a compelling reason that justifies the granting of a longer period of extension, this Court issued a resolution wherein petitioners were given an extension of ONLY fifteen days from 10 July 2002 or until 25 July 2002 within which to file the petition for review, otherwise, the above entitled case will be dismissed. 

            However, records show that petitioners filed their petition for review only on 19 August 2002, which is twenty-five (25) days beyond the allowed 15-day extended period granted by this Court.             WHEREFORE, the appeal from the decision of the Securities and Exchange Commission (SEC) Case No. 01-99-6199 is hereby DISMISSED for failure of the petitioners to file their Petition for Review under the 15-day period granted by this Court as provided by Rule 43, Section 4 of the 1997 Revised Rules of Civil Procedure.             SO ORDERED.[19]

 

and denied petitioner's Motion for Reconsideration in the assailed Resolution dated July 4, 2003.[20]

 

          Petitioner filed the present petition, urging us to look beyond the procedural lapse in its appeal, and resolve the

following substantive issues:            Whether or not the eventual approval or issuance of license has retroactive effect and therefore ratifies all earlier transactions;             Whether or not a party in a contract could withdraw or rescind unilaterally without valid reason.[21]               

 

We deny the petition.

 

A judgment must become final at the time appointed by law [22] -- this is a fundamental principle upon which

rests the efficacy of our courts whose processes and decrees command obedience only when these are perceived to

have some degree of permanence and predictability.  Thus,  an appeal from such judgment, not being a natural right

but a mere statutory privilege,  must be perfected according to the mode and within the period prescribed by the law

and the rules; otherwise, the appeal is forever barred, and the judgment becomes binding.[23]

 

Section 70 of Republic Act No. 8799[24] which was enacted on July 19, 2000, is the law which governs

petitioner’s appeal from the orders of the SEC En Banc.  It prescribes that such appeal be taken to the CA “by petition

for review in accordance with the pertinent provisions of the Rules of Court,” specifically Rule 43.[25] 

 

Section 4 of Rule 43 is restrictive in its treatment of the period within which a petition may be filed:             Section 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis supplied.)

 

          Petitioner’s Motion for Extension of Time to File Petition for Review flouted the foregoing restriction: it sought,

not a 15-day, but a 30-day extension of the appeal period; [26] and it did not even bother to cite a compelling reason for

such extension, other than its counsel’s caseload which, as we have repeatedly ruled, hardly qualifies as an

imperative cause for moderation of the rules.[27]    

 

          Its motion for extension being inherently flawed, petitioner should not have presumed that the CA would fully

grant the same.[28]  Instead, it should have exercised due diligence by filing the proper petition within the allowable

period,[29] or at the very least, ascertaining from the CA whether its motion for extension had been acted upon. [30] As it

were, petitioner’s counsel left the country, unmindful of the possibility that his client’s period to appeal was about to

lapse - as it indeed lapsed on July 25, 1999, after the CA allowed them a 15-day extension only, in view of the

restriction under Section 4, Rule 43.  Thus, petitioner has only itself to blame that the Petition for Review it filed

onAugust 19, 1999 was late by 25 days.  The CA cannot be faulted for dismissing it.

 

          The Court notes that the CA reckoned the 15-day extension it granted to petitioner from July 10, 1999, the date

petitioner filed its Motion for Extension, rather than fromJuly 19, 1999, the date of expiration of petitioner’s original

period to appeal.  While such computation of the CA appears to be erroneous, petitioner did not question it in the

present petition.  But even if we do reckon the 15-day extension period from July 19, 1999, the same would have

ended on August 3, 1999, making petitioner’s appeal still inexcusably tardy by 16 days.  Either way we reckon it,

therefore, petitioner’s appeal was not perfected within the period prescribed under Rule 43. 

         

          Nevertheless, the Court opts to resolve the substantive issues raised by petitioner in its appeal so as to

determine the lawful rights of the parties and put an end to the litigation. 

 

          Petitioner claims that at the time it entered into a timeshare purchase agreement with respondents on October

6, 1996, it already possessed the requisite license and marketing agreement to engage in such transactions, [31] as

evidenced by its registration with the SEC as a corporation.[32]  Petitioner argues that when it was registered and

authorized by the SEC as broker of securities[33] - such as the Laguna de Boracay timeshares - this had the effect of

ratifying its October 6, 1996 purchase agreement with respondents, and removing any cause for the latter to rescind

it. 

 

The Court is not persuaded.

 

          As cited by the SEC En Banc in its March 25, 2002 Decision, as early as  February 13, 1998, the SEC,

through  Director Linda A. Daoang, already rendered a ruling on the effectivity of the registration statement of

petitioner, viz:           This has reference to your registration statement which was rendered effective 11 February 1998. The 30 days within which a purchaser may exercise the option to unilaterally rescindthe purchase agreement and receive the refund of money paid, applies to all purchase agreements entered into by the registrant prior to the effectivity of the registration statement. The 30-day rescission period for contracts signed before the Registration Statement was rendered

effective shall commence on 11 February 1998. The rescission period for contracts after 11 February 1998 shall commence on the date of purchase agreement.  (Emphasis supplied.)[34]

 

          Petitioner sought a reconsideration of said ruling but the same was denied by Director Daoang in an Order

dated March 9, 1998.[35]  However, petitioner did not resort to any other administrative remedy against said ruling,

such as by questioning the same before the SEC En Banc.  Having failed to exhaust the administrative remedies

available to it, petitioner is already bound by said ruling and can no longer question the same through a direct and

belated recourse to us.[36]

 

          Finally, the provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration as a

corporation already authorizes it to deal with unregistered timeshares.  Corporate registration is just one of several

requirements before it may deal with timeshares: 

            Section 8.  Procedure for registration. - (a) All securities required to be registered under subsection (a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect to such securities, containing or having attached thereto, the following:

x x x x

(36)   Unless previously filed and registered with the Commission and brought up to date: (a)     A copy of its articles of incorporation with all amendments thereof and its

existing by-laws or instruments corresponding thereto, whatever the name, if the issuer be a corporation.

 

          Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed under Section 4

from dealing with unregistered timeshares, thus:           

Section 4.  Requirement of registration of securities. - (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided. (Emphasis supplied.)

 

WHEREFORE, the petition is DENIED for lack of merit.

 

          Costs against petitioner.

 

          SO ORDERED.

PEOPLE OF THE PHILIPPINES, appellee, vs. ELVIRA PETRALBA, appellant.

RAYMOND HOUSCHT, JEFF GONZALES, and RICHARD ALCANTARA, co-accused.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari assailing the decision,[1] promulgated by the Court of Appeals,[2] that affirmed the joint decision rendered by the Regional Trial Court, Branch 17, Cebu City[3] (RTC, for brevity), convicting appellant Elvira Petralba of violations of Sections 4, 19 and 29 of Batas Pambansa Bilang (B.P. Blg.) 178, otherwise known as The Revised Securities Act.

The factual background of the case is as follows:

Appellant and her co-accused Raymond Houscht, Jeff Gonzales and Richard Alcantara are charged in three separate Informations, docketed as CBU-29843, to wit:

That on or about the 2nd day of July, 1991 and for sometime prior and subsequent thereto in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, conniving and confederating together and mutually helping one another, with deliberate intent, with intent of gain and of defrauding one Dr. Leoni L. Bailey, did then and there induce the latter to invest in securities trading, more particularly, in foreign exchange trading at Landsdale[4] (sic) Enterprises Ltd. using the facilities of Madura Management Corp., where accused Elvira Petralba claimed to be trader, Raymond Houscht as Sales Manager, Jeff Gonzales as Asst. Sales Manager, and Richard Alcantara as Executive Vice-President, thereby offering for sale to the public within the Philippines unregistered and unlicensed securities which are neither exempt securities nor exempt transactions under sections (5) and (6) of Batas Pambansa Blg. 178, which representations were only made to induce said Dr. Leoni L. Bailey to give and deliver and in fact he gave and delivered the amount of $9,000.00 as capital investment, as the accused very well knew that the securities which they offered to sell and sold to the public within the Philippines were not registered in Violation of Section 4 of Batas Pambansa Blg. 178.[5] (Emphasis supplied)

CBU-29844, to wit:

That on or about the 2nd day of July, 1991, and for sometime prior and subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, conniving and confederating together and mutually helping one another, with deliberate intent, with deceit and misrepresentation, with intent of gain and of defrauding one Dr. Leoni L. Bailey, did then and there induce the latter to invest in foreign exchange trading with Landsdale (sic) Enterprises Ltd. using the facilities of Madura Management Corp., where accused Elvira Petralba claimed to be trader, Raymond Houscht as Sales Manager, Jeff Gonzales as Assistant Sales Manager, and Richard Alcantara as Executive Vice-President, assuring him that Landsdale (sic) Enterprises Ltd. and Madura Management Corp. are duly licensed to engage in foreign exchange trading when in truth and in fact, these companies do not have such license, and as a consequence of such deceit and misrepresentation said Dr. Leoni L. Bailey invested the total amount of $9,000.00, the accused thereby engaging in fraudulent transactions in foreign exchange trading in Violation of Section 29 of Batas Pambansa Blg. 178.[6] (Emphasis supplied)

and CBU-29845, to wit:

That on or about the 2nd day of July, 1991, and for sometime prior and subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, conniving and confederating together and mutually helping one another, with deliberate intent, with intent to gain and to defraud one Dr. Leoni L. Bailey, did then and there induce the latter to invest in foreign exchange trading with Landsdale (sic) Enterprises Ltd. using the facilities of Madura Management Corp., where accused Elvira Petralba claimed to be trader, Raymond Houscht as Sales Manager, Jeff Gonzales as Asst. Sales Manager, and Richard Alcantara as Executive Vice-

Pres., assuring him of a high monthly interest and compounding of capital within a short period and the money can be withdrawn anytime, thereby acting and functioning as brokers, dealers or salesmen of securities, which representations were only made to induce said Dr. Leoni L. Bailey to give and deliver as in fact he gave and delivered the amount of $9,000.00, as evidenced by receipts, without authority of law not having been registered with the Securities and Exchange Commission as brokers, dealers or salesmen of securities in Violation of Section 19 of Batas Pambansa Blg. 178.[7] (Emphasis supplied)

Only appellant was duly arraigned. She pleaded not guilty to the charges against her under the foregoing Informations, and joint trial ensued thereafter. All her co-accused remain at large.

The findings of fact of the trial court as affirmed in toto by the Court of Appeals, are as follows:

The evidence for the Prosecution as established thru the oral testimonies of Dr. Leoni Bailey and Atty. Rosalinda San Fontanosas and the documents they had identified substantially shows that Dr. Bailey was holding office in 1991 in her residence at 12 San Jose Street, Cebu City as clinical consultant.

Accused Elvira Petralba introduced herself as a representative of Lansdale Enterprises Limited showing the doctor her brochures (Exhibit B) and told her the Lansdale has an office in Hongkong with its principal office in Tokyo. Accused gave Dr. Bailey some documents one of which is the customers agreement (Exhibit C). Dr. Bailey gave the accused a check worth $6,000.00 as her starting capital for foreign exchange trading to be handled by Mr. Richard Alcantara, the manager of Lansdale.

Accused Petralba assured Bailey that the business was protected by a foreign company in the amount of $4,000,000.00. Four (4) persons, namely, Petralba, the manager, the assistant manager and another person were present. Petralba signed a receipt (Exhibit A) wherein her confirmatory signature (Exhibit A-2) appears.

Bailey demanded partial return of her investment from accused Petralba but the latter failed to do so. Bailey contacted the office of Lansdale, its officers including the manager and Petralba several times but these persons were always out. Finally, Bailey went to the Securities and Exchange Commission (SEC), filed a complaint and executed an affidavit (Exhibit D, D-1) before Atty. Cunanan (Exhibit D-2), the director, the original copy of which is with the SEC. She likewise submitted the original copy of the receipt with the SEC.

Dr. Bailey and Elvira Petralba knew each other as early as the first week of June 1991. Since accused wanted to see her about foreign currency trading, Bailey invited her to her office in July 1991. Petralba told her that she represents REATA, an investment company in foreign exchange.

Dr. Bailey was in this business before in the United States. There was no problem there because everything was taken cared of by her financial adviser. The company also assumed the responsibility in case of loss, hence the investment was protected. In this particular case, the four (4) accused convinced her that her investment is protected.

Bailey gave the accused the check although the payee was Lansdale which traded her money without her consent. Out of the amount in the check only $300 was returned to her by the cashier of Lansdale.

During the first week of trading or on July 8, 1991, Bailey signed (Exhibit A-1) the instruction of purchase (Exhibit A) because she was asked to sign it. Bailey also signed other instructions of purchase (Exhibits 2 to 12) but before she signed them (Exhibits 13 to 23, 13-A to 23-A) she read all of them. She also signed a form letter dated August 15, 1991 (Exhibits 24, 24-A and D) which she was asked to fill up as the company was changing its name to Tokyo Commonwealth Limited.

Bailey read the contract and the trading rules of Lansdale before she signed it. She understood all the stipulations contained therein. There is a provision in paragraph ten (10) thereof stating the risk of loss in trading but accused assured her that the company had a reserve fund in the amount of $14 million as investors protection fund.

When Bailey signed the check for investment, the persons present were Alcantara, Petralba and two others. Alcantara introduced himself as the Assistant Vice-President of Lansdale. The customers agreement was signed by Bailey marked as Exhibit A and the receipt as Exhibit E.

It was Atty. Rosalinda San Fontanosas of SECs legal department who investigated Lansdale Enterprises in connection with the complaint of Dr. Leoni Bailey after a certain Felix Chan in their office resigned.

On July 2, 1991, all the accused were not yet licensed as traders when they presented to Dr. Bailey the investment proposal except Mr. Alcantara who has a license for the period from January 15, 1991 to December 31, 1991.

