RCA Raw Cases

8/14/2019 RCA Raw Cases

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CEMCO HOLDINGS, INC.,versusNATIONAL LIFE INSURANCE COMPANY OFTHE PHILIPPINES, INC.,

This Petition for Review under Rule 45 of the Rules of Court seeks to reverseand set aside the 24 October 2005 Decision[1]and the 6 March 2006

Resolution[2]

of the Court of Appeals in CA-G.R. SP No. 88758 which affirmedthe judgment[3]dated 14 February 2005 of the Securities and ExchangeCommission (SEC) finding that the acquisition of petitionerCemco Holdings, Inc.(Cemco) of the shares of stock ofBacnotan Consolidated Industries, Inc. (BCI) andAtlas Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC)was covered by the Mandatory Offer Rule under Section 19 of Republic Act No.8799, otherwise known as the Securities Regulation Code.

The Facts

Union Cement Corporation (UCC), a publicly-listed company, has two principalstockholdersUCHC, a non-listed company, with shares amounting to 60.51%,and petitionerCemco with 17.03%. Majority ofUCHCsstocks were owned by BCIwith 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% ofUCHC stocks.

In a disclosure letter dated5 July 2004, BCI informed the Philippine StockExchange (PSE) that it and its subsidiary ACC had passed resolutions to selltoCemco BCIsstocks in UCHC equivalent to 21.31% and ACCs stocks in UCHCequivalent to 29.69%.

In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was statedthat as a result of petitionerCemcosacquisition of BCI and ACCs shares in UCHC,petitioners total beneficial ownership, direct and indirect, in UCC has

increased by 36% and amounted to at least 53% of the shares of UCC, to wit[4]:

Particulars PercentageExisting shares ofCemco in UCHC 9%Acquisition byCemco ofBCIsand ACCs shares inUCHC

51%

Total stocks ofCemco in UCHC 60%

Percentage of UCHC ownership in UCC 60%Indirect ownership ofCemco in UCC 36%

Direct ownership ofCemco in UCC 17%Total ownership ofCemco in UCC 53%

As a consequence of this disclosure, the PSE, in a letter to the SEC dated15 July2004, inquired as to whether the Tender Offer Rule under Rule 19 of theImplementing Rules of the Securities Regulation Code is not applicable to the

purchase by petitioner of the majority of shares of UCC.

In a letter dated16 July 2004, DirectorJustina Callangan of the SECs CorporateFinance Department responded to the query of the PSE that while it was thestance of the department that the tender offer rule was not applicable, thematter must still have to be confirmed by the SECen banc.

Thereafter, in a subsequent letter dated27 July 2004,DirectorCallangan confirmed that the SECen banchad resolved thattheCemco transaction was not covered by the tender offer rule.

On28 July 2004, feeling aggrieved by the transaction, respondent National LifeInsurance Company of the Philippines, Inc., a minority stockholder of UCC, senta letter toCemco demanding the latter to comply with the rule on mandatorytender offer. Cemco, however, refused.

On5 August 2004, a Share Purchase Agreement was executed by ACC and BCI,as sellers, andCemco, as buyer.

On12 August 2004, the transaction was consummated and closed.

On19 August 2004, respondent National Life Insurance Company of thePhilippines, Inc. filed a complaint with the SEC asking it to reverse its27 July2004Resolution and to declare the purchase agreement ofCemco void andpraying that the mandatory tender offer rule be applied to its UCCshares. Impleaded in the complaint wereCemco, UCC, UCHC, BCI and ACC, whichwere then required by the SEC to file their respective comment on thecomplaint. In their comments, they were uniform in arguing that the tenderoffer rule applied only to a direct acquisition of the shares of the listedcompany and did not extend to an indirect acquisition arising from thepurchase of the shares of a holding company of the listed firm.
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In a Decision dated 14 February 2005, the SEC ruled in favor of the respondentby reversing and setting aside its 27 July 2004 Resolution and directedpetitionerCemco to make a tender offer for UCC shares to respondent and otherholders of UCC shares similar to the class held by UCHC in accordance withSection 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 torequireCemco to make a tender offer for UCC shares, and arguing that thetender offer rule does not apply, or that the SECs re-interpretation of the rulecould not be made to retroactively apply toCemcospurchase of UCHC shares.

The Court of Appeals rendered a decision affirming the ruling of the SEC. Itruled that the SEC has jurisdiction to render the questioned decision and, inany event,Cemco was barred byestoppel from questioning the SECsjurisdiction. It, likewise, held that the tender offer requirement under theSecurities Regulation Code and its Implementing Rules appliestoCemcospurchase of UCHC stocks. Thedecretal portion of the said Decisionreads:

IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, andthe preliminary injunction issued by the Court LIFTED.[5]

Cemco filed a motion for reconsideration which was denied by the Court ofAppeals.

Hence, the instant petition.

In its memorandum, petitionerCemco raises the following issues:

I.ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONALLIFES COMPLAINT AND THAT THE SECS RE-INTERPRETATION OF THE TENDEROFFER RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BEAPPLIED 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 CEMCOTO 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, ISAN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT.[6]

Simply stated, the following are the issues:

1. Whether or not the SEC has jurisdiction over respondentscomplaint and to requireCemco to make a tender offer for respondents UCCshares.

2. Whether or not the rule on mandatory tender offer applies to theindirect acquisition of shares in a listed company, in this case, the indirectacquisition byCemco of 36% of UCC, a publicly-listed company, through itspurchase of the shares in UCHC, a non-listed company.

3. Whether or not the questioned ruling of the SEC can be appliedretroactively toCemcostransaction which was consummated under theauthority of the SECs prior resolution.

