BETTY GABIONZA and Roxas (Roxas) and Evelyn Nolasco (Nolasco)
G.R. No. 161057 with several criminal acts. Roxas was the
ISABELITA TAN, president of ASB Holdings, Inc. (ASBHI) while
Petitioners, Nolasco was the senior vice president and
treasurer of the same corporation.
Present:
According to petitioners, ASBHI was
incorporated in 1996 with its declared primary
QUISUMBING, J. purpose to invest in any and all real and personal
properties of every kind or otherwise acquire the
Chairperson, stocks, bonds, and other securities or evidence of
- versus - indebtedness of any other corporation, and to
CARPIO MORALES, hold or own, use, sell, deal in, dispose of, and
turn to account any such stocks.2[2] ASBHI was
TINGA, organized with an authorized capital stock of
P500,000.00, a fact reflected in the corporations
VELASCO, JR., and articles of incorporation, copies of which were
COURT OF APPEALS, LUKE appended as annexes to the complaint.3[3]
BRION, JJ.
ROXAS and EVELYN NOLASCO, Both petitioners had previously placed
Respondents. monetary investment with the Bank of Southeast
Promulgated: Asia (BSA). They alleged that between 1996
and 1997, they were convinced by the officers of
ASBHI to lend or deposit money with the
September 12, 2008 corporation. They and other investors were
urged to lend, invest or deposit money with
x -------------------------------------------------------- ASBHI, and in return they would receive checks
-------------------------x from ASBHI for the amount so lent, invested or
deposited. At first, they were issued receipts
reflecting the name ASB Realty Development
DECISION which they were told was the same entity as
BSA or was connected therewith, but beginning
Tinga, J.: 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
On 21 August 2000, petitioners Betty that they had previously dealt with.4[4]
Go Gabionza (Gabionza) and Isabelita Tan
(Tan) filed their respective Complaints-
affidavit1[1] charging private respondents Luke
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[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[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[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[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[9] Petitioners filed a motion for
reconsideration but this was denied in February
2001.10[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[11] Motions for reconsideration to this
Resolution were denied by the Department of
Justice in a Resolution dated 3 July 2002.12[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 Decision13[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[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[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
only P125,000.00. 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[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[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
only P500,000.00 and paid up capital of only
P125,000.00.18[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[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[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[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[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 loans upon 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[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[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[25]
To the benefit of private respondents, the Court
of Appeals ruled, citing Sesbreno v. Court of
Appeals,26[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[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[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[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[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[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[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[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[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[35] This doctrine was reaffirmed
as recently as 2001, where the Court, through
Justice Quisumbing, held in Benedicto v. Court
of Appeals36[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[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[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[39] This conclusion finds
textual support in Article 1740[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[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[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[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[44] over five billion
pesos were booked as advances to stockholder Appeals dated 18 July 2003 and 28 November
when, according to the general information 2003 are REVERSED and SET ASIDE. The
sheet for 1999, Roxas owned 124,996 of the Resolutions of the Department of Justice in I.S.
125,000 subscribed shares of ASBHI.45[45] Nos. 2000-1418 to 1422 dated 15 October 2001
Considering that ASBHI had an authorized and 3 July 2002 are REINSTATED. Costs
capital stock of only P500,000 and a against private respondents.
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 DANTE O. TINGA
700 investors to ASBHI.
Associate Justice
It is true that there are exceptions that may
warrant departure from the general rule of non-
interference with the determination of probable WE CONCUR:
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
SECURITIES AND EXCHANGE commissions, interest in real estate in the
G.R. No. 164197 Philippines and in the United States, and
COMMISSION, insurance coverage worth P50,000.00.
Petitioner,
Present: To benefit from this scheme, a PCI
buyer must enlist and sponsor at least two other
buyers as his own down-lines. These second tier
VELASCO, JR., J., Chairperson, of buyers could in turn build up their own down-
- versus - lines. For each pair of down-lines, the buyer-
PERALTA, sponsor received a US$92.00 commission. But
ABAD, referrals in a day by the buyer-sponsor should
MENDOZA, and not exceed 16 since the commissions due from
PERLAS-BERNABE, JJ. excess referrals inure to PCI, not to the buyer-
PROSPERITY.COM, INC., sponsor.
Respondent.
Promulgated: Apparently, PCI patterned its scheme
from that of Golconda Ventures, Inc. (GVI),
which company stopped operations after the
January 25, 2012 Securities and Exchange Commission (SEC)
x -------------------------------------------------------- issued a cease and desist order (CDO) against it.
------------------------------- x As it later on turned out, the same persons who
ran the affairs of GVI directed PCIs actual
DECISION operations.
ABAD, J.: In 2001, disgruntled elements of GVI
filed a complaint with the SEC against PCI,
alleging that the latter had taken over GVIs
This case involves the application of the Howey operations. After hearing,46[1] the SEC, through
test in order to determine if a particular its Compliance and Enforcement unit, issued a
transaction is an investment contract. CDO against PCI. The SEC ruled that PCIs
scheme constitutes an Investment contract and,
The Facts and the Case following the Securities Regulations Code,47[2]
it should have first registered such contract or
Prosperity.Com, Inc. (PCI) sold securities with the SEC.
computer software and hosted websites without
providing internet service. To make a profit, PCI Instead of asking the SEC to lift its
devised a scheme in which, for the price of CDO in accordance with Section 64.3 of
US$234.00 (subsequently increased to US$294),
a buyer could acquire from it an internet website
of a 15-Mega Byte (MB) capacity. At the same
time, by referring to PCI his own down-line
buyers, a first-time buyer could earn
Republic Act (R.A.) 8799, PCI filed with the
Court of Appeals (CA) a petition for certiorari
against the SEC with an application for a
temporary restraining order (TRO) and
preliminary injunction in CA-G.R. SP 62890.
Because the CA did not act promptly on this
application for TRO, on January 31, 2001 PCI
returned to the SEC and filed with it before the
lapse of the five-day period a request to lift the
CDO. On the following day, February 1, 2001,
PCI moved to withdraw its petition before the
CA to avoid possible forum shopping violation.
During the pendency of PCIs action
before the SEC, however, the CA issued a TRO,
enjoining the enforcement of the CDO.48[3] In
response, the SEC filed with the CA a motion to
dismiss the petition on ground of forum
shopping. In a Resolution,49[4] the CA initially
dismissed the petition, finding PCI guilty of
forum shopping. But on PCIs motion, the CA
reversed itself and reinstated the petition.50[5]
In a joint resolution,51[6] CA-G.R. SP
62890 was consolidated with CA-G.R. SP 64487
that raised the same issues. On July 31, 2003 the
CA rendered a decision, granting PCIs petition
and setting aside the SEC-issued CDO.52[7] The
CA ruled that, following the Howey test, PCIs
scheme did not constitute an investment contract
that needs registration pursuant to R.A. 8799,
hence, this petition.
The Issue Presented
The sole issue presented before the
Court is whether or not PCIs scheme constitutes
an investment contract that requires registration
under R.A. 8799.
The Ruling of the Court
The Securities Regulation Code treats
investment contracts as securities that have to be
registered with the SEC before they can be
distributed and sold. An investment contract is a
contract, transaction, or scheme where a person
invests his money in a common enterprise and is
led to expect profits primarily from the efforts of
others.53[8]
Apart from the definition, which the
Implementing Rules and Regulations provide,
Philippine jurisprudence has so far not done
more to add to the same. Of course, the United
States Supreme Court, grappling with the
problem, has on several occasions discussed the
nature of investment contracts. That courts
rulings, while not binding in the Philippines,
enjoy some degree of persuasiveness insofar as
they are logical and consistent with the countrys
best interests.54[9]
The United States Supreme Court held
in Securities and Exchange Commission v. W.J.
Howey Co.55[10] that, for an investment
contract to exist, the following elements,
referred to as the Howey test must concur: (1) a
contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in
a common enterprise; (4) expectation of profits;
and (5) profits arising primarily from the efforts
of others. 56[11] Thus, to sustain the SEC
position in this case, PCIs scheme or contract
with its buyers must have all these elements.
An example that comes to mind would
be the long-term commercial papers that large
companies, like San Miguel Corporation (SMC),
offer to the public for raising funds that it needs
for expansion. When an investor buys these
papers or securities, he invests his money,
together with others, in SMC with an
expectation of profits arising from the efforts of
those who manage and operate that company.
SMC has to register these commercial papers
with the SEC before offering them to investors.
Here, PCIs clients do not make such
investments. They buy a product of some value
to them: an Internet website of a 15-MB
capacity. The client can use this website to
enable people to have internet access to what he
has to offer to them, say, some skin cream. The
buyers of the website do not invest money in
PCI that it could use for running some business
that would generate profits for the investors. The
price of US$234.00 is what the buyer pays for
the use of the website, a tangible asset that PCI
creates, using its computer facilities and
technical skills.
Actually, PCI appears to be engaged in
network marketing, a scheme adopted by
companies for getting people to buy their
products outside the usual retail system where
products are bought from the stores shelf. Under
this scheme, adopted by most health product
distributors, the buyer can become a down-line
seller. The latter earns commissions from
purchases made by new buyers whom he refers
to the person who sold the product to him. The
network goes down the line where the orders to
buy come.
The commissions, interest in real estate, and
insurance coverage worth P50,000.00 are
incentives to down-line sellers to bring in other
customers. These can hardly be regarded as
profits from investment of money under the
Howey test.
The CA is right in ruling that the last
requisite in the Howey test is lacking in the
marketing scheme that PCI has adopted.
Evidently, it is PCI that expects profit from the
network marketing of its products. PCI is correct
in saying that the US$234 it gets from its clients
is merely a consideration for the sale of the
websites that it provides.
WHEREFORE, the Court DENIES the petition
and AFFIRMS the decision dated July 31, 2003
and the resolution dated June 18, 2004 of the
Court of Appeals in CA-G.R. SP 62890.
SO ORDERED.
G.R. No. 195542
SECURITIES AND EXCHANGE
COMMISSION, Petitioner,
vs.
OUDINE SANTOS, Respondent.
DECISION
PEREZ, J.:
Before us is another cautionary tale of an
investment arrangement which, at the outset,
appeared good, unraveling unhappily as a deal
too-good-to-be-true.
This petition for review on certiorari under Rule
45 of the Rules of Court assails the Decision1 of
the Court of Appeals in CA-G.R. SP No. 112781
affirming the Resolutions2 of the Secretary of
Justice in I.S. No. 2007-1054 which, among
others, dismissed the criminal complaint for
violation of Section 28 of Republic Act No.
8799, the Securities Regulation Code, filed by
petitioner Securities and Exchange Commission
(SEC) against respondent Oudine Santos
(Santos).
Sometime in 2007, yet another investment scam
was exposed with the disappearance of its
primary perpetrator, Michael H.K. Liew (Liew),
a self- styled financial guru and Chairman of the
Board of Directors of Performance Investment
Products Corporation (PIPC-BVI), a foreign
corporation registered in the British Virgin
Islands.
To do business in the Philippines, PIPC-BVI
incorporated herein as Philippine International
Planning Center Corporation (PIPC
Corporation).
Because the head of PIPC Corporation had gone
missing and with it the monies and investment
of a significant number of investors, the SEC
was flooded with complaints from thirty-one
(31) individuals against PIPC Corporation, its
directors, officers, employees, agents and
brokers for alleged violation of certain
provisions of the Securities Regulation Code,
including Section 28 thereof. Santos was
charged in the complaints in her capacity as
investment consultant of PIPC Corporation, who
supposedly induced private complainants Luisa
Mercedes P. Lorenzo (Lorenzo) and Ricky
Albino P. Sy (Sy), to invest their monies in
PIPC Corporation.
The common recital in the 31 complaints is that:
x x x [D]ue to the inducements and solicitations
of the PIPC corporation’s directors, officers and
employees/agents/brokers, the former were
enticed to invest their hard-earned money, the
minimum amount of which must be
US$40,000.00, with PIPC-BVI, with a promise
of higher income potential of an interest of 12 to
18 percentum (%) per annum at relatively low-
risk investment program. The private
complainants also claimed that they were made
to believe that PIPC Corporation refers to
Performance Investment Product Corporation,
the Philippine office or branch of PIPC-BVI,
which is an entity engaged in foreign currency
trading, and not Philippine International
Planning Center Corporation.3
Soon thereafter, the SEC, through its
Compliance and Endorsement Division, filed a
complaint-affidavit for violation of Sections 8,4
265 and 286 of the Securities Regulation Code
before the Department of Justice which was
docketed as I.S. No. 2007-1054. Among the
respondents in the complaint-affidavit were the
principal officers of PIPC: Liew, Chairman and
President; Cristina Gonzalez-Tuason, Director
and General Manager; Ma. Cristina Bautista-
Jurado, Director; and herein respondent Santos.
Private complainants, Lorenzo and Sy, in their
affidavits annexed to SEC’s complaint-affidavit,
respectively narrated Santos’ participation in
how they came to invest their monies in PIPC
Corporation:
1. Lorenzo’s affidavit
xxxx
2. I heard about PIPC Corporation from my
friend Derrick Santos during an informal
gathering sometime in March 2006. He said that
the investments in PIPC Corporation generated a
return of 18-20% p.a. every two (2) months. He
then gave me the number of his sister, Oudine
Santos who worked for PIPC Philippines to
discuss the investment further.
3. I then met with Oudine Santos sometime
during the first week of April 2006 at PIPC
Philippines’ lounge x x x. Oudine Santos
conducted for my personal benefit a presentation
of the characteristics of their investment product
called "Performance Managed Portfolio" (PMP).
The main points of her presentation are indicated
in a summary she gave me, x x x:
xxxx
4. I asked Oudine Santos who were the traders,
she said their names were "confidential."
5. Oudine Santos also emphasized in that same
meeting that I should keep this transaction to
myself because they were not allowed to
conduct foreign currency trading. However, she
assured me that I should not worry because they
have a lot of "big people" backing them up. She
also mentioned that they were applying for a
seat in the "stock exchange."
6. I ultimately agreed to put in FORTY
THOUSAND US DOLLARS (US$40,000.00) in
their investment product.
7. Oudine Santos then gave me instructions on
how to place my money in PMP and made me
sign a Partnership Agreement. x x x.
xxxx
8. Soon thereafter, pursuant to the instructions
Oudine Santos gave me, I remitted
US$40,000.00 to ABN-AMRO Hong Kong.
9. Afterwards, I received a letter dated 17 April
2006, signed by Michael H.K. Liew, welcoming
my investment.
xxxx
10. Sometime on May 2006, I added another
US$ 60,000.00 to my then subsisting account
#181372, thus totaling US$100,000.00. This
amount, pursuant to the instructions of Oudine
Santos, was remitted to Standard Chartered
Bank.
xxxx
14. Then sometime on May 2007, I planned to
pull out my remaining US$100,000.00
investment in PIPC Philippines. On 22 May
2007, I met with Oudine Santos at the 15th Floor
of Citibank Tower in Makati City. I told her I
wanted to terminate all my investments.
15. Oudine Santos instead said that PIPC
Philippines has a new product I might be
interested in. x x x She explained that this
product had the following characteristics:
xxxx
16. Oudine Santos reiterated these claims in an
email she sent me on 22 May 2007. x x x.
17. Enticed by these assurances and promises of
large earnings, I put in FOUR HUNDRED
THOUSAND US DOLLARS (US$400,000.00)
in PMP (RZB), which became account #
R149432.
18. Pursuant to the instructions Oudine Santos
gave me, I remitted the amount of US$
400,000.00 to RZB Austria, Singapore Branch.
xxxx
22. I tried calling Oudine Santos and was finally
able to reach her at around 7 in the morning. She
confirmed what Leah Caringal told me. I told
her then that I want full recovery of my
investment in accordance with their 100%
principal guarantee. To this day[,] I have not
received my principal investment.7
5. Sy’s affidavit
2. I have been a depositor of the Bank of the
Philippine Islands (BPI) Pasong Tamo branch
for the past 15 years. Sometime in the last
quarter of 2006, I was at BPI Pasong Tamo to
accomplish certain routine transactions. Being a
client of long standing, the bank manager[,] as a
matter of courtesy, allowed me to wait in her
cubicle. It was there that the bank manager
introduced me to another bank client, Ms.
Oudine Santos. After exchanging pleasantries,
and in the course of a brief conversation, Ms.
Santos told me that she is a resident of
Damariñas Village and was working as an
investment consultant for a certain company,
Performance Investment Products Corporation
[PIPC]. She told me that she wanted to invite me
to her office at the Citibank Tower in Makati so
that she could explain the investment products
that they are offering. I gave her my contact
number and finished my transaction with the
bank for that day;
3. Ms. Santos texted me to confirm our meeting.
A few days later, I met her at the business
lounge of [PIPC] located at the 15th Floor of
Citibank Tower, Makati. During the meeting,
Ms. Santos enticed me to invest in their
Performance Managed Portfolio which she
explained was a risk controlled investment
program designed for individuals like me who
are looking for higher investment returns than
bank deposits while still having the advantage of
security and liquidity. She told me that they
were engaged in foreign currency trading abroad
and that they only employ professional and
experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro,
British Pound, Swiss Francs and Australian
Dollar. I then told her that I did not have any
experience in foreign currency trading and was
quite conservative in handling my money;
4. Ms. Santos quickly allayed my fears by
emphasizing that the capital for any investment
with [PIPC] is secure. She then trumpeted
[PIPC’s] track record in the Philippines, having
successfully solicited investments from many
wealthy and well-known individuals since 2001;
5. Ms. Santos convinced me to invest in
Performance Management Portfolio I x x x
[which] features full protection for the principal
investment and a 60%-40% sharing of the profit
between the client and [PIPC] respectively;
6. In November of 2006, I decided to invest
USD 40,000 specifically in Performance
Management Portfolio I x x x. After signing the
Partnership Agreement, x x x, I was instructed
by Ms. Santos to deposit the amount by
telegraphic transfer to [PIPC’s] account in ABN
AMRO Bank Hong Kong. I did as instructed;
xxxx
8. Sometime January to March of 2007, [Santos]
was convincing me to make an additional
investment under a second product, Performance
Management Portfolio II [PMP II] which
provides a more limited guarantee for the
principal investment of USD 100,000 and a
80%-20% sharing of the profit between the
client and [PIPC] respectively. In both schemes,
the client’s participation will be limited to
choosing two currencies which will in turn be
traded by professional traders abroad. Profit
earned from the transaction will then be remitted
to the client’s account every 8 weeks;
xxxx
10. After I made my USD 40,000 PMP I
investment, Ms. Santos invited me to meet Mr.
Michael Liew in the business lounge some time
during the first quarter of this year. My
impression was that he was quite unassuming
considering that he was the head of an
international investment firm. x x x.8
On the whole, Lorenzo and Sy charge Santos in
her capacity as investment consultant of PIPC
Corporation who actively engaged in the
solicitation and recruitment of investors. Private
complainants maintain that Santos, apart from
being PIPC Corporation’s employee, acted as
PIPC Corporation’s agent and made
representations regarding its investment
products and that of the supposed global
corporation PIPC-BVI. Facilitating Lorenzo’s
and Sy’s investment with PIPC Corporation,
Santos represented to the two that investing with
PIPC Corporation, an affiliate of PIPC-BVI,
would be safe and full-proof.
In SEC’s complaint-affidavit, it charged the
following:
xxxx
12. This case stems from the act of fraud and
chicanery masterfully orchestrated and executed
by the officers and agents of PIPC Corp. against
their unsuspecting investors. The deception is
founded on the basic fact that neither PIPC
Corp. nor its officers, employees and agents are
registered brokers/dealers, making their
numerous transactions of buying and selling
securities to the public a blatant violation of the
provisions of the SRC,ofspecifically
Name Investors Sections 8
Broker/Agent
and 28 thereof. Their illegal offer/sale of
securities in the form of the "Performance
Management Partnership Agreement" to the
public was perpetrated
x x x x for about nine (9) years
and would have continued were it not for the
23. probably,
alleged, and most Luisa Mercedes
contrivedOudine
and
P. Lorenzo
deliberate withdrawal Santos
of the entire funds of the
corporation by Michael H.K. Liew. The [scam]
was masked byxaxsupposed
xx offshore foreign
currency trading scheme promising that the
32. Ricky Albino Oudine
principal or capital infused will be guaranteed or
P. Sy Santos
fully protected. Coupled with this [full]
guarantee for the principal is the prospect of
profits at an annual rate of 12 to 18%. [One of]
the other enticements provided by the subject
company were free use of its business either for
personal or business purposes, free subscription
of imported magazines, [trips] abroad, and
insurance coverage, just to name a few. Fully
convinced and enamored [by the] thought of
earning higher rates of interest along with the
promise of a guaranteed [capital] the investors
placed and entrusted their money to PIPC Corp.,
only to find out later [that they] had been
deceived and taken for a ride.
xxxx
17. Sometime in 2006, an investigation was
undertaken by the [Compliance and
Enforcement Division of the SEC] on the
[account] of PIPC Corp. Per its Articles of
Incorporation, PIPC Corp. was authorized to
engage [in the] dissemination of information on
the current flow of foreign exchange (forex) as x
x x precious metals such as gold, silver, and oil,
and items traded in stock and
securities/commodities exchanges around the
world. To be more specific, PIPC Corp. [was]
authorized to act only as a research arm of their
foreign clients.
xxxx
22. x x x.
Banl/Location to which Date Account
funds were transferred Number
RZB Austria, Singapore June 2007 R149432
Branch
ABN-AMRO Bank 9 October 0800287
Hongkong 2006 769
23. A careful perusal of the complaint-affidavits
revealed that for every completed investment
transaction, a company brochure, depending on
the type of investment portfolio chosen, was
provided to each investor containing the
following information on Performance BVI and
its investment product called Performance
Managed Portfolio or PMP, the points of which
are as follows:
a.8 calendar week maturity period[,]
b.principal investment (minimum of USD
40,000) is protected[,]
c.investments maintained in strict
confidentiality[,]
d.features: security, liquidity, short term
commitment,
e.tax-exemption status for offshore investments.
24.The investment flow is described as follows:
a.Investors’ funds will be placed into a fixed
deposit account with a PIPC designated bank
and shall not be exposed for trading purposes.
The PIPC designated bank shall then extend a
margin line request for trading based on the
deposit;
b.PIPC shall open a separate account which will
contain an amount of not more than 30% of its
own funds to serve as a profit and loss account;
c.Trading will commence with PIPC designated
bank closely
Amount of monitoring
Bank/the performance to
ensure that
Investment if losses are incurred trading will
Location
cease immediately should
xxx the 20% stop limit be
hit;
d.Profits will be credited into the Profit and Loss
account with PIPC designated bank account.
US$500,000
Losses will be debitedNotfrom
provided
the same account up
to the controlled 20% limit;
e.Notice of withdrawals must be submitted two
weeks prior to schedule of maturity otherwise
investment is automatically rolled over to the
US$40,000 BPI Pasong
next batch;
Tamo B9
f.At maturity, profits accumulated in the
settlement account shall be distributed and
deposited into each investor’s dollar bank
account within fourteen (14) banking days;
g.The funds of various investors are pooled,
batched and deposited with PIPC designated
bank account acting as custodian bank, to form a
massive asset base. This account is separate and
distinct from the Profit and Loss Account. The
line from this pooled fund is then entrusted to
full time professional and experienced foreign
traders who each specialize in the following
currencies: Japanes Yen, Euro, British Pound,
Swiss Francs and Australian Dollar. Profits
generated from trading these major currencies is
credited into the Profit and Loss Account, which
at the end of the eight calendar week lock-in
period, will be distributed among the investors.
Investors are informed of their account status
thru trading statements issued by PIPC every
time there is a trade made in their respective
accounts.
xxxx
25. Furthermore, it was relayed by the officers
and agents to complainants-investors that PIPC
Corp. is the Philippine office of the Performance
Group of Companies affiliates situated in
different parts of the world, particularly China,
Indonesia, Hong Kong, Japan, Korea,
Singapore, and the British Virgin Islands (BVI),
even reaching Switzerland. With such basic
depiction of the legitimacy and stability of PIPC
Corp., complainants-investors deduced that it
was clothed with the authority to solicit, offer
[and] sell securities. As regards the officers and
agents of [PIPC Corp.], they secured proper
individual licenses with the SEC as
brokers/dealers of securities to enable to solicit,
offer and/or sell the same.
26. Official SEC documents would show that
while PIPC Corp. is indeed registered with the
SEC, it having engaged in the solicitation and
sale of securities was contrary to the purpose for
which it was established which is only to act as a
financial research. Corollarily, PIPC Corp.’s
officers, agents, and brokers were not licensed to
solicit, offer and sell securities to the public, a
glaring violation of Sections 8 and 28 of the
SRC.10
In refutation, Santos denied intentionally
defrauding complainants Lorenzo and Sy:
12.I cannot understand how I can be charged of
forming, or even of being a part of, a syndicate
"formed with the intention of carrying an
unlawful or illegal act, transaction, enterprise or
scheme." If this charge has reference to PIPC
Corp. then I certainly cannot be held liable
therefore. As I mentioned above, I joined PIPC
Corp. only in April 2005 and, by that time, the
company was already in existence for over four
years. I had no participation whatsoever in its
creation or formation, as I was not even
connected with PIPC Corp. at the time of its
incorporation. In fact, I have never been a
stockholder, director, general manager or officer
of PIPC Corp. Further, PIPC Corp. was duly
registered with the Securities and Exchange
Commission and was organized for a legitimate
purpose, and certainly not for the purpose of
perpetrating a fraud against the public.
13.That I was an employee and, later on, an
independent information provider of PIPC Corp.
is of little consequence. My duties as such were
limited to providing information about the
corporate clients of PIPC Corp. that had been
expressly requested by interested individuals. I
performed my assigned job without any criminal
intent or malice. In this regard, I have been
advised that offenses penalized under the RPC
are intentional felonies for which criminal
liability attaches only when it is shown that the
malefactors acted with criminal intent or malice.
There can be no crime when the criminal mind is
wanting. In this case, I performed my task of
providing requested information about the
clients of PIPC Corp. without any intent to
violate the law. Thus, there can be no criminal
liability.
[14]. I have also been advised that under the law,
the directors and officers of a corporation who
act for and in behalf of the corporation, who
keep within the lawful scope of their authority,
and act in good faith, do not become liable,
whether civilly or otherwise, for the
consequences of their acts, as these acts are
properly attributed to the corporation alone. The
same principle should apply to individual, like
myself, who was only acting within the bounds
of her assigned tasks and had absolutely no
decision-making power in the management and
supervision of the company.