Lansdale Enterprises Ltd. has not been registered with the Securities and Exchange Commission (SEC) per first indorsement dated July 25, 1994 (Exhibits F, F-1 and F-2) and another indorsement dated July 20, 1994 (Exhibits G, G-1 and G-2).[8]

After trial on the merits, the RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the Court finds the accused Elvira Petralba guilty beyond reasonable doubt in three (3) counts of Violations of Sections 4, 19 and 29 of Batas Pambansa Bilang 178, otherwise known as The Revised Securities Act and accordingly, accused is hereby sentenced to serve an imprisonment of seven (7) years for each count or a total period of twenty-one (21) years; to indemnify private complainant Dr. Leoni Bailey the sum of Five Thousand Seven Hundred US Dollars ($5,700.00) or its current Philippines Peso value with the legal rate of interest per annum from the time of the filing of these informations plus costs of the suits.

SO ORDERED.

Cebu City, Philippines.

February 16, 1996.[9]

On appeal to the Court of Appeals, the appellate court affirmed in full the RTC judgment.

Hence, the present petition, appellant raising the following Assignment of Errors, thus:

I

THE COURT OF APPEALS ERRED IN AFFIRMING IN FULL THE JUDGMENT OF THE COURT A QUO THEREBY ALSO CONCLUDING THAT ACCUSED-APPELLANT, WHO IS A MERE EMPLOYEE, CONNIVED AND CONFEDERATED WITH HER CO-ACCUSED, AND REPRESENTED HERSELF AS TRADER THUS ALLEGEDLY VIOLATING SECTIONS 4 AND 19 OF BATAS PAMBANSA BILANG 178, OTHERWISE KNOWN AS THE REVISED SECURITIES ACT, WHEN NO PROOF WAS PRESENTED TO PROVE BEYOND REASONABLE DOUBT THAT ACCUSED-APPELLANT IS GUILTY OF SAID ALLEGED VIOLATIONS.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THE CONVICTION OF THE ACCUSED-APPELLANT BY THE COURT A QUO FOR VIOLATION OF SEC. 4, 19, AND 29 OF BATAS PAMBANSA BLG. 178, OTHERWISE KNOWN AS THE REVISED SECURITIES ACT, UPON EVIDENCE WHICH FAILED TO ESTABLISH THE IDENTITY OF THE REAL SELLER FROM AMONG THE MANY ACCUSED IN THIS CASE.

III

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE COURT A QUO BY DISREGARDING THE FACT THAT ANOTHER CO-ACCUSED AND ALLEGED CO-CONSPIRATOR IN THIS CASE WHO HAS NOT BEEN BROUGHT TO COURT WAS LICENSED TO TRANSACT BUSINESS WITH THE PRIVATE COMPLAINANT.

IV

THE COURT OF APPEALS ERRED IN CONCLUDING THAT A CUSTOMERS CONTRACT FALLS WITHIN THE TERM SECURITIES.

V

THE COURT OF APPEALS ERRED IN AFFIRMING THE JUDGMENT OF THE COURT A QUO IN SENTENCING THE ACCUSED-APPELLANT TO SERVE AN IMPRISONEMNT OF SEVEN (7) YEARS FOR EACH COUNT OR FOR A TOTAL PERIOD OF TWENTY-ONE (21) YEARS WHEN ACCUSED-APPELLANTS ACTUATIONS WERE THAT MERELY OF AN EMPLOYEE AND HAS NOT BENEFITED WHATSOEVER FROM THE TRANSACTION COMPLAINED OF NOR DID SHE DEFRAUD PRIVATE COMPLAINANT OF HER MONEY AS THE SAME WAS DIRECTLY GIVEN TO HER EMPLOYER.[10]

On the basis thereof, the following questions arise: (1) whether the contract between complainant Dr. Leoni Bailey and Lansdale Enterprises Ltd. falls within the term securities contemplated by the Revised Securities Act; (2) whether the prosecution had established that appellant represented herself as a broker, dealer or trader in conspiracy with her co-accused; (3) whether the prosecution evidence established the identity of the real seller from among the four accused including herein appellant; (4) whether the established fact that her co-accused, Richard Alcantara, executive vice-president of Lansdale was duly licensed to trade exonerates appellant from liability under The Revised Securities Act; and (5) whether appellant should be held criminally liable considering that she was a mere employee of Lansdale and she has neither benefited from the subject transaction nor defrauded private complainant of her money as the same was directly given to her employer.

These five questions boil down to the principal issue of whether or not the Court of Appeals erred in affirming the conviction of appellant; or stated differently, whether or not the prosecution has established the guilt of appellant beyond reasonable doubt for violating Sections 4, 19 and 29 of B.P. Blg. 178.

We are constrained to look into the evidence presented before the trial court so as to resolve the herein appeal. It is settled that as a rule, our jurisdiction in cases brought to us from the Court of Appeals is limited to the review and revision of errors of law allegedly committed by the appellate court, as its findings of fact are deemed conclusive and we are not duty-bound to analyze and weigh all over again the evidence already considered in the proceedings below.[11] However, we have consistently enunciated that we may review the findings of fact of the Court of Appeals: (a) where there is grave abuse of discretion; (b)when the finding is grounded entirely on speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals, in making its findings, is conflicting; (e) when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (h) where the findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or where the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.[12]

After a careful examination of the prosecution evidence, we find that the findings of both lower courts were grounded on mere surmises or conjectures; the inferences they made were manifestly mistaken, bordering on absurdity; and the judgment of the appellate court was based on misapprehension of facts or mere conclusions without citation of specific, competent evidence.

Under the three Informations, appellant is charged with conniving and confederating together with her three co-accused, and mutually helping one another, with deliberate intent to gain and defraud complainant by: (1) offering for sale, together with her co-accused, securities which were not registered in violation of Section 4 of the law; (2) representing and acting as broker or dealer to induce complainant as in fact she delivered the subject amount, not having been registered with the Securities and Exchange Commission, in violation of Section 19 of the same law; and (3) assuring the complainant that Lansdale is duly licensed to engage in foreign exchange trading when in fact said company is not duly-licensed, as a consequence of which complainant invested the amount of $6,000.00, thereby engaging in fraudulent transactions in foreign exchange trading, in violation of Section 29 of the law.

The Court of Appeals erred in affirming the RTCs decision. The prosecution failed to establish the guilt of appellant beyond reasonable doubt.

Appellant claims that the transaction that transpired between complainant and her employer Lansdale was a mere foreign exchange trading which is not covered by the term securities of B.P. Blg. 178, [13] the prevailing law at the time of the commission of the alleged crimes.

Section 2 of B.P. Blg. 178 provides:

Section 2. Definitions. For purposes of this Act:

(a) Securities shall include bonds, debentures, notes, evidences of indebtedness, shares in a company, preorganization certificates or subscription, investment contracts, certificates of interest or participation in a profit sharing agreement, collateral trust certificates, equipment trust certificates (including conditional sale contracts or similar interests or instruments serving the same purpose), voting trust certificates, certificates of deposit for a security, or fractional undivided interests in oil, gas, or other mineral rights, or in general, interest or instruments commonly considered to be securities, or certificates of interests or participation, in temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or buy or sell any of the foregoing; or commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold transferred or in any manner conveyed to another with or without recourse, such as promissory notes, repurchase agreements, certificates of assignments, certificates of participation, trust certificates or similar instruments; or proprietary or non-proprietary membership certificates, commodity futures contracts, transferable stock options, pre-need plans, pension plans, life plans, joint ventures contracts, and similar contracts and investments where there is no tangible return on investments plus profits but an appreciation of capital as well as enjoyments of particular privileges and services.