On the first issue, petitionerCemco contends that while the SEC can take

cognizance of respondents complaint on the alleged violation bypetitionerCemco of the mandatory tender offer requirement under Section 19of Republic Act No. 8799, the same statute does not vest the SEC withjurisdiction to adjudicate and determine the rights and obligations of theparties since, under the same statute, the SECs authority is purely

administrative. Having been vested with purely administrative authority, theSEC can only impose administrative sanctions such as the imposition ofadministrative fines, the suspension or revocation of registrations with the SEC,and the like. Petitioner stresses that there is nothing in the statute whichauthorizes the SEC to issue orders granting affirmativereliefs. Since the SECs

order commanding it to make a tender offer is an affirmative relief fixing therespective rights and obligations of parties, such order is void.
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Petitioner further contends that in the absence of any specific grant ofjurisdiction 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 andeventually rendering a judgment which ordered the latter to make a tenderoffer, the SEC was acting pursuant to Rule 19(13) of the AmendedImplementing 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 ofa public company at threshold amounts without the required tender offer, theCommission, upon complaint, may nullify the said acquisition and direct theholding of a tender offer. This shall be without prejudice to the imposition ofother 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 theSecurities Regulation Code, more specifically the provision on mandatorytender offer under Section 19 thereof.[7]

Another provision of the statute, which provides the basis of Rule 19(13) of theAmended Implementing Rules and Regulations of the Securities RegulationCode, is Section 5.1(n),viz:

[T]he Commission shall have, among others, the following powers andfunctions:

xx x x

(n) Exercise such other powers as may be provided by law as well as thosewhich may be implied from, or which are necessary or incidental to thecarrying out of, the express powers granted the Commission to achieve theobjectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative powerwhich is implied from the express powers of the Commission or which isincidental to, or reasonably necessary to carry out, the performance of theadministrative duties entrusted to it. As a regulatory agency, it has theincidental power to conduct hearings and render decisions fixing the rights andobligations of the parties. In fact, to deprive the SEC of this power wouldrender 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 theparticular decision it made in this case. A definite inference may be drawnfrom the provisions of the SRC that the SEC has the authority not only toinvestigate complaints of violations of the tender offer rule, but to adjudicatecertain rights and obligations of the contending parties and grantappropriatereliefs in the exercise of its regulatory functions under theSRC. Section 5.1 of the SRC allows a general grant of adjudicative powers tothe SEC which may be implied from or are necessary or incidental to thecarrying out of its express powers to achieve the objectives and purposes ofthe SRC. We must bear in mind in interpreting the powers and functions of theSEC that the law has made the SEC primarily a regulatory body with theincidental power to conduct administrative hearings and make decisions. Aregulatory body like the SEC may conduct hearings in the exercise of itsregulatory powers, and if the case involves violations or conflicts in connectionwith the performance of its regulatory functions, it will have the duty andauthority to resolve the dispute for the best interests of the public.[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 theCode. Among them is the protection of the investors and the minimization, ifnot total elimination, of fraudulent and manipulative devises. Thus, Subsection5.1(g) of the law provides:

Prepare, approve, amend or repeal rules, regulations and orders, and issueopinions and provide guidance on and supervise compliance with such rules,regulations and orders.

Also, Section 72 of the Securities Regulation Code reads:
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72.1. xx x To effect the provisions and purposes of this Code, the Commissionmay issue, amend, and rescind such rules and regulations and orders necessaryor appropriate, xx x.

72.2.The Commission shall promulgate rules and regulations providing forreporting, disclosure and the prevention of fraudulent, deceptive ormanipulative 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 therequirements of Subsection 17.2. Such rules and regulations may require suchissuer to provide holders of equity securities of such dates with suchinformation relating to the reasons for such purchase, the source of funds, thenumber of shares to be purchased, the price to be paid for such securities, themethod of purchase and such additional information as the Commission deemsnecessary or appropriate in the public interest or for the protection ofinvestors, or which the Commission deems to be material to a determinationby holders whether such security should be sold.

The power conferred upon the SEC to promulgate rules and regulations is alegislative recognition of the complexity and the constantly-fluctuating natureof the market and the impossibility of foreseeing all the possible contingenciesthat cannot be addressed in advance. As enunciated inVictorias Milling Co., Inc.v. Social Security Commission[9]:

Rules and regulations when promulgated in pursuance of the procedure orauthority conferred upon the administrative agency by law, partake of thenature of a statute, and compliance therewith may be enforced by a penalsanction provided in the law. This is so because statutes are usually couched in

general terms, after expressing the policy, purposes, objectives, remedies andsanctions intended by the legislature. The details and the manner of carryingout the law are often times left to the administrative agency entrusted with itsenforcement. In this sense, it has been said that rules and regulations are theproduct of a delegated power to create new or additional legal provisions thathave the effect of law.

Moreover, petitioner is barred from questioning the jurisdiction of the SEC. Itmust 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 dated15 September 2004,filed with the SEC wherein it asserted:

This Honorable Commission is a highly specialized body created for thepurpose of administering, overseeing, and managing the corporate industry,share investment and securities market in the Philippines. By the very natureof its functions, it dedicated to the study and administration of the corporate

and securities laws and has necessarily developed an expertise on thesubject. Based on said functions, the Honorable Commission is necessarilytasked to issue rulings with respect to matters involving corporate matters andshare acquisitions. Verily when this Honorable Commission rendered theRuling that the acquisition ofCemco Holdings of the majority shares of UnionCement Holdings, Inc., a substantial stockholder of a listed company, UnionCement Corporation, is not covered by the mandatory tender offerrequirement 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 orimprovident exercise of authority.[10]

Petitioner did not question the jurisdiction of the SEC when it rendered anopinion favorable to it, such as the27 July 2004Resolution, where the SECopined that theCemco transaction was not covered by the mandatory tenderoffer rule. It was only when the case was before the Court of Appeals and afterthe SEC rendered an unfavorable judgment against it that petitioner challengedthe SECs competence. As articulated inCeroferr Realty Corporation v. Court ofAppeals[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 estoppedif he has activelytaken part in the very proceedings which he questions and he only objects tothe 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 ruleapplies only to direct acquisition of shares in the public company.

This contention is not meritorious.
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Tender offer is a publicly announced intention by a person acting alone or inconcert with other persons to acquire equity securities of a publiccompany.[12] A public company is defined as a corporation which is listed on anexchange, or a corporation with assets exceedingP50,000,000.00 and with 200or more stockholders, at least 200 of them holding not less than 100 shares ofsuch company.[13] Stated differently, a tender offer is an offer by the acquiringperson to stockholders of a public company for them to tender their shares

therein on the terms specified in the offer.[14]

Tender offer is in place to protectminority shareholders against any scheme that dilutes the share value of theirinvestments. It gives the minority shareholders the chance to exit the companyunder reasonable terms, giving them the opportunity to sell their shares at thesame price as those of the majority shareholders.[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 whointends to acquire at least fifteen percent (15%) of any class of any equitysecurity of a listed corporation or of any class of any equity security of acorporation with assets of at least Fifty million pesos (P50,000,000.00) andhaving two hundred (200) or more stockholders with at least one hundred(100) shares each or who intends to acquire at least thirty percent (30%) ofsuch equity over a period of twelve (12) months shall make a tender offer tostockholders by filing with the Commission a declaration to that effect; andfurnish the issuer, a statement containing such of the information required inSection 17 of this Code as the Commission may prescribe. Such person orgroup of persons shall publish all requests or invitations for tender, ormaterials making a tender offer or requesting or inviting letters of such asecurity. Copies of any additional material soliciting or requesting such tender

offers subsequent to the initial solicitation or request shall contain suchinformation as the Commission may prescribe, and shall be filed with theCommission and sent to the issuer not later than the time copies of suchmaterials are first published or sent or given to security holders.

Under existing SEC Rules,[16]the 15% and 30% threshold acquisition of sharesunder the foregoing provision was increased to thirty-five percent (35%). It isfurther provided therein that mandatory tender offer is still applicable even ifthe 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.[17]

The SEC and the Court of Appeals ruled that the indirect acquisition bypetitioner of 36% of UCC shares through the acquisition of the non-listed UCHCshares is covered by the mandatory tender offer rule.

This interpretation given by the SEC and the Court of Appeals must besustained.

The rule in this jurisdiction is that the construction given to a statute by anadministrative agency charged with the interpretation and application of thatstatute is entitled to great weight by the courts, unless such construction isclearly shown to be in sharp contrast with the governing law or statute.[18]Therationale for this rule relates not only to the emergence of the multifariousneeds of a modern or modernizing society and the establishment of diverseadministrative agencies for addressing and satisfying those needs; it alsorelates to accumulation of experience and growth of specialized capabilities bythe administrative agency charged with implementing a particular statute.[19]

The SEC and the Court of Appeals accurately pointed out that the coverage ofthe mandatory tender offer rule covers not only direct acquisition but alsoindirect acquisition or any type of acquisition. This is clear from thediscussions of the Bicameral Conference Committee on the Securities Act of2000, on17 July 2000.

SEN. S. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls 67% of theCompany. Of course, he will pay a premium for the first 67%. Controlyan,eh. Eh,kawawa yung mga maiiwan,ang 33% because the value of the stock marketcould go down, could go down after that, because there will (p. 41) be no moremarket. Wala nang gustong bumenta.Wala nang I

meanmaraming gustong bumenta,walang gustongbumili kunghindi yung majorityowner. And they will not buy. They already have 67%. They already havecontrol. And this protects the minority. And we have had a caseinCebu wherein Ayala A who already owned 40% of Ayala B made an offer foranother 40% of Ayala B without offering the20%. Kawawa naman yung nakahawak ngayon ng 20%. Ang baba ng sharesa market. Butwe 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 tosell.
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CHAIRMAN ROCO. Pro-rata lang. (p. 42).

xx x x

REP. TEODORO. As long as it reaches 30,ayan na. Any type of acquisition just aslong 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.[20]

(Emphasissupplied.)

Petitioner counters that the legislators reference toany type of acquisitionduring the deliberations on the Securities Regulation Code does not indicatethat 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 itdid not directly acquire the shares in UCC and the incidental benefit of havingacquired 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 theCode is to regulate activities relating to acquisition of control of the listedcompany and for the purpose of protecting the minority stockholders of alisted corporation. Whatever may be the method by which control of a publiccompany is obtained, either through the direct purchase of its stocks orthrough an indirect means, mandatory tender offer applies. As appropriatelyheld by the Court of Appeals:

The petitioner posits that what it acquired were stocks of UCHC and notUCC. By happenstance, as a result of the transaction, it became an indirect

owner of UCC. We are constrained, however, to construe ownershipacquisition to mean both direct and indirect. What is decisive is thedetermination of the power of control. The legislative intent behind the tenderoffer rule makes clear that the type of activity intended to be regulated is theacquisition of control of the listed company through the purchase ofshares. Control may [be] effected through a direct and indirect acquisition ofstock, and when this takes place, irrespective of the means, a tender offer mustoccur. Thebottomline of the law is to give the shareholder of the listed companythe opportunity to decide whether or not to sell in connection with a transferof control. xx x.[21]

As to the third issue, petitioner stresses that the ruling on mandatory tenderoffer rule by the SEC and the Court of Appeals should not have retroactiveeffect or be made to apply to its purchase of the UCHC shares as it relied ingood faith on the letter dated 27 July 2004 of the SEC which opined that theproposed acquisition of the UCHC shares was not covered by the mandatoryoffer rule.

The argument is not persuasive.

The action of the SEC on the PSE request for opinion on theCemco transactioncannot be construed as passing merits or giving approval to the questionedtransaction. As aptly pointed out by the respondent, the letter dated27 July2004of the SEC was nothing but an approval of the draft letter prepared byDirectorCallanga. There was no public hearing where interested parties couldhave been heard. Hence, it was not issued upon a definite and concretecontroversy affecting the legal relations of parties thereby making it ajudgment conclusive on all the parties. Said letter was merelyadvisory. Jurisprudence has it that an advisory opinion of an agency may bestricken down if it deviates from the provision of the statute.[22] Since the letterdated27 July 2004runs counter to the Securities Regulation Code, the samemay be disregarded as what the SEC has done in its decision dated14 February2005.

Assumingarguendothat the letter dated27 July 2004constitutes a ruling, thesame cannot be utilized to determine the rights of the parties. What is to beapplied in the present case is the subsequent ruling of the SEC dated14February 2005abandoning the opinion embodied in the letter dated27 July2004. InSerrano v. National Labor Relations Commission,[23]an argument was

raised similar to the case under consideration. Private respondent thereinargued that the new doctrine pronounced by the Court should only be appliedprospectively. 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 lawwas originally passed, this is subject to the qualification that when a doctrine ofthis Court is overruled and a different view is adopted, and more so whenthere is a reversal thereof, the new doctrine should be applied prospectivelyand should not apply to parties who relied on the old doctrine and acted ingood 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 priorto such adjudication.
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It is apparent that private respondent misconceived the import of theruling. The decision in Columbia Pictures does not mean that if a new rule islaid down in a case, it should not be applied in that case but that said ruleshould apply prospectively to cases arising afterwards. Private respondentsview of the principle of prospective application of new judicial doctrines wouldturn the judicial function into a mere academic exercise with the result that the

doctrine laid down would be no more than a dictum and would deprive theholding in the case of any force.

