Ricardo Flores vs. Kingly Commodities Traders, and Multi-Resources, Inc., et al.

[SEC-SICD * CASE NO. 2370. August 13, 1986.] RICARDO FLORES , petitioner , vs . KINGLY COMMODITIES TRADERS, AND MULTI-RESOURCES, INC., ET AL. , respondents . D E C I S I O N This refers to a complaint filed by Ricardo S. Flores against Kingly Commodities Traders and Multi-Resources, Inc., (Kingly for brevity), Carrol V. Tang, Guillermo De Ramos, and Miguel Lontok, alleging, inter alia, that on September 2, 1981, complainant entered into customer's Agreement with respondent Kingly as covered by the Rules for Commodity Trading including a Risk Disclosure Statement. That since September 2, 1981, complainant had traded with respondent Kingly such that by April 28, 1982, complainant had already a pool of funds with Respondent corporation in the total amount of P111,800.00 for five (5) units or the equivalent of one (1) contract for sugar; that on April 28, 1982, complainant made an open sale or counter contract for an equal quantity of five (5) units of sugar commodity to protect himself against loss through a fluctuation in the market by taking advantage of the price trend which was dropping and which could be favorable to complainant if the Instruction of Sale was recognized; that accordingly, complainant submitted at 10:12 o'clock in the morning on April 28, 1982 with respondent Kingly an Instruction of Sale for Kingly to sell five (5) units at the price of P6.4033 or lower; that as the market moves against his position, complainant had to sell his five (5) units of sugar, otherwise, he would not be able to protect his position and he would realize losses as he eventually did since the said five (5) units were acquired by complainant at a price of P7.533 as of April 28, 1982; and that this contention is denied by complainant since he (complainant) never received such a margin call in the afternoon of April 28, 1982. LLphil Complainant, moreover, alleged that it would appear to be a part of the devices or fraudulent schemes perpetrated by respondents that an unwary trader's money is liquidated at a loss by said respondents despite complainant's compliance with the margin call notwithstanding his compliance with the pertinent portion of Paragraph 1 of the Risk Disclosure Statement that the position of the Trader in the commodity futures market shall be maintained if the trader, as the complainant herein did, deposit a substantial amount of additional margin funds; that respondents' unlawful failure to comply with the terms and conditions of the Customer's Agreement, Rules for Commodity Trading and the Risks Disclosure Statement, Rules and Regulations Governing Commodity Futures Exchange, resulted in losses on the part of the complainant to the detriment of his interest and of the general public; and, that the P111,800.00 actual losses incurred by the complainant was a direct result of the misrepresentations and fraudulent schemes employed by all the respondents when, on the basis of Paragraph 3 of the Customer's Agreement, complainant was made to believe that if he deposit with Kingly such margin called by it (in this case P1,800.00), Kingly shall not close out the whole or any part of complainant's trade/unliquidated contract, yet, in gross misrepresentation and in fraud, the respondents, despite the deposit of P1,800.00 made on time by complainant nonetheless liquidated complainant's contract on April 30, 1982, thereby incurring a loss of P111,800.00 as shown by the trading balance sheet. Complainant thus prayed that an Order be issued a) requiring the respondents to jointly and severally pay complainant the full amount of P111,800.00 plus interest from date of demand; b) imposing respondents such fines and/or penalties for violation of the terms and conditions of the Rules for Commodity Trading, the Risk Disclosure Statement, the Customer's Agreement and the Rules and Regulations Governing Commodity Futures Exchange, the SEC Orders dated July 1, 1980, May 20, 1981 and December 29, 1981 ; c) suspending or revoking Kingly's permit to engage in commodity futures trading; and d) suspending or revoking license of respondent de Ramos to act as Commodity Futures Solicitor/Salesman for having illegally practiced as such on or about April 28, 1982 or before June 21, 1982 when the favorable results of his examination were released. In their Answer, respondents averred, among other things, that respondent Ramos never guaranteed the April 28, 1981 Instruction of Sale, the fact being that only a request for short margin was made by respondent Ramos addressed to the Management of respondent Kingly which may or may not approve such request; that respondent