. . . [Emphasis supplied]

Clearly therefrom, as pointed out by the Office of the Solicitor General, the foreign exchange trading transaction that transpired between complainant and Lansdale appears to be an investment contract or participation in a profit sharing agreement that falls within the definition of the law. When the investor is relatively uninformed and turns over his money to others, essentially depending upon their representations and their honesty and skill in managing it, the transaction generally is considered to be an investment contract.[14] The touchtone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.[15] Dr. Bailey testified on this matter[16] but no contract was submitted by the prosecution. The prosecution failed to prove by sufficient evidence that indeed, the amount delivered by Dr. Bailey to Lansdale, through appellant, is an investment contemplated by the Revised Securities Act and not a mere act of buying and selling foreign exchange. The Customers Agreement, marked as Exhibit C during the hearing of the case, was not offered in evidence by the prosecution. The fundamental rule is that upon him who alleges rests the burden of proof.[17]

Moreover, the receipt, marked as Exhibit A, merely shows that Dr. Bailey remitted the amount of US$6,000.00 to Lansdale through appellant, as account executive. It contained a request for appellant to follow-up proper remittance and credit of her trading account as well as the issuance of the receipt of said amount [18] which is confirmed by appellant as shown by her signature, marked as Exhibit A-2. Exhibit A did not prove that appellant committed any of the offenses charged against her. The receipt merely established that appellant received the amount from Dr. Bailey for the purpose of remitting the same to Lansdale and to follow-up the crediting thereof to her trading account. The brochure, Exhibit B, given by appellant to Dr. Bailey, does not prove appellants guilt beyond reasonable doubt in the absence of direct and specific proof on the (1) actual participation of appellant in the alleged offer and sale of securities to the public within the Philippines which were not registered in violation of Section 4 of B.P. Blg. 178; (2) manner by which appellant misrepresented to Dr. Bailey that Lansdale is duly licensed to engage in foreign exchange trading in violation of Section 29 of said law; and (3) manner by which appellant misrepresented to Dr. Bailey that she was a licensed broker, dealer or salesperson of securities when in fact she was not, thereby inducing Dr. Bailey to invest and deliver the amount of US$6,000.00, in violation of Section 19 of said law.

Furthermore, while it is established by the prosecution that Lansdale was not duly registered [19] and appellant was not licensed as a broker,[20] the manner by which appellant connived with her co-accused and induced her to invest her $6,000.00,[21] not $9,000.00 as erroneously stated in the Informations, are too sketchy, devoid of any certainty as to the actual participation of appellant in the commission of the offenses charged against her. A simple perusal of the direct testimony of complainant as quoted verbatim hereunder, readily supports our findings, viz:

Q - Do you remember what transaction did you enter with the accused on July 2, 1991?

A - On July 2, 1991, I turned over to her a check for $6,000.00.

Q - What was your purpose in turning over to her the check for $6,000.00?

A - That was to start my investment with the foreign currency trading.

Q - Do you know who will take care of the foreign exchange trading?

A - It was supposed to be handled by the manager, Mr. Richard Alcantara.

Q - You said you were gypped by Elvira Petralba?

A - Yes, sir.

Q - What happened to your transaction, if you can remember?

A - They got my money.

Q - Will you please tell this Honorable Court how they got your money?

A - I do not know how they manage the trading. They only give me hope but that hope was never realized.

Q - Before you meet Elvira Petralba the accused in this case and considering that you wanted to be involved in an investment business, did you take steps to verify if really the foreign exchange trading is good?

A - There were lots of businessmen I know who got involved in this foreign exchange trading and because of this, I would like to be enlightened. Whether or not the business is authenticated, it is very difficult for a private person to understand.

Q - Are you telling the court that you merely relied on the promises of Elvira Petralba because you dont understand fully the business venture?

A - There were four of them who enticed me to invest in the business. The manager, assistant manager, Elvira Petralba, and another person.

Q - So you met Elvira Petralba who was responsible in your investing in the business?

A - Yes, sir, she said I have nothing to lose in that kind of business because we are protected by a company abroad in the amount of 4 million dollars, if ever something happened to our investment or to the company. The four of them were very positive in convincing me. However, those promises and assurance did not turn out good.

Q - So you invested in the business?

A - Yes, sir.

Q - What happened to those promises?

A - Not a single promise came out to be supported by any action. They refused and failed to return my money when I demanded for a partial return of my investment.

Q - What was then your reaction when you were not able to withdraw your money upon your demand?

A - I bombarded the office with telephone calls but nobody would answer the phone. I tried to contact Elvira Petralba and other officers but they could not be contacted. So I tried turning over my complaint to Social Securities Commission. (sic)

Q - Could you tell us what other benefits could you derive from investing with foreign currency trading?

A - They told me I could communicate with them anytime I want to clarify something but it turned out not to be true. It is very difficult to contact them and it is also very difficult to get inside the office because there are so many requirements you have to accomplish before you can get inside. All that I can do is to call them thru telephone but nobody will answer the calls.

Q - Let us go step by step. First is the benefit. How much are you suppose to get as benefit by investing your $6,000.00

A - There are no definite benefits fixed in foreign currency exchange. The rate goes up and down anytime. However, we were primarily protected from any losses. There are many businessmen like Mr. Clavano who also joined this kind of business venture.

Q - You said you will be protected from any losses of your investment.

A - Yes, sir.

Q - How?

A - At first they will let you know and convince you of their expertise and will present to you all the benefits you can derive if you invest with them, and they have also defense if over the price will go down or up. They said they could freeze it but they did not fully explain what will be frozen and how the

freezing will be done. They just ate and ate our interest until everything has been eaten. May be that is what they mean by freezing. When I invested my $6,000.00 they were already the ones controlling it. They decide what to sell and what to buy, and if you entertain any doubt, they will cure your doubts. They will insist that they are doing the best for you. They said we have nothing to lose. But if you demand for clarification they could not explain.[22]

As one would readily observe therefrom, the testimony of the complainant insofar as appellant is concerned, is comprised merely of generalities and conclusions that would not hold in court to justify the conviction of herein appellant. In People vs. Mariano,[23] we held that the evidence, taken in its entirety, must be clear and convincing to prove an accuseds guilt beyond reasonable doubt, otherwise, he is entitled to an acquittal. [24] And so must herein appellant be acquitted in the present three criminal cases.

No less than the Constitution mandates that an accused shall be presumed innocent until the contrary is proved.[25] Section 14 (2), Article III of the Constitution provides that in criminal cases, the quantum of evidence required to overturn this presumption is proof beyond reasonable doubt, which, under Section 2, Rule 133 of the Revised Rules of Court, is that proof which produces moral certainty in an unprejudiced mind. In People vs. Saturno, [26] we held:

It is a basic rule that the guilt of an accused must be proved beyond reasonable doubt. Before he is convicted, there must be moral certainty of guilt a certainty that convinces and satisfies the reason and conscience of those who are to act upon it that he is guilty of the crime charged. Under our criminal justice system, the overriding consideration is not whether the court doubts the innocence of the accused but whether it entertains a reasonable doubt as to his guilt.