Indeed, when the Court formulated theWenphil doctrine, which we reversed inthis case, the Court did not defer application of the rule laid down imposing afine on the employer for failure to give notice in a case of dismissal forcause. To the contrary, the new rule was applied right then and there. xx x.

Lastly, petitioner alleges that the decision of the SEC dated14 February 2005isincomplete and produces no effect.

This contention is baseless.

Thedecretal portion of the SEC decision states:

In view of the foregoing, the letter of the Commission, signed byDirectorJustina F.Callangan, dated July 27, 2004, addressed to the PhilippineStock Exchange is hereby REVERSED and SET ASIDE. RespondentCemco ishereby directed to make a tender offer for UCC shares to complainant andother 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, strictlyin accordance with SRC Rule 19, Section 9(E).[24]

A reading of the above ruling of the SEC reveals that the same is complete. Itorders the conduct of a mandatory tender offer pursuant to the procedureprovided for under Rule 19(E) of the Amended Implementing Rules andRegulations of the Securities Regulation Code for the highest price paid for thebeneficial ownership of UCC shares. The price, on the basis of the SEC decision,is determinable. Moreover, the implementing rules and regulations of the

Code are sufficient to inform and guide the parties on how to proceed with themandatory tender offer.

WHEREFORE, the Decision and Resolution of the Court of Appeals dated24October 2005and6 March 2006, respectively, affirming the Decision dated 14February 2005of the Securities and Exchange CommissionEn Banc, areherebyAFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 168380 February 8, 2007MANUEL V. BAVIERA,Petitioner,vs.ESPERANZA PAGLINAWAN, in her capacity as Department of Justice StateProsecutor; LEAH C. TANODRA-ARMAMENTO, In her capacity as Assistant ChiefState Prosecutor and Chairwoman of Task Force on Business Scam; JOVENCITOR. ZUNO, in his capacity as Department of Justice Chief State Prosecutor;STANDARD CHARTERED BANK, PAUL SIMON MORRIS, AJAY KANWAL, SRIDHARRAMAN, MARIVEL GONZALES, CHONA REYES, MARIA ELLEN VICTOR, andZENAIDA IGLESIAS,Respondents.x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xG.R. No. 170602 February 8, 2007MANUEL V. BAVIERA,Petitioner,vs.STANDARD CHARTERED BANK, BRYAN K. SANDERSON, THE RIGHT HONORABLELORD STEWARTBY, EVAN MERVYN DAVIES, MICHAEL BERNARD DENOMA,CHRISTOPHER AVEDIS KELJIK, RICHARD HENRY MEDDINGS, KAI NARGOLWALA,PETER ALEXANDER SANDS, RONNIE CHI CHUNG CHAN, SIR CK CHOW, BARRYCLARE, HO KWON PING, RUDOLPH HAROLD PETER ARKHAM, DAVID GEORGEMOIR, HIGH EDWARD NORTON, SIR RALPH HARRY ROBINS, ANTHONY WILLIAM

PAUL STENHAM (Standard Chartered Bank Chairman, Deputy Chairman, andMembers of the Board), SHERAZAM MAZARI (Group Regional Head forConsumer Banking), PAUL SIMON MORRIS, AJAY KANWAL, SRIDHAR RAMAN,MARIVEL GONZALES, CHONA REYES, ELLEN VICTOR, RAMONA H. BERNAD,DOMINGO CARBONELL, JR., and ZENAIDA IGLESIAS (Standard Chartered Bank-Philippines Branch Heads/Officers),Respondents.D E C I S I O NSANDOVAL-GUTIERREZ,J.:Before us are two consolidated Petitions for Review on Certiorari assailing theDecisions of the Court of Appeals in CA-G.R. SP No. 873281and in CA-G.R. SP

No. 85078.

2

The common factual antecedents of these cases as shown by the records are:
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Manuel Baviera, petitioner in these cases, was the former head of the HRService Delivery and Industrial Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign bankingcorporation duly licensed to engage in banking, trust, and other fiduciarybusiness in the Philippines. Pursuant to Resolution No. 1142 dated December3, 1992 of the Monetary Board of theBangko Sentral ng Pilipinas(BSP), theconduct of SCBs business in this jurisdiction is subject to the following

conditions:1. At the end of a one-year period from the date the SCB starts its trustfunctions, at least 25% of its trust accounts must be for the account of non-residents of the Philippines and that actual foreign exchange had beenremitted into the Philippines to fund such accounts or that the establishmentof such accounts had reduced the indebtedness of residents (individuals orcorporations or government agencies) of the Philippines to non-residents. Atthe end of the second year, the above ratio shall be 50%, which ratio must beobserved continuously thereafter;2. The trust operations of SCB shall be subject to all existing laws, rules andregulations applicable to trust services, particularly the creation of a TrustCommittee; and3. The bank shall inform the appropriate supervising and examiningdepartment of the BSP at the start of its operations.Apparently, SCB did not comply with the above conditions. Instead, as early as1996, it acted as a stock broker, soliciting from local residents foreign securitiescalled "GLOBAL THIRD PARTY MUTUAL FUNDS" (GTPMF), denominated in USdollars. These securities were not registered with the Securities and ExchangeCommission (SEC). These were then remitted outwardly to SCB-Hong Kong andSCB-Singapore.SCBs counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law

Office, advised the bank to proceed with the selling of the foreign securitiesalthough unregistered with the SEC, under the guise of a "custodianshipagreement;" and should it be questioned, it shall invoke Section 723of theGeneral Banking Act (Republic Act No.337).4In sum, SCB was able to sellGTPMF securities worth aroundP6 billion to some 645 investors.However, SCBs operations did not remain unchallenged. On July 18, 1997, theInvestment Capital Association of the Philippines (ICAP) filed with the SEC acomplaint alleging that SCB violated the Revised Securities Act,5particularly theprovision prohibiting the selling of securities without prior registration with theSEC; and that its actions are potentially damaging to the local mutual fund

industry.

In its answer, SCB denied offering and selling securities, contending that it hasbeen performing a "purely informational function" without solicitations for anyof its investment outlets abroad; that it has a trust license and the services itrenders under the "Custodianship Agreement" for offshore investments areauthorized by Section 726of the General Banking Act; that its clients were theones who took the initiative to invest in securities; and it has been actingmerely as an agent or "passive order taker" for them.