[15]. Neither can I be liable of forming a
syndicate with respect to PIPC- BVI. To
reiterate, at no time was I ever a stockholder,
director, employee, officer or agent of PIPC-
BVI. Said company is simply one of many
companies serviced by PIPC Corp. I had no
participation whatsoever in its creation and/or in
the direction of its day-to-day affairs.
xxxx
19. Further, I have been advised by counsel that
conspiracy must be established by positive and
conclusive evidence. It cannot be based on mere
conjecture but must be established as a fact. In
this case, no proof of conspiracy was presented
against me. In fact, it appears that I have been
dragged in to this allegation based on the
hearsay statement of Felicia Tirona that I was
one of the in-house "account executives" or
"work force" of PIPC-BVI and PIPC Corp.
There was no allegation whatsoever of any
illegal act done by me to warrant the institution
of criminal charges against me. If at all, only
Michael Liew should be held criminally liable,
as he was clearly the one who absconded with
the money of the investors of PIPC-BVI. Mr.
Liew has since disappeared and efforts to locate
him have apparently proved to be futile to date.
xxxx
23.In the first place, I did not receive any money
or property from any of the complainants. As
clearly shown by the documents submitted to
this Honorable Office, particularly, the Portfolio
Management Partnership Agreement, Security
Agreement, Declaration of Trust, bank
statements and acknowledgement receipts,
complainants delivered their money to PIPC-
BVI, not to PIPC Corp. Complainants deposited
their investment in PIPC-BVI’s bank account,
and PIPC-BVI would subsequently issue an
acknowledgement receipt. No part of the said
money was ever delivered to PIPC Corp. or to
me.
24.Indeed, complainant’s own evidence show
that the Portfolio Management Partnership
Agreement, Security Agreement and Declaration
of Trust were executed between PIPC-BVI and
the individual complainants. Further, paragraph
2 of the Declaration of Trust explicitly stated
that PIPC-BVI "hold the said amount of money
UPON TRUST for the Beneficiary Owner." The
complainants cannot, therefore, hold PIPC
Corp., or any of its officers or employees, with
misappropriating their money or property when
they were fully aware that they delivered their
money to, and transacted solely with, PIPC-BVI,
and not PIPC Corp.
25.It also bears stressing that of the twenty-one
(21) complainants in this case, only complainant
Ricky Albino Sy alleged that he had actually
dealt with me. Complainant Sy himself never
alleged that he delivered or entrusted any money
or property to me. On the contrary, complainant
Sy admitted that he deposited his investment of
U.S.$40,000.00 by bank transfer to PIPC-BVI’s
account in the ABN Amro Bank. That the
money was delivered to PIPC-BVI, and not to
me, is shown by the fact that the receipt was
issued by PIPC-BVI. I never signed or issued
any acknowledgement receipt, as I never
received any such money. Neither did I ever
gain physical or juridical possession of the said
money.11 (Emphasis and underscoring
supplied).
Santos’ defense consisted in: (1) denying
participation in the conspiracy and fraud
perpetrated against the investor-complainants of
PIPC Corporation, specifically Sy and Lorenzo;
(2) claiming that she was initially and merely an
employee of, and subsequently an independent
information provider for, PIPC Corporation; (3)
PIPC Corporation being a separate entity from
PIPC-BVI of which Santos has never been a part
of in any capacity; (4) her not having received
any money from Sy and Lorenzo, the two
having, in actuality, directly invested their
money in PIPC-BVI; (5) Santos having dealt
only with Sy and the latter, in fact, deposited
money directly into PIPC-BVI’s account; and
(6) on the whole, PIPC-BVI as the other party in
the investment contracts signed by Sy and
Lorenzo, thus the only corporation liable to Sy
and Lorenzo and the other complainants.
On 18 April 2008, the DOJ, in I.S. No. 2007-
1054, issued a Resolution signed by a panel of
three (3) prosecutors, with recommendation for
approval of the Assistant Chief State Prosecutor,
and ultimately approved by Chief State
Prosecutor Jovencito R. Zuño, indicting: (a)
Liew and Gonzalez-Tuason for violation of
Sections 8 and 26 of the Securities Regulation
Code; and (b) herein respondent Santos, along
with Cristina Gonzalez-Tuason and 12 others for
violation of Section 28 of the Securities
Regulation Code. The same Resolution likewise
dismissed the complaint against 8 of the
respondents therein for insufficiency of
evidence. In the 18 April 2008 Resolution, the
DOJ discussed at length the liability of PIPC
Corporation and its officers, employees, agents
and all those acting on PIPC Corporation’s
behalf, to wit:
Firstly, complainant SEC filed the instant case
for alleged violation by respondents [therein,
including herein respondent, Santos,] of Section
8 of the SRC.
Sec. 8. Requirement of Registration of
Securities. – 8.1. Securities shall not be sold or
offered for sale or distribution within the
Philippines, without a registration statement
duly filed with and approved by the
Commission. Prior to such sale, information on
the securities, in such form and with such
substance as the Commission may prescribe,
shall be made available to each prospective
purchaser.
Based on the above provision of the law,
complainant SEC is now accusing all
respondents [therein, including Santos,] for
violating the same when they allegedly sold
and/or offered for sale unregistered securities.
However, Section 8.5 thereof provides that "The
Commission may audit the financial statements,
assets and other information of a firm applying
for registration of its securities whenever it
deems the same necessary to insure full
disclosure or to protect the interest of the
investors and the public in general."
The above-quoted provision is loud and clear
and needs no further interpretation. It is the firm
through its authorized officers that is required to
register its securities with the SEC and not the
individual persons allegedly selling and/or
offering for sale said unregistered securities. To
do otherwise would open the floodgates to
numerous complaints against innocent
individuals who have no hand in the control,
decision-making and operations of said
investment company.
Clearly, it is only the PIPC Corp. and
respondents Michael H. Liew and Cristina
Gonzalez-Tuason being the President and the
General Manager respectively, of PIPC Corp.
who violated Section 8 of the SRC.
xxxx
Respondents Liew and Tuason are directors and
officers of PIPC Corp. who exercise power of
control and supervision in the management of
said corporation. Surely they cannot claim
having no knowledge of the operations of PIPC
Corp. vis-à-vis its scope of authority since they
are the ones who actually created and manage
the same. They are well aware that PIPC Corp.
is a mere financial research facility and has
nothing to do with selling or offering for sale
securities to the general public. But despite
knowledge, they continue to recruit and deceive
the general public by making it appear that PIPC
Corp. is a legitimate investment company.
Moreover, they cannot evade liability by hiding
behind the veil of a corporate fiction. x x x.
xxxx
In the case at bar, the investors were made to
believe that PIPC Corp. and PIPC-BVI is one
and the same corporation. There is nothing on
record that would show that private
complainants were informed that PIPC Corp.
and PIPC-BVI are two entities distinct and
separate from one another. In fact, when they
invested their money, they dealt with PIPC
Corp. and the people acting on its behalf but
when they signed documents they were provided
with ones bearing the name of PIPC-BVI.
Clearly, this obvious and intentional confusion
of names of the two entities is designed to
defraud and later to avoid liabilities from their
victims. Therefore, the defense of a corporate
fiction is unavailing in the instant case.
xxxx
Buying and selling of securities is an
indispensable element that makes one a broker
or dealer. So if one is not engaged in the
business of buying and selling of securities,
naturally he or she cannot be considered as a
broker or dealer. However, a person may be
considered as an agent of another, juridical or
natural person, if it can be inferred that he or she
acts as an agent of his or her principal as above-
defined. One can also be an investor and agent at
the same time.
An examination of the records and the evidence
submitted by the parties, we have observed that
all respondents are investors of PIPC-BVI, same
with the private complainants, they also lost
thousands of dollars. We also noted the fact that
most of the private complainants and alleged
brokers or agents are long time friends if not
blood related individuals. Notably also is the
fact that most of them are highly educated
businessmen/businesswomen who are
financially well-off. Hence, they are regarded to
be wiser and more prudent and expected to
exercise due diligence of a good father of a
family in managing their finances as compared
to those who are less fortunate in life.
However, we still need to delve deeper into the
facts and the [evidence] on record to determine
the degree of respondents’ participations and if
on the basis of their actions, it can be inferred
that they acted as employees-agents or investor-
agents of PIPC Corp. or PIPC- BVI then are
liable under Section 28 of the SRC otherwise,
they cannot be [blamed] for being mere
employees or investors thereof.
xxxx
Oudine Santos. Investment Consultant of PIPC
Corp. who allegedly invited, convinced and
assured private complainants Luisa Mercedes P.
Lorenzo and Ricky Albino P. Sy to invest in
PIPC Corp. To prove their allegations,
respondents attached email exchanges with
respondent Santos regarding the details in
investing with PIPC-BVI. Respondent Santos
failed to submit counter-affidavit despite
subpoena.
xxxx
After painstakingly going over the record and
the supporting documents attached thereto and
after carefully evaluating the respective claims
and defenses raised by all the parties, the
undersigned panel of prosecutors has a reason to
believe that Section 28 of the SRC has been
violated and that the following respondents are
probably guilty thereof and should, therefore, be
held for trial:
1.Cristina Gonzalez-Tuason
2.x x x.
xxxx
13.Oudine Santos
The above-named respondents, aside from being
officers, employees or investors, clearly acted as
agents of PIPC Corp. who made representations
regarding PIPC Corp. and PIPC-BVI investment
products. They assured their clients that
investing with PIPC-BVI will be 100%
guaranteed. In addition, they also facilitated
their clients’ investments with PIPC-BVI and
some, if not all, even received money investors
as evidenced by the acknowledgement receipts
they signed and on behalf of PIPC-BVI. The
documentary evidence submitted by witnesses
and their categorical and positive assertion of
facts which, taken together corroborate one
another, prevails over the defense of denial
raised by the above-named respondents which
are mostly self-serving in nature.
A formal or written contract of agency between
two or more persons is not necessary for one to
become an agent of the other for as long as it can
be inferred from their actions that there exists a
principal- agent relationship between them on
the one hand and the PIPC Corp. or PIPC-BVI
on the other hand, then, it is implied that a
contract of agency is created.
As to their contention that they are not officers
or employees of PIPC Corp., the Supreme Court
ruled that one may be an agent of a domestic
corporation although he or she is not an officer
thereto. x x x. The basis of agency is
representation; the question of whether an
agency has been created is ordinarily a question
which may be established in the same way as
any other fact, either by direct or substantial
evidence; though that fact or extent of authority
of the agents may not, as a general rule, be
established from the declarations of the agents
alone, if one professes to act as agent for
another, he or she is estopped to deny her
agency both as against the asserted principal and
third persons interested in the transaction in
which he or she is engaged.
Further, they cannot raise the defense of good
faith for the simple reason that the SRC is a
special law where criminal intent is not an
essential element. Mere violation of which is
punishable except in some provisions thereof
where fraud is a condition sine qua non such as
Section 26 of the said law.
xxxx
WHEREFORE, the foregoing considered, it is
respectfully recommended that this resolution be
APPROVED and that:
1.An information for violation of Section 8 of
the SRC be filed against respondent PIPC Corp.,
MICHAEL H. LIEW and CRISTINA
GONZALEZ-TUASON;
2.An information for violation of Section 26
thereof be also filed against respondents
MICHAEL H. LIEW and CRISTINA
GONZALEZ- TUASON; and
3.An information for violation of Section 28
thereof be filed against respondents CRISTINA
GONZALEZ-TUASON, MA. CRISTINA
BAUTISTA-JURADO, BARBARA GARCIA,
ANTHONY KIERULF, EUGENE GO,
MICHAEL MELCHOR NUBLA, MA.
PAMELA MORRIS, LUIS ‘JIMBO’ ARAGON,
RENATO SARMIENTO, JR., VICTOR JOSE
VERGEL DE DIOS, NICOLINE AMORANTO
MENDOZA, JOSE ‘JAY’ TENGCO III,
[respondent] OUDINE SANTOS AND
HERLEY JESUITAS; and
4.The complaint against MAYENNE
CARMONA, YEYE SAN PEDRO-CHOA,
MIA LEGARDA, NICOLE ORTEGA, DAVID
CHUA-UNSU, STANLEY CHUA-UNSU,
DEBORAH V. YABUT, CHRISTINE YU and
JONATHAN OCAMPO be dismissed for
insufficiency of evidence.12 (Emphasis
supplied).
In sum, the DOJ panel based its finding of
probable cause on the collective acts of the
majority of the respondents therein, including
herein respondent Santos, which consisted in
their acting as employees-agent and/or investor-
agents of PIPC Corporation and/or PIPC-BVI.
Specifically alluding to Santos as Investment
Consultant of PIPC Corporation, the DOJ found
probable cause to indict her for violation of
Section 28 of the Securities Regulation Code for
engaging in the business of selling or offering
for sale securities, on behalf of PIPC
Corporation and/or PIPC-BVI (which were
found to be an issuer13 of securities without the
necessary registration from the SEC) without
Santos being registered as a broker, dealer,
salesman or an associated person.
On separate motions for reconsideration of the
respondents therein, including herein respondent
Santos, the DOJ panel issued a Resolution dated
2 September 2008 modifying its previous ruling
and excluding respondent Victor Jose Vergel de
Dios from prosecution for violation of Section
28 of the Securities Regulation Code, thus:
After an assiduous re-evaluation of the facts and
the evidence submitted by the parties in support
of their respective positions, the undersigned
panel finds x x x [that the] rest of the
respondents mainly rehashed their earlier
arguments except for a few respondents who, in
one way or another, failed to participate in the
preliminary investigation; hence raising their
respective defenses for the first time in their
motions for reconsideration.
xxxx
With respect to respondents Luis "Jimbo"
Aragon and Oudine Santos who also claimed to
have not received subpoenas, this panel, after
thoroughly evaluating their respective defenses,
finds them to be similarly situated with the other
respondents who acted as agents for and in
behalf of PIPC Corp. and/or PIPC-BVI; hence,
their inclusion in the information is affirmed.
xxxx
x x x As to the issue on whether or not PMPA is
a security contract, we rule in the affirmative, as
supported by the herein below provisions of the
SRC, particularly:
Sec. 8. Requirement of Registration of
Securities. – 8.1. Securities shall not be sold or
offered for sale or distribution within the
Philippines, without registration statement duly
filed with and approved by the Commission.
Prior to such sale, information on the securities,
in such form and with such substance as the
Commission may prescribe, shall be made
available to each prospective purchaser.
Securities have been defined as shares,
participation or interest in a corporation or in a
commercial enterprise or profit making venture
and evidenced by a certificate, contract,
instrument, whether written or electronic in
character. It includes among others, investment
contracts, certificates of interest or participation
in a profit sharing agreement, certificates of
deposit for a future subscription.
Under the SRC’s Amended Implementing Rules
and Regulations, specifically Rule 3, par. 1
subpar. G, an investment contract has been
defined as a contract, transaction or scheme
(collectively "contract"), whereby a person
invests his money in a common enterprise and is
led to expect profits primarily from the efforts of
others. It is likewise provided in the said
provision that an investment contract is
presumed to exist whenever a person seeks to
use the money or property of others on the
promise of profits and a common enterprise is
deemed created when two
(2) or more investors "pool" their resources
creating a common enterprise, even if the
promoter receives nothing more than a broker’s
commission. Undoubtedly, the PMPA is an
investment contract falling within the purview of
the term securities as defined by law.
xxxx
It bears to emphasize that the purpose of a
preliminary investigation and/or confrontation
between the party-litigants is for them to lay
down all their cards on the table to properly
inform and apprise the other of the charges
against him/her, to avoid suprises and to afford
the adverse party all the opportunity to defend
himself/herself based on the evidence submitted
against him/her. Thus, failure on the part of the
defaulting party to submit evidence that was
then available to him is deemed a waiver on his
part to submit it in the same proceedings against
the same party for the same issue.
WHEREFORE, the foregoing premises
considered, the undersigned panel of prosecutors
respectfully recommends that the assailed
resolution be modified by dismissing the
complaint against Victor Jose Vergel De Dios
and that the Information filed with the
appropriate court for violation of Section 28 of
the SRC be amended accordingly.14
Respondent Santos filed a petition for review
before the Office of the Secretary of the DOJ
assailing the Resolutions dated 18 April 2008
and 2 September 2008 and claiming that she was
a mere clerical employee/information provider
who never solicited nor recruited investors, in
particular complainants Sy and Lorenzo, for
PIPC Corporation or PIPC- BVI. Santos also
claimed dearth of evidence indicating she was a
salesman/agent or an associated person of a
broker or dealer, as defined under the Securities
Regulation Code.
The SEC filed its Comment opposing Santos’
petition for review. Thereafter, the Office of the
Secretary of the DOJ, through its then
Undersecretary Ricardo R. Blancaflor, issued a
Resolution dated 1 October 2009 which, as
previously adverted to, excluded respondent
Santos from prosecution for violation of Section
28 of the Securities Regulation Code. For a
complete picture, we quote in full the
disquisition of the Secretary of the DOJ:
[Santos] argues that while Luisa Mercedes P.
Lorenzo and Ricky Albino P. Sy mentioned two
(2) instances wherein she allegedly enticed them
to invest, their own pieces of evidence,
particularly the Annex "E" series (several
"Details of Profit distribution & Renewal of
Partnership Agreement" bearing different dates
addressed to Ricky Albino P. Sy with stamped
signature for PIPC-BVI), indicate that they
invested and reinvested their money with PIPC-
BVI repeatedly and even earned profits from
these transactions through direct dealing with
PIPC-BVI and without her participation. In
addition, she maintains that Luisa Mercedes P.
Lorenzo and Ricky Albino P. Sy had several
opportunities to divest or withdraw their
respective investments but opted not to do so at
their own volitions.
xxxx
The sole issue in this case is whether or not
respondent Santos acted as agent of PIPC Corp.
or had enticed Luisa Mercedes P. Lorenzo or
Ricky Albino P. Sy to buy PIPC Corp. or PIPC-
BVI’s investment products.
We resolve in the negative.
Section 28 of the Securities Regulation Code
(SRC) reads:
SEC. [28]. Registration of Brokers, Dealers,
Salesmen and Associated Persons. – 28.1. No
person shall engage in the business of buying or
selling securities in the Philippines as a broker
or dealer unless registered as such with the
Commission.
28.2. No registered broker or dealer shall
employ any salesman or any associated person,
and no issuer shall employ any salesman, who is
not registered as such with the Commission.
Jurisprudence defines an "agent" as a "business
representative, whose function is to bring about,
modify, affect, accept performance of, or
terminate contractual obligations between
principal and third persons." x x x On the other
hand, the Implementing Rules of the SRC
simply provides that an agent or a "salesman" is
a person employed as such or as an agent, by the
dealer, issuer or broker to buy and sell securities
x x x.
A judicious examination of the records indicates
the lack of evidence that respondent Santos
violated Section 28 of the SRC, or that she had
acted as an agent for PIPC Corp. or enticed
Luisa Mercedes P. Lorenzo or Ricky Albino P.
Sy to buy PIPC Corp. or PIPC-BVI’s investment
products.
The annex "D" ("Welcome to PMP" Letter dated
[17 April 2006] addressed to Luisa Mercedes P.
Lorenzo signed by Michael Liew as president of
PIPC-BVI), Annex "E" (Fixed Deposit Advice
Letter dated [26 June 2006] addressed to Luisa
Mercedes P. Lorenzo and stamped signature for
PIPC-BVI), and Annex "H" ("Welcome to
PMP" Letter dated [30 May 2007] addressed to
Luisa Mercedes P. Lorenzo signed by Michael
Liew as President of PIPC-BVI) of the
complaint-affidavit dated [11 September 2007]
of Luisa Mercedes P. Lorenzo show that she
directly dealt with PIPC-BVI in placing her
investment. The same is true with regard to
Annex "A" series (Portfolio Management
Partnership Agreement between Ricky Albino P.
Sy and PIPC-BVI, Security Agreement between
Ricky Albino P. Sy and PIPC-BVI, and
Declaration of Trust between Ricky Albino P.
Sy and PIPC-BVI), Annex "B" (Official Receipt
dated 09 November 2006 issued by PIPC-BVI),
Annex "C’ ("Welcome to PMP" Letter dated [10
November 2006] addressed to Ricky Albino P.
Sy and signed by Michael [Liew] as President of
PIPC-BVI), and Annex "D" (Fixed Deposit
Advice Letter dated [29 January 2007]
addressed to Ricky Albino P. Sy with stamped
signature for PIPC-BVI) of the complaint-
affidavit dated [26 September 2007] of Ricky
Albino P. Sy. These documents categorically
show that the parties therein, i.e., Luisa
Mercedes P. Lorenzo or Ricky Albino P. Sy and
PIPC-BVI, transacted with each other directly
without any participation from respondent
Santos.
These documents speak for themselves.
Moreover, it bears stressing that Luisa Mercedes
P. Lorenzo and Ricky Albino P. Sy admit in
their respective affidavits that they directly
deposited their investments by bank transfer to
PIPC-BVI’s offshore bank account.
Annex "B" (Printed background of the PMP of
[PIPC]-BVI enumerating the features of said
product) and Annex "C" (Printed "Procedures in
PMP Account Opening" instructing the client
what to do in placing his/her investment) of the
complaint-affidavit of Luisa Mercedes P.
Lorenzo actually supports the allegations of
respondent Santos that there were printed
forms/brochures for distribution to persons
requesting the same. These printed/prepared
handouts contain the assurances or guarantees of
PIPC-BVI and the instructions on where and
how to deposit the investors’ money.
Likewise, Luisa Mercedes P. Lorenzo’s Annex
"A" (2006 GIS of PIPC Corp. listing the
stockholders, board of directors an[d] officers
thereof), Annex "F" (Deposit Confirmation
dated [14 June 2006] from Standard Chartered
Bank) and Annexes "I" to "L" (SEC
Certifications stating that PIPC Corp., PIPC,
PIPC-BVI and Performance Investment
Products Ltd., respectively, are not registered
issuer of securities nor licensed to offer or sell
securities to the public) are not evidence against
respondent Santos. Her name is not even
mentioned in any of these documents. If at all,
these documents are evidence against PIPC
Corp. and its officers named therein.
Further, it is important to note that in the
"Request Form," one of the documents being
distributed by respondent Santos x x x, it is
categorically stated therein that said request
"shall not be taken as an investment solicitation
x x x, but is mainly for the purpose of providing
me with information." Clearly, this document
proves that respondent Santos did not or was not
involved in the solicitation of investments but
merely shows that she is an employee of PIPC
Corp. In addition, the "Information
Dissemination Agreement" between her
employer PIPC Corp. and PIPC- BVI readably
and understandably provides that she is
prohibited from soliciting investments in behalf
of PIPC-BVI and her authority is limited only to
providing interested persons with the "necessary
information regarding how to communicate
directly with PIPC." Parenthetically, the
decision to sign the partnership Agreement with
PIPC-BVI to invest and repeatedly reinvest their
monies with PIPC-BVI were made by Luisa
Mercedes P. Lorenzo and Ricky Albino P. Sy
themselves without any inducement or undue
influence from respondent Santos.
xxxx
WHEREFORE, the assailed resolution is hereby
MODIFIED, the Chief State Prosecutor is
directed to EXCLUDE respondent Oudine
Santos from the Information for violation of
Section 28 of the Securities and Regulation
Code, if any has been filed, and report the action
taken thereon within ten (10) days from receipt
hereof.15
Expectedly, after the denial of the SEC’s motion
for reconsideration before the Secretary of the
DOJ, the SEC filed a petition for certiorari
before the Court of Appeals seeking to annul the
1 October 2009 Resolution of the DOJ.
The Court of Appeals dismissed the SEC’s
petition for certiorari and affirmed the 1 October
2009 Resolution of the Secretary of the DOJ:
Prescinding from the foregoing, a person must
first and foremost be engaged in the business of
buying and selling securities in the Philippines
before he can be considered as a broker, a dealer
or salesman within the coverage of the Securities
Regulation Code. The record in this case
however is bereft of any showing that [Santos]
was engaged in the business of buying and
selling securities in the Philippines, whether for
herself or in behalf of another person or entity.
Apart from [SEC’s] sweeping allegation that
[Santos] enticed Sy and Lorenzo and solicited
from them investments for PIPC-BVI without
first being registered as broker, dealer or
salesman with SEC, no evidence had been
adduced that shows [Santos’] actual
participation in the alleged offer and sale of
securities to the public, particularly to Sy and
Lorenzo, within the Philippines. There was
likewise no exchange of funds between Sy and
Lorenzo, on one hand, and [Santos], on the other
hand, as the price of certain securities offered by
PIPC-BVI. There was even no specific proof
that [Santos] misrepresented to Sy and Lorenzo
that she was a licensed broker, dealer or
salesperson of securities, thereby inducing them
to invest and deliver their hard-earned money
with PIPC-BVI. In fact, the Information
Dissemination Agreement between PIPC
Corporation, [Santos’ employer], and PIPC-BVI
clearly provides that [Santos] was prohibited
from soliciting investments in behalf of PIPC-
BVI and that her authority is limited only to
providing prospective client with the "necessary
information on how to communicate directly
with PIPC." Thus, it is obvious that the final
decision of investing and reinvesting their
money with PIPC-BVI was made solely by Sy
and Lorenzo themselves.
xxxx
WHEREFORE, in view of the foregoing
premises, the petition filed in this case is hereby
DENIED and, consequently, DISMISSED. The
assailed Resolutions dated [1 October 2009] and
[23 November 2009] of the Secretary of Justice
in I.S. No. 2007-1054 are hereby
AFFIRMED.16
Hence, this appeal by certiorari raising the sole
error of Santos’ exclusion from the Information
for violation of Section 28 of the Securities
Regulation Code.
Generally, at the preliminary investigation
proper, the investigating prosecutor, and
ultimately, the Secretary of the DOJ, is afforded
wide latitude of discretion in the exercise of its
power to determine probable cause to warrant
criminal prosecution. The determination of
probable cause is an executive function where
the prosecutor determines merely that a crime
has been committed and that the accused has
committed the same.17 The rules do not require
that a prosecutor has moral certainty of the guilt
of a person simply for preliminary investigation
purposes.
However, the authority of the prosecutor and the
DOJ is not absolute; it cannot be exercised
arbitrarily or capriciously. Where the findings of
the investigating prosecutor or the Secretary of
the DOJ as to the existence of probable cause are
equivalent to a gross misapprehension of facts,
certiorari will lie to correct these errors.18
While it is our policy not to interfere in the
conduct of preliminary investigations, we have,
on more than one occasion, adhered to some
exceptions to the general rule:
1.when necessary to afford adequate protection
to the constitutional rights of the accused;
2.when necessary for the orderly administration
of justice or to avoid oppression or multiplicity
of actions;
3.when there is a prejudicial question which is
sub judice;
4.when the acts of the officer are without or in
excess of authority;
5.where the prosecution is under an invalid law,
ordinance or regulation;
6.when double jeopardy is clearly apparent;
7.where the court has no jurisdiction over the
offense;
8.where it is a case of persecution rather than
prosecution;
9.where the charges are manifestly false and
motivated by the lust for vengeance;
10.when there is clearly no prima facie case
against the accused and a motion to quash on
that ground has been denied.19(Italics supplied).
