Amelia F. Battad vs. Onapal Phil. Commodities, Inc., et al.

[SEC-SICD * CASE NO. 3533. October 26, 1990.] AMELIA F. BATTAD , complainant , vs . ONAPAL PHIL. COMMODITIES, INC., ET AL. , respondents . D E C I S I O N This is a complaint which seeks to declare the Trading Contract null and void, ab initio so that respondents be ordered to return the investment of the complainant in the amount of One Hundred Thousand Pesos (P100,000.00), and the payment of moral and exemplary damages, including attorney's fees. Complainant, in her petition, alleged inter alia, that sometime in June, 1988, respondents, thru respondent Evelyn B. Fillon, solicited and persuaded complainant to trade in commodity futures; that when respondent Fillon solicited and persuaded to trade in commodity futures, she represented, among others, that she was qualified and authorized to solicit future contracts, that she had undergone training in futures trading and that she was knowledgeable and experienced in the business and assured complainant that if she invests in it, she will surely be earning profits; that respondent Fillon further represented to complainant that what is needed for one to invest is only Forty Thousand Pesos (P40,000.00), so that she succeeded in convincing complainant that futures trading was easily affordable even to government employee like complainant, that due to the representations of respondent Fillon, complainant issued a check to her in the amount of P40,000.00 for which respondent corporation issued an official Marginal Receipt; that later on, when complainant asked for the profits she was supposed to earn, as well as her copy of the futures contract or customer's agreement with respondent Onapal, respondent Fillon told her that complainant could not have them unless she deposited an additional amount of Sixty Thousand Pesos (P60,000.00), as the minimum original margin was One Hundred Thousand Pesos (P100,000.00); that complainant later on deposited an additional P60,000.00, but still complainant could not be issued a futures trading contract in her own name as her original deposit of P40,000.00 was supposedly used to support another customer's final obligations to respondent Onapal; that the P40,000.00 originally invested by complainant, as told by respondents, was used to support the inadequacy in the marginal deposit in the account of a certain Dr. Avenilo Aventura, under Account No. 2174 and customer's name "A, A"; that complainant continuously demanded for a trading contract and the profits she was supposedly earning and was assured that everything was going well as respondent Fillon was personally trading her accounts and profits will soon be realized; that eventually on or about July 14, 1988, complainant was asked to sign a Trading Contract wherein complainant was supposed to be the co-investor of Dr. Aventura in Account No. 2174, under Customer's Name "A. A."; that also on July 14, 1988, complainant was asked to accomplish a Risk Disclosure Statement that made her understand and realize for the first time the risk in futures trading; that on the same day of July 14, 1988, complainant demanded for the profits she had supposedly earned but was informed instead that she had to infuse additional amount in the "call margin" which margin deposit as of that date was already almost wiped out and the price per lot of coffee had already been increased retroactively; that complainant was totally shocked by what she learned because all along she was led to believe that she was earning profits but was instead told on the day she signed the contract and risk disclosure statement, that she had to infuse additional capital or nothing was left of her money; that complainant later on learned that respondent Fillon was not authorized to solicit and trade futures contract as she has not been issued a license to do so by the Securities and Exchange Commission; that complainant, therefore, was a victim of the fraudulent misrepresentation, deceit and bad faith of respondents so that she is entitled to a return of her investment in the amount of One Hundred Thousand Pesos (P100,000.00), and that as a result of the frauds and deceit committed by respondents she lost her hard-earned savings; complainant suffered sleepless nights, mental anguish and wounded feelings which will entitle her to moral and exemplary damages, including attorney's fees. Respondents, in their answer, specifically denied the allegations in the complaint, and asserted among other things, that it is not true that respondent Onapal, thru respondent Evelyn B. Fillon, solicited and persuaded complainant to trade in commodity futures sometime in June, 1988, as the truth of the matter being that respondent Fillon merely referred complainant to