On September 2, 1997, the SEC issued a Cease and Desist Order against SCB,holding that its services violated Sections 4(a)7and 198of the Revised SecuritiesAct.Meantime, the SEC indorsed ICAPs complaint and its supporting documents to

the BSP.On October 31, 1997, the SEC informed the Secretary of Finance that itwithdrew GTPMF securities from the market and that it will not sell the samewithout the necessary clearances from the regulatory authorities.Meanwhile, on August 17, 1998, the BSP directed SCB not to includeinvestments in global mutual funds issued abroad in its trust investmentsportfolio without prior registration with the SEC.On August 31, 1998, SCB sent a letter to the BSP confirming that it willwithdraw third-party fund products which could be directly purchased byinvestors.However, notwithstanding its commitment and the BSP directive, SCBcontinued to offer and sell GTPMF securities in this country. This promptedpetitioner to enter into an Investment Trust Agreement with SCB wherein hepurchased US$8,000.00 worth of securities upon the banks promise of 40%

return on his investment and a guarantee that his money is safe. After six (6)months, however, petitioner learned that the value of his investment wentdown to US$7,000.00. He tried to withdraw his investment but was persuaded

by Antonette de los Reyes of SCB to hold on to it for another six (6) months inview of the possibility that the market would pick up.Meanwhile, on November 27, 2000, the BSP found that SCB failed to complywith its directive of August 17, 1998. Consequently, it was fined in the amountofP30,000.00.The trend in the securities market, however, was bearish and the worth ofpetitioners investment went down further to only US$3,000.00.On October 26, 2001, petitioner learned from Marivel Gonzales, head of theSCB Legal and Compliance Department, that the latter had been prohibited bythe BSP to sell GPTMF securities. Petitioner then filed with the BSP a letter-

complaint demanding compensation for his lost investment. But SCB denied hisdemand on the ground that his investment is "regular."
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On July 15, 2003, petitioner filed with the Department of Justice (DOJ),represented herein by its prosecutors, public respondents, a complaintcharging the above-named officers and members of the SCB Board of Directorsand other SCB officials, private respondents, with syndicatedestafa,docketedas I.S. No. 2003-1059.For their part, private respondents filed the following as counter-chargesagainst petitioner: (1) blackmail and extortion, docketed as I.S. No. 2003-1059-

A; and blackmail and perjury, docketed as I.S. No. 2003-1278.On September 29, 2003, petitioner also filed a complaint for perjury againstprivate respondents Paul Simon Morris and Marivel Gonzales, docketed as I.S.No. 2003-1278-A.On December 4, 2003, the SEC issued a Cease and Desist Order against SCBrestraining it from further offering, soliciting, or otherwise selling its securitiesto the public until these have been registered with the SEC.Subsequently, the SEC and SCB reached an amicable settlement.1awphi1.netOn January 20, 2004, the SEC lifted its Cease and Desist Order and approvedtheP7 million settlement offered by SCB. Thereupon, SCB made a commitmentnot to offer or sell securities without prior compliance with the requirementsof the SEC.On February 7, 2004, petitioner filed with the DOJ a complaint for violation ofSection 8.19of the Securities Regulation Code against private respondents,docketed as I.S. No. 2004-229.On February 23, 2004, the DOJ rendered its Joint Resolution10dismissingpetitioners complaint for syndicated estafa in I.S. No. 2003-1059; privaterespondents complaint for blackmail and extortion in I.S. No. 2003-1059-A;private respondents complaint for blackmail and perjury in I.S. No. 2003-1278;and petitioners complaint for perjury against private respondents Morris and

Gonzales in I.S. No. 2003-1278-A.

Meanwhile, in a Resolution11dated April 4, 2004, the DOJ dismissed petitionerscomplaint in I.S. No. 2004-229 (violation of Securities Regulation Code), holdingthat it should have been filed with the SEC.Petitioners motions to dismiss his complaints were denied by the DOJ. Thus,he filed with the Court of Appeals a petition for certiorari, docketed as CA-G.R.SP No. 85078. He alleged that the DOJ acted with grave abuse of discretionamounting to lack or excess of jurisdiction in dismissing his complaintforsyndicated estafa.He also filed with the Court of Appeals a separate petition for certiorariassailing the DOJ Resolution dismissing I.S. No. 2004-229 for violation of the

Securities Regulation Code. This petition was docketed as CA-G.R. SP No.87328. Petitioner claimed that the DOJ acted with grave abuse of discretion

tantamount to lack or excess of jurisdiction in holding that the complaintshould have been filed with the SEC.On January 7, 2005, the Court of Appeals promulgated its Decision dismissingthe petition.1avvphi1.netIt sustained the ruling of the DOJ that the case shouldhave been filed initially with the SEC.Petitioner filed a motion for reconsideration but it was denied in a Resolutiondated May 27, 2005.

Meanwhile, on February 21, 2005, the Court of Appeals rendered its Decisionin CA-G.R. SP No. 85078 (involving petitioners charges and respondentscounter charges) dismissing the petition on the ground that the purpose of apetition for certiorari is not to evaluate and weigh the parties evidence but to

determine whether the assailed Resolution of the DOJ was issued with graveabuse of discretion tantamount to lack of jurisdiction. Again, petitioner movedfor a reconsideration but it was denied in a Resolution of November 22, 2005.Hence, the instant petitions for review on certiorari.For our resolution is the fundamental issue of whether the Court of Appealserred in concluding that the DOJ did not commit grave abuse of discretion indismissing petitioners complaint in I.S. 2004-229 for violation of SecuritiesRegulation Code and his complaint in I.S. No. 2003-1059 for syndicatedestafa.G.R. No 168380Re: I.S. No. 2004-229For violation of the Securities Regulation CodeSection 53.1 of the Securities Regulation Code provides:SEC. 53.Investigations, Injunctions and Prosecution of Offenses.53. 1. The Commission may, in its discretion, make such investigation as itdeems necessary to determine whether any person has violated or is about toviolate any provision of this Code, any rule, regulation or order thereunder, orany rule of an Exchange, registered securities association, clearing agency,

other self-regulatory organization, and may require or permit any person to filewith it a statement in writing, under oath or otherwise, as the Commissionshall determine, as to all facts and circumstances concerning the matter to beinvestigated. The Commission may publish information concerning any suchviolations and to investigate any fact, condition, practice or matter which itmay deem necessary or proper to aid in the enforcement of the provisions ofthis Code, in the prescribing of rules and regulations thereunder, or in securinginformation to serve as a basis for recommending further legislationconcerning the matters to which this Code relates:Provided, however, That anyperson requested or subpoenaed to produce documents or testify in any

investigation shall simultaneously be notified in writing of the purpose of suchinvestigation:Provided, further,That all criminal complaints for violations of
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this Code and the implementing rules and regulations enforced oradministered by the Commission shall be referred to the Department of Justicefor preliminary investigation and prosecution before the propercourt:Provided, furthermore,That in instances where the law allowsindependent civil or criminal proceedings of violations arising from the act, theCommission shall take appropriate action to implement the same:Provided,finally; That the investigation, prosecution, and trial of such cases shall be given

priority.The Court of Appeals held that under the above provision, a criminal complaintfor violation of any law or rule administered by the SEC must first be filed withthe latter. If the Commission finds that there is probable cause, then it shouldrefer the case to the DOJ. Since petitioner failed to comply with the foregoingprocedural requirement, the DOJ did not gravely abuse its discretion indismissing his complaint in I.S. No. 2004-229.A criminal charge for violation of the Securities Regulation Code is a specializeddispute. Hence, it must first be referred to an administrative agency of specialcompetence, i.e., the SEC. Under the doctrine of primary jurisdiction, courtswill not determine a controversy involving a question within the jurisdiction of

the administrative tribunal, where the question demands the exercise of soundadministrative discretion requiring the specialized knowledge and expertise ofsaid administrative tribunal to determine technical and intricate matters offact.12The Securities Regulation Code is a special law. Its enforcement isparticularly vested in the SEC. Hence, all complaints for any violation of theCode and its implementing rules and regulations should be filed with the SEC.Where the complaint is criminal in nature, the SEC shall indorse the complaintto the DOJ for preliminary investigation and prosecution as provided in Section53.1 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 dismissingpetitioners complaint.G.R. No. 170602Re: I.S. No. 2003-1059 forSyndicated EstafaSection 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended,provides that all criminal actions, commenced by either a complaint or aninformation, shall be prosecuted under the direction and control of a publicprosecutor. This mandate is founded on the theory that a crime is a breach of

the security and peace of the people at large, an outrage against the verysovereignty of the State. It follows that a representative of the State shall

direct and control the prosecution of the offense.13This representative of theState is the public prosecutor, whom this Court described in the old caseofSuarez v. Platon,14as:[T]he representative not of an ordinary party to a controversy, but of asovereignty whose obligation to govern impartially is as compelling as itsobligation to govern at all; and whose interest, therefore, in a criminalprosecution is not that it shall win a case, but that justice shall be done. As

such, he is in a peculiar and very definite sense a servant of the law, thetwofold aim of which is that guilt shall not escape or innocence suffers.Concomitant with his authority and power to control the prosecution ofcriminal offenses, the public prosecutor is vested with the discretionary powerto determine whether aprima faciecase exists or not.15This is done through apreliminary investigation designed to secure the respondent from hasty,malicious and oppressive prosecution. A preliminary investigation is essentiallyan inquiry to determine whether (a) a crime has been committed; and (b)whether there is probable cause that the accused is guilty thereof.16InPontejosv. Office of the Ombudsman,17probable cause is defined as such facts andcircumstances that would engender a well-founded belief that a crime has

been committed and that the respondent is probably guilty thereof and shouldbe held for trial. It is the public prosecutor who determines during thepreliminary investigation whether probable cause exists. Thus, the decisionwhether or not to dismiss the criminal complaint against the accused dependson the sound discretion of the prosecutor.Given this latitude and authority granted by law to the investigatingprosecutor,the rule in this jurisdiction is that courts will not interfere with theconduct of preliminary investigations or reinvestigations or in thedetermination of what constitutes sufficient probable cause for the filing of thecorresponding information against an offender.18Courts are not empowered to

substitute their own judgment for that of the executive branch.19Differentlystated, as the matter of whether to prosecute or not is purely discretionary onhis part, courts cannot compel a public prosecutor to file the correspondinginformation, upon a complaint, where he finds the evidence before himinsufficient to warrant the filing of an action in court. In sum,the prosecutorsfindings on the existence of probable cause are not subject to review by thecourts, unless these are patently shown to have been made with grave abuseof discretion.20Grave abuse of discretion is such capricious and whimsical exercise ofjudgment on the part of the public officer concerned which is equivalent to an

excess or lack of jurisdiction. The abuse of discretion must be as patent andgross as to amount to an evasion of a positive duty or a virtual refusal to
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perform a duty enjoined by law, or to act at all in contemplation of law, aswhere the power is exercised in an arbitrary and despotic manner by reason ofpassion or hostility.21In determining whether the DOJ committed grave abuse of discretion, it isexpedient to know if thefindings of factof herein public prosecutors werereached in an arbitrary or despotic manner.The Court of Appeals held that petitioners evidence is insufficient to establish

probable cause for syndicatedestafa. There is no showing from the record thatprivate respondents herein did induce petitioner by false representations toinvest in the GTPMF securities. Nor did they act as a syndicate tomisappropriate his money for their own benefit. Rather, they invested it inaccordance with his written instructions. That he lost his investment is nottheir fault since it was highly speculative.Records show that public respondents examined petitioners evidence withcare, well aware of their duty to prevent material damage to his constitutionalright to liberty and fair play. InSuarezpreviously cited, this Court made it clearthat a public prosecutors duty is two-fold. On one hand, he is bound by hisoath of office to prosecute persons where the complainants evidence is ample

and sufficient to showprimafacieguilt of a crime. Yet, on the other hand, he islikewise duty-bound to protect innocent persons from groundless, false, ormalicious prosecution.22Hence, we hold that the Court of Appeals was correct in dismissing the petitionfor review against private respondents and in concluding that the DOJ did notact with grave abuse of discretion tantamount to lack or excess of jurisdiction.On petitioners complaint for violation of the Securities Regulation Code,

suffice it to state that, as aptly declared by the Court of Appeals, he shouldhave filed it with the SEC, not the DOJ. Again, there is no indication here that indismissing petitioners complaint, the DOJ acted capriciously or arbitrarily.

WHEREFORE, weDENYthe petitions andAFFIRMthe assailed Decisions of theCourt of Appeals in CA-G.R. SP No. 87328 and in CA-G.R. SP No. 85078.Costs against petitioner.SO ORDERED.

