Efren Y. Enverga vs. Kingly Commodities Traders and Multi-Resources Inc.

[SEC-SICD * CASE NO. 3554. October 2, 1992.] EFREN Y. ENVERGA , complainant , vs . KINGLY COMMODITIES TRADERS AND MULTI-RESOURCES INC. , respondent . KINGLY COMMODITIES TRADERS AND MULTI-RESOURCES, INC. , third-party complainant , vs . JESUS A. AMANSE , third-party respondent . D E C I S I O N This is an action for the nullification of a Customer's Agreement (Exh. "11") entered into by and between the complainant and respondent/third-party complainant Kingly Commodities Traders and Multi-Resources, Inc. (KINGLY for brevity) and recovery of investment and damages plus attorney's fee. In support thereof, complainant alleged, inter alia that KINGLY is a corporation duly organized and existing under Philippine laws; that sometime in August and September, 1987, in Naga City, third-party respondent Jesus A. Amanse (AMANSE, for brevity) approached and represented to complainant that he was a well-trained, experienced and authorized Investment Consultant of KINGLY: that during said period, AMANSE explained to complainant the nature of commodity futures trading and enticed the complainant to trade in which, according to him, is almost a risk-free form of investment, particularly if he will be handling and trading complainant's account; that because of that representation made by AMANSE, complainant was persuaded in investing in commodity futures so much so that in September, 1987, he put up an account in the Naga City branch of KINGLY by initially depositing the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00); that complainant later on signed a Customer's Agreement of which his copy does not bear the signature of any official or representative of KINGLY; that complainant's account which was given the number NGAE-1001 was immediately traded by AMANSE for Philippine sugar; that even when complainant's account was traded in Philippine soy beans, the same was actually traded by AMANSE; that AMANSE continued to trade complainant's account for several months; that while complainant's account was being continuously traded, AMANSE and the other officers of KINGLY in its Naga City branch advised and required complainant to put up additional margins or deposits so that all in all, complainant was able to deposit the total amount of FIVE HUNDRED SIXTEEN THOUSAND SEVEN HUNDRED FIFTY PESOS (P516,750.00); that in the course of the trading of complainant's account, he was continuously assured by AMANSE and other KINGLY officials that complainant was making profits but he was asked to put up additional margins in order to realize bigger profits; that when complainant inquired from AMANSE about his profits, he was told that he had already lost almost all of the amount he invested so that he had to put up additional margins to maintain his trading positions; that he later made efforts to find out what commodity futures was all about and he learned that it is a very risky form of investment; that he found out that AMANSE, who solicited and traded his account, is not licensed by this Commission to do so; that he is a victim of fraud, deception, misrepresentations and bad faith of KINGLY which let an untrained, inexperienced and unlicensed solicitor to solicit and trade his account; that the false representations, enticements and sales talk of KINGLY's representative, AMANSE is what caused complainant to invest in commodity futures; that KINGLY violated the Commission's Order or regulation that an investor has to be informed of the risks in futures trading thru the accomplishment of a Risk Disclosure Statement as complainant was not asked to accomplish any; that KINGLY further violated the Commission's requirement that only a licensed Investment Consultant can solicit and trade on account; that as a result of the frauds and deceits committed by KINGLY which caused complainant to be defrauded of his hard warned sayings; he suffered sleepless nights, mental anguish and wounded feelings; and, that to protect his rights and interests, complainant was constrained to hire the services of a lawyer. ADaEIH KINGLY, in its answer, denied all the material averments in the complaint and, by way of special law and affirmative defenses, alleged, among other things, that the Customer's Agreement which complainant executed is a valid agreement authorizing KINGLY to receive and/or execute contract through duly established and operating commodity futures exchanges/markets in conformity with the Rules for Commodity Trading that is incorporated in the Customer's Agreement; that complainant likewise signed a "Risk Disclosure Statement" acknowledged to have been read and understood by him, which informs the latter that risk of loss in commodity futures trading can be substantial and that he can incur total, loss of margin fund or may even incur a trade deficit/overloss due to adverse market condition; that complainant's account was actually handled by Violeta Concepcion, a licensed Investment Consultant, who signed as witness in the Customer's Agreement, whose name appears as the staff-in-charge in the instructions of sale and purchase, and who received all the deposits made by complainant; that complainant was properly advised and made aware of the mechanic, intricacies and technicalities of commodity futures trading before the actual execution of the Customer's Agreement and during the more than six (6) months that he was trading in futures contracts; that during the same period, complainant was properly included in all his transactions before and after its execution; that all his transactions were confirmed by Sales Reports and/or Purchase Reports together with a Trading Balance Sheet which clearly indicates the