Ramos never discharged the functions of a Commodity Futures Solicitor/Salesman when he affixed his request for short margin in the Instruction of Sale of Complainant; that on April 28, 1982, complainant's margin deposit was only P110,000.00 with a floating loss of P101,403.00 such that his effective margin was only P8,597.00; that the Instruction of Sale was not accepted because there was already a margin call when Complainant made the instruction; and, that complainant indeed submitted to respondent Kingly an Instruction of Sale on April 28, 1982 at 10:12 o'clock in the morning subject however to the following qualifications: 1) when respondent Ramos annotated on the Instruction of Sale his request for short margin in the first hour of April 28, 1982, there was no margin call yet; 2) it is ministerial on the part of the receiving clerk of respondent Kingly to stamp on the Instruction of Sale the date and time when the instruction was submitted; 3) when the accounting department discovered that there was already a margin call made, the instruction was not received and in fact returned to complainant; 4) the Instruction of Sale was submitted at 10:12 o'clock in the morning but for implementation in the afternoon, specifically, PM-2 or second afternoon session; and 5) the Instruction of Sale was never validated by respondent Kingly and was in fact returned and the receipt thereof cancelled. prLL Furthermore, respondents contended that the margin call was made in the morning of April 28, 1982 and the Notice of Additional Margin (the margin call) was in fact served upon complainant and his duly authorized representative, Antonio Muyco, who, however, refused to acknowledge receipt thereof. The issues in the case at bar are the following: A. Whether or not respondents fraudulently and/or irregularly liquidated Complainant's marginal deposit resulting to complainant's actual loss in the amount of P111,800.00; and B. Whether or not respondents have seriously violated the Rules and Regulations Governing Commodity Futures Exchange and the pertinent S.E.C. Orders which regulate corporations engaged in commodity futures trading, which would warrant the suspension or revocation of respondent corporation license and/or permit to engage in the aforesaid line of business. Upon careful perusal of the records, documents, as well as the evidence adduced in the case at bar, the Commission finds that on September 2, 1981 complainant entered into a Customer's Agreement with Kingly Commodities and Traders and Multi-Resources, Inc., and said transaction was designated as Account No. CLQ-2801. (See Annex "A" of the complaint). On April 28, 1982 at 10:12 o'clock in the morning, complainant submitted to respondent Kingly an Instruction of Sale for the latter to sell five (5) units at the price of P6.4033 or lower. (See Annex "B" of the complaint). Complainant's placement order with Kingly through an Order to Sell on April 28, 1982, was however rejected by respondent corporation. (See respondents' Exhibit "I", Instruction of Sale, dated April 28, 1982). Subsequently on April 30, 1982 respondent Kingly informed complainant that the position of the latter (complainant) was automatically settled or liquidated at a loss. (See Sales Report and Trading Balance Sheet dated April 30, 1982, Exhibit "9 and 10" of respondents). Complainant's placement order with Kingly to sell five (5) units was implemented by Kingly only on April 30, 1982, or two (2) days after the Instruction of Sale was made by Complainant's agent, Antonio Muyco. (See Exhibit "8" of respondents). A close scrutiny of the records of the case would further show that on April 28, 1982, a certain Guillermo de Ramos, himself an Assistant Vice-President-Marketing of Kingly, certified that complainant's "short margin" only amounts to P1,800.00 (See Exhibit "B" of the complainant), which sum was accordingly covered through a deposit by complainant of the sum of P1,997.00 (See respondents Answer under Item 14) with Kingly Commodities Futures Traders and Multi-Resources, Inc. Summing up the facts as heretofore unravelled, we therefore believe that complainant indeed complied with the requirements as demanded from him by the rules on future commodity trading. If it was true that complainant's short margin was higher than P1,800.00, as claimed by respondents, why did respondent Kingly allow its own corporate officer, Guillermo de Ramos to make representation to complainant that his short margin was only P1,800.00 and not P11,403.00 as Kingly stated otherwise? This certification by de Ramos, it can be noted, was made through his own handwriting appearing at the uppermost right hand margin of the complainant's Instruction of Sale dated April 28, 1982. (See Exhibit "B" of Complainant). If indeed respondent Kingly did not consent expressly or impliedly, to de Ramos activation in certifying as to P1,800.00 short margin of complainant so as to believe Kingly's claim that the short margin was P11,403.00, why did respondent Kingly finally implement the previous attempt of complainant to sell his five (5) units in question two (2) days after April 28, 1982, without first demanding from complainant the full payment of P11,403.00. What made it (Kingly) reconsider its previous position in denying complainant's placement by implementing complainant's order to sell despite non-payment of P11,403.00 as claimed by Kingly to be the actual short margin of complainant? Is it not logical or rational for one which is of firm belief that his trading partner lacks the necessary margin deposit, to first and foremost demand therefrom, compliance or payment of the required deposit before implementing their agreement? A cursory analysis of the circumstances obtaining in the instant case would reveal that complainant was made to believe by respondent corporation that his short margin was only P1,800.00 and not P11,403.00, as a logical consequence of Kingly's actuations as heretofore intimated. Another significant factor which underlies the date upon which complainant's attempted sale order was finally recognized and implemented by Kingly was the fact that on April 30, 1982, the price of five (5) units of sugar, subject matter of the controversy, had plummeted down to P6.313 resulting to complainant's actual loss of his pool funds in the total amount of P111,800.00. It is common knowledge that the trend and fluctuations of the price of commodities subject matter of trading in the future commodity exchange are best known to the officers of the exchange including the manner the exchanges transact or deal with their investors, thus, under the circumstances the matter has to be resolved with utmost prudence bearing in mind the fact that such line of business dealings are well regulated by the State and the same are vested with public interest so as to protect the investing public. In line with the aforequoted policy of the State, we opine that the doubt in the interpretation and construction of the parties' agreement obtaining at hand should be resolved in favor of the complainant herein. Needless to state, we give credence to complainant's contention that Kingly has waived its right to require additional margins as contemplated in Paragraph 3-B of the Customer's Agreement as said provision of the agreement uses the word "may" which under the rules on legal construction is discretionary and not mandatory. Moreover, with the timely placement of the Instruction of Sale by complainant and his deposit of the short margin as certified to in writing by Kingly's officer, de Ramos before the deadline set by the company, the Commission is of the view that the denial by Kingly of Complainant's above-mentioned placement order dated April 28, 1982 is without basis and therefore, improper. Briefly, there was an obligation on the part of Kingly to honor or recognize the instruction of sale made by the complainant on April 28, 1982, the same having been properly made, but for its (Kingly's) failure to implement the same on the very same date, Kingly is liable to pay the complainant of the latter's loss amounting to P111,800.00 plus the legal interest from the date this complaint was filed. We agree likewise with complainant that the subsequent actuations of respondents were at most the product of after-thought. The contention of respondents that there was ample basis for denial of complainant's Instruction of Sale dated April 28, 1982 considering the fact that on the very same date there was already a "margin call" sent out and served upon complainant and his agent, was to us of no moment. The fact remains and we reiterate for the sake of being repetitive that complainant nevertheless complied with the requirements on short margin as demanded upon him by Kingly through its margin call on the very same date in the sum of P1,800.00. Anent the issue on suspension and revocation of license and/or authority of respondent Kingly, the Commission so holds that the circumstances obtaining do not warrant and we find no sufficient evidence to impose such serious sanction or imposition of fines upon respondent Kingly herein. LLpr WHEREFORE, respondent Kingly is hereby ordered to pay complainant the sum of P111,800.00, Philippine Currency, plus legal rate of interest from the date the instant case was filed until fully paid. SO ORDERED. (SGD.) ANTERO F. L. VILLAFLOR, JR. Hearing Officer