BETTY GABIONZA and G.R. No. 161057ISABELITA TAN,

Petitioners,Present:

QUISUMBING,J.Chairperson,

- versus - CARPIO MORALES,TINGA,VELASCO, JR., and

COURT OF APPEALS, LUKE BRION,JJ.ROXAS and EVELYN NOLASCO,

Respondents. Promulgated:

September 12, 2008

x ---------------------------------------------------------------------------------x

D E C I S I O N

TINGA,J.:

On 21 August 2000, petitioners Betty Go Gabionza (Gabionza) and

Isabelita Tan (Tan) filed their respective Complaints-affidavit[1]charging privaterespondents Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with severalcriminal acts. Roxas was the president of ASB Holdings, Inc. (ASBHI) whileNolasco was the senior vice president and treasurer of the same corporation.

According to petitioners, ASBHI was incorporated in 1996 with its declaredprimary purpose to invest in any and all real and personal properties of everykind or otherwise acquire the stocks, bonds, and other securities or evidence ofindebtedness of any other corporation, and to hold or own, use, sell, deal in,dispose of, and turn to account any such stocks.[2]ASBHI was organized with an

authorized capital stock of P500,000.00, a fact reflected in the corporationsarticles of incorporation, copies of which were appended as annexes to thecomplaint.[3]

Both petitioners had previously placed monetary investment with theBank of Southeast Asia (BSA). They alleged that between 1996 and 1997, theywere convinced by the officers of ASBHI to lend or deposit money with thecorporation. They and other investors were urged to lend, invest or depositmoney with ASBHI, and in return they would receive checks from ASBHI for theamount so lent, invested or deposited. At first, they were issued

receipts reflecting the name ASB Realty Development which they were toldwas the same entity as BSA or was connected therewith, but beginning in
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March 1998, the receipts were issued in the name of ASBHI. They claimed thatthey were told that ASBHI was exactly the same institution that they hadpreviously dealt with.[4]

ASBHI would issue two (2) postdated checks to its lenders, onerepresenting 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 theprincipal amounts.[5]

In the first quarter of 2000, DBS Bank started to refuse to pay for thechecks purportedly by virtue of stop payment orders from ASBHI. In May of

2000, ASBHI filed a petition for rehabilitation and receivership with theSecurities and Exchange Commission (SEC), and it was able to obtain an orderenjoining it from paying its outstanding liabilities.[6]This series of events led tothe filing of the complaints by petitioners, together with Christine Chua,Elizabeth Chan, Ando Sy and Antonio Villareal, against ASBHI.[7]The complaints

were for estafa under Article 315(2)(a) and (2)(d) of the Revised Penal Code,estafa under Presidential Decree No. 1689, violation of the Revised SecuritiesAct and violation of the General Banking Act.

A special task force, the Task Force on Financial Fraud (Task Force), wascreated by the Department of Justice (DOJ) to investigate the severalcomplaints that were lodged in relation to ASBHI.[8]The Task Force, dismissedthe complaint on 19 October 2000, and the dismissal was concurred in by theassistant chief state prosecutor and approved by the chief stateprosecutor.[9] Petitioners filed a motion for reconsideration but this was

denied in February 2001.[10]

With respect to the charges of estafa under Article315(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 concludedthat the subject transactions were loans which gave rise only to civil liability;that petitioners were satisfied with the arrangement from 1996 to 2000; thatpetitioners never directly dealt with Nolasco and Roxas; and that a check wasnot 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 Informationfor violation of Section 4 in relation to Section 56 of the Revised SecuritiesAct.[11]Motions for reconsideration to this Resolution were denied by theDepartment of Justice in a Resolution dated 3 July 2002.[12]

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

Resolution by way of a certiorari petition with the Court of Appeals. In itsassailed Decision[13]dated 18 July 2003, the Court of Appeals reversed the DOJand ordered the dismissal of the criminal cases. The dismissal was sustained bythe appellate court when it denied petitioners motion for reconsideration in a

Resolution dated 28 November 2003.[14] Hence this petition filed by Gabionzaand Tan.

The Court of Appeals deviated from the general rule that accords respect tothe discretion of the DOJ in the determination of probable cause. This Courtconsistently adheres to its policy of non-interference in the conduct ofpreliminary investigations, and to leave to the investigating prosecutor

sufficient latitude of discretion in the determination of what constitutessufficient evidence to establish probable cause for the filing of an informationagainst a supposed offender.[15]

At the outset, it is critical to set forth the key factual findings of the DOJwhich led to the conclusion that probable cause existed against therespondents. The DOJ Resolution states, to wit:

The transactions in question appear to be mere renewals of the loans thecomplainant-petitioners earlier granted to BSA. However, just after they

agreed to renew the loans, the ASB agents who dealt with them issued to themreceipts indicating that the borrower was ASB Realty, with the representationthat 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 andits 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 anauthorized capital stock of only P500,000.00 and paid up capital ofonly P125,000.00. Clearly, the representations regarding its supposed financialcapacity to meet its obligations to the complainant-petitioners were simply

false. Had they known that ASB had in fact no such financial capacity, theywould not have invested millions of pesos. Indeed, no person in his proper
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frame of mind would venture to lend millions of pesos to a business entityhaving such a meager capitalization. The fact that the complainant-petitionersmight have benefited from its earlier dealings with ASB, through interestearnings on their previous loans, is of no moment, it appearing that they werenot 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 inASB are properly imputable to respondents Roxas and Nolasco, because they,as ASBs president and senior vice president/treasurer, respectively, in chargeof its operations, directed its agents to make the false representations to thepublic, including the complainant-petitioners, in order to convince them toinvest their moneys in ASB. It is difficult to make a different conclusion, judgingfrom the fact that respondents Roxas and Nolasco authorized and accepted forASB the fraud-induced loans. This makes them liable for estafa under Article315 (paragraph 2 [a]) of the Revised Penal Code. They cannot escape criminalliability 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 directparticipation.[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 abovepassage. They take issue instead with the proposition that such facts shouldresult in aprima faciecase against either Roxas or Nolasco, especially giventhat 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 firstdiscern whether the above-stated findings do establish aprima facie case thatpetitioners were indeed the victims of the crimes of estafa under Article315(2)(a) of the Revised Penal Code and of violation of the Revised SecuritiesAct.

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

ART. 315. Swindling (estafa). Any person who shall defraud another byany 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 actsexecuted 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 imaginarytransactions, 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) ofthe 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 actor fraudulent means must be made or executed prior to or simultaneously withthe commission of the fraud; (3) that the offended party must have relied onthe false pretense, fraudulent act or fraudulent means, that is, he was inducedto 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 partysuffered damage.[17]

Do the findings embodied in the DOJ Resolution align with theforegoing elements of estafa by means of deceit?

First. The DOJ Resolution explicitly identified the false pretense, fraudulent actor fraudulent means perpetrated upon the petitioners. It narrated thatpetitioners were made to believe that ASBHI had the financial capacity to repaythe 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 ofonlyP125,000.00.[18]The deficient capitalization of ASBHI is evinced by itsarticles of incorporation, the treasurers affidavit executed by Nolasco, theaudited financial statements of the corporation for 1998 and the generalinformation sheets for 1998 and 1999, all of which petitioners attached to theirrespective affidavits.[19]

The Court of Appeals conceded the fact of insufficient capitalization, yetdiscounted its impact by noting that ASBHI was able to make good its loans orborrowings from 1998 until the first quarter of 2000.[20]The short-lived ability

of ASBHI, to repay its loans does not negate the fraudulent misrepresentationor inducement it has undertaken to obtain the loans in the first place. The
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material question is not whether ASBHI inspired exculpatory confidence in itsinvestors by making good on its loans for a while, but whether such investorswould have extended the loans in the first place had they known its truefinancial setup. The DOJ reasonably noted that no person in his proper frameof mind would venture to lend millions of pesos to a business entity havingsuch a meager capitalization. In estafa under Article 315(2)(a), it is essential

that such false statement or false representation constitute the very cause or

the only motive which induces the complainant to part with the thing.

[21]

Private respondents argue before this Court that the true capitalization ofASBHI has always been a matter of public record, reflected as it is in severaldocuments which could be obtained by the petitioners from the SEC.[22] Weare not convinced. The material misrepresentations have been made by theagents or employees of ASBHI to petitioners, to the effect that the corporationwas structurally sound and financially able to undertake the series of loantransactions that it induced petitioners to enter into. Even if ASBHIs lack of

financial and structural integrity is verifiable from the articles of incorporationor other publicly available SEC records, it does not follow that the crime of

estafa through deceit would be beyond commission when precisely there arebending representations that the company would be able to meet itsobligations. Moreover, respondents argument assumes that there is legalobligation on the part of petitioners to undertake an investigation of ASBHIbefore agreeing to provide the loans. There is no such obligation. It is unfair toexpect a person to procure every available public record concerning anapplicant 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 commissionof the fraud. The assurance given to them by ASBHI that it is a worthy creditpartner occurred before they parted with their money. Relevantly, ASBHI is notthe entity with whom petitioners initially transacted with, and they averredthat they had to be convinced with such representations that Roxas and thesame 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 wascreditworthy and financially capable to pay that induced petitioners to extend

the loans. Petitioners, in their respective complaint-affidavits, alleged that theywere enticed to extend the loans upon the following representations: thatASBHI was into the very same activities of ASB Realty Corp., ASB DevelopmentCorp. and ASB Land, Inc., or otherwise held controlling interest therein; thatASB could legitimately solicit funds from the public for investment/borrowingpurposes; that ASB, by itself, or through the corporations aforestated, ownedreal and personal properties which would support and justify its borrowing

program; that ASB was connected with and firmly backed by DBS Bank in whichRoxas held a substantial stake; and ASB would, upon maturity of the checks itissued to its lenders, pay the same and that it had the necessary resources todo so.[23]

Fourth. The DOJ Resolution established that petitioners sustained damage as aresult of the acts perpetrated against them. The damage isconsiderable as to petitioners. Gabionza lost P12,160,583.32 whereas Tanlost 16,411,238.57.[24] In addition, the DOJ Resolution noted that neither Roxasnor Nolasco disputed that ASBHI had borrowed funds from about 700individual investors amounting to close to P4B.[25]

To the benefit of private respondents, the Court of Appeals ruled,citing Sesbreno v. Court of Appeals,[26] that the subject transactions are akinto 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. Sesbrenoaffirmed that a money market transactionpartakes the nature of a loan and therefore nonpayment thereof would not

give rise to criminal liability for estafa through misappropriation orconversion.[27]Estafa through misappropriation or conversion is punishable

under Article 315(1)(b), while the case at bar involves Article 315 (2)(a), amode of estafa by means of deceit.Indeed, Sesbrenoexplains: Inmoneymarket placement, the investor is a lender who loans his money to a borrowerthrough a middleman or dealer. Petitioner here loaned his money to aborrower through Philfinance. When the latter failed to deliver backpetitioner's placement with the corresponding interest earned at the maturitydate, the liability incurred by Philfinance was a civil one.[28]That rationale iswholly irrelevant to the complaint at bar, which centers not on the inability ofASBHI to repay petitioners but on the fraud and misrepresentation committedby ASBHI to induce petitioners to part with their money.
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To be clear, it is possible to hold the borrower in a money market placementliable for estafa if the creditor was induced to extend a loan upon the false orfraudulent misrepresentations of the borrower. Such estafa is one by means ofdeceit. The borrower would not be generally liable for estafa throughmisappropriation if he or she fails to repay the loan, since the liability in suchinstance is ordinarily civil in nature.

We can thus conclude that the DOJ Resolution clearly supports aprimafaciefinding that the crime of estafa under Article 315 (2)(a) has beencommitted against petitioners. Does it also establish aprima facie finding thatthere has been a violation of the then-Revised Securities Act, specificallySection 4 in relation to Section 56 thereof?

Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act, generallyrequires the registration of securities and prohibits the sale or distribution ofunregistered securities.[29]The DOJ extensively concluded that privaterespondents are liable for violating such prohibition against the sale ofunregistered securities:

Respondents Roxas and Nolasco do not dispute that in 1998, ASB borrowedfunds about 700 individual investors amounting to close to P4 billion, onrecurring, short-term basis, usually 30 or 45 days, promising high interestyields, issuing therefore mere postdate checks. Under the circumstances, thechecks assumed the character of evidences of indebtedness, which areamong the securities mentioned under the Revised Securities Act.The termsecurities embodies a flexible rather than static principle, one that is capable

of adaptation to meet the countless and variable schemes devised by thosewho 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 thelender also are evidences of indebtedness and therefore securities under the

Act, where

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