You are on page 1of 13

SECOND DIVISION

RAFAEL
H.
GALVEZ
KATHERINE L. GUY,
Petitioners,

and

G.R. No. 187919

-versus-

HON. COURT OF APPEALS and


ASIA UNITED BANK,
Respondents.
x------------------------x
ASIA UNITED BANK,
Petitioner,

G.R. No. 187979

-versus-

GILBERT G. GUY, PHILIP LEUNG,


KATHERINE L. GUY, RAFAEL H. GALVEZ
and EUGENIO H. GALVEZ, JR.,
Respondents.
x--------------------------x
GILBERT G. GUY, PHILIP LEUNG and
EUGENIO H. GALVEZ, JR.,
G.R. No. 188030
Petitioners,
Present:
CARPIO, J.,
Chairperson,

-versus-

ASIA UNITED BANK,


Respondent.

BRION,
PEREZ,
SERENO, and
REYES, JJ.
Promulgated:

April 25, 2012


x ----------------------------------------------------------------------------------------x
DECISION
PEREZ, J.:
THE FACTS
In 1999, Radio Marine Network (Smartnet) Inc. (RMSI) claiming to do business
under the name Smartnet Philippines[1] and/or Smartnet Philippines, Inc. (SPI),[2] applied
for an Omnibus Credit Line for various credit facilities with Asia United Bank (AUB). To
induce AUB to extend the Omnibus Credit Line, RMSI, through its directors and officers,
presented its Articles of Incorporation with its 400-peso million capitalization and its
congressional telecom franchise. RMSI was represented by the following officers and
directors occupying the following positions:

Gilbert Guy - Exec. V-Pres./Director


Philip Leung - Managing Director
Katherine Guy - Treasurer
Rafael Galvez - Executive Officer
Eugenio Galvez, Jr. - Chief Financial Officer/Comptroller
Satisfied with the credit worthiness of RMSI, AUB granted it a P250 million
Omnibus Credit Line, under the name of Smartnet Philippines, RMSIs Division. On 1
February 2000, the credit line was increased to P452 million pesos after a third-party real
estate mortgage by Goodland Company, Inc.,[3] an affiliate of Guy Group of Companies,
in favor of Smartnet Philippines,[4] was offered to the bank. Simultaneous to the increase
of the Omibus Credit Line, RMSI submitted a proof of authority to open the Omnibus
Credit Line and peso and dollar accounts in the name of Smartnet Philippines, Inc., which
Gilbert Guy, et al. represented as a division of RMSI,[5] as evidenced by the letterhead
used in its formal correspondences with the bank and the financial audit made by SGV &

Co., an independent accounting firm. Attached to this authority was the Amended Articles
of Incorporation of RMSI, doing business under the name of Smartnet Philippines, and
the Secretarys Certificate of SPI authorizing its directors, Gilbert Guy and Philip Leung
to transact with AUB.[6] Prior to this major transaction, however, and, unknown to AUB,
while RMSI was doing business under the name of Smartnet Philippines, and that there
was a division under the name Smartnet Philippines, Gilbert Guy, et al. formed a
subsidiary corporation, the SPI with a paid-up capital of only P62,500.00.
Believing that SPI is the same as Smartnet Philippines - the division of RMSI AUB granted to it, among others, Irrevocable Letter of Credit No. 990361 in the total
sum of $29,300.00 in favor of Rohde & Schwarz Support Centre Asia Ptd. Ltd., which is
the subject of these consolidated petitions. To cover the liability of this Irrevocable Letter
of Credit, Gilbert Guy executed Promissory Note No. 010445 in behalf of SPI in favor of
AUB. This promissory note was renewed twice, once, in the name of SPI (Promissory
Note No. 011686), and last, in the name of Smartnet Philippines under Promissory Note
No. 136131, bolstering AUBs belief that RMSIs directors and officers consistently treated
this letter of credit, among others, as obligations of RMSI.
When RMSIs obligations remained unpaid, AUB sent letters demanding
payments. RMSI denied liability contending that the transaction was incurred solely by
SPI, a corporation which belongs to the Guy Group of Companies, but which has a
separate and distinct personality from RMSI. RMSI further claimed that while Smartnet
Philippines is an RMSI division, SPI, is a subsidiary of RMSI, and hence, is a separate
entity.
Aggrieved, AUB filed a case of syndicated estafa under Article 315 (2) (a) of the
Revised Penal Code in relation to Section 1 of Presidential Decree (PD) No. 1689 against
the interlocking directors of RMSI and SPI, namely, Gilbert G. Guy, Rafael H. Galvez,
Philip Leung, Katherine L. Guy, and Eugenio H. Galvez, Jr., before the Office of the City
Prosecutor of Pasig City.
AUB alleged that the directors of RMSI deceived it into believing that SPI was a
division of RMSI, only to insist on its separate juridical personality later on to escape
from its liabilities with AUB. AUB contended that had it not been for the fraudulent
scheme employed by Gilbert Guy, et al., AUB would not have parted with its money,

