Citibank, N.A. v. Pua

FIRST DIVISION

[G.R. No. 234728. April 23, 2018.]

CITIBANK, N.A., petitioner,vs. JOSE U. PUA AND BENJAMIN HANBEN U. PUA, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution datedApril 23, 2018which reads as follows:

"G.R. No. 234728 — Citibank, N.A. vs. Jose U. Pua and Benjamin Hanben U. Pua

Before Us is a Petition for Review on Certiorari 1 over the Decision 2 dated March 27, 2017 and Resolution 3 dated October 5, 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 104053, which affirmed the Decision 4 dated October 8, 2014 of the Regional Trial Court (RTC) of Cauayan City, Isabela, Branch 19 in Civil Case No. 19-1159, declaring the sale to Jose U. Pua (Jose) and Benjamin Hanben U. Pua (respondents) of three sets of unregistered securities and the corresponding subscription agreements void ab initio.

Factual Antecedents

At a function organized by Citibank, N.A.'s (petitioner) Binondo Branch (Binondo Branch) for its selected clients, respondent Jose was introduced by Binondo Branch Manager, Angelina Guada Ang (Ang), to Ching Yee Yau (Yau), an officer of petitioner's Hong Kong Branch (Hong Kong Branch). Subsequently, Ang and another employee of the Binondo Branch were able to persuade respondents to meet Yau at their office where Yau offered to them investment products of the Hong Kong Branch. Thereafter, on three separate occasions, Yau offered and sold to respondents, securities issued by public limited companies established in Jersey, Channel Islands. Petitioner assured respondents that the securities were investment grade. 5

As a precondition to the sale, respondents opened an account with the Hong Kong Branch (bank account). Jose was also required to sign an undated document known as the Terms and Conditions for Credit Services-Individual. 6 AaCTcI

Respondents averred that petitioner then made it appear that they obtained loans from the bank and used these loans and the cash in Jose's bank account to pay unto itself the purchase price of the first two subscriptions. The last subscription was fully paid with money from respondents' bank account. 7

The subscriptions and the payments made therefor are as follows: 8

 

Date of Sale	Security	Issuer	Issue Price	Guaranteed Annual Interest	Payments
Loan	Account Debit
July 29, 1999	"Aeries II" Notes	Aeries Finance Ltd.	US$500,000	LIBOR 9 rate plus 1%	US$300,000	US$200,000
02/28/00	"Ceres II" Income Notes	Ceres II Finance Ltd.	US$1Million	LIBOR rate plus 3.25%	US$650,000	US$350,000
May 25, 2001	"Palmyra" Senior Subordinated Notes and Income Notes	Palmyra Funding Ltd.	US$500,000	LIBOR rate plus 2.75%	-	US$500,000

 

According to respondents, all papers for the opening of the bank account, the Subscription Agreements and all related documents were completed and executed in the Binondo Branch, with full knowledge of its officers who told Jose that any bank employee who could refer a securities buyer would earn a commission. 10

Respondents later discovered that the aforesaid securities, the Subscription Agreements and the "Terms and Conditions for Credit Services-Individual" were not registered with the Securities and Exchange Commission (SEC), in violation of the Securities Regulation Code. Respondents also averred that the securities turned out to be worthless, and despite their demands, petitioner refused to credit the money previously debited from their bank account and to release US$309,723.59 from their Time Deposit Account with the Hong Kong Branch. 11 Consequently, on December 2, 2002, they filed a Complaint for Declaration of Nullity of Contracts and Sums of Money with Damages against petitioner. 12

Petitioner moved to dismiss the Complaint for failure to state a cause of action, pari delicto, forum non conveniens and improper venue. When the RTC denied the motion, petitioner filed its Answer ad cautelam but assailed the RTC's denial before the CA. Trial ensued but was suspended in 2007 when the CA dismissed the complaint. 13 The case was later reinstated by this Court in 2013. 14

After presenting only the testimony of their trial lawyer on the latter's attorney's fees and the deposition upon oral examination of its Country Counsel, petitioner was deemed to have lost its chance to present further evidence for failing to produce additional evidence despite several settings. 15

The RTC Decision

WHEREFORE, judgment is hereby rendered in favor of the [respondents] and against the [petitioner] declaring the subscription agreements and sale to [respondents] of the three unregistered securities namely, Aeries II of AERIES FINANCE II LTD., Ceres II of CERES II FINANCE LTD. and Palmyra of PALMYRA FUNDING LIMITED, as null and void ab initio for being contrary to law and/or public policy. The [petitioner] is hereby ordered to pay the [respondents] the following:

1. On the first cause of action, the sum of US$200,000.00 plus legal interest from July 29, 1999 until fully paid.

2. On the second cause of action, the sum of US$350,000.00 plus legal interest from February 28, 2000 until fully paid.

3. On the third cause of action, the sum of US$500,000.00 with legal interest from May 25, 2001 until fully paid, plus the amount of US$1,000,000.00 as damages as authorized by Section 63 of R.A. [No.] 8799 otherwise known as the Securities Regulation Code;

4. On the fourth cause of action, the amount of US$309,725.59 plus interests of twelve (12%) percent per annum from October 8, 2002 until June 30, 2013, and 6% percent per annum beginning July 1, 2013 until fully paid.