In excluding Santos from the prosecution of the
supposed violation of Section 28 of the
Securities Regulation Code, the Secretary of the
DOJ, as affirmed by the appellate court,
debunked the DOJ panel’s finding that Santos
was prima facie liable for either: (1) selling
securities in the Philippines as a broker or
dealer, or (2) acting as a salesman, or an
associated person of any broker or dealer on
behalf of PIPC Corporation and/or PIPC-BVI
without being registered as such with the SEC.
To get to that conclusion, the Secretary of the
DOJ and the appellate court ruled that no
evidence was adduced showing Santos’ actual
participation in the final sale by PIPC
Corporation and/or PIPC-BVI of unregistered
securities since the very affidavits of
complainants Lorenzo and Sy proved that Santos
had never signed, neither was she mentioned in,
any of the investment documents between
Lorenzo and Sy, on one hand, and PIPC
Corporation and/or PIPC-BVI, on the other
hand.
The conclusions made by the Secretary of the
DOJ and the appellate court are a myopic view
of the investment solicitations made by Santos
on behalf of PIPC Corporation and/or PIPC-BVI
while she was not licensed as a broker or dealer,
or registered as a salesman, or an associated
person of a broker or dealer.
We sustain the DOJ panel’s findings which were
not overruled by the Secretary of the DOJ and
the appellate court, that PIPC Corporation and/or
PIPC-BVI was: (1) an issuer of securities
without the necessary registration or license
from the SEC, and (2) engaged in the business
of buying and selling securities. In connection
therewith, we look to Section 3 of the Securities
Regulation Code for pertinent definitions of
terms:
Sec. 3. Definition of Terms. – x x x.
xxxx
3.3."Broker" is a person engaged in the business
of buying and selling securities for the account
of others.
3.4."Dealer" means [any] person who buys [and]
sells securities for his/her own account in the
ordinary course of business.
3.5."Associated person of a broker or dealer" is
an employee thereof whom, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or
ministerial.
xxxx
3.13."Salesman" is a natural person, employed
as such [or] as an agent, by a dealer, issuer or
broker to buy and sell securities.
To determine whether the DOJ Secretary’s
Resolution was tainted with grave abuse of
discretion, we pass upon the elements for
violation of Section 28 of the Securities
Regulation Code: (a) engaging in the business of
buying or selling securities in the Philippines as
a broker or dealer; or (b) acting as a salesman; or
(c) acting as an associated person of any broker
or dealer, unless registered as such with the
SEC.
Tying it all in, there is no quarrel that Santos
was in the employ of PIPC Corporation and/or
PIPC-BVI, a corporation which sold or offered
for sale unregistered securities in the
Philippines. To escape probable culpability,
Santos claims that she was a mere clerical
employee of PIPC Corporation and/or PIPC-
BVI and was never an agent or salesman who
actually solicited the sale of or sold unregistered
securities issued by PIPC Corporation and/or
PIPC-BVI.
Solicitation is the act of seeking or asking for
business or information; it is not a commitment
to an agreement.20
Santos, by the very nature of her function as
what she now unaffectedly calls an information
provider, brought about the sale of securities
made by PIPC Corporation and/or PIPC-BVI to
certain individuals, specifically private
complainants Sy and Lorenzo by providing
information on the investment products of PIPC
Corporation and/or PIPC- BVI with the end in
view of PIPC Corporation closing a sale.
While Santos was not a signatory to the
contracts on Sy’s or Lorenzo’s investments,
Santos procured the sale of these unregistered
securities to the two (2) complainants by
providing information on the investment
products being offered for sale by PIPC
Corporation and/or PIPC-BVI and convincing
them to invest therein.
No matter Santos’ strenuous objections, it is
apparent that she connected the probable
investors, Sy and Lorenzo, to PIPC Corporation
and/or PIPC-BVI, acting as an ostensible agent
of the latter on the viability of PIPC Corporation
as an investment company. At each point of Sy’s
and Lorenzo’s investment, Santos’ participation
thereon, even if not shown strictly on paper, was
prima facie established.
In all of the documents presented by Santos, she
never alleged or pointed out that she did not
receive extra consideration for her simply
providing information to Sy and Lorenzo about
PIPC Corporation and/or PIPC-BVI. Santos only
claims that the monies invested by Sy and
Lorenzo did not pass through her hands. In
short, Santos did not present in evidence her
salaries as a supposed "mere clerical employee
or information provider" of PIPC-BVI. Such
presentation would have foreclosed all questions
on her status within PIPC Corporation and/or
PIPC-BVI at the lowest rung of the ladder who
only provided information and who did not use
her discretion in any capacity.
We cannot overemphasize that the very
information provided by Santos locked the deal
on unregistered securities with Sy and Lorenzo.
In fact, Sy alleged in his affidavit, which
allegation was not refuted by Santos, that he was
introduced to Santos while he performed routine
transactions at his bank:
2.I have been a depositor of the Bank of the
Philippine Islands (BPI) Pasong Tamo branch
for the past 15 years. Sometime in the last
quarter of 2006, I was at BPI Pasong Tamo to
accomplish certain routine transactions. Being a
client of long standing, the bank manager[,] as a
matter of courtesy, allowed me to wait in her
cubicle. It was there that the bank manager
introduced me to another bank client, Ms.
Oudine Santos. After exchanging pleasantries,
and in the course of a brief conversation, Ms.
Santos told me that she is a resident of
Damariñas Village and was working as an
investment consultant for a certain company,
Performance Investment Products Corporation
[PIPC]. She told me that she wanted to invite me
to her office at the Citibank Tower in Makati so
that she could explain the investment products
that they are offering. I gave her my contact
number and finished my transaction with the
bank for that day;
3.Ms. Santos texted me to confirm our meeting.
A few days later, I met her at the business
lounge of [PIPC] located at the 15th Floor of
Citibank Tower, Makati.1âwphi1 During the
meeting, Ms. Santos enticed me to invest in their
Performance Managed Portfolio which she
explained was a risk controlled investment
program designed for individuals like me who
are looking for higher investment returns than
bank deposits while still having the advantage of
security and liquidity. She told me that they
were engaged in foreign currency trading abroad
and that they only employ professional and
experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro,
British Pound, Swiss Francs and Australian
Dollar. I then told her that I did not have any
experience in foreign currency trading and was
quite conservative in handling my money;21
Santos countered that:
28. I also categorically deny complainant Sy’s
allegation that I "enticed" him to enter into a
Partnership Agreement with PIPC-BVI. In the
first place, I came to know complainant Sy only
when he was referred to me by a mutual
acquaintance, Ms. Ana Liliosa Santos, who was
then the Manager of the Bank of the Philippine
Islands, Pasong Tamo Branch. Ms. Ana Santos
set up a meeting between complainant Sy and
me because complainant Sy wanted to know
more about PIPC-BVI. As with the other
individuals who expressed interest in PIPC
Corp.’s client companies, I then provided
complainant Sy with additional information
about PIPC- BVI. The decision to enter into the
aforementioned Partnership Agreement with
PIPC-BVI was made by complainant Sy alone
without any inducement or undue influence from
me, as in fact I only met him twice – the first
one was on the meeting set up by Ms. Ana
Santos and the second one was to introduce him
to Michael Liew. Indeed, complainant Sy
appears to be a well-educated person with years
of experience as a businessman. It is reasonable
to assume that before entering into the said
Partnership Agreement with PIPC-BVI,
complainant Sy had fully understood the nature
of the agreement and that in entering thereto, he
had been motivated by a desire to earn a profit
and had believed, as I myself have been led to
believe, that PIPC-BVI was a legitimate
business concern which offered a reasonable
return on investment, Moreover, complainant Sy
could have withdrawn his initial investment of
US$40,000.00 on its date of maturity, i.e., 26
January 2007, as indicated in the PIPC-BVI’s
letter dated 10 November 2006, a copy of which
is attached to complainant Sy’s Sworn
Statement. Complainant Sy, however, obviously
decided on his own volition to keep his
investment with PIPC-BVI presumably because
he wanted to gain more profit therefrom.
Complainant Sy in fact admitted that he received
monetary returns from PIPC-BVI in the total
amount of US$2,439.12.22
What is palpable from the foregoing is that Sy
and Lorenzo did not go directly to Liew or any
of PIPC Corporation’s and/or PIPC-BVI’s
principal officers before making their investment
or renewing their prior investment. However,
undeniably, Santos actively recruited and
referred possible investors to PIPC Corporation
and/or PIPC-BVI and acted as the go-between
on behalf of PIPC Corporation and/or PIPC-
BVI.
The DOJ’s and Court of Appeals’ reasoning that
Santos did not sign the investment contracts of
Sy and Lorenzo is specious. The contracts
merely document the act performed by Santos.
Individual complainants and the SEC have
categorically alleged that Liew and PIPC
Corporation and/or PIPC-BVI is not a legitimate
investment company but a company which
perpetrated a scam on 31 individuals where the
president, a foreign national, Liew, ran away Justice dated 18 April 2008 and 2 September
with their money. Liew’s absconding with the 2008 are REINSTATED. The Department of
monies of 31 individuals and that PIPC Justice is directed to include respondent Oudine
Corporation and/or PIPC-BVI were not licensed Santos in the Information for violation of
by the SEC to sell securities are uncontroverted Section 28 of the Securities and Regulation
facts. Code.
The transaction initiated by Santos with Sy and SO ORDERED.
Lorenzo, respectively, is 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.23 The
touchstone 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.24
At bottom, the exculpation of Santos cannot be
preliminarily established simply by asserting
that she did not sign the investment contracts, as
the facts alleged in this case constitute fraud
perpetrated on the public. Specially so because
the absence of Santos’ signature in the contract
is, likewise, indicative of a scheme to
circumvent and evade liability should the
pyramid fall apart.
Lastly, we clarify that we are only dealing herein
with the preliminary investigation aspect of this
case. We do not adjudge respondents’ guilt or
the lack thereof. Santos' defense of being a mere
employee or simply an information provider is
best raised and threshed out during trial of the
case.
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R.
No. SP No. 112781 and the Resolutions of the
Department of Justice dated 1 October 2009 and
23 November 2009 are ANNULLED and SET
ASIDE. The Resolution of the Department of
SECURITIES AND G.R. No. 135808 September of 1994. In exchange, IRC will issue
EXCHANGE This is a Petition for Review on to GHB 55% of the expanded capital stock of
COMMISSION, Present: Certiorari under Rule 45 of the Rules of Court, IRC amounting to 40.88 billion shares which
Petitioner, assailing the Decision,57[1] dated 20 August had a total par value of P488.44 million.59[3]
PUNO, C.J., 1998, rendered by the Court of Appeals in C.A.-
QUISUMBING, G.R. SP No. 37036, enjoining petitioner On the side, IRC would acquire 67% of the
YNARES- Securities and Exchange Commission (SEC) entire capital stock of Philippine Racing Club,
SANTIAGO, from taking cognizance of or initiating any Inc. (PRCI). PRCI owns 25.724 hectares of real
CARPIO, action against the respondent corporation estate property in Makati. Under the Agreement,
AUSTRIA- Interport Resources Corporation (IRC) and GHB, a member of the Westmont Group of
- versus - MARTINEZ, members of its board of directors, respondents Companies in Malaysia, shall extend or arrange
CORONA,* Manuel S. Recto, Rene S. Villarica, Pelagio a loan required to pay for the proposed
CARPIO Ricalde, Antonio Reina, Francisco Anonuevo, acquisition by IRC of PRCI.60[4]
MORALES, Joseph Sy and Santiago Tanchan, Jr., with
AZCUNA, respect to Sections 8, 30 and 36 of the Revised IRC alleged that on 8 August 1994, a
TINGA, Securities Act. In the same Decision of the press release announcing the approval of the
CHICO- appellate court, all the proceedings taken against agreement was sent through facsimile
INTERPORT NAZARIO, the respondents, including the assailed SEC transmission to the Philippine Stock Exchange
RESOURCES VELASCO, JR., Omnibus Orders of 25 January 1995 and 30 and the SEC, but that the facsimile machine of
CORPORATION, NACHURA,** March 1995, were declared void. the SEC could not receive it. Upon the advice of
MANUEL S. REYES, the SEC, the IRC sent the press release on the
RECTO, RENE S. DE CASTRO, and The antecedent facts of the present case morning of 9 August 1994.61[5]
VILLARICA, BRION,** JJ. are as follows.
PELAGIO The SEC averred that it received reports that
RICALDE, On 6 August 1994, the Board of Directors of IRC failed to make timely public disclosures of
ANTONIO REINA, Promulgated: IRC approved a Memorandum of Agreement its negotiations with GHB and that some of its
FRANCISCO with Ganda Holdings Berhad (GHB). Under the directors, respondents herein, heavily traded IRC
ANONUEVO, October 6, 2008 Memorandum of Agreement, IRC acquired shares utilizing this material insider information.
JOSEPH SY and 100% or the entire capital stock of Ganda On 16 August 1994, the SEC Chairman issued a
SANTIAGO Energy Holdings, Inc. (GEHI),58[2] which directive requiring IRC to submit to the SEC a
TANCHAN, JR., would own and operate a 102 megawatt (MW) copy of its aforesaid Memorandum of
Respondents. gas turbine power-generating barge. The Agreement with GHB. The SEC Chairman
x-------------------------------- agreement also stipulates that GEHI would further directed all principal officers of IRC to
-----------------x assume a five-year power purchase contract with appear at a hearing before the Brokers and
National Power Corporation. At that time,
GEHIs power-generating barge was 97%
DECI complete and would go on-line by mid-
SION

CHICO-NAZARIO, J.:
Exchanges Department (BED) of the SEC to
explain IRCs failure to immediately disclose the
information as required by the Rules on
Disclosure of Material Facts.62[6]
In compliance with the SEC Chairmans
directive, the IRC sent a letter dated 16 August
1994 to the SEC, attaching thereto copies of the
Memorandum of Agreement. Its directors,
Manuel Recto, Rene Villarica and Pelagio
Ricalde, also appeared before the SEC on 22
August 1994 to explain IRCs alleged failure to
immediately disclose material information as
required under the Rules on Disclosure of
Material Facts.63[7]
On 19 September 1994, the SEC
Chairman issued an Order finding that IRC
violated the Rules on Disclosure of Material
Facts, in connection with the Old Securities Act
of 1936, when it failed to make timely disclosure
of its negotiations with GHB. In addition, the
SEC pronounced that some of the officers and
directors of IRC entered into transactions
involving IRC shares in violation of Section 30,
in relation to Section 36, of the Revised
Securities Act.64[8]
Respondents filed an Omnibus Motion,
dated 21 September 1994, which was superseded
by an Amended Omnibus Motion, filed on 18
October 1994, alleging that the SEC had no
authority to investigate the subject matter, since
under Section 8 of Presidential Decree No. 902-
A,65[9] as amended by Presidential Decree No.
1758, jurisdiction was conferred upon the
Prosecution and Enforcement Department (PED)
of the SEC. Respondents also claimed that the
SEC violated their right to due process when it
ordered that the respondents appear before the
SEC and show cause why no administrative,
civil or criminal sanctions should be imposed on
them, and, thus, shifted the burden of proof to
the respondents. Lastly, they sought to have their
cases tried jointly given the identical factual
situations surrounding the alleged violation
committed by the respondents.66[10]
Respondents also filed a Motion for
Continuance of Proceedings on 24 October
1994, wherein they moved for discontinuance of
the investigations and the proceedings before the
SEC until the undue publicity had abated and the
investigating officials had become reasonably
free from prejudice and public pressure.67[11]
No formal hearings were conducted in
connection with the aforementioned motions,
but on 25 January 1995, the SEC issued an
Omnibus Order which thus disposed of the same
in this wise:68[12]
WHEREFORE, premised on the foregoing
considerations, the Commission resolves and
hereby rules:
1. To create a special investigating panel
to hear and decide the instant case in accordance
with the Rules of Practice and Procedure Before
the Prosecution and Enforcement Department
(PED), Securities and Exchange Commission, to
be composed of Attys. James K. Abugan,
Medardo Devera (Prosecution and Enforcement
Department), and Jose Aquino (Brokers and
Exchanges Department), which is hereby
directed to expeditiously resolve the case by
conducting continuous hearings, if possible.
2. To recall the show cause orders dated
September 19, 1994 requiring the respondents to
appear and show cause why no administrative,
civil or criminal sanctions should be imposed on
them.
3. To deny the Motion for Continuance
for lack of merit.
Respondents filed an Omnibus Motion
for Partial Reconsideration,69[13] questioning
the creation of the special investigating panel to
hear the case and the denial of the Motion for
Continuance. The SEC denied reconsideration in
its Omnibus Order dated 30 March 1995.70[14]
The respondents filed a petition before
the Court of Appeals docketed as C.A.-G.R. SP
No. 37036, questioning the Omnibus Orders
dated 25 January 1995 and 30 March
1995.71[15] During the proceedings before the
Court of Appeals, respondents filed a
Supplemental Motion72[16] dated 16 May 1995,
wherein they prayed for the issuance of a writ of
preliminary injunction enjoining the SEC and its
agents from investigating and proceeding with
the hearing of the case against respondents
herein. On 5 May 1995, the Court of Appeals
granted their motion and issued a writ of
preliminary injunction, which effectively
enjoined the SEC from filing any criminal, civil
or administrative case against the respondents
herein.73[17]
On 23 October 1995, the SEC filed a Motion for
Leave to Quash SEC Omnibus Orders so that the
case may be investigated by the PED in
accordance with the SEC Rules and Presidential
Decree No. 902-A, and not by the special body
whose creation the SEC had earlier
ordered.74[18]
The Court of Appeals promulgated a
Decision75[19] on 20 August 1998. It
determined that there were no implementing
rules and regulations regarding disclosure,
insider trading, or any of the provisions of the
Revised Securities Acts which the respondents
allegedly violated. The Court of Appeals
likewise noted that it found no statutory
authority for the SEC to initiate and file any suit
for civil liability under Sections 8, 30 and 36 of
the Revised Securities Act. Thus, it ruled that no
civil, criminal or administrative proceedings
may possibly be held against the respondents
without violating their rights to due process and
equal protection. It further resolved that absent
any implementing rules, the SEC cannot be
allowed to quash the assailed Omnibus Orders
for the sole purpose of re-filing the same case
against the respondents.76[20]
The Court of Appeals further decided that the
Rules of Practice and Procedure Before the
PED, which took effect on 14 April 1990, did
not comply with the statutory requirements
contained in the Administrative Code of 1997.
Section 8, Rule V of the Rules of Practice and
Procedure Before the PED affords a party the
right to be present but without the right to cross-
examine witnesses presented against him, in
violation of Section 12(3), Chapter 3, Book VII
of the Administrative Code. 77[21]
In the dispositive portion of its Decision, dated
20 August 1998, the Court of Appeals ruled
that78[22]:
WHEREFORE, [herein petitioner
SECs] Motion for Leave to Quash SEC
Omnibus Orders is hereby DENIED. The
petition for certiorari, prohibition and mandamus
is GRANTED. Consequently, all proceedings
taken against [herein respondents] in this case,
including the Omnibus Orders of January 25,
1995 and March 30, 1995 are declared null and
void. The writ of preliminary injunction is
hereby made permanent and, accordingly,
[SEC] is hereby prohibited from taking
cognizance or initiating any action, be they
civil, criminal, or administrative against
[respondents] with respect to Sections 8
(Procedure for Registration), 30 (Insiders duty to
disclose when trading) and 36 (Directors,
Officers and Principal Stockholders) in relation
to Sections 46 (Administrative sanctions) 56
(Penalties) 44 (Liabilities of Controlling
persons) and 45 (Investigations, injunctions and
prosecution of offenses) of the Revised
Securities Act and Section 144 (Violations of the
Code) of the Corporation Code. (Emphasis
provided.)
The SEC filed a Motion for Reconsideration,
which the Court of Appeals denied in a
Resolution79[23] issued on 30 September 1998.
Hence, the present petition, which relies on the
following grounds80[24]:
I
THE COURT OF APPEALS ERRED WHEN
IT DENIED PETITIONERS MOTION FOR
LEAVE TO QUASH THE ASSAILED SEC
OMNIBUS ORDERS DATED JANUARY 25
AND MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN
IT RULED THAT THERE IS NO
STATUTORY AUTHORITY WHATSOEVER
FOR PETITIONER SEC TO INITIATE AND
FILE ANY SUIT BE THEY CIVIL,
CRIMINAL OR ADMINISTRATIVE
AGAINST RESPONDENT CORPORATION
AND ITS DIRECTORS WITH RESPECT TO
SECTION 30 (INSIDERS DUTY TO
DISCOLSED [sic] WHEN TRADING) AND 36
(DIRECTORS OFFICERS AND PRINCIPAL
STOCKHOLDERS) OF THE REVISED
SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN
IT RULED THAT RULES OF PRACTICE
AND PROSECUTION BEFORE THE PED
AND THE SICD RULES OF PROCEDURE
ON ADMINISTRATIVE
ACTIONS/PROCEEDINGS81[25] ARE
INVALID AS THEY FAIL TO COMPLY
WITH THE STATUTORY REQUIREMENTS
CONTAINED IN THE ADMINISTRATIVE
CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it
should be noted that while this case was pending
in this Court, Republic Act No. 8799, otherwise
known as the Securities Regulation Code, took
effect on 8 August 2000. Section 8 of
Presidential Decree No. 902-A, as amended,
which created the PED, was already repealed as
provided for in Section 76 of the Securities
Regulation Code:
SEC. 76. Repealing Clause. The Revised
Securities Act (Batas Pambansa Blg. 178), as
amended, in its entirety, and Sections 2, 4 and 8
of Presidential Decree 902-A, as amended, are
hereby repealed. All other laws, orders, rules
and regulations, or parts thereof, inconsistent
with any provision of this Code are hereby
repealed or modified accordingly.
Thus, under the new law, the PED has been
abolished, and the Securities Regulation Code
has taken the place of the Revised Securities
Act.
The Court now proceeds with a discussion of the
present case.
I. Sctions 8, 30 and 36 of the Revised
Securities Act do not require the enactment of
implementing rules to make them binding and
effective.
The Court of Appeals ruled that absent any
implementing rules for Sections 8, 30 and 36 of
the Revised Securities Act, no civil, criminal or
administrative actions can possibly be had
against the respondents without violating their
right to due process and equal protection, citing
as its basis the case Yick Wo v. Hopkins.82[26]
This is untenable.
In the absence of any constitutional or statutory
infirmity, which may concern Sections 30 and
36 of the Revised Securities Act, this Court
upholds these provisions as legal and binding. It
is well settled that every law has in its favor the
presumption of validity. Unless and until a
specific provision of the law is declared invalid
and unconstitutional, the same is valid and
binding for all intents and purposes.83[27] The
mere absence of implementing rules cannot
effectively invalidate provisions of law, where a
reasonable construction that will support the law
may be given. In People v. Rosenthal,84[28] this
Court ruled that:
In this connection we cannot pretermit reference
to the rule that legislation should not be held
invalid on the ground of uncertainty if
susceptible of any reasonable construction that
will support and give it effect. An Act will not
be declared inoperative and ineffectual on the
ground that it furnishes no adequate means to
secure the purpose for which it is passed, if men
of common sense and reason can devise and
provide the means, and all the instrumentalities
necessary for its execution are within the reach
of those intrusted therewith. (25 R.C.L., pp. 810,
811)
In Garcia v. Executive Secretary,85[29] the
Court underlined the importance of the
presumption of validity of laws and the careful
consideration with which the judiciary strikes
down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on
constitutional questions and to presume that the
acts of the political departments are valid in the
absence of a clear and unmistakable showing to
the contrary. To doubt is to sustain. This
presumption is based on the doctrine of
separation of powers which enjoins upon each
department a becoming respect for the acts of
the other departments. The theory is that as the
joint act of Congress and the President of the
Philippines, a law has been carefully studied and
determined to be in accordance with the
fundamental law before it was finally enacted.
The necessity for vesting administrative
authorities with power to make rules and
regulations is based on the impracticability of
lawmakers providing general regulations for
various and varying details of
management.86[30] To rule that the absence of
implementing rules can render ineffective an act
of Congress, such as the Revised Securities Act,
would empower the administrative bodies to
defeat the legislative will by delaying the
implementing rules. To assert that a law is less
than a law, because it is made to depend on a
future event or act, is to rob the Legislature of
the power to act wisely for the public welfare
whenever a law is passed relating to a state of
affairs not yet developed, or to things future and
impossible to fully know.87[31] It is well
established that administrative authorities have
the power to promulgate rules and regulations to
implement a given statute and to effectuate its
policies, provided such rules and regulations
conform to the terms and standards prescribed
by the statute as well as purport to carry into
effect its general policies. Nevertheless, it is
undisputable that the rules and regulations
cannot assert for themselves a more extensive
prerogative or deviate from the mandate of the
statute.88[32] Moreover, where the statute
contains sufficient standards and an
unmistakable intent, as in the case of Sections 30
and 36 of the Revised Securities Act, there
should be no impediment to its implementation.
The reliance placed by the Court of Appeals in
Yick Wo v. Hopkins89[33] shows a glaring error.
In the cited case, this Court found
unconstitutional an ordinance which gave the
board of supervisors authority to refuse
permission to carry on laundries located in
buildings that were not made of brick and stone,
because it violated the equal protection clause
and was highly discriminatory and hostile to
Chinese residents and not because the standards
provided therein were vague or ambiguous.
This Court does not discern any vagueness or
ambiguity in Sections 30 and 36 of the Revised
Securities Act, such that the acts proscribed
and/or required would not be understood by a
person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insiders duty to disclose when
trading. (a) It shall be unlawful for an insider to
sell or buy a security of the issuer, if he knows a
fact of special significance with respect to the
issuer or the security that is not generally
available, unless (1) the insider proves that the
fact is generally available or (2) if the other
party to the transaction (or his agent) is
identified, (a) the insider proves that the other
party knows it, or (b) that other party in fact
knows it from the insider or otherwise.
(b) Insider means (1) the issuer, (2) a director or
officer of, or a person controlling, controlled by,
or under common control with, the issuer, (3) a
person whose relationship or former relationship
to the issuer gives or gave him access to a fact of
special significance about the issuer or the
security that is not generally available, or (4) a
person who learns such a fact from any of the
foregoing insiders as defined in this subsection,
with knowledge that the person from whom he
learns the fact is such an insider.
