Margarita G. Magistrado vs. Kingly Commodities Traders and Multi-Resources, Inc.

[SEC-SICD * CASE NO. 3036. March 6, 1991.] MARGARITA G. MAGISTRADO , complainant , vs . KINGLY COMMODITIES TRADERS AND MULTI-RESOURCES, INC. , respondent . DECISION This is a complaint for recovery of investment plus damages, filed by Margarita G. Magistrado against Kingly Commodities Traders and Multi-Resources, Inc. Complainant alleges that sometime in June 3 to 9, 1986, the respondent corporation, thru its representatives, enticed her to invest in Future Commodities Trading with a warranty of the safeness of the investment, high yield of interest and an easy withdrawal of the investment upon demand by the complainant; that on June 9, 1986, the complainant made her initial deposit of investment with the respondent in the amount of P100,000.00 under Account No. VSL-1001; that complainant was hurriedly made to sign a Customer's Agreement and a folded paper which turned out to be a Risk Disclosure Statement; that the manner in which she was made to sign the Risk Disclosure Statement prevented her to know the mechanics and risk involved in the undertaking; that on different dates, complainant was also made to sign in blank 27 sets of Instruction of Purchase and Sales on the pretext that the same were needed for effective management of her investment; that when she signed the Customer's Agreement, complainant made specific instruction to the respondents' representatives to trade only 50% of her investment; that barely eleven days after her initial investment was made, respondent's representatives came to her office to ask for a margin deposit of P100,000.00 to support her floating loss in her trading; that she was compelled to give an additional amount of P72,000.00 for fear of losing her investment; that sometime between June 21 to July 3, 1986, complainant was again made to sign 15 blank sets of instructions of Purchases and Sale as well as a set of blank withdrawal slips between July 1 to 8, 1986; she called up Floreindo Buenavista of the respondent corporation to ask for her money but instead of returning her money, he gave her a letter from the respondent dated July 8, 1986 (Annex 6) demanding additional margin for P105,104.15; that realizing that she was being defrauded, complainant refused to give in to the demand for additional margin; that on July 14, 1986, complainant received another letter, dated July 9, 1986, claiming for a deficit balance of P58,062.50; that she later went to see Mr. Carrol Tang, Senior Vice-President of the respondent corporation, to complain but all efforts were futile; that it was only when complainant got hold of her copies of the Customer's Agreement, Risk Disclosure Statement and Balance Ledger that she was able to concretize the irregularities committed by the respondents against her investments; that as per entries appearing on the Balance Ledger, complainant was making a profit of P81,866.75 at the time she was made to answer for the first margin call. Likewise, complainant's investment was still pegged at P193,783.88 when respondent's representative demanded from her an additional margin of P105,014.15; that it was only when complainant refused to give the additional margin as of July 8, 1986, that she was suddenly made to lose in one single transaction the amount of P251,846.38; that she came to know later that the representatives of the respondents who enticed her to invest in Commodities Future and who acted as her investment consultants were not licensed as Commodities futures salesman/agent. In answer to the charge imputed by the complainant, respondent alleged, that complainant was not enticed to invest in Commodities Futures Trading but voluntarily opened a trading account; that at about 3:00 in the afternoon on July 6, 1986, complainant together with her brother, Atty. Guevarra, and her own adviser, Mr. Sim Estrella, visited respondents' Vernida Office, Makati to inquire about the mechanics of Commodities Futures trading; that on the same date, complainant requested and was given a copy of a Customer's Agreement which she took home to study; that before she signed a new copy of the Customer's Agreement, she was properly appraised of the nature and risk involved in commodities futures trading; that she willingly and voluntarily signed the Customer's Agreement, the Risk Disclosure Statement and the acknowledgment to trade; that it was in fact the complainant herself who decided to sign some order forms for convenience and entrusted the same for safekeeping with her trusted adviser, Atty. Sim Estrella; that the complainant was properly advised that she can withdraw her investment if it leaves a free margin; that complainant did not give any specific instruction to trade only 50% of her investments; that complainant failed to answer her margin call for a deficit balance of P58,062.50; that complainant's consultant, F.L. Buenavista is a licensed salesman/broker and finally, respondents specifically, denied any irregularities committed by the respondents' representatives on complainant's account. When the parties failed to forged an amicable settlement of the above-entitled case during the pre-trial, hearing on the merits was held and the parties presented their respective evidence in support of their case. Complainant took the witness stand and testified that sometime between June 3 to 5, 1986, representatives of the respondent corporation namely: Simplicio Estrella, Floreindo Buenavista, Alfie Dumanlig together with two other unidentified employees enticed her to invest in commodity futures. She made her initial deposit/investment on June 9, 1986 in the amount of One Hundred Thousand Pesos (P100,000.00) under account no. VSL-1001 (Exh. "A"). She was made to sign the Customer's Agreement together with some folded documents which later turned out to be the Risk Disclosure Statement and Instructions of Purchase and Sale. Likewise, complainant testified that before signing the Customer's Agreement, she consulted her investment consultant about some vague provisions of the contract but the explanation was superficial. After signing the contract she verbally instructed Mr. Simplicio Estrella to trade only 50% of her investment. In June 7, 1986, Mr. Buenavista, Mr. Estrella and Mr. Dumanlig came back to see her at her office to ask for another amount of One Hundred Thousand Pesos (P100,000.00) to support a floating loss in her investment. She declined at first to give an additional amount to support her trading because the report of her trading transactions, as reflected in her ledger, show an outstanding account of P128,000.00 which if deducted the amount of floating loss (P100,000.00) would still have a remainder of P72,000.00, instead of P100,000.00. Upon her insistence, the representative of the respondent corporation in the person of Mr. Buenavista finally agreed to deduct the amount of P28,000.00 thereby receiving only P72,000.00, duly receipted by a Deposit Notice marked on Exh. "B". She was made to sign a number of Instruction of Purchase and Sale and a set of papers which were made to appear as withdrawal slips for her gain/profit but which were never realized. Two months later, she called up Mr. Floreindo Buenavista to get her investments but she was told that some representatives of the respondent will see her. When the representatives, Mr. Estrella and Mr. Dumanlig, came to see her, they presented to her another notice of additional margin for P105,014.15 (Exh. "O" and "E"). It was only then that she came to realize that she was duped by the respondent's representative and refused to answer the call for additional margin. After several days, she received from the respondent corporation a claim for deficit balance of P55,062.00 (Exh. "D" and "4"). She went to see Mr. Carrol Tang of the respondent corporation to complain but the meeting turned out to be a futile exercise because Carrol Tang defended the course of action of his subordinates. prcd On cross-examination, the complainant testified that she is a lawyer employed at the Department of Finance as Commissioner of the Board of Hearing Commissioners. She admitted having signed the Rules on Commodity trading and Customer's Agreement (Exh. "1") and identified her signature as appearing in the Risk Disclosure Statement (Exh. "2") and in the document with a heading "Acknowledgment" (Exh. "3"). Complainant, likewise, admitted having deposited the amount of P72,000.00 and was issued a deposit notice (Exh. "B"). She also confirmed the fact that she did not deposit the amount of P105,014.50 to support a floating loss as required in a notice of additional margin dated July 8, 1986 (Exh. "C"). Respondent corporation presented Mr. Floreindo Buenavista who testified that he is a division manager of the sales department of Kingly and a licensed Investment Consultant of the complainant; that he first met Ms. Magistrado when she came to the office of the respondents with a younger brother who claimed to be a lawyer purposely to learn about commodity futures trading; that she was given a brief explanation of the mechanics of trading and was given copies of a Customer's Agreement, Risk Disclosure Statement and an Acknowledgment. She brought home copies of said documents to study the provisions thereof; that she came back to ask for additional copies and was briefed of the risk involved in the transaction before she readily signed copies of the same documents without any question. He further testified that Ms. Magistrado never incurred floating loss when she deposited the amount of P72,000.00 but rather she intended to increase her holdings because of successful trading. He also denied having received any instruction from the complainant to trade only 50% of her initial investment nor did he make some assurance that she can get back her investments after two (2) weeks from the time she deposited the additional amount of P72,000.00. He however, admitted having talked to the complainant over the phone after two (2) weeks from the time she made her additional deposit but it was all about a margin call which she refused to accept (Exhs. "C" and "5"). It was properly explained to her that if she cannot maintain a certain equity level in her deposit, because of adverse price movement, complainant will be required to put additional margin to hold on to her open position in the market, otherwise, her open position will be liquidated at whatever prevailing price; that when complainant failed to comply with the notice of Additional Margin (Exh. "D" and "4"), the respondent corporation settled her open position in the market resulting to an overloss in the amount of P58,062.50. Evidence on record, in particular reference to complainants' Balance Ledger For Deposit Guarantee Money (Exh. "E") shows that complainant Margarita Magistrado traded in twelve (12) round turn transactions of buy and sell in the H.K. Sugar wherein eight (8) trading transactions resulted in profits worth a total of P75,333.64 and four (4) losses in the amount of P306,096.14. It appears that the biggest loss of the complainant happened in the eleventh trading when she bought 9 units of H.K. Sugar on July 1, 1986, at the price of U.S. $7.04 per pound, at session two and sold the contract on July 9, 1986 at U.S. $5.88 per pound, at session three, thereby resulting to a net loss of P251,846.38. The entries as appearing in the Balance Ledger is a clear indication that complainants' investments were credited and traded under her account which resulted to a loss. It is noted that complainant's investments was adversely affected by the price fluctuations in the market and aggravated by her failure to support a floating loss upon receipt of the Notice of Additional Margin, dated July 8, 1986 (Exh. "C" and also "5"). Respondent Corporation, as a consequence thereof, closed out complainant's open traded position at the prevailing market price of H.K. Sugar which was below the buying price. The process, however, of liquidating the open position of the complainant should not be taken against the respondent corporation as it was to save her from further losses and there's nothing irregular in the action taken as the same was in consonance to the written notice as appearing in the footnote of the Notice of Additional Margin and in pursuant to the express terms of the Customer's Agreement. Likewise, I find it untenable to sustain the contention of the complainant regarding her specific instruction to the representatives of the respondent corporation to trade only 50% of her initial investment worth P100,000.00 because, if that were so, then it will be a legal impossibility for her to place an order in futures contract. It is a mandatory requirement of the Securities and Exchange Commission, particularly Section 26, Title V of the Revised Rules and Regulations on Commodity Futures Trading , that before any customer can place any order in futures contract, he must make an initial deposit of not less than P100,000.00 to open an account. Anent the claim of the complainant that she was made to answer for a margin call at the time her investment was making a profit, records show that complainant Magistrado deposited an additional investment of P72,000.00 on June 20, 1986 and the same was credited in her name under account no. VSL-1001. Reports of her trading transactions, likewise, show that as a consequence thereof, complainant's trading position in H.K. Sugar was increased to a total of 22 units all of which resulted in profit. But while it is true that complainant's investment was then making a profit when she deposited the additional amount of P72,000.00, circumstances as to its deposit appears to be voluntary on her part. A comparison between the Deposit Notice and Notice of Additional Margin will readily show the marked dissimilarity in their physical appearance and the contents thereof. The former, unlike the latter, does not make it compulsory for the investor/complainant to put in additional margin to maintain an open position in the market. The Deposit Notice (Exh. "B") evidencing the investment is more of a receipt with an instruction to credit the account deposited in the name of the investor, and appearing therein, the signature of the adviser and the initials of the Supervising Manager of the Account Department of the respondent Corporation. The complainant being a lawyer by profession has the best opportunity to observe the difference between the two instruments and the stipulations therein contained. Her declaration that she was forced to invest an additional amount of P72,000.00 is not competent to refute the express terms of the Deposit Notice. Under the foregoing circumstances, it is the inevitable conclusion of the undersigned that complainant Magistrado voluntarily deposited the amount of P72,000.00 to strengthen her trading position because of