The task of the prosecution is two-fold: first, to prove that a crime has been committed, and second, that the accused is the person responsible therefor. Thus, the prosecution must be able to overcome the constitutional presumption of innocence with evidence beyond reasonable doubt to justify the conviction of the accused.

The prosecution and both lower courts merely depended on the wholesale self-serving declarations of complainant. Complainant failed to specify what appellant said and did so as to support the conclusion that appellant connived with her co-accused in defrauding her. There is nothing in the records to show how appellant offered or induced complainant to buy unregistered securities as required under Section 4 of B.P. Blg. 178, to wit:

Section 4. Requirements of registration of securities. (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided.

(b) Notwithstanding the provisions of paragraph (a) of this Section and of the succeeding Sections regarding exemptions, no commercial paper as defined in Section two hereof shall be issued, endorsed, sold, transferred or in any manner conveyed to the public, unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission.

(c) A record of the registration of securities shall be kept in a Register of Securities in which shall be recorded orders entered by the Commission with respect to such securities. Such register and all documents or information with respect to the securities registered therein shall be open to public inspection at reasonable hours on business days.

Under Section 19 of B.P. Blg. 178, no broker, dealer or salesman shall engage in business in the Philippines as such broker, dealer or salesman or sell any securities, including securities exempted under this Act, except in exempt transactions, unless he has been registered as a broker, dealer or salesman. True, there is undisputed evidence that appellant is not a licensed broker at the time of the subject transaction with complainant. However, as already discussed above, there is no evidence whatsoever how exactly appellant misrepresented herself as a broker or dealer thereby inducing complainant into investing her money with Lansdale.

Section 29 of the same law provides:

Section 29. Fraudulent transactions. (a) It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities

(1) To employ any device, scheme, or artifice to defraud, or

(2) To obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(3) To engage in any act, transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(b) It shall be unlawful for any person to describe a security to a second person, without purporting to offer it, for a consideration received or to be received directly or indirectly from the issuer, any other person interested in buying or selling the security, an underwriter, broker, dealer, or investment adviser, or a controlling, controlled, or commonly controlled person of any such person, unless (1) he concurrently discloses the source of the consideration or the nature of or reason for his employment or (2) if the second person or his agent in the transaction is identified, that information is known to the second person.

The testimony of complainant read in its entirety does not sufficiently establish that appellant herself had uttered any words of assurance or committed a particular act as specified under the aforequoted provision of law. Neither did complainants testimony show her specific participation in the alleged conspiracy to defraud complainant. Dr. Baileys testimony did not prove the guilt of appellant beyond reasonable doubt.

To repeat, the only prosecution evidence that shows the participation of appellant is the document[27] marked as Exhibits A, A-1 to A-3, whereby complainant is remitting to appellant, as account executive, the amount of $6,000.00, duly confirmed by the signature of appellant; and instructing appellant to follow-up and ensure proper remittance and credit of her (complainants) trading account with Lansdale. How and why complainant entrusted to appellant said amount is not demonstrated by complainants testimony.

Moreover, the RTC made mention of a brochure, marked as Exhibit B but the same is not offered as evidence by the prosecution as shown by its Written Offer of Evidence.[28] Section 34, Rule 132 of the Rules of Court mandates that the Court should not consider any evidence which has not been formally offered. Even the Customers Agreement, marked as Exhibit C, was not offered in evidence by the prosecution.

Let it be stated that the fact that her co-accused Alcantara was licensed would not exonerate appellant because the license is personal to Alcantara. Neither would the fact that appellant did not receive the amount of $6,000.00 personally exonerate her if she were found guilty of the charges against her.

Nevertheless, as discussed earlier, there is no proof beyond reasonable doubt to hold appellant guilty of all the offenses charged against her under the three Informations.

WHEREFORE, the appealed decision of the Court of Appeals, together with that of the Regional Trial Court, is REVERSED. Appellant ELVIRA PETRALBA is ACQUITTED of the crimes charged in Criminal Cases Nos. CBU-29843 to 29845.

SO ORDERED.

G.R. No. 86738 November 13, 1991

NESTLE PHILIPPINES, INC., petitioner, vs.COURT OF APPEALS and SECURITIES AND EXCHANGE COMMISSION, respondents.

Nepomuceno, Hofilena & Guingona for petitioner.

 

FELICIANO, J.:p

Sometime in February 1983, the authorized capital stock of petitioner Nestle Philippines Inc. ("Nestle") was increased from P300 million divided into 3 million shares with a par value of P100.00 per share, to P600 million divided into 6 million shares with a par value of P100.00 per share. Nestle underwent the necessary procedures involving Board and stockholders approvals and effected the necessary filings to secure the approval of the increase of authorized capital stock by respondent Securities and Exchange Commission ("SEC"), which approval was in fact granted. Nestle also paid to the SEC the amount of P50,000.00 as filing fee in accordance with the Schedule of Fees and Charges being implemented by the SEC under the Corporation Code. 1

Nestle has only two (2) principal stockholders: San Miguel Corporation and Nestle S.A. The other stockholders, who are individual natural persons, own only one (1) share each, for qualifying purposes, i.e., to qualify them as members of the Board of Directors being elected thereto on the strength of the votes of one or the other principal shareholder.

On 16 December 1983, the Board of Directors and stockholders of Nestle approved resolutions authorizing the issuance of 344,500 shares out of the previously authorized but unissued capital stock of Nestle, exclusively to San Miguel Corporation and to Nestle S.A. San Miguel Corporation subscribed to and completely paid up 168,800 shares, while Nestle S.A. subscribed to and paid up the balance of 175,700 shares of stock.

On 28 March 1985, petitioner Nestle filed a letter signed by its Corporate Secretary, M.L. Antonio, with the SEC seeking exemption of its proposed issuance of additional shares to its existing principal shareholders, from the registration requirement of Section 4 of the Revised Securities Act and from payment of the fee referred to in Section 6(c) of the same Act. In that letter, Nestle requested confirmation of the correctness of two (2) propositions submitted by it:

1. That there is no need to file a petition for exemption under Section 6(b) of the Revised Securities Act with respect to the issuance of the said 344,600 additional shares to our existing stockholders out of our unissued capital stock; and

2. That the fee provided in Section 6(c) of [the Revised Securities] Act is not applicable to the said issuance of additional shares. 2

The principal, indeed the only, argument presented by Nestlewas that Section 6(a) (4) of the Revised Securities Act which provides as follows:

Sec. 6. Exempt transactions. — a) The requirement of registration under subsection (a) of Section four of this Act shall not apply to the sale of any security in any of the following transactions:

xxx xxx xxx

(4) The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus; or the issuance of securities to the security holder or other creditors of a corporation in the process of a bona fide reorganization of such corporation made in good faith and not for the purpose of avoiding the provisions of this Act, either in exchange for the securities of such security holders or claims of such creditors or partly for cash and partly in exchange for the securities or claims of such security holders or creditors; or the issuance of additional capital stock

of a corporation sold or distributed by it among its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock. (Emphasis supplied)

embraces "not only an increase in the authorized capital stock but also the issuance of additional shares to existing stockholders of the unissued portion of the unissued capital stock". 3 Nestle urged that interpretation upon the following argument.