(c) A fact is of special significance if (a) in
addition to being material it would be likely, on
being made generally available, to affect the
market price of a security to a significant extent,
or (b) a reasonable person would consider it
especially important under the circumstances in
determining his course of action in the light of
such factors as the degree of its specificity, the
extent of its difference from information
generally available previously, and its nature and
reliability.
(d) This section shall apply to an insider as
defined in subsection (b) (3) hereof only to the
extent that he knows of a fact of special
significance by virtue of his being an insider.
The provision explains in simple terms that the
insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct.
The intent of the law is the protection of
investors against fraud, committed when an
insider, using secret information, takes
advantage of an uninformed investor. Insiders
are obligated to disclose material information to
the other party or abstain from trading the shares
of his corporation. This duty to disclose or
abstain is based on two factors: first, the
existence of a relationship giving access, directly
or indirectly, to information intended to be
available only for a corporate purpose and not
for the personal benefit of anyone; and second,
the inherent unfairness involved when a party
takes advantage of such information knowing it
is unavailable to those with whom he is
dealing.90[34]
In the United States (U.S.), the obligation to
disclose or abstain has been traditionally
imposed on corporate insiders, particularly
officers, directors, or controlling stockholders,
but that definition has since been
expanded.91[35] The term insiders now includes
persons whose relationship or former
relationship to the issuer gives or gave them
access to a fact of special significance about the
issuer or the security that is not generally
available, and one who learns such a fact from
an insider knowing that the person from whom
he learns the fact is such an insider. Insiders
have the duty to disclose material facts which
are known to them by virtue of their position but
which are not known to persons with whom they
deal and which, if known, would affect their
investment judgment. In some cases, however,
there may be valid corporate reasons for the
nondisclosure of material information. Where
such reasons exist, an issuers decision not to
make any public disclosures is not ordinarily
considered as a violation of insider trading. At
the same time, the undisclosed information
should not be improperly used for non-corporate
purposes, particularly to disadvantage other
persons with whom an insider might transact,
and therefore the insider must abstain from
entering into transactions involving such
securities.92[36]
Respondents further aver that under Section 30
of the Revised Securities Act, the SEC still
needed to define the following terms: material
fact, reasonable person, nature and reliability
and generally available. 93[37] In determining
whether or not these terms are vague, these
terms must be evaluated in the context of
Section 30 of the Revised Securties Act. To fully
understand how the terms were used in the
aforementioned provision, a discussion of what
the law recognizes as a fact of special
significance is required, since the duty to
disclose such fact or to abstain from any
transaction is imposed on the insider only in
connection with a fact of special significance.
Under the law, what is required to be disclosed
is a fact of special significance which may be
(a) a material fact which would be likely, on
being made generally available, to affect the
market price of a security to a significant extent,
or (b) one which a reasonable person would
consider especially important in determining his
course of action with regard to the shares of
stock.
(a) Material Fact The concept of a material fact
is not a new one. As early as 1973, the Rules
Requiring Disclosure of Material Facts by
Corporations Whose Securities Are Listed In
Any Stock Exchange or Registered/Licensed
Under the Securities Act, issued by the SEC on
29 January 1973, explained that [a] fact is
material if it induces or tends to induce or
otherwise affect the sale or purchase of its
securities. Thus, Section 30 of the Revised
Securities Act provides that if a fact affects the
sale or purchase of securities, as well as its price,
then the insider would be required to disclose
such information to the other party to the
transaction involving the securities. This is the
first definition given to a fact of special
significance.
(b.1) Reasonable Person The second
definition given to a fact of special significance
involves the judgment of a reasonable person.
Contrary to the allegations of the respondents, a
reasonable person is not a problematic legal
concept that needs to be clarified for the purpose
of giving effect to a statute; rather, it is the
standard on which most of our legal doctrines
stand. The doctrine on negligence uses the
discretion of the reasonable man as the
standard.94[38] A purchaser in good faith must
also take into account facts which put a
reasonable man on his guard.95[39] In addition,
it is the belief of the reasonable and prudent man
that an offense was committed that sets the
criteria for probable cause for a warrant of
arrest.96[40] This Court, in such cases,
differentiated the reasonable and prudent man
from a person with training in the law such as a
prosecutor or a judge, and identified him as the
average man on the street, who weighs facts and
circumstances without resorting to the
calibrations of our technical rules of evidence of
which his knowledge is nil. Rather, he relies on
the calculus of common sense of which all
reasonable men have in abundance.97[41] In the
same vein, the U.S. Supreme Court similarly
determined its standards by the actual
significance in the deliberations of a reasonable
investor, when it ruled in TSC Industries, Inc. v.
Northway, Inc.,98[42] that the determination of
materiality requires delicate assessments of the
inferences a reasonable shareholder would draw
from a given set of facts and the significance of
those inferences to him.
(b.2) Nature and Reliability The factors
affecting the second definition of a fact of
special significance, which is of such importance
that it is expected to affect the judgment of a
reasonable man, were substantially lifted from a
test of materiality pronounced in the case In the
Matter of Investors Management Co.,
Inc.99[43]:
Among the factors to be considered in
determining whether information is material
under this test are the degree of its specificity,
the extent to which it differs from information
previously publicly disseminated, and its
reliability in light of its nature and source and
the circumstances under which it was received.
It can be deduced from the foregoing that the
nature and reliability of a significant fact in
determining the course of action a reasonable
person takes regarding securities must be clearly
viewed in connection with the particular
circumstances of a case. To enumerate all
circumstances that would render the nature and
reliability of a fact to be of special significance
is close to impossible. Nevertheless, the proper
adjudicative body would undoubtedly be able to
determine if facts of a certain nature and
reliability can influence a reasonable persons
decision to retain, sell or buy securities, and
thereafter explain and justify its factual findings
in its decision.
(c) Materiality Concept A discussion of the
materiality concept would be relevant to both a
material fact which would affect the market
price of a security to a significant extent and/or a
fact which a reasonable person would consider
in determining his or her cause of action with
regard to the shares of stock. Significantly, what
is referred to in our laws as a fact of special
significance is referred to in the U.S. as the
materiality concept and the latter is similarly not
provided with a precise definition. In Basic v.
Levinson,100[44] the U.S. Supreme Court
cautioned against confining materiality to a rigid
formula, stating thus:
A bright-line rule indeed is easier to follow than
a standard that requires the exercise of judgment
in the light of all the circumstances. But ease of
application alone is not an excuse for ignoring
the purposes of the Securities Act and Congress
policy decisions. Any approach that designates a
single fact or occurrence as always
determinative of an inherently fact-specific
finding such as materiality, must necessarily be
overinclusive or underinclusive.
Moreover, materiality will depend at any given
time upon a balancing of both the indicated
probability that the event will occur and the
anticipated magnitude of the event in light of the
totality of the company activity.101[45] In
drafting the Securities Act of 1934, the U.S.
Congress put emphasis on the limitations to the
definition of materiality:
Although the Committee believes that ideally it
would be desirable to have absolute certainty in
the application of the materiality concept, it is its
view that such a goal is illusory and unrealistic.
The materiality concept is judgmental in
nature and it is not possible to translate this
into a numerical formula. The Committee's
advice to the [SEC] is to avoid this quest for
certainty and to continue consideration of
materiality on a case-by-case basis as
disclosure problems are identified. House
Committee on Interstate and Foreign Commerce,
Report of the Advisory Committee on Corporate
Disclosure to the Securities and Exchange
Commission, 95th Cong., 1st Sess., 327
(Comm.Print 1977). (Emphasis
provided.)102[46]
(d) Generally Available Section 30 of the
Revised Securities Act allows the insider the
defense that in a transaction of securities, where
the insider is in possession of facts of special
significance, such information is generally
available to the public. Whether information
found in a newspaper, a specialized magazine, or
any cyberspace media be sufficient for the term
generally available is a matter which may be
adjudged given the particular circumstances of
the case. The standards cannot remain at a
standstill. A medium, which is widely used
today was, at some previous point in time,
inaccessible to most. Furthermore, it would be
difficult to approximate how the rules may be
applied to the instant case, where investigation
has not even been started. Respondents failed to
allege that the negotiations of their agreement
with GHB were made known to the public
through any form of media for there to be a
proper appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised
Securities Act, respondents claim that the term
beneficial ownership is vague and that it requires
implementing rules to give effect to the law.
Section 36(a) of the Revised Securities Act is a
straightforward provision that imposes upon (1)
a beneficial owner of more than ten percent of
any class of any equity security or (2) a director
or any officer of the issuer of such security, the
obligation to submit a statement indicating his or
her ownership of the issuers securities and such
changes in his or her ownership thereof. The
said provision reads:
Sec. 36. Directors, officers and
principal stockholders. (a) Every person who is
directly or indirectly the beneficial owner of
more than ten per centum of any [class] of any
equity security which is registered pursuant to
this Act, or who is [a] director or an officer of
the issuer of such security, shall file, at the time
of the registration of such security on a
securities exchange or by the effective date of a
registration statement or within ten days after he
becomes such a beneficial owner, director or
officer, a statement with the Commission and, if
such security is registered on a securities
exchange, also with the exchange, of the amount
of all equity securities of such issuer of which he
is the beneficial owner, and within ten days after
the close of each calendar month thereafter, if
there has been a change in such ownership
during such month, shall file with the
Commission, and if such security is registered
on a securities exchange, shall also file with the
exchange, a statement indicating his ownership
at the close of the calendar month and such
changes in his ownership as have occurred
during such calendar month. (Emphasis
provided.)
Section 36(a) refers to the beneficial owner.
Beneficial owner has been defined in the
following manner:
[F]irst, to indicate the interest of a beneficiary in
trust property (also called equitable ownership);
and second, to refer to the power of a corporate
shareholder to buy or sell the shares, though the
shareholder is not registered in the corporations
books as the owner. Usually, beneficial
ownership is distinguished from naked
ownership, which is the enjoyment of all the
benefits and privileges of ownership, as against
possession of the bare title to property.103[47]
Even assuming that the term beneficial
ownership was vague, it would not affect
respondents case, where the respondents are
directors and/or officers of the corporation, who
are specifically required to comply with the
reportorial requirements under Section 36(a) of
the Revised Securities Act. The validity of a
statute may be contested only by one who will
sustain a direct injury as a result of its
enforcement.104[48]
Sections 30 and 36 of the Revised Securities Act
were enacted to promote full disclosure in the
securities market and prevent unscrupulous
individuals, who by their positions obtain non-
public information, from taking advantage of an
uninformed public. No individual would invest
in a market which can be manipulated by a
limited number of corporate insiders. Such
reaction would stifle, if not stunt, the growth of
the securities market. To avert the occurrence of
such an event, Section 30 of the Revised
Securities Act prevented the unfair use of non-
public information in securities transactions,
while Section 36 allowed the SEC to monitor the
transactions entered into by corporate officers
and directors as regards the securities of their
companies.
In the case In the Matter of Investors
Management Co.,105[49] it was cautioned that
the broad language of the anti-fraud provisions,
which include the provisions on insider trading,
should not be circumscribed by fine distinctions
and rigid classifications. The ambit of anti-fraud
provisions is necessarily broad so as to embrace
the infinite variety of deceptive conduct.106[50]
In Tatad v. Secretary of Department of
Energy,107[51] this Court brushed aside a
contention, similar to that made by the
respondents in this case, that certain words or
phrases used in a statute do not set determinate
standards, declaring that:
Petitioners contend that the words as far as
practicable, declining and stable should have
been defined in R.A. No. 8180 as they do not set
determinate and determinable standards. This
stubborn submission deserves scant
consideration. The dictionary meanings of these
words are well settled and cannot confuse men
of reasonable intelligence. x x x. The fear of
petitioners that these words will result in the
exercise of executive discretion that will run riot
is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more
general standards in other cases.
Among the words or phrases that this Court
upheld as valid standards were simplicity and
dignity,108[52] public interest,109[53] and
interests of law and order.110[54]
The Revised Securities Act was approved on 23
February 1982. The fact that the Full Disclosure
Rules were promulgated by the SEC only on 24
July 1996 does not render ineffective in the
meantime Section 36 of the Revised Securities
Act. It is already unequivocal that the Revised
Securities Act requires full disclosure and the
Full Disclosure Rules were issued to make the
enforcement of the law more consistent, efficient
and effective. It is equally reasonable to state
that the disclosure forms later provided by the
SEC, do not, in any way imply that no
compliance was required before the forms were
provided. The effectivity of a statute which
imposes reportorial requirements cannot be
suspended by the issuance of specified forms,
especially where compliance therewith may be
made even without such forms. The forms
merely made more efficient the processing of
requirements already identified by the statute.
For the same reason, the Court of
Appeals made an evident mistake when it ruled
that no civil, criminal or administrative actions
can possibly be had against the respondents in
connection with Sections 8, 30 and 36 of the
Revised Securities Act due to the absence of
implementing rules. These provisions are
sufficiently clear and complete by themselves.
Their requirements are specifically set out, and
the acts which are enjoined are determinable. In
particular, Section 8111[55] of the Revised
Securities Act is a straightforward enumeration
of the procedure for the registration of securities
and the particular matters which need to be
reported in the registration statement thereof.
The Decision, dated 20 August 1998, provides
no valid reason to exempt the respondent IRC
from such requirements. The lack of
implementing rules cannot suspend the
effectivity of these provisions. Thus, this Court
cannot find any cogent reason to prevent the
SEC from exercising its authority to investigate
respondents for violation of Section 8 of the
Revised Securities Act.
II. The right to cross-examination is not
absolute and cannot be demanded during
investigative proceedings before the PED.
In its assailed Decision dated 20 August 1998,
the Court of Appeals pronounced that the PED
Rules of Practice and Procedure was invalid
since Section 8, Rule V112[56] thereof failed to
provide for the parties right to cross-
examination, in violation of the Administrative
Code of 1987 particularly Section 12(3), Chapter
3, Book VII thereof. This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of
Practice and Procedure, categorically stated that
the proceedings before the PED are summary in
nature:
Section 4. Nature of Proceedings Subject to the
requirements of due process, proceedings before
the PED shall be summary in nature not
necessarily adhering to or following the
technical rules of evidence obtaining in the
courts of law. The Rules of Court may apply in
said proceedings in suppletory character
whenever practicable.
Rule V of the PED Rules of Practice and
Procedure further specified that:
Section 5. Submission of Documents
During the preliminary conference/hearing, or
immediately thereafter, the Hearing Officer may
require the parties to simultaneously submit their
respective verified position papers accompanied
by all supporting documents and the affidavits of
their witnesses, if any which shall take the place
of their direct testimony. The parties shall
furnish each other with copies of the position
papers together with the supporting affidavits
and documents submitted by them.
Section 6. Determination of necessity of
hearing. Immediately after the submission by the
parties of their position papers and supporting
documents, the Hearing Officer shall determine
whether there is a need for a formal hearing. At
this stage, he may, in his discretion, and for the
purpose of making such determination, elicit
pertinent facts or information, including
documentary evidence, if any, from any party or
witness to complete, as far as possible, the facts
of the case. Facts or information so elicited may
serve as basis for his clarification or
simplifications of the issues in the case.
Admissions and stipulation of facts to abbreviate
the proceedings shall be encouraged.
Section 7. Disposition of Case. If the
Hearing Officer finds no necessity of further
hearing after the parties have submitted their
position papers and supporting documents, he
shall so inform the parties stating the reasons
therefor and shall ask them to acknowledge the
fact that they were so informed by signing the
minutes of the hearing and the case shall be
deemed submitted for resolution.
As such, the PED Rules provided that the
Hearing Officer may require the parties to
submit their respective verified position papers,
together with all supporting documents and
affidavits of witnesses. A formal hearing was
not mandatory; it was within the discretion of
the Hearing Officer to determine whether there
was a need for a formal hearing. Since,
according to the foregoing rules, the holding of a
hearing before the PED is discretionary, then the
right to cross-examination could not have been
demanded by either party.
Secondly, it must be pointed out that Chapter 3,
Book VII of the Administrative Code, entitled
Adjudication, does not affect the investigatory
functions of the agencies. The law creating the
PED, Section 8 of Presidential Decree No. 902-
A, as amended, defines the authority granted to
the PED, thus:
SEC. 8. The Prosecution and
Enforcement Department shall have, subject to
the Commissions control and supervision, the
exclusive authority to investigate, on
complaint or motu proprio, any act or omission
of the Board of Directors/Trustees of
corporations, or of partnerships, or of other
associations, or of their stockholders, officers or
partners, including any fraudulent devices,
schemes or representations, in violation of any
law or rules and regulations administered and
enforced by the Commission; to file and
prosecute in accordance with law and rules and
regulations issued by the Commission and in
appropriate cases, the corresponding criminal or
civil case before the Commission or the proper
court or body upon prima facie finding of
violation of any laws or rules and regulations
administered and enforced by the Commission;
and to perform such other powers and functions
as may be provided by law or duly delegated to
it by the Commission. (Emphasis provided.)
The law creating PED empowers it to investigate
violations of the rules and regulations
promulgated by the SEC and to file and
prosecute such cases. It fails to mention any
adjudicatory functions insofar as the PED is
concerned. Thus, the PED Rules of Practice and
Procedure need not comply with the provisions
of the Administrative Code on adjudication,
particularly Section 12(3), Chapter 3, Book VII.
In Cario v. Commission on Human
Rights,113[57] this Court sets out the distinction
between investigative and adjudicative
functions, thus:
Investigate, commonly understood, means to
examine, explore, inquire or delve or probe into,
research on, study. The dictionary definition of
investigate is to observe or study closely; inquire
into systematically: to search or inquire into xx
to subject to an official probe xx: to conduct an
official inquiry. The purpose of an investigation,
of course is to discover, to find out, to learn,
obtain information. Nowhere included or
intimated is the notion of settling, deciding or
resolving a controversy involved in the facts
inquired into by application of the law to the
facts established by the inquiry.
The legal meaning of investigate is essentially
the same: (t)o follow up step by step by patient
inquiry or observation. To trace or track; to
search into; to examine and inquire into with
care and accuracy; to find out by careful
inquisition; examination; the taking of evidence;
a legal inquiry; to inquire; to make an
investigation, investigation being in turn
described as (a)n administrative function, the
exercise of which ordinarily does not require a
hearing. 2 Am J2d Adm L Sec. 257; xx an
inquiry, judicial or otherwise, for the discovery
and collection of facts concerning a certain
matter or matters.
Adjudicate, commonly or popularly understood,
means to adjudge, arbitrate, judge, decide,
determine, resolve, rule on, settle. The
dictionary defines the term as to settle finally
(the rights and duties of parties to a court case)
on the merits of issues raised: xx to pass
judgment on: settle judicially: xx act as judge.
And adjudge means to decide or rule upon as a
judge or with judicial or quasi-judicial powers:
xx to award or grant judicially in a case of
controversy x x x.
In a legal sense, adjudicate means: To settle in
the exercise of judicial authority. To determine
finally. Synonymous with adjudge in its strictest
sense; and adjudge means: To pass on judicially,
to decide, settle, or decree, or to sentence or
condemn. x x x Implies a judicial determination
of a fact, and the entry of a judgment.
There is no merit to the respondents averment
that the sections under Chapter 3, Book VII of
the Administrative Code, do not distinguish
between investigative and adjudicatory
functions. Chapter 3, Book VII of the
Administrative Code, is unequivocally entitled
Adjudication.
Respondents insist that the PED performs
adjudicative functions, as enumerated under
Section 1(h) and (j), Rule II; and Section 2(4),
Rule VII of the PED Rules of Practice and
Procedure:
Section 1. Authority of the Prosecution
and Enforcement Department Pursuant to
Presidential Decree No. 902-A, as amended by
Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily
charged with the following:
xxxx
(h) Suspends or revokes, after proper notice and
hearing in accordance with these Rules, the
franchise or certificate of registration of
corporations, partnerships or associations, upon
any of the following grounds:
1. Fraud in procuring its certificate of
registration;
2. Serious misrepresentation as to what
the corporation can do or is doing to the great
prejudice of or damage to the general public;
3. Refusal to comply or defiance of any
lawful order of the Commission restraining
commission of acts which would amount to a
grave violation of its franchise;
xxxx
(j) Imposes charges, fines and fees, which by
law, it is authorized to collect;
xxxx
Section 2. Powers of the Hearing Officer. The
Hearing Officer shall have the following
powers:
xxxx
4. To cite and/or declare any person in direct or
indirect contempt in accordance with pertinent
provisions of the Rules of Court.
Even assuming that these are adjudicative
functions, the PED, in the instant case, exercised
its investigative powers; thus, respondents do
not have the requisite standing to assail the
validity of the rules on adjudication. A valid
source of a statute or a rule can only be
contested by one who will sustain a direct injury
as a result of its enforcement.114[58] In the
instant case, respondents are only being
investigated by the PED for their alleged failure
to disclose their negotiations with GHB and the
transactions entered into by its directors
involving IRC shares. The respondents have not
shown themselves to be under any imminent
danger of sustaining any personal injury
attributable to the exercise of adjudicative
functions by the SEC. They are not being or
about to be subjected by the PED to charges,
fees or fines; to citations for contempt; or to the
cancellation of their certificate of registration
under Section 1(h), Rule II of the PED Rules of
Practice and Procedure.
To repeat, the only powers which the PED was
likely to exercise over the respondents were
investigative in nature, to wit:
Section 1. Authority of the Prosecution
and Enforcement Department Pursuant to
Presidential Decree No. 902-A, as amended by
Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily
charged with the following:
xxxx
b. Initiates proper investigation of
corporations and partnerships or persons, their
books, records and other properties and assets,
involving their business transactions, in
coordination with the operating department
involved;
xxxx
e. Files and prosecutes civil or criminal cases
before the Commission and other courts of
justice involving violations of laws and decrees
enforced by the Commission and the rules and
regulations promulgated thereunder;
f. Prosecutes erring directors, officers and
stockholders of corporations and partnerships,
commercial paper issuers or persons in
accordance with the pertinent rules on
procedures;
The authority granted to the PED under
Section 1(b), (e), and (f), Rule II of the PED
Rules of Practice and Procedure, need not
comply with Section 12, Chapter 3, Rule VII of
the Administrative Code, which affects only the
adjudicatory functions of administrative bodies.
Thus, the PED would still be able to investigate
the respondents under its rules for their alleged
failure to disclose their negotiations with GHB
and the transactions entered into by its directors
involving IRC shares.
This is not to say that administrative bodies
performing adjudicative functions are required
to strictly comply with the requirements of
Chapter 3, Rule VII of the Administrative Code,
particularly, the right to cross-examination. It
should be noted that under Section 2.2 of
Executive Order No. 26, issued on 7 October
1992, abbreviated proceedings are prescribed in
the disposition of administrative cases:
2. Abbreviation of Proceedings. All
administrative agencies are hereby directed to
adopt and include in their respective Rules of
Procedure the following provisions:
xxxx
2.2 Rules adopting, unless otherwise provided
by special laws and without prejudice to Section
12, Chapter 3, Book VII of the Administrative
Code of 1987, the mandatory use of affidavits in
lieu of direct testimonies and the preferred use
of depositions whenever practicable and
convenient.
As a consequence, in proceedings before
administrative or quasi-judicial bodies, such as
the National Labor Relations Commission and
the Philippine Overseas Employment Agency,
created under laws which authorize summary
proceedings, decisions may be reached on the
basis of position papers or other documentary
evidence only. They are not bound by technical
rules of procedure and evidence. 115[59] In fact,
the hearings before such agencies do not connote
full adversarial proceedings.116[60] Thus, it is
not necessary for the rules to require affiants to
appear and testify and to be cross-examined by
the counsel of the adverse party. To require
otherwise would negate the summary nature of
the administrative or quasi-judicial
proceedings.117[61] In Atlas Consolidated
Mining and Development Corporation v.
Factoran, Jr.,118[62] this Court stated that:
[I]t is sufficient that administrative findings of
fact are supported by evidence, or negatively
stated, it is sufficient that findings of fact are not
shown to be unsupported by evidence.
Substantial evidence is all that is needed to
support an administrative finding of fact, and
substantial evidence is such relevant evidence as
a reasonable mind might accept as adequate to
support a conclusion.
In order to comply with the
requirements of due process, what is required,
among other things, is that every litigant be
given reasonable opportunity to appear and
defend his right and to introduce relevant
evidence in his favor.119[63]
III. The Securities Regulations Code did
not repeal Sections 8, 30 and 36 of the Revised
Securities Act since said provisions were
reenacted in the new law.
The Securities Regulations Code absolutely
repealed the Revised Securities Act. While the
absolute repeal of a law generally deprives a
court of its authority to penalize the person
charged with the violation of the old law prior to
its appeal, an exception to this rule comes about
when the repealing law punishes the act
previously penalized under the old law. The
Court, in Benedicto v. Court of Appeals, sets
down the rules in such instances:120[64]
As a rule, an absolute repeal of a penal law has
the effect of depriving the court of its authority
to punish a person charged with violation of the
old law prior to its repeal. This is because an
unqualified repeal of a penal law constitutes a
legislative act of rendering legal what had been
previously declared as illegal, such that the
offense no longer exists and it is as if the person
who committed it never did so. There are,
however, exceptions to the rule. One is the
inclusion of a saving clause in the repealing
statute that provides that the repeal shall have no
effect on pending actions. Another exception is
where the repealing act reenacts the former
statute and punishes the act previously penalized
under the old law. In such instance, the act
committed before the reenactment continues to
be an offense in the statute books and pending
cases are not affected, regardless of whether the
new penalty to be imposed is more favorable to
the accused. (Emphasis provided.)
In the present case, a criminal case may still be
filed against the respondents despite the repeal,
since Sections 8, 121[65] 12,122[66] 26,123[67]
27124[68] and 23125[69] of the Securities
Regulations Code impose duties that are
substantially similar to Sections 8, 30 and 36 of
the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which
previously provided for the registration of
securities and the information that needs to be
included in the registration statements, was
expanded under Section 12, in connection with
Section 8 of the Securities Regulations Code.
Further details of the information required to be
disclosed by the registrant are explained in the
Amended Implementing Rules and Regulations
of the Securities Regulations Code, issued on 30
December 2003, particularly Sections 8 and 12
thereof.
Section 30 of the Revised Securities Act has
been reenacted as Section 27 of the Securities
Regulations Code, still penalizing an insiders
misuse of material and non-public information
about the issuer, for the purpose of protecting
public investors. Section 26 of the Securities
Regulations Code even widens the coverage of
punishable acts, which intend to defraud public
investors through various devices,
misinformation and omissions.
Section 23 of the Securities Regulations Code
was practically lifted from Section 36(a) of the
Revised Securities Act. Both provisions impose
upon (1) a beneficial owner of more than ten
percent of any class of any equity security or (2)
a director or any officer of the issuer of such
security, the obligation to submit a statement
indicating his or her ownership of the issuers
securities and such changes in his or her
ownership thereof.
Clearly, the legislature had not intended to
deprive the courts of their authority to punish a
person charged with violation of the old law that
was repealed; in this case, the Revised Securities
Act.
IV. The SEC retained the jurisdiction to
investigate violations of the Revised Securities
Act, reenacted in the Securities Regulations
Code, despite the abolition of the PED.
Section 53 of the Securities Regulations Code
clearly provides that criminal complaints for
violations of rules and regulations enforced or
administered by the SEC shall be referred to the
Department of Justice (DOJ) for preliminary
investigation, while the SEC nevertheless retains
limited investigatory powers.126[70]
Additionally, the SEC may still impose the
appropriate administrative sanctions under
Section 54 of the aforementioned law.127[71]
In Morato v. Court of Appeals,128[72] the cases
therein were still pending before the PED for
investigation and the SEC for resolution when
the Securities Regulations Code was enacted.
The case before the SEC involved an intra-
corporate dispute, while the subject matter of the
other case investigated by the PED involved the
schemes, devices, and violations of pertinent
rules and laws of the companys board of
directors. The enactment of the Securities
Regulations Code did not result in the dismissal
of the cases; rather, this Court ordered the
transfer of one case to the proper regional trial
court and the SEC to continue with the
investigation of the other case.
The case at bar is comparable to the
aforecited case. In this case, the SEC already
commenced the investigative proceedings
against respondents as early as 1994.
Respondents were called to appear before the
SEC and explain their failure to disclose
pertinent information on 14 August 1994.
Thereafter, the SEC Chairman, having already
made initial findings that respondents failed to
make timely disclosures of their negotiations
with GHB, ordered a special investigating panel
to hear the case. The investigative proceedings
were interrupted only by the writ of preliminary
injunction issued by the Court of Appeals, which
became permanent by virtue of the Decision,
dated 20 August 1998, in C.A.-G.R. SP No.
37036. During the pendency of this case, the
Securities Regulations Code repealed the
Revised Securities Act. As in Morato v. Court of
Appeals, the repeal cannot deprive SEC of its
jurisdiction to continue investigating the case; or
the regional trial court, to hear any case which
may later be filed against the respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that
this case is moot and academic, since any
criminal complaint that may be filed against
them resulting from the SECs investigation of
this case has already prescribed.129[73] They
point out that the prescription period applicable
to offenses punished under special laws, such as
violations of the Revised Securities Act, is
twelve years under Section 1 of Act No. 3326, as
amended by Act No. 3585 and Act No. 3763,
entitled An Act to Establish Periods of
Prescription for Violations Penalized by Special
Acts and Municipal Ordinances and to Provide
When Prescription Shall Begin to Act.130[74]
Since the offense was committed in 1994, they
reasoned that prescription set in as early as 2006
and rendered this case moot. Such position,
however, is incongruent with the factual
circumstances of this case, as well as the
applicable laws and jurisprudence.
It is an established doctrine that a preliminary
investigation interrupts the prescription
period.131[75] A preliminary investigation is
essentially a determination whether an offense
has been committed, and whether there is
probable cause for the accused to have
committed an offense:
A preliminary investigation is merely
inquisitorial, and it is often the only means of
discovering the persons who may be reasonably
charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a
trial of the case on the merits and has no purpose
except that of determining whether a crime has
been committed or whether there is probable
cause to believe that the accused is guilty
thereof.132[76]
Under Section 45 of the Revised Securities Act,
which is entitled Investigations, Injunctions and
Prosecution of Offenses, the Securities
Exchange Commission (SEC) has the authority
to make such investigations as it deems
necessary to determine whether any person has
violated or is about to violate any provision of
this Act XXX. After a finding that a person has
violated the Revised Securities Act, the SEC
may refer the case to the DOJ for preliminary
investigation and prosecution.
While the SEC investigation serves the same
purpose and entails substantially similar duties
as the preliminary investigation conducted by
the DOJ, this process cannot simply be
disregarded. In Baviera v. Paglinawan,133[77]
this Court enunciated that a criminal complaint
is first filed with the SEC, which determines the
existence of probable cause, before a
preliminary investigation can be commenced by
the DOJ. In the aforecited case, the complaint
filed directly with the DOJ was dismissed on the
ground that it should have been filed first with
the SEC. Similarly, the offense was a violation
of the Securities Regulations Code, wherein the
procedure for criminal prosecution was
reproduced from Section 45 of the Revised
Securities Act. 134[78] This Court affirmed the
dismissal, which it explained thus:
The Court of Appeals held that under the above
provision, a criminal complaint for violation of
any law or rule administered by the SEC must
first be filed with the latter. If the Commission
finds that there is probable cause, then it should
refer the case to the DOJ. Since petitioner failed
to comply with the foregoing procedural
requirement, the DOJ did not gravely abuse its
discretion in dismissing his complaint in I.S. No.
2004-229.
A criminal charge for violation of the Securities
Regulation Code is a specialized
dispute. Hence, it must first be referred to an
administrative agency of special competence,
i.e., the SEC. Under the doctrine of primary
jurisdiction, courts will not determine a
controversy involving a question within the
jurisdiction of the administrative tribunal, where
the question demands the exercise of sound
administrative discretion requiring the
specialized knowledge and expertise of said
administrative tribunal to determine technical
and intricate matters of fact. The Securities
Regulation Code is a special law. Its
enforcement is particularly vested in the
SEC. Hence, all complaints for any violation of
the Code and its implementing rules and
regulations should be filed with the SEC. Where
the complaint is criminal in nature, the SEC
shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as
provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that
petitioner committed a fatal procedural lapse
when he filed his criminal complaint directly
with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in
dismissing petitioners complaint.
The said case puts in perspective the nature of
the investigation undertaken by the SEC, which
is a requisite before a criminal case may be
referred to the DOJ. The Court declared that it is
imperative that the criminal prosecution be
initiated before the SEC, the administrative
agency with the special competence.
It should be noted that the SEC started
investigative proceedings against the
respondents as early as 1994. This investigation
effectively interrupted the prescription period.
However, said proceedings were disrupted by a
preliminary injunction issued by the Court of
Appeals on 5 May 1995, which effectively
enjoined the SEC from filing any criminal, civil,
or administrative case against the respondents
herein.135[79] Thereafter, on 20 August 1998,
the appellate court issued the assailed Decision
in C.A. G.R. SP. No. 37036 ordering that the
writ of injunction be made permanent and
prohibiting the SEC from taking cognizance of
and initiating any action against herein
respondents. The SEC was bound to comply
with the aforementioned writ of preliminary
injunction and writ of injunction issued by the
Court of Appeals enjoining it from continuing
with the investigation of respondents for 12
years. Any deviation by the SEC from the
injunctive writs would be sufficient ground for
contempt. Moreover, any step the SEC takes in
defiance of such orders will be considered void
for having been taken against an order issued by
a court of competent jurisdiction.
An investigation of the case by any other
administrative or judicial body would likewise
be impossible pending the injunctive writs
issued by the Court of Appeals. Given the ruling
of this Court in Baviera v. Paglinawan,136[80]
the DOJ itself could not have taken cognizance
of the case and conducted its preliminary
investigation without a prior determination of
probable cause by the SEC. Thus, even
presuming that the DOJ was not enjoined by the
Court of Appeals from conducting a preliminary
investigation, any preliminary investigation
conducted by the DOJ would have been a futile
effort since the SEC had only started with its
investigation when respondents themselves
applied for and were granted an injunction by
the Court of Appeals.
Moreover, the DOJ could not have conducted a
preliminary investigation or filed a criminal case
against the respondents during the time that
issues on the effectivity of Sections 8, 30 and 36
of the Revised Securities Act and the PED Rules
of Practice and Procedure were still pending
before the Court of Appeals. After the Court of
Appeals declared the aforementioned statutory
and regulatory provisions invalid and, thus, no
civil, criminal or administrative case may be
filed against the respondents for violations
thereof, the DOJ would have been at a loss, as
there was no statutory provision which
respondents could be accused of violating.
Accordingly, it is only after this Court corrects
the erroneous ruling of the Court of Appeals in
its Decision dated 20 August 1998 that either the
SEC or DOJ may properly conduct any kind of
investigation against the respondents for
violations of Sections 8, 30 and 36 of the
Revised Securities Act. Until then, the
prescription period is deemed interrupted.
To reiterate, the SEC must first conduct its
investigations and make a finding of probable
cause in accordance with the doctrine
pronounced in Baviera v. Paglinawan.137[81]
In this case, the DOJ was precluded from
initiating a preliminary investigation since the
SEC was halted by the Court of Appeals from
continuing with its investigation. Such a
situation leaves the prosecution of the case at a
standstill, and neither the SEC nor the DOJ can
conduct any investigation against the
respondents, who, in the first place, sought the
injunction to prevent their prosecution. All that
the SEC could do in order to break the impasse
was to have the Decision of the Court of
Appeals overturned, as it had done at the earliest
opportunity in this case. Therefore, the period
during which the SEC was prevented from
continuing with its investigation should not be
counted against it. The law on the prescription
period was never intended to put the prosecuting
bodies in an impossible bind in which the
prosecution of a case would be placed way
beyond their control; for even if they avail
themselves of the proper remedy, they would
still be barred from investigating and
prosecuting the case.
Indubitably, the prescription period is
interrupted by commencing the proceedings for
the prosecution of the accused. In criminal cases,
this is accomplished by initiating the preliminary
investigation. The prosecution of offenses
punishable under the Revised Securities Act and
the Securities Regulations Code is initiated by
the filing of a complaint with the SEC or by an
investigation conducted by the SEC motu
proprio. Only after a finding of probable cause
is made by the SEC can the DOJ instigate a
preliminary investigation. Thus, the
investigation that was commenced by the SEC in
1995, soon after it discovered the questionable
acts of the respondents, effectively interrupted
the prescription period. Given the nature and
purpose of the investigation conducted by the
SEC, which is equivalent to the preliminary
investigation conducted by the DOJ in criminal
cases, such investigation would surely interrupt
the prescription period.
VI. The Court of Appeals was justified in
denying SECs Motion for Leave to Quash SEC
Omnibus Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred
when it denied its Motion for Leave to Quash
SEC Omnibus Orders, dated 23 October 1995, in
the light of its admission that the PED had the
sole authority to investigate the present case. On
this matter, this Court cannot agree with the
SEC.
In the assailed decision, the Court of Appeals Sections 8, 30, and 36 of the Revised Securities
denied the SECs Motion for Leave to Quash Act.138[82]
SEC Omnibus Orders, since it found other issues
that were more important than whether or not IN VIEW OF THE FOREGOING, the instant
the PED was the proper body to investigate the Petition is GRANTED. This Court hereby
matter. Its refusal was premised on its earlier REVERSES the assailed Decision of the Court
finding that no criminal, civil, or administrative of Appeals promulgated on 20 August 1998 in
case may be filed against the respondents under CA-G.R. SP No. 37036 and LIFTS the
Sections 8, 30 and 36 of the Revised Securities permanent injunction issued pursuant thereto.
Act, due to the absence of any implementing This Court further DECLARES that the
rules and regulations. Moreover, the validity of investigation of the respondents for violations of
the PED Rules on Practice and Procedure was Sections 8, 30 and 36 of the Revised Securities
also raised as an issue. The Court of Appeals, Act may be undertaken by the proper authorities
thus, reasoned that if the quashal of the orders in accordance with the Securities Regulations
was granted, then it would be deprived of the Code. No costs.
opportunity to determine the validity of the
aforementioned rules and statutory provisions. SO ORDERED.
In addition, the SEC would merely pursue the
same case without the Court of Appeals having
determined whether or not it may do so in
accordance with due process requirements.
Absent a determination of whether the SEC may
file a case against the respondents based on the
assailed provisions of the Revised Securities
Act, it would have been improper for the Court
of Appeals to grant the SECs Motion for Leave
to Quash SEC Omnibus Orders.
In all, this Court rules that no implementing
rules were needed to render effective Sections 8,
30 and 36 of the Revised Securities Act; nor was
the PED Rules of Practice and Procedure
invalid, prior to the enactment of the Securities
Regulations Code, for failure to provide parties
with the right to cross-examine the witnesses
presented against them. Thus, the respondents
may be investigated by the appropriate authority
under the proper rules of procedure of the
Securities Regulations Code for violations of
Cemco holdings, inc., Corporation (UCHC) was covered by the
G.R. No. 171815 Percentage of UCHC 60%
Petitioner, Mandatory Offer Rule under Section 19 of ownership in UCC
Republic
Present: Act No. 8799, otherwise known as the Indirect ownership of 36%
Securities
YNARES-SANTIAGO,
Regulation Code.J., Cemco in UCC
Chairperson, Direct ownership of 17%
- versus - The
AUSTRIA-MARTINEZ,
Facts Cemco in UCC
CHICO-NAZARIO, and Total ownership of 53%
Union
NACHURA,
Cement JJ.
Corporation (UCC), a publicly- Cemco in UCC
listed company, has two principal stockholders
national life insurance company of the UCHC,
Promulgated:
a non-listed company, with shares
philippines, inc., amounting to 60.51%, and petitioner Cemco As a consequence of this disclosure, the PSE, in
Respondent. with
August
17.03%.
7, 2007
Majority of UCHCs stocks were a letter to the SEC dated 15 July 2004, inquired
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - owned by BCI with 21.31% and ACC with as to whether the Tender Offer Rule under Rule
- - - - - - - - - - - - - - - - - -x 29.69%. Cemco, on the other hand, owned 9% 19 of the Implementing Rules of the Securities
of UCHC stocks. Regulation Code is not applicable to the
purchase by petitioner of the majority of shares
DeCISion In a disclosure letter dated 5 July 2004, BCI of UCC.
informed the Philippine Stock Exchange (PSE)
that it and its subsidiary ACC had passed In a letter dated 16 July 2004, Director Justina
CHICO-NAZARIO, J.: resolutions to sell to Cemco BCIs stocks in Callangan of the SECs Corporate Finance
UCHC equivalent to 21.31% and ACCs stocks Department responded to the query of the PSE
in UCHC equivalent to 29.69%. that while it was the stance of the department
This Petition for Review under Rule 45 of the that the tender offer rule was not applicable, the
Rules of Court seeks to reverse and set aside the In the PSE Circular for Brokers No. 3146-2004 matter must still have to be confirmed by the
24 October 2005 Decision139[1] and the 6 dated 8 July 2004, it was stated that as a result of SEC en banc.
March 2006 Resolution140[2] of the Court of petitioner Cemcos acquisition of BCI and ACCs Thereafter, in a subsequent letter dated 27 July
Appeals in CA-G.R. SP No. 88758 which shares in UCHC, petitioners total beneficial 2004, Director Callangan confirmed that the
affirmed the judgment141[3] dated 14 February ownership, direct and indirect, in UCC has SEC en banc had resolved that the Cemco
2005 of the Securities and Exchange increased by 36% and amounted to at least 53% transaction was not covered by the tender offer
Commission (SEC) finding that the acquisition of the shares of UCC, to wit142[4]: rule.
of petitioner Cemco Holdings, Inc. (Cemco) of
the shares of stock of Bacnotan Consolidated Particulars Percentage On 28 July 2004, feeling aggrieved by the
Industries, Inc. (BCI) and Atlas Cement Existing shares of 9% transaction, respondent National Life Insurance
Corporation (ACC) in Union Cement Holdings Cemco in UCHC Company of the Philippines, Inc., a minority
Acquisition by Cemco 51% stockholder of UCC, sent a letter to Cemco
of BCIs and ACCs demanding the latter to comply with the rule on
shares in UCHC mandatory tender offer. Cemco, however,
Total stocks of Cemco 60% refused.
in UCHC
On 5 August 2004, a Share Purchase Agreement
was executed by ACC and BCI, as sellers, and
Cemco, as buyer.

On 12 August 2004, the transaction was
consummated and closed.
On 19 August 2004, respondent National Life
Insurance Company of the Philippines, Inc. filed
a complaint with the SEC asking it to reverse its
27 July 2004 Resolution and to declare the
purchase agreement of Cemco void and praying
that the mandatory tender offer rule be applied
to its UCC shares. Impleaded in the complaint
were Cemco, UCC, UCHC, BCI and ACC,
which were then required by the SEC to file
their respective comment on the complaint. In
their comments, they were uniform in arguing
that the tender offer rule applied only to a direct
acquisition of the shares of the listed company
and did not extend to an indirect acquisition
arising from the purchase of the shares of a
holding company of the listed firm.
In a Decision dated 14 February 2005, the SEC
ruled in favor of the respondent by reversing and
setting aside its 27 July 2004 Resolution and
directed petitioner Cemco to make a tender offer
for UCC shares to respondent and other holders
of UCC shares similar to the class held by
UCHC in accordance with Section 9(E), Rule 19
of the Securities Regulation Code.
Petitioner filed a petition with the Court of
Appeals challenging the SECs jurisdiction to
take cognizance of respondents complaint and
its authority to require Cemco to make a tender
offer for UCC shares, and arguing that the tender
offer rule does not apply, or that the SECs re-
interpretation of the rule could not be made to
retroactively apply to Cemcos purchase of
UCHC shares.
The Court of Appeals rendered a decision
affirming the ruling of the SEC. It ruled that the
SEC has jurisdiction to render the questioned
decision and, in any event, Cemco was barred by
estoppel from questioning the SECs jurisdiction.
It, likewise, held that the tender offer
requirement under the Securities Regulation
Code and its Implementing Rules applies to
Cemcos purchase of UCHC stocks. The decretal
portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed
decision of the SEC is AFFIRMED, and the
preliminary injunction issued by the Court
LIFTED.143[5]
Cemco filed a motion for reconsideration which
was denied by the Court of Appeals.
Hence, the instant petition.
In its memorandum, petitioner Cemco raises the
following issues:
I.
ASSUMING ARGUENDO THAT THE SEC
HAS JURISDICTION OVER NATIONAL
LIFES COMPLAINT AND THAT THE SECS
RE-INTERPRETATION OF THE TENDER
OFFER RULE IS CORRECT, WHETHER OR
NOT THAT REINTERPRETATION CAN BE
APPLIED RETROACTIVELY TO CEMCOS
PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS
JURISDICTION TO ADJUDICATE THE
DISPUTE BETWEEN THE PARTIES A QUO
OR TO RENDER JUDGMENT REQUIRING
CEMCO TO MAKE A TENDER OFFER FOR
UCC SHARES.
III.
WHETHER OR NOT CEMCOS PURCHASE
OF UCHC SHARES IS SUBJECT TO THE
TENDER OFFER REQUIREMENT.
IV.
WHETHER OR NOT THE SEC DECISION,
AS AFFIRMED BY THE CA DECISION, IS
AN INCOMPLETE JUDGMENT WHICH
PRODUCED NO EFFECT.144[6]
Simply stated, the following are the issues:
1. Whether or not the SEC has
jurisdiction over respondents complaint and to
require Cemco to make a tender offer for
respondents UCC shares.
2. Whether or not the rule on
mandatory tender offer applies to the indirect
acquisition of shares in a listed company, in this
case, the indirect acquisition by Cemco of 36%
of UCC, a publicly-listed company, through its
purchase of the shares in UCHC, a non-listed
company.
3. Whether or not the questioned
ruling of the SEC can be applied retroactively to
Cemcos transaction which was consummated
under the authority of the SECs prior resolution.
On the first issue, petitioner Cemco contends
that while the SEC can take cognizance of
respondents complaint on the alleged violation
by petitioner Cemco of the mandatory tender
offer requirement under Section 19 of Republic
Act No. 8799, the same statute does not vest the
SEC with jurisdiction to adjudicate and
determine the rights and obligations of the
parties since, under the same statute, the SECs
authority is purely administrative. Having been
vested with purely administrative authority, the
SEC can only impose administrative sanctions
such as the imposition of administrative fines,
the suspension or revocation of registrations
with the SEC, and the like. Petitioner stresses
that there is nothing in the statute which
authorizes the SEC to issue orders granting
affirmative reliefs. Since the SECs order
commanding it to make a tender offer is an
affirmative relief fixing the respective rights and
obligations of parties, such order is void.
Petitioner further contends that in the absence of
any specific grant of jurisdiction by Congress,
the SEC cannot, by mere administrative
regulation, confer on itself that jurisdiction.
Petitioners stance fails to persuade.
In taking cognizance of respondents complaint
against petitioner and eventually rendering a
judgment which ordered the latter to make a
tender offer, the SEC was acting pursuant to
Rule 19(13) of the Amended Implementing
Rules and Regulations of the Securities
Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by
pursuing a purchase of equity shares of a public
company at threshold amounts without the
required tender offer, the Commission, upon
complaint, may nullify the said acquisition and
direct the holding of a tender offer. This shall be
without prejudice to the imposition of other
sanctions under the Code.
The foregoing rule emanates from the SECs
power and authority to regulate, investigate or
supervise the activities of persons to ensure
compliance with the Securities Regulation Code,
more specifically the provision on mandatory
tender offer under Section 19 thereof.145[7]
Another provision of the statute, which provides
the basis of Rule 19(13) of the Amended
Implementing Rules and Regulations of the
Securities Regulation Code, is Section 5.1(n),
viz:
[T]he Commission shall have, among others, the
following powers and functions:
xxxx
(n) Exercise such other powers as may be
provided by law as well as those which may be
implied from, or which are necessary or
incidental to the carrying out of, the express
powers granted the Commission to achieve the
objectives and purposes of these laws.
The foregoing provision bestows upon the SEC
the general adjudicative power which is implied
from the express powers of the Commission or
which is incidental to, or reasonably necessary
to carry out, the performance of the
administrative duties entrusted to it. As a
regulatory agency, it has the incidental power to
conduct hearings and render decisions fixing the
rights and obligations of the parties. In fact, to
deprive the SEC of this power would render the
agency inutile, because it would become
powerless to regulate and implement the law. As
correctly held by the Court of Appeals:
We are nonetheless convinced that the SEC has
the competence to render the particular decision
it made in this case. A definite inference may be
drawn from the provisions of the SRC that the
SEC has the authority not only to investigate
complaints of violations of the tender offer rule,
but to adjudicate certain rights and obligations of
the contending parties and grant appropriate
reliefs in the exercise of its regulatory functions
under the SRC. Section 5.1 of the SRC allows a
general grant of adjudicative powers to the SEC
which may be implied from or are necessary or
incidental to the carrying out of its express
powers to achieve the objectives and purposes of
the SRC. We must bear in mind in interpreting
the powers and functions of the SEC that the law
has made the SEC primarily a regulatory body
with the incidental power to conduct
administrative hearings and make decisions. A
regulatory body like the SEC may conduct
hearings in the exercise of its regulatory powers,
and if the case involves violations or conflicts in
connection with the performance of its
regulatory functions, it will have the duty and
authority to resolve the dispute for the best
interests of the public.146[8]
For sure, the SEC has the authority to
promulgate rules and regulations, subject to the
limitation that the same are consistent with the
declared policy of the Code. Among them is the
protection of the investors and the minimization,
if not total elimination, of fraudulent and
manipulative devises. Thus, Subsection 5.1(g) of
the law provides:

Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions and
provide guidance on and supervise compliance
with such rules, regulations and orders.
Also, Section 72 of the Securities Regulation
Code reads:
72.1. x x x To effect the provisions and purposes
of this Code, the Commission may issue, amend,
and rescind such rules and regulations and
orders necessary or appropriate, x x x.
72.2. The Commission shall promulgate rules
and regulations providing for reporting,
disclosure and the prevention of fraudulent,
deceptive or manipulative practices in
connection with the purchase by an issuer, by
tender offer or otherwise, of and equity security
of a class issued by it that satisfies the
requirements of Subsection 17.2. Such rules and
regulations may require such issuer to provide
holders of equity securities of such dates with
such information relating to the reasons for such
purchase, the source of funds, the number of
shares to be purchased, the price to be paid for
such securities, the method of purchase and such
additional information as the Commission deems
necessary or appropriate in the public interest or
for the protection of investors, or which the
Commission deems to be material to a
determination by holders whether such security
should be sold.
The power conferred upon the SEC to
promulgate rules and regulations is a legislative
recognition of the complexity and the
constantly-fluctuating nature of the market and
the impossibility of foreseeing all the possible
contingencies that cannot be addressed in
advance. As enunciated in Victorias Milling Co.,
Inc. v. Social Security Commission147[9]:
Rules and regulations when promulgated in
pursuance of the procedure or authority
conferred upon the administrative agency by
law, partake of the nature of a statute, and
compliance therewith may be enforced by a
penal sanction provided in the law. This is so
because statutes are usually couched in general
terms, after expressing the policy, purposes,
objectives, remedies and sanctions intended by
the legislature. The details and the manner of
carrying out the law are often times left to the
administrative agency entrusted with its
enforcement. In this sense, it has been said that
rules and regulations are the product of a
delegated power to create new or additional
legal provisions that have the effect of law.
Moreover, petitioner is barred from questioning
the jurisdiction of the SEC. It must be pointed
out that petitioner had participated in all the
proceedings before the SEC and had prayed for
affirmative relief. In fact, petitioner defended the
jurisdiction of the SEC in its Comment dated 15
September 2004, filed with the SEC wherein it
asserted:
This Honorable Commission is a highly
specialized body created for the purpose of
administering, overseeing, and managing the
corporate industry, share investment and
securities market in the Philippines. By the very
nature of its functions, it dedicated to the study
and administration of the corporate and
securities laws and has necessarily developed an
expertise on the subject. Based on said
functions, the Honorable Commission is
necessarily tasked to issue rulings with respect
to matters involving corporate matters and share
acquisitions. Verily when this Honorable
Commission rendered the Ruling that the
acquisition of Cemco Holdings of the majority
shares of Union Cement Holdings, Inc., a
substantial stockholder of a listed company,
Union Cement Corporation, is not covered by
the mandatory tender offer requirement of the
SRC Rule 19, it was well within its powers and
expertise to do so. Such ruling shall be
respected, unless there has been an abuse or
improvident exercise of authority.148[10]
Petitioner did not question the jurisdiction of the
SEC when it rendered an opinion favorable to it,
such as the 27 July 2004 Resolution, where the
SEC opined that the Cemco transaction was not
covered by the mandatory tender offer rule. It
was only when the case was before the Court of
Appeals and after the SEC rendered an
unfavorable judgment against it that petitioner
challenged the SECs competence. As articulated
in Ceroferr Realty Corporation v. Court of
Appeals149[11]:
While the lack of jurisdiction of a court may be
raised at any stage of an action, nevertheless, the
party raising such question may be estopped if
he has actively taken part in the very
proceedings which he questions and he only
objects to the courts jurisdiction because the
judgment or the order subsequently rendered is
adverse to him.

