Andrea De Leos vs. Onapal Philippine Commodities, Inc.

[SEC-SICD * CASE NO. 3552. October 29, 1990.] ANDREA DE LEOS , complainant , vs . ONAPAL PHILIPPINE COMMODITIES, INC. , respondent . D E C I S I O N This is an Amended Complaint which prayed that: (1) the Trading Contract be declared null and void, ab initio , so that respondent Onapal Phil. Commodities, Inc. be ordered to return the investment of complainant in the amount of Two Hundred Forty Two Thousand Seven Hundred Twenty Two (P242,722.00) PESOS, and the legal interest thereon; (2) Respondent Onapal be ordered to pay moral damages in the amount of Three Hundred Thousand (P300,000.00) PESOS; (3) Respondent Onapal be ordered to pay an Attorney's fee in the amount of Seventy Thousand (P70,000.00) PESOS, and an appearance fee of Seven Hundred (P700.00) PESOS, per hearing. In her Amended Petition, complainant alleges, that respondent Onapal Phil. Commodities, Inc. (Onapal, for short) is a corporation duly organized and existing under Philippine Laws with office address at 5th Floor, Dolmar Gold Tower Bldg., 107 Alvarado St., Legaspi Village, Makati, Metro Manila, and is engaged in the business as a commodities future broker; that sometime in January 1987 a certain Mildred Lima introduced herself to complainant as a well-trained, experienced and authorized Solicitor or Investment Consultant (I.C.) and trader in commodity futures and was employed as such by respondent Onapal; that the way Ms. Lima explained and enticed complainant to invest in futures trading, one would really be convinced to put up an account and which complainant did, owing largely to the following representations of Ms. Lima that: (a) she was an experienced trader in commodity futures and had handled several accounts before, which resulted in profits to investors; (b) she was to handle and trade complainant's account and because of her experience as a good trader, complainant was surely to earn profits; (c) futures trading is almost a risk-free form of investment; that complainant put up an account with respondent Onapal on January 20, 1987, with the signature of Ms. Lima; that complainant also deposited the initial amount of One Hundred Thousand Pesos (P 100,000.00) on the same day, wherein complainant's account was given the number 1924 under the customer's name A.D.L. (Andrea de Leos), that immediately, complainant's account was traded by Ms. Lima and when complainant asked her later on the status of her account, she was assured that she was going to make profits but had to put up additional margins or deposits so as to support complainant's trading positions; that complainant therefore put up additional deposits, as evidenced by a Deposit Notice dated February 10, 1987, with the signature of Ms. Lima, as Staff-in-Charge or Trader; that later on, because no profit was actually being given to complainant by Ms. Lima, complainant began to doubt Ms. Lima's capability as a futures trader and when complainant asked her the status of her account, Ms. Lima finally admitted that all the money complainant invested in the total amount of Two Hundred Forty Two Thousand Seven Hundred Twenty Two (P242,722.00) Pesos was already wiped out or lost; that complainant was surprised by the admission of Ms. Lima as what happened was very much different or contrary to what she represented to complainant when she was soliciting complainant's account; that complainant found out from further inquiries not from Ms. Lima, that indeed, commodity futures trading is a very risky form of investment and that a Risk Disclosure Statement should have been shown and/or given to an investor before he/she is allowed to trade; that complainant does not remember having been shown and/or given Risk Disclosure Statement before she was allowed to trade nor being clearly informed of the risks in futures trading; that further inquiries showed that Ms. Lima grossly misrepresented herself to be well-trained, experienced and authorized solicitor and/or trader because as verified, it turned out that she is not a licensed solicitor by the SEC; that in a discussion with Ms. Lima, complainant was told that it has been the practice and policy of respondent Onapal to allow, tolerate, encourage and even require its unlicensed salesmen, solicitor or investment consultant, to solicit and trade futures contracts, without properly informing them of the necessity. of a SEC license and the consequences of illegal solicitations and tradings; that clearly therefore complainant was defrauded, swindled and cheated by respondent Onapal by irresponsibly and recklessly allowing, tolerating, encouraging and even requiring an unlicensed solicitor or investment consultant in the person of Ms Lima to