which, including the controversy subject of this petition, amounted to hundreds of


millions of pesos.
In a Resolution dated 3 April 2006, [7] the Prosecutor found probable cause to
indict Gilbert G. Guy, et al. for estafa but dismissed the charge of violation of PD No.
1689 against the same for insufficiency of evidence, thus:
WHEREFORE, it is recommended that respondents be charged for
ESTAFA under Article 315, par. 2(a) of the Revised Penal Code, and the
attached information be filed with the Regional Trial Court in Pasig City,
with a recommended bail of P40,000.00 for each respondent.
It is further recommended that the charge of violation of P.D. 1689
against the said respondents be dismissed for insufficiency of evidence.[8]

Accordingly, an Information dated 3 April 2006[9] was filed against Gilbert


Guy, et al. with the Regional Trial Court of Pasig City.
Both parties, i.e., the AUB and Gilbert Guy, et al., filed their respective Petitions
for Review with the Department of Justice (DOJ) assailing the 3 April 2006 Resolution of
the Office of the City Prosecutor of Pasig City.
In a Resolution dated 15 August 2006,[10] the DOJ reversed the City Prosecutors
Resolution and ordered the dismissal of the estafacharges against Gilbert Guy, et al. for
insufficiency of evidence.
The AUBs Motion for Reconsideration was denied, constraining it to assail the
DOJ Resolution before the Court of Appeals (CA).
The CA partially granted AUBs petition in a Decision dated 27 June 2008, thus:
WHEREFORE, the instant petition is GRANTED, finding
probable cause against private respondents for the crime
of ESTAFA under Article 315, par 2 (a) of the Revised Penal Code. The
assailed Resolution dated August 15, 2006 of the Department of Justice
is REVERSED AND SET ASIDE, subject to our ruling that the private
respondents are not liable under P.D. 1689. The April 3, 2006 Resolution
of Assistant City Prosecutor Paudac is hereby REINSTATED.[11]
Aggrieved, Gilbert Guy, Philip Leung and Eugenio H. Galvez Jr. (in G.R. No.
188030) and separately, Rafael Galvez and Katherine Guy (in G.R. No. 187919) filed the