On the second issue, petitioner asserts that the
mandatory tender offer rule applies only to
direct acquisition of shares in the public
company.
This contention is not meritorious.
Tender offer is a publicly announced intention
by a person acting alone or in concert with other
persons to acquire equity securities of a public
company.150[12] A public company is defined
as a corporation which is listed on an exchange,
or a corporation with assets exceeding
P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not
less than 100 shares of such company.151[13]
Stated differently, a tender offer is an offer by
the acquiring person to stockholders of a public
company for them to tender their shares therein
on the terms specified in the offer.152[14]
Tender offer is in place to protect minority
shareholders against any scheme that dilutes the
share value of their investments. It gives the
minority shareholders the chance to exit the
company under reasonable terms, giving them
the opportunity to sell their shares at the same
price as those of the majority
shareholders.153[15]
Under Section 19 of Republic Act No. 8799, it is
stated:
Tender Offers. 19.1. (a) Any person or group of
persons acting in concert who intends to acquire
at least fifteen percent (15%) of any class of any
equity security of a listed corporation or of any
class of any equity security of a corporation with
assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200)
or more stockholders with at least one hundred
(100) shares each or who intends to acquire at
least thirty percent (30%) of such equity over a
period of twelve (12) months shall make a
tender offer to stockholders by filing with the
Commission a declaration to that effect; and
furnish the issuer, a statement containing such of
the information required in Section 17 of this
Code as the Commission may prescribe. Such
person or group of persons shall publish all
requests or invitations for tender, or materials
making a tender offer or requesting or inviting
letters of such a security. Copies of any
additional material soliciting or requesting such
tender offers subsequent to the initial solicitation
or request shall contain such information as the
Commission may prescribe, and shall be filed
with the Commission and sent to the issuer not
later than the time copies of such materials are
first published or sent or given to security
holders.
Under existing SEC Rules,154[16] the 15% and
30% threshold acquisition of shares under the
foregoing provision was increased to thirty-five
percent (35%). It is further provided therein that
mandatory tender offer is still applicable even if
the acquisition is less than 35% when the
purchase would result in ownership of over 51%
of the total outstanding equity securities of the
public company.155[17]
The SEC and the Court of Appeals ruled that the
indirect acquisition by petitioner of 36% of UCC
shares through the acquisition of the non-listed
UCHC shares is covered by the mandatory
tender offer rule.
This interpretation given by the SEC and the
Court of Appeals must be sustained.
The rule in this jurisdiction is that the
construction given to a statute by an
administrative agency charged with the
interpretation and application of that statute is
entitled to great weight by the courts, unless
such construction is clearly shown to be in sharp
contrast with the governing law or
statute.156[18] 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.157[19]
The SEC and the Court of Appeals accurately
pointed out that the coverage of the mandatory
tender offer rule covers not only direct
acquisition but also indirect acquisition or any
type of acquisition. This is clear from the
discussions of the Bicameral Conference
Committee on the Securities Act of 2000, on 17
July 2000.
SEN. S. OSMEA. Eto ang mangyayari diyan,
eh. Somebody controls 67% of the Company. Of
course, he will pay a premium for the first 67%.
Control yan, eh. Eh, kawawa yung mga
maiiwan, ang 33% because the value of the
stock market could go down, could go down
after that, because there will (p. 41) be no more
market. Wala nang gustong bumenta. Wala nang
I mean maraming gustong bumenta, walang
gustong bumili kung hindi yung majority owner.
And they will not buy. They already have 67%.
They already have control. And this protects the
minority. And we have had a case in Cebu
wherein Ayala A who already owned 40% of
Ayala B made an offer for another 40% of Ayala
B without offering the 20%. Kawawa naman
yung nakahawak ngayon ng 20%. Ang baba ng
share sa market. But we did not have a law
protecting them at that time.
CHAIRMAN ROCO. So what is it that you
want to achieve?
SEN. S. OSMEA. That if a certain group
achieves a certain amount of ownership in a
corporation, yeah, he is obligated to buy
anybody who wants to sell.
CHAIRMAN ROCO. Pro-rata lang. (p. 42).
xxxx
REP. TEODORO. As long as it reaches 30, ayan
na. Any type of acquisition just as long as it will
result in 30 (p.50) reaches 30, ayan na. Any
type of acquisition just as long as it will result
in 30, general tender, pro-rata.158[20]
(Emphasis supplied.)
Petitioner counters that the legislators reference
to any type of acquisition during the
deliberations on the Securities Regulation Code
does not indicate that congress meant to include
the indirect acquisition of shares of a public
corporation to be covered by the tender offer
rule. Petitioner also avers that it did not directly
acquire the shares in UCC and the incidental
benefit of having acquired the control of the said
public company must not be taken against it.
These arguments are not convincing. The
legislative intent of Section 19 of the Code is to
regulate activities relating to acquisition of
control of the listed company and for the
purpose of protecting the minority stockholders
of a listed corporation. Whatever may be the
method by which control of a public company is
obtained, either through the direct purchase of
its stocks or through an indirect means,
mandatory tender offer applies. As appropriately
held by the Court of Appeals:
The petitioner posits that what it acquired were
stocks of UCHC and not UCC. By
happenstance, as a result of the transaction, it
became an indirect owner of UCC. We are
constrained, however, to construe ownership
acquisition to mean both direct and indirect.
What is decisive is the determination of the
power of control. The legislative intent behind
the tender offer rule makes clear that the type of
activity intended to be regulated is the
acquisition of control of the listed company
through the purchase of shares. Control may [be]
effected through a direct and indirect acquisition
of stock, and when this takes place, irrespective
of the means, a tender offer must occur. The
bottomline of the law is to give the shareholder
of the listed company the opportunity to decide
whether or not to sell in connection with a
transfer of control. x x x.159[21]
As to the third issue, petitioner stresses that the
ruling on mandatory tender offer rule by the
SEC and the Court of Appeals should not have
retroactive effect or be made to apply to its
purchase of the UCHC shares as it relied in good
faith on the letter dated 27 July 2004 of the SEC
which opined that the proposed acquisition of
the UCHC shares was not covered by the
mandatory offer rule.
The argument is not persuasive.
The action of the SEC on the PSE request for
opinion on the Cemco transaction cannot be
construed as passing merits or giving approval to
the questioned transaction. As aptly pointed out
by the respondent, the letter dated 27 July 2004
of the SEC was nothing but an approval of the
draft letter prepared by Director Callanga. There
was no public hearing where interested parties
could have been heard. Hence, it was not issued
upon a definite and concrete controversy
affecting the legal relations of parties thereby
making it a judgment conclusive on all the
parties. Said letter was merely advisory.
Jurisprudence has it that an advisory opinion of
an agency may be stricken down if it deviates
from the provision of the statute.160[22] Since
the letter dated 27 July 2004 runs counter to the
Securities Regulation Code, the same may be
disregarded as what the SEC has done in its
decision dated 14 February 2005.
Assuming arguendo that the letter dated 27 July
2004 constitutes a ruling, the same cannot be
utilized to determine the rights of the parties.
What is to be applied in the present case is the
subsequent ruling of the SEC dated 14 February
2005 abandoning the opinion embodied in the
letter dated 27 July 2004. In Serrano v. National
Labor Relations Commission,161[23] an
argument was raised similar to the case under
consideration. Private respondent therein argued
that the new doctrine pronounced by the Court
should only be applied prospectively. Said
postulation was ignored by the Court when it
ruled:
While a judicial interpretation becomes a part of
the law as of the date that law was originally
passed, this is subject to the qualification that
when a doctrine of this Court is overruled and a
different view is adopted, and more so when
there is a reversal thereof, the new doctrine
should be applied prospectively and should not
apply to parties who relied on the old doctrine
and acted in good faith. To hold otherwise
would be to deprive the law of its quality of
fairness and justice then, if there is no
recognition of what had transpired prior to such
adjudication.
It is apparent that private respondent
misconceived the import of the ruling. The
decision in Columbia Pictures does not mean
that if a new rule is laid down in a case, it should
not be applied in that case but that said rule
should apply prospectively to cases arising
afterwards. Private respondents view of the A reading of the above ruling of the SEC reveals
principle of prospective application of new that the same is complete. It orders the conduct
judicial doctrines would turn the judicial of a mandatory tender offer pursuant to the
function into a mere academic exercise with the procedure provided for under Rule 19(E) of the
result that the doctrine laid down would be no Amended Implementing Rules and Regulations
more than a dictum and would deprive the of the Securities Regulation Code for the highest
holding in the case of any force. price paid for the beneficial ownership of UCC
shares. The price, on the basis of the SEC
Indeed, when the Court formulated the Wenphil decision, is determinable. Moreover, the
doctrine, which we reversed in this case, the implementing rules and regulations of the Code
Court did not defer application of the rule laid are sufficient to inform and guide the parties on
down imposing a fine on the employer for how to proceed with the mandatory tender offer.
failure to give notice in a case of dismissal for
cause. To the contrary, the new rule was applied WHEREFORE, the Decision and Resolution of
right then and there. x x x. the Court of Appeals dated 24 October 2005 and
6 March 2006, respectively, affirming the
Decision dated 14 February 2005 of the
Lastly, petitioner alleges that the decision of the Securities and Exchange Commission En Banc,
SEC dated 14 February 2005 is incomplete and are hereby AFFIRMED. Costs against
produces no effect. petitioner.
This contention is baseless. SO ORDERED.
The decretal portion of the SEC decision states:
In view of the foregoing, the letter of the
Commission, signed by Director Justina F.
Callangan, dated July 27, 2004, addressed to the
Philippine Stock Exchange is hereby
REVERSED and SET ASIDE. Respondent
Cemco is hereby directed to make a tender offer
for UCC shares to complainant and other holders
of UCC shares similar to the class held by
respondent UCHC, at the highest price it paid
for the beneficial ownership in respondent UCC,
strictly in accordance with SRC Rule 19, Section
9(E).162[24]
G.R. No. 198444, September 04, 2013
CITIBANK N.A. AND THE CITIGROUP
PRIVATE BANK, Petitioners, v. ESTER H.
TANCO-GABALDON, ARSENIO TANCO
& THE HEIRS OF KU TIONG LAM,
Respondents.
G.R. No. 198469-70, September 04, 2013
CAROL LIM, Petitioner, v. ESTER H.
TANCO-GABALDON, ARSENIO TANCO
& THE HEIRS OF KU TIONG LAM,
Respondents.
DECISION
REYES, J.:
These consolidated cases arose from the same
antecedent facts.
On September 21, 2007, Ester H. Tanco-
Gabaldon (Gabaldon), Arsenio Tanco (Tanco)
and the Heirs of Ku Tiong Lam (Lam)
(respondents) filed with the Securities and
Exchange Commission�s Enforcement and
Prosecution Department1 (SEC-EPD) a
complaint for violation of the Revised Securities
Act (RSA) and the Securities Regulation Code
(SRC) against petitioners Citibank N.A.
(Citibank) and its officials,2 Citigroup Private
Bank (Citigroup) and its officials,3 and petitioner
Carol Lim (Lim), who is Citigroup�s Vice-
President and Director. In their Complaint,4 the
respondents alleged that Gabaldon, Tanco and
Lam were joint account holders of petitioner
Citigroup. Sometime in March 2000, the
respondents met with petitioner Lim, who
�induced�them into signing a subscription
agreement for the purchase of USD
2,000,000.00 worth of Ceres II Finance Ltd.
Income Notes. In September of the same year,
they met again with Lim for another investment
proposal, this time for the purchase of USD
500,000.00 worth of Aeries Finance II Ltd.
Senior Subordinated Income Notes. In a January
2003 statement issued by the Citigroup, the
respondents learned that their investments
declined, until their account was totally wiped
out. Upon verification with the SEC, they
learned that the Ceres II Finance Ltd. Notes and
the Aeries Finance II Ltd. Notes were not duly
registered securities. They also learned that
Ceres II Finance Ltd., Aeries Finance II Ltd. and
the petitioners, among others, are not duly-
registered security issuers, brokers, dealers or
agents.�
Hence, the respondents prayed in their complaint
that: (1) the petitioners be held administratively
liable;5 (2) the petitioners be liable to pay an
administrative fine pursuant to Section 54(ii),
SRC; (3) the petitioners�existing registration/s
or secondary license/s to act as a broker/dealer
in securities, government securities eligible
dealer, investment adviser of an investment
house/underwriter of securities and transfer
agent be revoked; and (4) criminal complaints
against the petitioners be filed and endorsed to
the Department of Justice (DOJ) for
investigation.6cralaw virtualaw library
Petitioners Citibank and Citigroup claimed that
they did not receive a copy of the complaint and
it was only after the Bangko Sentral ng Pilipinas
(BSP) wrote them on October 26, 2007 that they
were furnished a copy. They replied to the BSP
disclaiming any participation by the Citibank or
its officers on the transactions and products
complained of. Citibank and Citigroup furnished
a copy of its letter to the SEC-EPD and the
respondents�counsel.
On August 1, 2008, the SEC-EPD asked from
the petitioners certain documents to be
submitted during a scheduled conference, to
which they complied. The petitioners, however,
reiterated its position that they are not
submitting to the jurisdiction of the SEC. The
petitioners were also required to submit other
documents.6.acralaw virtualaw library
Thereafter, in an order dated December 8, 2008,
the SEC-EPD terminated its investigation on the
ground that the respondents�action has already
prescribed.7 According to the SEC-EPD, �[t]he
aforesaid complaint was filed before the [SEC-
EPD] on 21 September 2007 while a similar
complaint was lodged before the [DOJ] on
October 2005. Seven (7) years had lapsed before
the filing of the action before the SEC while the
complaint instituted before the DOJ was filed
one month after the expiration of the allowable
period.�8 It appears that on October 24, 2005,9
the respondents had already filed with the
Mandaluyong City Prosecutor�s Office a
complaint for violation of the RSA and SRC but
it was referred to the SEC pursuant to Baviera v.
Prosecutor Paglinawan.10cralaw virtualaw
library
In 2009, petitioners Citibank and Citigroup
received a copy of the respondents�Notice of
Appeal and Memorandum of Appeals but the
officials did not, as according to them, the latter
were not connected with them. Citibank also
alleged that they did not receive any order to file
a Reply Memorandum, in contravention of
Section 11-5, Rule XI of the 2006 SEC Rules of
Procedure. It turned out, however, that an order
was issued by the SEC, dated February 26, 2009,
requiring the petitioners to file their
reply.11cralaw virtualaw library
On November 6, 2009, petitioners Citibank and
Citigroup received the SEC en banc Decision12
dated October 15, 2009 reinstating the complaint
and ordering the immediate investigation of the
case. Petitioner Lim, who was then based in
Hong Kong, learned of the rendition of the SEC
decision on November 20, 2009 through a
teleconference with petitioner Citibank�s
counsel.13 Thus, petitioners Citibank and
Citigroup filed a petition for review with the
Court of Appeals (CA), docketed as CA-G.R. SP
No. 111501. Petitioner Lim filed her own
petition for review with the CA, docketed as
CA-G.R. SP No. 112309. These two petitions
were then consolidated.�
Finally, the CA rendered the Decision14 dated
October 5, 2010, which provides for the
following dispositive portion:chanrobles
virtua1aw 1ibrary
WHEREFORE, the foregoing premises
considered, the petition is partly GRANTED.
The writ of injunction is hereby DISSOLVED.
The Securities and Exchange Commission-
Enforcement and Prosecution Department is
ordered to proceed with its investigation with
dispatch and with due regard to the parties�
right to notice and
hearing.chanroblesvirtualawlibrary
SO ORDERED.15
The petitioners filed a motion for
reconsideration, which was denied by the CA in
its Resolution16 dated August 31, 2011. The
petitioners then filed the present consolidated
petitions for review under Rule 45 of the Rules
of Court.
The issues raised in these petitions are: (1)
whether the criminal action for offenses
punished under the SRC filed by the respondents
against the petitioners has already prescribed;
and (2) whether the filing of the action for the
petitioners�administrative liability is barred by
laches.
It was the CA�s view that since the SRC has no
specific provision on prescription of criminal
offenses, the applicable law is Act No. 3326.17
Under the SRC, imprisonment of more than six
(6) years is the imposable penalty for the
offenses with which the petitioners were
charged, and applying Act No. 3326, the
prescriptive period for the filing of an action is
twelve (12) years, reckoned from the time of
commission or discovery of the offense.18 The
respondents�filing of the complaint with the
SEC, therefore, was within the prescriptive
period.
In G.R. Nos. 198469-70, petitioner Lim share
the view of petitioners Citibank and Citigroup
that Act No. 3326 is not applicable and the SRC
provides for its own prescriptive period.19
Meanwhile, in G.R. No. 198444, petitioners
Citibank and Citigroup maintain that the CA
committed an error in applying Act No. 3326.
According to the petitioners, Section 62.2 of the
SRC applies to both civil and criminal liability.
The petitioners also insist that laches bar the
investigation of the respondents�complaint
against the petitioners. On the other hand, the
respondents assert, among others, the
applicability of Act No. 3326.20cralaw virtualaw
library
Ruling of the Court
Resolution of the issue raised by the petitioners
call for an examination of the pertinent
provisions of the SRC, particularly Section 62,
which states:chanrobles virtua1aw 1ibrary
SEC. 62. Limitation of Actions. �
62.1. No action shall be maintained to enforce
any liability created under Section 56 or 57 of
this Code unless brought within two (2) years
after the discovery of the untrue statement or the
omission, or, if the action is to enforce a liability
created under Subsection 57.1(a), unless brought
within two (2) years after the violation upon
which it is based. In no event shall any such
action be brought to enforce a liability created
under Section 56 or Subsection 57.1(a) more
than five (5) years after the security was bona
fide offered to the public, or under Subsection
57.1(b) more than five (5) years after the sale.
62.2. No action shall be maintained to enforce
any liability created under any other provision of
this Code unless brought within two (2) years
after the discovery of the facts constituting the
cause of action and within five (5) years after
such cause of action accrued.
Section 62 provides for two different
prescriptive periods.�
Section 62.1 specifically sets out the prescriptive
period for the liabilities created under Sections
56, 57, 57.1(a) and 57.1(b). Section 56 refers to
Civil Liabilities on Account of False
Registration Statement while Section 57 pertains
to Civil Liabilities on Arising in Connection
with Prospectus, Communications and Reports.
Under these provisions, enforcement of the civil
liability must be brought within two (2) years or
five (5) years, as the case may be.
On the other hand, Section 62.2 provides for the
prescriptive period to enforce any liability
created under the SRC. It is the interpretation of
the phrase �any liability�that creates the
uncertainty. Does it include both civil and
criminal liability? Or does it pertain solely to
civil liability?
In order to put said phrase in its proper
perspective, reference must be made to the rule
of statutory construction that every part of the
statute must be interpreted with reference to the
context, i.e., that every part of the statute must
be considered together with the other parts, and
kept subservient to the general intent of the
whole enactment.21 Section 62.2 should not be
read in isolation of the other provision included
in Section 62, particularly Section 62.1, which
provides for the prescriptive period for the
enforcement of civil liability in cases of
violations of Sections 56, 57, 57.1(a) and
57.1(b).�
Moreover, it should be noted that the civil
liabilities provided in the SRC are not limited to
Sections 56 and 57. Section 58 provides for
Civil Liability For Fraud in Connection With
Securities Transactions; Section 59 �Civil
Liability For Manipulation of Security Prices;
Section 60 �Civil Liability With Respect to
Commodity Future Contracts and Pre-need
Plans; and Section 61 �Civil Liability on
Account of Insider Trading. Thus, bearing in
mind that Section 62.1 merely addressed the
prescriptive period for the civil liability provided
in Sections 56, 57, 57.1(a) and 57.1(b), then it
reasonably follows that the other sub-provision,
Section 62.2, deals with the other civil liabilities
that were not covered by Section 62.1, namely
Sections 59, 60 and 61. This conclusion is
further supported by the fact that the subsequent
provision, Section 63, explicitly pertains to the
amount of damages recoverable under Sections
56, 57, 58, 59, 60 and 61,22 the trial court having
jurisdiction over such actions,23 the persons
liable24 and the extent of their liability25. Clearly,
the intent is to encompass in Section 62 the
prescriptive periods only of the civil liability in
cases of violations of the SRC.
The CA, therefore, did not commit any error
when it ruled that �the phrase �any liability�
in subsection 62.2 can only refer to other
liabilities that are also civil in nature. The phrase
could not have suddenly intended to mean
criminal liability for this would go beyond the
context of the other provisions among which it is
found.�26cralaw virtualaw library
Given the absence of a prescriptive period for
the enforcement of the criminal liability in
violations of the SRC, Act No. 3326 now comes
into play. Panaguiton, Jr. v. Department of
Justice27 expressly ruled that Act No. 3326 is
the law applicable to offenses under special
laws which do not provide their own
prescriptive periods.28cralaw virtualaw library
Section 1 of Act No. 3326 provides:chanrobles
virtua1aw 1ibrary
Violations penalized by special acts shall, unless
otherwise provided in such acts, prescribe in
accordance with the following rules: (a) after a
year for offenses punished only by a fine or by
imprisonment for not more than one month, or
both; (b) after four years for those punished by
imprisonment for more than one month, but less
than two years; (c) after eight years for those
punished by imprisonment for two years or
more, but less than six years; and (d) after
twelve years for any other offense punished
by imprisonment for six years or more,
except the crime of treason, which shall
prescribe after twenty years. Violations
penalized by municipal ordinances shall
prescribe after two months. (Emphasis ours)
Under Section 73 of the SRC, violation of its
provisions or the rules and regulations is
punishable with imprisonment of not less than
seven (7) years nor more than twenty-one (21)
years. Applying Section 1 of Act No. 3326, a
criminal prosecution for violations of the SRC
shall, therefore, prescribe in twelve (12) years.
Hand in hand with Section 1, Section 2 of Act
No. 3326 states that �prescription shall begin to
run from the day of the commission of the
violation of the law, and if the same be not
known at the time, from the discovery thereof
and the institution of judicial proceedings for its
investigation and punishment.�In Republic v.
Cojuangco, Jr.29 the Court ruled that Section 2
provides two rules for determining when the
prescriptive period shall begin to run: first, from
the day of the commission of the violation of the
law, if such commission is known; and second,
from its discovery, if not then known, and the
institution of judicial proceedings for its
investigation and punishment.30cralaw virtualaw
library
The respondents alleged in their complaint that
the transactions occurred between September
2000, when they purchased the Subscription
Agreement for the purchase of USD
2,000,000.00 worth of Ceres II Finance Ltd.
Income Notes, and July 31, 2003, when their
Ceres II Finance Ltd. account was totally wiped
out. Nevertheless, it was only sometime in
November 2004 that the respondents discovered
that the securities they purchased were actually
worthless. Thereafter, the respondents filed on
October 23, 2005 with the Mandaluyong City
Prosecutor�s Office a complaint for violation of
the RSA and SRC. In Resolution dated July 18,
2007, however, the prosecutor�s office referred
the complaint to the SEC.31 Finally, the
respondents filed the complaint with the SEC on
September 21, 2007. Based on the foregoing
antecedents, only seven (7) years lapsed since
the respondents invested their funds with the
petitioners, and three (3) years since the
respondents�discovery of the alleged offenses,
that the complaint was correctly filed with the
SEC for investigation. Hence, the respondents�
complaint was filed well within the twelve (12)-
year prescriptive period provided by Section 1 of
Act No. 3326.�
On the issue of laches.
Petitioner Lim contends that the CA committed
an error when it did not apply the principle of
laches vis-�-vis the petitioners�administrative
liability.32cralaw virtualaw library
Laches has been defined as the failure or neglect
for an unreasonable and unexplained length of
time to do that which, by exercising due
diligence, could or should have been done
earlier, thus, giving rise to a presumption that
the party entitled to assert it either has
abandoned or declined to assert it.33cralaw
virtualaw library
pronouncement in Baviera39 that all complaints
for any violation of the SRC and its
implementing rules and regulations should be
filed with the SEC. Clearly, the filing of the
complaint with the SEC on September 21, 2007
is not barred by laches as the respondents�
judicious actions reveal otherwise.
WHEREFORE, the petitions are DENIED for
lack of merit.chanroblesvirtualawlibrary
SO ORDERED.

Section 54 of the SRC provides for the

administrative sanctions to be imposed against
persons or entities violating the Code, its rules or
SEC orders.34 Just as the SRC did not provide a
prescriptive period for the filing of criminal
actions, it likewise omitted to provide for the
period until when complaints for administrative
liability under the law should be initiated. On
this score, it is a well-settled principle of law
that laches is a recourse in equity, which is,
applied only in the absence of statutory law.35
And though laches applies even to
imprescriptible actions, its elements must be
proved positively.36 Ultimately, the question of
laches is addressed to the sound discretion of the
court and, being an equitable doctrine, its
application is controlled by equitable
considerations.37cralaw virtualaw library

In this case, records bear that immediately after

the respondents discovered in 2004 that the
securities they invested in were actually
worthless, they filed on October 23, 2005 a
complaint for violation of the RSA and SRC
with the Mandaluyong City Prosecutor�s
Office. It took the prosecutor three (3) years to
resolve the complaint and refer the case to the
SEC,38 in conformity with the Court�s
G.R. No. 180064 September 16, 2013
JOSE U. PUA and BENJAMIN HANBEN U.
PUA, Petitioners,
vs.
CITIBANK, N. A., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1
are the Decision2 dated May 21, 2007 and
Resolution3 dated October 16, 2007 of the Court
of Appeals (CA) in CA-G.R. SP No. 79297,
which reversed and set aside the Orders dated
May 14, 20034 and July 16, 20035 of the
Regional Trial Court of Cauayan City, Isabela,
Branch 19 (RTC), dismissing petitioners
Jose(Jose) and Benjamin Hanben U. Pua's
(petitioners) complaint against respondent
Citibank, N. A. (respondent).
The Facts
On December 2, 2002, petitioners filed before
the RTC a Complaint6 for declaration of nullity
of contract and sums of money with damages
against respondent,7 docketed as Civil Case No.
19-1159.8 In their complaint, petitioners alleged
that they had been depositors of Citibank
Binondo Branch (Citibank Binondo) since 1996.
Sometime in 1999, Guada Ang, Citibank
Binondo’s Branch Manager, invited Jose to a
dinner party at the Manila Hotel where he was
introduced to several officers and employees of
Citibank Hongkong Branch (Citibank
Hongkong).9 A few months after, Chingyee Yau
(Yau), Vice-President of Citibank Hongkong,
came to the Philippines to sell securities to Jose.