profitable transaction. Finally, complainant advanced the basic argument that she was hurriedly made to sign the Customer's Agreement and the Risk Disclosure Statement thus preventing her to know the mechanics and the risk involved in commodity trading. It will be recalled, complainant herself testified that before signing the Customer's Agreement she consulted her investment consultant about some vague provisions of the contract but the explanation given was superficial. Likewise, respondents' witness, Mr. Simplicio Estrella, testified that complainant Magistrado together with a lawyer-brother went to the office of the respondent to inquire about commodity futures trading and was given copies of all the questioned documents. She brought home copies thereof to study them and after a week she came to the office of the respondent corporation to ask for new copies of the same documents before she readily signed them. Complainant cannot now, therefore, validly allege that she did not read or did not know the contents of the documents/contracts she signed because what was signed by the complainant were merely new copies of the same documents she took home to study. If complainant indeed did not understand the contents of the document she signed, her natural reaction would be to act with due care and ask for more questions to satisfy her doubts about the mechanics and risk involved in the trading and not to hurriedly sign the questioned documents. Inasmuch as she is a lawyer by profession and more so as a Commissioner of the Board of Hearing Officers in the Department of Finance, she is presumed to have acted with due care, and to have signed the documents in question with full knowledge of its contents. And this presumption is not overcome by evidence adduced by the complainant, which consists of her testimony. This principle was laid in the case of Tan Tua vs. Yu Biao Sontua, G.R. No. 34533, March 31, 1932, citing the case in R. C. L., Vol. 6, pp. 624-625 (56 Phil. Reports pp. 707-712): "A contract signed by mistake, that is, under the supposition that it is an instrument of another or different character, is void. But the courts appear to be unanimous in holding that a person who, having the capacity and an opportunity to read a contract, is, not misled as to its contents, and who sustains no confidential relation to the other party, cannot avoid the contract on the ground of mistake if he signs it without reading it, at least in the absence of special circumstances excusing his failure to read it. If the contract is plain and equivocal in its term he is ordinarily bound thereby. It is the duty of every contracting party to learn and know its contents before he signs and delivers it. He owes this duty to the other party to the contract, because the latter may, and probably will, pay his money and shape his action in reliance upon the agreement. To permit a party, when sued on a written contract, to admit that he signed it but to deny that it expresses the agreement he made, or to allow him to admit that he signed it but did not read it or know its stipulations, would absolutely destroy the value of all contracts. The purpose of the rule is to give stability to written agreements, and to remove the temptation and possibility of perjury, which would be afforded if parol evidence was admissible. This rule has been carried to the extent of holding that, in the absence of fraud, or circumstances savoring of fraud, one entering into a contract which refers for some of its term to an extraneous document, outside of the contract proper, is bound also thereby, notwithstanding the fact that he omits to inform himself as to the contents of that document or the nature of those terms and conditions, when it was possible for him to have done so. The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable person to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do so, and his failure to obtain a reading and explanation of it is such gross negligence as will stop him from avoiding it on the ground that he was ignorant of its contents," As to respondents' counterclaim, for lack of sufficient evidence the same should be, as it is hereby DENIED. But while this Hearing Officer exonerates the herein respondent Corporation from any liability in the trading of complainants' account on the Commodity Futures Market, respondent should, however, be held liable for employing the services of Mr. Simplicio Estrella and Alfie Dumanlig, both unlicensed commodity future traders/salesmen, in soliciting the investment of herein complainant under the express provision of Rule 21 of the Revised Rules on Commodity Futures, 1982. Let a copy of this decision, be furnished the Brokers and Exchange Department of this Commission for information and appropriate action. WHEREFORE, the above-entitled case as well as respondent's counterclaim are hereby dismissed for lack of merit. LexLib SO ORDERED. (SGD.) ANTONIO ESTEVES Hearing Officer