Spec Com - SRC Cases

G.R. No.
160016
http://lawphil.net/judjuris/juri2006/feb2006/gr_160016_2006.html
Today is Saturday, July 30, 2016
Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160016
February 27, 2006
ABACUS SECURITIES CORPORATION, Petitioner,

vs.
RUBEN U. AMPIL, Respondent.
DECISION
PANGANIBAN, CJ:
Stock market transactions affect the general public and the national economy. The rise and fall of stock market
indices reflect to a considerable degree the state of the economy. Trends in stock prices tend to herald changes in
business conditions. Consequently, securities transactions are impressed with public interest, and are thus subject
to public regulation. In particular, the laws and regulations requiring payment of traded shares within specified
periods are meant to protect the economy from excessive stock market speculations, and are thus mandatory.
In the present case, respondent cannot escape payment of stocks validly traded by petitioner on his behalf. These
transactions took place before both parties violated the trading law and rules. Hence, they fall outside the purview of
the pari delicto rule.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, challenging the March 21, 2003
Decision2 and the September 19, 2003 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 68273. The
assailed Decision disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is hereby DISMISSED. With costs." 4
The CA denied reconsideration in its September 19, 2003 Resolution.
The Facts
The factual antecedents were summarized by the trial court (and reproduced by the CA in its assailed Decision) in
this wise:
"Evidence adduced by the [petitioner] has established the fact that [petitioner] is engaged in business as a broker
and dealer of securities of listed companies at the Philippine Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or regular account with [petitioner] for the purpose of buying
and selling securities as evidenced by the Account Application Form. The parties business relationship was
governed by the terms and conditions [stated therein] x x x.
"Since April 10, 1997, [respondent] actively traded his account, and as a result of such trading activities, he
accumulated an outstanding obligation in favor of [petitioner] in the principal sum of P 6,617,036.22 as of April 30,
1997.
"Despite the lapse of the period within which to pay his account as well as sufficient time given by [petitioner] for
[respondent] to comply with his proposal to settle his account, the latter failed to do so. Such that [petitioner]
thereafter sold [respondents] securities to set off against his unsettled obligations.
"After the sale of [respondents] securities and application of the proceeds thereof against his account,
[respondents] remaining unsettled obligation to [petitioner] was P3,364,313.56. [Petitioner] then referred the matter
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to its legal counsel for collection purposes.

"In a letter dated August 15, 1997, [petitioner] through counsel demanded that [respondent] settle his obligation plus
the agreed penalty charges accruing thereon equivalent to the average 90-day Treasury Bill rate plus 2% per annum
(200 basis points).
"In a letter dated August [26], 1997, [respondent] acknowledged receipt of [petitioners] demand [letter] and admitted
his unpaid obligation and at the same time request[ed] for 60 days to raise funds to pay the same, which was
granted by [petitioner].
"Despite said demand and the lapse of said requested extension, [respondent] failed and/or refused to pay his
accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to trade in a stock security with [petitioner] because the
latter allowed offset settlements wherein he is not obliged to pay the purchase price. Rather, it waits for the
customer to sell. And if there is a loss, [petitioner] only requires the payment of the deficiency (i.e., the difference
between the higher buying price and the lower selling price). In addition, it charges a commission for brokering the
sale.
"However, if the customer sells and there is a profit, [petitioner] deducts the purchase price and delivers only the
surplus after charging its commission.
"[respondent] further claims that all his trades with [petitioner] were not paid in full in cash at anytime after purchase
or within the T+4 [4 days subsequent to trading] and none of these trades was cancelled by [petitioner] as required
in Exhibit A-1. Neither did [petitioner] apply with either the Philippine Stock Exchange or the SEC for an extension
of time for the payment or settlement of his cash purchases. This was not brought to his attention by his broker and
so with the requirement of collaterals in margin account. Thus, his trade under an offset transaction with [petitioner]
is unlimited subject only to the discretion of the broker. x x x [Had petitioner] followed the provision under par. 8 of
Exh. A-1 which stipulated the liquidation within the T+3 [3 days subsequent to trading], his net deficit would only be
P1,601,369.59. [respondent] however affirmed that this is not in accordance with RSA [Rule 25-1 par. C, which
mandates that if you do not pay for the first] order, you cannot subsequently make any further order without
depositing the cash price in full. So, if RSA Rule 25-1, par. C, was applied, he was limited only to the first
transaction. That [petitioner] did not comply with the T+4 mandated in cash transaction. When [respondent] failed to
comply with the T+3, [petitioner] did not require him to put up a deposit before it executed its subsequent orders.
[Petitioner] did not likewise apply for extension of the T+4 rule. Because of the offset transaction, [respondent] was
induced to [take a] risk which resulted [in] the filing of the instant suit against him [because of which] he suffered
sleepless nights, lost appetite which if quantified in money, would amount to P 500,000.00 moral damages and
P100,000.00 exemplary damages." 5
In its Decision6 dated June 26, 2000, the Regional Trial Court (RTC) of Makati City (Branch 57) held that petitioner
violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act
(RSA Rules) when it failed to: 1) require the respondent to pay for his stock purchases within three (T+3) or four
days (T+4) from trading; and 2) request from the appropriate authority an extension of time for the payment of
respondents cash purchases. The trial court noted that despite respondents non-payment within the required
period, petitioner did not cancel the purchases of respondent. Neither did it require him to deposit cash payments
before it executed the buy and/or sell orders subsequent to the first unsettled transaction. According to the RTC, by
allowing respondent to trade his account actively without cash, petitioner effectively induced him to purchase
securities thereby incurring excessive credits.
The trial court also found respondent to be equally at fault, by incurring excessive credits and waiting to see how his
investments turned out before deciding to invoke the RSA. Thus, the RTC concluded that petitioner and respondent
were in pari delicto and therefore without recourse against each other.
Ruling of the Court of Appeals
The CA upheld the lower courts finding that the parties were in pari delicto. It castigated petitioner for allowing
respondent to keep on trading despite the latters failure to pay his outstanding obligations. It explained that "the
reason [behind petitioners act] is elemental in its simplicity. And it is not exactly altruistic. Because whether
[respondents] trading transaction would result in a surplus or deficit, he would still be liable to pay [petitioner] its
commission. [Petitioners] cash register will keep on ringing to the sound of incoming money, no matter what
happened to [respondent]." 7
The CA debunked petitioners contention that the trial court lacked jurisdiction to determine violations of the RSA.
The court a quo held that petitioner was estopped from raising the question, because it had actively and voluntarily
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participated in the assailed proceedings.

Hence, this Petition. 8
Issues
Petitioner submits the following issues for our consideration:
"I.
Whether or not the Court of Appeals ruling that petitioner and respondent are in pari delicto which allegedly bars
any recovery, is in accord with law and applicable jurisprudence considering that respondent was the first one who
violated the terms of the Account Opening Form, [which was the] agreement between the parties.
"II.
Whether or not the Court of Appeals ruling that the petitioner and respondent are in pari delicto is in accord with law
and applicable jurisprudence considering the Account Opening Form is a valid agreement.
"III.
Whether or not the Court of Appeals ruling that petitioner cannot recover from respondent is in accord with law and
applicable jurisprudence since the evidence and admission of respondent proves that he is liable to petitioner for his
outstanding obligations arising from the stock trading through petitioner.
"IV.
Whether or not the Court of Appeals ruling on petitioners alleged violation of the Revised Securities Act [is] in
accord with law and jurisprudence since the lower court has no jurisdiction over violations of the Revised Securities
Act."9
Briefly, the issues are (1) whether the pari delicto rule is applicable in the present case, and (2) whether the trial
court had jurisdiction over the case.
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed: (1) on April 8, 1997, respondent opened a
cash account with petitioner for his transactions in securities; 10 (2) respondents purchases were consistently unpaid
from April 10 to 30, 1997;11 (3) respondent failed to pay in full, or even just his deficiency, 12 for the transactions on
April 10 and 11, 1997; 13 (4) despite respondents failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondents account on April 25 and 29; 14 (5) petitioner did not cancel or
liquidate a substantial amount of respondents stock transactions until May 6, 1997. 15
The provisions governing the above transactions are Sections 23 and 25 of the RSA 16 and Rule 25-1 of the RSA
Rules, which state as follows:
"SEC. 23. Margin Requirements.
xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or any broker or dealer, directly or indirectly, to extend or
maintain credit or arrange for the extension or maintenance of credit to or for any customer
(1) On any security other than an exempted security, in contravention of the rules and regulations which the
Commission shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially extended in
conformity with the rules and regulations of the Commission and (ii) in cases where the extension or maintenance of
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credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of
subparagraph (1) of this subsection.
x x x x x x x x x"
"SEC. 25. Enforcement of margin requirements and restrictions on borrowings. To prevent indirect violations of the
margin requirements under Section 23 hereof, the broker or dealer shall require the customer in nonmargin
transactions to pay the price of the security purchased for his account within such period as the Commission may
prescribe, which shall in no case exceed three trading days; otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten trading days following the last day for the customer to pay such
purchase price, unless such sale cannot be effected within said period for justifiable reasons. The sale shall be
without prejudice to the right of the broker or dealer to recover any deficiency from the customer. x x x."
"RSA RULE 25-1
"Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash account shall be paid in full within three (3) business days after the trade
date.
"(b) If full payment is not received within the required time period, the broker or dealer shall cancel or otherwise
liquidate the transaction, or the unsettled portion thereof, starting on the next business day but not beyond ten (10)
business days following the last day for the customer to pay, unless such sale cannot be effected within said period
for justifiable reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a result of non-payment by the customer, prior to any
subsequent purchase during the next ninety (90) days, the customer shall be required to deposit sufficient funds in
the account to cover each purchase transaction prior to execution.
xxxxxxxxx
"(f) Written application for an extension of the period of time required for payment under paragraph (a) be made by
the broker or dealer to the Philippine Stock Exchange, in the case of a member of the Exchange, or to the
Commission, in the case of a non-member of the Exchange. Applications for the extension must be based upon
exceptional circumstances and must be filed and acted upon before the expiration of the original payment period or
the expiration of any subsequent extension."
Section 23(b) above -- the alleged violation of petitioner which provides the basis for respondents defense -- makes
it unlawful for a broker to extend or maintain credit on any securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission (SEC). Section 25 lays down the rules to prevent
indirect violations of Section 23 by brokers or dealers. RSA Rule 25-1 prescribes in detail the regulations governing
cash accounts.
The United States, from which our countrys security policies are patterned, 17 abound with authorities explaining the
main purpose of the above statute on margin 18 requirements. This purpose is to regulate the volume of credit flow,
by way of speculative transactions, into the securities market and redirect resources into more productive uses.
Specifically, the main objective of the law on margins is explained in this wise:
"The main purpose of these margin provisions xxx is not to increase the safety of security loans for lenders. Banks
and brokers normally require sufficient collateral to make themselves safe without the help of law. Nor is the main
purpose even protection of the small speculator by making it impossible for him to spread himself too thinly
although such a result will be achieved as a byproduct of the main purpose.
xxxxxxxxx
"The main purpose is to give a [g]overnment credit agency an effective method of reducing the aggregate amount of
the nations credit resources which can be directed by speculation into the stock market and out of other more
desirable uses of commerce and industry x x x." 19
A related purpose of the governmental regulation of margins is the stabilization of the economy. 20 Restrictions on
margin percentages are imposed "in order to achieve the objectives of the government with due regard for the
promotion of the economy and prevention of the use of excessive credit." 21
Otherwise stated, the margin requirements set out in the RSA are primarily intended to achieve a macroeconomic
purpose -- the protection of the overall economy from excessive speculation in securities. Their recognized
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secondary purpose is to protect small investors.

The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. 22
Sections 23 and 25 and Rule 25-1, otherwise known as the "mandatory close-out rule," 23 clearly vest upon
petitioner the obligation, not just the right, to cancel or otherwise liquidate a customers order, if payment is not
received within three days from the date of purchase. The word "shall" as opposed to the word "may," is imperative
and operates to impose a duty, which may be legally enforced. For transactions subsequent to an unpaid order, the
broker should require its customer to deposit funds into the account sufficient to cover each purchase transaction
prior to its execution. These duties are imposed upon the broker to ensure faithful compliance with the margin
requirements of the law, which forbids a broker from extending undue credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors to buy more securities than their cash
position would normally allow. 24 Investors pay only a portion of the purchase price of the securities; their broker
advances for them the balance of the purchase price and keeps the securities as collateral for the advance or
loan.25 Brokers take these securities/stocks to their bank and borrow the "balance" on it, since they have to pay in
full for the traded stock. Hence, increasing margins 26 i.e., decreasing the amounts which brokers may lend for the
speculative purchase and carrying of stocks is the most direct and effective method of discouraging an abnormal
attraction of funds into the stock market and achieving a more balanced use of such resources.
"x x x [T]he x x x primary concern is the efficacy of security credit controls in preventing speculative excesses that
produce dangerously large and rapid securities price rises and accelerated declines in the prices of given securities
issues and in the general price level of securities. Losses to a given investor resulting from price declines in thinly
margined securities are not of serious significance from a regulatory point of view. When forced sales occur and put
pressures on securities prices, however, they may cause other forced sales and the resultant snowballing effect may
in turn have a general adverse effect upon the entire market." 27
The nature of the stock brokerage business enables brokers, not the clients, to verify, at any time, the status of the
clients account. 28 Brokers, therefore, are in the superior position to prevent the unlawful extension of credit. 29
Because of this awareness, the law imposes upon them the primary obligation to enforce the margin requirements.
Right is one thing; obligation is quite another. A right may not be exercised; it may even be waived. An obligation,
however, must be performed; those who do not discharge it prudently must necessarily face the consequence of
their dereliction or omission. 30
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these margin requirements are applicable only to transactions entered into by the present parties
subsequent to the initial trades of April 10 and 11, 1997. Thus, we hold that petitioner can still collect from
respondent to the extent of the difference between the latters outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of the shares pursuant to the RSA Rules. Petitioners right to collect is justified
under the general law on obligations and contracts. 31
Article 1236 (second paragraph) of the Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the
debtor." (Emphasis supplied)
Since a brokerage relationship is essentially a contract for the employment of an agent, principles of contract law
also govern the broker-principal relationship. 32
The right to collect cannot be denied to petitioner as the initial transactions were entered pursuant to the instructions
of respondent. The obligation of respondent for stock transactions made and entered into on April 10 and 11, 1997
remains outstanding. These transactions were valid and the obligations incurred by respondent concerning his stock
purchases on these dates subsist. At that time, there was no violation of the RSA yet. Petitioners fault arose only
when it failed to: 1) liquidate the transactions on the fourth day following the stock purchases, or on April 14 and 15,
1997; and 2) complete its liquidation no later than ten days thereafter, applying the proceeds thereof as payment for
respondents outstanding obligation. 33
Elucidating further, since the buyer was not able to pay for the transactions that took place on April 10 and 11, that is
at T+4, the broker was duty-bound to advance the payment to the settlement banks without prejudice to the right of
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the broker to collect later from the client.34

In securities trading, the brokers are essentially the counterparties to the stock transactions at the Exchange. 35
Since the principals of the broker are generally undisclosed, the broker is personally liable for the contracts thus
made.36 Hence, petitioner had to advance the payments for respondents trades. Brokers have a right to be
reimbursed for sums advanced by them with the express or implied authorization of the principal, 37 in this case,
respondent.
It should be clear that Congress imposed the margin requirements to protect the general economy, not to give the
customer a free ride at the expense of the broker. 38 Not to require respondent to pay for his April 10 and 11 trades
would put a premium on his circumvention of the laws and would enable him to enrich himself unjustly at the
expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms and conditions of its Agreement with respondent,
specifically paragraph 8 thereof, purportedly acting on the plea 39 of respondent to give him time to raise funds
therefor. These stipulations, in relation to paragraph 4, 40 constituted faithful compliance with the RSA. By failing to
ensure respondents payment of his first purchase transaction within the period prescribed by law, thereby allowing
him to make subsequent purchases, petitioner effectively converted respondents cash account into a credit
account. However, extension or maintenance of credits on nonmargin transactions, are specifically prohibited under
Section 23(b). Thus, petitioner was remiss in its duty and cannot be said to have come to court with "clean hands"
insofar as it intended to collect on transactions subsequent to the initial trades of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other hand, we find respondent equally guilty in entering into the transactions in violation of the RSA and
RSA Rules. We are not prepared to accept his self-serving assertions of being an "innocent victim" in all the
transactions. Clearly, he is not an unsophisticated, small investor merely prodded by petitioner to speculate on the
market with the possibility of large profits with low -- or no -- capital outlay, as he pictures himself to be. Rather, he is
an experienced and knowledgeable trader who is well versed in the securities market and who made his own
investment decisions. In fact, in the Account Opening Form (AOF), he indicated that he had excellent knowledge of
stock investments; had experience in stocks trading, considering that he had similar accounts with other firms. 41
Obviously, he knowingly speculated on the market, by taking advantage of the "no-cash-out" arrangement extended
to him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his obligations for his stock transactions.
Petitioner acceded to his requests. It is only when sued upon his indebtedness that respondent raised as a defense
the invalidity of the transactions due to alleged violations of the RSA. It was respondents privilege to gamble or
speculate, as he apparently did so by asking for extensions of time and refraining from giving orders to his broker to
sell, in the hope that the prices would rise. Sustaining his argument now would amount to relieving him of the risk
and consequences of his own speculation and saddling them on the petitioner after the result was known to be
unfavorable. 42 Such contention finds no legal or even moral justification and must necessarily be overruled.
Respondents conduct is precisely the behavior of an investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did not come to court with clean hands with regard
to transactions subsequent to the initial trades made on April 10 and 11, 1997. Thus, the peculiar facts of the
present case bar the application of the pari delicto rule -- expressed in the maxims "Ex dolo malo non oritur action"
and "In pari delicto potior est conditio defendentis" -- to all the transactions entered into by the parties. The pari
delecto rule refuses legal remedy to either party to an illegal agreement and leaves them where they were. 43 In this
case, the pari delicto rule applies only to transactions entered into after the initial trades made on April 10 and 11,
1997.
Since the initial trades are valid and subsisting obligations, respondent is liable for them. Justice and good
conscience require all persons to satisfy their debts. Ours are courts of both law and equity; they compel fair
dealing; they do not abet clever attempts to escape just obligations. Ineludibly, this Court would not hesitate to grant
relief in accordance with good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction (sold the stocks) on the fourth day
following the transaction (T+4) and completed its liquidation not later than ten days following the last day for the
customer to pay (effectively T+14). Respondents outstanding obligation is therefore to be determined by using the
closing prices of the stocks purchased at T+14 as basis.
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We consider the foregoing formula to be just and fair under the circumstances. When petitioner tolerated the
subsequent purchases of respondent without performing its obligation to liquidate the first failed transaction, and
without requiring respondent to deposit cash before embarking on trading stocks any further, petitioner, as the
broker, violated the law at its own peril. Hence, it cannot now complain for failing to obtain the full amount of its claim
for these latter transactions.
On the other hand, with respect to respondents counterclaim for damages for having been allegedly induced by
petitioner to generate additional purchases despite his outstanding obligations, we hold that he deserves no legal or
equitable relief consistent with our foregoing finding that he was not an innocent investor as he presented himself to
be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses set up in the answer or in the motion to dismiss
determine which court has jurisdiction over an action. 44 Were we to be governed by the latter rule, the question of
jurisdiction would depend almost entirely upon the defendant. 45
The instant controversy is an ordinary civil case seeking to enforce rights arising from the Agreement (AOF)
between petitioner and respondent. It relates to acts committed by the parties in the course of their business
relationship. The purpose of the suit is to collect respondents alleged outstanding debt to petitioner for stock
purchases.
To be sure, the RSA and its Rules are to be read into the Agreement entered into between petitioner and
respondent. Compliance with the terms of the AOF necessarily means compliance with the laws. Thus, to determine
whether the parties fulfilled their obligations in the AOF, this Court had to pass upon their compliance with the RSA
and its Rules. This, in no way, deprived the Securities and Exchange Commission (SEC) of its authority to
determine willful violations of the RSA and impose appropriate sanctions therefor, as provided under Sections 45
and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.
"Indeed, after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for
petitioner to question the jurisdictional power of the court. It is not right for a party who has affirmed and invoked the
jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwards deny that same jurisdiction to
escape a penalty." 46
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby MODIFIED. Respondent is
ordered to pay petitioner the difference between the formers outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with interest thereon at the legal rate
until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of respondents outstanding obligation
using the closing prices of the stocks at T+14 as basis -- counted from April 11, 1997 and to issue the proper order
for payment if warranted. It may hold trial and hear the parties to be able to make this determination.
No finding as to costs in this instance.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Chief Justice
Chairman, First Division
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
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MA. ALICIA AUSTRIA-MARTINEZ

Asscociate Justice
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ROMEO J. CALLEJO, SR.

Associate Justice
MINITA V. CHICO-NAZARIO
Asscociate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1 Rollo, pp. 10-40.
2 Annex "A" of Petition; id., pp. 42-50. Fifth Division. Penned by Justice Renato C. Dacudao, and concurred in
by Justices Eugenio S. Labitoria (Division chairperson) and Danilo B. Pine (member).

3 Annex "B" of Petition; id., p. 52.
4 CA Decision, p. 8; id., p. 49.
5 Id., pp. 1-3; rollo, pp. 42-44.
6 Annex "I" of Petition, pp. 1-7; rollo, pp. 106-112; penned by Judge Reinato G. Quilala.
7 CA Decision, p. 7; rollo, p. 48.
8 On October 19, 2004, this Court received petitioners Memorandum, signed by Attys. Donn P.T. Lee and Ma.
Cherrie R. Cruz. Respondents Memorandum, signed by Atty. Ramon U. Ampil was received by the Court on
September 17, 2004. Thereafter, however, the Court issued a Resolution, dated June 20, 2005, requiring the
Securities and Exchange Commission and the Philippine Stock Exchange to comment on the Petition,
because the disposition of the issues "could have a cascading effect on the securities market and possibly on
the economy." The Comment of the Philippine Stock Exchange, signed by Attys. Grace S. Ayson and Franklin
Noel P. Trazo, was received on August 9, 2005 while that of the Securities and Exchange Commission,
signed by Solicitor General Alfredo L. Benipayo, Assistant Solicitor General Amparo M. Cabotaje-Tang and
Solicitor Blaise Marie E. Alaras, on September 27, 2005 -- on which date the case was deemed submitted for
decision.
9 Petition, p. 7; rollo, p. 16.
10 See Account Application Form; id., p. 91.
11 See Statement of Account, April 30, 1997, id., p. 89.
12 Respondent purchased as well as sold shares on the same day.
13 Statement of Account, April 30, 1997, supra.
14 Ibid.
15 See Statement of Account, May 31, 1997, id., p. 90.
16 The law in force at the time the Complaint was instituted. It has since been superseded by Republic Act
No. 8799 (Securities Regulation Code), which was approved on July 19, 2000. 23 & 25 of the RSA were
essentially reproduced in 48 & 50, respectively of RA 8799.
17 Act No. 2581, otherwise known as the Blue Sky Law and passed in 1916, was the first securities legislation
in the country. Later in 1936, Congress of the Philippines, finding it inadequate to protect the investing public
from scheming issuers, repealed Act No. 2581 and passed Commonwealth Act No. 83, the original Securities
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Act in the country. As the Philippines was then a colony of the United States, one would not be surprised to
know that Commonwealth Act No. 83 was substantially a composite of two federal legislations in the United
States (namely, the Securities Act of 1933 and the Securities Exchange Act of 1934), as well as the Uniform
Sale of Securities Act. The basic regulatory structure of those two U.S. federal laws was imprinted on the
original Act. Additionally, the provisions of Commonwealth Act No. 83 relating to the registration of brokers,
dealers and salesmen were substantially taken from the Uniform Sale of Securities Act. It was not until 1982
that Commonwealth Act No. 83 was repealed by Batas Pambansa Blg. 178, also known as the Revised
Securities Act (RSA). The salient features of Commonwealth Act No. 83 were substantially adopted by the
RSA. Rafael A. Morales, The Philippine Securities Regulation Code (Annotated), 2005, pp. 2-6. See also
Philippine Stock Exchange, Inc. v. Court of Appeals, et al., 346 Phil. 218, October 27, 1997.
18 "In a margin account, the securities company extends credit. A margin account is covered by a margin
agreement which stipulates the terms and conditions for maintaining such an account. Under the present law,
the amount of credit that may be initially extended is limited to 50 percent of the current market price of the
security." (Comment of the Philippine Stock Exchange, Inc. (PSE) dated August 9, 2005, p. 2; rollo. p. 382);
"A margin account x x x is an account in which the broker lends the customer cash with which to
purchase securities. Unlike a cash account, a margin account allows an investor to buy securities with
money that he does not have, by borrowing the money from the broker. The RSA limits margin
borrowing to a maximum of 50% of the amount invested." (Comment of the Securities and Exchange
Commission (SEC) dated September 27, 2005, p. 17; rollo, p. 423).
19 Stonehill v. Security National Bank, 68 F.R.D. 24, 31, June 30, 1975.
20 Mary Ann L. Ojeda, Securities Regulation Code with Annotations, 2002, p. 92.
21 Morales, supra at note 17, p. 304.
22 Stern v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 603 F2d 1073, July 16, 1979.
23 See SECs Comment, p. 33; rollo, p. 439.
24 Morales, supra at note 17, p. 302.
25 Ibid.
26 Margin refers to the percentage of the value which must be paid in cash by the purchaser. (Ojeda, supra at
note 20).
27 Stonehill v. Security National Bank, supra at note 19.
28 Carolina Industries, Inc. v. CMS Stock Brokerage, Inc., 97 SCRA 734, May 17, 1980.
29 Ibid.
30 Lopez, Locsin, Ledesma & Co., Inc. v. Court of Appeals, 168 SCRA 276, December 8, 1988.
31 See Dominion Insurance Corp. v. CA, 376 SCRA 239, February 6, 2002, where the Court held that while
the law on agency prohibits respondent therein from obtaining reimbursement, having deviated from the
instructions of the principal in the settlement of the claims of the insured, his right to recover nonetheless was
held justified under Article 1236, second paragraph, Civil Code.
32 42 12 Am Jur 2d.
33 RSA Rule 25-1.
34 Comment of the SEC dated September 27, 2005, p. 21; rollo, p. 427.
35 Ibid.
36 21 73 Am Jur 2d.
37 294 12 Am Jur 2d.
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38 See Utah State University v. Bear, Stearns & Co. (10th Circular 1977) 549 F2d 164, January 24, 1977.
39 "In the event that my cash account is not liquidated within three (3) days from the date of purchase, or
whenever in its sole discretion ASC considers it necessary for its own protection I hereby specifically
authorize and empower ASC, without need of prior notice and demand, to sell so much of the securities in my
account(s) (whether herein carried individually of jointly with others) and herein delivered as collateral
necessary for the payment of any of my obligations to ASC. I hereby guarantee that such securities are free
from all liens and encumbrances, it being expressly understood that in the event that any such liens are later
discovered which prevent subsequent negotiation of said securities, ASC may, at its sole discretion, buy back
the sold securities and collect from me whatever amount ASC may incur by reason of such buy back,
including damages which it may suffer or may be required to pay. I further authorize ASC to buy, lend, borrow
or arrange for the lending or borrowing of any and all securities to cover for any short-selling in such
account(s), to transfer moneys or securities from any one of my account(s) to another, and to settle all
outstanding obligations. It is hereby agreed and understood that I shall at all times be liable for payment of
any unpaid balance owing, if any, on my account(s) together with interest, provided that I shall remain liable
for any deficiency remaining in any such account(s) in the event of liquidation." (Exh. "A-1"; rollo, p. 93)
40 "When required by ASC, I agree to make a deposit on all my purchases equivalent to the amount
stipulated herein. Securities purchased on my behalf shall be registered in the name of ASC until full payment
of the purchase price, which payment shall in no case be made later than as specifically required by ASC or
three (3) days after the date of said purchase, whichever is earlier, without need of any notice or demand.
Subject to paragraph 16 hereof, ASC may, at its sole discretion, cancel in writing any waiver of deposit
requirements at [any time]." (Ibid.)
41 Rollo, p. 91.
42 Insular Financing & Business Corp. v. Imperial, 74 Phil. 331, August 31, 1943.
43 De Leon v. Court of Appeals, 186 SCRA 345, June 6, 1990.
44 Ten Forty Realty and Development Corp. v. Cruz, 410 SCRA 484, September 10, 2003; Pilipinas Loan
Company, Inc. v. Securities and Exchange Commission, 356 SCRA 193, April 4, 2001.
45 Speed Distributing Corp. v. CA, 425 SCRA 691, March 17, 2004; Serrano v. Muoz (Hi) Motors, Inc., 21
SCRA 1085, November 27, 1967.

