Thomas George vs. Queensland-Tokyo Commodities, Inc., et al.

[SEC-SICD * CASE NO. 02-98-5886. February 7, 2000.] THOMAS GEORGE , complainant , vs .QUEENSLAND-TOKYO COMMODITIES, INC.,ET AL. , respondents . D E C I S I O N This is a complaint for recovery of investments with damages filed by the complainant Thomas George against Queensland-Tokyo Commodities, Inc. ("QTCI" for brevity),its officers and employees. The complainant alleged, among others: that respondents QTCI is a domestic corporation engaged as a commodity futures broker; that on July 7, 1995 through the solicitation of respondents Guillermo Mendoza, Jr. ("Mendoza" for brevity) and Oniler Lontok, complainant agreed to invest with QTCI and forthwith made actual investments thereon from July 11, 1995 to June 11, 1996 in the total amount of P138,164.00 in Philippine pesos and $19,820.00 in American dollars; that on July 7, 1995 QTCI assigned respondent Mendoza to trade and manage complainant's account and the latter in fact authorized Mendoza as such through a Special Power of Attorney; that complainant's account was initially traded by respondents Mendoza and Lontok; that after said respondents became unavailable, QTCI assigned the account to a series of investment consultants; that upon issuance by this Commission of a Cease-and-Desist Order (CDO) against QTCI on June 20, 1996, complainant was alarmed and troubled, prompting him to seek the return of his investments; that upon failing to solicit a positive response on his demand from the respondents, complainant was compelled to seek the assistance and advise of lawyers; that complainant thereupon discovered that Mendoza and Lontok were not licensed as commodity futures salesmen. HAIaEc Complainant insists that he is entitled to a full recovery of his investments for the reason that the spot/currency contracts under his account are void and of no legal effect for having been solicited and traded by unlicensed personnel of QTCI. Complainant likewise seeks for moral damages in the amount of P1,000,000.00; exemplary damages in the amount of P500,000.00; attorney's fee for P100,000.00 and cost of suit. In their Answer, the respondents, except Mendoza and Lontok, alleged among others; that complainant's account was handled by duly authorized brokers or agents; that even assuming that the complainant's account was handled by unlicensed brokers, complainant is estopped from raising the matter; that complainant's recourse is limited to the alleged unlicensed persons who handled his account; and that the losses suffered by complainant were not due to any act or omission on the part of the answering respondents but was due to circumstances beyond their control. Said answering respondents pray for moral damages in the amount of P500,000.00, attorney's fees of P200,000.00 On the part of respondents Mendoza and Lontok, records show that they were not served with summons and copy of the complaint in the instant case, hence, were not able to file their Answers. From the pleadings and admissions of the parties, the Commission has established that complainant as a client, executed a Customer's Agreement with respondent QTCI, made actual investments thereon on several occasions from July 11, 1995 to July 11, 1996 in the total amount of P138,964.00 and $19,820.00; and that complainant executed a Special Power of Attorney in favor of respondent Guillermo Mendoza, Jr. authorizing the latter to trade and manage complainant's account. The issues to be resolved by the Commission are as follows: 1. Whether or not the spot/currency contracts under the account of the complainant were traded/entered into by an unlicensed personnel of QTCI; 2. If in the affirmative, whether or not the complainant is entitled to recover his investments; and whether or not he is entitled to an award of legal rate of interest, moral damages, exemplary damages, attorney's fees and cost of suit; and the respondents who are liable therefor; and, TAacHE 3. If in the negative, are the individual answering respondents entitled to an award of moral damages, exemplary damages, attorney's fees and expenses of litigation. Before resolving the above issues, consideration is to be made to determine who approached first the other party. Is it the investor looking for investment opportunities or the Commodity Future trader looking for clients? Mr. Thomas George, the complainant in this case testified on the witness stand and responded to the questions raised by his counsel to wit: Q. How did you know them? A. I come to know them when they visited me in my office in Los Baos, Laguna and encouraged me to invest with QTCI. Q. You said that you are a client-investor of QTCI, how did you become as such? A. I become a client-investor of QTCI when I was encouraged by Lontok and Mendoza to invest with QTCI (TSN July 01, 1998 pr. 5) Therefore, it was the respondents who is the root of all these causes of action. After a thorough consideration of the testimonies and documentary evidence presented by the parties, the Commission finds the first issue to be in the AFFIRMATIVE. It was established that complainant authorized Mendoza to "buy, sell and trade in futures and spot contracts with QTCI through a Special Power of Attorney (Exhibit "B") the execution of which was admitted by the respondents in their Answer (par. 1.3).The complainant positively identified the signature therein above the words "attorney-in-fact" as that of Mendoza (page 11, TSN dated July 1, 1998).Even respondent Charlie Collado testified that said signature is that of Mendoza (page 14, TSN dated Jan. 21, 1999).In the market order forms captioned "Instructions of Purchase/Sale" (Exhibits "C" - "C-4"),the same signature appears below the printed word "ordered by" and as positively identified by the complainant as that of Mendoza (page 16, TSN dated July 1, 1998).The said market order forms clearly established the participation of respondent Mendoza in the trading of complainant's account. In relation to this, the Certification issued by the Brokers and Exchange Department (BED) of this Commission (Exhibit "G") has established the fact that Mendoza is not a licensed commodity futures salesman. Although respondent Charlie Collado ("Collado" for brevity) testified that a licensed trader, George Benjamin, also signed on the said market order forms (page 17, TSN dated Jan. 21 1999), no documentary proof was presented to establish the license of said trader as a commodity futures salesman. It is basic rule of evidence that a party must prove his own affirmative allegation with such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Betguen vs. Masangcay, Adm. Matter No. P-93-822, December 1, 1994; Javier vs. CA, G.R. No. L-48194, March 15, 1990). All the respondents could produce to support the alleged qualification of said George Benjamin are mere bare allegations that were self-serving at best. Even assuming arguendo that said George Benjamin is indeed a licensed commodity futures salesman, such fact will not validate the violation committed by QTCI in permitting an unlicensed trader in the person of Mendoza to participate in the trading of complainant's account. The Revised Rules and Regulations on Commodity Futures Trading provides in part that: "SECTION 20. Licensing of persons associated with futures commission merchants . It shall be unlawful for any person to be associated with any futures commission merchant as a partner, officer or employee (or any person occupying a similar status of performing similar actions) in any capacity which involves (a) the solicitation or acceptance of customers orders (other than in a clerical capacity) or (b) the supervision of any person so engaged unless such person shall have been registered/licensed by the Commission and such license shall not have expired nor been suspended or revoked, and it shall be unlawful for any futures commission merchant to knowingly permit such person to become or remain associated with him in such capacity. " SECTION 33-A. Prohibitions Against Certain Foreign Currency Contract. Unless licensed by the Securities and Exchange Commission, it shall be unlawful for any person to engage in, or solicit or accept orders, or act as conduit, or make or enter into any foreign currency contract which is in form of a futures contract. After having been established that the account of the complainant was entered into/traded by an unlicensed employee of QTCI in the person of respondent Mendoza, the Commission is convinced, and so holds, that the complainant is entitled to a full recovery of his investments since the spot/currency contracts under his account are void and of no legal effect, pursuant to Section 29 of the Customers Agreement (Exhibit "A") executed by the complainant and QTCI which provides that: "Contracts entered into by unlicensed Account Executives/Investment Consultants are deemed void and of no legal effect " Furthermore, the Revised Securities Act, which is the governing law for commodity futures contracts, provides in part that: "SECTION 53. Validity of Contracts . . . (b) every contract made in violation of any provisions of this Act or any rule or regulation thereunder . . . shall be void: (1) as regards the rights of any person who, in violation of any such provisions, rule or regulation, shall have made or engaged in the performance of any such contract. . . ." For having permitted an unlicensed personnel to participate in the trading of complainant's account, respondents QTCI breached its contract with the complainant in bad faith, there being a legal presumption that an unlawful act was done with an unlawful intent (See Sec. 3 (b), Rule 131 of the Revised Rules of Court). Corollarily, as a proximate result of QTC's breach in bad faith of its contract with the complainant, the latter suffered mental and emotional distress, lack of concentration, sleepless nights, and increased tension in the family (p.27, TSN dated July I, 1998). SEHACI Therefore, pursuant to the provisions of the New Civil Code on moral damages, considering the testimonial evidence of the complainant that he has suffered mental anguish, serious anxiety and wounded feelings, complainant is entitled to an award of P100,000.00 as moral damages. In the case of exemplary damages, its purpose is to provide an example for the public good. In view of its nature, it should be imposed in such amount as to sufficiently and effectively deter similar breach of contracts in the future. Therefore, since respondent QTCI breached its contract with the complainant in bad faith, an award of P50,000.00 exemplary damages to the complainant is reasonable. For having been compelled to engage the services of counsel, complainant is likewise entitled to the amount of P10,000.00 as and for attorney's fees. Moreover, pursuant to the provisions of the New Civil Code, and considering that the instant case involves an investment of money, complainant is entitled to an award of legal interest on his investments, from the date of filing of the instant case until fully paid. The legal rate of interest is likewise to compensate the complainant for the lost income opportunities caused by QTCI's forbearance of his investments which he is entitled to recover from the time demand was made by the complainant to the respondents. Finally, complainant is likewise entitled to recover the cost of suit, meaning, the filing/docket fees he paid to initiate the instant case, in the amount of P2,877.00 under Official Receipt No. 1166709 (Exhibit "I"). Anent the issue of who among the individual respondents are jointly liable with QTCI in the payment of the awards, the Commission took into consideration, among others, that audit report on the trading activities submitted by the Brokers and Exchange Department (BED) of this Commission (Exhibit "J").The findings contained in the report include the presence of seven (7) unlicensed investment consultants in QTCI, and the company practice of changing deeds of Special Power of Attorney bearing those who are licensed (exhibits "J-1" and "J-2"). The Commission also took into consideration the fact that respondent Collado, who is not a licensed commodity futures salesman, himself violated the aforequoted provisions of the Revised Rules and Regulations on Commodity Futures Trading when he admitted having participated in the execution of customers orders (p. 7, TSN dated Jan. 21, 1999) without giving any exception thereto, which presumably includes his participation in the execution of customers orders of the complainant. Such being the case, respondent Mendoza's participation in the trading of complainant's account is within the knowledge of respondent Collado. The presence of seven (7) unlicensed investment consultants within QTCI apart from respondent Mendoza, and respondent Collado's participation in the unlawful executions of orders under the complainant's account clearly established the fact that the management of QTCI failed to implement the rules and regulations against the hiring of, and associating with, unlicensed investment consultants or traders. How these unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent management was. Respondent Romeo Lau, as president of respondent QTCI, cannot feign innocence on the existence of these unlawful activities within the company, especially so that Collado, himself a ranking officer of QTCI, is involved in the unlawful execution of customers orders. Respondent Lau, being the chief operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in supervising the operations of QTCI, he could have detected and prevented the unlawful acts of respondents Collado and Mendoza. It is therefore safe to conclude that although Lau may not have participated nor been aware of the unlawful acts, he is however deemed to have been grossly negligent in directing the affairs of QTCI. In all, it having been established by substantial evidence that respondent Collado assented to the unlawful act of QTCI, and that respondent Lau is grossly negligent in directing the affairs of QTCI, and pursuant to Section 31 of the Corporate Code * ,they are therefore jointly and severally liable with QTCI for all damages and awards due to the complainant. Although respondent Mendoza is likewise jointly and severally liable to the complainant for the aforementioned damages, no final adjudication can be taken against him since this Commission has not acquired jurisdiction over his person by failing to serve the summons to him due to insufficiency of address. On the part of the other individual respondents, the complainant has not established that they are involved, in any way, in the operations of the company, particularly the execution and trading of customers orders and/or the supervision thereof. There being insufficient evidence against respondents Joyce K. Tan-Chua, Ko So Chai, Josephine Cristobal, Wendell Golangco, and Tan Chee Wah, the complaint against them are hereby ordered DISMISSED. Respondents' counter-claim, against the complainant are likewise hereby ordered DISMISSED for lack of evidence. Finally, the Commission takes judicial notice of the fact that respondent QTCI is undergoing liquidation at present. Although the claims of the complainant hinges on the availability of the funds of QTCI, this Commission is however of the opinion, and so holds, that its primordial task in the present case is simply to award, as it hereby awards the complainant with what he is legally entitled to, regardless of whether or not QTCI's funds are sufficient to fully cover the complainant's judgment claims adjudicated in this decision, whatever deficiency may be subsequently enforced against the individual respondents adjudged herein to be likewise liable to the complainant. IaAScD WHEREFORE, premises considered, respondents Queensland Tokyo Commodities, Inc.,Romeo Y. Lau (aka "Lau Ching Yee") and Charlie F. Collado are hereby ordered to jointly and severally pay the complainant the following: 1. The amount of P 138,164.00, Philippine currency, representing the complainant's return of his peso investments, plus legal rate of interest from February 1998 until fully paid; 2. The amount of $ 19,820.00, American dollars, or its peso equivalent at the time of payment representing the complainant's return of his dollar investments, plus legal rate of interest from February 1998 until fully paid; 3. The amount of P 100,000.00 as by way of moral damages; 4. The amount of P50,000.00 as and by way of exemplary damages; 5. The amount of P10,000.00 as and for attorney's fees; and 6. The amount of P2,877.00 as cost of suit. SO ORDERED. (SGD.) JULIETO F. FABRERO Hearing Officer * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .