Catherine Teh, et al. vs. Mercantile Financing Corp., et al.

[SEC-SICD * CASE NO. 2830. December 12, 1990.] CATHERINE TEH, ET AL. , petitioners , vs . MERCANTILE FINANCING CORP., ET AL. , respondents . [SEC-SICD * CASE NO. 2920. December 12, 1990.] ERNESTO GO, ET AL. , petitioners , vs . MERCANTILE FINANCING CORP., ET AL. , respondents . D E C I S I O N These are cases filed separately by two (2) sets of petitioners against respondents Mercantile Financing Corporation (Mercantile, for short) and Finasia Investment and Financing Corporation (Finasia) docketed as SEC Case Nos. 2830 and 2920, for recovery of their investments or in the alternative, for the return of their money market placements from Mercantile to Finasia. Considering that the causes of action in the two (2) cases are of the same nature and character arising from a common question of fact and law, the parties assisted by their respective counsel agreed that the evidence adduced in SEC Case No. 2830 will be adopted and applied as their evidence in SEC Case No. 2920. Petitioners in SEC Case No. 2830 alleged, inter alia, that they were money market investors of respondent Finasia. As evidence of their investment, two postdated checks were issued by Finasia to secure their principal investment and interest thereon; that upon maturity of the said postdated checks, the petitioners had the option to either encash the check, thereby getting back the amount so invested plus the interest accruing thereon or roll-over the same, in which case, Finasia will retrieve the checks and issue in lieu thereof, two postdated checks representing the principal and interest; that sometime in the months of October and November, 1983, the petitioners deposited Finasia's checks to their separate bank accounts, but the checks were dishonored because the account upon which the checks were drawn were considered closed; that petitioners demanded from Finasia to redeem the two postdated checks but Finasia refused and failed to do so without any valid cause; that in view of the inability/refusal of respondent Finasia to redeem the said checks, some of the executive officers of respondent Finasia, namely, Jose Villarosa, the President, Rodolfo Abiog, Vice President for Money Market and the officers of Mercantile, namely Francis Yuseco and Edward Lei, the President and Senior Vice President, respectively, convinced Catherine Teh through deceit and misrepresentation to transfer her accounts and that of her clients (that of the petitioners herein) to Mercantile under the pretext that the rescue fund was under negotiation with the Central Bank with an added assurance that on maturity date, their investment would be paid without extension; that due to the misrepresentation made by respondents Finasia and Mercantile, petitioners executed a Special Power of Attorney authorizing Catherine Teh to settle their accounts with Finasia and offsetting said accounts with the credits and/or receivables of Finasia with Mercantile; that in view of the said Special Power of Attorney, respondent Finasia executed a Deed of Assignment in favor of the petitioners, through Catherine Teh, whereby Finasia assigned to the said petitioners the accounts receivables that the former had with respondent Mercantile. That after the execution of the Deed of Assignment, respondent Finasia retrieved all the checks which it issued to the petitioners; that Mercantile in turn issued promissory notes corresponding to the amount of investments of petitioners with Finasia. However, when the promissory notes issued by respondent Mercantile matured, the petitioners demanded from the said respondent to redeem the same but the latter failed and refused to redeem the same without justifiable cause; that considering the deceit and misrepresentation employed by the officers and representative from both respondents petitioners demanded that their investments originally invested with Finasia, now assigned/transferred to Mercantile, be redeemed by the respondent corporations or in the alternative be reverted to respondent Finasia. In the answer filed by Quasha Asperilla Ancheta Pea Marcos and Nolasco Law Firm, as the Rehabilitation Receiver of Finasia, it admitted that the petitioners in the above-entitled case were money market investors of respondent Finasia, and that the investments of the said petitioners were from time to time, rolled-over and new checks were issued to cover the principal and accruing interest; it also admitted that petitioners executed a Special Power of Attorney authorizing Catherine Teh to settle their accounts with Finasia and transfer/assign the said accounts to respondent Mercantile, offsetting the obligation of respondent Mercantile with respondent Finasia; likewise, it admitted having retrieved all the postdated checks issued to the petitioner and in lieu thereof respondent, Mercantile issued a promissory note to the petitioners corresponding to the amount of their investments with respondent Finasia. And by way of Special Affirmative defense, respondent Finasia alleged that it had been released and forever discharged by the petitioners from any and all actions, claims and demands and rights of action by having voluntarily assigned or transferred all their accounts to Mercantile, the latter having assumed the obligation of Finasia to the petitioners herein, corresponding to their total investments upon the execution of the Deed of Assignment. LLjur On August 19, 1988 respondent Mercantile answered the petition by denying all the allegations therein contained except those that were expressly admitted and, by way of defense, alleged that while respondent Mercantile was negotiating with the Central Bank for the availment of a rescue fund, petitioners proposed to convert their investment with Finasia to preferred shares of respondent Mercantile; that to facilitate an arrangement the petitioners prevailed upon Finasia to execute a Deed of Assignment assigning, transferring and conveying much of its interest on Mercantile to the petitioners; that the rescue fund applied for by respondent Mercantile with the Central Bank did not materialize and because of that, respondent Mercantile suffered liquidity problems prompting it to file with the Securities and Exchange Commission, on May 7, 1984, a petition for suspension of payments which was granted in the Order of August 30, 1984, by the Securities and Exchange Commission, placing respondent Mercantile under a liquidation receiver. The issues having been joined with the filing of respondents' separate answer, an Order was issued setting the case for preliminary conference. In an Order dated May 31, 1988, respondent Mercantile was declared in default for its failure to attend the preliminary conference held on September 7, 1987. From the pleading filed by the parties, it is quite clear that the issues laid down as to whether fraud, deceit and misrepresentations were employed by the respondents in the execution of the Deed of Assignment transferring petitioners' investments from Finasia to Mercantile and whether petitioners' money market placements should be reverted back to Finasia. For the petitioners, Catherine Teh testified that the other petitioners executed a Special Power of Attorney authorizing her to settle all their accounts with Finasia and offset their own accounts with the credit/receivables of the said corporation with Mercantile after being fully aware of that fact that Finasia was then in financial distress and could no longer redeem their money market placements (TSN, December 9, 1988, pp. 34-46). She likewise, testified that she was convinced by the president of Finasia to transfer their investment to Mercantile because of the latter's pending application for a rescue fund with the Central Bank. (TSN, Hearing of September 22, 1988). Equally significant is the admission of her signature as appearing in the questioned Deed of Assignment and the fact that she voluntarily signed the same after reading the contents thereof (TSN, September 22, 1988, p. 69). In addition thereto, from the uncontroverted testimony of Mr. Jose Villarosa, the President of Finasia it is shown that the idea of executing the questioned Deed of Assignment came from the petitioners themselves (TSN, 13 Nov. 1989). The testimony of Catherine Teh shows that the petitioners acquired sufficient information of all the needed facts which would serve to caution and/or apprise them of the consequences of transferring their investments before executing the Special Power of Attorney in her favor. In fact, Catherine Teh admitted having been convinced to transfer their investments because of respondents' representation regarding Mercantile's application for a rescue fund with the Central Bank where she herself verified the accuracy thereof. It is, thus, apparent that the petitioners assumed a strong hope that Mercantile's application for a Rescue Fund will be favorably acted upon by the Central Bank. It is for this primary reason that petitioner Catherine Teh convinced the other petitioners to execute a special power of attorney in her favor to make it feasible for her to transfer their investment to Mercantile. Petitioners now contend that they were enticed by the respondents to transfer their investment through fraud, deceit and misrepresentation. It is noted that, in so far as petitioners' allegation is concerned, proof thereof vested solely on the testimony of Ms. Catherine Teh, but there was nothing substantial from her testimony to support their contention. What is clear is the undisguised object of the petitioners to cover-up their mistake. Petitioners realized that the transfer of their investment was a mistake and the result of an ill-advice given by their money market trader, Ms. Catherine Teh, because Central Bank denied Mercantile's application for a Rescue Fund, and the Securities and Exchange Commission ordered the liquidation of the assets of Mercantile, thereby making it impossible for them to recover their investments as against the secured creditors of Mercantile, while that of Finasia Rehabilitation program was approved by the Commission. It is therefore natural, under these circumstances, for Ms. Catherine Teh to put up a defense mechanism to avoid embarrassment from her clients (the other petitioners) to put the blame for her mistake on the respondents in the guise of alleging fraud, deceit and misrepresentation in the execution of the Deed of Assignment. cdll Even on the assumption that indeed there were misrepresentations regarding Mercantile's application to convince the petitioners to transfer their investments, the same cannot be considered fraudulent to affect the validity of the Deed of Assignment because the petitioners had the opportunity to verify the accuracy of the representations made by the respondents (Article 1340, New Civil Code). In the case of Songco v. Sellner, G.R. No. 11513, December 4, 1917, (37 Phil. 245), the Supreme Court held that: "It is not every false representation relating to the subject matter of a contract which will render it void. It must be as to matters of fact substantially affecting the buyer's interest, not as to matters of opinion, judgment, probability, or expectation. (Long v. Woodman, 58 Me., 52; Hazard v. Irwin, 18 Pack, (Mass), 95 Bordon v. Parmelee, 2 Allen, 212; Williams v. Mc Fadden ], 23 Fla, 143, 11 Am. St. Rep. 345) When the purchaser undertakes to make an investigation of his own and the seller does nothing to prevent this investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller made representations. (National Cash Register Co. v. Townsued, 137 N.C., 652 L.R.A., 349; Williams v. Holt, 147 N.C., 515) Petitioners cannot now be permitted to disavow the assignment of their investments after having been shown that petitioner Catherine Teh affixed her signature in the questioned document after having read and understood the contents thereof. The acts of Catherine Teh were such as to positively show that they voluntarily and willingly agreed to the execution thereof; thus, binding her and all the parties thereon. In the cases of Dela Rama vs. Robles and Robles, G.R. No. L-3520, October 3, 1907, (8 Phil. Rep. 712), the following principle was laid down: "Against the validity and efficacy of obligations set forth in authentic documents, whether of a public or private nature neither any plea not duly justified nor the testimony given by the parties bound under such documents can prevail against the contents of the same because it is not lawful to permit anyone to contradict his own acts in order to deceive himself or to deceive others in whose favor the obligations were created." Likewise, it is well entrenched in our jurisprudence that if a perfect and binding contract had been executed between the parties, it occurs to one of them to allege some defect therein as a reason for annulling it, the alleged defect must be conclusively proven since the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties. (Article 1256, NCC). Petitioners having failed to show by a clear and convincing evidence of alleged fraud, deceit and misrepresentation committed by the respondents in the execution of the Deed of Assignment transferring their investment from Finasia to Mercantile, the above-entitled case and SEC Case No. 2920 must necessarily fail. Likewise, for failure of the respondents to present substantial evidence to prove their counterclaim, the same should be dismissed. WHEREFORE, the above-entitled cases as well as, respondents' counterclaims are hereby DISMISSED for lack of merit. LLphil SO ORDERED. (SGD.) ANTONIO M. ESTEVES Hearing Officer (SGD.) INOCENCIO D. PAGALARAN, JR. Hearing Officer