commit gross misrepresentation, lies, deceptions and bad faith on complainant, so that she is entitled to a return of her investment in the amount of Two Hundred Forty Two Thousand Seven Hundred Twenty Two (P242,722.00) Pesos and legal interest thereon; that as a-result of the fraud and deceit committed by respondent Onapal, which caused her to be defrauded of her hard-earned savings, complainant suffered sleepless nights, mental anguish and wounded feelings, among others, so that she should be awarded Moral damages in the amount of Three Hundred Thousand (P300,000.00) Pesos; that to prevent others similarly situated with respondent Onapal from committing bad faith, deceit and fraud, respondent should be ordered to pay exemplary damages in the amount of Two Hundred Thousand (P200,000.00) Pesos, and that to protect her rights and interest, complainant was constrained to hire the services of a lawyer for a legal fee of Seventy Thousand (P70,000.00) Pesos and as appearance fee of Seven Hundred (P700.00) Pesos per hearing. Respondent, in its Amended Answer, while admitting several paragraphs of the amended complaint, denied the other allegations therein, by disputing and taking exceptions to the complainant's claims, and avers, among others, that sometime in January 1987, Mildred Lima's neighbor, Fernando de Leos, complainant's father-in-law, inquired from her about the commodity futures trading, having learned that she is an employee of respondent Onapal; after 2 or 3 days, complainant and her father-in-law informed Mildred Lima that they want to trade commodities on one condition, which was, that she would be their sales representative in all their dealings with commodity futures. Since Ms. Lima does not have the necessary license, complainant and her father-in-law was informed that they would be referred to persons who were qualified to place such orders. However, complainant and her father-in-law were not amenable to Ms. Lima's decision as they could only entrust their money with her. This insistence is clearly reflected on the special power of attorney signed by the complainant on her account, that complainant's father-in-law having approached and inquired from her neighbor, Miss Lima, about commodity futures trading, insisted that Ms. Lima be their sole representative in all her dealings with commodity futures, therefore, there was no need for Ms. Lima to entice complainant to invest in futures trading; that complainant willingly, knowingly and voluntarily entered into a trading contract with respondent Onapal after being informed by Ms. Lima of the risks involved and the nature of the transaction; that while it is true that complainant was required to make additional margin deposit, this was in accordance with the provisions of paragraph 1 (b) of the Rules on Commodity Futures Trading Contract , and respondent maintained that it never assured complainant of profit; in fact, complainant has been fully informed of the risks involved and nature of the transactions; that complainant, in paragraph 2 of the Trading Contract, acknowledged and affirmed that she was fully aware that the risks of loss in commodity futures trading can be substantial, as complainant reaffirmed and acknowledged the attendant risk in a separate risk disclosure statement; that furthermore, complainant, under paragraph 23 of the Trading Contract, acknowledged that all orders given by them to the broker for trading in futures are made with their own judgment and that there is no assurance of any profit resulting from such commodity futures trading, that complainant's trading realized actual profit, as well as losses and written confirmation for each of these transactions were given to complainant; that while Ms. Lima, admits that she is not licensed by the SEC to trade, this fact was fully disclosed to complainant and/or her father-in-law who insisted that Ms. Lima be their sole representative in all their dealings with commodity futures; that it has never been the policy and practice of respondent Onapal to tolerate, allow, encourage and even require its unlicensed salesmen, solicitor or investment consultant, to solicit and trade futures contracts and if Mildred Lima, with respondent's consent, indeed enticed the complainant to invest in futures trading, it could have been only due to her misrepresentation that she was a licensed commodity futures broker. She has in fact misrepresented herself when she applied with Onapal as a licensed trader, having passed the SEC examination while still connected with A & A Continental Commodities, Inc.; that respondent Onapal is duly authorized to engage in commodity futures transactions and its business is being conducted legally in accordance with established business practices sanctioned by law; that on January 20, 1987 complainant and respondent Onapal had executed a trading contract and rule for commodity trading, whereby respondent Onapal was appointed by the complainant as her broker and that complainant knew that the risk of loss in trading commodity futures contract can be substantial; that on January 20, 1987 complainant also signed the Risk Disclosure Statement and executed a Special Power of Attorney in favor of Mildred Lima authorizing her to take charged of her Account No. 1924 with respondent Onapal, and in view of the Special Power of Attorney executed in favor of Mildred Lima, respondent Onapal, therefore, has been authorized by complainant to trade her account with respondent and these transactions were undertaken with the knowledge and consent of the complainant, that complainant received the Confirmation of Contract of Balance Sheet (CCBS) for each of the trading transactions of her account but she did not file any protest or objection to any of these transactions when she had all the opportunity to do so. Hence, in accordance with paragraph 18 of the Trading Contract, signed by the complainant" . . . . All executed orders shall be considered conclusive unless objected to in writing and said objections shall be addressed to the Accounting Department within three (3) days after the execution of said Order."; that while it is true that complainant was required to make additional margin deposits, this was in accordance with the provision of the Trading Contract which was signed by complainant in January 20, 1987, that respondent maintains that the trading activities relative to complainant's account were effected and consummated legally in accordance with law, rules and regulations and agreements of the parties; and that by .reason of this instant baseless, malicious and unfounded suit, respondent was compelled to litigate and to engage the services of counsel for an agreed fee of P150,000.00. During the hearings of this case, complainant presented testimonial and documentary evidence. Complainant Andrea De Leos and Mildred Lima testified and presented documentary exhibits (Exhibits "A to G", including all the submarkings therein), which were admitted by this Hearing Officer. Respondent Onapal did not present any witness, and instead, adduced only documentary evidence (Exhibits "1" to "27", including the submarkings therein). However, these evidences, except Exhibits "2" and "4" being common exhibits, were rejected, considering that the same were not properly authenticated and identified. The parties were required to file simultaneously their memoranda, but only complainant filed the same. The only primordial issue to be tackled in this case is whether or not the Trading Contract executed between complainant de Leos and respondent Onapal should be declared null and void; And Corollary thereto, whether or not complainant de Leos is entitled to the return of her investment with respondent Onapal in the amount of Two Hundred Forty Two Thousand Six Hundred Ninety Two (242,692.00) Pesos. The undisputed facts are as follows: That on January 20, 1987, complainant, through the solicitation of Mildred Lima, an employee of respondent Onapal and unlicensed solicitor, executed a Trading Contract with respondent Onapal to open up an account for the purchase and/or sale of commodity futures contract. That on the same day of the execution of the trading contract (January 20, 1987) complainant deposited the initial amount of One Hundred Thousand (P100,000.00) Pesos and was given an Account No. 1924 under the customer's initial A.D.L. (Andrea de Leos). On February 10, 1987, complainant put up an additional deposit of Six Hundred Thirty Five (P635.00) Pesos, and additional margin deposit of Twenty Eight Thousand Six Hundred Twenty Seven (P28,627) Pesos on April 28, 1987, as evidenced by the signed deposit notices, wherein Mildred Lima signed as staff-in-charge. Thereafter, complainant's investment and/or deposits were wiped out and lost. Based on the evidence presented, it is evident that the circumstances that surround the investment/deposits of complainant de Leos with respondent Onapal for the opening and maintaining futures contracts were tainted with fraud, misrepresentation and violation of the Revised Rules and Regulations on Commodity Futures Trading , which will be hereunder discussed. At. the outset, the solicitation by Mildred Lima, who was not a licensed solicitor by the SEC of complainant's investment in futures commodities with respondent Onapal is already unlawful and in violation of the Revised Rules and Regulations on Commodity Futures Trading . Mildred Lima was not an ordinary solicitor that recruits prospective investors who, thereafter, just refer all the mechanics and intricacies in investing in futures commodities to qualified and/or authorized personnel in respondent Onapal. In dealing with the investment of complainant de Leos, Mildred Lima acted as investment consultant and traded the accounts of investor de Leos with the consent of respondent Onapal as shown in Deposit Notices, wherein Lima signed the same, as Staff-in-Charge (Exh. "C-1" & "D-1") and the personal correspondence signed by Frank T.T. Shum, SVP-Marketing (Exh. "G"). Respondent Onapal should not have allowed Mildred Lima to act as solicitor and investment consultant of the complainant's investment with it, considering that Mildred Lima is not license to do so by the Securities and Exchange Commission. The act of respondent Onapal, a licensed broker, in allowing Mildred Lima to solicit and act as investment consultant without a license, is unlawful. Section 20 of the 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 customers orders (other than in a clerical capacity) or (b) the supervision of any person or persons so engaged unless such person shall have been registered/licensed by the Commission and such license shall not have expired 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) Complainant de Leos, testified that Mildred Lima, her long time friend and neighbor, encouraged her to invest in respondent Onapal because she was already well-trained, well experienced solicitor and investment consultant having been previously an investment consultant or solicitor of Kingly and A.A. Commodities (TSN, pp. 506, September 12, 1989). Complainant de Leos further testified that she invested her money because of her friendship with Mildred Lima being her long time neighbor. It is clear that Lima's misrepresentation that she is a well-trained and well-experienced solicitor and investment consultant and taking advantage of her long time friendship and neighbor of complainant de Leos, the latter was enticed to invest in futures commodities that resulted in the execution of the Trading Contract between her and respondent Onapal. Fraud was, therefore, committed in the procurement of complainant's investment with Onapal, and therefore, the Trading contract is voidable. Art. 1330 of the Civil Code of the Philippines, provides: "ARTICLE 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable." Likewise, Art. 1338 of the Civil Code of the Philippines, also provides: "ARTICLE 1338. There is fraud when through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract, which without them, he would not have agreed to ." (Emphasis Supplied) There being fraud in procuring the consent of complainant de Leos in executing the Trading Contract with respondent Onapal and that the same has not been corrected or ratified by the parties the said Trading Contract is annullable. Complainant de Leos testified that she invested with respondent Onapal the total amount of Two Hundred Forty Thousand (P240,000.00) Pesos. However, the evidence presented only showed that she initially deposited the amount of P 100,000.00; and additional marginal deposit of P635.00, on February 10, 1987 (Exh. "C"); and additional marginal deposit of P28,627.00 (Exh. "D") which were all admitted by respondent Onapal in its Amended Answer. There is no other evidence on record that will support complainant's claim of a P240,000.00 deposits/investment with respondent Onapal. Claims for return of investment/deposit in futures commodities transactions must be supported by clear and convincing proofs, otherwise such claims will fail. Complainant de Leos, likewise testified that she was asking moral damages of P300,000.00 for sleepless nights, wounded feelings, etc. exemplary damages of P200,000.00, and Attorney's fees of P70,000.00 and P700.00 per appearance from respondent Onapal. This Hearing Officer is inclined to grant complainant de Leos the return of her investment and/or deposits, as proven, from respondent Onapal. Reasonable Attorney's fees will also be awarded to complainant's counsel commensurate to his performance in handling this case. However, claims for moral and exemplary damages are hereby denied there being no sufficient proof that complainant is entitled thereto. WHEREFORE, premises considered, judgment is hereby rendered as follows: A. Declaring the Trading Contract as null and void. B. Directing respondent Onapal to return complainant's investment/deposits in the amount of One Hundred Twenty Nine Thousand and Three Hundred Sixty Two (P129,362.00) Pesos; C. Directing respondent Onapal to pay an Attorney's fee of Twenty Thousand (P20,000.00) Pesos. SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer