Mario R. Jueco, Jr. vs. C & T Global Futures, Inc., et al.

[SEC-SICD * CASE NO. 4275. November 4, 1996.] MARIO R. JUECO, JR., represented by his attorney-in-fact, RODEO R. JUECO , plaintiff, vs . C & T GLOBAL FUTURES, INC., EDANIO DE JESUS and MIGUEL LOPEZ , defendants . D E C I S I O N This is a complaint for recovery of investment and profits plus damages and attorney's fees filed by plaintiff Mario R. Jueco, Jr. against defendants C & T Global Futures, Inc. ("C & T Global Futures', for brevity), Edanio de Jesus and Miguel Lopez. In his complaint, plaintiff alleges that sometime in August 1990, defendant C & T Global through its representatives, Edanio De Jesus as Manager of C & T Global, Olongapo Branch and Miguel Lopez, an employee of C & T Global, induced him to invest in commodity, futures trading upon the following fraudulent assurances and material misrepresentations: a) For a minimum investment of P100,000.00, plaintiff is assured of earning a profit of at least P5,000.00 a week; b) Plaintiff could withdraw the investment any time, as if it were deposited in a savings account in a bank; c) There is no danger of losing the investment because it is covered by 100% insurance, not like in a bank deposit which is only insured up to P40,000.00; and d) Defendants Edanio de Jesus, Miguel Lopez and the other investment consultants of C & T Global are experts in commodity futures trading. They will manage the investment and because of their experience and expertise, the investment will surely generate profits. After believing the repeated assurances of defendants and convinced of the security of his investment, plaintiff made an initial investment of P100,000.00 on 20 August 1990. Thereafter plaintiff received a "Trading Contract and Rules of Commodity Trading" (Exhibit "B") dated 22 August 1990 and Margin Receipt No. 1072 (Exhibit "C") dated 20 August 1990. Plaintiff's investment initially earned a net profit of P2,300.00 as evidenced by Trading Balance Sheet (Exhibit "D") dated 31 August 1990. Defendants further urged plaintiff to make an additional investment of P60,000.00 to enable him to earn bigger profits. Encouraged by his earning, plaintiff invested P60,000.00 as additional capital raising his total investment to P160,000.00. This investment was evidenced by Margin Receipt No. 1093 (Exhibit "F") dated 6 September 1990. Thereafter, plaintiff received Trading Balance Sheet (Exhibit "E") dated 9 October 1990 showing that his investment made a net profit of P16,940.00. Immediately thereafter, plaintiff instructed defendants to withdraw the profits. Defendants promised to do so but reneged on said promise. Two weeks thereafter, defendants called plaintiff and informed him that his investment suffered huge losses. Plaintiff was further informed that if he wanted to recover his investment and to prevent the same from being totally lost, he should deposit the additional amount of P29,600.00. Defendants gave technical explanations which plaintiff could not understand. Since plaintiff could not raise the said amount, defendant Lopez said that plaintiff had to produce only P10,000.00 with the promise that he would return all the money invested before the end of November 1990. Hence, plaintiff delivered to defendant P10,000.00 as shown by Margin Receipt No. 1119, dated 12 November 1990 (Exhibit "G"). Despite repeated demands for the return of plaintiff's investments on account of defendants' assurances and promises, defendants to date have not returned plaintiff's investment. In answer to the complaint, defendants denied the allegations of plaintiff. Defendants insisted that plaintiff was properly appraised of the risks involved in commodity futures transactions. Plaintiff speculated in commodity futures trading and hence, subject to the risks and benefits of commodity market conditions. Likewise, being a speculator, the plaintiff is subject to the rules on commodity trading. In the case of plaintiff, the account is classified as an ordinary account which means that all trading decisions are made solely by the speculator. As a consequence of the foregoing, plaintiff cannot fault the defendants for having incurred losses. The preliminary conference hearing was set on 16 September 1992. However, due to the failure of defendants and their counsel to appear in the said hearing, they were declared as in default by the Honorable Hearing Officer Alberto P. Atas. Reception of plaintiff's evidence ex-parte was scheduled for 29 September 1992. The hearing as scheduled was postponed on account of the filing of defendants of a Motion to Lift which sought to set aside the Order declaring them "as in default" on 22 September 1992 on the ground that there was a conflict of schedule re defendant's counsel. An Order dated 28 October 1992 denied the motion of defendants for lack of merit. Defendants filed a motion for reconsideration of the above mentioned Order. On 3 December 1992, Hearing Officer Atas again denied defendants' motion for reconsideration there being no sufficient or cogent reason to warrant the reversal of the said Order. Subsequently, on 29 December 1992, defendants filed a Petition for Certiorari before the Commission En Banc praying for the annulment of the Order dated 16 September 1992 issued by Hearing Officer Atas. In its Order dated 30 July 1992, the Commission En Banc denied defendants' petition. Thereafter, defendants elevated the case to the Court of Appeals in a Petition for Certiorari on 18 August 1993 seeking annulment of the SEC's Order dated 30 July 1992 . The Seventeenth Division of the Court of Appeals in a resolution dated 31 August 1993 dismissed defendants' petition outright and the same having become final and executory on 24 September 1993, was recorded in the CA's Book of Entries of Judgments on 9 March 1994. On 19 April 1994, defendants filed an Omnibus Motion praying for the reconsideration of the CA's resolution dated 31 August 1993 and the consequent lifting of the Entry of Judgment dated 9 March 1994. The Court of Appeals gave due course to defendants' Omnibus Motion due to the fact that a copy of the CA's resolution was sent to the wrong address. However, the Eleventh Division of the CA on 8 September 1994 subsequently dismissed defendants' petition declaring as proper the Order of the SEC citing them "as in default". The defendants, through counsel, filed a motion for reconsideration with the CA dated 5 October 1994. The former Eleventh Division issued a resolution dated 7 February 1995 denying defendants' motion for reconsideration for lack of merit. The case was further elevated to the Supreme Court. The defendants, on 27 February 1995 filed a motion for extension of time to file their Petition for Review on Certiorari with the Supreme Court which was granted. However, due to the failure of the defendants to file their petition, the Court resolved to declare the case terminated and directed its Clerk of Court to inform the parties of the finality of its decision. Upon motion of plaintiff, the Honorable Commission set the case for reception of evidence on 17 June 1996. During the direct examination of plaintiffs attorney-in-fact, Rodeo R. Jueco, he reiterated the allegations mentioned in the complaint among which are: 1. For a minimum investment of P100,000.00 the plaintiff is assured of earning a profit of at least P5,000.00 a week; 2. Investment with C & T Global was better than investing in a bank; 3. The defendants assured plaintiff that they were experts in the field of commodity futures trading so there is no chance of losing the investment; 4. The investment is withdrawable anytime; 5. Plaintiff was told that he should just affix his signature on the C & T Global Contract and Rules for Commodity Trading because the notarization of the same was a mere formality so there is no need to appear before the notary public; 6. The defendants did not explain the contract to plaintiff because according to the former, the said contract was a mere formality; 7. On the basis of the false assurances and fraudulent misrepresentations of defendants, plaintiff was induced to invest his money with defendants; 8. Investments initially gained profits which plaintiff was not able to withdraw; 9. Subsequent to the said gain, plaintiff's investment suffered losses, 10. As a result of the said losses suffered by plaintiff, he was embarrassed and could not eat nor sleep; and 11. The plaintiff hired the services of a lawyer for P100,000.00 to litigate the present case. Plaintiff presented as second witness Mr. Morito Paciente who testified by confirming the following fraudulent assurances and misrepresentation by defendants' which induced him together with the plaintiff to invest with C & T Global: 1. Investing with C & T Global is better than depositing your money in a bank; 2. Investors will have 100% opportunity for profit; 3. The investment is fully insured and in the event of loss, insurance will cover for the said loss; 4. The investment is withdrawable anytime; and 5. On the basis of these assurances and guarantees, plaintiff and witness Mr. Paciente invested with defendants. Mrs. Zoraida D. Jueco, plaintiff's wife also collaborated the testimony of Rodeo R. Jueco and Morito Paciente and the allegations in the complaint. Plaintiff terminated the presentation of witnesses and formally offered his evidence on 2 September 1996. On the other hand, defendants did not present their evidence due to the Order of Default issued against them. Hence, on the basis of the foregoing facts, the following issues are material to the case: (1) whether fraud was present in the solicitation of the commodities futures contract; (2) whether plaintiff is entitled to the recovery of his investment; (3) whether plaintiff is entitled to moral and exemplary damages; and (4) whether an award of attorney's fees is proper in this case. A commodity futures contract is included in the broad definition of what constitutes securities in Batas Pambansa Blg. 178 otherwise known as the "Revised Securities Act" (RSA). Section 13 of the said law provides for civil liabilities on account of fraudulent or false representations as follows: SECTION 13. Civil liabilities arising in connection with prospectuses, communications and reports (a) Any person who xxx xxx xxx (2) offers to sells a security, whether or not exempted by the provisions of this Act, by the use of any means or instruments of transportation or communication, by means of prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements , in the light of the circumstances under which they were made, not misleading, the purchaser not knowing of such untruth or omission, and who shall fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue, in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. Exemplary damages may likewise be awarded in cases of bad faith, fraud, malevolence or wantonness ." (Emphasis Supplied) The Revised Rules on Commodity Futures ("Rules" for brevity) issued by the Securities and Exchange Commission (SEC) pursuant to Presidential Decree No. 902-A and the RSA, pertinently states: "SECTION 31. * Fraudulent Transaction . It shall be unlawful for any person authorized to engage in commodities futures to execute the following transactions which are considered fraudulent: (a) futures transaction contracts for the purpose of cheating, defrauding or deceiving any person in connection with hedging any transaction, determining price basis, or delivering any commodity futures . llcd (b) to execute cross sales if this is done outside the floor of the exchange and not in accordance with the rules of the Exchange; and (c) to bucket such order, or to fill such order by offset against the order, or orders of any other person or willfully and knowingly and without the prior consent of such person to become the buyer in respect to any selling order of such person or the seller in respect to any buying order of such person. SECTION 32. Prohibition against Commodity Trading Advisors and Pool Operators . It shall be unlawful for a trading advisor or pool operator to engage in any futures transaction which operates as a fraud or deceit upon any client or participant , or to misrepresent that he has been sponsored, endorsed, recommended or approved by the Philippine Government or any agency or office thereof." (Emphasis supplied) A commodity trading advisor is defined under Title 1, Section 1 paragraph (m) as follows: "m) commodity trading advisor shall refer to any person who, for compensation or profit, (1) is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of commodities and as to the advisability of trading in any commodity for future delivery on or subject to the rules of any contract market, or (2) who for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning commodities; except (a) any bank or trust company (b) any journalist, reporter, columnist or editor, lawyer, accountant or teacher, (c) any floor broker or futures commission merchant, (d) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees, (e) any contract market, and (f) such other persons not within the intent of this definition as the Commission may specify by rule, regulation or order; Provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession." On the other hand, Title 1, Section 1 paragraph (n) provides for the definition of a pool operator: "1) commodity pool operator' shall refer to any person engaged in a business which is of the nature of an investment trust, syndicate or similar form of enterprises, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity except those otherwise contemplated under special laws." It is evident from the foregoing that the defendants, using false assurances and fraudulent misrepresentations, induced the plaintiff to invest in seemingly risk-free endeavor only to discover that the said investment resulted to his detriment. At the guise of being duly-licensed entities, defendants assured one hundred percent (100%) return of investment and guaranteed profits with no risk of loss of capital. Defendants initially tempted plaintiff to infuse more capital in the endeavor by dangling before him "paper profits" which were never remitted to plaintiff. Contrary to the defendants' promise that the investment and profits are withdrawable anytime, the defendants' concocted all kinds of excuses to prevent the plaintiff from withdrawing his investments. These actions by defendants grossly violates the law on securities and the Rules above-mentioned. Further, in case of fraud, bad faith, malevolence or wantonness, exemplary damages may be awarded under the RSA (See Section 13). Article 2232 of the Civil Code of the Philippines likewise imposes an award of exemplary damages in contracts and quasi-contracts "if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. In a long line of cases the Supreme Court held that: "(i)n culpa contractual, moral damages may (also) be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of contract." (Necesito vs. Paras, G.R. No, L-10605, June 30, 1958, 104 Phil. 75; Rex Taxicab Co., Inc. vs. Bautista, G.R. No. L-15392, September 30, 1960, 109 Phil. 712; Panay Electric Co. vs. CA, G.R. No. L-59647, December 27, 1982, Sweet Lines, Inc. vs. Ca, G.R. No. L-46340, April 28, 1983 ; Far East Bank and Trust Co. vs. Court of Appeals, G.R. No. 108164, February 23, 1995) The Civil Code further provides: "ARTICLE 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith ." Given the factual circumstances obtaining in this case, surely the plaintiff is entitled to moral and exemplary damages. Anent the attorney's fees, the Supreme Court considered the award proper because the acts and omissions of the defendants have compelled complainant to litigate or incur expenses to protect his rights. "The law authorizes recovery of attorney's fees inter alia, where, as in this case, the defendant's act or omission has compelled the plaintiff to litigate . . . or incur expenses to protect his interest."' (Alitalia vs. Intermediate Appellate Court, G.R. No. 71929, December 4, 1990). WHEREFORE, in view of the foregoing, defendants are hereby held jointly and severally liable to pay complainant the following: 1. P170,000.00 as principal investment; 2. P16,940.00 as profit or earnings on the investment; 3. P50,000.00 as moral damages; 4. P50,000.00 as exemplary damages; 5. P50,000.00 as attorney's fees; and; 6. Cost of suit. Should the defendants be incapable of paying or shall refuse to pay all of the above amounts, let judgment be satisfied against its Cash Bond' and if unavailing, then against its Compensation Fund deposited with the Manila International Futures Exchange (MIFE). LLpr SO ORDERED. (SGD.) MARCIANO S. BACALLA, JR. Hearing Officer