They averred that Yau required Jose to open an
account with Citibank Hongkong as it is one of
the conditions for the sale of the aforementioned
securities.10 After opening such account, Yau
offered and sold to petitioners numerous
securities11 issued by various public limited
companies established in Jersey, Channel I
sands. The offer, sale, and signing of the
subscription agreements of said securities were
all made and perfected at Citibank Binondo in
the presence of its officers and employees.12
Later on, petitioners discovered that the
securities sold to them were not registered with
the Securities and Exchange Commission
(SEC)and that the terms and conditions covering
the subscription were not likewise submitted to
the SEC for evaluation, approval, and
registration.13 Asserting that respondent’s
actions are in violation of Republic Act
No.8799, entitled the "Securities Regulation
Code" (SRC), they assailed the validity of the
subscription agreements and the terms and
conditions thereof for being contrary to law
and/or public policy.14
For its part, respondent filed a motion to
dismiss15 alleging, inter alia, that petitioners’
complaint should be dismissed outright for
violation of the doctrine of primary jurisdiction.
It pointed out that the merits of the case would
largely depend on the issue of whether or not
there was a violation of the SRC, in particular,
whether or not there was a sale of unregistered
securities. In this regard, respondent contended
that the SRC conferred upon the SEC
jurisdiction to investigate compliance with its
provisions and thus, petitioners’ complaint
should be first filed with the SEC and not
directly before the RTC.16
Petitioners opposed17 respondent’s motion to
dismiss, maintaining that the RTC has
jurisdiction over their complaint. They asserted
that Section 63of the SRC expressly provides
that the RTC has exclusive jurisdiction to hear
and decide all suits to recover damages pursuant
to Sections 56 to 61 of the same law.18
The RTC Ruling
In an Order19 dated May 14, 2003, the RTC
denied respondent’s motion to dismiss. It noted
that petitioners’ complaint is for declaration of
nullity of contract and sums of money with
damages and, as such, it has jurisdiction to hear
and decide upon the case even if it involves the
alleged sale of securities. It ratiocinated that the
legal questions or issues arising from
petitioners’ causes of action against respondent
are more appropriate for the judiciary than for an
administrative agency to resolve.20
Respondent filed an omnibus motion21 praying,
among others, for there consideration of the
aforesaid ruling, which petitioners, in turn,
opposed.22 In an Order23 dated July 16, 2003, the
RTC denied respondent’s omnibus motion with
respect to its prayer for reconsideration.
Dissatisfied, respondent filed a petition for
certiorari before the CA.24
The CA Ruling
In a Decision25 dated May 21, 2007, the CA
reversed and set aside the RTC’s Orders and
dismissed petitioners’ complaint for violation of
the doctrine of primary jurisdiction. The CA
agreed with respondent’s contention that since
the case would largely depend on the issue of
whether or not the latter violated the provisions
of the SRC, the matter is within the special
competence or knowledge of the SEC. Citing the
case of Baviera v. Paglinawan26 (Baviera), the
CA opined that all complaints involving
violations of the SRC should be first filed before
the SEC.27
Aggrieved, petitioners moved for
reconsideration,28 which was, however, denied
by the CA in a Resolution29 dated October 16,
2007.Hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not
petitioners’ action falls within the primary
jurisdiction of the SEC.
Petitioners reiterate their original position that
the SRC itself provides that civil cases for
damages arising from violations of the same law
fall within the exclusive jurisdiction of the
regional trial courts.30
On the contrary, respondent maintains that since
petitioners’ complaint would necessarily touch
on the issue of whether or not the former
violated certain provisions of the SRC, then the
said complaint should have been first filed with
the SEC which has the technical competence to
resolve such dispute.31
The Court’s Ruling
The petition is meritorious.
At the outset, the Court observes that respondent
erroneously relied on the Baviera ruling to
support its position that all complaints involving
purported violations of the SRC should be first
referred to the SEC. A careful reading of the
Baviera case would reveal that the same
involves a criminal prosecution of a purported
violator of the SRC, and not a civil suit such as
the case at bar. The pertinent portions of the
Baviera ruling thus read:
A criminal charge for violation of the Securities
Regulation Code is a specialized dispute. Hence,
it must first be referred to an administrative
agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction,
courts will not determine a controversy
involving a question within the jurisdiction of
the administrative tribunal, where the question
demands the exercise of sound administrative
discretion requiring the specialized knowledge
and expertise of said administrative tribunal to
determine technical and intricate matters of fact.
The Securities Regulation Code is a special law.
Its enforcement is particularly vested in the
SEC.
Hence, all complaints for any violation of the
Code and its implementing rules and regulations
should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for preliminary
investigation and prosecution as provided in
Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that
petitioner committed a fatal procedural lapse
when he filed his criminal complaint directly
with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in
dismissing petitioner’s complaint.32 (Emphases
and underscoring supplied)
Records show that petitioners’ complaint
constitutes a civil suit for declaration of nullity
of contract and sums of money with damages,
which stemmed from respondent’s alleged sale
of unregistered securities, in violation of the
various provisions of the SRC and not a criminal
case such as that involved in Baviera.
In this light, when the Court ruled in Baviera
that "all complaints for any violation of the
[SRC] x x x should be filed with the SEC,"33 it
should be construed as to apply only to criminal
and not to civil suits such as petitioners’
complaint.
Moreover, it is a fundamental rule in procedural
law that jurisdiction is conferred by law;34 it
cannot be inferred but must be explicitly stated
therein. Thus, when Congress confers exclusive
jurisdiction to a judicial or quasi-judicial entity
over certain matters by law, this, absent any
other indication to the contrary, evinces its intent
to exclude other bodies from exercising the
same.
It is apparent that the SRC provisions governing
criminal suits are separate and distinct from
those which pertain to civil suits. On the one
hand, Section 53 of the SRC governs criminal
suits involving violations of the said law, viz.:
SEC. 53. Investigations, Injunctions and
Prosecution of Offenses. –
53.1. The Commission may, in its discretion,
make such investigations as it deems necessary
to determine whether any person has violated or
is about to violate any provision of this Code,
any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities
association, clearing agency, other self-
regulatory organization, and may require or
permit any person to file with it a statement in
writing, under oath or otherwise, as the
Commission shall determine, as to all facts and
circumstances concerning the matter to be
investigated. The Commission may publish
information concerning any such violations, and
to investigate any fact, condition, practice or
matter which it may deem necessary or proper to
aid in the enforcement of the provisions of this
Code, in the prescribing of rules and regulations
thereunder, or in securing information to serve
as a basis for recommending further legislation
concerning the matters to which this Code
relates: Provided, however, That any person
requested or subpoenaed to produce documents
or testify in any investigation shall
simultaneously be notified in writing of the
purpose of such investigation: Provided, further,
That all criminal complaints for violations of
this Code, and the implementing rules and
regulations enforced or administered by the
Commission shall be referred to the Department
of Justice for preliminary investigation and
prosecution before the proper court:
Provided, furthermore, That in instances where
the law allows independent civil or criminal
proceedings of violations arising from the same
act, the Commission shall take appropriate
action to implement the same: Provided, finally,
That the investigation, prosecution, and trial of
such cases shall be given priority.
On the other hand, Sections 56, 57, 58, 59, 60,
61, 62, and 63 of the SRC pertain to civil suits
involving violations of the same law. Among
these, the applicable provisions to this case are
Sections 57.1 and 63.1 of the SRC which
provide:
SEC. 57. Civil Liabilities Arising in Connection
With Prospectus, Communications and Reports.
– 57.1. Any person who:
(a) Offers to sell or sells a security in violation
of Chapter III;
or
(b) Offers to sell or sells a security, whether or
not exempted by the provisions of this Code, by
the use of any means or instruments of
transportation or communication, by means of a
prospectus or other written or oral
communication, which includes an untrue
statement of a material fact or omits to state a
material fact necessary in order to make the
statements, in the light of the circumstances
under which they were made, not misleading
(the purchaser not knowing of such untruth or
omission), and who shall fail in the burden of
proof that he did not know, and in the exercise
of reasonable care could not have known, of
such untruth or omission, shall be liable to the
person purchasing such security from him, who
may sue to recover the consideration paid for
such security with interest thereon, less the
amount of any income received thereon, upon
the tender of such security, or for damages if he
no longer owns the security.
xxxx
SEC. 63. Amount of Damages to be Awarded. –
63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be
brought before the Regional Trial Court which
shall have exclusive jurisdiction to hear and
decide such suits. The Court is hereby
authorized to award damages in an amount not
exceeding triple the amount of the transaction
plus actual damages.
x x x x (Emphases and underscoring supplied)
Based on the foregoing, it is clear that cases
falling under Section 57of the SRC, which
pertain to civil liabilities arising from violations
of the requirements for offers to sell or the sale
of securities, as well as other civil suits under
Sections 56, 58, 59, 60, and 61 of the SRC shall
be exclusively brought before the regional trial
courts. It is a well-settled rule in statutory
construction that the term "shall" is a word of
command, and one which has always or which
must be given a compulsory meaning, and it is
generally imperative or mandatory.35 Likewise,
it is equally revelatory that no SRC provision of
similar import is found in its sections governing
criminal suits; quite the contrary, the SRC states
that criminal cases arising from violations of its
provisions should be first referred to the
SEC.1âwphi1
Therefore, based on these considerations, it
stands to reason that civil suits falling under the
SRC are under the exclusive original jurisdiction
of the regional trial courts and hence, need not
be first filed before the SEC, unlike criminal
cases wherein the latter body exercises primary
jurisdiction.
All told, petitioners' filing of a civil suit against
respondent for purported violations of the SRC
was properly filed directly before the RTC.
WHEREFORE, the petition is GRANTED.
Accordingly, the Court of Appeals' Decision
dated May 21, 2007 and Resolution dated
October 16,2007 in CA-G.R. SP No. 79297 are
hereby REVERSED and SET ASIDE. Let Civil
Case No. 19-1159 be REINSTATED and
REMANDED to the Regional Trial Court of
Cauayan City, Isabela, Branch 19 for further
proceedings.
SO ORDERED.
TIMESHARE G.R. No. 158941 the March 25, 2002 Decision164[2] of the On March 30, 1998, respondents wrote
REALTY Securities and Exchange Commission (SEC) in petitioner demanding their right and option to
CORPORATION, SEC Case No. 01-99-6199; and the July 4, 2003 cancel their Contract, as it appears that Laguna
Present: CA Resolution,165[3] which denied petitioner’s de Boracay is selling said shares without license
Petitioner, Motion for Reconsideration. or authority from the SEC. For failure to get an
As found by the SEC,166[4] the answer to the said letter, respondents this time,
YNARES- antecedent facts are as follows: through counsel, reiterated their demand through
SANTIAGO, J., another letter dated June 29, 1998. But despite
On October 6, 1996, herein petitioner repeated demands, petitioner failed and refused
Chairperson, sold to Ceasar M. Lao and Cynthia V. Cortez to refund or pay respondents.167[5]
- versus - AUSTRIA- (respondents), one timeshare of Laguna de
MARTINEZ, Boracay for US$7,500.00 under Contract No.
CORONA, 135000998 payable in eight months and fully Respondents directly filed with SEC En
NACHURA, and paid by the respondents. Banc168[6] a Complaint169[7] against
REYES, JJ. petitioner and the Members of its Board of
CESAR LAO and Sometime in February 1998, the SEC Directors - Julius S. Strachan, Angel G. Vivar,
CYNTHIA V. Promulgated: issued a resolution to the effect that petitioner Jr. and Cecilia R. Palma - for violation of
CORTEZ, was without authority to sell securities, like Section 4 of Batas Pambansa Bilang (B.P. Blg.)
February 11, timeshares, prior to February 11, 1998. It 178.170[8] Petitioner filed an Answer171[9] to
Respondents. 2008 further stated in the resolution/order that the the Complaint but the SEC En Banc, in an
x-------------------------------- Registration Statement of petitioner became Order172[10] dated April 25, 2000, expunged
----------------x effective only on February 11, 1998. It also held the Answer from the records due to tardiness.
that the 30 days within which a purchaser may
exercise the option to unilaterally rescind the On March 25, 2002, the SEC En Banc
DECISION purchase agreement and receive the refund of rendered a Decision in favor of respondents,
money paid applies to all purchase agreements ordering petitioner, together with Julius S.
entered into by petitioner prior to the effectivity Strachan, Angel G. Vivar, Jr., and Cecilia R.
AUSTRIA-MARTINEZ, J.: of the Registration Statement.

Before this Court is a Petition for Petitioner sought a reconsideration of

Review on Certiorari under Rule 45 of the the aforesaid order but the SEC denied the same
Rules of Court, assailing the October 30, 2002 in a letter dated March 9, 1998.
Resolution163[1] of the Court of Appeals (CA),
which denied due course to the appeal of
Timeshare Realty Corporation (petitioner) from
Palma, to pay respondents the amount of
US$7,500.00.173[11]
Petitioner filed a Motion for
Reconsideration174[12] which the SEC En Banc
denied in an Order175[13] dated June 24, 2002.
Petitioner received a copy of the June 24, 2002
SEC En Banc Order on July 4, 2002176[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.177[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.) 178[16]
Petitioner purportedly received the July 24, 2002
CA Order on July 29, 2002,179[17] but filed a
Petition for Review with the CA on August 19,
2002.180[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.181[19]
and denied petitioner's Motion for
Reconsideration in the assailed Resolution dated
July 4, 2003.182[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.183[21]
We deny the petition.
A judgment must become final at the time
appointed by law184[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.185[23]
Section 70 of Republic Act No. 8799186[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 43.187[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;188[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.189[27]
Its motion for extension being inherently
flawed, petitioner should not have presumed that
the CA would fully grant the same.190[28]
Instead, it should have exercised due diligence
by filing the proper petition within the allowable
period,191[29] or at the very least, ascertaining
from the CA whether its motion for extension
had been acted upon.192[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 on August 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 from July 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,193[31] as evidenced by its
registration with the SEC as a
corporation.194[32] Petitioner argues that when
it was registered and authorized by the SEC as
broker of securities195[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 rescind the 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.)196[34]
Petitioner sought a reconsideration of
said ruling but the same was denied by Director
Daoang in an Order dated March 9,
1998.197[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 five hereof or unless sold in any transaction
longer question the same through a direct and exempt under any of the provisions of Section
belated recourse to us.198[36] six hereof, shall be sold or offered for sale or
distribution to the public within the Philippines
Finally, the provisions of B.P. Blg. 178 unless such securities shall have been
do not support the contention of petitioner that registered and permitted to be sold as
its mere registration as a corporation already hereinafter provided. (Emphasis supplied.)
authorizes it to deal with unregistered
timeshares. Corporate registration is just one of WHEREFORE, the petition is DENIED for
several requirements before it may deal with lack of merit.
timeshares:
Costs against petitioner.
Section 8. Procedure for registration. -
(a) All securities required to be registered under SO ORDERED.
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:
xxxx
(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
SECURITIES AND EXCHANGE
COMMISSION, Petitioner, v. HON.
REYNALDO M. LAIGO, IN HIS
CAPACITY AS PRESIDING JUDGE OF
THE REGIONAL TRIAL COURT,
NATIONAL CAPITAL JUDICIAL
REGION, MAKATI CITY, BRANCH 56,
GLICERIA AYAD, SAHLEE DELOS
REYES AND ANTONIO P. HUETE, JR.,
Respondents.
DECISION
MENDOZA, J.:
In this petition for certiorari1 under Rule 65 of
the Rules of Court, petitioner Securities and
Exchange Commission (SEC), through the
Office of the Solicitor General (OSG), assails
the June 26, 2009 Order2 (June 26, 2009 Order)
issued by respondent Judge Reynaldo M. Laigo
(Judge Laigo) of the Regional Trial Court,
Branch 56, Makati City (RTC), in Sp. Proc. No.
M-6758,3 a petition for involuntary insolvency
of Legacy Consolidated Plans, Incorporated
(Legacy), ordering the inclusion of the trust fund
in its corporate assets to the prejudice of the
planholders.
Factual Antecedents
Republic Act (R.A.) No. 8799, otherwise known
as the Securities Regulation Code (SRC),
specifically Section 16 thereof, mandated the
Securities and Exchange Commission (SEC) to
prescribe rules and regulations governing the
pre-need industry. Pursuant thereto, the SEC
issued the corresponding New Rules on the
Registration and Sale of Pre-Need Plans (New
Rules)4 to govern the pre-need industry prior to
the enactment of R.A. No. 9829, otherwise
known as the Pre-need Code of the Philippines
(Pre-Need Code). It required from the pre-need
providers the creation of trust funds as a
requirement for registration.
As defined in Rule 1.9 of the New Rules, "
'Trust Fund' means a fund set up from
planholders' payments, separate and distinct
from the paid-up capital of a registered pre-need
company, established with a trustee under a trust
agreement approved by the SEC, to pay for the
benefits as provided in the pre-need plan."
Legacy, being a pre-need provider, complied
with the trust fund requirement and entered into
a trust agreement with the Land Bank of the
Philippines (IBP).
In mid-2000, the industry collapsed for a range
of reasons. Legacy, like the others, was unable
to pay its obligations to the planholders.
This resulted in Legacy being the subject of a
petition for involuntary insolvency filed on
February 18, 2009 by private respondents in
their capacity as planholders. Through its
manifestation filed in the RTC, Legacy did not
object to the proceedings. Accordingly, it was
declared insolvent by the RTC in its Order,5
dated April 27, 2009. The trial court also
ordered Legacy to submit an inventory of its
assets and liabilities pursuant to Sections 15 and
16 of Act No. 1956,6 otherwise known as the
Insolvency Law, the applicable bankruptcy law
at that time.
On May 15, 2009, the RTC ordered the SEC,
being the pre-need industry's regulator, to
submit the documents pertaining to Legacy's
assets and liabilities.
In its Manifestation with Evaluation, dated June
10, 2009, the SEC opposed the inclusion of the
trust fund in the inventory of corporate assets on
the ground that to do so would contravene the
New Rules which treated trust funds as
principally established for the exclusive purpose
of guaranteeing the delivery of benefits due to
the planholders. It was of the position that the
inclusion of the trust fund in the insolvent's
estate and its being opened to claims by non-
planholders would contravene the purpose for its
establishment.
On June 26, 2009, despite the opposition of the
SEC, Judge Laigo ordered the insolvency
Assignee, Gener T. Mendoza (Assignee) to take
possession of the trust fund. Judge Laigo viewed
the trust fund as Legacy's corporate assets and,
for said reason, included it in the insolvent's
estate. Thus:ChanRoblesvirtualLawlibrary
WHEREFORE, the Court rules as
follows:ChanRoblesvirtualLawlibrary
1. Directing the afore-named banks to report to
Assignee, Gener T. Mendoza, whose address is
at c/o GNCA Holdings, Inc., Unit 322, 3/F, LRI
design Center, 210 Nicanor Garcia St., Makati
City, the total funds as of today deposited to the
insolvent debtor's respective Trust Funds, within
five (5) days from receipt of this Order.
2. Subject funds can be withdrawn by the
Assignee only upon Order of the Court for
distribution among the creditors who have
officially filed their valid claims with this Court,
and for all the expenses to be incurred by the
Assignee in the course of the discharge of his
duties and responsibilities as such Assignee.
3. Stopping the Securities and Exchange
Commission (SEC) from further validating the
claims of planholders (now creditors) pertaining
to their pre-need plans.
xxx xxx xxx
SO ORDERED.7
The RTC stated that the trust fund could be
withdrawn by the Assignee to be used for the
expenses he would incur in the discharge of his
functions and to be distributed among the
creditors who had officially filed their valid
claims with the court.
The Present Petition
Intent on protecting the interest of the investing
public and securing the trust fund exclusively for
the planholders, the SEC filed "this present
recourse directly to this Honorable Court in
accordance with Section 5 (1), Article VIII of
the 1987 Constitution for the reason that the
matters involve an issue of transcendental
importance to numerous hard-working Filipinos
who had invested their lifetime savings and
hard-earned money in Legacy, hoping that
through this pre-need company they will be able
to fulfill their dreams of providing a bright
future for their children."8
The SEC's Position
In essence, the SEC contends that Judge Laigo
gravely abused his discretion in treating the trust
fund as part of the insolvency estate of Legacy.
It argues that the trust fund should redound
exclusively to the benefit of the planholders,
who are the ultimate beneficial owners; that the
trust fund is held, managed and administered by
the trustee bank to address and answer the
claims against the pre-need company by all its
planholders and/or beneficiaries; that to consider
the said fund as corporate assets is to open the
floodgates to creditors of Legacy other than the
planholders; and that, in issuing the order, Judge
Laigo effectively allowed non-planholders to
reach the trust fund in patent violation of the
New Rules established to protect the pre-need
investors.
In its Memorandum,9 the SEC stressed that the
setting-up of the trust funds effectively created a
demarcation line between the claims of
planholders vis-a-vis those of the other creditors
of Legacy; that Legacy's interest over the trust
properties was only by virtue of it being a
trustor and not the owner; and that the SEC was
authorized to validate claims of planholders in
the exercise of its power as regulator of pre-need
corporations.
Further, the SEC is of the position that Section
52 of the Pre-Need Code10 should be given
retroactive effect for being procedural in
character.
Thus, the SEC raises the following
ISSUES
I.
Whether or not the Trust Funds of Legacy
form part of its Corporate Assets.
II.
Whether or not respondent Trial Court
Judge committed grave abuse of discretion
amounting to lack or excess of jurisdiction in
issuing the herein assailed Order dated June
26, 2009.
III.
Whether or not the claims of planholders are
to be treated differently from the claims of
other creditors of Legacy.
IV.
Whether or not Legacy retains ownership
over the trust funds assets despite the
execution of trust agreements.
V.
Whether or not the insolvency court, presided
by respondent Trial Court Judge, has the
authority to enjoin petitioner SEC from
further validating the claims of Legacy's
planholders and treating them as if they are
ordinary creditors of Legacy.
VI.
Whether or not the provision of the Pre-need
Code regarding liquidation is in the nature of
a procedural law that can be retroactively
applied to the case at bar.11
Private Respondents 'position
In their Comment/Opposition,12 the private
respondents, Glicera Ayad, Sahlee Delos Reyes
and Antonio P. Huerte, Jr. (private respondents),
submit that nothing in the New Rules expressly
provided that the trust fund is excluded from the
inventory of corporate assets which is required
to be submitted to the insolvency court; that the
SEC's interference in the insolvency proceedings
is incongruous to the legal system; and that
under the provisions of the Insolvency Law, all
claims, including those against the trust funds
should be filed in the liquidation proceedings.13
Hence, private respondents assert that no grave
abuse of discretion was committed by Judge
Laigo in issuing the June 26, 2009 Order.
The Assignee's Position
In his separate Comments on Petition14 and
Memorandum,15 the Assignee contends that the
trust fund forms part of Legacy's corporate
assets for the following reasons: first, the
insolvency court has jurisdiction over all the
claims against the insolvent and the trust fund
forms part of the company's corporate assets. It
cited Abrera v. College Assurance Plan,16 where
the Court held that claims arising from pre-need
contracts should not be treated separately from
other claims against a pre-need company. As
such, the claims over the trust fund, being claims
against Legacy, are necessarily lodged with the
insolvency court. Second, the setting up of the
trust fund is a mere scheme to attain an
administrative end, that is, the assurance that the
benefits will be delivered under the pre-need
contracts.
Considering that Legacy is the debtor as regards
such benefits, it is only through it, or through the
insolvency court, that the assets including the
trust fund can be distributed to satisfy valid
claims. Third, though the trustee banks hold
legal title over the funds, the real parties-in-
interest are the pre-need companies as the terms
of the trust agreement between Legacy and LBP
(as trustee) show this intent.
The Assignee also submits that no law
authorized the SEC to interfere in the insolvency
proceedings because its authority under the SRC
is only to regulate the sale of pre-need plans and
not to regulate the management of trust funds.
In sum, the Assignee interprets the June 26,
2009 Order in this wise: that the creditors,
planholders or not, should first line up and file
valid claims with the insolvency court and not
get entangled in the validation process of the
SEC; and that once the planholders have
qualified, they will be given preference in the
distribution of the trust assets. Moreover, he
proposes that if the trust fund assets will not be
enough to satisfy all claims, the planholders can
still join other claimants and participate in the
distribution of the other assets of the pre-need
company.17cralawrednad
From the foregoing, the Court is called to
determine whether Judge Laigo gravely abused
his discretion in:ChanRoblesvirtualLawlibrary
1. Including the trust properties in the
insolvent's estate; and
2. Prohibiting the SEC from validating the
claims filed by the planholders against
the trust fund.
The Court's Ruling
The overarching consideration in the legislative
mandate to establish trust funds is the protection
of the interest of the planholders in the
investment plans. The SRC provides in no
uncertain terms the intent to make such interests
paramount above all else. Thus, it directed the
SEC to come up with rules and regulations to
govern not only trust funds but the industry as a
whole. Pursuant to its mandate and delegated
authority, the SEC came out with the New
Rules, which the Congress later on toughened
through the enactment of the Pre-Need Code,
carrying similar protection but far more detailed
in scope.
It is in this context that this Court rules to grant
the petition filed by the SEC. The Court finds
that Judge Laigo gravely abused his discretion in
treating the trust fund as assets that form part of
Legacy's insolvency estate and in enjoining the
SEC's validation of the planholders' claims
against the trust properties.
The Trust Fund is for the sole benefit
of the planholders and cannot be used to
satisfy the claims of other creditors of Legacy
Section 30 of the Pre-Need Code clearly
provides that the proceeds of trust funds shall
redound solely to the planholders. Section 30
reads:ChanRoblesvirtualLawlibrary
Trust Fund
SECTION 30. Trust Fund. �To ensure the
delivery of the guaranteed benefits and services
provided under a pre-need plan contract, a trust
fund per pre-need plan category shall be
established. A portion of the installment
payment collected shall be deposited by the pre-
need company in the trust fund, the amount of
which will be as determined by the actuary
based on the viability study of the pre-need plan
approved by the Commission. Assets in the
trust fund shall at all times remain for the
sole benefit of the planholders. At no time
shall any part of the trust fund be used for or
diverted to any purpose other than for the
exclusive benefit of the planholders. In no case
shall the trust fund assets be used to satisfy
claims of other creditors of the pre-need
company. The provision of any law to the
contrary notwithstanding, in case of insolvency
of the pre-need company, the general creditors
shall not be entitled to the trust fund.
Except for the payment of the cost of benefits or
services, the termination values payable to the
planholders, the insurance premium payments
for insurance-funded benefits of memorial life
plans and other costs necessary to ensure the
delivery of benefits or services to planholders,
no withdrawal shall be made from the trust fund
unless approved by the Commission. The
benefits received by the planholders shall be
exempt from all taxes and the trust fund shall not
be held liable for attachment, garnishment, levy
or seizure by or under any legal or equitable
processes except to pay for the debt of the
planholder to the benefit plan or that arising
from criminal liability imposed in a criminal
action.