46 Comment of the SEC, supra at note 34, p. 37; rollo, p. 443.
The Lawphil Project - Arellano Law Foundation
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PHILIPPINE JURISPRUDENCE FULL TEXT

G.R. No. xgrno
September xdate, 2008
xcite

SUPREME COURT
Manila
SECOND DIVISION
BETTY GABIONZA and G.R. No. 161057
ISABELITA 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
DECISION
Tinga, J.:
On 21 August 2000, petitioners Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed
their respective Complaints-affidavit1 charging private respondents Luke Roxas (Roxas) and
Evelyn Nolasco (Nolasco) with several criminal acts. Roxas was the president of ASB
Holdings, Inc. (ASBHI) while Nolasco was the senior vice president and treasurer of the same
corporation.
According to petitioners, ASBHI was incorporated in 1996 with its declared primary purpose to
invest in any and all real and personal properties of every kind or otherwise acquire the
stocks, bonds, and other securities or evidence of indebtedness of any other corporation, and
to hold or own, use, sell, deal in, dispose of, and turn to account any such stocks.2 ASBHI was
organized with an authorized capital stock of P500,000.00, a fact reflected in the corporations
articles of incorporation, copies of which were appended as annexes to the complaint.3
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Both petitioners had previously placed monetary investment with the Bank of Southeast Asia
(BSA). They alleged that between 1996 and 1997, they were convinced by the officers of
ASBHI to lend or deposit money with the corporation. They and other investors were urged to
lend, invest or deposit money with ASBHI, and in return they would receive checks from
ASBHI for the amount so lent, invested or deposited. At first, they were issued receipts
reflecting the name "ASB Realty Development" which they were told was the same entity as
BSA or was connected therewith, but beginning in March 1998, the receipts were issued in the
name of ASBHI. They claimed that they were told that ASBHI was exactly the same institution
that they had previously dealt with.4
ASBHI would issue two (2) postdated checks to its lenders, one representing the principal
amount and the other covering the interest thereon. The checks were drawn against DBS
Bank and would mature in 30 to 45 days. On the maturity of the checks, the individual lenders
would renew the loans, either collecting only the interest earnings or rolling over the same with
the principal amounts.5
In the first quarter of 2000, DBS Bank started to refuse to pay for the checks purportedly by
virtue of "stop payment" orders from ASBHI. In May of 2000, ASBHI filed a petition for
rehabilitation and receivership with the Securities and Exchange Commission (SEC), and it
was able to obtain an order enjoining it from paying its outstanding liabilities.6 This series of
events led to the filing of the complaints by petitioners, together with Christine Chua, Elizabeth
Chan, Ando Sy and Antonio Villareal, against ASBHI.7 The complaints were for estafa under
Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa under Presidential Decree No.
1689, violation of the Revised Securities Act and violation of the General Banking Act.
A special task force, the Task Force on Financial Fraud (Task Force), was created by the
Department of Justice (DOJ) to investigate the several complaints that were lodged in relation
to ASBHI.8 The Task Force, dismissed the complaint on 19 October 2000, and the dismissal
was concurred in by the assistant chief state prosecutor and approved by the chief state
prosecutor.9 Petitioners filed a motion for reconsideration but this was denied in February
2001.10 With respect to the charges of estafa under Article 315(2) of the Revised Penal Code
and of violation of the Revised Securities Act (which form the crux of the issues before this
Court), the Task Force concluded that the subject transactions were loans which gave rise
only to civil liability; that petitioners were satisfied with the arrangement from 1996 to 2000;
that petitioners never directly dealt with Nolasco and Roxas; and that a check was not a
security as contemplated by the Revised Securities Act.
Petitioners then filed a joint petition for review with the Secretary of Justice. On 15 October
2001, then Secretary Hernando Perez issued a resolution which partially reversed the Task
Force and instead directed the filing of five (5) Informations for estafa under Article 315(2)(a)
of the Revised Penal Code on the complaints of Chan and petitioners Gabionza and Tan, and
an Information for violation of Section 4 in relation to Section 56 of the Revised Securities
Act.11 Motions for reconsideration to this Resolution were denied by the Department of Justice
in a Resolution dated 3 July 2002.12
Even as the Informations were filed before the Regional Trial Court of Makati City, private
respondents assailed the DOJ Resolution by way of a certiorari petition with the Court of
Appeals. In its assailed Decision13 dated 18 July 2003, the Court of Appeals reversed the
DOJ and ordered the dismissal of the criminal cases. The dismissal was sustained by the
appellate court when it denied petitioners motion for reconsideration in a Resolution dated 28
November 2003.14 Hence this petition filed by Gabionza and Tan.
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The Court of Appeals deviated from the general rule that accords respect to the discretion of
the DOJ in the determination of probable cause. This Court consistently adheres to its policy
of non-interference in the conduct of preliminary investigations, and to leave to the
investigating prosecutor sufficient latitude of discretion in the determination of what constitutes
sufficient evidence to establish probable cause for the filing of an information against a
supposed offender.15
At the outset, it is critical to set forth the key factual findings of the DOJ which led to the
conclusion that probable cause existed against the respondents. The DOJ Resolution states,
to wit:
The transactions in question appear to be mere renewals of the loans the complainantpetitioners 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 complainantpetitioners 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 fraudinduced loans. This makes them liable for estafa under Article 315 (paragraph 2 [a]) of the
Revised Penal Code. They cannot escape criminal liability on the ground that they did not
personally deal with the complainant-petitioners in regard to the transactions in question.
Suffice it to state that to commit a crime, inducement is as sufficient and effective as direct
participation.16
Notably, neither the Court of Appeals decision nor the dissent raises any serious disputation
as to the occurrence of the facts as narrated in the above passage. They take issue instead
with the proposition that such facts should result in a prima facie case against either Roxas or
Nolasco, especially given that neither of them engaged in any face-to-face dealings with
petitioners. Leaving aside for the moment whether this assumed remoteness of private
respondents sufficiently insulates them from criminal liability, let us first discern whether the
above-stated findings do establish a prima facie case that petitioners were indeed the victims
of the crimes of estafa under Article 315(2)(a) of the Revised Penal Code and of violation of
the Revised Securities Act.
Article 315(2)(a) of the Revised Penal Code states:
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ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned herein below shall be punished by:
xxx xxx xxx
(2) By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneous with the commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications,
property, credit, agency, business or imaginary transactions, or by means of other similar
deceits;
xxx xxx xxx
The elements of estafa by means of deceit as defined under Article 315(2)(a) of the Revised
Penal Code are as follows: (1) that there must be a false pretense, fraudulent act or fraudulent
means; (2) that such false pretense, fraudulent act or fraudulent means must be made or
executed prior to or simultaneously with the commission of the fraud; (3) that the offended
party must have relied on the false pretense, fraudulent act or fraudulent means, that is, he
was induced to part with his money or property because of the false pretense, fraudulent act
or fraudulent means; and (4) that as a result thereof, the offended party suffered damage.17
Do the findings embodied in the DOJ Resolution align with the foregoing elements of estafa by
means of deceit?
First. The DOJ Resolution explicitly identified the false pretense, fraudulent act or fraudulent
means perpetrated upon the petitioners. It narrated that petitioners were made to believe that
ASBHI had the financial capacity to repay the loans it enticed petitioners to extend, despite the
fact that "it had an authorized capital stock of only P500,000.00 and paid up capital of only
P125,000.00."18 The deficient capitalization of ASBHI is evinced by its articles of
incorporation, the treasurers affidavit executed by Nolasco, the audited financial statements of
the corporation for 1998 and the general information sheets for 1998 and 1999, all of which
petitioners attached to their respective affidavits.19
The Court of Appeals conceded the fact of insufficient capitalization, yet discounted its impact
by noting that ASBHI was able to make good its loans or borrowings from 1998 until the first
quarter of 2000.20 The short-lived ability of ASBHI, to repay its loans does not negate the
fraudulent misrepresentation or inducement it has undertaken to obtain the loans in the first
place. The material question is not whether ASBHI inspired exculpatory confidence in its
investors by making good on its loans for a while, but whether such investors would have
extended the loans in the first place had they known its true financial setup. The DOJ
reasonably noted that "no person in his proper frame of mind would venture to lend millions of
pesos to a business entity having such a meager capitalization." In estafa under Article
315(2)(a), it is essential that such false statement or false representation constitute the very
cause or the only motive which induces the complainant to part with the thing.21
Private respondents argue before this Court that the true capitalization of ASBHI has always
been a matter of public record, reflected as it is in several documents which could be obtained
by the petitioners from the SEC.22 We are not convinced. The material misrepresentations
have been made by the agents or employees of ASBHI to petitioners, to the effect that the
corporation was structurally sound and financially able to undertake the series of loan
transactions that it induced petitioners to enter into. Even if ASBHIs lack of financial and
structural integrity is verifiable from the articles of incorporation or other publicly available SEC
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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
Fourth. The DOJ Resolution established that petitioners sustained damage as a result of the
acts perpetrated against them. The damage is considerable as to petitioners. Gabionza lost
P12,160,583.32 whereas Tan lost 16,411,238.57.24 In addition, the DOJ Resolution noted that
neither Roxas nor Nolasco disputed that ASBHI had borrowed funds from about 700 individual
investors amounting to close to P4B.25
To the benefit of private respondents, the Court of Appeals ruled, citing Sesbreno v. Court of
Appeals,26 that the subject transactions "are akin to money market placements which partake
the nature of a loan, the non-payment of which does not give rise to criminal liability for
estafa." The citation is woefully misplaced. Sesbreno affirmed that "a money market
transaction partakes the nature of a loan and therefore nonpayment thereof would not give
rise to criminal liability for estafa through misappropriation or conversion."27 Estafa through
misappropriation or conversion is punishable under Article 315(1)(b), while the case at bar
involves Article 315 (2)(a), a mode of estafa by means of deceit. Indeed, Sesbreno explains:
"In money market placement, the investor is a lender who loans his money to a borrower
through a middleman or dealer. Petitioner here loaned his money to a borrower through
Philfinance. When the latter failed to deliver back petitioner's placement with the
corresponding interest earned at the maturity date, the liability incurred by Philfinance was a
civil one."28 That rationale is wholly irrelevant to the complaint at bar, which centers not on the
inability of ASBHI to repay petitioners but on the fraud and misrepresentation committed by
ASBHI to induce petitioners to part with their money.
To be clear, it is possible to hold the borrower in a money market placement liable for estafa if
the creditor was induced to extend a loan upon the false or fraudulent misrepresentations of
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the borrower. Such estafa is one by means of deceit. The borrower would not be generally
liable for estafa through misappropriation if he or she fails to repay the loan, since the liability
in such instance is ordinarily civil in nature.
We can thus conclude that the DOJ Resolution clearly supports a prima facie finding that the
crime of estafa under Article 315 (2)(a) has been committed against petitioners. Does it also
establish a prima facie finding that there has been a violation of the then-Revised Securities
Act, specifically Section 4 in relation to Section 56 thereof?
Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act, generally requires the
registration of securities and prohibits the sale or distribution of unregistered securities.29 The
DOJ extensively concluded that private respondents are liable for violating such prohibition
against the sale of unregistered securities:
Respondents Roxas and Nolasco do not dispute that in 1998, ASB borrowed funds about 700
individual investors amounting to close to P4 billion, on recurring, short-term basis, usually 30
or 45 days, promising high interest yields, issuing therefore mere postdate checks. Under the
circumstances, the checks assumed the character of "evidences of indebtedness," which are
among the "securities" mentioned under the Revised Securities Act. The term "securities"
embodies a flexible rather than static principle, one that is capable of adaptation to meet the
countless and variable schemes devised by those who seek to use the money of others on the
promise of profits (69 Am Jur 2d, p. 604). Thus, it has been held that checks of a debtor
received and held by the lender also are evidences of indebtedness and therefore "securities"
under the Act, where the debtor agreed to pay interest on a monthly basis so long as the
principal checks remained uncashed, it being said that such principal extent as would have
promissory notes payable on demand (Id., p. 606, citing Untied States v. Attaway (DC La) 211
F Supp 682). In the instant case, the checks were issued by ASB in lieu of the securities
enumerated under the Revised Securities Act in a clever attempt, or so they thought, to take
the case out of the purview of the law, which requires prior license to sell or deal in securities
and registration thereof. The scheme was to designed to circumvent the law. Checks
constitute mere substitutes for cash if so issued in payment of obligations in the ordinary
course of business transactions. But when they are issued in exchange for a big number of
individual non-personalized loans solicited from the public, numbering about 700 in this case,
the checks cease to be such. In such a circumstance, the checks assume the character of
evidences of indebtedness. This is especially so where the individual loans were not
evidenced by appropriate debt instruments, such as promissory notes, loan agreements, etc.,
as in this case. Purportedly, the postdated checks themselves serve as the evidences of the
indebtedness. A different rule would open the floodgates for a similar scheme, whereby
companies without prior license or authority from the SEC. This cannot be countenanced. The
subsequent repeal of the Revised Securities Act does not spare respondents Roxas and
Nolasco from prosecution thereunder, since the repealing law, Republic Act No. 8799 known
as the "Securities Regulation Code," continues to punish the same offense (see Section 8 in
relation to Section 73, R.A. No. 8799).30
The Court of Appeals however ruled that the postdated checks issued by ASBHI did not
constitute a security under the Revised Securities Act. To support this conclusion, it cited the
general definition of a check as "a bill of exchange drawn on a bank and payable on demand,"
and took cognizance of the fact that "the issuance of checks for the purpose of securing a loan
to finance the activities of the corporation is well within the ambit of a valid corporate act" to
note that a corporation does not need prior registration with the SEC in order to be able to
issue a check, which is a corporate prerogative.
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This analysis is highly myopic and ignorant of the bigger picture. It is one thing for a
corporation to issue checks to satisfy isolated individual obligations, and another for a
corporation to execute an elaborate scheme where it would comport itself to the public as a
pseudo-investment house and issue postdated checks instead of stocks or traditional
securities to evidence the investments of its patrons. The Revised Securities Act was geared
towards maintaining the stability of the national investment market against activities such as
those apparently engaged in by ASBHI. As the DOJ Resolution noted, ASBHI adopted this
scheme in an attempt to circumvent the Revised Securities Act, which requires a prior license
to sell or deal in securities. After all, if ASBHIs activities were actually regulated by the SEC, it
is hardly likely that the design it chose to employ would have been permitted at all.
But was ASBHI able to successfully evade the requirements under the Revised Securities
Act? As found by the DOJ, there is ultimately a prima facie case that can at the very least
sustain prosecution of private respondents under that law. The DOJ Resolution is persuasive
in citing American authorities which countenance a flexible definition of securities. Moreover, it
bears pointing out that the definition of "securities" set forth in Section 2 of the Revised
Securities Act includes "commercial papers evidencing indebtedness of any person, financial
or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any
manner conveyed to another."31 A check is a commercial paper evidencing indebtedness of
any person, financial or non-financial entity. Since the checks in this case were generally
rolled over to augment the creditors existing investment with ASBHI, they most definitely take
on the attributes of traditional stocks.
We should be clear that the question of whether the subject checks fall within the classification
of securities under the Revised Securities Act may still be the subject of debate, but at the
very least, the DOJ Resolution has established a prima facie case for prosecuting private
respondents for such offense. The thorough determination of such issue is best left to a
full-blown trial of the merits, where private respondents are free to dispute the theories set
forth in the DOJ Resolution. It is clear error on the part of the Court of Appeals to dismiss such
finding so perfunctorily and on such flimsy grounds that do not consider the grave
consequences. After all, as the DOJ Resolution correctly pointed out: "[T]he postdated checks
themselves serve as the evidences of the indebtedness. A different rule would open the
floodgates for a similar scheme, whereby companies without prior license or authority from the
SEC. This cannot be countenanced."32
This conclusion quells the stance of the Court of Appeals that the unfortunate events befalling
petitioners were ultimately benign, not malevolent, a consequence of the economic crisis that
beset the Philippines during that era.33 That conclusion would be agreeable only if it were
undisputed that the activities of ASBHI are legal in the first place, but the DOJ puts forth a
legitimate theory that the entire modus operandi of ASBHI is illegal under the Revised
Securities Act and if that were so, the impact of the Asian economic crisis would not obviate
the criminal liability of private respondents.
Private respondents cannot make capital of the fact that when the DOJ Resolution was
issued, the Revised Securities Act had already been repealed by the Securities Regulation
Code of 2000.34 As noted by the DOJ, the new Code does punish the same offense alleged of
petitioners, particularly Section 8 in relation to Section 73 thereof. The complained acts
occurred during the effectivity of the Revised Securities Act. Certainly, the enactment of the
new Code in lieu of the Revised Securities Act could not have extinguished all criminal acts
committed under the old law.
In 1909-1910, the Philippine and United States Supreme Courts affirmed the principle that
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when the repealing act reenacts substantially the former law, and does not increase the
punishment of the accused, "the right still exists to punish the accused for an offense of which
they were
convicted and sentenced before the passage of the later act."35 This doctrine was reaffirmed
as recently as 2001, where the Court, through Justice Quisumbing, held in Benedicto v. Court
of Appeals36 that an exception to the rule that the absolute repeal of a penal law deprives the
court of authority to punish a person charged with violating the old law prior to its repeal is
"where the repealing act reenacts the former statute and punishes the act previously
penalized under the old law."37 It is worth noting that both the Revised Securities Act and the
Securities Regulation Code of 2000 provide for exactly the same penalty: "a fine of not less
than five thousand (P5,000.00) pesos nor more than five hundred thousand (P500,000.00)
pesos or imprisonment of not less than seven (7) years nor more than twenty one (21) years,
or both, in the discretion of the court."38
It is ineluctable that the DOJ Resolution established a prima facie case for violation of Article
315 (2)(a) of the Revised Penal Code and Sections 4 in relation to 56 of the Revised
Securities Act. We now turn to the critical question of whether the same charges can be
pinned against Roxas and Nolasco likewise.
The DOJ Resolution did not consider it exculpatory that Roxas and Nolasco had not
themselves dealt directly with petitioners, observing that "to commit a crime, inducement is as
sufficient and effective as direct participation."39 This conclusion finds textual support in Article
1740 of the Revised Penal Code. The Court of Appeals was unable to point to any definitive
evidence that Roxas or Nolasco did not instruct or induce the agents of ASBHI to make the
false or misleading representations to the investors, including petitioners. Instead, it sought to
acquit Roxas and Nolasco of any liability on the ground that the traders or employees of
ASBHI who directly made the dubious representations to petitioners were never identified or
impleaded as respondents.
It appears that the Court of Appeals was, without saying so, applying the rule in civil cases
that all indispensable parties must be impleaded in a civil action.41 There is no equivalent rule
in criminal procedure, and certainly the Court of Appeals decision failed to cite any statute,
procedural rule or jurisprudence to support its position that the failure to implead the traders
who directly dealt with petitioners is indeed fatal to the complaint.42
Assuming that the traders could be tagged as principals by direct participation in tandem with
Roxas and Nolasco the principals by inducement does it make sense to compel that they
be jointly charged in the same complaint to the extent that the exclusion of one leads to the
dismissal of the complaint? It does not. Unlike in civil cases, where indispensable parties are
required to be impleaded in order to allow for complete relief once the case is adjudicated, the
determination of criminal liability is individual to each of the defendants. Even if the criminal
court fails to acquire jurisdiction over one or some participants to a crime, it still is able to try
those accused over whom it acquired jurisdiction. The criminal court will still be able to
ascertain the individual liability of those accused whom it could try, and hand down penalties
based on the degree of their participation in the crime. The absence of one or some of the
accused may bear impact on the available evidence for the prosecution or defense, but it does
not deprive the trial court to accordingly try the case based on the evidence that is actually
available.
At bar, if it is established after trial that Roxas and Nolasco instructed all the employees,
agents and traders of ASBHI to represent the corporation as financially able to engage in the
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challenged transactions and repay its investors, despite their knowledge that ASBHI was not
established to be in a position to do so, and that representatives of ASBHI accordingly made
such representations to petitioners, then private respondents could be held liable for estafa.
The failure to implead or try the employees, agents or traders will not negate such potential
criminal liability of Roxas and Nolasco. It is possible that the non-participation of such traders
or agents in the trial will affect the ability of both petitioners and private respondents to adduce
evidence during the trial, but it cannot quell the existence of the crime even before trial is had.
At the very least, the non-identification or non-impleading of such traders or agents cannot
negatively impact the finding of probable cause.
The assailed ruling unfortunately creates a wide loophole, especially in this age of call centers,
that would create a nearly fool-proof scheme whereby well-organized criminally-minded
enterprises can evade prosecution for criminal fraud. Behind the veil of the anonymous call
center agent, such enterprises could induce the investing public to invest in fictional or
incapacitated corporations with fraudulent impossible promises of definite returns on
investment. The rule, as set forth by the Court of Appeals ruling, will allow the masterminds
and profiteers from the scheme to take the money and run without fear of the law simply
because the defrauded investor would be hard-pressed to identify the anonymous call center
agents who, reading aloud the script prepared for them in mellifluous tones, directly enticed
the investor to part with his or her money.
Is there sufficient basis then to establish probable cause against Roxas and Nolasco? Taking
into account the relative remoteness of private respondents to petitioners, the DOJ still
concluded that there was. To repeat:
The false representations made by the ASB agents who dealt with the complainant-petitioners
and who inveigled them into investing their funds in ASB are properly imputable to
respondents Roxas and Nolasco, because they, as ASBs president and senior vice
president/treasurer, respectively, respectively, in charge of its operations, directed its agents to
make the false representations to the public, including the complainant-petitioners, in order to
convince them to invest their moneys in ASB. It is difficult to make a different conclusion,
judging from the fact that respondents Roxas and Nolasco authorized and accepted for ASB
the fraud-induced loans.43
Indeed, the facts as thus established cannot lead to a definite, exculpatory conclusion that
Roxas and Nolasco did not instruct, much less forbid, their agents from making the
misrepresentations to petitioners. They could of course pose that defense, but such claim can
only be established following a trial on the merits considering that nothing in the record proves
without doubt such law-abiding prudence on their part. There is also the fact that ABSHI, their
corporation, actually received the alleged amounts of money from petitioners. It is especially
curious that according to the ASBHI balance sheets dated 31 December 1999, which
petitioners attached to their affidavit-complaints,44 over five billion pesos were booked as
"advances to stockholder" when, according to the general information sheet for 1999, Roxas
owned 124,996 of the 125,000 subscribed shares of ASBHI.45 Considering that ASBHI had an
authorized capital stock of only P500,000 and a subscribed capital of P125,000, it can be
reasonably deduced that such large amounts booked as "advances to stockholder" could have
only come from the loans extended by over 700 investors to ASBHI.
It is true that there are exceptions that may warrant departure from the general rule of
non-interference with the determination of probable cause by the DOJ, yet such exceptions do
not lie in this case, and the justifications actually cited in the Court of Appeals decision are
exceptionally weak and ultimately erroneous. Worse, it too hastily condoned the apparent
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evasion of liability by persons who seemingly profited at the expense of investors who lost
millions of pesos. The Courts conclusion is that the DOJS decision to prosecute private
respondents is founded on sufficient probable cause, and the ultimate determination of guilt or
acquittal is best made through a full trial on the merits. Indeed, many of the points raised by
private respondents before this Court, related as they are to the factual context surrounding
the subject transactions, deserve the full assessment and verification only a trial on the merits
can accord.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court
of Appeals dated 18 July 2003 and 28 November 2003 are REVERSED and SET ASIDE. The
Resolutions of the Department of Justice in I.S. Nos. 2000-1418 to 1422 dated 15 October
2001 and 3 July 2002 are REINSTATED. Costs against private respondents.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the Courts
Division.
REYNATO S. PUNO
Chief Justice
_ftnref1
[1]See rollo, pp. 466-558.
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_ftnref2
[2]Id. at 466, 515.
_ftnref3
[3]Id.
_ftnref4
[4]Id. at 467-468, 516-517.
_ftnref5
[5]Id. at 83.
_ftnref6
[6]Id. See also MBTC v. ASB Holdings, Inc., et.al, G.R. No. 166197, 27 Feburary 2007.
_ftnref7
[7]Id.
_ftnref8
[8]Id. at 22.
_ftnref9
[9]Through a Joint-Resolution dated 19 October 2000. See rollo, pp. 96-106.
_ftnref10
[10]Rollo, pp. 108-110.
_ftnref11
[11]Id. at 81-88.
_ftnref12
[12]Id. at 89-92. In said Resolution, the DOJ also directed that two additional informations for
estafa under Article 315(2)(a) be filed corresponding to the complaints filed by Ando Sy and
Antonio Villareal, whose names "were inadvertently omitted in the dispositive portion of [the
DOJ] resolution of October 15, 2001". Id., at 91.
_ftnref13
[13]Id. at 52-62. Penned by Associate Justice R. De Guia-Salvador, concurred in by Associate
Justice Marina L. Buzon and Jose C. Mendoza of the Court of Appeals Special Fifteenth
Division.
_ftnref14
[14]Id. at 76-77.
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_ftnref15
[15]Andres v. Cuevas, G.R. No. 150869, 9 June 2005, 460 SCRA 38, 52.
_ftnref16
[16]Rollo, pp. 85-86.
_ftnref17
[17]Aricheta v. People, G.R. No. 172500, 21 September 2007; citing Cosme Jr. v. People,
G.R. No. 149753, 27 November 2006, 508 SCRA 190, 203-204.
_ftnref18
[18]Rollo, p. 85.
_ftnref19
[19]See e.g., id. at 480-501.
20 Id. at 60-61.
_ftnref21
[21]L. Reyes, II The Revised Criminal Code (2001 ed.) at 767; citing People v. Gines, et al.
C.A., 61 O.G. 1365.
_ftnref22
[22]Rollo, pp. 332-333.
_ftnref23
[23]See id. at 467, 516.
_ftnref24
[24]Id. at 84.
_ftnref25
[25]Id. at 86.
_ftnref26
[26]310 Phil. 671 (1995).
_ftnref27
[27]Id. at 681.
_ftnref28
[28]Id. at 682.
_ftnref29
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[29]The provision reads in full:

SECTION 4. Requirement of registration of securities. (a) No securities, except of a class
exempt under any of the provisions of Section five hereof or unless sold in any transaction
exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or
distribution to the public within the Philippine unless such securities shall have been registered
and permitted to be sold as hereinafter provided.
(b) Notwithstanding the provisions of paragraph (a) of this Section and the succeeding
Sections regarding exemptions, no commercial paper as defined in Section two hereof shall
be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless
registered in accordance with the rules and regulations that shall be promulgated in the public
interest and for the protection of investors by the Commission. The Commission, however,
with due regard to the public interest and the protection of investors, may, by rules and
regulations, exempt from registration any commercial paper that may otherwise be covered by
this paragraph. In either case, the rules and regulations promulgated by the Commission shall
be subject to the approval of the Monetary Board of the Central Bank of the Philippines. The
Monetary Board shall, however, have the power to promulgate its own rules on the monetary
and credit aspects of commercial paper issues, which may include the imposition of ceilings
on issues by any single borrower, and the authority to supervise the enforcement of such rules
and to require issues of commercial papers to submit their financial statements and such
periodic reports as may be necessary for such enforcement. As far as practicable, such
financial statements and periodic reports, when required by both the Commission and the
Monetary Board, shall be uniform.
(c) A record of the registration of securities shall be kept in a Register of Securities in which
shall be recorded orders entered by the Commission with respect to such securities. Such
register and all documents or information with respect to the securities registered therein shall
be open to the public inspection at reasonable hours on business days.
_ftnref30
[30]Rollo, pp. 86-87.
_ftnref31
[31]See Section 2, Revised Securities Act.
_ftnref32
[32]Rollo, p. 87.
_ftnref33
[33]Id. at 61.
34 Dissenting Opinion, infra.
_ftnref35
[35]Ong Chang Wing v. U.S., 40 Phil. 1046, 1050 (1910).
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_ftnref36
[36]416 Phil. 722 (2001).
_ftnref37
[37]Id. at 744.
_ftnref38
[38]See Section 56, Revised Securities Act and Section 73, Securities Regulation Code.
_ftnref39
[39]Rollo, p. 86.
_ftnref40
[40]Principals. The following are considered principals:
1. those who take a direct part in the execution of the act;
2. Those who directly force or induce others to commit it;
3. Those who cooperate in the commission of the offense by another act without which it
would not have been accomplished.
_ftnref41
[41]See 1997 Rules of Civil Procedure, Rule 3, Sec. 7.
_ftnref42
[42]See rollo, p. 60.
_ftnref43
[43]Id. at 86.
_ftnref44
[44]Id. at 479, 525.
_ftnref45
[45]See id. at 496, 540.
SECOND DIVISION
G.R. No. 161057 (Betty Go-Gabionza and Isabelita Tan v. Court of Appeals, Luke Roxas and
Evelyn Nolasco)
Promulgated:
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September 12, 2008

x-----------------------------------------------------------------------------------------x
DISSENTINGOPINION
VELASCO, JR., J.:
With all due respect, I dissent. The majority opinion, I respectfully submit, would be setting a
highly dangerous precedentif it were to rule that there is a prima facie case for estafa under
Article 315(2)(a) of the Revised Penal Code despite the undisputed fact that petitioners never
directly dealt with private respondents, much less did the latter induce them to invest their
money in their corporation, and without further proof or evidence presented for the alleged
fraudulent scheme. Moreover, to hold that checks, as commercial instruments, when issued
evidencing indebtedness to many persons, take the attributes of traditional stocks, i.e., they
become "securities" under the then Revised Securities Act (RSA) which requires prior
registration, is equally questionable; for the issuance and usage of checks in the normal
course of business, even if they are for payment of an existing debt and issued post-dated,
certainly do not need registration.
No Factual and Legal Basis of Probable Cause for Estafa
The undersigned finds no factual nor legal basis for a finding of probable cause for estafa for
the following reasons:
First. Persuasive is the finding of the State Prosecutors who conducted the preliminary
investigations of seven criminal complaints filed by petitioners and other investors of ASB
Holdings, Inc. (ASBHI) against private respondents. The State Prosecutors found lack of
probable cause to hale private respondents to court for the crimes alleged by petitioners. This
finding has been affirmed by the Court of Appeals (CA) through the assailed decision setting
aside the Resolution of the Secretary of Justice.
In gist, the State Prosecutors are one in concluding the absence of the key element of deceit
imputable against private respondents; that ASBHI was not formed for illegal purposes; that
the checks issued by ASBHI are not "securities" within the ambit of the law requiring
Securities and Exchange Commission (SEC) registration of securities offered for sale to the
public; that the short term loans extended by the individual investors in general and by the
petitioners in particular created mere civil obligations; that there is no showing that ASBHI was
engaged in quasi-banking activities; and that there is no scintilla of evidence tending to show
that respondent Roxas misappropriated the money lent by the individual investors.
Second. It is likewise clear that there is no prima facie case for the crime of estafa under Art.
315(2)(a). As aptly put by the CA, private respondents had no direct dealing with the
petitioners, thus effectively negating criminal responsibility imputed against them. For liability
for estafa under said article to attach, it is indispensable that deceit or fraudulent
misrepresentation made prior to or at least simultaneously with the delivery of the thing be
employed on the offended party who parted with his property on account of such
misrepresentation. This particular scenario did not occur in the instant case.
It must be noted that the criminal complaints, i.e., affidavit-complaints of petitioners, alleged
that the fraudulent scheme was perpetrated personally by private respondents and through
their agents. Private respondents vehemently denied this allegation. The Public Prosecutors
who conducted the preliminary investigations found no direct dealing by private respondents
with the petitioners.
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Third. There was no false pretense, fraudulent act or fraudulent means perpetrated by private
respondents prior to or simultaneous with the commission of the fraud. The fraudulent acts as
alleged by petitioners and other complainants consisted of the following: that ASBHI was into
the very same activities of ASB Realty, Corp., ASB Development Corp., and ASB Land, Inc. or
otherwise held controlling interests in these corporations; that ASBHI could legitimately solicit
funds from the public for investment/borrowing purposes; that ASBHI, by itself, or through the
corporations aforestated, owned real and personal properties which would support and justify
its borrowing program; that ASBHI was connected with, and firmly backed by, DBS Bank in
which Roxas held a substantial stake; and that ASBHI would, upon maturity of its checks it
had issued to its lenders, pay the same and that it had necessary resources to do so.
The above enumerated acts or circumstances had been passed upon and duly scrutinized by
the investigating State Prosecutors and were found unsupported by any evidence, or, at the
very least, were not fraudulent. A perusal of the foregoing allegations would show that they
remain to be mere allegations; they cannot and ought not to be used to support a finding of
probable cause.
Fourth. The non-inclusion of the alleged agents of private respondents who allegedly inveigled
petitioners, through the fraudulent scheme, to invest in ASB, is fatal to the criminal complaints.
The ponencia belabored to make a distinction between criminal and civil cases, observing that
each accused is personally answerable for the criminal act regardless of the inclusion of other
accused or perpetrators. While there is indeed a difference between criminal and civil cases,
yet the non-inclusion of the agent or agents who allegedly enticed the petitioners to part with
their money is a clear indicium that no fraud was committed by the agents of private
respondents. Proof is also absent that these alleged acts induced and perpetrated by private
respondents.
While the issue on whether fraudulent pretenses or misrepresentations were employed to lure
the petitioners and other investors to part with their money is evidentiary, no evidence
whatsoever on said issue was presented at the summary proceedings of the preliminary
investigation to show reasonable probability of private respondents guilt. In the instant case,
there is even no allegation as to the identity of the scheming agents who were allegedly acting
under the direction of private respondents.
In a criminal prosecution, the States resources are arrayed against an accused. Be this as it
may, mere theories or allegations cannot and should not be taken as sufficient to overcome
the presumption of innocence. In the instant case, the mere allegation and theory of a
fraudulent scheme perpetrated against petitioners by private respondents through inducement
should not be and cannot be a basis either for probable cause.
Fifth. Considering that ASBHI forms part of the ASB Group of Companies, its alleged
undercapitalization is of no moment insofar as the advisability of petitioners investing thereat
is concerned. Evidently, ASBHI was taking loans from banks and investments from individual
investors to finance the various real estate projects of the ASB Group of Companies. Before
suffering business reverses, the ASB Group of Companies made good its commitment in
terms of returns of the investments and paying its loan obligation to banks and other lending
institutions.
As aptly found by the State Prosecutors, ASBHI was not formed for illegal purposes and that
the short term loans extended by the individual investors in general and by the petitioners in
particular were civil obligations but certainly not criminal in nature.
Check Not a Security
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The majority agrees with the finding by the Secretary of Justice that the checks issued by
ASBHI partake of the nature of "securities" under the RSA. With due respect, such a
contention is erroneous. The theory that the checks issued by ASBHI to the general public,
i.e., 700 individual investors, evidencing indebtedness, take the attributes of traditional stocks
since they were generally rolled-over to augment the individual creditors existing investment
with ASBHI, has no legal basis and much less constitute a prima facie case for prosecuting
private respondents for violation of the RSA.
First, checks cannot constitute securities, much less in the case at bar. Securities under
Section 2 of the RSA has a definite meaning, thus:
(a) "Securities" shall include bonds, debentures, notes, evidences of indebtedness, shares in
a company, pre-organization certificates or subscriptions, investment contracts, certificates of
interest or participation in a profit sharing agreement, collateral trust certificates, equipment
trust certificates (including condition sale contracts or similar interests or instruments serving
the same purpose), voting trust certificates, certificates of deposit for a security, x x x or, in
general, interests or instruments commonly considered to be "securities", or certificates of
interest or participation in, temporary or interim certificates for, receipts for, guarantees of, or
warrants or rights to subscribe to or buy or sell any of the foregoing; or commercial papers
evidencing indebtedness of any person, financial or non-financial entity, irrespective of
maturity, issued, endorsed, sold, transferred or in any manner conveyed to another, with or
without recourse, such as promissory notes, repurchase agreements, certificates of
assignments x x x, joint venture contracts, and similar contracts and investments where there
is no tangible return on investments plus profits but an appreciation of capital as well as
enjoyment of particular privileges and services.
From the foregoing, it is apparent that a check which is a form of a demand draft is not a
security. If the legislature intended to include checks under the above definition of "securities,"
it could easily have done so but it did not. Besides, there is no jurisprudential authority defining
and determining a check as a security. Thus, it is erroneous to conclude that a check is a
security or to characterize it as a commercial instrument evidencing indebtedness.
Second, it is undisputed that the checks issued to petitioners were for the payment of their
principal investment and interests thereof. The checks were not intended to be or to constitute
promissory notes or to evidence indebtedness. They were issued to pay petitioners what
ASBHI owed them. The individual investors were free to encash or deposit the checks, at their
preference, either both for their principal investment and interest or only for the interest.
Third, the investments of the individual investors, either both principal and accrued interest or
the principal alone, are what are commonly called in financial and business parlance as
"rolled-over." The checks issued for the payment of their principal investment and the interest
thereof are not "rolled-over," as mistakenly asserted by the majority Decision. In case the
investors rolled-over their investments, i.e., the individual investors plow back their principal
investment and/or interest, they surrender their matured checks and new post-dated checks
representing their new principal investmentif their earned or accrued interests were likewise
rolled-overand the interest due at the end of the 30- or 45-day agreed term.
Fourth, the issuance by and the eventual inability of ASBHI to pay the maturing checks cannot
constitute a prima facie case for violation of the RSA or the Securities Regulation Code of
2000, for it would open the floodgates for undue prosecution under either law by payees of
bouncing checks. The American jurisprudence cited by the Secretary of Justice giving a more
flexible interpretation of a check to bring it within the purview of being a security is misplaced
in the instant case. By no stretch of imagination can a check constitute a security that can be
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traded, and thus the necessity for its registration. A check is a check, a means of payment
used in business in lieu of money for convenience in business transactions. It cannot be
traded like securities.
Finally, the ponencia made much of the theories set forth in the resolution of the Secretary of
Justice which, I believe, are clearly without factual or legal basis. They remain to be theories,
no more, no less.
In fine, an ill-advised criminal prosecution will only entail wasted money, resources and effort
by the government and both parties aside from the public humiliation and undue suffering
respondents will undergo in a needless trial, bearing in mind what this Court held in Ledesma
v. Court of Appeals1 and in Crespo v. Mogul.2 The lethal repercussions of the majority opinion
in the present case cannot and should not be ignored.
WHEREFORE, I vote to DISMISS the petition. I maintain that there is no prima facie case to
hold private respondents criminally liable for either estafa or violation of the RSA, as duly
found by State Prosecutors Rosario Rodrigo-Larracas and Lagrimas T. Agaran, who
conducted the preliminary investigations of the seven criminal complaints filed by petitioners
and others, which was likewise affirmed by the appellate court.
PRESBITERO J. VELASCO, JR.
Associate Justice
1 G.R. No. 113216, September 5, 1997, 278 SCRA 657. The Court held:
The primary objective of a preliminary investigation is to free respondent from the

inconvenience, expense, ignominy and stress of defending himself/herself in the
course of a formal trial, until the reasonable probability of his or her guilt in a more or less
summary proceeding by a competent office designated by law for that purpose. Secondarily,
such summary proceeding also protects the state from the burden of the unnecessary
expense an effort in prosecuting alleged offenses and in holding trials arising from false,
frivolous or groundless charges.
2 No. L-53373, June 30, 1987, 151 SCRA 462. The Court likewise held that:
Prosecuting officers under the power vested in them by law, not only have the authority but
also the duty of prosecuting persons who, according to the evidence received from the
complainant, are shown to be guilty of a crime committed within the jurisdiction of their office.
They have equally the duty not to prosecute when the evidence adduced is not
sufficient to establish a prima facie case.
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http://www.lawphil.net/judjuris/juri2012/jan2012/gr_164197_2012.html
G.R. No. 164197

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 164197
January 25, 2012
SECURITIES AND EXCHANGE COMMISSION, Petitioner,

vs.
PROSPERITY.COM, INC., Respondent.
DECISION
ABAD, J.:
This case involves the application of the Howey test in order to determine if a particular transaction is an investment
contract.
The Facts and the Case
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To make
a profit, PCI devised a scheme in which, for the price 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 commissions, interest in real estate in the Philippines and in the
United States, and insurance coverage worth P 50,000.00.
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 of buyers could in turn build up their own down-lines. For each pair of down-lines, the buyersponsor received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not exceed 16 since
the commissions due from excess referrals inure to PCI, not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company stopped
operations after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO) against it.
As it later on turned out, the same persons who ran the affairs of GVI directed PCIs actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken
over GVIs operations. After hearing, 1 the SEC, through its Compliance and Enforcement unit, issued a CDO
against PCI. The SEC ruled that PCIs scheme constitutes an Investment contract and, following the Securities
Regulations Code, 2 it should have first registered such contract or securities with the SEC.
Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of 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.3 In response, the SEC filed with the CA a motion to dismiss the petition on ground of forum shopping. In a
Resolution, 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. 5
In a joint resolution,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. 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.
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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. 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.9
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co .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. 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.
1 wp hi1
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 P 50,000.00 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.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
DIOSDADO M. PERALTA
Associate Justice
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JOSE CATRAL MENDOZA

Associate Justice
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G.R. No. 164197
ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
Footnotes
1 Docketed as CED Case 01-2585.
2 Republic Act 8799.
3 Resolution dated February 14, 2001.
4 Dated March 13, 2001.
5 Resolution dated April 30, 2001.
6 Resolution dated July 6, 2001.
7 Penned by Justice Eloy R. Bello, Jr. and concurred in by Justice Cancio C. Garcia (a retired member of this
Court) and Justice Mariano C. Del Castillo (currently, a member of this Court).
8 Implementing Rules and Regulations of R.A. 8799, Rule 3.1-1.
9 See Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330,
September 18, 2009, 600 SCRA 413, 427, citing Prudential Guarantee and Assurance, Inc. v. Trans-Asia
Shipping Lines, Inc., 524 Phil. 716 (2006).
10 328 US 293 (1946).
11 See also United Housing Foundation, Inc. v. Forman, 421 US 837 (1975); Securities and Exchange
Commission v. Glen W. Turner Enterprises, Inc., 474 F. 2d 476 (1973).
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http://www.lawphil.net/judjuris/juri2014/mar2014/gr_195542_2014 ...
G.R. No. 195542
SECOND DIVISION
March 19, 2014
G.R. No. 195542
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 Decision 1 of the Court of
Appeals in CA-G.R. SP No. 112781 affirming the Resolutions 2 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 corporations 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
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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 SECs complaint-affidavit, respectively narrated
Santos participation in how they came to invest their monies in PIPC Corporation:
1. Lorenzos 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.
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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. Sys 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 Damarias 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 [PIPCs] 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 [PIPCs] 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 clients 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
clients 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 Corporations employee, acted as PIPC Corporations agent and made representations regarding
its investment products and that of the supposed global corporation PIPC-BVI. Facilitating Lorenzos and Sys
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 SECs complaint-affidavit, it charged the following:
xxxx
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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, specifically Sections 8 and 28 thereof. Their illegal offer/sale of securities in the form of the
"Performance Management Partnership Agreement" to the public was perpetrated for about nine (9) years
and would have continued were it not for the alleged, and most probably, contrived and deliberate withdrawal
of the entire funds of the corporation by Michael H.K. Liew. The [scam] was masked by a supposed offshore
foreign currency trading scheme promising that the principal or capital infused will be guaranteed or 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.
Name of
Investors
Broker/Agent Banl/Location to
which funds
were transferred
Date
Account
Number
Amount of
Investment
Bank/
Location
xxx
R149432
US$500,000
Not
provided
0800287
769
US$40,000
BPI
Pasong
Tamo B9
xxxx
23. Luisa
Mercedes
P. Lorenzo
Oudine
Santos
RZB Austria,
Singapore
Branch
June
2007
xxxx
32. Ricky
Albino P.
Sy
Oudine
Santos
ABN-AMRO
Bank Hongkong
9
October
2006
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
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funds to serve as a profit and loss account;

c.Trading will commence with PIPC designated bank closely monitoring the performance to ensure that
if losses are incurred trading will cease immediately should the 20% stop limit be hit;
d.Profits will be credited into the Profit and Loss account with PIPC designated bank account. Losses
will be debited from 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 next batch;
f.At maturity, profits accumulated in the settlement account shall be distributed and deposited into each
investors 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
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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-BVIs 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, complainants 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-BVIs 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 investorcomplainants 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-BVIs 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. Zuo, 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
Corporations 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
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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--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
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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
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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 investoragents 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 SRCs 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 brokers 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
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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-BVIs 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-BVIs 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.
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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-BVIs 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. Lorenzos 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 PIPCBVI 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 SECs 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 SECs 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 [SECs] 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
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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 panels 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 panels 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.
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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 Secretarys 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 Sys or Lorenzos 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 Sys and Lorenzos 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 Damarias 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
1 wph i1
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any experience in foreign currency trading and was quite conservative in handling my money; 21
Santos countered that:
28. I also categorically deny complainant Sys 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-BVIs letter dated 10 November 2006, a copy of which is attached to
complainant Sys 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 Corporations
and/or PIPC-BVIs 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 DOJs 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 with their money. Liews absconding with the monies of 31 individuals
and that PIPC Corporation and/or PIPC-BVI were not licensed by the SEC to sell securities are uncontroverted
facts.
The transaction initiated by Santos with Sy and 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 Justice dated 18 April 2008 and 2 September 2008 are
REINSTATED. The Department of Justice is directed to include respondent Oudine Santos in the Information for
violation of Section 28 of the Securities and Regulation Code.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
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WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO

Associate Justice
BIENVENIDO L. REYES *
Associate Justice
ATTESTATION
to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
*
Per Special Order No. 1650 dated 13 March 2014.
Penned by Associate Justice Isaias Dicdican with Associate Justices Stephen C. Cruz and Jane Aurora C.
Lantion, concurring. Rollo, pp. 56-66.
2
Dated 18 April 2008 and 2 September 2008. Id. at 246-269 and 270-277.
Id. at 57.
4
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.
5
Sec. 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:
26.1.Employ any device, scheme, or artifice to defraud;
26.2.Obtain money or property by means of any untrue statement of a material fact of any omission to state a
material fact necessary in order to make the statements made, in the light of the circumstances under which
they were made, not misleading; or
26.3.Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud or deceit upon any person.
6
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, or act as a
salesman, or an associated person of any broker or dealer unless registered as such with the Commission.
15 of 16
Rollo, pp. 83-89.
Id. at 112-113.
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Id. at 177-182.
10
Id. at 174-184.
11
Id. at 202-207.
12
Id. at 248-267.
13
SEC. 3. Definition of Terms. x x x.
3.2"Issuer" is the originator, maker, obligor, or creator of the security.

14
Rollo, pp. 271-274.
15
Id. at 313-317.
16
Id. at 65-66.
17
Po v. Department of Justice, G.R. Nos. 195198 and 197098, 11 February 2013, 690 SCRA 214, 224-225.
18
First Womens Credit Corporation v. Hon. Perez, 524 Phil. 305, 308-309 (2006) citing Hegerty v. Court of
Appeals, 456 Phil. 542, 547-548 (2003); Punzalan v. Dela Pena, 478 Phil. 771, 783 (2004).
19
Filadas Pharma, Inc. v. Court of Appeals, G.R. No. 132422, 30 March 2004, 426 SCRA 460, 470, citing
Mendoza-Arce v. Office of the Ombudsman (Visayas), 430 Phil. 101, 113 (2002).
20
http://thelawdictionary.org/solicitation-2/ last visited 17 February 2014.
21
Rollo, p. 112.
22
Id. at 208-209.
23
People v. Petralba, 482 Phil. 362, 377 (2004).
24
Id.
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http://www.lawphil.net/judjuris/juri2008/oct2008/gr_135808_2008.html

SUPREME COURT
Manila
EN BANC
G.R. No. 135808
October 6, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner,

vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE,
ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision, 1 dated 20
August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities and
Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent corporation
Interport Resources Corporation (IRC) and members of its board of directors, respondents Manuel S. Recto, Rene
S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with
respect to Sections 8, 30 and 36 of the Revised Securities Act. In the same Decision of the appellate court, all the
proceedings taken against the respondents, including the assailed SEC Omnibus Orders of 25 January 1995 and 30
March 1995, were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings
Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda
Energy Holdings, Inc. (GEHI), 2 which would own and operate a 102 megawatt (MW) gas turbine power-generating
barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract with National
Power Corporation. At that time, GEHI's power-generating barge was 97% complete and would go on-line by
mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to
40.88 billion shares which had a total par value of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns
25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of
PRCI.4
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the SEC
could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with
GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider
information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of
its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of IRC
to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRC's failure to
immediately disclose the information as required by the Rules on Disclosure of Material Facts. 6
In compliance with the SEC Chairman's 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 IRC's alleged failure to immediately disclose material
information as required under the Rules on Disclosure of Material Facts. 7
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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. 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, 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. 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. 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: 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, 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. 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. 15 During the proceedings before the Court of Appeals,
respondents filed a Supplemental Motion 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. 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. 18
The Court of Appeals promulgated a Decision 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. 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
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Administrative Code. 21
In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that 22:
WHEREFORE, [herein petitioner SEC's] 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
(Insider's 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 Resolution 23 issued on 30
September 1998.
Hence, the present petition, which relies on the following grounds 24:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S 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 (INSIDER'S 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/PROCEEDINGS 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.26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of the Revised
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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. 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,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,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. 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. 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. 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. Hopkins 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. Insider's 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
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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. 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. 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 issuer's 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. 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." 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. 38 A purchaser in good faith must also take into account facts which put a "reasonable man" on his
guard.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. 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. 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.,42 that the determination of materiality "requires delicate assessments of the inferences a
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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. 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 person's 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,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." 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.) 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 issuer's 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
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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 corporation's 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. 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. 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 Investor's Management Co.,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. 50
In Tatad v. Secretary of Department of Energy,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," 52 "public
interest,"53 and "interests of law and order." 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
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determinable. In particular, Section 8 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 V 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 Commission's 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.)
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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,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 respondent's 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
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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.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. 59 In fact, the hearings before such
agencies do not connote full adversarial proceedings. 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. 61 In Atlas Consolidated Mining and
Development Corporation v. Factoran, Jr.,62 this Court stated that:
[I]t is sufficient that administrative findings of fact are supported by evidence, or negatively stated, it is
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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. 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: 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,
65 12,66 26,67 2768 and 2369 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 insider's 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 issuer's 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. 70 Additionally, the SEC may still
impose the appropriate administrative sanctions under Section 54 of the aforementioned law. 71
In Morato v. Court of Appeals,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 intracorporate 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 company's 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.
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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 SEC's investigation of this case has already prescribed. 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." 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. 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. 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, 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. 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
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dismissing petitioner's 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. 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,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. 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 SEC's 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,
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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 denied the SEC's Motion for Leave to Quash SEC Omnibus Orders,
since it found other issues that were more important than whether or not the PED was the proper body to investigate
the matter. Its refusal was premised on its earlier finding that no criminal, civil, or administrative case may be filed
against the respondents under Sections 8, 30 and 36 of the Revised Securities Act, due to the absence of any
implementing rules and regulations. Moreover, the validity of the PED Rules on Practice and Procedure was also
raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of the orders was granted, then it would
be deprived of the opportunity to determine the validity of the aforementioned rules and statutory provisions. 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 SEC's 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 Sections 8, 30, and 36 of the Revised Securities
Act.82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the assailed
Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R. SP No. 37036 and LIFTS the
permanent injunction issued pursuant thereto. This Court further DECLARES that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken by the proper
authorities in accordance with the Securities Regulations Code. No costs.
SO ORDERED.
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Associate Justice
Associate Justice
ANTONIO T. CARPIO
Associate Justice
Associate Justice
*
RENATO C. CORONA
CONCHITA CARPIO MORALES
Associate Justice
Associate Justice
ADOLFO S. AZCUNA
DANTE O. TINGA
Associate Justice
Associate Justice
**
ANTONIO EDUARDO B. NACHURA
Associate Justice
Associate Justice
RUBEN T. REYES
TERESITA LEONARDO DE CASTRO
Associate Justice
Associate Justice
**
ARTURO D. BRION
Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
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EN BANC
G.R. No. 135808 October 6, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE,
ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.
Promulgated:
October 6, 2008
x-----------------------------------------------------------------------------------------x
DISSENTING OPINION
CARPIO, J.:
I dissent because the majority opinion is patently contrary to the express provision of Section 2 of Act No. 3326.
The majority opinion holds that the administrative investigation by the Securities and Exchange Commission
(SEC) interrupted the running of the prescriptive period for violation of the Securities Regulation Code (Code). The
majority opinion holds:
x x x It should be noted that the SEC started investigative proceedings against the respondents as early as
1994. This investigation effectively interrupted the prescriptive period.
xxx
x x x Thus, the investigation that was commenced by the SEC in 1995 (sic), soon after they discovered
the questionable acts made by the respondents, effectively interrupted the prescriptive period .
(Emphasis supplied)
This ruling of the majority violates Section 2 of Act No. 3326 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
Run. Section 2 provides:
Section 2. 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. (Emphasis and underscoring supplied)
In Zaldivia v. Reyes, Jr.,1 the Court ruled that the proceedings referred to in Section 2 of Act No. 3326 are judicial
proceedings and not administrative proceedings . The Court held:
x x x This means that the running of the prescriptive period shall be halted on the date the case is
actually filed in court and not on any date before that.
This interpretation is in consonance with the afore-quoted Act No. 3326 which says that the period of
prescription shall be suspended "when proceedings are instituted against the guilty party." The proceedings
referred to in Section 2 thereof are "judicial proceedings," contrary to the submission of the Solicitor
General that they include administrative proceedings. His contention is that we must not distinguish as the law
does not distinguish. As a matter of fact, it does. (Emphasis and underscoring supplied)
Indeed, Section 2 of Act No. 3326 expressly refers to the "institution of judicial proceedings." Contrary to the
majority opinion's claim that "a preliminary investigation interrupts the prescriptive period," only the institution of
judicial proceedings can interrupt the running of the prescriptive period. Thus, in the present case, since no
criminal case was filed in any court against respondents since 1994 for violation of the Code, the prescriptive period
of twelve years under Section 1 2 of Act No. 3326 has now expired.
The fact that the Court of Appeals enjoined the SEC from filing any criminal, civil or administrative case against
respondents for violation of the Code is immaterial. The SEC has no jurisdiction to institute judicial proceedings
against respondents for criminal violation of the Code. Even if the Court of Appeals did not issue the injunction, the
SEC could still not have instituted any judicial proceedings against respondents for criminal violation of the Code.
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The Code empowers the SEC to conduct only administrative investigations and to impose fines and other
administrative sanctions 3 against violators of the Code. Section 54.2 of the Code states that the "imposition of x x
x administrative sanctions shall be without prejudice to the filing of criminal charges against the individuals
responsible for the violation." Thus, the criminal charges may proceed separately and independently of the
administrative proceedings.
Under Section 53.1 of the Code, 4 jurisdiction to institute judicial proceedings against respondents for criminal
violation of the Code lies exclusively with the Department of Justice (DOJ). Section 53.1 of the Code expressly
states that "all criminal complaints for violations of this Code x x x shall be referred to the Department of
Justice for preliminary investigation and prosecution before the proper court." No court ever enjoined the
DOJ to institute judicial proceedings against respondents for criminal violation of the Code. Nothing prevented the
DOJ's National Bureau of Investigation from investigating the alleged criminal violations of the Code by respondents.
Thereafter, the DOJ could have conducted a preliminary investigation and instituted judicial proceedings against
respondents. The DOJ did not and prescription has now set in.
Accordingly, I vote to DISMISS the petition.
ANTONIO T. CARPIO
Associate Justice
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
Promulgated:
October 6, 2008
x------------------------------------------------------------------------------x
CONCURRING OPINION
TINGA, J.:
While I fully concur with the ponencia ably penned by Justice Chico-Nazario, I write separately to highlight the
factual and legal background behind the legal proscription against the blight that is "insider trading." This case is the
farthest yet this Court has explored the matter, and it is heartening that our decision today affirms the viability for
prosecutions against insider trading, an offense that assaults the integrity of our vital securities market. This case
bears special significance, even if it does not dwell on the guilt or innocence of petitioners who are charged with
insider trading, simply because the arguments raised by them essentially assail the validity of our laws against
insider trading. Since we deny certiorari and debunk the challenge, our ruling will embolden our securities regulators
to investigate and prosecute insider trading cases, thereby ensuring a more stable, mature and investor-friendly
stock market.
The securities market, when active and vibrant, is an effective engine of economic growth. It is more able to channel
capital as it tends to favor start-up and venture capital companies. To remain attractive to investors, however, the
stock market should be fair and orderly. All the regulations, all the requirements, all the procedures and all the
people in the industry should strive to achieve this avowed objective. Manipulative devices and deceptive practices,
including insider trading, throw a monkey wrench right into the heart of the securities industry. When someone
trades in the market with unfair advantage in the form of highly valuable secret inside information, all other
participants are defrauded. All of the mechanisms become worthless. Given enough of stock market scandals
coupled with the related loss of faith in the market, such abuses could presage a severe drain of capital. And
investors would eventually feel more secure with their money invested elsewhere. 1
The securities market is imbued with public interest and as such it is regulated. Specifically, the reasons given for
securities regulation are (1) to protect investors, (2) to supply the informational needs of investors, (3) to ensure that
stock prices conform to the fundamental value of the companies traded, (4) to allow shareholders to gain greater
control over their corporate managers, and (5) to foster economic growth, innovation and access to capital. 2
In checking securities fraud, regulation of the stock market assumes quite a few forms, the most common being
disclosure regulation and financial activity regulation.
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Disclosure regulation requires issuers of securities to make public a large amount of financial information to actual
and potential investors. The standard justification for disclosure rules is that the managers of the issuing firm have
more information about the financial health and future of the firm than investors who own or are considering the
purchase of the firm's securities. Financial activity regulation consists of rules about traders of securities and trading
on or off the stock exchange. A prime example of this form of regulation is the set of rules against trading by
insiders.3
I.
In its barest essence, insider trading involves the trading of securities based on knowledge of material information
not disclosed to the public at the time. 4 Such activity is generally prohibited in many jurisdictions, including our own,
though the particular scope and definition of "insider trading" depends on the legislation or case law of each
jurisdiction. In the United States, the rule has been stated as "that anyone who, for trading for his own account in the
securities of a corporation has access, directly or indirectly, to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone' may not take advantage of such information knowing
it is unavailable to those with whom he is dealing', i.e., the investing public." 5
It would be useful to examine the historical evolution of the rule.
In the United States, legal abhorrence of insider trading preceded the modern securities market. Prior to 1900, it
was treatise law that the doctrine that officers and directors of corporations are trustees of the stockholders does not
extend to their private dealings with stockholders or others, though in such dealings they take advantage of
knowledge gained through their official position. 6 Under that doctrine, the misrepresentation or fraudulent
concealment of a material fact by such corporate officers or directors gave rise to liability based on general fraud as
understood in common law, yet such liability would arise only if the defendant actively prevented the plaintiff from
looking into or inquiring upon the affairs or condition of the corporation and its prospects for dividends. 7 The rule, as
understood then, did not encompass a positive duty for public disclosure of any material information pertinent to a
corporation and/or its securities.
The first paradigm shift came with a decision in 1903 of the Georgia Supreme Court in Oliver v. Oliver, 8 which
pronounced that the shareholder had a right to disclosure, and the corporation a corresponding duty to disclose
such material information, based on the principle that "[w]here the director obtains the information giving added
value to the stock by virtue of his official position, he holds the information in trust for the benefit of [the
shareholders]." 9 Subsequent state jurisprudence affirmed this fiduciary obligation to disclose material nonpublic
information to shareholders before trading with them, otherwise known as the "minority" or the "duty to disclose"
rule. However, the U.S. Supreme Court in 1909 expressed preference for a different rule in Strong v. Repide,10
acknowledging that the corporate directors generally owed no duty to disclose material facts when trading with
shareholders, unless there were "special circumstances" that gave rise to such duty. The "special circumstances,"
as identified in Strong, were the concealment of identity by the defendant, and the failure to disclose significant facts
having a dramatic impact on the stock price.
Both the "special circumstances" and "duty to disclose" rules gained adherents in the next several years. In the
meantime, the 1920s saw the unprecedented popularity of the stock market with the general public, which was
widely taken advantage of by corporations and brokers through unscrupulous practices. The American stock market
collapse of October 1929, which helped trigger the worldwide Great Depression, left fully half of the $25 million
worth of securities floated during the post-First World War period as worthless, to the injury of thousands of
individuals who had invested their life savings in those securities. 11 The consequent wellspring of concern over the
welfare of the investors animated the passage of the first U.S. federal securities laws, such as the Securities
Exchange Act of 1934 which declared that "transactions in securities as commonly conducted upon securities
exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to
provide for regulation and control of such transactions." 12
Section 10(b) of the Securities Exchange Act of 1934 provided that:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of
interstate commerce or of the mails, or of any facility of the national securities exchange x x x
(b) To use or employ, in connection with the purchase or sale of any security registered on a national
securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors. 13
It is this provision which stands as the core statutory authority prohibiting insider trading under U.S. federal law. 14
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Yet the provision itself does not utilize the term "insider trading," and indeed doubts have been expressed whether it
was intended at all by the U.S. Congress to impose a ban on insider trading through the 1934 Securities Exchange
Act.15 At the same time, the provision did grant to the U.S. Securities and Exchange Commission (U.S. SEC) the
authority to promulgate rules and regulations "as necessary or appropriate in the public interest or for the protection
of investors." This power was exercised by the U.S. SEC in 1942, when it enacted Rule 10b-5, which has been
described as "the foundation on which the modern insider trading prohibition rests." 16 The Rule reads:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of
interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made, not
misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or
deceipt upon any person,
in connection with the purchase or sale of any security. 17
Again, the rule by itself did not provide for an explicit prohibition on insider trading practices, and commentators
have expressed doubts whether the U.S. SEC in 1942 had indeed contemplated that the rule work to such effect. 18
Yet undoubtedly the Rule created a powerful antifraud weapon, 19 and it would finally be applied by the U.S. SEC as
a prohibition against insider trading in the 1961 case of In re Cady, Roberts & Co.20
The facts of that case hew closely to our traditional understanding of insider trading. A corporate director of CurtissWright Corporation had told one of his business partners, Gimpel, that the board of directors had decided to reduce
the company's quarterly dividend. Armed with such information even before the news was announced, Gimpel sold
several thousand shares in the corporation's stock held in customer accounts over which he had discretionary
trading authority. When the news of the reduced dividend was publicly disclosed, the corporation's share prices
predictably dropped, and the owners of the sold shares were able to avoid injury. The U.S. SEC ruled that Gimpel
had violated Rule 10b-5, even though he was not an insider privy to the confidential material information, but merely
a "tippee" of that insider. In doing so, the U.S. SEC formulated the "disclose or abstain" rule, requiring that an insider
in possession of material nonpublic information must disclose such information before trading or, if disclosure is
impossible or improper, abstain from trading. 21
Not long after, the American federal courts adopted the principles pronounced by the U.S. SEC in Cady, Roberts,
and the rule
evolved that insider trading was deemed a form of securities fraud within the U.S. SEC's regulatory jurisdiction. 22
Subsequently, jurisprudential limitations were imposed by the U.S. Supreme Court, ruling for example that an insider
bears a duty to disclose on the basis of a fiduciary relationship of trust and confidence as between him and the
shareholders; 23 or that a tippee is liable for insider trading only if the tipper breached a fiduciary relationship by
disclosing information to the tippee, who knew or had reason to know of the breach of duty. 24 In response to these
decisions, the U.S. SEC promulgated Rule 14e-3, which specifically prohibited insiders of the bidder and the target
company from divulging confidential information about a tender offer to persons that are likely to violate the rule by
trading on the basis of that information. 25
In the United Kingdom, insider trading is considered as a type of "market abuse" assuming the form of behavior
"based on information which is not generally available to those using the market but which, if available to a regular
user of the market, would or would be likely to be regarded by him as relevant when deciding the terms on which
transactions in investments of the kind in question should be effected." 26
The Philippines has adopted statutory regulations in the trading of securities, tracing in fact as far back as 1936, or
just two years after the enactment of the US Securities Exchange Act of 1934. The then National Assembly of the
Philippines enacted in 1936 Commonwealth Act No. 83, also known as the Securities Act, 27 designed to regulate
the sale of securities and to create a Securities and Exchange Commission (SEC) for that purpose. Notably, Com.
Act No. 83 did not contain any explicit provision prohibiting insider trading in precise terms, even as it contained
specific provisions prohibiting the manipulation of stock prices 28 or the employment of manipulative and deceptive
devices. 29 This silence is unsurprising, considering that American federal law had similarly failed to enact so specific
a prohibition and that Rule 10b-5 of the U.S. SEC had not yet come into existence then.
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However, in January of 1973, the SEC would issue a set of rules, 30 which required specific insiders to "make a
resonably full, fair and accurate disclosure of every material fact relating or affecting it which is of interest to
investors."31 It was explained therein that a fact is material if it "induces or tends to induce or otherwise affect the
sale or purchase of the securities of the issuing corporation, such as an acquisition of mining claims, patent or
formula, real estate, or similar capital assets; discovery of mineral ores; declaration of dividends; executing a
contract of merger or consolidation; rights offering; and any other important event or happening." 32
The enactment of the Revised Securities Act in 1980 (Batas Pambansa Blg. 178, as amended) provided for the first
time a specific statutory prohibition in Philippine law against insider trading. This was embodied in Section 30 of the
law, which provides:
Sec. 30. Insider's 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 signifinace whith respest 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.
Contrary to the claims of respondents, such terms as "material fact," "reasonable person," "nature and reliability"
and "generally available" as utilized in Section 30 do not suffer from the vice of vagueness and do not necessitate
an administrative rule to supply definitions of the terms either. For example, as the ponente points out, the 1973
Rules already provided for a definition of a "material fact," a definition that was actually incorporated in Section 30.
Yet there is an underlying dangerous implication to respondents' arguments which makes the Court's rejection
thereof even more laudable. The ability of the SEC to effectively regulate the securities market depends on the
breadth of its discretion to undertake regulatory activities. The intractable adherents of laissez-faire absolutism may
decry the fact that there exists an SEC in the first place, yet it is that body which assures the protection of interests
of ordinary stockholders and investors in the capital markets, interests which may be overlooked by the issuers of
securities and their corporate overseers whose own interests may not necessarily align with that of the investing
public. A "free market" that is not a "fair market" is not truly free, even if left unshackled by the State as it would in
fact be shackled by the uninhibited greed of only the largest players.
Respondents essentially contend that the SEC is precluded from enforcing its statutory powers unless it first
translates the statute into a more comprehensive set of rules. Without denigrating the SEC's delegated rule-making
power, each provision of the law already constitutes an executable command from the legislature. Any refusal on the
part of the SEC to enforce the statute on the premise that it had yet to undergo the gauntlet of administrative
interpretation is derelict to that body's legal mandate. By no means is the Congress impervious to the concern that
certain statutory provisions are best enforced only after an administrative regulation implementing the same is
promulgated. In such cases, the legislature is solicitous enough to specifically condition the enforcement of the
statute upon the promulgation of the relevant administrative rules. Yet in cases where the legislature does not see fit
to impose such a conditionality, the body tasked with enforcing the law has no choice but to do so. Any quibbling as
to the precise meaning of the statutory language would be duly resolved through the exercise of judicial review.
It bears notice that unlike the American experience where the U.S. Congress has not seen fit to specifically legislate
prohibitions on insider trading, relying instead on the discretion of the U.S. SEC to penalize such acts, our own
legislature has proven to be more pro-active in that regard, legislating such prohibition, not once, but twice. The
Revised Securities Act was later superseded by the Securities Regulation Code of 2000 (Rep. Act No. 8799), a law
which is admittedly more precise and ambitious in its regulation of such activity. The passage of that law is
praiseworthy insofar as it strengthens the State's commitment to combat insider trading. And the promulgation of
this decision confirms that the judiciary will not hesitate in performing its part in seeing to it that our securities laws
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are properly implemented and enforced.