5. [Petitioner] is further ordered to pay the [respondents] the amount equivalent to thirty (30%) percent of all the foregoing amounts as attorney's fees and to pay the costs of suit.

SO ORDERED. 16

The CA dismissed petitioner's appeal and affirmed the RTC decision with the modification that the award of attorney's fees was reduced to 10% of the sum of all the amounts awarded. 17

Ruling of the Court

The petition is without merit.

Settled is the rule that only questions of law should be raised in petitions filed under Rule 45. "This [C]ourt is not a trier of facts." 18 "Factual findings of trial courts, especially when affirmed by the [CA], as in this case, are binding on the Supreme Court." 19 None of the exceptions to this rule apply in this case.

Contrary to petitioner's claim, it was not denied due process. Records show that petitioner was given every opportunity to present its case. Petitioner was granted a 15-day extension to file a responsive pleading. When its Motion to Dismiss was denied, it was granted a 30-day extension to file its Answer.

There was a total of 14 scheduled hearings during which petitioner could have presented its evidence. Despite these settings, spanning a period of nine years from 2006 to 2014, petitioner was able to present only the testimony of its counsel of record, who testified on its attorney's fees, and the deposition upon oral examination of its Country Counsel, both in 2014. Scheduled hearings were cancelled on petitioner's motion because its counsel was not ready for trial or had a trip abroad, or because it sought appellate review of the denial of its motion to dismiss albeit no injunction or restraining order had been issued by the appellate court. The RTC showed leniency and allowed the resetting of hearings even over respondents' vigorous objections.

That petitioner was allegedly preparing notices to take the deposition of its other witnesses and making arrangements for the deposition-taking, will not excuse its lapses. Petitioner had more than a decade since it filed its Answer in 2003 to prepare for any deposition-taking but it chose to make arrangements only in 2014. Note that under Rule 23 of the Rules of Court, deposition upon oral examination may be taken even without leave of court after the answer has been filed. 20 Furthermore, at the pre-trial of the case in 2004, the parties already agreed to avail the modes of discovery.

In Heirs of Pedro Pasag v. Spouses Parocha, 21 the Court held that:

[B]oth parties should obtain, gather, collate, and list all their respective pieces of evidence — whether testimonial, documentary, or object — even prior to the preliminary conference before the clerk of court or at the latest before the scheduled pre-trial conference. Otherwise, pieces of evidence not identified or marked during the pre-trial proceedings are deemed waived and rendered inutile. The parties should strictly adhere to the principle of "laying one's cards on the table." x x x. 22 EcTCAD

In this case, petitioner, despite the RTC's inquiry, made no averment as to the names of its witnesses/deponents and the nature and materiality of their testimonies.

As the RTC and the CA found, petitioner indeed offered to sell and sold foreign securities to respondents in violation of Philippine securities laws.

Under Section 4 (a) 23 of Batas Pambansa Blg. 178, and Sections 8, 9 and 10 of Republic Act No. 8799, also known as the Securities Regulation Code, all securities sold or offered for sale or distribution in the Philippines must be registered, unless they are exempt from registration. 24 This is for the protection of investors as securities transactions are imbued with public interest, thus, subject to regulation. 25 As the CA found, the subject securities do not classify as exempt transactions under Philippine securities laws. 26

There is no dispute that the subject securities were not registered with the SEC. Furthermore, Justina Callangan, Director of the Corporation Finance Department of the SEC, which is tasked with processing applications for registration of securities, certified that the subject securities were not registered with the SEC. 27

The CA aptly pointed out that SEC Director Callangan testified that the instruments offered to respondents were actually securities which require prior registration before they are sold or offered for sale in the Philippines. 28

Petitioner cannot use its alleged separate personality from Citibank Hong Kong to disown its participation in the transaction. Likewise, petitioner cannot claim that the subject transactions are outside the operation of Philippine securities laws because they were allegedly perfected outside the Philippines. Petitioner's actions prior to, during and after the transactions showed that it actively participated therein. 29

Petitioner hosted the dinner party to selected clients, including Jose, for the purpose of presenting investment products from its Hong Kong Branch. It was during this function that Jose was introduced to Yau who later offered and sold to him the subject securities. After said function, petitioner's Binondo Branch Manager persuaded respondents to meet Yau at the Binondo Branch. Petitioner made use of its entire web of departments to convince and make respondents agree to the sale of the subject securities. All papers for the opening of respondents' bank account in Hong Kong and all documents related to the sale of the subject securities were prepared, accomplished and executed in petitioner's Binondo Branch. Respondents had never been to Hong Kong to seal the deal.

In executing the Subscription Agreements, petitioner even readily offered its Binondo Branch as respondents' mailing address. Evidence showed that petitioner had been aggressive in tapping potential investors from the Philippines, launching for this purpose its enhanced referral program which promises a referral pay-out of US$1,000 for each referral resulting in booked business. Through this program, petitioner provided its high net worth clients with seminars, workshops and other materials relating to wealth enhancement, and through its "Citigold Executives," it actively looked for potential buyers of investment products. 30 It was a Citigold Executive who referred respondents to Yau who then sold the subject securities to the latter with full support of the Binondo Branch. During the transactions, petitioner made it appear that all its dealings are those of Citibank as a single unit. 31

Under Article 5 of the Civil Code provides that acts executed against the provisions of mandatory or prohibitory laws shall be void except when the law itself authorizes their validity. In addition, Article 1409 32 of the Civil Code also provides that contracts expressly prohibited by law are inexistent and void from the beginning. Thus, the subject sale transactions, which are prohibited under the Philippine securities laws, are void ab initio. Accordingly, respondents should be able to recover what they had paid with legal interest. Notably, as regards the subscriptions, the assailed decision only required the recovery of amounts debited from respondents' own bank account.

Petitioner has proffered no evidence to substantiate its claim of income earned on the securities. 33 Petitioner likewise failed to adduce evidence of outstanding loans from respondents which petitioner sought to offset against respondent's US$309,723.59 Time Deposit.

Petitioner's claim of prescription was not assigned as an error in its appeal before the CA. 34 "Issues not raised in the pleadings, as opposed to ordinary appeal of criminal cases where the whole case is opened for review, are deemed waived or abandoned. Essentially, to warrant consideration on appeal, there must be discussion of the error assigned, else, the error will be deemed abandoned or waived." 35 In any event, Article 1410 of the Civil Code provides that "[t]he action or defense for the declaration of the inexistence of a contract does not prescribe."

In case of sale of unregistered securities, Section 63 of the Securities Regulation Code authorizes the award of damages in an amount not exceeding triple the amount of the transaction plus actual damages. The RTC's award of US$1Million as damages in relation to the US$500,000 Palmyra subscription is, thus, in order.

Since respondents were constrained to litigate to protect their interests, they are entitled to attorney's fees, 36 as reduced by the CA.

WHEREFORE, finding no reversible error in the Decision dated March 27, 2017 and Resolution dated October 5, 2017 of the Court of Appeals in CA-G.R. CV No. 104053, the Court AFFIRMS the same and DENIES the Petition.

SO ORDERED."SERENO, C.J., on leave.

Very truly yours,

(SGD.) LIBRADA C. BUENADeputy Division Clerk of Court

 

Footnotes

1.Rollo, pp. 11-90.

2. Penned by Associate Justice Edwin D. Sorongon, concurred in by Associate Justices Ricardo R. Rosario and Maria Filomena D. Singh; id. at 103-129.

3.Id. at 157-161.

4. Penned by Executive Judge Raul V. Babaran; id. at 2031-2052.

5.Id. at 105-106.

6.Id. at 107-108.

7.Id. at 106-107.

8.Id. at 106-107.

9. London Interbank Offered Rate.

10.Id. at 106.

11.Id. at 107-108.

12.Id. at 2031.

13.Id. at 108-109.

14.Id. at 37.

15. Id. at 109-110.

16. Id. at 2051-2052.

17. Id. at 128.

18. Pascual v. Burgos, et al., 776 Phil. 167, 182 (2016).

19. Ilao-Quianay v. Mapile, 510 Phil. 736, 744 (2005).

20. Rosete v. Lim, 523 Phil. 498, 510 (2006).

21. 550 Phil. 571 (2007).

22. Id. at 581.

23. Sec. 4. Requirement of registration of securities. — (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippine unless such securities shall have been registered and permitted to be sold as hereinafter provided.

24. SEC. 8. Requirement of Registration of Securities. —

   8.1 Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

xxx xxx xxx

   SEC. 9. Exempt Securities. —

   9.1. The requirement of registration under Subsection 8.1 shall not as a general rule apply to any of the following classes of securities:

xxx xxx xxx

   SEC. 10. Exempt Transactions. —

   10.1. The requirement of registration under Subsection 8.1. shall not apply to the sale of any security in any of the following transactions:

xxx xxx xxx

25. Abacus Securities Corp. v. Ampil, 518 Phil. 478, 482 (2006).

26. Rollo, p. 125.

27. Id. at 123.

28. Id. at 124.

29. Id. at 125.

30. Id.

31. Id. at 126.

32. Art. 1409. The following contracts are inexistent and void from the beginning:

xxx xxx xxx

   (7) Those expressly prohibited or declared void by law.

   These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

33. Rollo, pp. 81-82.

34.Id. at 111-113.

35.Steel Corp. of the Phils. v. Equitable PCI Bank, Inc. (now known as BDO Unibank, Inc.), 649 Phil. 692, 708 (2010).

36.Adriano, et al. v. Lasala, et al., 719 Phil. 408, 421 (2013).