[Emphases Supplied]
The Assignee argues that Legacy has retained a
beneficial interest in the trust fund despite the
execution of the trust agreement and that the
properties can be the subject of insolvency
proceedings.�In this regard, the Assignee calls
the Court's attention to the trust agreement
provisions which supposedly refer to the interest
of Legacy in the trust properties, to
wit:ChanRoblesvirtualLawlibrary
The TRUSTEE hereby undertakes to perform
the functions and duties of a TRUSTEE
provided for in this Agreement with the utmost
good faith, care and prudence required by a
fiduciary relation, being understood, however,
that the COMPANY shall be solely and exclusive
(sic) responsible for (1) fulfilling the services
referred to in the recital clauses, (ii) the
settlement/payment of claims of any person or
firm availing of such services, (iii) compliance
with all laws and governmental regulations on
pre-need plans, and (iv) submission of other data
or information as may be prescribed by the
Commission.
xxx
xxx the Trustee shall from time to time on the
written directions of the Company make
payments out of the Trust Fund to the Company.
To the extent permitted by law, the Trustee shall
be under no liability for any payment made
pursuant to the direction of the Company. Any
written direction of the Company shall constitute
a certification that the distribution of payment so
directed is one which the Company is authorized
to direct. From time to time and when directed
in writing by the Company, the Trustee shall pay
monies from the Trust Fund in amounts equal to
the outstanding amount of the Trust Fund at any
given time to defray the Company's obligations
to the Planholders under its pre-need plan
contract and provided further that the company
shall be reimbursed by the Trustee from the
Trust Fund for whatever amounts it has
advanced to its beneficiaries.18 [Italics supplied]
To the Assignee, these "control" mechanisms are
indicative of the interest of Legacy in the
enforcement of the trust fund because the
agreement gives it the power to dictate on LBP
the fulfillment of the trust, such as the delivery
of monies to it to facilitate the payment to the
planholders.
The Court, however, sees it differently.
In the course of delving into the complex
relationships created by the agreement and the
existing regulatory framework, this Court finds
that Legacy's claimed interest in the enforcement
of the trust and in the trust properties is mere
apparent than real. Legacy is not a beneficiary.
First, it must be stressed that a person is
considered as a beneficiary of a trust if there is a
manifest intention to give such a person the
beneficial interest over the trust properties.19
This is the considered opinion expressed in the
Restatement of the Law of Trust (Restatement)20
which Justice Vicente Abad Santos has
described in his contribution to the Philippine
Law Journal as containing the more salient
principles, doctrines and rules on the subject.21
Here, the terms of the trust agreement plainly
confer the status of beneficiary to the
planholders, not to Legacy. In the recital clauses
of the said agreement, Legacy bound itself to
provide for the sound, prudent and efficient
management and administration of such portion
of the collection "for the benefit and account of
the planholders,"22 through LBP (as the trustee).
This categorical declaration doubtless indicates
that the intention of the trustor is to make the
planholders the beneficiaries of the trust
properties, and not Legacy. It is clear that
because the beneficial ownership is vested in the
planholders and the legal ownership in the
trustee, LBP, Legacy, as trustor, is left without
any iota of interest in the trust fund. This is
consistent with the nature of a trust arrangement,
whereby there is a separation of interests in the
subject matter of the trust, the beneficiary
having an equitable interest, and the trustee
having an interest which is normally legal
interest.23cralawrednad
Second, considering the fact that a mandated
pre-need trust is one imbued with public interest,
the issue on who the beneficiary is must be
determined on the basis of the entire regulatory
framework. Under the New Rules, it is
unmistakable that the beneficial interest over the
trust properties is with the planholders. Rule
16.3 of the New Rules provides that : [n]o
withdrawal shall be made from the trust fund
except for paying the benefits such as monetary
consideration, the cost of services rendered or
property delivered, trust fees, bank charges and
investment expenses in the operation of the trust
fund, termination values payable to the
planholders, annuities, contributions of
cancelled plans to the fund and taxes on trust
funds.
Rule 17.1 also states that to ensure the liquidity
of the trust fund to guarantee the delivery of the
benefits provided for under the plan contract and
to obtain sufficient capital growth to meet the
growing actuarial reserve liabilities, all
investments of the trust fund shall be limited to
Fixed Income Instruments, Mutual Funds,
Equities, and Real Estate, subject to certain
limitations.
Further, Rule 20.1 directs the trustee to exercise
due diligence for the protection of the
planholders guided by sound investment
principles in the exclusive management and
control over the funds and its right, at any time,
to sell, convert, invest, change, transfer, or
otherwise change or dispose of the assets
comprising the funds. All these certainly
underscore the importance of the planholders
being recognized as the ultimate beneficiaries of
the SEC-mandated trust.
This consistently runs in accord with the
legislative intent laid down in Chapter IV of
R.A. No. 8799, or the SRC, which provides for
the establishment of trust funds for the
payment of benefits under such plans. Section
16 of the SRC
provides:ChanRoblesvirtualLawlibrary
SEC. 16. Pre-Need Plans. - No person shall sell
or offer for sale to the public any pre-need plan
except in accordance with rules and regulations
which the Commission shall prescribe. Such
rules shall regulate the sale of pre-need plans
by, among other things, requiring the
registration of pre-need plans, licensing persons
involved in the sale of pre-need plans, requiring
disclosures to prospective plan holders,
prescribing advertising guidelines, providing for
uniform accounting system, reports and record
keeping with respect to such plans, imposing
capital, bonding and other financial
responsibility, and establishing trust funds for
the payment of benefits under such plans.
[Emphasis supplied]
It is clear from Section 16 that the underlying
congressional intent is to make the planholders
the exclusive beneficiaries. It has been said that
what is within the spirit is within the law even if
it is not within the letter of the law because the
spirit prevails over the letter.24cralawrednad
This will by the legislature was fortified with the
enactment of R.A. No. 9829 or the Pre-Need
Code in 2009.25cralawred The Congress,
because of the chaos confounding the industry at
the time, considered it necessary to provide a
stronger legal framework so that no entity could
claim that the mandate and delegated authority
of the SEC under the SRC was nebulous. The
Pre-Need Code cemented the regulatory
framework governing the pre-need industry with
precise specifics to ensure that the rights of the
pre-need planholders would be categorically
defined and protected. Similar provisions in the
Pre-Need Code are the
following:ChanRoblesvirtualLawlibrary
SECTION 32. Terms and Conditions of a
Trust Fund. �A trust fund must be established
separately for each type of pre-need plan with
the trust department of a trust company, bank or
investment house doing business in the
Philippines. No trust fund shall be established by
a pre-need company with an affiliate trust entity
subject to Section 38 hereof.
The trust agreement shall be submitted to the
Commission for approval before execution and
shall contain the following salient provisions,
among others:ChanRoblesvirtualLawlibrary
(a) The manner in which the trust fund is to be
operated;
(b) Investment powers of the trustee with respect
to trust deposits, including the character and
kind of investment;
(c) Auditing and settlement of accounts of the
trustee with respect to the trust fund;
(d) Basis upon which the trust fund may be
terminated;
(e) Provisions for withdrawals from the trust
fund;
(f) That the trustee shall�submit to the power
of the Commission to examine and verify the
trust fund;
(g) An undertaking by the trustee that it shall
abide by the rules and regulations of the
Commission with respect to the trust fund; and
(h) An undertaking by the trustee that it shall
submit such other data or information as may be
prescribed by the Commission.
SECTION 33. Responsibilities of the Trustee.
- The trustee shall:ChanRoblesvirtualLawlibrary
(a) Administer and manage the trust fund with
utmost good faith, care and prudence required
by a fiduciary relationship;
(b) The trustee shall have the exclusive
management and control over the funds and the
right at any time to sell, convert, invest, change,
transfer or otherwise change or dispose of the
assets comprising the funds within the
parameters prescribed by the pre-need company
and provided�these parameters are compliant
with the Commission's regulations; and
(c)�Not use the trust fund to invest in or extend
any loan or credit�accommodation to�the�
pre-need company,�its directors, officers,
stockholders, and related interests as well as to
persons or enterprises controlling, owned or
controlled�by, or�under�common�
control� with said company, its directors,
officers, stockholders and related interests
except for entities which are direct providers of
pre-need companies.
SECTION 34. Investment of the Trust Fund.
�To ensure the liquidity of the trust fund to
guarantee the delivery of the benefits provided
for under the plan contract and likewise obtain
sufficient capital growth to meet the growing
actuarial reserve liabilities, all investments of the
trust fund/s of a pre-need company shall be
limited to the following and subject to
limitations, to wit:ChanRoblesvirtualLawlibrary
(a)�Fixed income instruments. �These maybe
classified into short-term and long-term
instruments. The instrument is short- term if the
maturity period is three hundred sixty-five (365)
days or less. This category
includes:ChanRoblesvirtualLawlibrary
(1)�Government securities which shall not be
less than ten percent (10%) of the trust fund
amount;
(2) Savings/time deposits and unit investment
trust funds maintained with and managed by a
duly authorized bank with satisfactory
examination rating as of�the last examination
by the BSP;
(3) Commercial papers duly registered with the
SEC with a credit rating of "1" for short-term
and "AAA" for long- term based on the rating
scale of an accredited Philippine Rating Agency
or its equivalent at the time of investment.
The maximum exposure to long-term
commercial papers shall not exceed fifteen
percent (15%) of the total trust fund amount
while the exposure to each commercial paper
issuer shall not exceed ten percent (10%) of the
allocated amount; and
(4) Direct loans to corporations which are
financially stable, profitable for the last three (3)
years and have a good track record of paying
their previous loans.
These loans shall be fully secured by a real
estate mortgage up to the extent of sixty percent
(60%) of the zonal valuation of the property at
the time the loan was granted.
The property shall be covered by a transfer
certificate of title registered in the name of the
mortgagor and free from liens and
encumbrances.
The maximum amount to be allocated for direct
loans shall not exceed five percent (5%) of the
total trust fund amount while the amount to be
granted to each corporate borrower shall not
exceed ten percent (10%) of the amount
allocated.
The maximum term of the loan should be no
longer than four (4) years.
Direct loans to planholders are exempt from the
limitations set forth under this section: Provided,
That such loans to planholders shall not exceed
ten percent (10%) of the total trust fund amount.
(b) Equities. �Investments in equities shall be
limited to stocks listed on the main board of a
local stock exchange.
Investments in duly registered collective
investment instruments such as mutual funds are
allowed hereunder: Provided, That such funds
are invested only in fixed income instruments
and blue chips securities, subject to the
limitations prescribed by laws, rules and
regulations.
These investments shall include stocks issued by
companies that are financially stable, actively
traded, possess good track record of growth and
have declared dividends for the past three (3)
years. Notwithstanding the prohibition against
transactions with directors, officers,
stockholders and related interests, the trustee
may invest in equities of companies related to
the trustee provided these companies comply
with the foregoing criteria provided in this
paragraph for equity investments.
The amount to be allocated for this purpose shall
not exceed thirty percent (30%) of the total trust
fund while the investment in any particular issue
shall not exceed ten percent (10%) of the
allocated amount. The investment shall be
recorded at the aggregate of the lower of cost or
market.
Existing investments which are not in
accordance herewith shall be disposed of within
three (3) years from the effectivity of this Act.
(c) Real Estate. �These shall include real estate
properties located in strategic areas of cities and
first class municipalities. The transfer certificate
of title (TCT) shall be in the name of the seller,
free from liens and encumbrances and shall be
transferred in the name of the trustee in trust for
the planholders unless the seller/transferor is the
pre-need company wherein an annotation to the
TCT relative to the sale/transfer may be allowed.
It shall be recorded at acquisition cost.
However, the real estate shall be appraised every
three (3) years by a licensed real estate
appraiser, accredited by the Philippine
Association of Real Estate Appraisers, to reflect
the increase or decrease in the value of the
property. In case the appraisal would result in an
increase in the value, only sixty percent (60%)
of the appraisal increase is allowed to be
recorded in the books of the trust fund but in
case of decline in value, the entire decline shall
be recorded. Appraisal increment should not be
used to cover up the required monthly
contribution to the trust fund.
The total recorded value of the real estate
investment shall not exceed ten percent (10%) of
the total trust fund amount of the pre-need
company. In the event that the existing real
estate investment exceeds the aforesaid limit, the
same shall be leveled off to the prescribed limit
within three (3) years from the effectivity of this
Code.
Investment of the trust fund, which is not in
accordance with the preceding paragraphs, shall
not be allowed unless the prior written approval
of the Commission had been secured: Provided,
further, That no deposit or investment in any
single entity shall exceed fifteen percent (15%)
of the total value of the trust fund: Provided,
finally, That the Commission is authorized to
adjust the percentage allocation per category set
forth herein not in excess of two percentage
(2%) points upward or downward and no oftener
than once every five (5) years. The first
adjustment hereunder may be made no earlier
than five (5) years from the effectivity of this
Act. The pre-need company shall not use the
trust fund to extend any loan to or to invest in its
directors, stockholders, officers or its affiliates.
xxx
SECTION 36. Trust Fund Deficiencies. �
Upon approval by the Commission of the pre-
need reserve computation submitted in the
preceding section, any deficiency in the trust
fund, when compared to the reserve liabilities as
reported in the pre-need reserve valuation report,
shall be funded by the pre-need company within
sixty (60) days from such approval. Failure to
cover the deficiency in an appropriate manner
within the time required shall subject the pre-
need company to the payment of a penalty, in
addition to other remedies exercisable by the
Commission, as provided for in this Code. Any
excess of the trust fund over the actuarial reserve
liabilities may be credited to future deposit
requirements.
SECTION 37. Liquidity Reserve. �The
trustee shall at all times maintain a liquidity
reserve which shall be sufficient to cover at least
fifteen percent (15%) of the trust fund but in no
case less than one hundred twenty-five percent
(125%) of the amount of the availing plans for
the succeeding year. For this purpose, the pre-
need company shall timely submit to the trustee
a summary of benefits payable for the
succeeding year.
The following shall qualify as investments for
the liquidity
reserve:ChanRoblesvirtualLawlibrary
(a) Loans secured by a hold-out on assignment
or pledge deposits maintained either with the
trustee or other banks, or of deposit substitute of
the trustee itself or mortgage and chattel
mortgage bonds issued by the trustee;
(b) Treasury notes or bills, other government
securities or bonds,�and such other evidences
or indebtedness�or obligations the servicing
and repayment of which are fully guaranteed by
the Republic of the Philippines;
(c) Repurchase agreements with any of those
mentioned in Item "b" above, as underlying
instruments thereof; and
(d) Savings or time deposits with government-
owned banks or commercial banks.
SECTION 38. Trustees. �Upon approval of
the Commission or when the Commission
requires for the protection of planholders, the
pre-need company shall entrust the management
and administration of the trust fund to any
reputable bank's trust department, trust company
or any entity authorized to perform trust
functions in the Philippines:�Provided, That no
director and/or officer of the pre-need company
shall at the same time serve as director and/or
officer of the affiliate or related trust entity:
Provided, further, That no trust fund shall be
established by a pre-need company with a
subsidiary, affiliate or related trust entity.
However, such may be allowed: Provided, That
the following conditions are complied
with:ChanRoblesvirtualLawlibrary
(a) A�written approval of�the Commission
has been previously obtained; and
(b) Public disclosure of the affiliation with the
trust entity be included in all materials in
whatever form.
The Commission shall have the authority to
prescribe appropriate rules that shall ensure that
the yield of the trust fund is maximized,
consistent with the requirements of safety and
liquidity.
[Italics Supplied]
"Under the principle of legislative approval of
administrative interpretation by re-enactment,
the re-enactment of a statute, substantially
unchanged (as in this case), is persuasive
indication of the adoption by Congress of a
prior executive construction."26 Accordingly,
where a statute is susceptible of the meaning
placed upon it by a ruling of the government
agency charged with its enforcement and the
legislature thereafter reenacts the provisions
without substantial change, such action is to
some extent confirmatory that the ruling carries
out the legislative purpose.27cralawrednad
The Court cannot go against that legislative
intent for it is the duty of this institution to read
what the law intends. It is a cardinal rule that, in
seeking the meaning of the law, the first concern
of the judge should be to discover in its
provisions the intent of the lawmaker.
Unquestionably, the law should never be
interpreted in such a way as to cause injustice as
this is never within the legislative intent. An
indispensable part of that intent, in fact, for we
presume the good motives of the legislature, is
to render justice.28cralawrednad
To rule that Legacy has retained a beneficial
interest in the trust fund is to perpetuate the
injustices being committed against the
planholders and violate not only the spirit of the
trust agreement but, more importantly, the
lawmaker's intent. If indeed Legacy had an
interest that could be reached by its creditors
even during insolvency, the planholders would
be prejudiced as they would be forced to share in
the assets that would be distributed pro rata to all
creditors, whether planholders or not. It would
contradict the very purpose for which the trust
was mandated by the Congress in the first place.
Third, the perceived interest of Legacy, as touted
by the Assignee, has simply no basis. It may
appear that Legacy under the agreement has
control over the enforcement of the trust because
of its provisions stating that Legacy shall "solely
and exclusively] [be] responsible for fulfilling
the services referred to in the recital clauses and
the settlement/payment of claims of any person
or firm availing of such services" and that "[a]ny
written direction of the Company [to the trustee]
shall constitute a certification that the
distribution of payment so directed is one which
the Company is authorized to direct"29 Such
provisions, however, cannot be construed as
Legacy having retained a beneficial interest in
the trust fund.
To begin with, the aforestated provisions refer
solely to the delivery of the proceeds of the trust
from LBP to Legacy and then finally to the
beneficiaries. In effect, Legacy merely agreed
to facilitate the payment of the benefits from
the trust fund to the intended beneficiaries,
acting as a conduit or an agent of the trustee
in the enforcement of the trust agreement.
Under the general principles of trust, a
trustee, by the terms of the agreement may be
permitted to delegate to agents or to co-
trustees or to other persons the
administration of the trust or the
performance of act which could not otherwise
be properly delegated.30 Thus, by the terms of
the trust, as in this case, a trustee may be
authorized or permit an agent to do acts such as
the delivery of the benefits out of the trust fund.
The Court cannot subscribe either to the
Assignee's position that Legacy is a debtor of the
planholders relative to the trust fund. In trust, it
is the trustee, and not the trustor, who owes
fiduciary duty to the beneficiary. The
Restatement is clear on this point. Section 170
thereof provides that the "trustee is under a duty
to the beneficiary to administer the trust solely
in the interest of the beneficiary."31 Section 182
also states that the duty of a trustee is to pay
income to the beneficiary.32 Thus, LBP is tasked
with the fiduciary duty to act for the benefit of
the planholders as to matters within the scope of
the relation.33 Like a debtor, LBP owes the
planholders the amounts due from the trust fund.
As to the planholders, as creditors, they can
rightfully use equitable remedies against the
trustee for the protection of their interest in the
trust fund and, in particular, their right to
demand the payment of what is due them from
the fund. Verily, Legacy is out of the picture and
exists only as a representative of the trustee,
LBP, with the limited role of facilitating the
delivery of the benefits of the trust fund to the
beneficiaries -the planholders. The trust fund
should not revert to Legacy, which has no
beneficial interest over it. Not being an asset of
Legacy, the trust fund is immune from its reach
and cannot be included by the RTC in the
insolvency estate.
In the end, the failure of Judge Laigo to consider
the provisions of the SRC, the New Rules and
the law on trusts, that should have warranted the
exclusion of the trust fund from the insolvency
estate of Legacy, constituted grave abuse of
discretion. In treating the trust fund as forming
part of Legacy's insolvency estate, Judge Laigo
acted against what was contemplated by law. He
turned a blind eye to the will of the Congress as
expressed through the SRC and the Pre-Need
Code. In the process, he endangered the claims
of the planholders by allowing the probability
that they would be drastically reduced or
dissipated. He should have acted prudently
bearing in mind that the establishment of the
trust was precisely for the exclusive benefit of
the planholders.
Enjoining the SEC from validating the
claims against the trust fund is grave
abuse of discretion for the insolvency
court has no authority to order the
reversion of properties that do not
form part of Legacy's insolvent estate.
The Assignee cited Abrera v. College Assurance
Plan34 (Abrera), where the Court held that
claims covered by rehabilitation proceedings
before the RTC should include all claims or
demands of whatever nature or character against
a debtor or its property. At the heart of the
Assignee's argument is that because the
authority is with the RTC, the SEC has no right
to interfere in the insolvency proceedings.
It is an error for the Assignee to assume that the
authority of the RTC extends to the claims
against the trust fund. Claims against the trust
fund must be distinguished from claims against
Legacy. The claims against the trust fund are
directed not against Legacy, but against LBP,
the trustee, being the debtor relative to the trust
properties.
The Pre-Need Code is clear on this. It recognizes
the distinction between claims against the pre-
need company and those against the trust fund.
Section 52 (b) states that liquidation
"proceedings in court shall proceed
independently of proceedings in the
Commission for the liquidation of claims, and
creditors of the pre-need company shall have
no personality whatsoever in the Commission
proceedings to litigate their claims against the
trust funds." The reason why claims against the
trust funds can proceed independently of the
proceedings in the courts is the fact that the
latter is directed against a different person or
entity.
Moreover, the Assignee must be reminded that
the issue in Abrera is not similar to the question
raised here by the SEC. In the case at bench, the
SEC questions the propriety of including the
trust fund in the inventory of Legacy's corporate
assets.
Jurisdiction over claims filed
against the trust fund
From the effectivity of the Pre-Need Code, it is
the Insurance Commission (IC) that "shall have
the primary and exclusive power to adjudicate
any and all claims involving pre-need
plans."35The transitory provisions of the Pre-
Need Code, however, provide that
"[notwithstanding any provision to the
contrary, all pending claims, complaints and
cases (referring to pre-need contract and
trust claims) filed with the SEC shall be
continued in its full and final
conclusion."36cralawrednad
The Pre-Need Code recognizes that the
jurisdiction over pending claims against the trust
funds prior to its effectivity is vested with the
SEC. Such authority can be easily discerned
even from the provisions of the SRC. Section 4
thereof provides that despite the transfer of
jurisdiction37 to the RTC of those matters
enumerated under Section 5 of P.D. No. 902-
A,38 the SEC remains authorized to "exercise
such other powers as may be provided by law as
well as those which may be implied from, or
which are necessary or incidental to the�
carrying�out of, the�express powers granted
the Commission39 to achieve the objectives and
purposes of these laws."40 Relevant thereto is
Section 36.5 (b) of the SRC which states
that:ChanRoblesvirtualLawlibrary
The Commission may, having due regard to the
public interest or the protection of investors,
regulate, supervise, examine, suspend or
otherwise discontinue such and other similar
funds under such rules and regulations which the
Commission may promulgate, and which may
include taking custody and management of the
fund itself as well as investments in, and
disbursements from, the funds under such forms
of control and supervision by the Commission as
it may from time to time require. The authority
granted to the Commission under this subsection
shall also apply to all funds established for the
protection of investors (which necessarily
includes the trust funds), whether established by
the Commission or otherwise.41
Concomitantly, under the New Rules, the SEC
"may, at its discretion, demand for the
conversion to cash or other near cash assets of
the investments made by the Trustee to protect
the interest of the Planholders."42
Therefore, even prior to the transfer to the IC of
matters pertaining to pre-need plans and trust
funds, the SEC had authority to regulate,
manage, and hear all claims involving trust fund
assets, if in its discretion, public interest so
required. Accordingly, all claims against the
trust funds, which have been pending before it,
are clearly within the SEC's authority to rule
upon.
Pre-Need Code is curative and
remedial in character and, therefore,
can be applied retroactively
Finally, it must be stressed that the primary
protection accorded by the Pre-Need Code to the
planholders is curative and remedial and,
therefore, can be applied retroactively. The rule
is that where the provisions of a statute clarify
an existing law and do not contemplate a change
in that law, the statute may be given curative,
remedial and retroactive effect.43 To review,
curative statutes are those enacted to cure
defects, abridge superfluities, and curb certain
evils.44 As stressed by the Court in Fabian v.
Desierto,45cralawrednad
If the rule takes away a vested right, it is not
procedural. If the rule creates a right such as the
right to appeal, it may be clarified as a
substantive matter; but if it operates as a means
of implementing an existing right then the
rule deals merely with procedure.
[Emphasis Supplied]
A reading of the Pre-Need Code immediately
shows that its provisions operate merely in
furtherance of the remedy or confirmation of the
right of the planholders to exclusively claim
against the trust funds as intended by the
legislature. No new substantive right was created
or bestowed upon the planholders. Section 52 of
the Pre-Need Code only echoes and clarifies the
SRC's intent to exclude from the insolvency
proceeding trust fund assets that have been
established "exclusively for the benefit of
planholders." It was precisely enacted to foil
the tactic of taking undue advantage of any
ambiguities in the New Rules.
Any doubt or reservation in this regard has been
dispelled by the Pre-Need Code. Section 57
thereof provides that "[a]ny pre-need company
who, at the time of the effectivitv of this Code
has been registered and licensed to sell pre-
need plans and similar contracts, shall be
considered registered and licensed under the
provision of this Code and its implementing
rules and regulations and shall be subject to
and governed by the provisions hereof xxx."
Thus, Legacy and all other existing pre-need
companies cannot claim that the provisions of
the Pre-Need Code are not applicable to them
and to the claims which accrued prior to the
enactment of the said law.
"[I]t has been said that a remedial statute must
be so construed as to make it effect the evident
purpose for which it was enacted, so that if the
reason of the statute extends to past
transactions, as well as to those in the future,
then it will be so applied although the statute
does not in terms so direct:46 With the Pre-Need
Code having the attribute of a remedial statute,
Legacy and all pre-need providers or their
creditors cannot argue that it cannot be
retroactively applied.
Conclusion
In sum, improvidently ordering the inclusion of
the trust fund in Legacy's insolvency estate
without regard to the avowed state policy of
protecting the consumer of pre-need plans, as
laid down in the SRC, the New Rules, and the
Pre-Need Code, constitutes grave abuse of
discretion. The RTC should have known, and
ought to know, the overarching consideration the
Congress intended in requiring the establishment
of trust funds - to uphold first and foremost the
interest of the planholders.
The Court upholds its duty to protect the
ordinary Filipino workers who are seeking a
future for their children through pre-need
contracts. Their incredibly long wait is over as
this is the moment when their rightful and
exclusive right to the trust funds, created
primarily for them, is judicially respected and
affirmed.
WHEREFORE, the petition is GRANTED.
The June 26, 2009 Order of the Regional Trial
Court, Branch 56, Makati City, is declared
NULL and VOID.