transactions made in the complainant's account and the resulting profit or loss in the transaction; that these documents are delivered to the complainant not later than the day immediately following the transaction date; that KINGLY has not committed any deception fraud, misrepresentation or any illegal act of all his transactions; that there was full and proper disclosure of all material matter concerning the trading account and transactions of the complainant; that under paragraph 9 of the Customer's Agreement, all reports of execution of orders and statements of account will be conclusive if not objected to within three (3) days from receipt thereof; that same provision is also clearly annotated in the Purchase and Sales Report which were delivered to the complainant immediately after the execution of each every transaction; that complainant never made any objection in any of the transactions within the same period of three (3) days; that the instant complaint was initiated by the complaint one year after his last transaction date; that AMANSE perjured when he declared in his affidavit that he solicited the account of complainant, that he traded the same and that he was not duly informed by the management of KINGLY that prior license was required by the Commission; that on the contrary, AMANSE was never designated by KINGLY as one of its Investment Consultants because he did not possess a license from the Commission to act as such; that because of this lack of qualification, AMANSE was never authorized to directly solicit for customers nor handle accounts of any customer much more, to trade the same since trading is a prerogative of customers; that AMANSE used to be a trainee assigned to learn from and help Violeta Concepcion prior to taking the Commission's Licensure Examination; that it is emphasized upon all trainees during their training program that they have to pass the Commission's Licensure Examination for sales advisor; that as a result of the various transactions entered into by complainant, he incurred a trade deficit/overloss (debit balance) in the amount of P55,440.00 which he is obligated to reimburse to KINGLY in accordance with the Customer's Agreement; that as a consequence of the malicious, unwarranted and oppressive manner by which complainant filed the present action, KINGLY suffered actual and moral damages and was constrained to engaged the services of counsel; and, that in order to set an example for public good and against the act of complainant in filing an unjustified, baseless, groundless and malicious complaint to the damage and prejudice of the good name of KINGLY, complainant should be made to pay KINGLY exemplary damages. In its third-party complaint, KINGLY averred, among other things, that AMANSE was a former marketing trainee of KINGLY; that as part of his training, AMANSE attended a commodity futures seminar that is regularly given by KINGLY to all marketing trainees; that in said seminar, the nature, mechanics, technicalities, intricacies, opportunities, risks and otter aspects of commodity futures are thoroughly discussed; that among the matters learned by all trainees, including AMANSE, were the following, to wit: 1. To be able to perform the duties of an investment consultant, a person has to pass the licensure examination given by the Commission; 2. The training program which is composed of a teach-in seminar and practical exercises is simply to provide the trainees with the necessary skills and knowledge to prepare them for the said licensure examination; 3. Trainees are only allowed to do purely clerical functions but are prohibited from actively performing duties that are exclusive to duly licensed investment consultants; 4. Commodity futures is not risk free; and, 5. Due to high risks involved in commodity futures, profits can never be assured by a licensed investment consultant. that being simply a trainee, AMANSE knew that he could not handle a customer's account and make any kind of representation particularly in claiming that futures trading is safe and risk free; that any representation that AMANSE made to herein complainant was made in his own personal capacity and not as trainee of KINGLY and without the knowledge and consent of the latter; that AMANSE alone should be made accountable and liable to complainant in the event it is proven that he in fact committed the acts or omissions complained of by complainant; For his part, AMANSE allege inter alia, that KINGLY allowed and required him and other persons who were all unlicensed by the Commission to solicit and trade commodity futures account in the Bicol region; that KINGLY relied on Bicolanos like AMANSE to do the solicitation because it has only two officials who were licensed by the Commission but they were not from the Bicol region; hence, they could not solicit futures accounts from people who they did not know; and, that the third-party complaint was filed to harass and prevent AMANSE from testifying or telling the truth in the instant case. At the preliminary conference of this case held on October 13, 1989, the parties had agreed on several issues to be resolved by this Hearing Officer. Said issues, can very well be summarized as follows: AcaEDC 1. Whether or not KINGLY and/or AMANSE committed fraud and misrepresentation in securing or inducing complainant to engage in commodity futures trading and in trading complainant's account in the commodity futures market; 2. Whether or not KINGLY required and allowed unlicensed investment consultant, particularly AMANSE, to solicit and trade commodity futures accounts in the Bicol region, particularly that of the complainant and, if so, whether or not KINGLY committed fraud in allowing AMANSE to trade complainant's account in the commodity futures market; and, 3. Who is entitled to the claim for damages and attorney's fees? As culled from the records and the evidence presented by the parties, it appears that AMANSE was employed by KINGLY as a trainee investment consultant from September 5, 1987 up to March, 1988. (TSN, Nov. 8, 1989, pp. 4-5; TSN, Nov. 9, 1989, pp. 21-23). One of the specific duties which KINGLY required AMANSE to do was to solicit clients (TSN, Nov. 8, 1989, pp. 11-16; See also -Exh. "A") Hence, right after he was employed by KINGLY, AMANSE who has not taken any licensure examination given by the Commission for investment consultants (TSN, Nov. 9, 1989, p. 58) and was, therefore, unlicensed, (TSN, Nov. 8, 1989, pp. 5-6) approached complainant and invited and solicited the latter to invest in commodity futures (TSN, Nov. 8, 1989, pp. 22-23; TSN, Nov. 13, 1989, pp. 6-7). Thus, on September 7, 1987, complainant entered into a contract and signed a Customer's Agreement involving commodity futures with KINGLY (Exh. "11"). Thereafter, the complainant made an initial margin deposit of P100,000.00 (TSN, Nov. 13, 1989, pp. 7-8; See also Exh. "3" and Margin Receipt No. 0042 which is supposed to have been marked as "Exh. "O"). After the initial margin deposit of P100,000.00 had been paid by the complainant, AMANSE started to trade complainant's account and had, in fact, traded complainant's account for several times. (TSN, Nov. 8, 1989, pp. 29-41; TSN, Nov. 9, 1989, pp. 3-9; TSN, Nov. 13, 1989, pp. 14-16; See also Exhs. "D" to "N"). In the course of his trading with KINGLY, complainant had deposited the amount of P516,750.00 (TSN, Nov. 13, 1989, pp. 22-23; Exh. "P") of which P392,910.00 thereof was evidenced by margin receipts (Exhs. "3", "4", "5" ,"6", "7", "8", "9" and "0") and acknowledged by KINGLY as shown on page 2 of the latter's formal offer of evidence filed before this Commission on January 4, 1991. Based from the foregoing, it is very clear that AMANSE had violated Rule 19 of the Rules and Regulations Governing Commodity Futures Exchanges, Futures Commission Merchants, Floor Brokers, Commodity Futures Associations, Commodity Pool Operators and Commodity Advisors issued and promulgated by the Commission on June 30, 1980 as revised, and is, therefore, guilty of fraud and misrepresentation in securing and inducing complainant to engage in commodity futures trading and in trading complainant's account in the commodity futures market which would warrant the nullification of the Customer's Agreement (Exh "11"). KINGLY is equally guilty of fraud and misrepresentation for having violated said rule by permitting or allowing AMANSE, who was not a licensed investment consultant (TSN, Nov. 9, 1989, p. 58; TSN, Nov. 8, 1989, pp. 5-6) to solicit and induce complainant to engage in commodity futures trading and in trading complainant's account in the commodity futures market. Rule 19 of the Rules and Regulations Governing Commodity Futures Exchanges, Futures Commission Merchants, Floor Brokers, Commodity Futures Associations, Commodity Pool Operators and Commodity Advisors expressly provides: "It shall be unlawful for any person to be associated with any futures commission merchant or with any agent of a 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 registered with the Commission and such registration shall not have expired nor been suspended or revoked, and it shall be unlawful for any futures commission merchant or any agent of a futures commission merchant to knowingly permit such a person to become or remain associated with him in any such capacity." A similar provision is found in Section 20 and 28 of the Revised Rules and Regulations on Commodity Futures Trading promulgated by the Commission on December 15, 1987 which states: "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 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. . . . . "SECTION 28. Prohibited Acts . It shall be unlawful for any person to engage in any futures transaction, or solicit, accept order, or act as a conduit without being duly authorized by either the SEC or the commodity futures exchanges under the existing rules." AMANSE's acts of soliciting and trading complainant's account despite the fact that he was not a licensed investment consultant is of serious concern that the Commission, in its desire to protect the investing public, had caused to insertion of the provisions that "All contracts traded by any unlicensed salesman of said Registrant shall be considered null and void". In KINGLY's Renewal of License as Commodity Futures Commission Merchant/Broker issued by the Commission on December 29, 1987. Likewise, Article 1390 and 1338 of the Civil Code of the Philippines (Civil Code, for short) provide: TcSAaH "ARTICLE 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: xxx xxx xxx (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud ." (Emphasis supplied) "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." Otherwise stated, in order that the fraud may vitiate consent and be a cause for annulment of a contract, the following requisites must concur: 1. It must have been employed by one contracting party upon the other (Articles 1342 and 1344, Civil Code); 2. It must have induced the other party to enter into the contract (Art. 1338, id.); 3. It must have been serious (Art. 1344; id); and, 4. It must have resulted in damage or injury to the party seeking annulment (Butte vs. Ong Sui Niu (C.A.), 51 Off. Gaz. 5704, Nov., 1955) It must be noted that had it not been for the enticement employed by AMANSE, the complainant could not have invested his money in commodity futures. The same thing is true with KINGLY who had not made any effort to stop AMANSE from soliciting the complainant to invest; in commodity futures and from trading the latter's account despite its knowledge that AMANSE was not a licensed investment consultant and, therefore, not authorized to solicit or trade complainant's account. Certainly, both KINGLY and AMANSE were guilty of fraud and misrepresentation. Anent the matter of damages, this Hearing Officer believes that the Commission, through its Hearing Officers and the Commission En Banc, has the authority to hear and decide claims for damages and, if meritorious, award the same. This authority can be inferred from the provisions of Section 6 (m) of P.D. 902-A, as amended, which provides that the Commission shall possess the following powers: "To exercise such other powers as may be provided by law as well as those which implied from, or which are necessary or incidental to the carrying out of, the express powers granted to the Commission to achieve the objective and purposes of this Decree." (Emphasis supplied) To adopt a different policy will perpetuate multiplicity of suits and splitting of a single cause of action and the same will put a premium on litigation as the cost thereof will be doubled as suitors will always go to two fora to obtain complete relief, i.e., to the Commission for an administrative remedy and to the courts for their claim for damages. Besides, the Supreme Court frown upon split jurisdiction and multiplicity of suits when it held that: "The law and the courts frown upon split jurisdiction and the resultant multiplicity of actions. To paraphrase the leading case of Rheem of the Phil., Inc., et al. vs. Ferrer, et al. L-22979, January 27, 1967, . . ., to draw a tenuous jurisdiction line is to undermine stability in litigations . A piece-meal resort to one court and another gives rise to multiplicity of suits. To force the parties to shuttle from one court to another to secure full determination of their suits in a situation gravely prejudicial to the administration of justice. The time lost, the effort wasted, the anxiety augmented, additional expenses incurred, the irreparable injury to the public interest are considerations which weigh heavily against split jurisdiction ." (PCGG vs. Pea, G.R. No. L-77663, April 12, 1988). In fact, the latest trend is towards recognizing the competence of administrative and quasi-judicial bodies to award damages. This is clearly manifested from the latest ruling opinion of the Supreme Court in the case of Abacast Shipping and Management Agency, Inc. vs. NLRC, G.R. No. 81124-26, June 23, 1988, wherein the finding of the NLRC sustaining the decision of POEA to award damages in a case involving illegal dismissal was duly affirmed. Moreover, in the very recent case of Stronghold Insurance Co., Inc., vs. Court of Appeals, G.R. No. 84979, November 6, 1989, the Supreme Court held that: "To avoid multiplicity of suits, all incidents arising from the same controversy must be settled in the same court having jurisdiction of the main action. Thus, the application for damages must be filed in the court which took cognizance of the case, with due notice to the other parties. As to who should be entitled to the claim for damages, Articles 19, 20, 21 and 2176 of the Civil Code state that: "ARTICLE 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." "ARTICLE 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. "ARTICLE 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to moral, good customs or public policy shall compensate the latter for the damage. "ARTICLE 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." Considering that AMANSE and KINGLY were the ones who committed fraud and misrepresentation to the prejudice of the complainant, it is but just and proper for Amanse and Kingly, by way of actual or compensatory damages, to return the investment made by the complainant in the amount of P392,910.00 representing the uncontested amount of deposit made by the complainant plus interest thereon from the date the instant case was filed until fully paid. AECIaD With regard to the claim for moral damages, complainant testified that because of the loss of his savings, he suffered mental anguish, serious anxiety, sleepless nights and other inconveniences (TSN, November 13, 1989, p. 28) which entitled him to claim for moral damages against AMANSE and KINGLY who were the ones who caused his sufferings In addition to the moral damages and by way of example or correction for the public good, an exemplary or corrective damages should be imposed against AMANSE and KINGLY. On the claim for attorney's fees, it is but just and proper that a reasonable amount thereof should be awarded to the complainant who had engaged the services of a lawyer to protect his interest. IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered: 1. Declaring as null and void the Customer's Agreement entered into by and between complainant and Kingly Commodities Traders and Multi-Resources, Inc.; 2. Declaring as null and void all the trading transactions undertaken by JESUS A. AMANSE and Kingly Commodities Traders and Multi-Resources, Inc. or its agents in behalf of the complainant; 3. Ordering Kingly Commodities Traders and Multi-Resources, Inc. and JESUS A. AMANSE, jointly and severally, to pay the complainant the sum of P392,910.00, Philippine Currency, plus legal rate of interest from the date the instant case was filed until fully paid; and, 4. Ordering Kingly Commodities Traders and Multi-Resources, Inc. and Jesus A. Amanse, jointly and severally, to pay the complainant' the sum of P50,000.00 as moral damages, P30,000.00 as exemplary damages and P20,000.00 as attorney's fee. SO ORDERED. (SGD.) ROLANDO C. MALABONGA Hearing Officer