The use of the term "increased capital stock" should be interpreted to refer to additional capital stockor equity participation of the existing stockholders as a consequence of either an increase of the authorized capital stock or the issuance of unissued capital stock. If the intention of the pertinent legal provision [were] to limit the exemption to subscription to proposed increases in the authorized capital stock of a corporation, we see no reason why the law should not have been more specific or accurate about it. It certainly should have mentioned "increase in the authorized capital stock of the corporation" rather than merely the expression "the issuance of additional capital stock 4 (Emphasis supplied)

Nestle expressly represented in the same letter that all the additional shares proposed to be issued would be issued only to San Miguel Corporation and Nestle S.A. and that no commission or other form of remuneration had been given, directly or indirectly, in connection with the issuance or distribution of such additional shares of stock.

In respect of its claimed exemption from the fee provided for in Section 6(c) of the Revised Securities Act, Nestle contended that since Section 6 (a) (4) of the statute declares (in Nestle's view) the proposed issuance of 344,500 previously authorized but unissued shares of Nestle's capital stock to its existing shareholders as an exempt transaction, the SEC could not collect fees for "the same transaction" twice. Nestle adverted to its payment back in 21 February 1983 of the amount of P50,000.00 as filing fees to the SEC when it applied for and eventually received approval of the increase of its authorized capital stock effected by Board and shareholder action last 16 December 1983.

In a letter dated 26 June 1986, the SEC through its then Chairman Julio A. Sulit, Jr. responded adversely to petitioner's requests and ruled that the proposed issuance of shares did not fall under Section 6 (a) (4) of the Revised Securities Act, since Section 6 (a) (4) is applicable only where there is an increase in the authorized capital stock of a corporation. Chairman Sulit held, however, that the proposed transaction could be considered by the Commission under the provisions of Section 6 (b) of the Revised Securities Act which reads as follows:

(b) The Commission may, from time to time and subject to such terms and conditions as it may prescribe, exempt transactions other than those provided in the preceding paragraph, if it finds that the enforcement of the requirements of registration under this Act with respect to such transactions is not necessary in the public interest and for the protection of the investors by reason of the small amount involved or the limited character of the public offering.

The Commission then advised petitioner to file the appropriate request for exemption and to pay the fee required under Section 6 (c) of the statute, which provides:

(c) A fee equivalent to one-tenth of one per centum of the maximum aggregate price or issued value of the securities shall be collected by the Commission for granting a general or particular exemption from the registration requirements of this Act.

Petitioner moved for reconsideration of the SEC ruling, without success.

On 3 July 1987, petitioner sought review of the SEC ruling before this Court which, however, referred the petition to the Court of Appeals.

In a decision dated 13 January 1989, the Court of Appeals sustained the ruling of the SEC.

Dissatisfied with the Decision of the Court of Appeals, Nestle is now before this Court on a Petition for Review, raising the very same issues that it had raised before the SEC and the Court of Appeals.

Examining the words actually used in Section 6 (a) (4) of the Revised Securities Act, and bearing in mind common corporate usage in this jurisdiction, it will be seen that the statutory phrase "issuance of additional capital stock" is indeed infected with a certain degree of ambiguity. This phrase may refer either to: a) the issuance of capital stock as part of and in the course of increasing the authorized capital stock of a corporation; or (b) issuance of already authorized but still unissued capital stock. By the same token, the phrase "increased capital stock" found at the end of Section 6 (a) (4), may refer either: 1) to newly or contemporaneously authorized capital stock issued in the course of increasing the authorized capital stock of a corporation; or 2) to previously authorized but unissued capital stock.

Under Section 38 of the Corporation Code, a corporation engaged in increasing its authorized capital stock, with the required vote of its Board of Directors and of its stockholders, must file a sworn statement of the treasurer of the corporation showing that at least twenty-five percent (25%) of "such increased capital stock" has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid either in actual cash or in property transferred to the corporation. In other words, the corporation must issue at least twenty-five percent (25%) of the newly or contemporaneously authorized capital stock in the course of complying with the requirements of the Corporation Code for increasing its authorized capital stock.

In contrast, after approval by the SEC of the increase of its authorized capital stock, and from time to time thereafter, the corporation, by a vote of its Board of Directors, and without need of either stockholder or SEC approval, may issue and sell shares of its already authorized but still unissued capital stock to existing shareholders or to members of the general public. 5

Both the SEC and the Court of Appeals resolved the ambiguity by construing Section 6 (a) (4) as referring only to the issuance of shares of stock as part of and in the course of increasing the authorized capital stock of Nestle. In the case at bar, since the 344,500 shares of Nestle capital stock are proposed to be issued from already authorized but still unissued capital stock and since the present authorized capital stock of 6,000,000 shares with a par value of P100.00 per share is not proposed to be further increased, the SEC and the Court of Appeals rejected Nestle's petition.

We believe and so hold that the construction thus given by the SEC and the Court of Appeals to Section 6 (a) (4) of the Revised Securities Act must be upheld.

In the first place, it is a principle too well established to require extensive documentation that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great respect and should be accorded great weight by the courts, unless such construction is clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws. As long ago as 1903, this Court said in  In re Allen 6 that

[t]he principle that the contemporaneous construction of a statute by the executive officers of the government, whose duty is to execute it, is entitled to great respect, and should ordinarily control the construction of the statute by the courts, is so firmly embedded in our jurisdiction that no authorities need be cited to support it. 7

The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. 8 In Asturias Sugar Central, Inc. v. Commissioner of Customs 9 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to contemporaneous construction because of the respect due the government agency or officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret. 10

In the second place, and more importantly, consideration of the underlying statutory purpose of Section 6(a) (4) compels us to sustain the view taken by the SEC and the Court of Appeals. The reading by the SEC of the scope of application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation. By limiting the class of exempt transactions contemplated by the last clause of Section 6(a) (4) to issuances of stock done in the course of and as part of the process of increasing the authorized capital stock of a corporation, the SEC is enabled to examine issuances by a corporation of previously

authorized but theretofore unissued capital stock, on a case-to-case basis, under Section 6(b); and thereunder, to grant or withhold exemption from the normal registration requirements depending upon the perceived level of need for protection by the investing public in particular cases.

When capital stock is issued in the course of and in compliance with the requirements of increasing its authorized capital stock under Section 38 of the Corporation Code, the SEC as a matter of course examines the financial condition of the corporation, and hence there is no real need for exercise of SEC authority under the Revised Securities Act. Thus, one of the multiple documentation requirements under the current regulations of the SEC in respect of filing a certificate of increase of authorized capital stock, is submission of "a financial statement duly certified by an independent Certified Public Accountant (CPA) as of the latest date possible or as of the date of the meeting when stockholders approved the increase/decrease in capital stock or thereabouts. 11 When all or part of the newly authorized capital stock is proposed to be issued as stock dividends, the SEC requirements are even more exacting; they require, in addition to the regular audited financial statements, the submission by the corporation of a "detailed or Long Form Report of the certifying Auditor." Moreover, since approval of an increase in authorized capital stock by the stockholders holding two-thirds (2/3) of the outstanding capital stock is required by Section 38 of the Corporation Code, at a stockholders meeting held for that purpose, the directors and officers of the corporation may be expected to take pains to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital sought to be raised.

Upon the other hand, as already noted, issuance of previously authorized but theretofore unissued capital stock by the corporation requires only Board of Directors approval. Neither notice to nor approval by the shareholders or the SEC is required for such issuance. There would, accordingly, under the view taken by petitioner Nestle, no opportunity for the SEC to see to it that shareholders (especially the small stockholders) have a reasonable opportunity to inform themselves about the very fact of such issuance and about the condition of the corporation and the potential value of the shares of stock being offered.

Under the reading urged by petitioner Nestle of the reach and scope of the third clause of Section 6(a) (4), the issuance of previously authorized but unissued capital stock would automatically constitute an exempt transaction,without regard to the length of time which may have intervened between the last increase in authorized capital stock and the proposed issuance during which time the condition of the corporation may have substantially changed, and without regard to whether the existing stockholders to whom the shares are proposed to be issued are only two giant corporations as in the instant case, or are individuals numbering in the hundreds or thousands.

In contrast, under the ruling issued by the SEC, an issuance of previously authorized but still unissued capital stock may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration under the Revised Securities Act are "not necessary in the public interest and for the protection of the investors" by reason, inter alia, of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves. In fine, petitioner Nestle's proposed construction of Section 6(a) (4) would establish an inflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed.

Petitioner Nestle's second claim for exemption is from payment of the fee provided for in Section 6 (c) of the Revised Securities Act, a claim based upon petitioner's contention that Section 6 (a) (4) covers both issuance of stock in the course of complying with the statutory requirements of increase of authorized capital stock and issuance of previously authorized and unissued capital stock. Petitioner claims that to require it now to pay one-tenth of one percent (1%) of the issued value of the 344,500 shares of stock proposed to be issued, is to require it to pay a second time for the same service on the part of the SEC. Since we have above rejected petitioner's reading of Section 6 (a) (4), last clause, petitioner's claim about the additional fee of one-tenth of one percent (1%) of the issue value of the proposed issuance of stock (amounting to P34,450 plus P344.50 for other fees or a total of P37,794.50) need not detain us for long. We think it clear that the fee collected in 21 February 1983 by the SEC was assessed in connection with the examination and approval of the certificate of increase of authorized capital stock then submitted by petitioner. The fee, upon the other hand, provided for in Section 6 (c) which petitioner will be required to pay if it does file an application for exemption under Section 6 (b), is quite different; this is a fee specifically authorized by the Revised Securities Act, (not the Corporation Code) in connection with the grant of an exemption from normal registration requirements imposed by that Act. We do not find such fee either unreasonable or exorbitant.

WHEREFORE, for all the foregoing, the Petition for Review on Certiorari is hereby DENIED for lack of merit and the Decision of the Court of Appeals dated 13 January 1989 in C.A.-G.R. No. SP-13522, is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

UNION BANK OF THE PHILIPPINES, petitioner, vs. SECURITIES and EXCHANGE COMMISSION, respondent.

D E C I S I O N

PANGANIBAN, J.:

The mere fact that petitioner, in regard to its banking functions, is already subject to the supervision of the Bangko Sentral ng Pilipinas does not exempt the former from reasonable disclosure regulations issued by the Securities and Exchange Commission (SEC). These regulations -- imposed on petitioner as a banking institution listed in the stock market -- are meant to assure full, fair and accurate information for the protection of investors. Imposing such regulations is a function within the jurisdiction of the SEC.

The Case

Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, challenging the November 16, 1998 Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 48002. The dispositive portion of the assailed Decision reads as follows:

GIVEN THE FOREGOING, the assailed Orders dated November 5, 1997 and April 14, 1998 are hereby AFFIRMED, with the MODIFICATION that petitioner is assessed a single fine of FIFTY THOUSAND (P50,000.00) PESOS plus FIVE HUNDRED (P500.00) PESOS beginning July 21, 1997, for each day of continuing violation.[3]

Likewise assailed is the May 31, 1999 CA Resolution,[4] which denied petitioners Motion for Reconsideration.

The Facts

The court a quo summarized the antecedents of the case as follows:

Records show that on April 4, 1997, petitioner, through its General Counsel and Corporate Secretary, sought the opinion of Chairman Perfecto Yasay, Jr. of respondent Commission as to the applicability and coverage of the Full Material Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or guaranteed by banking institutions from the registration requirement provided by Section 4 of the same Act. (Annex C, p. 20, Rollo).

In reply thereto, Chairman Yasay, in a letter dated April 8, 1997, informed petitioner that while the requirements of registration do not apply to securities of banks which are exempt under Section 5(a) (3) of the Revised Securities Act, however, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules governing the filing of various reports with respondent Commission, i.e., (1) Rule 11(a)-1 requiring the filing of Annual, Quarterly, Current, Predecessor and Successor Reports; (2) Rule 34-(a)-1 requiring submission of Proxy Statements; and (3) Rule 34-(c)-1 requiring submission of Information Statements, among others. (Annex D, P, U, Rollo).

Not satisfied, petitioner, per letter dated April 30, 1997, informed Chairman Yasay that they will refer the matter to the Philippine Stock Exchange for clarification. (Annex E, p. 22, Rollo)

On May 9, 1997, respondent Commission, through its Money Market Operations Department Director, wrote petitioner, reiterating its previous position that petitioner is not exempt from the filing of certain reports. The letter

further stated that the Revised Securities Act Rule 11(a) requires the submission of reports necessary for full, fair and accurate disclosure to the investing public, and not the registration of its shares. (Annex F, p. 23, Rollo).

On July 17, 1997, respondent Commission wrote petitioner, enjoining the latter to show cause why it should not be penalized for its failure to submit a Proxy/Information Statement in connection with its annual meeting held on May 23, 1997, in violation of respondent Commissions Full Material Disclosure Rule. (Annex 6, p. 24, Rollo).

Failing to respond to the aforesaid communication, petitioner was given a 2nd Show Cause with Assessment by respondent Commission on July 21, 1997. Petitioner was then assessed a fine of P50,000.00 plus P500.00 for every day that the report [was] not filed, or a total of P91, 000.00 as of July 21, 1997. Petitioner was likewise advised by respondent Commission to submit the required reports and settle the assessment, or submit the case to a formal hearing. (Annex H, p. 25, Rollo).

On August 18, 1997, petitioner wrote respondent Commission disputing the assessment. (Annex I, pp. 26-27, Rollo).

Thus, on November 5, 1997, respondent issued the assailed Order, the dispositive portion of which provides:

In view of the foregoing, the appeal filed by the Union Bank of the Philippines is hereby denied.  The penalty imposed in the amount of P91,000.00 as of July 21, 1997, for failure to file SEC Form 11-A excludes the fine accruing after the cut-off date until the final submission of the report. Further, the amount of P50,000.00 shall be collected for the violation of RSA Rule 34(a)-1 or Rule 34 (c)(1). (p. 17, Rollo).

Petitioner sought a reconsideration thereof which was denied by respondent Commission per assailed Order dated April 14, 1998, the dispositive portion of which reads:

There being no new matters raised in the motion for reconsideration to overcome the denial of the Appeal by the Commission En Banc in its Order of November 5, 1997, and considering that the reasons advanced are [a] mere rehash of its defenses duly addressed in the Appeal, the Motion for Reconsideration is hereby, DENIED. (p. 19, Rollo).[5]

Petitioner then elevated its case to the Court of Appeals which, as already stated, affirmed the questioned Orders.

The CA Ruling

In its well-written 10-page Decision, the Court of Appeals cited the expertise of Respondent SEC on matters within the ambit of the latters mandate, as follows:

To begin with, it is already well-settled that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great respect and should be accorded great weight by the courts, unless such construction is clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws. (Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504 [1991], at page 510)  The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. (Nestle Philippines, Inc. v. Court of Appeals, ibid., at pp. 510-511)

In this regard, the Supreme Court, in Philippine Stock Exchange v. Securities and Exchange Commission, et. al., G.R. No. 125469, October 27, 1998, already upheld the power of respondent Securities and Exchange Commission to promulgate rules and regulations, as it may consider appropriate, for the enforcement of the Revised Securities Act and other pertinent laws. Thus, pursuant to their regulatory authority, respondent Securities and Exchange Commission adopted the policy of full material disclosure where all companies, listed or applying for listing, are required to divulge truthfully and accurately, all material information about themselves and the securities they sell, for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. While the employment of the full material disclosure policy is sanctioned and recognized by the laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy.

Moreover and perhaps most importantly, the construction given by respondent Commission on the scope of application of the Full Material Disclosure policy permits greater opportunity for respondent Commission to implement [its] statutory mandate of protecting the investing public by requiring public issuers of securities to inform the public of the true financial conditions and prospects of the corporation.[6]

The court a quo stressed that Rules 11(a)-1, 34(a)-1, and 34(c)-1 were issued by respondent to implement the Revised Securities Act (RSA). They do not require the registration of petitioners securities; thus, it cannot be said that the SEC amended Section 5(a)(3) of the said Act.

Hence, this Petition.[7]

Issues

Petitioner submits for our resolution the following issues:

A. Whether or not petitioner is required to comply with the respondent SECs full disclosure rules.

B. Whether or not the SECs full disclosure rules [are] contrary to and effectively [amend] section 5(a)(3) of the Revised Securities Act.

C. Whether or not Respondent Court of Appeals gravely erred in holding that petitioner violated three (3) Rules, namely: Rule 11(A)-1, Rule 34(A)-1 and Rule 34(C)-1 of the full disclosure rule.

D. Whether or not Respondent Court of Appeals erred in affirming with modification the imposition of excessive fines in violation of the Philippine Constitution.[8]

In the main, the Court will determine (1) the applicability of RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 to petitioner; and (2) the propriety of the fine imposed upon the latter.

The Courts Ruling

The Petition is not meritorious.

First Issue:

Applicability of the Assailed RSA Implementing Rules

Because its securities are exempt from the registration requirements under Section 5(a)(3) of the Revised Securities Act, petitioner argues that it is not covered by RSA Implementing Rule 11(a)-1, which requires the filing of annual, quarterly, current predecessor and successor reports; Rule 34(a)-1, which mandates the filing of proxy statements and forms of proxy; and Rule 34(c)-1, which obligates the submission of information statements.

We do not agree. Section 5(a)(3) of the said Act reads:

Sec 5. Exempt Securities. (a) Except as expressly provided, the requirement of registration under subsection (a) of Section four of this Act shall not apply to any of the following classes of securities:

x x x x x x x x x

(3) Any security issued or guaranteed by any banking institution authorized to do business in the Philippines, the business of which is substantially confined to banking, or a financial institution licensed to engage in quasi-banking, and is supervised by the Central Bank.

This provision exempts from registration the securities issued by banking or financial institutions mentioned in the law. Nowhere does it state or even imply that petitioner, as a listed corporation, is exempt from complying with the reports required by the assailed RSA Implementing Rules. Worth repeating is the CAs disquisition on the matter, which we quote:

However, the exemption from the registration requirement enjoyed by petitioner does not necessarily connote that [it is] exempted from the other reportorial requirements. Having confined the exemption enjoyed by petitioner merely to the initial requirement of registration of securities for public offering, and not [to] the subsequent filing of various periodic reports, respondent Commission, as the regulatory agency, is able to exercise its power of supervision and control over corporations and over the securities market as a whole. Otherwise, the objectives of the `Full Material Disclosure policy would be defeated since petitioner corporation and its dealings would be totally beyond the reach of respondent Commission and the investing public.[9]

It must be emphasized that petitioner is a commercial banking corporation[10] listed in the stock exchange. Thus, it must adhere not only to banking and other allied special laws, but also to the rules promulgated by Respondent SEC, the government entity tasked not only with the enforcement of the Revised Securities Act, [11] but also with the supervision of all corporations, partnerships or associations which are grantees of government-issued primary franchises and/or licenses or permits to operate in the Philippines.[12]

RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to ensure full, fair and accurate disclosure of information for the protection of the investing public. These Rules were issued by respondent pursuant to the authority conferred upon it by Section 3 of the RSA.[13]

The said Rules do not amend Section 5(a)(3) of the Revised Securities Act, because they do not revoke or amend the exemption from registration of the securities enumerated thereunder. They are reasonable regulations imposed upon petitioner as a banking corporation trading its securities in the stock market.

That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control of the BSP; and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. It must be pointed out that even the PSE is under the control and supervision of respondent.[14] There is no over-supervision here. Each regulating authority operates within the sphere of its powers. That stringent requirements are imposed is understandable, considering the paramount importance given to the interests of the investing public.

Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC. These regulations are meant to assure full, fair and accurate disclosure of information for the protection of investors in the stock market. Imposing such regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by the reasonable rules imposed by the SEC.

Second Issue:

Propriety of Fine Imposed

Contending that both respondent and the CA erred in imposing an excessive fine upon it, petitioner complains that it was not given an opportunity to be heard regarding the matter.

It bears stressing that the fine imposed upon petitioner is sanctioned by Section 46(b) of the RSA, which reads as follows:

Sec. 46. Administrative sanctions. If, after proper notice and hearing, the Commission finds that there is a violation of this Act, its rules, or its orders or that any registrant has, in a registration statement and its supporting papers and other reports required by law or rules to be filed with the Commission, made any untrue statement of a material fact,

or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refused to permit any lawful examination into its affairs, it shall, in its discretion, impose any or all of the following sanctions:

x x x x x x x x x

(b) A fine of no less than two hundred (P200.00) pesos nor more than fifty thousand (P50,000.00) pesos plus not more than five hundred (P500.00) pesos for each day of continuing violation.

Petitioner complied with RSA Rule 11(a)-1 on April 30, 1998. To date, it still has not complied with either RSA Rule 34(a)-1 or Rule 34(c)-1. That there was a failure to submit the required reports on time is evident in the present case. Thus, respondent was justified in imposing a fine upon it.

We reject the contention of petitioner that it was not heard on the matter of the fine imposed. The latter was assessed after the former had failed to respond to the SECs first show-cause letter dated June 17, 1997. [15] In its August 18, 1997 letter,[16] petitioner sought before the SEC en banc the nullification of the fine. The matter was raised to the appellate court, which then considered it. Clearly then, petitioner satisfied the essence of due process notice and opportunity to be heard.[17] That it received adverse rulings from both respondent and the CA does not mean that its right to be heard was discarded.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioner.

SO ORDERED.