present petitions before this Court assailing the CA Decision which reinstated the City
Prosecutors Resolution indicting them of the crime of estafa. The AUB also filed its own
petition before us, docketed as G.R. No. 187979, assailing the Court of Appeals Decision
for dismissing the charge in relation to Section 1 of PD No. 1689.
Hence, these consolidated petitions.
Gilbert Guy, et al. argue that this case is but a case for collection of sum of money,
and, hence, civil in nature and that no fraud or deceit was present at the onset of the
transaction which gave rise to this controversy, an element indispensable for estafa to
prosper.[12]
AUB, on the other, insists that this controversy is within the scope of PD No.
1689, otherwise known as syndicated estafa. It contends that Guy, et al., induced AUB to
grant SPIs letter of credit to AUBs damage and prejudice by misleading AUB into
believing that SPI is one and the same entity as Smartnet Philippines which AUB granted
an Omnibus Credit Transaction. After receiving and profiting from the proceeds of the
aforesaid letter of credit, Gilbert Guy, et al. denied and avoided liability therefrom by
declaring that the obligation should have been booked under SPI as RMSI never
contracted, nor authorized the same. It is on this premise that AUB accuses Gilbert
Guy, et al. to have committed the crime of estafa under Article 315 (2) (a) of the Revised
Penal Code in relation to PD No. 1689.
At issue, therefore, is whether or not there is probable cause to prosecute Gilbert
Guy, et al. for the crime of syndicated estafa on the basis of fraudulent acts or fraudulent
means employed to deceive AUB into releasing the proceeds of Irrevocable Letter of
Credit No. 990361 in favor of SPI.
Our Ruling
This controversy could have been just a simple case for collection of sum of
money had it not been for the sophisticated fraudulent scheme which Gilbert Guy, et
al. employed in inducing AUB to part with its money.
Records show that on 17 February 1995, Radio Marine Network, Inc. (Radio
Marine) amended its corporate name to what it stands today Radio Marine

Network (Smartnet), Inc. This was a month after organizing its subsidiary corporation
the Smartnet Philippines, Inc. with a capital of only P62,500.00.[13] A year earlier,
Gilbert Guy, et al., established Smartnet Philippines as a division of Radio Marine
under which RMSI operated its business.
It was, however, only on 26 March 1998, when the Securities and Exchange
Commission approved the amended corporate name, and only in October 1999 did RMSI
register Smartnet Philippines as its business name with the Department of Trade and
Industry.[14]
It is in this milieu that RMSI transacted business with AUB under the name
Smartnet Philippines and/or SPI.
Article 315 (2) (a) of the Revised Penal Code provides:
Art. 315. Swindling (estafa) any person who shall defraud another
by any of the means mentioned herein below x x x :
xxxx
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. x x x.

The elements of estafa by means of deceit are the following:


a.

That there must be a false pretense, fraudulent act or fraudulent


means;
b.
That such false pretense, fraudulent act or fraudulent means must be
made or executed prior to or simultaneously with the commission of
the fraud;
c.
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;
d.
That as a result thereof, the offended party suffered damage.[15]

First, Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez and Eugene
Galvez, Jr., interlocking directors of RMSI and SPI, represented to AUB in their
transactions that Smartnet Philippines and SPI were one and the same entity. While
Eugene Galvez, Jr. was not a director of SPI, he actively dealt with AUB in his capacity
as RMSIs Chief Financial Officer/Comptroller by falsely representing that SPI and RMSI
were the same entity. Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez, and
Eugene Galvez, Jr. used the business names Smartnet Philippines, RMSI, and SPI
interchangeably and without any distinction. They successfully did this by using the
confusing similarity of RMSIs business name, i.e., Smartnet Philippines its division, and,
Smartnet Philippines, Inc. the subsidiary corporation. Further, they were able to hide the
identity of SPI, by having almost the same directors as that of RMSI. In order to let it
appear that SPI is the same as that of Smartnet Philippines, they submitted in their
application documents of RMSI, including its Amended Articles of Incorporation,
[16]
third-party real estate mortgage of Goodland Company[17] in favor of Smartnet
Philippines, and audited annual financial statement of SGV & Co.[18] Gilbert Guy, et
al. also used RMSI letterhead in their official communications with the bank and the
contents of these official communications[19] conclusively pointed to RMSI as the one
which transacted with the bank.
These circumstances are all indicia of deceit. Deceit is the false representation of
a matter of fact whether by words or conduct, by false or misleading allegations, or by
concealment of that which should have been disclosed which deceives or is intended to
deceive another so that he shall act upon it to his legal injury.[20]
Second, the intent to deceive AUB was manifest from the start. Gilbert Guy et
al. laid down first all the necessary materials they need for this deception before
defrauding the bank by first establishing Smartnet Philippines as a division of Radio
Marine under which Radio Marine Network Inc. operated its business. [21] Then it
organized a subsidiary corporation, the SPI, with a capital of onlyP62,000.00.[22] Later, it
changed the corporate name of Radio Marine Network Inc. into RMSI.[23]
Undoubtedly, deceit here was conceived in relation to Gilbert Guy, et
al.s transaction with AUB. There was a plan, documented in corporations papers, that led
to the defraudation of the bank. The circumstances of the directors and officers acts in
inserting in Radio Marine the name of Smartnet; the creation of its division Smartnet

Philippines; and its registration as business name as Smartnet Philippines with the
Department of Trade and Industry, together with the incorporation of its subsidiary, the
SPI, are indicia of a pre-conceived scheme to create this elaborate fraud, victimizing a
banking institution, which perhaps, is the first of a kind in Philippine business.
We emphasize that fraud in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment involving a breach
of legal duty or equitable duty, trust, or confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious advantage is taken of another.[24] It is
a generic term embracing all multifarious means which human ingenuity can device and
which are resorted to by one individual to secure an advantage over another by false
suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated.[25]
As early as 1903, in U.S. v. Mendezona,[26] we held that an accused may be
convicted for estafa if the deceit of false pretense is committed prior to or simultaneous
with fraud and is the efficient cause or primary consideration which induced the offended
party to part with his money or property.
Third, AUB would not have granted the Irrevocable Letter of Credit No. 990361,
among others, had it known that SPI which had only P62,500.00 paid-up capital and no
assets, is a separate entity and not the division or business name of RMSI. Gilbert Guy, et
al.however, contends that the transaction subject in this controversy is a letter of credit
and not a loan, hence, SPIs capital does not matter.[27] This was also the contention of the
DOJ in reversing the Resolution of the City Prosecutors Office of Pasig. The DOJ
contended that:
It is also noted that the subject transaction, one of the several series of
transactions between complainant AUB and SPI, is not a loan transaction.
It is a letter of credit transaction intended to facilitate the importation of
goods by SPI. The allegation as to the lack of capitalization of SPI is
therefore immaterial and irrelevant since it is a letter of credit transaction.
The seller gets paid only if it delivers the documents of title over the goods
to the bank which issued the letter of credit, while the buyer/importer
acquires title to the goods once it reimburses the issuing bank. The
transaction secures the obligation of the buyer/importer to the issuing
bank. [28]

It is true that ordinarily, in a letter of credit transaction, the bank merely substitutes its
own promise to pay for the promise to pay of one of its customers, who in turn promises
to pay the bank the amount of funds mentioned in the letters of credit plus credit or
commitments fees mutually agreed upon. Once the issuing bank shall have paid the
beneficiary after the latters compliance with the terms of the letter of credit, the issuing
bank is entitled to reimbursement for the amount it paid under the letter of credit.[29]
In the present case, however, no reimbursement was made outright, precisely
because the letter of credit was secured by a promissory note executed by SPI. The bank
would have not agreed to this transaction had it not been deceived by Gilbert Guy, et
al. into believing the RMSI and SPI were one and the same entity. Guy and his cohorts
acts in (1) securing the letter of credit guaranteed by a promissory note in behalf of SPI;
and, (2) their act of representing SPI as RMSIs Division, were indicia of fraudulent acts
because they fully well know, even before transacting with the bank, that: (a) SPI was a
separate entity from Smartnet Philippines, the RMSIs Division, which has the Omnibus
Credit Line; and (b) despite this knowledge, they misrepresented to the bank that SPI is
RMSIs division. Had it not for this false representation, AUB would have not granted
SPIs letter of credit to be secured with a promissory note because SPI as a corporation
has no credit line with AUB and SPI by its own, has no credit standing.
Fourth, it is not in dispute that the bank suffered damage, which, including this
controversy, amounted to hundreds of millions of pesos.
It is worth emphasizing that under Section 1, Rule 112 of the Revised Rules on
Criminal Procedure, the function of a preliminary investigation is to determine whether
there is a sufficient ground to engender a well-grounded belief that a crime x x x has been
committed and that the respondent is probably guilty thereof and should be held for trial.
[30]

A finding of probable cause needs only to rest on evidence showing that more
likely than not, the accused committed the crime.[31] Preliminary investigation is not the
occasion for the full and exhaustive display of the parties' evidence. [32] It is for the
presentation of such evidence only as may engender a well-founded belief that an offense
has been committed and that the accused is probably guilty thereof. [33] The validity and
merits of a party's accusation or defense, as well as admissibility of testimonies and
evidence, are better ventilated during the trial proper.[34]

We, therefore, sustain the findings of the CA and the City Prosecutors Resolution
finding that probable cause exists against Gilbert Guy, et al. for the crime of estafa under
Article 315 (2)(a) of the Revised Penal Code and that Gilbert Guy, et al. are probably
guilty thereof and should be held for trial. AUBs voluminous documents submitted to this
Court overcome this difficulty and established that there is sufficient ground to engender
a well-grounded belief that a crime has been committed and that the respondents are
probably guilty thereof and should be held for trial.
Lest it be misunderstood, we reiterate that this Courts finding of probable cause is
grounded on fraud committed through deceit which surrounded Gilbert Guy, et
al. transaction with AUB, thus, violating Article 315 (2) (a) of the Revised Penal Code; it
is neither their act of borrowing money and not paying them, nor their denial thereof, but
their very act of deceiving AUB in order for the latter to part with its money. As early as
the Penal Code of Spain, which was enforced in the Philippines as early as 1887 until it
was replaced by the Revised Penal Code in 1932, the act of fraud through false pretenses
or similar deceit was already being punished. Article 335 of the Penal Code of Spain
punished a person who defrauded another by falsely pretending to possess any power,
influence, qualification, property, credit, agency or business, or by means of similar
deceit.[35]
Anent the issue as to whether or not Gilbert Guy, et al. should be charged for
syndicated estafa in relation to Section 1 of PD No. 1689, which states that:
SEC 1. Any person or persons who shall commit estafa or other
forms of swindling as defined in Article 315 and 316 of the Revised Penal
Code, as amended, shall be punished by life imprisonment to death if the
swindling (estafa) is committed by a syndicate consisting of five or more
persons formed with the intention of carrying out the unlawful or illegal
act, transaction, enterprise or scheme, and the defraudation results in the
misappropriation of moneys contributed by stockholders, or members of
rural banks, cooperatives, samahang nayon(s), or farmers associations, or
of funds solicited by corporations/ associations from the general public.

We hold that the afore-quoted law applies to the case at bar, for the following
reasons:
Under Section 1 of PD No. 1689, the elements of syndicated estafa are:
(a) estafa or other forms of swindling as defined in Artilce 315 and 316 of the Revised