respondent Onapal's marketing manager during which conference complainant was briefed and oriented on the nature of commodity futures trading, the possible gains, as well as the risks attendant thereto; that respondent Fillon did not represent to complainant that she was qualified and authorized to solicit futures contract, but merely as a Researcher-Trainee of respondent Onapal; and likewise never made any assurance of sure profits to complainant because nobody can make such an assurance; that complainant did not issue a check to Fillon in the amount of P40,000.00 and that what was received by Onapal was a check for P40,000.00 for Account No. 2174 which was registered under the name of Dr. Avenilo Aventura with the corresponding Official Margin Receipt No. 10129 dated June 13, 1988 under customer's name "A.A", the standing initial of the registered owner Avenilo Aventura; and that insofar as Onapal is concerned, complainant was never a customer of the company; that Onapal has no knowledge or any participation or involvement by complainant in Account No. 2174; that the total sum of P80,000.00 clearly show that the same was received as deposit for Account No. 2174 under the Customer's name "A.A." which stands for the initials of Dr. Avenilo Aventura; that respondent Onapal did not issue any customer's agreement or Trading Contract to complainant since she failed to deposit the minimum margin requirement and consequently was never considered a customer of the company; that respondent Onapal was not aware of the circumstances as to how and when the P40,000.00 deposit being claimed by complainant on Account No. 2174 was made; that Onapal never received any verbal or written demand from complainant for a Trading Contract profits nor was there any assurance made as alleged, complainant not being a customer of the company; that respondent Onapal did not ask complainant to sign a Trading Contract and Disclosure Statement, but rather Onapal received on July 14, 1988, a Trading Contract and Disclosure Statement already signed by complainant and Dr. Aventura for processing which respondent refused to accept for the reason that complainant never made any deposit and has failed to comply with the required minimum margin requirement and could not therefore be considered a customer; that complainant was shown and explained to her the copy of the disclosure Statement together with a copy of the Trading Contract during the conference she had before with Onapal's Marketing Manager; that complainant never demanded for profits from respondent Onapal, whether verbal or written; that complainant's deposits of P40,000.00 and P60,000.00 were made to Account No. 2174 registered in the name of Dr. Aventura and that complainant was never a customer of respondent Onapal, and that as far as respondent Onapal is concerned, it had only one customer under Account No. 2174, who is Dr. Aventura only; and that respondent Onapal is duly authorized to engage in the business, as broker of commodity futures and its business is being conducted legally in accordance with established business practices. During the hearings of this case, the parties presented both testimonial and documentary evidences. Complainant Amelia Battad and her husband Pacifico Battad testified in said hearing. For the respondents, only Felicitas Villamin was presented as a witness. The primordial issues that should be resolved in this case are the following: 1. Whether or not the Trading Contract entered into between complainant Amelia F. Battad and Onapal Phil. Commodities, Inc. is considered null and void; and, 2. Corollary thereto, whether or not complainant Battad is entitled to the return of her investment with Onapal under the said contract. The undisputed facts in this case are as follows: Complainant Amelia F. Battad, upon the solicitation of respondent Evelyn B. Fillon, a Researcher-Trainee of respondent Onapal Phil. Commodities, Inc. (Onapal, for short), which solicitation started since June, 1988, invested to trade in commodity futures with respondent Onapal, a corporation duly engaged in trading commodity futures. Even before the signing of the Trading Contract for the opening and maintaining futures accounts for the purchase of commodity futures with respondent Onapal, Mrs. Battad, through the persuasion and prodding of respondent Fillon, issued an allied Bank's check (No. 10129) in the amount of P40,000.00 to Evelyn Fillon on June 13, 1988 as her deposit/investment to the proposed future commodities contracts, which was acknowledged to have been received by respondent Onapal through the Official Marginal Receipt No. 10129 under the Customer's Name "A.A." (Exh. "A."). On June 29, 1988, complainant Battad made an additional deposit of P60,000.00 