III
I also wish to share my thoughts on the issue of principles.
The issue boils down to the determination of whether the investigation conducted by the SEC pursuant to Section
4533 of the Revised Securities Act in 1994 tolled the running of the period of prescription. I submit it did.
Firstly, this Court, in ruling in Baviera v. Paglinawan 34 that the Department of Justice cannot conduct a preliminary
investigation for the determination of probable cause for offenses under the Revised Securities Code, without an
investigation first had by the SEC, essentially underscored that the exercise is a two-stage process. The procedure
is similar to the two-phase preliminary investigation prior to the prosecution of a criminal case in court under the old
rules.35 The venerable J.B.L. Reyes in People v. Olarte 36 finally settled a long standing jurisprudential conflict at the
time by holding that the filing of the complaint in the Municipal Court, even if it be merely for purposes of
preliminary examination or investigation, should, and does, interrupt the period of prescription of the
criminal responsibility, even if the court where the complaint or information is filed cannot try the case on
its merits. The court gave three reasons in support of its decision, thus:
. . . Several reasons buttress this conclusion: first the text of Article 91 of the Revised Penal Code, in
declaring that the period of prescription "shall be interrupted by the filing of the complaint or information"
without distinguishing whether the complaint is filed in the court for preliminary examination or investigation
merely, or for action on the merits. Second, even if the court where the complaint or information is filed may
only proceed to investigate the case its actuations already represent the initial step of the proceedings against
the offender. Third, it is unjust to deprive the injured party of the right to obtain vindication on account of
delays that are not under his control. All that the victim of the offense may do not on his part to initiate the
prosecution is to file the requisite complaint. 37
The same reasons which moved the Court in 1967 to declare that the mere filing of the complaint, whether for
purposes of preliminary examination or preliminary investigation should interrupt the prescription of the criminal
action inspire the Court's ruling in this case.
It should be emphasized that Sec. 45 of the Revised Securities Act invests the SEC with the power 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 or any rule or regulation thereunder, 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" and to refer criminal complaints for violations of the Act to the Department
of Justice for preliminary investigation and prosecution before the proper court.
The SEC's investigatory powers are obviously akin to the preliminary examination stage mentioned in People v.
Olarte. The SEC's investigation and determination that there was indeed a violation of the provisions of the Revised
Securities Act would set the stage for any further proceedings, such as preliminary investigation, that may be
conducted by the DOJ after the case is referred to it by the SEC.
Secondly, Sec. 2 of Act No. 3326 38 provides in part:
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. The prescription shall be interrupted when proceedings are instituted against the
guilty person, and shall begin to run again if the proceedings are dismissed for reasons not constituting
jeopardy. (Emphasis supplied)
Act No. 3326 was approved on 4 December 1926, at a time that the function of conducting the preliminary
investigation of criminal offenses was vested in the justices of the peace. The prevailing rule at the time, embodied
in the early case of U.S. v. Lazada39 and later affirmed in People v. Joson,40 is that the prescription of the offense is
halted once the complaint is filed with the justice of the peace for preliminary investigation inasmuch as the filing of
the complaint signifies the institution of criminal proceedings against the accused. 41 People v. Parao 42a case
which affirmed the power of the then municipal president to conduct preliminary investigation in the absence of the
justice of the peace and of the auxiliary justice of the peace when the same could not be deferred without prejudice
to the interest of justiceestablished the correlative rule that the first step taken in the investigation or examination
of offenses partakes the nature of a judicial proceedings which suspends the prescription of the offense. 43 But
although the second Olarte44 case made an affirmative ruling that the preliminary investigation is not part of the
action proper, the Court therein nevertheless declared that such investigation is quasi-judicial in nature and that as
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such, the mere filing of the complaint with the justice of the peace should stall the exhaustion of the prescriptive
period of the offense charged.
While it may be observed that the term "judicial proceedings" in Sec. 2 of Act No. 3326 appears before "investigation
and punishment" in the old law, with the subsequent change in set-up whereby the investigation of the charge for
purposes of prosecution has become the exclusive function of the executive branch, the term "proceedings" should
now be understood either executive or judicial in character: executive when it involves the investigation phase and
judicial when it refers to the trial and judgment stage. With this clarification, any kind of investigative proceeding
instituted against the guilty person which may ultimately lead to his prosecution as provided by law shall suffice to
toll prescription.
Thus, in the case at bar, the initiation of investigative proceedings against respondents, halted only by the injunctive
orders issued by the Court of Appeals upon their application no less, should and did interrupt the prescriptive period
of the criminal action.
DANTE O. TINGA
Associate Justice
Footnotes
*
**
On Official leave.
No part.
1 Penned by Associate Justice Emeterio C. Cui with Associate Justices Angelina Sandoval-Gutierrez and
Conrado M. Vasquez, Jr., concurring. Rollo, pp. 31-38.

2 GEHI is a subsidiary wholly owned by GHB. CA rollo, p. 51.
3 Id. at 46-49.
4 Id.
5 Id. at 5-6.
6 Rollo, pp. 9-10.
7 CA rollo, p. 6; 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 Securities and
Exchange Commission on 8 February 1973; see rollo, p. 65.
8 Rollo, p. 10.
9 SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commission's 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.
10 CA rollo, pp. 68-94.
11 Id. at 95-107.
12 Id. at 39-43.
13 Id. at 152-162.
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14 Id. at 44.
15 Id. at 1- 37.
16 CA rollo, pp. 214-230.
17 Id at .237-238.
18 Id.at 269-270.
19 Penned by Associate Justice Emeterio C. Cui with Associate Justices Angelina Sandoval-Gutierrez and
Conrado M. Vasquez, Jr., concurring. Rollo, pp. 31-38.

20 Id. at 35-36.
21 Id. at 36.
22 Id. at 37.
23 Id. at 40-41.
24 Id. at 14.
25 The Securities Investigation and Clearing Department (SICD) Rules of Procedure on Administrative
Actions/Proceedings took effect on 29 December 1996, after the violations allegedly took place.
26 118 U.S. 356.
27 Secretary of the Department of Transportation and Communications v. Mabalot, 428 Phil. 154, 164 (2002);
Larin v. Executive Secretary, 345 Phil. 962, 979 (1997).

28 68 Phil. 328, 348 (1939).
29 G.R. No. 100883, 2 December 1991, 204 SCRA 516, 523.
30 Geukeko v. Araneta, 102 Phil. 706, 712-713 (1957).
31 Calalang v. Williams, 70 Phil. 726, 733 (1940).
32 Del Mar v. The Philippine Veterans Administration, 151-A Phil. 792, 802 (1973).
33 Supra note 23.
34 In the Matter of Cady, Roberts & Co., 40 S.E.C. 907 (1961).
35 Id. citing H.R. Rep. No. 1383, 73rd Cong., 2d Sess. 13 (1934); S. Rep. No.792, 73 rd Cong., 2d Sess. 9
(1934). A significant purpose of the Exchange Act was to eliminate the idea that the use of inside information
for personal advantage was a normal emolument of corporate office.
36 In the Matter of Investors Management Co., Inc., 44 SEC 633, 29 July 1971; Securities and Exchange
Commission v. Texas Gulf Sulfur Co., 401 F. 2d 833, 13 August 1968.

37 Rollo, p. 459.
38 Negligence is defined as the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would not do. (Emphasis provided.) McKee v. Intermediate Appellate
Court, G.R. Nos. 68102-03, 16 July 1992, 211 SCRA 517, 539, citing Layugan v. Intermediate Appellate
Court, G.R. No. L-73998, 14 November 1988, 167 SCRA 363, 373.
39 Dela Cruz v. Intermediate Appellate Court, G.R. No. L-72981, 29 January 1988, 157 SCRA 660, 671 and
Balatbat v. Court of Appeals, 329 Phil. 858, 874 (1996).
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40 Webb v. Hon. de Leon, 317 Phil. 758, 779 (1995).

41 Id. at 780.
42 48 L ed 2d 757, 766 (1976).
43 Supra note 33.
44 99 L ed 2d 194, 211 (1988).
45 Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (1968).
46 Basic v. Levinson, supra note 41 at 211.
47 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, G.R. No. 127882, 1 December 2004, 445 SCRA 1,
155-156, citing Black's Law Dictionary, 5 th edition.
48 Gonzales v. Hon. Narvasa, 392 Phil. 518, 528 (2000), citing Sanidad v. Commission on Elections, G.R. No.
L-44640, 12 October 1976, 73 SCRA 333, 358.

49 Supra note 33.
50 Securities and Exchange Commission v. Capital Gains Research Bureau, Inc., 11 L ed 2d 237, 247 (1963).
51 346 Phil. 321, 362 (1997).
52 Balbuna v. Hon. Secretary of Education, 110 Phil. 150, 154 (1960).
53 People v. Rosenthal, 68 Phil. 328, 342 (1939).
54 Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 702 (1919).
55 Sec. 8. Procedure for registration. (a) All securities required to be registered under subsection (a) of
Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter
interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect
to such securities, containing or having attached thereto, the following:
(1) Name of issuer and, if incorporated, place of incorporation.
(2) The location of the issuer's principal business office, and if such issuer is a non-resident or its place
of office is outside of the Philippines, the name and address of its agent in the Philippines authorized to
receive notice.
(3) The names and addresses of the directors or persons performing similar functions, and the chief
executive, financial and accounting officers, chosen or to be chosen, if the issuer be a corporation,
association, trust, or other entity; of all the partners, if the issuer be a partnership; and of the issuer, if
the issuer be an individual; and of the promoters in the case of a business to be formed.
(4) The names and addresses of the underwriters.
(5) The general character of the business actually transacted or to be transacted by, and the
organization and financial structure of, the issuer including identities of all companies controlling,
controlled by or commonly controlled with the issuer.
(6) The names and addresses of all persons, if any, owning of record or beneficially, if known, more
than ten (10%) per centum in the aggregate of the outstanding stock of the issuer as of a date within
twenty days prior to the filing of the registration statement.
(7) The amount of securities of the issuer held by any person specified in subparagraphs (3), (4), and
(6) of this subsection, as of a date within twenty days prior to the filing of the registration statement,
and, if possible, as of one year prior thereto, and the amount of the securities, for which the registration
statement is filed, to which such persons have indicated their intention to subscribe.
(8) A statement of the capitalization of the issuer and of all companies controlling, controlled by or
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commonly controlled with the issuer, including the authorized and outstanding amounts of its capital
stock and the proportion thereof paid up; the number and classes of shares in which such capital stock
is divided; par value thereof, or if it has no par value, the stated or assigned value thereof; a description
of the respective voting rights, preferences, conversion and exchange rights, rights to dividends, profits,
or capital of each class, with respect to each other class, including the retirement and liquidation rights
or values thereof.
(9) A copy of the security for the registration of which application is made.
(10) A copy of any circular, prospectus, advertisement, letter, or communication to be used for the
public offering of the security.
(11) A statement of the securities, if any, covered by options outstanding or to be created in connection
with the security to be offered, together with the names and addresses of all persons, if any, to be
allotted more than ten (10%) per centum in the aggregate of such options.
(12) The amount of capital stock of each class issued or included in the shares of stock to be offered.
(13) The amount of the funded indebtedness outstanding and to be created by the security to be
offered, with a brief statement of the date, maturity, and character of such debt, rate of interest,
character or amortization provisions, other terms and conditions thereof and the security, if any,
therefor. If substitution of any security is permissible, a summarized statement of the conditions under
which such substitution is permitted. If substitution is permissible without notice, a specific statement to
that effect.
(14) The specific purposes in detail and the approximate amounts to be devoted to such purposes, so
far as determinable, for which the security to be offered is to supply funds, and if the funds are to be
raised in part from other sources, the amounts and the sources thereof.
(15) The remuneration, paid or estimated to be paid, by the issuer or its predecessor, directly or
indirectly, during the past year and the ensuing year to (a) the directors or persons performing similar
functions, and (b) its officers and other persons, naming them whenever such remuneration exceeded
sixty thousand (P60,000.00) pesos during any such year.
(16) The amount of issue of the security to be offered.
(17) The estimated net proceeds to be derived from the security to be offered.
(18) The price at which the security is proposed to be offered to the public or the method by which such
price is computed and any variation therefrom at which any portion of such security is proposed to be
offered to persons or classes of persons, other than the underwriters, naming them or specifying the
class. A variation in price may be proposed prior to the date of the public offering of the security by
filing an amended registration statement.
(19) All commissions or discounts paid or to be paid, directly or indirectly, by the issuer to the
underwriters in respect of the sale of the security to be offered. Commissions shall include all cash,
securities, contracts, or anything of value, paid, to be set aside, or disposed of, or understanding with
or for the benefit of any other person in which any underwriter is interested, made in connection with
the sale of such security. A commission paid or to be paid in connection with the sale of such security
by a person in which the issuer has an interest or which is controlled by, or under common control with,
the issuer shall be deemed to have been paid by the issuer. Where any such commission is paid, the
amount of such commission paid to each underwriter shall be stated.
(20) The amount or estimated amounts, itemized in reasonable detail, of expenses, other than
commission specified in the next preceding paragraph, incurred or to be incurred by or for the account
of the issuer in connection with the sale of the security to be offered or properly chargeable thereto,
including legal, engineering, certification, authentication, and other charges.
(21) The net proceeds derived from any security sold by the issuer during the two years preceding the
filing of the registration statement, the price at which such security was offered to the public, and the
names of the principal underwriters of such security.
(22) Any amount paid within two years preceding the filing of the registration statement or intended to
be paid to any promoter and the consideration for any such payment.
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(23) The names and addresses of the vendors and the purchase price of any property or goodwill,
acquired or to be acquired, not in the ordinary course of business, which is to be defrayed in whole or
in part from the proceeds of the security to be offered, the amount of any commission payable to any
person in connection with such acquisition, and the name or names of such person or persons,
together with any expense incurred or to be incurred in connection with such acquisition, including the
cost of borrowing money to finance such acquisition.
(24) Full particulars of the nature and extent of the interest, if any, of every director, principal executive
officer, and of every stockholder holding more than ten (10%) per centum in the aggregate of the stock
of the issuer, in any property acquired, not in the ordinary course of business of the issuer, within two
years preceding the filing of the registration statement or proposed to be acquired at such date.
(25) The names and addresses of independent counsel who have passed on the legality of the issue.
(26) Dates of and parties to, and the general effect concisely stated of every material contract made,
not in the ordinary course of business, which contract is to be executed in whole or in part at or after
the filing of the registration statement or which has been executed not more than two years before such
filing. Any management contract or contract providing for special bonuses or profit-sharing
arrangements, and every material patent or contract for a material patent right, and every contract by or
with a public utility company or an affiliate thereof, providing for the giving or receiving of technical or
financial advice or service shall be deemed a material contract.
Any contract, whether or not made in the ordinary course of business with any stockholder, whether a
natural or juridical person, owning more than ten (10%) per centum of the shares of the issuer shall be
deemed a material contract for the purpose of this Act.
(27) A balance sheet as of a date not more than ninety days prior to the date of the filing of the
registration statement showing all of the assets of the issuer, the nature and cost thereof, whenever
determinable with intangible items segregated, including any loan to or from any officer, director,
stockholder or person directly or indirectly controlling or controlled by the issuer, or person under direct
or indirect common control with the issuer. In the event any such assets consist of shares of stock in
other companies, the balance sheet and profit and loss statements of such companies for the past
three years shall likewise be enclosed. All the liabilities of the issuer, including surplus of the issuer,
showing how and from what sources such surplus was created, all as of a date not more than ninety
days prior to the filing of the registration statement. If such statement is not certified by an independent
certified public accountant, in addition to the balance sheet required to be submitted under this
schedule, a similar detailed balance sheet of the assets and liabilities of the issuer, certified by an
independent certified public accountant, of a date not more than one year prior to the filing of the
registration statement, shall be submitted.
(28) A profit and loss statement of the issuer showing earnings and income, the nature and source
thereof, and the expenses and fixed charges in such detail and such form as the Commission shall
prescribe for the latest fiscal year for which such statement is available and for the two preceding fiscal
years, year by year, or, if such issuer has been in actual business for less than three years, then for
such time as the issuer has been in actual business, year by year. If the date of the filing of the
registration statement is more than six months after the close of the last fiscal year, a statement from
such closing date to the latest practicable date. Such statement shall show what the practice of the
issuer has been during the three years or lesser period as to the character of the charges, dividends or
other distributions made against its various surplus accounts, and as to depreciation, depletion, and
maintenance charges, and if stock dividends or avails from the sale of rights have been credited to
income, they shall be shown separately with statement of the basis upon which credit is computed.
Such statement shall also differentiate between recurring and nonrecurring income and between any
investment and operating income. Such statement shall be certified by an independent certified public
accountant.
(29) Any liabilities of the issuer to companies controlling or controlled by the issuer shall be disclosed in
full detail as to use of the proceeds thereof, the maturity and repayment schedule, nature of security
thereof, the rate of interest and other terms and conditions thereof. If the proceeds, or any part of the
proceeds, of the security to be issued is to be applied directly or indirectly to the purchase of any
business, a profit and loss statement of such business, certified by an independent certified public
accountant, meeting the requirements of subparagraph (28) of this subsection, for the three preceding
fiscal years, together with a balance sheet, similarly certified, of such business, meeting the
requirements of subparagraph (27) hereof of a date not more than ninety days prior to the filing of the
registration statement or at the date such business was acquired by the issuer more than ninety days
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prior to the filing of the registration statement.

(30) A copy of any agreement or agreements or, if identical agreements are used, the forms thereof
made with any underwriter, including all contracts and agreements referred to in subparagraph (19)
hereof.
(31) A copy of the opinion or opinions of independent counsel in respect to the legality of the issue.
(32) A copy of all material contracts referred to in subparagraph (26) hereof, but no disclosure shall be
required by the Commission of any portion of any such contract if the disclosure of such portion would
impair the value of the contract and would not be necessary for the protection of the investors.
(33) A detailed statement showing the items of cash, property, services, patents, goodwill, and any
other consideration for which securities have been or are to be issued in payment.
(34) The amount of cash to be paid as promotion fees, or of capital stock which is to be set aside and
disposed of as promotion stock, and a statement of all stock issued from time to time as promotion
stock.
(35) In connection with securities issued by a person engaged in the business of developing, exploiting
or operating mineral claims, a sworn statement of a mining engineer stating the ore possibilities of the
mine and such other information in connection therewith as will show the quality of the ore in such
claims, and the unit cost of extracting it.
(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;
(b) A copy of all instruments by which the trust is created or declared and in which it is accepted
and acknowledged, if the issuer is a trust;
(c) A copy of its articles of partnership or association and all the papers pertaining to its
organization, if the issuer is a partnership, unincorporated association, joint-stock company,
syndicate, or any other form of organization.
(37) A copy of the underlying agreements or indentures affecting any stock, bonds, or debentures
offered or to be offered by the issuer and outstanding on the part of companies controlling or controlled
by the issuer.
(38) Where the issuer or registrant is not formed, organized and existing under the laws of the
Philippines or is not domiciled in the Philippines, a written power of attorney, certified and authenticated
in accordance with law, designating some individual person, who must be a resident of the Philippines,
on whom any summons and other legal processes may be served in all actions or other legal
proceedings against him, and consenting that service upon such resident agent shall be admitted as
valid and proper service upon the issuer or registrant, and if at any time that service cannot be made
upon such resident agent, service shall be made upon the Commission.
Additional information or documents, including written information from an expert, may be required, or
anyone of the above requirements may be dispensed with, depending on the necessity thereof for the
protection of the public investors, or their applicability to the class of securities sought to be registered,
as the case may be.
The registration statement shall be signed by the issuer, its principal executive officer, its principal
operating officer, its principal financial officer, its comptroller or principal accounting officer or persons
performing similar functions. The written consent of the expert named as having certified any part of the
registration statement or any document used in connection therewith shall also be filed.
Upon filing of the registration statement, the registrant shall pay to the Commission a fee of not more
than one-tenth of one per centum of the maximum aggregate price at which such securities are
proposed to be offered and the fact of such filing shall be immediately published by the Commission, at
the expense of the registrant, in two newspapers of general circulation in the Philippines, once a week
for two consecutive weeks, reciting that a registration statement for the sale of such security has been
filed with it, and that the aforesaid registration statement, as well as the papers attached thereto, are
open to inspection during business hours, by interested parties, and copies thereof, photostatic or
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otherwise, shall be furnished to every applicant at such reasonable charge as the Commission may
prescribe.
Any interested party may file an opposition to the registration within ten days from the publication.
If after the completion of the aforesaid publication, the Commission finds that the registration statement
together with all the other papers and documents attached thereto, is on its face complete and that the
requirements and conditions for the protection of the investors have been complied with, and unless
there are grounds to reject a registration statement as herein provided, it shall as soon as feasible
enter an order making the registration effective, and issue to the registrant a permit reciting that such
person, its brokers or agents, are entitled to offer the securities named in said certificate, with such
terms and conditions as it may impose in the public interest and for the protection of investors.
The Commission shall, however, advise the public that the issuance of such permit shall not be
deemed a finding by the Commission that the registration statement is true and accurate on its face or
that it does not contain an untrue statement of fact or omit to state a material fact, or be held to mean
that the Commission has in any way given approval to the security included in the registration
statement. Every permit and any other statement, printed or otherwise, for public consumption, that
makes reference to such permit shall clearly and distinctively state that the issuance thereof is only
permissive and does not constitute a recommendation or endorsement of the securities permitted to be
offered for sale. It shall be unlawful to make, or cause to be made, to any prospective purchaser any
representation contrary to the foregoing.
Notwithstanding the foregoing, the Commission, for the guidance of investors, may require issuers to
submit their securities to rating by securities rating agencies accredited by the Commission, to provide
all information necessary therefor, and to report such rating in the registration statement and
prospectus, if any, offering the securities.
If any change occurs in the facts set forth in the registration statement, it shall be the obligation of the
issuer, dealer or underwriter who filed the original registration statement to submit to the Commission
for approval an amended registration statement.
The Commission, in its order, may fix the maximum amount of commission or other form of
remuneration to be paid in cash or otherwise, directly or indirectly, for or in connection with the sale or
offering for sale of such securities in the Philippines and the maximum amount of compensation which
the issuer shall pay for mining claims and mineral rights for which provision is made by the issuer for
payment in cash or securities. The amount of compensation which shall be paid the owner or holder of
such mining claims or mineral rights shall be a fair valuation thereof, as may be fixed by the
Commission, after consultation with the Bureau of Mines, and after receiving such technical information
as the issuer or dealer or the owner or owners of such claims may care to submit in the premises.
A copy of the order of the Commission making the registration effective, together with the registration
statement, shall be transmitted to the exchange wherein the security may be listed and shall be
available for inspection by any interested party during reasonable hours on any business day.
The order shall likewise be published, at the expense of the registrant, once in a newspaper of general
circulation within ten days from its promulgation.
The same rules shall apply to any amendment to the registration statement.
56 Section 8. Order of Investigation - The parties shall be afforded an opportunity to be present but without the
right to examine or cross-examine. If the parties so desire, they may submit questions to the Hearing Officer
which the latter may propound to the parties or witnesses concerned.
57 G.R. No. 96681, 2 December 1991, 204 SCRA 483, 495-496.
58 Gonzales v. Hon. Narvasa, supra note 45 at 528, citing Sanidad v. Commission on Elections, supra note 45
at 358; and Valmonte v. Philippine Charity Sweepstakes, G.R. No. 78716, 22 September 1987, Resolution.
59 Rabago v. National Labor Relations Commission, G.R. No. 82868, 5 August 1991, 200 SCRA 158,
164-165; Rase v. National Labor Relations Commission, G.R. No. 110637, 7 October 1994, 237 SCRA 523,
532.
60 Philippine Airlines, Inc. v. Tongson, 459 Phil. 742, 753 (2003).
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61 Rase v. National Labor Relations Commission, supra note 56 at 534.

62 G.R. No. L-75501, 15 September 1987, 154 SCRA 49, 54.
63 Philippine Airlines, Inc. v. Tongson, supra note 57 at 753.
64 416 Phil. 722, 746-747 (2001).
65 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.
8.2. The Commission may conditionally approve the registration statement under such terms as it may
deem necessary.
8.3. The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this
Section.
8.4. A record of the registration of securities shall be kept in a Register of Securities in which shall be
recorded orders entered by the Commission with respect to such securities. Such register and all
documents or information with respect to the securities registered therein shall be open to public
inspection at reasonable hours on business days.
8.5. 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.
66 SEC. 12. Procedure for Registration of Securities. -
12.1. All securities required to be registered under Subsection 8.1 shall be registered through the filing
by the issuer in the main office of the Commission, of a sworn registration statement with respect to
such securities, in such form and containing such information and documents as the Commission shall
prescribe. The registration statement shall include any prospectus required or permitted to be delivered
under Subsections 8.2, 8.3 and 8.4.
12.2. In promulgating rules governing the content of any registration statement (including any
prospectus made a part thereof or annexed thereto), the Commission may require the registration
statement to contain such information or documents as it may, by rule, prescribe. It may dispense with
any such requirement, or may require additional information or documents, including written information
from an expert, depending on the necessity thereof or their applicability to the class of securities sought
to be registered.
12.3. The information required for the registration of any kind, and all securities, shall include, among
others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign and
local ownership.
12.4. The registration statement shall be signed by the issuer's executive officer, its principal operating
officer, its principal financial officer, its comptroller, principal accounting officer, its corporate secretary
or persons performing similar functions accompanied by a duly verified resolution of the board of
directors of the issuer corporation. The written consent of the expert named as having certified any part
of the registration statement or any document used in connection therewith shall also be filed. Where
the registration statement includes shares to be sold by selling shareholders, a written certification by
such selling shareholders as to the accuracy of any part of the registration statement contributed to by
such selling shareholders shall also be filed.
12.5. a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not
more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such
securities are proposed to be offered. The Commission shall prescribe by rule diminishing fees in
inverse proportion to the value of the aggregate price of the offering.
b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its
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own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2)
consecutive weeks, or in such other manner as the Commission by rule shall prescribe, reciting that a
registration statement for the sale of such security has been filed, and that the aforesaid registration
statement, as well as the papers attached thereto are open to inspection at the Commission during
business hours, and copies thereof, photostatic or otherwise, shall be furnished to interested parties at
such reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later
date to which the issuer has consented, the Commission shall declare the registration statement
effective or rejected, unless the applicant is allowed to amend the registration statement as provided in
Section 14 hereof. The Commission shall enter an order declaring the registration statement to be
effective if it finds that the registration statement together with all the other papers and documents
attached thereto, is on its face complete and that the requirements have been complied with. The
Commission may impose such terms and conditions as may be necessary or appropriate for the
protection of the investors.
12.7. Upon effectivity of the registration statement, the issuer shall state under oath in every prospectus
that all registration requirements have been met and that all information are true and correct as
represented by the issuer or the one making the statement. Any untrue statement of fact or omission to
state a material fact required to be stated therein or necessary to make the statement therein not
misleading shall constitute fraud.
67 SEC. 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;

26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to
state a material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or would operate
as a fraud or deceit upon any person.
68 SEC. 27. Insider's Duty to Disclose When Trading. -
27.1. It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of
material information with respect to the issuer or the security that is not generally available to the
public, unless: (a) The insider proves that the information was not gained from such relationship; or (b)
If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: (i)
that he disclosed the information to the other party, or (ii) that he had reason to believe that the other
party otherwise is also in possession of the information. A purchase or sale of a security of the issuer
made by an insider defined in Subsection 3.8, or such insider's spouse or relatives by affinity or
consanguinity within the second degree, legitimate or common-law, shall be presumed to have been
effected while in possession of material non-public information if transacted after such information
came into existence but prior to dissemination of such information to the public and the lapse of a
reasonable time for the market to absorb such information: Provided, however, That this presumption
shall be rebutted upon a showing by the purchaser or seller that he was not aware of the material
non-public information at the time of the purchase or sale.
27.2. For purposes of this Section, information is "material non-public" if: (a) It has not been generally
disclosed to the public and would likely affect the market price of the security after being disseminated
to the public and the lapse of a reasonable time for the market to absorb the information; or (b) would
be considered by a reasonable person important under the circumstances in determining his course of
action whether to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate material non-public information about the
issuer or the security to any person who, by virtue of the communication, becomes an insider as
defined in Subsection 3.8, where the insider communicating the information knows or has reason to
believe that such person will likely buy or sell a security of the issuer while in possession of such
information.
27.4. a) It shall be unlawful where a tender offer has commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in possession of material non-public information
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relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by
such tender offer if such person knows or has reason to believe that the information is non-public and
has been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of
the securities sought or to be sought by such tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by
such tender offer, and any insider of such issuer to communicate material non-public information
relating to the tender offer to any other person where such communication is likely to result in a
violation of Subsection 27.4 (a)(i).
(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such
tender offer" shall include any securities convertible or exchangeable into such securities or any
options or rights in any of the foregoing securities.
69 SEC. 23. Transactions of Directors, Officers and Principal Stockholders.
23.1. Every person who is directly or indirectly the beneficial owner of more than ten per centum (10%) of any
class of any equity security which satisfies the requirements of Subsection 17.2, or who is a director or an
officer of the issuer of such security, shall file, at the time either such requirement is first satisfied or within ten
days after he becomes such a beneficial owner, director, or officer, a statement with the Commission and, if
such security is listed for trading on an 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 (10) 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 listed for trading on an 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.
70 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
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.
71 SEC. 54. Administrative Sanctions. - 54.1 If after due notice and hearing, the Commission finds that: (a)
There is a violation of this Code, its rules, or its orders; (b) Any registered broker or dealer, associated person
thereof has failed reasonably to supervise, with a view to preventing violations, another person subject to
supervision who commits any such violation; (c) Any registrant or other person has, in a registration statement
or in other reports, applications, accounts, records or documents required by law or rules to be filed with the
Commission, made any untrue statement of a material fact, or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; or, in the case of an underwriter,
has failed to conduct an inquiry with reasonable diligence to insure that a registration statement is accurate
and complete in all material respects; or (d) Any person has refused to permit any lawful examinations into its
affairs, it shall in its discretion, and subject only to the limitations hereinafter prescribed, impose any or all of
the following sanctions as may be appropriate in light of the facts and circumstances.
72 G.R. No. 141510, 13 August 2004, 436 SCRA 438, 458.
73 Rollo, p. 649-652.
74 Section 1. Violation penalized by special acts shall, unless otherwise provided in such acts, prescribe in
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accordance with the following rules: (a) 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: provided, however, That all offenses against any law or par of law
administered by the Bureau of Internal Revenue shall prescribe after five years. Violations penalized by
municipal ordinances shall prescribe after two months. (Emphasis provided.)
75 Llenes v. Dicdican, G.R. No. 122274, 31 July 1986, 260 SCRA 207, 217-220; and Baytan v. Commission
on Elections, G.R. No. 153945, 4 February 2003, 396 SCRA 703, 713.
76 Bautista v. Court of Appeals, G.R. No. 143375, 6 July 2001, 360 SCRA 618, 623.
77 G.R. No. 168380, 8 February 2007.
78 The Revised Securities Act provides that:
Sec. 45. Investigations, injunctions and prosecution of offenses. (a) 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 Act or any rule or regulation thereunder ,
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 is authorized, in its discretion, to 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 Act, 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 Act relates: Provided, however, That no such
investigation shall be conducted unless the person investigated is furnished with a copy of any
complaint which may have been the cause of the initiation of the investigation or is notified in writing of
the purpose of such investigation: Provided, further, That all criminal complaints for violations of this
Act, and the implementing rules and regulations enforced or administered by the Commission shall be
referred to the National Prosecution Service of the Ministry of Justice for preliminary investigation and
prosecution before the proper court: and, Provided, finally, That the investigation, prosecution, and trial
of such cases shall be given priority. (Emphasis provided.)
The Securities Regulations Code provides that:
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.
79 Rollo, p. 32.
80 G.R. No. 168380, 8 February 2007, 515 SCRA 170.
81 Id.
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82 Section 5.2 of Republic Act No. 8799, known as the Securities Regulations Code, enacted on 19 July
2000, reads:
5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.
CARPIO, J.:
1 G.R. No. 102342, 3 July 1991, 211 SCRA 277.
2 Section 1 of Act No. 3326 provides: "Violations penalized by special acts shall, unless otherwise provided in
such acts, prescribe in accordance with the following rules: (a) after a year for offences 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 offence
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
supplied)
3 Section 54 of the Securities Regulation Code provides: "Administrative Sanctions. 54.1. If, after due
notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules, or its orders; (b)
Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a view to
preventing violations, another person subject to supervision who commits any such violation; (c) Any
registrant or other person has, in a registration statement or in other reports, applications, accounts, records
or documents required by law or rules to be filed with the Commission, made any untrue statement of a
material fact, or omitted to state any material fact required to be stated therein or necessary to make the
statements therein not misleading; or, in the case of an underwriter, has failed to conduct an inquiry with
reasonable diligence to insure that a registration statement is accurate and complete in all material respects;
or (d) Any person has refused to permit any lawful examinations into its affairs, it shall, in its discretion, and
subject only to the limitations hereinafter prescribed, impose any or all of the following sanctions as may be
appropriate in light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the offering of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million pesos
(P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of continuing
violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer,
member of the Board of Directors, or person performing similar functions, of an issuer required to file
reports under Section 17 of this Code or any other act, rule or regulation administered by the
Commission;
(iv) In the case of a violation of Section 34, a fine of no more than three (3) times the profit gained or
loss avoided as a result of the purchase, sale or communication proscribed by such Section; and
(v) Other penalties within the power of the Commission to impose.
54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of
criminal charges against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of execution to enforce the provisions of this
Section and to enforce payment of the fees and other dues collectible under this Code.
4 Section 53.1 of the Securities Regulation Code provides 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."
Section 45 of the old Revised Securities Act contained substantially the same provision.
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TINGA, J.:
1 See ColiN Chapman, How the Stock Market Works (1988 ed.), pp. 151-152.
2 See R. Jennings, H. Marsh, Jr., J. Coffee, Jr. and J. Salgiman, Securities REgulation: Cases and Materials
(8th ed., 1998), pp. 1-6.
3 F. Babozzi and F. Modigliani, Capital Markets (3 rd ed., 2006).
4 "Generally speaking, insider trading is trading in securities while in possession of material nonpublic
information." S. Bainbridge, Corporation Law and Economics (2002 ed.), p. 519.

5 Matter of Cady, Roberts & Co., 40 SEC 907, 912 (1961); cited in Texas Gulf Sulpher Co., 401 F.2d 833 (2d
Cir. 1968).
6 Bainbridge, supra note 4 at 520 citing H.L. Wilgus, Purchase of Shares of a Corporation by a Director from a
Shareholder, 8 Mich. L. Rev. 267, 267 (1910).

7 Id., citing Carpenter v. Danforth, 52 Barb. 581 589 (N.Y.Sup. Ct.1868).
8 45 S.E. 232 (Ga.1903)
9 Id.
10 213 U.S. 419 (1909).
11 See R. Jennings, H. Marsh Jr., J. Coffee Jr. and J. Seligman, supra note 2 at 2; citing H.R.Rep. No. 85, 73d
Cong., 1st Sess. 2 (1933).

12 Id.
13 15 U.S.C. 78j(b).
14 Bainbridge, supra note 4 at 525.
15 Id. at 526.
16 Id. at 527.
17 17 CFR 240.10b-5.
18 "According to one account, the decision to adopt the rule and model it on section 17(a) [of the 1933
Securities Exchange Act] was arrived at without any deliberation, with the only official discussion consisting of
one SEC Commissioner reportedly observing, "we are against fraud, aren't we?" T.L. Hazen, The Law of
Securities Regulation (4th ed., 2002), at 571; citing J. Blackmun, dissenting, Blue Chips Stamps v. Manor
Drug Stores, 421 U.S. 723, 767 (1975).
19 Id. at 570-571.
20 Supra note 5.
21 Bainbridge, supra note 4 at 528.
22 Particularly, through the case of SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968), which has
been described as "the first of the truly seminal insider trading cases," even though much of its core insider
trading holding had since been rejected by the U.S. Supreme Court. See Bainbridge, supra note 4, at 529.
23 U.S. v. Chiarella, 445 U.S. 222 (1980).
24 Dirks v. SEC, 463 U.S. 646 (1984).
25 See Bainbridge, supra note 4, at 537.
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26 Financial Securities and Markets Act of 2000, Part VIII (118)(2)(a).

27 See Sec. 1, Com. Act No. 83 (1936).
28 See Sec. 20, Com. Act No. 83 (1936)
29 See Sec. 21, Com. Act No. 83 (1936).
30 Rules Requiring Disclosure of Material Facts by Corporations whose Securities are Listed in any Stock
Exchange or Registered/Licensed Under the Revised Securities Act, dated 29 January 1973.
31 See R. Morales, The Philippine Securities Regulation Code (Annotated) (2002 ed.) at 199.
32 Id.
33 A similar provision is found in Section 53 of the Securities Regulation Code of 2008.
34 G.R. No. 168380, 8 February 2007, 515 SCRA 515.
35 The first phase was the preliminary examination for the determination of the fact of commission of the
offense and the existence of probable cause, as well as the issuance of the warrant of arrest. The second
phase was the preliminary investigation proper (after arrest, for the determination of whether there was a
prima facie case against the accused and whether the issuance of the arrest warrant was justified).
36 125 Phil. 895 (1967).
37 Id.
38 Entitled "An Act To Establish Periods of Prescription for Violation Penalized by Special Acts and Municipals
Ordinances And To Provide When Prescription Shall Begin To Act."

39 9 Phil. 509 (1908).
40 46 Phil. 380.
41 9 Phil. 509, 511.
42 52 Phil. 712 (1929).
43 52 Phil. 712, 715.
44 G.R. No. L-22465, 28 February 1967.
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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191995
August 3, 2011
PHILIPPINE VETERANS BANK, Petitioner,

vs.
JUSTINA CALLANGAN, in her capacity as Director of the Corporation Finance Department of the Securities
and Exchange Commission and/or the SECURITIES AND EXCHANGE COMMISSION, Respondent.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration 1 filed by petitioner Philippine Veterans Bank (the Bank) dated August 5,
2010, addressing our June 16, 2010 Resolution that denied the Banks petition for review on certiorari.
Factual Antecedents
On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation Finance Department of the
Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies as a "public
company" under Section 17.2 of the Securities Regulation Code (SRC) in relation with Rule 3(1)(m) of the Amended
Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the reportorial
requirements set forth in Section 17.1 of the SRC. 2
The Bank responded by explaining that it should not be considered a "public company" because it is a private
company whose shares of stock are available only to a limited class or sector, i.e., to World War II veterans, and not
to the general public. 3
In a letter dated April 20, 2004, Director Callangan rejected the Banks explanation and assessed it a total penalty of
One Million Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P 1,937,262.80) for
failing to comply with the SRC reportorial requirements from 2001 to 2003. The Bank moved for the reconsideration
of the assessment, but Director Callangan denied the motion in SEC-CFD Order No. 085, Series of 2005 dated July
26, 2005.4 When the SEC En Banc also dismissed the Banks appeal for lack of merit in its Order dated August 31,
2006, prompting the Bank to file a petition for review with the Court of Appeals (CA). 5
On March 6, 2008, the CA dismissed the petition and affirmed the assailed SEC ruling, with the modification that the
assessment of the penalty be recomputed from May 31, 2004. 6
The CA also denied the Banks motion for reconsideration, 7 opening the way for the Banks petition for review on
certiorari filed with this Court.8
On June 16, 2010, the Court denied the Banks petition for failure to show any reversible error in the assailed CA
decision and resolution. 9
The Motion for Reconsideration
The Bank reiterates that it is not a "public company" subject to the reportorial requirements under Section 17.1 of
the SRC because its shares can be owned only by a specific group of people, namely, World War II veterans and
their widows, orphans and compulsory heirs, and is not open to the investing public in general. The Bank also asks
the Court to take into consideration the financial impact to the cause of "veteranism"; compliance with the reportorial
requirements under the SRC, if the Bank would be considered a "public company," would compel the Bank to spend
approximately P40 million just to reproduce and mail the "Information Statement" to its 400,000 shareholders
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nationwide.
The Courts Ruling
We DENY the motion for reconsideration for lack of merit.
To determine whether the Bank is a "public company" burdened with the reportorial requirements ordered by the
SEC, we look to Subsections 17.1 and 17.2 of the SRC, which provide:
Section 17. Periodic and Other Reports of Issuers.
17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of the issuers fiscal year, or such other time as the
Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and
loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified
public accountant, and a management discussion and analysis of results of operations; and
b) Such other periodical reports for interim fiscal periods and current reports on significant developments of
the issuer as the Commission may prescribe as necessary to keep current information on the operation of the
business and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:
xxxx
c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the Commission
shall prescribe, and having two hundred (200) or more holders each holding at least one hundred (100) shares
of a class of its equity securities: Provided, however, That the obligation of such issuer to file reports shall be
terminated ninety (90) days after notification to the Commission by the issuer that the number of its holders holding
at least one hundred (100) shares is reduced to less than one hundred (100). (emphases supplied)
We also cite Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC, which defines a "public
company" as "any corporation with a class of equity securities listed on an Exchange or with assets in excess of
Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least two hundred
(200) of which are holding at least one hundred (100) shares of a class of its equity securities."
From these provisions, it is clear that a "public company," as contemplated by the SRC, is not limited to a company
whose shares of stock are publicly listed; even companies like the Bank, whose shares are offered only to a specific
group of people, are considered a public company, provided they meet the requirements enumerated above.
The records establish, and the Bank does not dispute, that the Bank has assets exceeding P 50,000,000.00 and has
395,998 shareholders. 10 It is thus considered a public company that must comply with the reportorial requirements
set forth in Section 17.1 of the SRC.
The Bank also argues that even assuming it is considered a "public company" pursuant to Section 17 of the SRC,
the Court should interpret the pertinent SRC provisions in such a way that no financial prejudice is done to the
thousands of veterans who are stockholders of the Bank. Given that the legislature intended the SRC to apply only
to publicly traded companies, the Court should exempt the Bank from complying with the reportorial requirements.
On this point, the Bank is apparently referring to the obligation set forth in Subsections 17.5 and 17.6 of the SRC,
which provide:
Section 17.5. Every issuer which has a class of equity securities satisfying any of the requirements in Subsection
17.2 shall furnish to each holder of such equity security an annual report in such form and containing such
information as the Commission shall prescribe.
Section 17.6. Within such period as the Commission may prescribe preceding the annual meeting of the holders of
any equity security of a class entitled to vote at such meeting, the issuer shall transmit to such holders an annual
report in conformity with Subsection 17.5. (emphases supplied)
In making this argument, the Bank ignores the fact that the first and fundamental duty of the Court is to apply the
law.11 Construction and interpretation come only after a demonstration that the application of the law is impossible
or inadequate unless interpretation is resorted to. 12 In this case, we see the law to be very clear and free from any
doubt or ambiguity; thus, no room exists for construction or interpretation.
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Additionally, and contrary to the Banks claim, the Banks obligation to provide its stockholders with copies of its
annual report is actually for the benefit of the veterans-stockholders, as it gives these stockholders access to
information on the Banks financial status and operations, resulting in greater transparency on the part of the Bank.
While compliance with this requirement will undoubtedly cost the Bank money, the benefit provided to the
shareholders clearly outweighs the expense. For many stockholders, these annual reports are the only means of
keeping in touch with the state of health of their investments; to them, these are invaluable and continuing links with
the Bank that immeasurably contribute to the transparency in public companies that the law envisions.
WHEREFORE, premises considered, petitioner Philippine Veterans Banks motion for reconsideration is hereby
DENIED with finality.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO *
Associate Justice
JOSE PORTUGAL PEREZ

Associate Justice

Associate Justice
ATTESTATION
I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
Footnotes
* Designated as Acting Member of the Second Division per Special Order No. 1006 dated June 10, 2011.
1 Rollo, pp. 172-183.
2 Id. at 32.
3 Ibid.
4 Id. at 33.
5 Id. at 40-47.
6 Penned by Associate Justice Magdangal M. de Leon, and concurred in by Associate Justices Rebecca de
Guia-Salvador and Ricardo R. Rosario; id. at 31-37.
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7 Id. at 38-39.
8 Id. at 3-26.
9 Id. at 167.
10 Id. at 36.
11 People v. Mapa, G.R. No. L-22301, August 30, 1967, 20 SCRA 11.
12 Lizarraga Hermanos v. Yap Tico, 24 Phil. 504 (1913).
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SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171815
August 7, 2007
CEMCO HOLDINGS, INC., Petitioner,

vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24 October 2005
Decision1 and the 6 March 2006 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 88758 which affirmed the
judgment 3 dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding that the acquisition of
petitioner Cemco Holdings, Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and
Atlas 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 principal stockholders UCHC, a non-listed
company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs stocks were
owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary
ACC had passed resolutions to sell to Cemco BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in
UCHC equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemcos
acquisition 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
Percentage
Existing shares of Cemco in UCHC
9%
Acquisition by Cemco of BCIs and ACCs shares in UCHC
51%
Total stocks of Cemco in UCHC
60%
Percentage of UCHC ownership in UCC
60%
Indirect ownership of Cemco in UCC
36%
Direct ownership of Cemco in UCC
17%
Total ownership of Cemco in UCC
53%
As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to whether the
Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to
the purchase by petitioner of the majority of shares of UCC.
In a letter dated 16 July 2004, Director Justina Callangan of the SECs Corporate Finance Department responded to
the query of the PSE that while it was the stance of the department that the tender offer rule was not applicable, the
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matter must still have to be confirmed by the SEC en banc.

Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had
resolved that the Cemco transaction was not covered by the tender offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of the
Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule
on mandatory tender offer. Cemco, however, refused.
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. 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. 6
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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. 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
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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. 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 Commission 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. 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 Appeals 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.
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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. 12 A public company is defined as a corporation which is listed on an
exchange, or a corporation with assets exceeding P 50,000,000.00 and with 200 or more stockholders, at least 200
of them holding not less than 100 shares of such company. 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.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. 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, 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. 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. 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. 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.
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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. 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. 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. 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, 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 principle of prospective application of
new judicial doctrines would turn 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 the holding in the case of any force.
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Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case, the Court did not defer
application of the rule laid down imposing a fine on the employer for failure to give notice in a case of dismissal for
cause. To the contrary, the new rule was applied right then and there. x x x.
Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is "incomplete and produces no
effect."
This contention is baseless.
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). 24
A reading of the above ruling of the SEC reveals that the same is complete. It orders the conduct of a mandatory
tender offer pursuant to the procedure provided for under Rule 19(E) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code for the highest price paid for the beneficial 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 the mandatory tender offer.
WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March 2006,
respectively, affirming the Decision dated 14 February 2005 of the Securities and Exchange Commission En Banc,
are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
Associate Justice

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby
certified that the conclusions in the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Penned by Associate Justice Mario L. Guaria III with Associate Justices Rebecca De Guia-Salvador and
Arturo G. Tayag, concurring. Rollo, pp. 68-79.
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2 Id. at 119.
3 Id. at 254-264.
4 Id. at 71-72.
5 Id. at 78.
6 Id. at 576-578.
7 Section 5, Subsection 5.1. (d) of the Securities Regulation Code provides:
[T]he Commission shall have, among others, the following powers and functions:
xxxx
(d) Regulate, investigate or supervise the activities of persons to ensure compliance.
8 Rollo, p. 75.
9 114 Phil. 555, 558 (1962).
10 Rollo, pp. 182-183.
11 426 Phil. 522, 530 (2002).
12 The Philippine Securities Regulation Code (Annotated), Rafael A. Morales (2005 Ed.), p. 153.
13 Id.
14 Id.
15 Securities Regulation Code (Republic Act No. 8799) Annotated with Implementing Rules and Regulations,
Lucila M. Decasa (First Edition, 2004) p. 64.

16 Rule 19(2) of the Amended Implementing Rules and Regulations of the Securities Regulation Code dated
30 December 2003 states:

2. Mandatory tender offers
A. Any person or group of persons acting in concert, who intends to acquire thirty-five percent (35%) or
more of equity shares in a public company shall disclose such intention and contemporaneously make
a tender offer for the percent sought to all holders of such class, subject to paragraph (9)(E) of this
Rule.
In the event that the tender offer is oversubscribed, the aggregate amount of securities to be acquired
at the close of such tender offer shall be proportionately distributed across both selling shareholder with
whom the acquirer may have been in private negotiations and minority shareholders.
B. Any person or group of persons acting in concert, who intends to acquire thirty-five percent (35%) or
more of equity shares in a public company in one or more transactions within a period of twelve (12)
months, shall be required to make a tender offer to all holders of such class for the number of shares
so acquired within the said period.
C. If any acquisition of even less than thirty-five percent (35%) would result in ownership of over
fifty-one percent (51%) of the total outstanding equity securities of a public company, the acquirer shall
be required to make a tender offer under this Rule for all the outstanding equity securities to all
remaining stockholders of the said company at a price supported by a fairness opinion provided by an
independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be
required to accept any and all securities thus tendered.
17 Id.
18 Nestle Philippines, Inc. v. Court of Appeals, G.R. No. 86738, 13 November 1991, 203 SCRA 504, 510.
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19 Id. at 510-511.
20 Rollo, pp. 256-257.
21 Id. at 76-77.
22 San Juan de Dios Hospital Employees Association-AFW v. National Labor Relations Commission, 346
Phil. 1003, 1010 (1997).

23 387 Phil. 345, 357 (2000).
24 Rollo, p. 263.
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G.R. No. 198444

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 198444
September 4, 2013
CITIBANK N.A. AND THE CITIGROUP PRIVATE BANK, Petitioners,

vs.
ESTER H. TANCO-GABALDON, ARSENIO TANCO & THE HEIRS OF KU TIONG LAM, Respondents.
x-----------------------x
G.R. No, 198469-70
CAROL LIM, Petitioner,
vs.
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 Commissions 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 Citigroups Vice-President and Director. In their Complaint, 4 the
respondents alleged that Gabaldon, Tanco and Lam were joint accountholders 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 USD500,000.00 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. 6
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. 6a
Thereafter, in an order dated December 8, 2008, the SEC-EPD terminated its investigation on the ground that the
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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 Prosecutors Office a complaint for violation of the RSA
and SRC but it was referred to the SEC pursuant to Baviera v. Prosecutor Paglinawan. 10
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 2006SEC 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. 11
On November 6, 2009, petitioners Citibank and Citigroup received the SEC en banc Decision 12 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 Citibanks 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:
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.
SO ORDERED. 15
The petitioners filed a motion for reconsideration, which was denied by the CA in its Resolution 16 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 CAs 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. 20
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:
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
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after such cause of action accrued.
1 wp hi1
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 56refers 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 Section62.1,
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 Sections59, 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 liable 24 and the
extent of their liability25
Clearly, the intent is to encompass in Section 62the 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." 26
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 Justice 27 expressly ruled that Act No. 3326 is the
law applicable to offenses under special laws which do not provide their own prescriptive periods. 28
Section 1 of Act No. 3326 provides:
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. 30
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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 Prosecutors Office a
complaint for violation of the RSA and SRC. In Resolution dated July 18,2007, however, the prosecutors 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.32
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. 33
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 inequity, which is,
applied only in the absence of statutory law. 35 And though aches 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. 37
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 pronouncement in Baviera 39 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.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
Chief Justice
Chairperson
LUCAS P. BERSAMIN
Associate Justice
MARTIN S. VILLARAMA, JR.

Associate Justice
ESTELA M. PERLAS-BERNABE *
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.
Chief Justice
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Footnotes
* Acting member per Special Order No. 1529 dated August 29, 2013.
1 Formerly the Compliance and Enforcement Department.
2 Included as respondents were Citibanks Country Manager Mark Jones and its Resident Agent Umesh
Patel.
3 Citigroup officials who were included as respondents were Citigroups Hong Kong Investment Center head
Sam Tse, Akbar A. Shah who is the Managing Director of Global Market Manager (Philippines) and Head of
Citigroups Philippines team, Vice-President and Citigroups former GlobalMarket Manager (Philippines)
Pakorn Boonyakurkul, Vice-President and Citigroups Country Manager Richard J. Smith.
4 Rollo (G.R. No. 198444), pp. 146-187; rollo (G.R. Nos. 198469-70), pp. 134-175.
5 For violation of the following: (1) Section 4(a), RSA and Section 8(8.1), SRC for offering and selling
unregistered securities; (2) Section 19, RSA and Section 28(28.1) and (28.2), SRC for engaging in the
business of selling securities in the Philippines, as broker or dealer, without being registered and for
employing unregistered salesmen or agents; (3) Section 13 (a)(2), RSA and Section 57(57.1)(b), SRC for
offering and selling unregistered and worthless securities by means of written/oral communication, which
include untrue statements/omitting material facts; (4) Section 29, RSA and Section 26, SRC for offering and
selling unregistered and worthless securities through fraudulent means; (5) Section 44, RSA and Section
51(51.1), (51.2), (51.4) and (51.5), SRC for aiding and abetting the sale of unregistered and worthless
securities in the Philippines; and (6) Section 23, RSA and Section 48, SRC for extending credits beyond the
margin established by law. Rollo (G.R. No. 198444), p. 186; rollo (G.R. No. 198469-70), p.173.
6a Rollo (G.R. No. 198444), pp. 194-195; rollo (G.R. No. 198469-70, pp. 208-209.
7 Rollo (G.R. No. 198444), pp. 247-248.
8 Id. at 248.
9 Id. at 163-164.
10 Baviera ruled that all complaints for any violation of the SRC 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 of the SRC; 544 Phil. 107,
119 (2007).
11 Rollo (G.R. No. 198444), p. 252.
12 Rollo (G.R. Nos. 198469-70), pp. 897-907.
13 Id. at 60.
14 Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Ricardo R. Rosario and
Manuel M. Barrios, concurring; rollo (G.R. No. 198444), pp. 94-121; rollo, id. at 93-120.
15 Rollo (G.R. No. 198444), p. 120; rollo (G.R. Nos. 198469-70), p. 119.
17 An Act to Establish Prescription for Violations of Special Acts and Municipal Ordinances and to Provide
When Prescription Shall Begin.

18 Rollo (G.R. No. 198444), p. 110; rollo (G.R. Nos. 198469-70), p. 109.
19 Rollo (G.R. Nos. 198469-70), pp. 63-81.
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20 Rollo (G.R. No. 198444), pp. 595-607; id. at 743-757.

21 Garcia v. Social Security Commission Legal and Collection, Social Security System, 565 Phil.193, 206
(2007).
22 R.A. No. 8799, Sec. 63.1.
23 Id.
24 Id., Sec. 63.2.
25 Id., Sec. 63.3.
26 Rollo (G.R. Nos. 198469-70), pp. 108-109.
27 G.R. No. 167571, November 25, 2008, 571 SCRA 549.
28 Id. at 558.
29 G.R. No. 139930, June 26, 2012, 674 SCRA 492.
30 Id. at 505, citing Presidential Commission on Good Government v. Desierto, 484 Phil. 53, 60(2004).
31 Included in the complaint were charges for Estafa under Article 315, paragraph 3(a) of the Revised Penal
Code, which the Mandaluyong City Prosecutors Office retained for preliminary investigation.
32 Rollo (G.R. No. 198444), p. 33.
33 Insurance of the Philippine Island Corporation v. Gregorio, G.R. No. 174104, February 14, 2011,642 SCRA
685, 691.
34 Sec. 54. Administrative Sanctions
54.1. If, after due notice and hearing, the Commission finds that: (a) There is a violation of this
Code, its rules, or its orders; (b) Any registered broker or dealer, associated person thereof has
failed reasonably to supervise, with a view to preventing violations, another person subject to
supervision who commits any such violation; (c) Any registrant or other person has, in a
registration statement or in other reports, applications, accounts, records or documents required
by law or rules to be filed with the Commission, made any untrue statement of a material fact, or
omitted to state any material fact required to be stated therein or necessary to make the
statements therein not misleading; or, in the case of an under writer, has failed to conduct an
inquiry with reasonable diligence to insure that a registration statement is accurate and complete
in all material respects; or (d) Any person has refused to permit any lawful examinations into its
affairs, it shall, in its discretion, and subject only to the limitations hereinafter prescribed, impose
any or all of the following sanctions as may be appropriate in light of the facts and
circumstances:(i) Suspension, or revocation of any registration for the offering of securities;(ii) A
fine of no less than Ten Thousand pesos (P 10,000.00) nor more than One Million pesos
(P1,000,000.00) plus not more than Two Thousand pesos (P 2,000.00) for each day of continuing
violation;(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27,disqualification from
being an officer, member of the Board of Directors, or person performing similar functions, of an
issuer required to file reports under Section 17 of this Code or any other act, rule or regulation
administered by the Commission;(iv) In the case of a violation of Section 34, a fine of no more
than three (3)times the profit gained or loss avoided as a result of the purchase, sale or
communication proscribed by such Section; and (v) Other penalties within the power of the
Commission to impose.
35 See Bank of the Philippine Islands v. Royeca, G.R. No. 176664, July 21, 2008, 559 SCRA 207,219.
36 Abadiano v. Martir, G.R. No. 156310, July 31, 2008, 560 SCRA 676, 695.
37 Id. at 694-695.
38 Included in the complaint were charges for Estafa under Article 315, paragraph 3(a) of the Revised Penal
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Code, which the Mandaluyong City Prosecutor's Office retained for preliminary investigation.
39 Supra note 10.
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SUPREME COURT
Manila
SECOND DIVISION
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 certiorari 1 are the Decision 2 dated May 21, 2007 and Resolution 3 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, 2003 4 and July 16, 2003 5 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 Complaint 6 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 Binondos 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 securities 11 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
respondents 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 dismiss 15 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 opposed 17 respondents 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 respondents motion to dismiss. It noted that petitioners
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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 motion 21 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 respondents 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 RTCs Orders and dismissed petitioners
complaint for violation of the doctrine of primary jurisdiction. The CA agreed with respondents 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. Paglinawan 26
(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 Resolution 29 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 Courts 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
petitioners 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 respondents 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
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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.
1 wp hi1
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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.
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO

Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the
Chief Justice
Footnotes
1 Rollo, Vol. 1, pp. 10-34.
2 Id. at 38-56. Penned by Associate Justice Japar B. Dimaampao, with Presiding Justice Ruben T. Reyes(now
retired Associate Justice of the Supreme Court) and Associate Justice Mario L. Guarifia III, concurring.
3 Id. at 64-67. Penned by Associate Justice Remedios A. Salazar-Fernanda, with Associate Justices
Rosalinda Asuncion-Vicente and Enrico A. Lanzanas, concurring .

4 Id. at 176-185. Penned by Executive Judge Raul V. Babaran.
5 Id. at 211-214.
6 Id. at 69-81.
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7 Id. at 14.
8 The various pleadings filed by petitioners before the RTC were docketed as Civil Case No. 2387.
9 Rollo, pp. 39 and 70.
10 Id.
11 Id. at 39 and 70-71. Namely, AERIS II, CERES II, and PALMYRA, issued by Aeris Finance, Ltd., Ceres II
Finance, Ltd., and Palmyra Funding, Limited, respectively.

12 Id. at 39 and 71.
13 Id. at 72 and 75-77.
14 Id. at 40-41.
15 Id. at 140-163. Dated January 10, 2003.
16 Id. at 152-155.
17 Id. at 164-173. Vigorous Opposition dated January 16, 2003.
18 Id. at 168-169.
19 Id. at 176-185.
20 Id. at 180-181.
21 Id. at 186-200. Dated June 2, 2003.
22 Id. at 202-210. Opposition with Motion to Declare Defendant in Default dated June 5, 2003.
23 Id. at 211-214.
24 Id. at 287-327. Dated September 15, 2003.
25 Id. at 38-56.
26 G.R. Nos. 168380 and 170602, February 8, 2007, 515 SCRA 170.
27 Rollo, pp. 54-55.
28 Id. at 357-371. Motion for Reconsideration dated June 7, 2007.
29 Id. at 64-67.
30 Id. at 26.
31 Rollo, Vol. II, pp. 445-504. Comment dated October 9, 2008.
32 Baviera v. Paglinawan, supra note 26, at 182-183.
33 Id. at 182.
34 Magno v. People, G.R. No. 171542, April 6, 2011, 647 SCRA 362, 371, citing Machado v. Gatdula, G.R.
No. 156287, February 16, 2010, 612 SCRA 546, 559.

35 Enriquez v. Enriquez, G.R. No. 139303, August 25, 2005, 468 SCRA 77, 84, citing Lacson v. San
Jose-Lacson, G.R. Nos. L-23482, L-23767, and L-24259, August 30, 1968, 24 SCRA 837, 848.
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http://www.lawphil.net/judjuris/juri2008/feb2008/gr_158941_2008.html

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 158941
February 11, 2008
TIMESHARE REALTY CORPORATION, petitioner,

vs.
CESAR LAO and CYNTHIA V. CORTEZ, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the October 30,
2002 Resolution 1 of the Court of Appeals (CA), which denied due course to the appeal of Timeshare Realty
Corporation (petitioner) from the March 25, 2002 Decision 2 of the Securities and Exchange Commission (SEC) in
SEC Case No. 01-99-6199; and the July 4, 2003 CA Resolution, 3 which denied petitioners Motion for
Reconsideration.
As found by the SEC, 4 the antecedent facts are as follows:
On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V. Cortez (respondents), one timeshare of
Laguna de Boracay for US$7,500.00 under Contract No. 135000998 payable in eight months and fully paid by the
respondents.
Sometime in February 1998, the SEC issued a resolution to the effect that petitioner was without authority to sell
securities, like timeshares, prior to February 11, 1998. It further stated in the resolution/order that the Registration
Statement of petitioner became effective only on February 11, 1998. It also held that the 30 days within which a
purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of money
paid applies to all purchase agreements entered into by petitioner prior to the effectivity of the Registration
Statement.
Petitioner sought a reconsideration of the aforesaid order but the SEC denied the same in a letter dated March 9,
1998.
On March 30, 1998, respondents wrote petitioner demanding their right and option to cancel their Contract, as it
appears that Laguna de Boracay is selling said shares without license or authority from the SEC. For failure to get
an answer to the said letter, respondents this time, through counsel, reiterated their demand through another letter
dated June 29, 1998. But despite repeated demands, petitioner failed and refused to refund or pay respondents. 5
Respondents directly filed with SEC En Banc6 a Complaint 7 against petitioner and the Members of its Board of
Directors - Julius S. Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of Section 4 of Batas
Pambansa Bilang (B.P. Blg.) 178.8 Petitioner filed an Answer 9 to the Complaint but the SEC En Banc, in an Order10
dated April 25, 2000, expunged the Answer from the records due to tardiness.
On March 25, 2002, the SEC En Banc rendered a Decision in favor of respondents, ordering petitioner, together with
Julius S. Strachan, Angel G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the amount of US$7,500.00. 11
Petitioner filed a Motion for Reconsideration 12 which the SEC En Banc denied in an Order 13 dated June 24, 2002.
Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July 4, 2002 14 and had 15 days or until July
19, 2002 within which to appeal. However, on July 10, 2002, petitioner sought from the CA an extension of 30 days,
counted from July 19, 2002, or until August 19, 2002, within which to appeal. 15 The CA partly granted the motion in
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an Order dated July 24, 2002, to wit:

As prayed for, but conditioned on the timeliness of its filing, the Motion for Extension to File Petition for
Review dated 09 July 2002 and filed before this Court on 10 July 2002 is GRANTED and petitioners are given
a non-extendible period of fifteen (15) days from 10 July 2002 or until 25 July 2002 within which to file the
desired petition, otherwise, the above-entitled case will be dismissed. (Emphasis supplied.) 16
Petitioner purportedly received the July 24, 2002 CA Order on July 29, 2002, 17 but filed a Petition for Review with
the CA on August 19, 2002. 18
In the assailed October 30, 2002 Resolution, the CA dismissed the Petition for Review, thus:
Under Section 4, Rule 43 of the 1997 Revised Rules of Civil Procedure, petitioners shall not be given an
extension longer than fifteen (15) days from the expiration of the reglementary period, except for the most
compelling reason.
Thus, on 24 July 2002, in the absence of a compelling reason that justifies the granting of a longer period of
extension, this Court issued a resolution wherein petitioners were given an extension of ONLY fifteen days
from 10 July 2002 or until 25 July 2002 within which to file the petition for review, otherwise, the above entitled
case will be dismissed.
However, records show that petitioners filed their petition for review only on 19 August 2002, which is
twenty-five (25) days beyond the allowed 15-day extended period granted by this Court.
WHEREFORE, the appeal from the decision of the Securities and Exchange Commission (SEC) Case No.
01-99-6199 is hereby DISMISSED for failure of the petitioners to file their Petition for Review under the
15-day period granted by this Court as provided by Rule 43, Section 4 of the 1997 Revised Rules of Civil
Procedure.
SO ORDERED.19
and denied petitioner's Motion for Reconsideration in the assailed Resolution dated July 4, 2003. 20
Petitioner filed the present petition, urging us to look beyond the procedural lapse in its appeal, and resolve the
following substantive issues:
Whether or not the eventual approval or issuance of license has retroactive effect and therefore ratifies all
earlier transactions;
Whether or not a party in a contract could withdraw or rescind unilaterally without valid reason. 21
We deny the petition.
A judgment must become final at the time appointed by law 22 -- this is a fundamental principle upon which rests the
efficacy of our courts whose processes and decrees command obedience only when these are perceived to have
some degree of permanence and predictability. Thus, an appeal from such judgment, not being a natural right but a
mere statutory privilege, must be perfected according to the mode and within the period prescribed by the law and
the rules; otherwise, the appeal is forever barred, and the judgment becomes binding. 23
Section 70 of Republic Act No. 8799 24 which was enacted on July 19, 2000, is the law which governs petitioners
appeal from the orders of the SEC En Banc. It prescribes that such appeal be taken to the CA "by petition for review
in accordance with the pertinent provisions of the Rules of Court," specifically Rule 43. 25
Section 4 of Rule 43 is restrictive in its treatment of the period within which a petition may be filed:
Section 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its last publication, if publication is required by law for
its effectivity, or of the denial of petitioners 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.)
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Petitioners Motion for Extension of Time to File Petition for Review flouted the foregoing restriction: it sought, not a
15-day, but a 30-day extension of the appeal period; 26 and it did not even bother to cite a compelling reason for
such extension, other than its counsels caseload which, as we have repeatedly ruled, hardly qualifies as an
imperative cause for moderation of the rules. 27
Its motion for extension being inherently flawed, petitioner should not have presumed that the CA would fully grant
the same.28 Instead, it should have exercised due diligence by filing the proper petition within the allowable
period,29 or at the very least, ascertaining from the CA whether its motion for extension had been acted upon. 30 As
it were, petitioners counsel left the country, unmindful of the possibility that his clients 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 petitioners 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 petitioners appeal still inexcusably tardy by 16 days. Either way we reckon it,
therefore, petitioners appeal was not perfected within the period prescribed under Rule 43.
Nevertheless, the Court opts to resolve the substantive issues raised by petitioner in its appeal so as to determine
the lawful rights of the parties and put an end to the litigation.
Petitioner claims that at the time it entered into a timeshare purchase agreement with respondents on October 6,
1996, it already possessed the requisite license and marketing agreement to engage in such transactions, 31 as
evidenced by its registration with the SEC as a corporation. 32 Petitioner argues that when it was registered and
authorized by the SEC as broker of securities 33 - such as the Laguna de Boracay timeshares - this had the effect of
ratifying its October 6, 1996 purchase agreement with respondents, and removing any cause for the latter to rescind
it.
The Court is not persuaded.
As cited by the SEC En Banc in its March 25, 2002 Decision, as early as February 13, 1998, the SEC, through
Director Linda A. Daoang, already rendered a ruling on the effectivity of the registration statement of petitioner, viz:
This has reference to your registration statement which was rendered effective 11 February 1998. The 30
days within which a purchaser may exercise the option to unilaterally 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.) 34
Petitioner sought a reconsideration of said ruling but the same was denied by Director Daoang in an Order dated
March 9, 1998.35 However, petitioner did not resort to any other administrative remedy against said ruling, such as
by questioning the same before the SEC En Banc. Having failed to exhaust the administrative remedies available to
it, petitioner is already bound by said ruling and can no longer question the same through a direct and belated
recourse to us.36
Finally, the provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration as a
corporation already authorizes it to deal with unregistered timeshares. Corporate registration is just one of several
requirements before it may deal with timeshares:
Section 8. Procedure for registration. - (a) All securities required to be registered under subsection (a) of
Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter
interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect
to such securities, containing or having attached thereto, the following:
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
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corresponding thereto, whatever the name, if the issuer be a corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed under Section 4 from
dealing with unregistered timeshares, thus:
Section 4. Requirement of registration of securities. - (a) No securities, except of a class exempt under any of
the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of
Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless
such securities shall have been registered and permitted to be sold as hereinafter provided .
(Emphasis supplied.)
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
RENATO C. CORONA
Associate Justice

Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in consultation before the case was assigned
REYNATO S. PUNO
Chief Justice
Footnotes
1 Penned by Associate Justice Regalado E. Maambong and concurred in by Associate Justices Delilah
Vidallon-Magtolis and Andres E. Reyes, Jr.; rollo, p. 17.

2 Id. at 40.
3 Id. at 110.
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4 SEC Decision, rollo, pp. 42-43.

5 Id.
6 It is noted that the propriety of the filing of the complaint directly with the SEC En Banc was never raised as
an issue.
7 Rollo, p. 30.
8 The Revised Securities Act, approved February 23, 1982.
9 Rollo, p. 36.
10 SEC Decision, supra note 4, at 42.
11 Id. at 44
12 Id. at 45.
13 Id. at 49.
14 CA rollo, p. 2.
15 Id.
16 CA rollo, p. 6.
17 Id. at 7.
18 Id.
19 Id. at 31-32.
20 Id. at 51.
21 Petition, rollo, p. 11.
22 Far East Bank and Trust Company v. Commissioner of Internal Revenue , G.R. No. 149589, September 15,
2006, 502 SCRA 87, 91.
23 Ang v. Grageda, G.R. No. 166239, June 8, 2006, 490 SCRA 424, 438; Neypes v. Court of Appeals, G.R.
No. 141524, September 14, 2005, 469 SCRA 633, 646; Petilla v. Court of Appeals, G.R. No. 150792, March
3, 2004, 424 SCRA 254, 262.
24 The Securities Regulation Code, approved July 19, 2000.
25 Hongkong and Shanghai Banking Corporation, Ltd. v. G.G. Sportswear Manufacturing Corporation , G.R.
No. 146526, May 5, 2006, 489 SCRA 578, 585.
26 Muez v. Jomo, G.R. No. 173253, October 30, 2006, 506 SCRA 300, 307.
27 Bernardo v. People of the Philippines G.R. No. 166980, April 4, 2007, 520 SCRA 332, 341-342. See also
Philippine Amusement and Gaming Corporation v. Angara , G.R. No. 142937, November 15, 2005, 475 SCRA
41, 51; Marcial v. Hi-Cement Corporation/Union Cement Corporation, G.R. No. 144900, November 18, 2005,
475 SCRA 388, 396.
28 Bernardo v. People of the Philippines, supra note 27, at 341.
29 Gochan v. Gochan, 446 Phil. 433, 456 (2003); Sps. Galen v. Atty. Paguirigan, 428 Phil. 590, 596 (2002).
30 Ang v. Grageda, supra note 23, at 444.
31 Petition, rollo, p. 11.
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32 Id. at 26.
33 Id. at 27.
34 Rollo, p. 90.
35 Id. at 91.
36 Hongkong and Shanghai Banking Corporation, Ltd. v. G.G. Sportswear Manufacturing Corporation , supra
note 25, at 585-586.

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G.R. No. 188639
SECOND DIVISION
September 2, 2015
G.R. No. 188639
vs.
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 certiorari1under 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 Order 2 (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 plan holders.
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 plan holders 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 (LBP).
In mid-2000, the industry collapsed for a range of reasons. Legacy, like the others, was unable to pay its obligations
to the plan holders.
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 plan holders. 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 industrys regulator, to submit the documents
pertaining to Legacys assets and liabilities.
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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 insolvents 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 Legacys corporate
assets and, for said reason, included it in the insolvents estate. Thus:
WHEREFORE, the Court rules as follows:
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 debtors 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 SECs 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 plan
holders, 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 plan holders and/or beneficiaries;
that to consider the said fund as corporate assets is to open the floodgates to creditors of Legacy other than the
plan holders; and that, in issuing the order, Judge Laigo effectively allowed non-plan holders 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 Plan holders vis--vis those of the other creditors of Legacy; that Legacys 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 plan holders 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 Code 10 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.
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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 Legacys 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 SECs
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 Assignees Position
In his separate Comments on Petition 14 and Memorandum, 15 the Assignee contends that the trust fund forms part of
Legacys 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 companys 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 preneed 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, plan holders 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 plan holders 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 plan holders can still
join other claimants and participate in the distribution of the other assets of the pre-need company. 17
From the foregoing, the Court is called to determine whether Judge Laigo gravely abused his discretion in:
1. Including the trust properties in the insolvents estate; and
2. Prohibiting the SEC from validating the claims filed by the plan holders against the trust fund.
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The Courts 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 Legacys insolvency estate and in
enjoining the SECs 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:
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 plan holders. 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 plan holders. 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 plan
holders, 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 plan holders, no withdrawal shall
be made from the trust fund unless approved by the Commission. The benefits received by the plan
holders 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 plan holder 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 Courts attention to the trust agreement provisions which supposedly refer to the interest of Legacy in the
trust properties, to wit:
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 servi ferred 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-needplans,
and (iv) submission of other data or information as may beprescribed 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
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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 Companys obligations to the Plan holders under its preneed 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 fulfilment of the trust, such as the delivery of
monies to it to facilitate the payment to the plan holders.
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 Legacys 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 plan holders, 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.23
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 plan holders, 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 plan holders 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 plan holders 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:
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 plan holders 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
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because the spirit prevails over the letter. 24

This will by the legislature was fortified with the enactment of R.A. No. 9829 or the Pre-Need Code in 2009. 25 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 preneed industry with precise
specifics to ensure that the rights of the pre-need plan holders would be categorically defined and protected. Similar
provisions in the Pre-Need Code are the following:
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:
(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:
(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:
(a) Fixed income instruments. These may be classified into short-term and long-term
instruments. The instrument is shortterm if the maturity period is three hundred sixty-five (365)
days or less. This category includes:
(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
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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 longterm 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 t r/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.
1 wp hi1
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
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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 pr pany 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:
(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 plan holders, 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 preneed company with a subsidiary,
affiliate or related trust entity. However, such may be allowed: Provided, That the following conditions
are complied with:
(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, substantiallyunchanged (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
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substantial change, such action is to some extent confirmatory that the ruling carries out the legislative purpose. 27
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. 28
To rule that Legacy has retained a beneficial interest in the trust fund is to perpetuate the injustices being committed
against the plan holders and violate not only the spirit of the trust agreement but, more importantly, the lawmakers
intent. If indeed Legacy had an interest that could be reached by its creditors even during insolvency, the plan
holders would be prejudiced as they would be forced to share in the assets that would be distributed pro rata to all
creditors, whether plan holders 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 exclusive[ly] [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 Assignees 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 Legacys 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 plan holders.
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 Legacys insolvent estate.
The Assignee cited Abrera v. College Assurance Plan 34 (Abrera), where the Court held that claims covered by
rehabilitation proceedingsbefore the RTC should include all claims or demands of whatever nature or character
against a debtor or its property. At the heart of the Assignees argument is that because the authority is with the
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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.
1 wph i1
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 Legacys
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." 35
The transitory provisions of the Pre-Need Code, however, provide that "[n]otwithstanding 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." 36
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 jurisdiction 37 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 Commission 39 to achieve the objectives and purposes of these laws." 40 Relevant
thereto is Section 36.5 (b) of the SRC which states that:
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
SECs 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 plan holders 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, 45
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
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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 plan holders. Section 52 of the Pre-Need
Code only echoes and clarifies the SRCs intent to exclude from the insolvency proceeding trust fund assets that
have been established "exclusively for the benefit of plan holders." 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 effectivity 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 R TC 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 plan holders.
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.
The Securities and Exchange Commission is directed to process the claims of legitimate plan holders with dispatch.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice
MARIO C. DEL CASTILLO

Associate Justice
MARVIC M.V.F. LEONEN
Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
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CERTIFICATION
Chief Justice
Footnotes
1
Rollo, pp. 2-40.
Id. at 49-50. Penned by Judge Reynaldo M. Laigo.
Entitled "Petition for Involuntary Insolvency of Legacy Consolidated Plans, Incorporated, G/iceria Ayad,
Sahlee delos Reyes, and Antonio P. Huerte, Jr., Petitioners."
4
Issued by the Securities and Exchange Commission pursuant to Section 16 of the Securities Regulation
Code. 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 ours)
5
Rollo, pp. 63-64.
Sec. 15. Statement of debts and liabilities. Said schedule must contain a full and true statement of all his
debts and liabilities, together with a list of all those to whom, to the best of his knowledge and belief, said
debts or liabilities are due, the place of residence of his creditors and the sum due each the nature of the
indebtedness or liability and whether founded on written security, obligation, contract or otherwise, the true
cause and consideration thereof, the time and place when and where such indebtedness or liability accrued, a
declaration of any existing pledge, lien, mortgage, judgment, or other security for the payment of the debt or
liability, and an outline of the facts giving rise or which might give rise to a cause of action against such
insolvent debtor.
Sec. 16. Description of real and personal property. Said inventory must contain, besides the
creditors, an accurate description of all the real and personal property, estate, and effects of the
petitioner, including his homestead, if any, together with a statement of the value of each item of said
property, estate, and effects and its location, and a statement of the incumbrances thereon. All property
exempt by law from execution 2 shall be set out in said inventory with a statement of its valuation,
location, and the incumbrances thereon, if any. The inventory shall contain an outline of the facts giving
rise, or which might give rise, to a right of action in favor of the insolvent debtor.
7
Rollo, p. 50.
Petitioners Memorandum, p. 6; id. at 544.
Id. at 465- 525.
10
The Pre-need Code, Sec. 52. Liquidation. (a) In cases where the Commission determines that the
preneed company shall be liquidated, it shall have the power to commence insolvency proceedings in the
appropriate court which shall have jurisdiction over the assets of the pre-need company, excluding trust fund
assets that have been established exclusively for the benefit of planholders.
(b) 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. xxx xxx xxx.
11
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12
Id. at 142-150.
13
Id. at 142.
14
Id. at 159-185.
15
Id. at 410-437.
16
615 Phil. 595 (2009).
17
Rollo, pp. 182-183.
18
Id. at 105.
19
Restatement (Second) of Trusts, 127 (1959).
20
The Restatement of the Law of Trusts (Second) was adopted and promulgated by the American Law
Institute on May 23, 1957.
21
Associate Justice Vicente Abad Santos, Trusts: A Fertile Field for Philippine Jurisprudence, 25 PHIL L.J.
519, 526 (1950), describing the Restatement as having won, though by no means universal acceptance in the
United States and on which reliance can be made.
22
Rollo, p. 104.
23
Restatement (Second) of Trusts, Introductory Note (1959).
24
Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue , 624 Phil.650, 665 (2010),
citing Taada and Macapagal v. Cuenco, et al., 103 Phil. 1051, 1086 (1957).
25
The Pre-need Code became effective in 2010.
26
Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue , supra note 24, citing
Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch) , 500 Phil. 586
(2005).
27
Gulf Air Company, Philippine Branch v. CIR, G.R. No. 182045, September 19, 2012, 681 SCRA 377, 387,
citing Howden v. Collector of Internal Revenue, 121 Phil. 579, 587 (1965).
28
Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue , supra note 24, citing
Alonzo v. Intermediate Appellate Court, 234 Phil. 267, 272-273 (1987).
29
Rollo, p. 105.
30
Restatement (Second) of Trusts, 171 cmt. j. (1959).
31
32
33
See Restatement (Second) of Trusts, 170 (1959).
34
615 Phil. 595 (2009).
35
Section 55, Republic Act No. 9829.
36
Section 57, Republic Act No. 9829.
37
The Securities Regulation Code. Section 5.2. The Commissions jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or
the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The Commission
shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.
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G.R. No. 188639
38
The Reorganization of the Securities and Exchange Commission with Additional Powers and Placing the
Said Agency Under the Administrative Supervision of the Office of the President. Sec. 5. In addition to the
regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving.
(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its
officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members of associations or organizations
registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity; and
(c) Controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.
39
The Securities and Exchange Commission.
40
The Securities and Regulation Code.

Section 5. xxx xxx xxx
(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.
41
The Securities and Regulation Code.
42
New Rules on Pre-Need Plans. Rule 21. Commission Power Regarding Trust Fund Assets. The
Commission 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.
43
Jan G. Laitos, Legislative Retroactivity, 52 Wash. U.J. Urb. & Contemp. L. 081 (1997), citing GTE Sprint
Communications Corp. v. State Bd. of Equalization, 2 Cal. Rptr. 2d 441, 444-45 (Cal. Ct. App. 1991) ("Where
a statute or amendment clarifies existing law, such action is not considered a change because it merely
restates the law as it was at the time, and retroactivity is not involved."); Tomlinson v. Clarke, 825 P.2d 706,
713 (Wash. 1992) (en banc) ("When an amendment clarifies existing law and where that amendment does
not contravene previous constructions of the law, the amendment may be deemed curative, remedial and
retroactive."). http://openscholarship.
wustl.edu/cgi/viewcontent.cgi?article=1050&context=law_urbanlaw (Last visited, August 5, 2015.)
44
Fernando v. St. Scholasticas College, G.R. No. 161107, March 12, 2013, 693 SCRA 141.
45
356 Phil.787 (1998)
46
Frivaldo v. COMELEC, 327 Phil. 521, citing 73 Am Jur 2d, Sec. 354, p. 490; italics supplied.
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G.R. Nos. 209655-60

SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 209655-60
January 14, 2015
PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee,

vs.
PALMY TIBAYAN and RICO Z. PUERTO, Accused-Appellants.
DECISION
PERLAS-BERNABE, J.:
Assailed in this ordinary appeal 1 filed by accused-appellants Palmy Tibayan (Tibayan) and Rico Z. Puerto (Puerto)
(accused-appellants) is the Decision 2 dated June 28, 2013 of the Court of Appeals (CA) in CA-G.R. CR Nos. 33063,
33562, 33660, 33669, 33939, and 34398 which modified the Decisions dated December 4, 2009, 3 June 24, 2010, 4
August 2, 2010, 5 August 5, 2010, 6 January 21, 2011, 7 and August 18, 2011 8 of the Regional Trial Court of Las Pias
City, Branch 198 (RTC) and convicted accused appellants of the crime of Syndicated Estafa, defined and penalized
under Item 2 (a), Paragraph 4, Article 315 of the Revised Penal Code (RPC) in relation to Presidential Decree No.
(PD) 1689.9
The Facts
Tibayan Group Investment Company,Inc. (TGICI) is an open-end investment company registered with the Securities
and Exchange Commission (SEC) on September 21, 2001. 10 Sometime in 2002, the SEC conducted an
investigation on TGICI and its subsidiaries. In the course thereof, it discovered that TGICI was selling securities to
the public without a registration statement in violation of Republic Act No. 8799, otherwise known as "The Securities
Regulation Code," and that TGICI submitted a fraudulent Treasurers Affidavit before the SEC. Resultantly, on
October 21, 2003, the SEC revoked TGICIs corporate registration for being fraudulently procured. 11 The foregoing
led to the filing of multiple criminal cases 12 for Syndicated Estafa against the incorporators and directors of TGICI, 13
namely, Jesus Tibayan, Ezekiel D. Martinez, Liborio E. Elacio, Jimmy C. Catigan, Nelda B. Baran, and herein
accused-appellants. 14 Consequently, warrants of arrest were issued against all of them; however, only
accusedappellants were arrested, while the others remained at large. 15
According to the prosecution, private complainants Hector H. Alvarez, Milagros Alvarez, Clarita P. Gacayan, Irma T.
Ador, Emelyn Gomez, Yolanda Zimmer, Nonito Garlan, Judy C. Rillon, Leonida D. Jarina, Reynaldo A. Dacon,
Cristina DelaPea, and Rodney E. Villareal 16 (private complainants) were enticed to invest in TGICI due to the offer
of high interest rates, as well as the assurance that they will recover their investments. After giving their money to
TGICI, private complainants received a Certificate of Share and post-dated checks, representing the amount of the
principal investment and the monthly interest earnings, respectively. 17 Upon encashment, the checks were
dishonored, as the account was already closed, prompting private complainants to bring the bounced checks to the
TGICI office to demand payment. At the office, the TGICI employees took the said checks, gave private
complainants acknowledgement receipts, and reassured that their investments, as well as the interests, would be
paid. However, the TGICI office closed down without private complainants having been paid and, thus, they were
constrained to file criminal complaints against the incorporators and directors of TGICI. 18
In their defense, accused-appellants denied having conspired with the other TGICI incorporators to defraud private
complainants. Particularly, Puerto claimed that his signature in the Articles of Incorporation of TGICI was forged and
that since January 2002, he was no longer a director of TGICI. For her part, Tibayan also claimed that her signature
in the TGICIs Articles of Incorporation was a forgery,as she was neither an incorporator nor a director of TGICI. 19
The RTC Rulings
On various dates, the RTC issued six (6) separate decisions convicting Tibayan of 13 counts and Puerto of 11
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counts of Estafa under Item 2 (a), Paragraph 4, Article 315 of the RPC in relation to PD 1689, to wit: (a) in a Joint
Decision20 dated December 4, 2009, the RTC found accused-appellants guilty beyond reasonable doubt of three (3)
counts of Estafa, sentencing them to suffer the penalty of imprisonment for a period of 20 years of reclusion
temporalfor each count and ordering them to pay the amounts of P 1,500,000.00 to Hector H. Alvarez, and
119,405.23 and P800,000.00 to Milagros Alvarez; 21 (b) in a Joint Decision22 dated June 24, 2010, the RTC acquitted
Puerto of all the charges, but found Tibayan guilty beyond reasonable doubt of two (2) counts of Estafa, sentencing
her to suffer the penalty of imprisonment for a period of 20 years of reclusion temporal for each count, and ordering
her to pay the amounts of P1,300,000.00 and US$12,000.00 to Clarita P. Gacayan and P 500,000.00 to Irma T.
Ador;23 (c) in a Joint Decision24 dated August 2, 2010, the accused-appellants were found guilty beyond reasonable
doubt of two (2) counts of Estafa, and were sentenced to suffer the penalty of imprisonment for a period of 20 years
of reclusion temporal for each count, and ordered to pay the amounts of P 1,000,000.00 to Yolanda Zimmer and
P556,376.00 to Nonito Garlan; 25 (d) in a Joint Decision26 dated August 5, 2010, the RTC found the accused
appellants guilty beyond reasonable doubt of one (1) count of Estafa, sentencing them to suffer the penalty of
imprisonment for a period of 20 years of reclusion temporaland ordering them to pay Emelyn Gomez the amount of
P250,000.00; 27 (e) in a Decision28 dated January 21, 2011, accused-appellants were found guilty beyond
reasonable doubt of one (1) count of Estafa each, and were sentenced to suffer the penalty of imprisonment for a
period of 20 years of reclusion temporal and ordered to pay Judy C. Rillon the amount of P 118,000.00; 29 and (f) in a
Joint Decision 30 dated August 18, 2011, accused-appellants were each convicted of four (4) counts of Estafa, and
meted different penalties per count, as follows: (i) for the first count, they were sentenced to suffer the penalty of
imprisonment for a period of four (4) years and two (2) months of prision correcional medium, as minimum, to fifteen
(15) years of reclusion temporal medium, as maximum, and to pay Reynaldo A. Dacon the amount of P 100,000.00;
(ii) for the second count, they were sentenced to suffer the penalty of imprisonment for a period of ten (10) years of
prision mayor medium, as minimum, to twenty (20) years of reclusion temporal medium, as maximum, and to pay
Leonida D. Jarina the amount of P200,000.00; (iii) for the third count, they were sentenced to suffer the penalty of
imprisonment for a period of ten (10) years of prision mayormedium, as minimum, to twenty (20) years of reclusion
temporal medium, as maximum, and to pay Cristina Dela Pea the amount of P 250,000.00; and (iv) for the last
count, they were sentenced to suffer the penalty of imprisonment for a period of four (4) years and two (2) months of
prision correcional medium, as minimum, to fifteen (15) years of reclusion temporalmedium, as maximum, and to
pay Rodney E. Villareal the amount of P100,000.00. 31
In the aforesaid decisions, the RTC did not lend credence to accused appellants denials in light of the positive
testimonies of the private complainants that they invested their money in TGICI because of the assurances from
accused-appellants and the other directors/incorporators of TGICI that their investments would yield very profitable
returns. In this relation, the RTC found that accused-appellants conspired with the other directors/incorporators of
TGICI in misrepresenting the company as a legitimate corporation duly registered to operate as a mutual fund to the
detriment of the private complainants. 32 However, the RTC convicted accused-appellants of simple Estafa only, as
the prosecution failed to allege in the informations that accused-appellants and the other directors/ incorporators
formed a syndicate with the intention of defrauding the public, or it failed to adduce documentary evidence
substantiating its claims that the accused-appellants committed Syndicated Estafa. 33
Aggrieved, accused-appellants separately appealed the foregoing RTC Decisions to the CA, docketed as CA-G.R.
CR Nos. 33063, 33562, 33660, 33669, 33939, and 34398. Thereafter, the CA issued a Resolution 34 dated February
19, 2013 ordering the consolidation of accused-appellants appeals.
The CA Ruling
In a Decision35 dated June 28, 2013, the CA modified accused appellants conviction to that of Syndicated Estafa,
and accordingly, increased their respective penalties to life imprisonment for each count. 36 The CA also increased
the amount of actual damages awarded to private complainant Clarita P. Gacayan from P 1,300,000.00 to
P1,530,625.90, apart from the award of US$12,000.00. 37
It held that TGICI and its subsidiaries were engaged in a Ponzi scheme which relied on subsequent investors to pay
its earlier investors and is what PD 1689 precisely aims to punish. Inevitably, TGICI could no longer hoodwink new
investors that led to its collapse. 38 Thus, the CA concluded that as incorporators/directors of TGICI, accusedappellants and their cohorts conspired in making TGICI a vehicle for the perpetuation of fraud against the
unsuspecting public. As such, they cannot hide behind the corporate veil and must be personally and criminally
liable for their acts.39 The CA then concluded that since the TGICI incorporators/directors comprised more than five
(5) persons, accused-appellants criminal liability should be upgraded to that of Syndicated Estafa, and their
respective penalties increased accordingly. 40 Undaunted, accused-appellants filed the instant appeal.
The Issue Before the Court
The primordial issue for the Courts resolution is whether or not accused-appellants are guilty beyond reasonable
doubt of the crime of Syndicated Estafa defined and penalized under Item 2 (a), Paragraph 4,
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Article 315 of the RPC in relation to PD 1689.

The Courts Ruling
The Court sustains the convictions of accused-appellants.
Item 2 (a), Paragraph 4, Article 315 of the RPC provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by any means mentioned hereinbelow shall be
punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit,
agency, business, or imaginary transactions; or by means of other similar deceits.
xxxx
The elements of Estafa by means of deceit under this provision are the following: (a) that there must be a false
pretense or fraudulent representation as to his power, influence, qualifications, property, credit, agency, business or
imaginary transactions; (b) that such false pretense or fraudulent representation was made or executed prior to or
simultaneously with the commission of the fraud; (c) that the offended party relied on the false pretense, fraudulent
act, or fraudulent means and was induced to part with his money or property; and (d) that, as a result thereof, the
offended party suffered damage. 41
In relation thereto, Section 1 of PD 1689 defines Syndicated Estafa as follows:
Section 1. Any person or persons who shall commit estafa or other forms of swindling as defined in Articles 315 and
316 of the Revised Penal Code, as amended, shall be punished by life imprisonment to death if the swindling
(estafa) is committed by a syndicate consisting of five or more persons formed with the intention of carrying out the
unlawful or illegal act, transaction, enterprise or scheme, and the defraudation results in the misappropriation of
moneys contributed by stockholders, or members of rural banks, cooperatives, "samahang nayon(s)," or farmers
associations, or funds solicited by corporations/associations from the general public.
Thus, the elements of Syndicated Estafa are: (a) Estafa or other forms of swindling, as defined in Articles 315 and
316 of the RPC, is committed; (b) the Estafa or swindling is committed by a syndicate of five (5) or more persons;
and (c) defraudation results in the misappropriation of moneys contributed by stockholders, or members of rural
banks, cooperative, "samahang nayon(s)," or farmers associations, or of funds solicited by
corporations/associations from the general public. 42
In this case, a judicious review of the records reveals TGICIs modus operandiof inducing the public to invest in it on
the undertaking that their investment would be returned with a very high monthly interest rate ranging from three to
five and a half percent (3%-5.5%). 43 Under such lucrative promise, the investing public are enticed to infuse funds
into TGICI. However, as the directors/incorporators of TGICI knew from the start that TGICI is operating withoutany
paid-up capital and has no clear trade by which it can pay the assured profits to its investors, 44 they cannot comply
with their guarantee and had to simply abscond with their investors money. Thus, the CA correctly held that
accused-appellants, along with the other accused who are still at large, used TGICI to engage ina Ponzi scheme,
resulting in the defraudation of the TGICI investors.
To be sure, a Ponzi scheme is a typeof investment fraud that involves the payment of purported returns to existing
investors from funds contributed by new investors. Its organizers often solicit new investors by promising to invest
funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the perpetrators
focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance
that investors are profiting from a legitimate business. 45 It is not an investment strategy but a gullibility scheme,
which works only as long as there is an ever increasing number of new investors joining the scheme. 46 It is difficult
to sustain the scheme over a long period of time because the operator needs an ever larger pool of later investors to
continue paying the promised profits toearly investors. The idea behind this type of swindle is that the "con-man"
collects his money from his second or third round of investors and then absconds before anyone else shows up to
collect. Necessarily, Ponzi schemes only last weeks, or months at the most. 47
In this light, it is clear that all the elements of Syndicated Esta/a, committed through a Ponzi scheme, are present in
this case, considering that: (a) the incorporators/directors of TGICI comprising more than five (5) people, including
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G.R. Nos. 209655-60
herein accused-appellants, made false pretenses and representations to the investing public - in this case, the
private complainants - regarding a supposed lucrative investment opportunity with TGICI in order to solicit money
from them; (b) the said false pretenses and representations were made prior to or simultaneous with the
commission of fraud; (c) relying on the same, private complainants invested their hard earned money into TGICI;
and (d) the incorporators/directors of TGICI ended up running away with the private complainants' investments,
obviously to the latter's prejudice.
Corollary thereto, the CA correctly upgraded accused-appellants' conviction from simple Estafa to Syndicated
Estafa. In a criminal case, an appeal throws the whole case wide open for review. Issues whether raised or not by
the parties may be resolved by the appellate court. 48 Hence, accused appellants' appeal conferred upon the
appellate court full jurisdiction and rendered it competent to examine the records, revise the judgment appealed
from, increase the penalty, and cite the proper provision of the penal law. 49
1 wph i1
WHEREFORE, the appeal is DENIED. The Decision dated June 28, 2013 of the Court of Appeals in CA-G.R. CR
Nos. 33063, 33562, 33660, 33669, 33939, and 34398 is hereby AFFIRMED. Accordingly, accused appellants Palmy
Tibayan and Rico Z. Puerto are found GUILTY beyond reasonable doubt of 13 and 11 counts, respectively, of
Syndicated Esta/a and are sentenced to suffer the penalty of life imprisonment for each count. Accused-appellants
are further ordered to pay actual damages to each of the private complainants in the following amounts: (a)
P1,500,000.00 to Hector H. Alvarez; (b) P119,405.23 and P800,000.00 to Milagros Alvarez; (c) P1,530,625.90 and
US$12,000.00 to Clarita P. Gacayan; (d) P500,000.00 to Irma T. Ador; (e) P1,000,000.00 to Yolanda Zimmer; (f)
P556,376.00 to Nonito Garlan; (g) P250,000.00 to Emelyn Gomez; (h) P118,000.00 to Judy C. Rillon; (i)
P100,000.00 to Reynaldo A. Dacon; (j) P200,000.00 to Leonida D. Jarina; (k) P250,000.00 to Cristina Dela Pefia;
and (l) P100,000.00 to Rodney E. Villareal.
SO ORDERED.
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
JOSE PORTUGAL PEREZ

Associate Justice
CERTIFICATION
MARIA LOURDES P.A. SERENO
Chief Justice
Footnotes
1
See Notice of Appeal dated July 10, 2013; rollo, pp. 24-25.
Id. at 3-23. Penned by Associate Justice Mario V. Lopez with Associate Justices Jose C. Reyes, Jr. and
Socorro B. Inting, concurring.
3
See Joint Decision in Crim. Case Nos. 04-0391, 06-0042, and 06-0045 penned by Judge Erlinda NicolasAlvaro; CA rollo (CA-G.R. CR No. 33063), pp. 39-50.
4
See Joint Decision in Crim. Case Nos. 04-0619, 04-0622, 04-0627, 04-0635, and 04-0636; CA rollo
(CA-G.R. CR No. 33562), pp. 28-42.
5
See Joint Decision in Crim. Case Nos. 05-0710, 05-0779, 05-0784, 05-0803, and 05-0809; CA rollo
(CA-G.R. CR No. 33669), pp. 29-41. .
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See Joint Decision in Crim. Case Nos. 04-0070, 04-0085, 04-0125, 04-0330, 04-0441, and 04-0714; CA
rollo (CA-G.R. CR No. 33660), pp. 20-32.
7
See Decision in Crim. Case No. 04-1028; CA rollo (CA-G.R. CR No. 33939), pp. 25-32.
See Joint Decision in Crim. Case Nos. 04-0570, 04-0567, 04-0598, and 04-0613; CA rollo (CA-G.R. CR No.
34398), pp. 41-53.
9
Entitled "INCREASING THE PENALTY FOR CERTAIN FORMS OF SWINDLING OR ESTAFA" (April 6,
1980).
10
Rollo, pp. 4-5.
11
See id. at 5.
12
The criminal cases were ultimately decided insix (6) separate RTC Decisions, as follows: (a) the 1st RTC
Decision covered Crim. Case Nos. 04-0391, 06-0042, and 06-0045; (b) the 2 nd RTC Decision covered Crim.
Case Nos. 04-0619, 04-0622, 04-0627, 04-0635, and 04-0636; (c) the 3 rd RTC Decision covered Crim. Case
Nos. 05-0710, 05-0779, 05-0784, 05-0803, and 05-0809; (d) the 4 th RTC Decision covered Crim. Case Nos.
04-0070, 04-0085, 04-0125, 04-0330, 04-0441, 04-0714; (e) the 5 th RTC Decision covered Crim. Case No.
04-1028; and (f) the 6 th RTC Decision covered Crim. Case Nos. 04-0570, 04-0567, 04-0598, and 04-0613.
13
Rollo, p. 6.
14
Id. at 5.
15
Id. at 7.
16
Id. at 6.
17
Id. at 7.
18
Id.
19
Id. at 9-10.
20
CA rollo (CA-G.R. CR No. 33063), pp. 39-50.
21
Id at 50. "P119,000.23" in some parts of the records.
22
23
Id. at 42.
24
25
Id. at 40.
26
27
Id. at 31.
28
29
Id. at 31.
30
31
Id. at 52.
32
See CA rollo (CA-G.R. CR No. 33063), pp. 48-49; CA rollo (CA-G.R. CR No. 33562), pp. 39-41; CA rollo
(CA-G.R. CR No. 33669), pp. 38-40; CA rollo (CA-G.R. CR No. 33660), pp. 28-31; CA rollo (CA-G.R. CR No.
33939), pp. 30-31; and CA rollo (CA-G.R. CR No. 34398), pp. 49-51.
33
See CA rollo (CA-G.R. CR No. 33063), p. 50; CA rollo (CA-G.R. CR No. 33562), p. 41; CA rollo (CA-G.R.
CR No. 33669), pp. 38-39; CA rollo (CA-G.R. CR No. 33660), pp. 28 and 31; CA rollo (CA-G.R. CR No.
33939), p. 31; and CA rollo (CA-G.R. CR No. 34398), p. 51.
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34
35
Rollo, pp. 3-23.
36
Id. at 21-22.
37
Id. at 22.
38
Id. at 16-17.
39
Id. at 17-18.
40
Id. at 21-22.
41
People v. Chua, G.R. No. 187052, September 13, 2012, 680 SCRA 575, 592, citing Sy v. People, G.R. No.
183879, April 14, 2010, 618 SCRA 264, 271.
42
Galvez v. CA, G.R. No. 187919, 187979, and 188030, February 20, 2013, 691 SCRA 455, 467.
43
See rollo, p. 7.
44
"It has been held that where one states that the future profits or income of an enterprise shall be a certain
sum, but he actually knows that there will be none, or that they will be substantially less than he represents,
the statements constitute an actionable fraud where the hearer believes him and relies on the statement to his
injury." (People v. Menil, Jr., 394 Phil 433, 453 [2000], citing People v. Balasa, 356 Phil. 362, 387 [1998].)
45
United States Securities and Exchange Commission, Ponzi Schemes. < www.sec.gov/answers/ponzi.htm>
(visited December 19, 2014).
46
People v. Romero, 365 Phil 531, 542 (1999), citing People v. Balasa, supra note 44, at 388-389.
47
People v. Menil, supra note 44, at 455, citing People v. Balasa, id.
48
Eusebio-Calderon v. People, 484 Phil 87, 98 (2004).
49
Id.
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G.R. No. 193791

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 193791
August 6, 2014
PRIMANILA PLANS, INC., herein REPRESENTED by EDUARDO S. MADRID, Petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, Respondent.
DECISION
REYES, J.:
This resolves the Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court filed by Primanila Plans, Inc.
(Primanila) to assail the Decision 2 dated March 9, 2010 and Resolution 3 dated September 15, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 104083. The CA affirmed in CA-G.R. SP No. 104083 the Securities and Exchange
Commission's (SEC) issuance of an Order 4 dated April 9, 2008, which was a cease and desist order upon Primanila
with the following dispositive portion:
WHEREFORE, pursuant to the authority vested in the Commission, PRIMANILA PLANS, INC., its respective
officers, directors, agents, representatives, and any and all persons, conduit entities and subsidiaries claiming and
acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in
activities of selling, offering for sale Primasa plans and to refrain from further collecting payments and amortizations
for Primasa plans to protect the interest of investors and the public in general.
In accordance with the provisions of Section 64.3 of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, the parties subject of this Cease and Desist Order may file a formal request or motion for the
lifting of this Order within a non-extendible period of five (5) days from receipt hereof.
SO ORDERED. 5
The Facts
Primanila was registered with the SEC on October 17, 1988 and was issued Certificate of Registration No. 156350.
Based on its amended articles of incorporation, the companys primary purpose was "to organize, establish,
develop, conduct,provide, maintain, operate, offer, issue, market and sell pension plans under which the savings of
professionals, officers, directors and other personnel of corporations, firms, or entities, and self employed individuals
can be pooled together, accumulated and invested in profitable placements and productive enterprises so as to build
an Accumulated Fund for each individual participant or planholder for his retirement, monthly pension or for other
[foreseeable] needs in the future." Primanila then operated as a pre-needcompany and maintained a business office
in Makati City.6
On April 9, 2008, the SEC was prompted to issue the subject cease and desist order after an investigation
conducted by the SECs Compliance and Enforcement Department (CED) on Primanila yielded the following factual
findings duly explained inthe cease and desist order:
1. The office of [Primanila] located at 20th Floor, Philippine AXA Life Centre, Sen. Gil Puyat Ave., Makati City
was closed. No notices were posted outside said office to inform the public of the reason for such closure. x x
x
2. [Primanila]s website (www.primanila.com) was offering a pension plan product called Primasa Plan. The
website contains detailed instructions as to how interested persons can apply for the said plan and where
initial contributions and succeeding installment payments can be made by applicants and planholders.
According to the website, applicants and planholders can pay directly at the head office, any of its field offices
or may deposit the payments in PRIMANILAs METROBANK Account No. 066-3-06631031-1. This was
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discovered by [CED] when a member of CED visited [Primanilas] website on February 12, 2008.
3. [PRIMANILA] failed to renew its Dealers License for 2008. In view of the expiration of the said license, the
[SECs NonTraditional Securities and Instruments Department (NTD)], through its Acting Director Jose P.
Aquino, issued a letter dated January 3, 2008 addressed to [Primanilas] Chairmanand CEO Mr. Eduardo S.
Madrid, enjoining [Primanila] from selling and/or offering for sale pre-need plans to the public.
4. [Primanila] has not been issued a secondary license to act as dealer or general agent for pre-need pension
plans for 2008. Also, no registration statement has been filed by [Primanila] for the approval of a pension plan
product called Primasa Plan. This is shown in the certification dated February 15, 2008 issued by NTD upon
the request of Atty. Hubert B. Guevara of CED.
5. [Primanilas] Bank Account is still active. This was discovered by CED when it deposited on March 6,2008
the sum of Php 50.00 which was duly received by METROBANK Robinsons Branch as shown by the deposit
slip.
6. Among the many planholders of [PRIMANILA] are enlisted personnel of the Philippine National Police
(PNP). Premium collections for Primaplans via salary deductions were religiously remitted to [Primanila] on a
monthly basis. x x x
7. PNP remitted the total amount of Php 2,072,149.38 to respondent PRIMANILA representing the
aforementioned premium collections via salary deductions of the 410 enlisted personnel of PNP who are
planholders. This is shown in the table prepared by the remittance clerk of the PNP, Ms. Mercedita A. Almeda.
8. [PRIMANILA] failed to deposit the required monthly contributions to the trust fund in violation of Pre-need
Rule 19.1. This is shown in the Trust Fund Reports for the monthsof November and December 2007 prepared
by ASIATRUST BANK, the trustee of [Primanila].
9. [PRIMANILA] under-declared the total amount of its collections as shown in its SEC Monthly Collection
Reports which it submitted to NTD. Its reports show thatit only collected the total amount of Php 302,081.00
from January to September 2007. However, the remittance report of the PNP shows that [Primanila] received
the amount of Php 1,688,965.22 from the PNP planholders alone for the said period. Therefore, it underdeclared its report by Php 1,386,884.22. 7
From these findings, the SEC declared that Primanila committed a flagrant violation of Republic Act No. 8799,
otherwise known as The Securities Regulation Code (SRC), particularly Section 16 thereof which reads:
Section 16. Pre-Need Plans. No person shall sell or offer for sale to the public any pre-need planexcept 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.
It also breached the New Rules on the Registration and Sale of Pre-Need Plans, specifically Rule Nos. 3 and 15
thereof, to wit:
Rule 3. Registration of Pre-Need Plans. No corporation shall issue, offer for sale, or sell Pre-NeedPlans unless
such plans shall have been registered under Rule 4.
Rule 15. Registration of Dealers, General Agents and Salesmen of Pre-Need Plans.
15.1. Any issuer selling its own Pre-Need Plans shall be deemed a dealer in securities and shall be required to be
registered as such and comply with all the provisions hereof; provided that the issuer selling different types of
Pre-Need Plans shall be required to be registered as dealer only once for the different types of plans.
The SEC then issued the subject cease and desist order "in order to prevent further violations and in order to protect
the interest of its plan holders and the public." 8
Feeling aggrieved, Primanila filed a Motion for Reconsideration/Lift Cease and Desist Order, 9 arguing that it was
denied due process as the order was released without any prior issuance by the SEC of a notice or formal charge
that could have allowed the company to defend itself. 10 Primanila further argued that it was neither selling nor
collecting premium payments for the product Primasa plans. The product was previously developed but was never
launched and soldto the public following the resignation from the company in 2006 by Benjamin Munda,the one who
crafted it. The Primanila company website that included details on the Primasa product was not updated; the
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advertisement of the product on the website was the result of mere inadvertence. 11 Thus, the cease and desist order
against Primanila would allegedly not accomplish anything, but only prejudice the interest and claims of its other
planholders. 12
On June 5, 2008, the SEC issued its Order 13 denying Primanilas motion for reconsideration for lack of merit. The
cease and desist order issued on April 9, 2008 was then made permanent. Unyielding, Primanila appealed to the
CA viaa petition for review. On March 9, 2010, the CA rendered its decision dismissing the petition and affirming in
toto the issuances of the SEC.
The Present Petition
Following the CAs denial of its motion to reconsider, Primanila filed the present petition which cites the following
grounds:
THE [CA] GROSSLY ERRED WHEN IT SUSTAINED THE ASSAILED ORDERS OF RESPONDENT
SEC CONSIDERING THAT THE FACTS AND EVIDENCE ON RECORD [STATE] OTHERWISE; THE
[CA] GROSSLY ERRED WHEN IT RULED THAT [PRIMANILA] WAS GIVEN DUE PROCESS BY
RESPONDENT SEC AS [PRIMANILA] WAS ABLE TO FILE A MOTION FOR RECONSIDERATION;
AND
THE [CA] GROSSLY ERRED WHEN IT RULED THAT THE PUBLIC WILL NOT SUFFER GREATLY
AND IRREPARABLY BY THE IMPLEMENTATION OF THE ASSAILED ORDERS OF RESPONDENT
SEC.14
The Ruling of the Court
The petition lacks merit.
Due Process of Law
Contrary to its stance, Primanila was accorded due process notwithstanding the SECs immediate issuance of the
cease and desist order on April 9, 2008. The authority of the SEC and the manner by which it can issue cease and
desist orders are providedin Section 64 of the SRC, and we quote:
Section 64. Cease and Desist Order.
64.1. The Commission, after proper investigation or verification, motu proprio,or upon verified complaint by any
aggrieved party, may issue a cease and desist order without the necessity of a prior hearingif in its judgment the act
orpractice, unless restrained, will operate as a fraud on investors or isotherwise likely to cause grave or irreparable
injury or prejudice to the investing public.
64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a
complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease
and desist order,the Commission shall make public such order and a copy thereof shall be immediately furnished to
each person subject to the order. 64.3. Any person against whom a cease and desist order was issued may, within
five (5) days from receipt of the order, file a formal request for lifting thereof. Said request shall be set for hearing by
the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than
ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time
herein prescribed, the cease and desist order shall automatically be lifted.
The law is clear on the point that a cease and desist order may be issued by the SEC motu proprio, it being
unnecessary thatit results from a verified complaint from an aggrieved party. A prior hearing is also not required
whenever the Commission finds it appropriate to issue a cease and desist order that aims to curtail fraudor grave or
irreparable injury to investors. There is good reason for this provision, as any delay in the restraint of acts that yield
such resultscan only generate further injury to the public that the SEC is obliged to protect.
To equally protect individuals and corporations from baseless and improvident issuances, the authority of the SEC
under this rule is nonetheless with defined limits. A cease and desist order may only be issued by the Commission
after proper investigation or verification, and upon showing that the acts sought to be restrained could result in injury
or fraud to the investing public. Without doubt, these requisites were duly satisfied by the SEC prior to its issuance
of the subject cease and desist order.
Records indicate the prior conduct of a proper investigation on Primanilas activities by the Commissions CED.
Investigators of the CED personally conducted an ocular inspection of Primanilas declared office, only to confirm
reports that it had closed even without the prior approval of the SEC. Members of CED also visited the company
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website of Primanila, and discovered the companys offer for sale thereon of the pension plan product called
Primasa Plan, with instructions on how interested applicants and planholders could pay their premium payments for
the plan. One of the payment options was through bank deposit to Primanilas given Metrobank account which,
following an actual deposit made by the CED was confirmed to be active.
As part of their investigation, the SEC also looked into records relevant to Primanilas business. Records with the
SECs Non-Traditional Securities and Instruments Department (NTD) disclosed Primanilas failure to renew its
dealers license for 2008, orto apply for a secondary license as dealer or general agent for pre-need pension plans
for the same year. SEC records also confirmed Primanilas failureto file a registration statement for Primasa Plan, to
fully remit premium collections from planholders, and to declare truthfully its premium collections from January to
September 2007. (Emphasis ours)
The SEC was not mandated to allow Primanila to participate in the investigation conducted by the Commission prior
to the cease and desist orders issuance. Given the circumstances, it was sufficient for the satisfaction of the
demands of due process that the company was amply apprised of the results of the SEC investigation, and then
given the reasonable opportunity to present its defense. Primanila was able to do this via its motion to reconsider
and lift the cease and desist order. After the CED filed its comment on the motion,Primanila was further given the
chance to explain its side to the SEC through the filing of its reply. "Trite to state, a formal trial or hearing isnot
necessary to comply with the requirements of due process.Its essence is simply the opportunity to explain ones
position."15 As the Court held in Ledesma v. Court of Appeals: 16
Due process, as a constitutional precept, does not always and in all situations require a trial-type proceeding. Due
process is satisfied when a person is notified of the charge against him and given an opportunity to explain or
defend himself. In administrative proceedings, the filing of charges and giving reasonable opportunity for the person
so charged to answer the accusations against him constitute the minimum requirements of due process. The
essence of due process is simply to be heard, or as applied to administrative proceedings, an opportunity to explain
ones side, or an opportunity to seek a reconsideration of the action or ruling complained of. 17
Validity of the Cease and Desist Order
The validity of the SECs cease and desist order is further sustained for having sufficient factual and legal bases.
The acts specifically restrained by the subject cease and desist order were Primanilas sale, offer for sale and
collection of payments specifically for its Primasa plans. Notwithstandingthe findings of both the SEC and the CA on
Primanilas activities, the company still argued in its petition that it neither sold nor collected premiums for the
Primasa product. Primanila argued that the offer for sale of Primasa through the Primanila website was the result of
mere inadvertence, after the website developer whom it hired got hold of a copy of an old Primasa brochure and
then included its contents in the company website even without the knowledge and prior approval of Primanila.
It bears emphasis that the arguments of Primanila on the matter present factual issues, which as a rule, are beyond
the scope of a petition for review on certiorari. We underscore the basic rule that only questions of law may be
raised in a petition for review under Rule 45 of the Rules of Court. The Supreme Court is not a trier of facts. It is not
our function to review, examine and evaluate or weigh the probative value of the evidence presented, for a question
of fact would arise in such event. 18 Thus, it is equally settled that the factual findingsof administrative agencies, such
as the SEC, are generally held to be binding and final so long as they are supported by substantial evidence in the
record of the case. Our jurisdiction is limited to reviewing and revising errorsof law imputed to the lower court, the
latters findings of fact being conclusive and not reviewable by this Court. 19
In ruling on the petitions denial, werely on the substantial evidence that supports the SECs and CAs findings.
Section 5, Rule 133 of the Rules of Court defines "substantial evidence" as such relevant evidence which a
reasonable mind might accept as adequate to support a conclusion. 20 In the instant case, this substantial evidence
is derived from the results of the SEC investigation on Primanilas activities. Specifically on the product Primasa
plans, the SEC ascertained that there were detailed instructions on Primanilas website as to how interested
persons could apply for a plan, together with the manner by which premium payments therefor could be effected. A
money deposit by CED to Primanilas Metrobank account indicated in the advertisement confirmed that the bank
account was active.
1wph i1
There could be no better conclusion from the foregoing circumstances that Primanila was engaged inthe sale or, at
the very least, an offer for sale to the public of the Primasa plans. The offer for Primasa was direct and its reach was
even expansive, especially as it utilized its website as a medium and visits to it were, as could be expected, from
prospective clients.
The Court finds weak and implausible the argument of Primanila that the inclusion of the Primasa advertisement on
its website was due to mere inadvertence. It was very unlikely that Primanilas website developer would include in
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the Primanila website sections or items that were not sanctioned by the company. As a hiree of the company, the
websitedeveloper could have only acted upon the orders and specific instructions of the company. As prudence
requires, there also normally are employees of a company who are specifically tasked to monitor contents and
activities in its company website. It was therefore inconceivable that Primanila only knew of the Primasa post on its
website after it received the subject cease and desist order. In any case, Primanila should beheld responsible for the
truthfulness of all data or information that appeared on its website, especially as these were supplied by persons
who wereworking under its authority.
It is beyond dispute that Primasa plans were not registered with the SEC. Primanila was then barred from selling
and offering for sale the said plan product. A continued sale by the company would operate as fraud to its investors,
and would cause grave or irreparable injury or prejudice to the investing public, grounds which could justify the
issuance of a cease and desist order under Section 64 of the SRC.Furthermore, even prior to the issuance of the
subject cease and desist order, Primanila was already enjoined by the SEC from selling and/or offering for sale
pre-need products to the public. The SEC Order dated April 9, 2008 declared that Primanila failed to renew its
dealers license for 2008, prompting the SECs NTD to issue a letter dated January3, 2008 addressed to Primanilas
Chairman and Chief Executive Officer Eduardo S. Madrid, enjoining the company from selling and/or offering for
sale pre-need plans to the public. It also had not obtained a secondary license to act as dealer or general agent for
pre-need pension plans for 2008. 21
In view of the foregoing, Primanila clearly violated Section 16 of the SRC and pertinent rules which barred the sale
or offer for sale to the public of a pre-need product except in accordance with SEC rules and regulations. Under
Section 16 of the SRC:
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 plans, imposing capital, bonding and other financial responsibility, and establishing trust funds
for the payment of benefits under such plans.
As the foregoing provisions are necessary for the protection of investors and the public in general, even the
Pre-Need Code, 22 which now governs pre-need companies and their activities, contains similar conditions for the
regulation of pre-need plans.
WHEREFORE, the petition is DENIED. The Decision dated March 9, 2010 and Resolution dated September 15,
2010 of the Court of Appeals in CA-G.R. SP. No. 104083 are AFFIRMED. SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
Chief Justice
Chairperson
LUCAS P. BERSAMIN *
Associate Justice

Associate Justice
JOSE CATRAL MENDOZA **

Associate Justice
CERTIFICATION
Chief Justice
Footnotes
*
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Acting Working Chairperson per Special Order No. 1741 dated July 31, 2014 vice Justice Teresita J.
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Leonardo-De Castro.
**
Acting Member per Special Order No. 1738 dated July 31, 2014 vice hstice Teresita J. LeonardoDe Castro.
Rollo, pp. 9-24.
Penned by Associate Justice Normandie B. Pizarro, with Associate Justices Hakim S. Abdulwahid and
Ruben C. Ayson, concurring; id. at 69-79.
3
Id. at 88-89.
Id. at 26-29.
Id. at 29.
Id. at 26.
Id. at 26-28.
Id. at 29.
Id. at 30-32.
10
Id. at 30-30a.
11
Id. at 30.
12
Id. at 31.
13
Id. at 49-53.
14
Id. at 13.
15
Power Homes Unlimited Corporation v. Securities and Exchange Commission, 570 Phil. 161, 168 (2008).
16
565 Phil. 731 (2007).
17
Id. at 740.
18
Magdiwang Realty Corporation v. The Manila Banking Corporation, G.R. No. 195592, September 5, 2012,
680 SCRA 251, 264.
19
Cuenca v. Hon. Atas, 561 Phil. 186, 220 (2007).
20
Section 5, Rule 133 of the Rules of Court.
21
Rollo, p. 27.
22
Republic Act No. 9829 (2009).
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G.R. No. 181381

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 181381
July 20, 2015
SECURITIES and EXCHANGE COMMISSION, Petitioner,

vs.
UNIVERSAL RIGHTFIELD PROPERTY HOLDINGS, INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review under Rule 45 of the Rules of Court, which seeks to reverse and set aside
the Decision 1 dated January 21, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 93337, the dispositive portion
of which reads:
WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed Resolution, dated December 15,
2005, of the Securities and Exchange Commission, as well as its Order of Revocation dated December 8, 2004, are
hereby SET ASIDE.
SO ORDERED. 2
The facts are as follows:
Respondent Universal Rightfield Property Holdings, Inc. (URPHI) is a corporation duly registered and existing under
the Philippine Laws, and is engaged in the business of providing residential and leisure-related needs and wants of
the middle and upper middle-income market.
On May 29, 2003, petitioner Securities and Exchange Commission (SEC), through its Corporate Finance
Department, issued an Order revoking URPHI's Registration of Securities and Permit to Sell Securities to the Public
for its failure to timely file its Year 2001 Annual Report and Year 2002 1st, 2nd and 3rd Quarterly Reports pursuant
to Section 173 of the Securities Regulation Code (SRC), Republic Act No. 8799.
On October 16, 2003, URPHI filed with the SEC a Manifestation/Urgent Motion to Set Aside Revocation Order and
Reinstate Registration after complying with its reportorial requirements.
On October 24, 2003, the SEC granted URPHI's motion to lift the revocation order, considering the current economic
situation, URPHI's belated filing of the required annual and quarterly reports, and its payment of the reduced fine of
P82,000.00.
Thereafter, URPHI failed again to comply with the same reportorial requirements.
In a Notice of Hearing dated June 25, 2004, the SEC directed URPHI to show cause why its Registration of
Securities and Certificate of Permit to Sell Securities to the Public should not be suspended for failure to submit the
said requirements. Pertinent portion of the notice reads: Records show that the corporation has failed to submit the
following reports in violation of SRC Rule 17.1:
(1) 2003 Annual Report (SEC Form 17-A); and
(2) 2004 1st Quarter Report (SEC Form 17-Q)
The company has been allowed a non-extendible period until May 31, 2004 within which to file its 2003 Annual
Report but to date the said report has not been submitted.
In view of the foregoing and considering the inadequate information available to the public, the corporation is hereby
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directed to show cause why the Registration of its Securities and Certificate of Permit to Sell Securities should not
be suspended, in a hearing scheduled before Atty. Francia A. Tiuseco-Manlapaz on July 6, 2004, at the Securities
Registration Division, Corporation Finance Department of the Commission, 6th Floor, SEC Building, EDA,
Greenhills, Mandaluyong, Metro Manila at 10:00 o'clock in the morning. Failure of the company to appear, through
its representative, at the said hearing shall be deemed a waiver on its part to be heard with regard to the suspension
of its Certificate of Permit to Sell Securities to the Public.
SO ORDERED. 4
During the scheduled hearing on July 6, 2004, URPHI, through its Chief Accountant, Rhodora Lahaylahay, informed
the SEC why it failed to submit the reportorial requirements, viz.: (1) it was constrained to reduce its accounting staff
due to cost-cutting measures; thus, some of the audit requirements were not completed within the original timetable;
and (2) its audited financial statements for the period ending December 31, 2003 could not be finalized by reason of
the delay in the completion of some of its audit requirements.
In an Order dated July 27, 2004, the SEC suspended URPHI's Registration of Securities and Permit to Sell
Securities to the Public for failure to submit its reportorial requirements despite the lapse of the extension period,
and due to lack of sufficient justification for its inability to comply with the said requirements.
On August 23, 2004, the SEC, through its Corporation Finance Department, informed URPHI that it failed to submit
its 2004 2nd Quarter Report (SEC Form 17-Q) in violation of the Amended Implementing Rules and Regulations of
the SRC Rule 17 .1(1)(A)(ii).5 It also directed URPHI to file the said report, and to show cause why it should not be
held liable for violation of the said rule.
In a letter dated September 28, 2004, URPHI requested for a final extension, or until November 15, 2004, within
which to submit its reportorial requirements. Pertinent portions of the letter read:
We refer to your Order dated 27 July 2004, wherein the Commission resolved to SUSPEND the Corporation's
Registration of Securities and Permit to Sell Securities to the Public due to non-filing of the Corporation's reportorial
requirements under SRC Rule 17 effective for sixty (60) days or until the reporting requirements are complied [with];
otherwise, the Commission shall proceed with the revocation of the Corporation's registration [of] securities. To date,
the Corporation has not filed with the Commission its 2003 Annual Report in SEC Form 17-A and 2004 1st and 2d
Quarterly reports in SEC Form 17-Q. The non-submission of these reportorial requirements, as we have already
disclosed to you per our letter dated 13 September 2004, was due to the non-finalization of the Corporation's
audited financial statement for the fiscal year ended December 31, 2003.
During our meeting with our external auditor, SGV & Co. last 8 September 2004, SGV agreed to facilitate the
finalization of our financial statements within two (2) weeks. Notwithstanding the same, the Corporation foresees the
impossibility of complying with its submission until the end of the month, as the partners of SGV are still reviewing
the final draft of the financial statements. The Corporation intends to comply with its reportorial requirements.
However, due to the foregoing circumstances, the finalization of our financial statement has again been delayed. In
this regard, may we request for the last time until November 15, 2004 within which to submit said reportorial
requirements.6
On December 1, 2004, URPHI filed with the SEC its 2003 Annual Report.
In an Order of Revocation 7 dated December 8, 2004, the SEC revoked URPHI's Registration of Securities and
Permit to Sell Securities to the Public for its failure to submit its reportorial requirements within the final extension
period.
On December 9, 10, and 14, 2004, URPHI finally submitted to the SEC its 1st Quarterly Report for 2004, 2nd
Quarterly Report for 2004, and 3rd Quarterly Report for 2004, respectively. Meantime, URPHI appealed the SEC
Order of Revocation dated December 8, 2004 by filing a Notice of Appeal and a Memorandum both dated January
3, 2005.
In a Resolution dated December 15, 2005, the SEC denied URPHI's appeal, thus: WHEREFORE, premises
considered, the Memorandum dated 03 January 2005 of Universal Rightfield Property Holdings, Inc. praying for the
reversal of the Order of Revocation dated 08 December 2004 is DENIED for lack of merit.
SO ORDERED. 8
Aggrieved, URPHI filed a petition for review with the CA.
In a Decision dated January 21, 2008, the CA granted the petition and set aside the SEC Order of Revocation after
finding that URPHI was not afforded due process because no due notice was given and no hearing was conducted
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before its registration of securities and permit to sell them to the public was revoked. The CA noted that the hearing
conducted on July 6, 2004 was only for the purpose of determining whether URPHI's registration and permit to sell
should be suspended and not whether said registration should be revoked.
The CA ruled that based on how Sections 5.1 (m) 9 and 13.110 of the SRC are worded, suspension and revocation of
URPHI's registration of securities each requires separate notices and hearings. It also held that the Ruling 11 in
Globe Telecom, Inc. v. The National Telecommunications Commission 12 (Globe Telecom, Inc.) applies squarely to
this case since the Section 13.1 of the SRC itself provides that due notice and hearing are required before
revocation may be ordered by the SEC. In view of such specific mandate of the SRC in cases of revocation, the CA
rejected the SEC's argument that the hearing conducted for the suspension of URPHI's registration can already be
considered as the hearing for revocation.
The CA also held that the SEC cannot brush aside the specific mandate of Section 13 .1 of the SRC by merely
invoking the doctrine that administrative due process is satisfied when the party is given the opportunity to explain
one's side or the opportunity to seek a reconsideration of the action or ruling taken. Citing Globe Telecom, Inc. 13 the
CA explained that while such doctrine remains valid and has been applied in numerous instances, it must give way
in instances when the statute itself, such as Section 13 .1, demands prior notice and hearing. It added that the
imperativeness for a hearing in cases of revocation of registration of securities assumes greater significance,
considering that revocation is a measure punitive in character undertaken by an administrative agency in the
exercise of its quasi-judicial functions. Dissatisfied with the CA Decision, the SEC filed the instant petition for review
on certiorari, raising the sole issue that:
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN ACCORD WITH THE
LAW AND PREVAILING JURISPRUDENCE. 14
On the one hand, the SEC contends that URPHI was accorded all the opportunity to be heard and comply with all
the reportorial requirements before the Order of Revocation was issued. Specifically, in the Order dated July 27,
2004 suspending URPHI's registration of securities for 60 days, the SEC expressly warned that such registration
would be revoked should it persistently fail to comply with the said requirements. Still, URPHI continuously failed to
submit the required reports. On August 23, 2004, the SEC directed again URPHI to submit the required report and
to show cause why it should not be held liable for violation of the law. Instead of submitting the required reports,
URPHI requested for a final extension, or until November 15, 2004, within which to comply with its reportorial
requirements. For URPHI's failure to submit the said reports, the SEC issued the Order of Revocation dated
December 8, 2004. URPHI immediately filed a motion for reconsideration thereof through a Notice of Appeal and a
Memorandum both dated January 3, 2005, which the SEC later denied in the Resolution dated December 15, 2005.
Hence, URPHI was amply accorded its guaranteed right to due process.
The SEC also submits that the factual milieu of Globe Telecom, Inc. 15 cited by the CA in its Decision is starkly
different from this case. Unlike in the former case where the Court ruled that the fine imposed by the National
Telecommunications Commission without notice and hearing, was null and void due to the denial of petitioner's right
to due process, the SEC points out that URPHI was duly notified of its violations and the corresponding penalty that
may be imposed should it fail to submit the required reports, and was given more than enough time to comply before
the Order of Revocation was issued. The SEC adds that a hearing was conducted on July 6, 2004 as to URPHI's
repeated failure to submit the reportorial requirements as mandated by the SRC and its implementing rules and
regulations, which was the basis in issuing the said Order.
On the other hand, URPHI insists that the CA was correct in ruling that the SRC requires separate notices and
hearings for revocation and suspension of registration of securities and permit to sell them to the public. It then
asserts that the warning contained in the SEC's suspension Order dated July 27, 2004 does not meet the
requirement of notice under the SRC. It stresses that while the SEC issued a separate notice of hearing for such
suspension, no similar notice was issued as regards such revocation. It also notes that the July 6, 2004 hearing was
with regard to the suspension of its registration of securities, and that no hearing was ever conducted for purposes
of revocation of such registration.
On the SEC's claim that URPHI was afforded due process because it was already given the opportunity to seek a
reconsideration of the Order of Revocation by filing its Notice of Appeal and Memorandum, URPHI argues that the
filing of such appeal did not cure the violation of its right to due process. In support of its argument, URPHI cites the
Globe Telecom, Inc. 16 ruling that notice and hearing are indispensable when an administrative agency exercises
quasi-judicial functions and that such requirements become even more imperative if the statute itself demands it.
URPHI further cites the ruling17 in BLTB, Co. v. Cadiao, et al.,18 to support its view that a motion for reconsideration
is curative of a defect in procedural due process only if a party is given sufficient opportunity to explain his side of
the controversy. It claims that the controversy referred to is the underlying substantive controversy of which the
procedural due process controversy is but an offshoot. Noting that the only issue raised in its appeal was
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procedural, i.e., whether it was denied prior notice and hearing under the SRC, URPHI contends that it cannot be
said that by appealing to the SEC, it had the opportunity to explain its side on substantive controversy which
pertains to its alleged violation of the SRC and failure to comply with the reportorial requirements that prompted the
SEC to issue the Order of Revocation. Hence, such appeal cannot be considered curative of the defect in
procedural due process which attended the issuance of the said Order.
URPHI further submits that the prior revocation of its registration on May 29, 2003 did not cure the lack of due
process which attended the revocation of its registration on December 8, 2004. Since the SEC deemed it proper to
lift the prior revocation, such can no longer be used to sustain another revocation order, much less one issued
without prior notice and hearing. Granted that it was accorded due process, URPHI asserts that the revocation of its
registration of securities and permit to sell them to the public is inequitable under the circumstances. It calls attention
to the severe and certain consequences of such revocation, i.e., termination of the public offering of its securities,
return of payments received from purchasers thereof, and its delisting from the PSE, which will cause financial ruin
and jeopardize its efforts to recover from its current financial distress. Claiming that it exerted best effort and
exercised good faith in complying with the reportorial requirements, URPHI avers that the interest of the investing
public will be better served if, instead of revoking its registration of securities, the SEC will merely impose penalties
and allow it to continue as a going concern in the hope that it may later return to profitability.
The petition is meritorious.
There is no dispute that violation of the reportorial requirements under Section 17.1 19 of the Amended Implementing
Rules and Regulation 20 of the SRC is a ground for suspension or revocation of registration of securities pursuant to
Sections 13.1 and 54.1 of the SRC. However, contrary to the CA ruling that separate notices and hearings for
suspension and revocation of registration of securities and permit to sell them to the public are required, Sections 13
.1 and 54.1 of the SRC expressly provide that the SEC may suspend or revoke such registration only after due
notice and hearing, to wit:
13.1. The Commission may reject a registration statement and refuse registration of the security thereunder, or
revoke the effectivity of a registration statement and the registration of the security thereunder after due notice and
hearing by issuing an order to such effect, setting forth its findings in respect thereto, if it finds that:
a) The issuer:
xxxx
(ii) Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection with the offering for which a registration statement has
been filed;21
xxxx
54.1. If, after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules, or its
orders; (b) Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a
view to preventing violations, another person subject to supervision who commits any such violation; ( c) Any
registrant or other person has, in a registration statement or in other reports, applications, accounts, records or
documents required by law or rules to be filed with the Commission, made any untrue statement of a material fact,
or omitted to state any material fact required to be stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence to insure that
a registration statement is accurate and complete in all material respects; or ( d) Any person has refused to permit
any lawful examinations into its affairs, it shall, in its discretion, and subject only to the limitations hereinafter
prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and
circumstances:
(i) Suspension, or revocation of any registration for the offering of securities; 22
The Court has consistently held that the essence of due process is simply an opportunity to be heard, or as applied
to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the
action or ruling complained of. 23 Any seeming defect in its observance is cured by the filing of a motion for
reconsideration, and denial of due process cannot be successfully invoked by a party who has had the opportunity
to be heard on such motion. 24 What the law prohibits is not the absence of previous notice, but the absolute
absence thereof and the lack of opportunity to be heard. 25
In the present case, due notice of revocation was given to URPHI through the SEC Order dated July 27, 2004 which
reads:
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Considering that the company is under rehabilitation, the request was granted and it was given a non-extendible
period until May 31, 2004 within which to comply.
Despite the extension[,] however, it failed to submit said reports. Hence, a hearing was held on July 6, 2004 wherein
the company's representative, its Chief Accountant and a Researcher appeared. No sufficient reason or justification
for the company's inability to comply with its reporting obligation was presented.
In view thereof, the Commission[,] in its meeting held on July 22, 2004, resolved to SUSPEND the Registration of
Securities and Permit to Sell Securities to the Public issued to UNIVERSAL RIGHTFIELD PROPERTY HOLDINGS,
INC., in accordance with Section 54 of the Securities Regulation Code.
This said Suspension shall be effective for sixty (60) days or until the reporting requirements are complied [with,]
otherwise the Commission shall proceed with the revocation of the company's registration of securities.
Let this Order be published in a newspaper of general circulation in the Philippines or on the Commission's web
page.
SO ORDERED. 26
Contrary to the view that a separate notice of hearing to revoke is necessary to initiate the revocation proceeding,
the Court holds that such notice would be a superfluity since the Order dated July 27, 2004 already states that such
proceeding shall ensue if URPHI would still fail to submit the reportorial requirements after the lapse of the 60-day
suspension period. After all, "due notice" simply means the information that must be given or made to a particular
person or to the public within a legally mandated period of time so that its recipient will have the opportunity to
respond to a situation or to allegations that affect the individual's or public's legal rights or duties. 27
Granted that no formal hearing was held before the issuance of the Order of Revocation, the Court finds that there
was substantial compliance with the requirements of due process when URPHI was given opportunity to be heard.
Upon receipt of the SEC Order dated July 27, 2004, URPHI filed the letters dated September 13 and 28, 2004,
seeking a final extension to submit the reportorial requirements, and admitting that its failure to submit its 2nd
Quarterly Report for 2004 was due to the same reasons that it was unable to submit its 2003 Annual Report and 1st
Quarterly Report for 2004. Notably, in its Order of Revocation, the SEC considered URPHI's letters and stated that it
still failed to submit the required reports, despite the lapse of the final extension requested.
In A.Z. Arnaiz, Realty, Inc. v. Office of the President,28 the Court held that due process, as a constitutional precept,
does not always, and in all situations, require a trial-type proceeding. Litigants may be heard through pleadings,
written explanations, position papers, memoranda or oral arguments. The standard of due process that must be met
in administrative tribunals allows a certain degree of latitude as long as fairness is not ignored. It is, therefore, not
legally objectionable for being violative of due process for an administrative agency to resolve a case based solely
on position papers, affidavits or documentary evidence submitted by the parties. Guided by the foregoing principle,
the Court rules that URPHI was afforded opportunity to be heard when the SEC took into account in its Order of
Revocation URPHI's September 13 and 28, 2004 letters, explaining its failure to submit the reportorial requirements,
as well as its request for final extension within which to comply. Pertinent portions of the said Order read:
The Commission in its meeting held on July 22, 2004 resolved to suspend its Registration of Securities and Permit
to Sell Securities to the Public. The Order of Suspension stated that it was to be effective for sixty (60) days or until
the reporting requirements were complied with by the company; otherwise, the Commission shall proceed with the
revocation of the company's registration of securities.
The sixty (60)-day period had elapsed on September 25, 2004 but the Commission received a letter on September
29, 2004 from the President of the company, Mr. Jose L. Merin. In the said letter, it was admitted that the corporation
had failed to submit its 2003 Annual Report (SEC Form 17-A) and its 2004 1st and 2nd Quarterly Reports (SEC
Form 17-Q) but explained that the reason for its inability to submit said reports was due to the non-finalization of the
company's audited financial statements for the fiscal year ended December 31, 2003. It further stated that during its
meeting with its external auditor, SGV & Co., last September 8, 2004, SGV agreed to facilitate the finalization of its
financial statements within two (2) weeks. The corporation foresaw the impossibility of complying with its submission
until the end of the month as the partners of SGV were still reviewing the final draft of the financial statements, thus,
the request for extension FOR THE LAST TIME until November 15, 2004 within which to comply.
SEC Form 17-A (for 2003) was finally submitted on December 1, 2004.
IN VIEW THEREOF, the Commission, in its meeting held on December 2, 2004, resolved to REVOKE the
Registration of Securities and Permit to Sell Securities to the Public issued to UNIVERSAL RIGHTFIELD
PROPERTY HOLDINGS, INC. 29
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Aside from having been given the opportunity to be heard before the SEC issued the Order of Revocation, URPHI
was likewise able to seek reconsideration of such action complained of. After the issuance of the said Order, URPHI
filed a Notice of Appeal and a Memorandum, asserting that it was issued without due notice and hearing, and that
the revocation is inequitable under the circumstances. In the Resolution dated December 15, 2004, the SEC denied
URPHI's appeal in this wise:
In the instant case, URPHI was accorded due process when its Chief Financial Officer gave its side on the imputed
violation and informed the Commission that it will not be able to submit its Annual Report (SEC Form 17-A) for the
fiscal year ending on 31 December 2003 and requested for additional time to comply with the said requirements.
The Commission granted URPHI a non-extendible period of forty-seven (47) calendar days or until 15 November
2004 within which to comply.
In spite of the extension of time given, URPHI still failed to submit the said reports. During the 06 July 2004 hearing
where the Chief Accountant and researcher of URPHI were present, both failed to present sufficient justifications for
URPHI's inability to comply with its reporting obligations.
It is also noteworthy to mention that URPHI's Registration of Securities and Permit to Sell Securities to the Public
had been revoked on several occasions on account of the same deficiency. URPHI is aware of the SRC Rules and
must suffer the consequences of its reported violations. 30
Verily, URPHI was given the opportunity to be heard before the Order of Revocation was issued, as well as the
opportunity to seek the reconsideration of such order.
Meanwhile, the Court disagrees with URPHI's claim that the Globe Telecom, Inc. 31 ruling - that notice and hearing
are indispensable when an administrative agency exercises quasi-judicial functions and that such requirements
become even more imperative if the statute itself demands it -is applicable to the present case.
In Gamboa v. Finance Secretary, 32 the Court has held that the SEC has both regulatory and adjudicative functions,
thus:
Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due
notice and hearing), certificates of registration of corporations, partnerships and associations (excluding
cooperatives, homeowners associations, and labor unions); compel legal and regulatory compliances; conduct
inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing
rules and directives of the SEC, such as may be warranted.
Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide controversies
and cases involving
a. Intra-corporate and partnership relations between or among the corporation, officers and stockholders and
partners, including their elections or appointments;
b. State and corporate affairs in relation to the legal existence of corporations, partnerships and associations
or to their franchises; and
c. Investors and corporate affairs particularly in respect of devices and schemes, such as fraudulent practices,
employed by directors, officers, business associates, and/or other stockholders, partners, or members of
registered firms; x x x
As can be gleaned from the aforequoted ruling, the revocation of registration of securities and permit to sell them to
the public is not an exercise of the SEC's quasi-judicial power, but of its regulatory power. A "quasi-judicial function"
is a term which applies to the action, discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for
their official action and to exercise discretion of a judicial nature. 33 Although Section 13.1 of the SRC requires due
notice and hearing before issuing an order of revocation, the SEC does not perform such quasi-judicial functions
and exercise discretion of a judicial nature in the exercise of such regulatory power. It neither settles actual
controversies involving rights which are legally demandable and enforceable, nor adjudicates private rights and
obligations in cases of adversarial nature. Rather, when the SEC exercises its incidental power to conduct
administrative hearings and make decisions, it does so in the course of the performance of its regulatory and law
enforcement function.
Significantly, unlike in Globe Telecom, Inc. 34 where the Court ruled that the fine imposed by the NTC without notice
and hearing, was null and void due to the denial of petitioner's right to due process, the revocation of URPHI's
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registration of securities and permit to sell them to the public cannot be considered a penalty but a withdrawal of a
privilege, which regulatory power the SEC validly exercised after giving it due notice and opportunity to be heard.
While URPHI correctly relied in BLTB Co., Inc. v. Cadiao 35 to support its view that a motion for reconsideration is
curative of a defect in procedural due process only if a party is given sufficient opportunity to explain his side of the
controversy, the Court rejects URPHI's claim that it did not have the opportunity to explain the substantive
controversy of its violation of the SRC reportorial requirements. 36 Contrary to the claim that only the issue of
procedural due process was raised in its appeal with the SEC, URPHI also raised in its Memorandum dated January
3, 2005 the reasons why it failed to comply with the said requirements, and why revocation is inequitable under the
circumstances. 37
For the late filing of annual report and quarterly report, SEC Memorandum Circular No. 6, Series of 2005, the
Consolidated Scale of Fines in effect at the time the offenses were committed, provides for the following
administrative penalties:
SRC/IRR
Provisions
Section
17.1;
SRC Rule
17.1
Description
First Offense
Second Offense
Third Offense
Late Filing of
Quarterly Report
(SEC Form 17-Q)
Reprimand/Warning P50,000.00 plus

P300.00 per day of
delay
P60,000.00 plus
P600.00 per day of
delay
Late Filing of Annual

Report (SEC Form
17-A)
Reprimand/Warning P100,000.00 plus

P500.00 per day of
delay
P200,000.00 plus
P1000.00 per day of
delay
It bears emphasis that URPHI had committed several offenses for failure to comply with the reportorial requirements
for which it was fined and its registration of securities revoked. On May 29, 2003, the SEC issued an Order revoking
URPHI's Registration of Securities and Permit to Sell Securities to the Public for its failure to timely file its Year 2001
Annual Report and Year 2002 1st, 2nd and 3rd Quarterly Reports. Then, on October 24, 2003, the SEC granted
URPHI's petition to lift the revocation, considering the current economic situation, its belated filing of the required
annual and quarterly reports, and its payment of the reduced fine of P 82,000.00. Despite the foregoing, URPHI
failed again to submit its 2003 Annual Report, and Year 2004 1st, 2nd and 3rd Quarterly Reports within the
requested extension periods.
Therefore, notwithstanding the belated filing of the said reports, as well as the claim that public interest would be
better served if the SEC will merely impose penalties and allow it to continue in order to become profitable again,
the SEC cannot be faulted for revoking once again URPHI's registration of securities and permit to sell them to the
public due to its repeated failure to timely submit such reports. Needless to state, such continuing reportorial
requirements are pursuant to the state policies declared in Section 2 38 of the SRC of protecting investors and
ensuring full and fair disclosure of information about securities and their issuer.
All told, the CA erred in ruling that the SEC revoked URPHI's registration of securities and permit to sell them to the
public without due process of law. Quite the contrary, the requirements of due notice and hearing under Sections 13
.1 and 54.1 of the SRC were substantially complied with. Due notice was made through the Order dated July 27,
2004 stating that revocation proceeding shall ensue if URPHI would still fail to submit the reportorial requirements
after the lapse of the 60-day suspension period. Though no formal hearing was held, URPHI was still given an
opportunity to be heard through the letters dated September 13 and 18, 2004 before the Order of Revocation was
issued, as well as through its Notice of Appeal and Memorandum when it moved to reconsider the said order.
1 wph i1
WHEREFORE, the petition is GRANTED and the Decision dated January 21, 2008 of the Court of Appeals in
CA-G.R. SP No. 93337, is REVERSED and SET ASIDE. In lieu thereof, the Resolution dated December 15, 2005 of
the Securities and Exchange Commission and its Order of Revocation dated December 8, 2004 are REINSTATED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
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JOSE PORTUGAL PEREZ *

Associate Justice

Associate Justice
FRANCIS H. JARDELEZA
Associate Justice
ATTESTATION
Associate Justice
CERTIFICATION
ANTONIO T. CARPIO
Chief Justice
CERTIFIED TRUE COPY
WILFREDO V. LAPITAN
Division Clerk of Court
Third Division
AUG 17 2015
Footnotes
*
Designated Acting Member in lieu of Associate Justice Bienvenido L. Reyes, per Special Order No. 2112
dated July 16, 2015.
1
Penned by Associate Justice Romeo F. Barza, with Associate Justices Mariano C. Del Castillo (now
Supreme Court Associate Justice) and Arcangelita M. Romilla-Lontok, concurring; rollo, pp. 28-42.
2
Id. at 41-42. (Emphasis in the original)
SEC. 17. Periodic and Other Reports of Issuers.

17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five ( 135) days, after the end of the issuer's fiscal year, or such other time
as the Commission may prescribe, an annual report which shall include, among others, a balance
sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified by an
independent certified public accountant, and a management discussion and analysis of results of
operations; and
b) Such other periodical reports for interim fiscal periods and current reports on significant
developments of the issuer as the Commission may prescribe as necessary to keep current information
on the operation of the business and financial condition of the issuer.
Id. at 49.
I. Reporting and Public Companies

The reportorial provisions of this paragraph shall apply to reporting and public companies, as defined
under SRC Rule 3. However, the obligation of a company, which has sold a class of its securities
pursuant to a registration under Section 12 of the Code shall be suspended for any fiscal year if as of
the first day of any such fiscal year, it has less than one hundred (100) holders of such class of
securities and the Commission is duly notified of the same. Such suspension shall only be availed of
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after the year of said registration becomes effective.

A. Every issuer set forth in paragraph 1 hereof, shall file with the Commission:
i. x x x
ii. A quarterly report on SEC Form 17-Q, within forty-five (45) days after the end of each of the first
three (3) quarters of each fiscal year. The first quarterly report of the issuer shall be filed either within
forty-five (45) days after the effective date of the registration statement or on or before the date on
which such report would have been required to be filed if the issuer had been required previously to file
reports on SEC Form 17-Q, whichever is later.
6
Rollo, p. 53.
Id. at 54-55.
Id. at 47.
5.1. The Commission shall act with transparency and shall have the powers and functions provided by this
Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the
following powers and functions:
xxxx
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law; and
10
13.1. The Commission may reject a registration statement and refuse registration of the security
thereunder, or revoke the effectivity of a registration statement and the registration of the security thereunder
after due notice and hearing by issuing an order to such effect, setting forth its findings in respect thereto, if it
finds that:
a) The issuer:
xxxx
(ii) Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order
of the Commission of which the issuer has notice in connection with the offering for A which a
registration statement has been filed;
11
The necessity of notice and hearing in an administrative proceeding depends on the character of the
proceeding and the circumstances involved. In so far as generalization is possible in view of the great variety
of administrative proceedings, it may be stated as a general rule that notice and hearing are not essential to
the validity of administrative action where the administrative body acts in the exercise of executive,
administrative, or legislative functions; but where a public administrative body acts in a judicial or quasijudicial matter, and its acts are particular and immediate rather than general and prospective, the person
whose rights or property may be affected by the action is entitled to notice and hearing.
12
479 Phil. 1, 39 (2004).
13
Id.
14
Rollo, p. 17.
15
Supra note 12.
16
Id.
17
x x x There is then no occasion to impute deprivation of property without due process where the adverse
party was heard on a motion for reconsideration constituting as it does sufficient opportunity for him to inform
the Tribunal concerned of his side of the controversy. x x x
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18
131 Phil. 81, 88 (1968).
19
2. Reporting and Public Companies
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G.R. No. 181381
The reportorial provisions of this paragraph shall apply to reporting and public companies, as defined
under SRC Rule 3. However, the obligation of a company, which has sold a class of its securities
pursuant to a registration under Section 12 of the Code shall be suspended for any fiscal year if as of
the first day of any such fiscal year, it has less than one hundred (100) holders of such class of
securities and the Commission is duly notified of the same. Such suspension shall only be availed of
after the year said registration becomes effective.
A. Every issuer set forth in paragraph I hereof, shall file with the Commission:
i. An annual report on SEC Form 17-A for the fiscal year in which the registration statement was
rendered effective by the Commission, and for each fiscal year thereafter, within one hundred
five (105) days after the end of the fiscal year.
ii. A quarterly report on SEC Form 17-Q, within forty-five (45) days after the end of each of the
first three quarters (3) of each fiscal year. The first quarterly report of the issuer shall be filed
either within forty-five (45) days after the effective date of the registration statement or on or
before the date on which such report would have been required to be filed if the issuer had been
required previously to file reports on SEC Form 17-Q, whichever is later.
xxx
20
Amended IRR published on February 13, 2004.
21
Emphasis added.
22
Id. (Emphasis added)
23
A.Z. Arnaiz Realty, Inc., v. Office of the President, 638 Phil 481, 491 (20 I 0), citing Zacarias v. National
Police Commission, 460 Phil. 555, 563 (2003); Stayfast Philippines Corp. v. National Labor Relations
Commission, G.R. No. 81480, February 9, 1993, 218 SCRA 596; Villareal v. Court of Appeals, G.R. No.
97505, March 1, 1993, 219 SCRA 293; and Philippine Phosphate Fertilizer Corp. v. Torres, G.R. No. 98050,
March 17, 1994, 231 SCRA 335.
24
A.Z. Arnaiz Realty, Inc., v. Office of the President, supra.
25
Arroyo v. Rosal Homeowners Association, Inc., G.R. No. 175155, October 22, 2012, 684
SCRA 297, 305

26
Rollo, pp. 50-51. (Emphasis ours)
27
Due Notice. (n.d.) West's Encyclopedia of American Law, 2nd ed. (2008). Retrieved July 22, 2015 from
http://legal.dictionary.the freedictionary.com/DueNotice.
28
Supra note 23, citing Orbase v. Office of the Ombudsman, 623 Phil. 764, 778 (2009); and Marcelo v.
Bungubung, 575 Phil. 538, 553 (2008).
29
Rollo, pp. 54-55. (Emphasis in the original)
30
Id at 47.
31
Supra note 12.
32
668 Phil. 1, 67 (2011), citing Securities and Exchange Commission v. Court of Appeals, et al., 316 Phil.
903, 907 (1995). (Emphasis added)
33
United Coconut Planters Bank v. E Ganzon, Inc., 609 Phil. 104, 122 (2009).
34
Supra note 12.
35
Supra note 18.
36
Rollo, p. 145
37
Id. at 68-71.
38
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SEC. 2. Declaration of State Policy. - The State shall establish a socially conscious, free market that
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G.R. No. 181381
regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization
of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure
about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices
and practices which create distortions in the free market.
To achieve these ends, this Securities Regulation Code is hereby enacted.
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G.R. No.

Today is Saturday, July 30, 2016

Republic of the Philippines

February 27, 2006

ABACUS SECURITIES CORPORATION, Petitioner,

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G.R. No. 160016

to its legal counsel for collection purposes.

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participated in the assailed proceedings.

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secondary purpose is to protect small investors.

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the broker to collect later from the client.34

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MA. ALICIA AUSTRIA-MARTINEZ

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G.R. No. 160016

ROMEO J. CALLEJO, SR.

by Justices Eugenio S. Labitoria (Division chairperson) and Danilo B. Pine (member).

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SCRA 1085, November 27, 1967.

The Lawphil Project - Arellano Law Foundation

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PHILIPPINE JURISPRUDENCE FULL TEXT

Republic of the Philippines

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[29]The provision reads in full:

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