Penal Code is committed; (b) the estafa or swindling is committed by a syndicate of five
or more persons; and(c) defraudation results in the misappropriation of moneys
contributed by stockholders, or members of rural banks, cooperatives,samahang nayon[s],
or farmers associations or of funds solicited by corporations/associations from the general
public.[36]
First, as defined under Section 1 of PD No. 1689, a syndicate consists of five or
more persons formed with the intention of carrying out the unlawful or illegal act,
transaction, enterprise or scheme. Five (5) accused, namely, Gilbert G. Guy, Rafael H.
Galvez, Philip Leung, Katherine L. Guy, and Eugenio H. Galvez, Jr. were, (a) all
involved in the formation of the entities used to defraud AUB; and (b) they were the
officers and directors, both of RMSI and SPI, whose conformities paved the way for
AUB to grant the letter of credit subject of this case, in AUBs honest belief that SPI, as
Gilbert Guy, et al. represented, was a mere division of RMSI. As already discussed,
although Eugenio Galvez, Jr. was not a director of SPI, he, together with Gilbert Guy and
Philip Leung, actively participated in the scheme through their signed correspondences
with the bank and their attendance in the meetings with executives of AUB. [37] Rafael
Galvez and Katherine Guy, on the other hand, were the directors of RMSI and SPI who
caused and authorized Gilbert Guy and Philip Leung to transact with AUB.[38]
Second, while these corporations were established presumably in accordance with
law, it cannot be denied that Gilbert G. Guy, Rafael H. Galvez, Philip Leung, Katherine
L. Guy, and Eugenio H. Galvez, Jr. used these corporations to carry out the illegal and
unlawful act of misrepresenting SPI as a mere division of RMSI, and, despite knowing
SPIs separate juridical personality, applied for a letter of credit secured by SPIs
promissory note, knowing fully that SPI has no credit line with AUB. The circumstances
of the creation of these entities and their dealings with the bank reveal this criminal intent
to defraud and to deceive AUB.
Third, the fact that the defraudation of AUB resulted to misappropriation of the
money which it solicited from the general public in the form of deposits was substantially
established.[39] Section 3.1 of the General Banking Law defines banks as entities engaged
in the lending of funds obtained in the form of deposits. The Old General Banking Act
(R.A. No. 337) gave a fuller picture of the basic banking function of obtaining funds from
the public by way of deposits and the lending of these funds as follows:
Sec 2. Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public

through the receipt of deposits of any kind, and all entities regularly
conducting such operations shall be considered as banking institutions,
xxxx.
Gilbert Guy et al. want this Court to believe that AUB, being a commercial bank,
is beyond the coverage of PD No. 1689. We hold, however, that a bank is a corporation
whose fund comes from the general public. P.D. No. 1689 does not distinguish the nature
of the corporation. It requires, rather, that the funds of such corporation should come
from the general public. This is bolstered by the third whereas clause of the quoted law
which states that the same also applies to other corporations/associations operating on
funds solicited from the general public. This is precisely the very same scheme that PD
No. 1689 contemplates that this species of estafa be checked or at least be minimized by
imposing capital punishment involving funds solicited by corporations/associations from
the general public because this erodes the confidence of the public in the banking and
cooperative system, contravenes public interest and constitutes economic sabotage that
threatens the stability of the nation.[40]
Hence, for the stated reasons, we applied the law in People v. Balasa,[41] a nonstock/non-profit corporation the Panata Foundation of the Philippines, Inc. We held that
PD No. 1689 also applies to other corporations/associations operating on funds solicited
from the general public.
In People v. Romero,[42] we also applied the law to a stock corporation engaged in
marketing, the Surigao San Andres Industrial Development Corporation. Likewise,
in People v. Menil,[43] we applied the law to another marketing firm known as ABM
Appliance and Upholstery.
In these cited cases, the accused used the legitimacy of their entities to perpetrate
their unlawful and illegal acts. We see no reason not to apply this law to a banking
institution, a corporation imbued with public interest, when a clear reading of the PD
1689 reveals that it is within its coverage.
WHEREFORE, the Decision of the Court of Appeals dated 27 June 2008 in CAG.R. SP No. 97160 is hereby AFFIRMED withMODIFICATION that Gilbert G. Guy,
Rafael H. Galvez, Philip Leung, Katherine L. Guy and Eugenio H. Galvez, Jr. be charged
forSYNDICATED ESTAFA under Article 315 (2) (a) of the Revised Penal Code in
relation to Section 1 of Presidential Decree No. 1689.

SO ORDERED.