upon request of respondent Fillon, which was acknowledged by respondent Onapal through the issuance of the Official Marginal Receipt No. 10256 under the Customer's Name "A.A." (Exh. "B"). On July 14, 1988, a Trading Contract was executed between complainant Battad and respondent Onapal (Exh. "C"). On the same day (July 14, 1988), complainant, was also shown and given a copy of a Risk Disclosure Statement by respondent Onapal (Exh. "D"). Based on the evidence presented, it can be clearly established that circumstances surrounding complainant Battad's investment with respondent Onapal has been tainted with fraud, misrepresentation and violations of the Securities and Exchange Commission's Revised Rules and Regulations on Commodity Futures Trading . At the outset, respondent Fillon's solicitation of complainant Battad, her sister-in-law, to invest in futures commodities with respondent Onapal is unlawful and illegal. Respondent Fillon, a Researcher-Trainee of respondent Onapal cannot solicit and/or entreat investment in futures commodities, not being a licensed solicitor by the SEC. Thus, Section 20, Revised Rules and Regulations on Commodity Futures Trading , provides: "SECTION 20 . Licensing of person 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 or performing similar functions) in any capacity which involves (a) the solicitation or acceptance of customer's orders (Other than in a clerical capacity) or (b) by the supervision of any person or persons engaged unless such person shall have been registered/licensed by the Commission and such license shall not have been 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 . . . . " (Emphasis Supplied) Corollary thereto, the Commission has forewarned respondent Onapal that all transactions and/or contracts traded by an unlicensed salesman of respondent Onapal shall be considered null and void (No. 17, Terms and Conditions of the Renewal of License of Onapal Phil. Commodities, Inc., as Commodity Futures Commission/Broker, issued by SEC on January 7, 1988). Chronological events from the time complainant made the P40,000.00 and, thereafter the P60,000.00 deposits, which respondent Onapal have acknowledged under Marginal Receipt Nos. 10129 dated June 13, 1988, and June 29, 1988, respectively under the name A.A.(AVELINO AVENTURA) to the actual execution of the Trading Contract and the issuance of the Risk Disclosure Statement on July 14, 1988 will really show that the transactions were not done legally for the complainant. LibLex Respondent Onapal's acceptance of the complainant's initial deposit and/or payment of P40,000.00 for her investment before the execution of the Trading Contract and the issuance of the Risk Disclosure is in itself a violation of the Revised Rules and Regulations on Commodity Futures Trading . Thus, Section 26, of the Revised Rules and Regulations on Commodity Futures Trading, provides: "SECTION 26 . Initial and Maintenance . There must be an initial deposit of not less than P100,000 . 00 to open an account before any customer can place an order . If the customer losses, he can be allowed to continue trading provided that his remaining deposit is not less than P50,000.00, otherwise he must put an additional money to bring his deposit up to P50,000.00". (Emphasis Supplied). The foregoing minimum requirement is even embodied in condition No. 3 of the Trading Contract, which states: "3. It is imperative and considered as the essence of this contract that the customer shall at all times maintain without any call or notice, the minimum margin and other funds. . . ." (Emphasis supplied) The subsequent additional deposit of P60,000.00 by complainant Battad to make her total deposit of P100,000.00 and the subsequent execution thereof of the Trading Contract does not cure the defect of the minimum requirement provided by the Rules and Provision of the contract. Besides, it appears that her total investment of P100,000.00 under the customer's name "A.A." up to the time when she finally executed the Trading Contract was already totally wiped out. But the intriguing question that explained the irregularity of complainant's investment with respondent Onapal was the fact that when she deposited initially her P40,000.00 and subsequently P60,000.00, respondent Onapal acknowledged the said deposits and/or investments in the name of "A .A". (Avelino Ventura), under Account No. 2174. Complainant testified that she never knew Avenilo Aventura (TSN p 9, September 12, 1989). This fact gave credence to complainant's arguments that her deposits were used by respondent Onapal to support another customer's obligation (AA's obligation) with Onapal. Probably, to correct the infirmity, respondent Onapal later on issued the Trading Contract on July 14, 1988, and presented to complainant through respondent Fillon, for which complainant signed the same on even date. Complainant testified that when she signed the Trading Contract, there was yet no other signatures but when the said contract was returned to her three (3) days after, she already noticed the appearance of the signature of Avenilo Aventura, and she did not ask anymore question from Evelyn Fillon because she was always in a hurry when she comes home. (TSN, pp. 7-8, September 12, 1989) This convolution of events that transpired regarding the complainant's investment with respondent Onapal will undoubtedly prove and support complainant's argument that her investment/deposits were used by respondent Onapal to support another customer's obligation., i.e.. AA's (Avenilo Aventura) Account No. 2174 with Onapal. prcd While respondent Onapal argued that complainant was never a customer of Onapal and that insofar as the latter is concerned it only had one customer under Account No. 2174, who is Avenilo Aventura, the evidence, however? presented proved otherwise, as shown in the Trading Contract signed by both complainant Battad and Avenilo Aventura on July 14, 1988 (Exhibit "CS"). On one hand, respondent Onapal cannot claim that complainant Battad is not a customer and claim, on the other hand, that it is only Avenilo Aventura, who is its own customer under Account No. 2174, when the fact of the matter appears that both parties signed the Trading Contract that makes both of them customers of respondent Onapal. It can even be safely presumed, that complainant's total lost investment of P100,000.00 was the only deposit that supports Account No. 2174, considering that no evidence was presented as to the amount deposited by Avenilo Aventura. It is to be noted, likewise, that the procedure followed by respondent Onapal in the solicitation, realization and accomplishment of the investment of the complainant was highly irregular and anomalous. It is always a basic and fundamental requirement of a broker, like respondent Onapal, that before a client is allowed/made to invest in future commodities, he or she should first be required to sign a Trading Contract and accomplish a Risk Disclosure Statement. These requirements should be considered a condition sine qua non considering the high risk involved in investing future commodities contracts. These will make the investing public aware of the highly technical nature of the business and highly risky investment in future commodity trading. Respondent Onapal even before the execution of the Trading Contract and the accomplishment by the complainant of the Risk Disclosure Statement both on July 14, 1988, respondent had already accepted complainant's deposit of P40,000.00 and P60,000.00 on June 13, 1988 and June 29, 1988, respectively, which appeared to have already been wiped out at the time when the trading contract was executed and the Risk Disclosure was accomplished on July 14, 1988. This practice should be stopped in order to regain the respect, trust and confidence of the investing public in the business of trading future commodities. Complainant Battad testified that because of respondent Onapal's violation of the SEC Regulations in allowing an unlicensed solicitor (respondent Fillon) to solicit future commodities contracts and by using her investment to support the account of another customer (Avenilo Aventura) that caused the total loss of her investment of P100,000.00, she was asking for the return of the said amount with moral damages in the amount of P300,000.00 on the ground that she suffered sleepless nights, nervous breakdown, wounded feelings and even mental torture. She was also asking for exemplary damages of P100,000.00 and Attorney's fees of P40,000.00 and P700.00 per hearing for the services of her lawyer in protecting her right and interest. This Hearing Officer is inclined to grant the return of her total investment with respondent Onapal considering that the amount represents the actual or compensatory damages recoverable as a result of the pecuniary loss of her investment. Reasonable Attorney's fees will also be granted commensurate to her counsel's performance in handling this case. However, complainant's claims for moral and exemplary damages cannot be considered, there being no clear convincing proofs that complainant is entitled thereto. llcd WHEREFORE, premises considered, judgment is hereby rendered as follows: A) Declaring the Trading Contract dated July 14, 1988 null and void; B) Directing respondent Onapal to return to complainant Amelia F. Battad her deposit/investment of P100,000.00; and C) Directing respondent Onapal to pay an Attorney's fee of P20,000.00. SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer